We write to you about a number of important events that may affect you and/or your business.
THIS NEWSLETTER IS WORTH READING.
Coronavirus is affecting all of us at this time and may so for some months. The impact maybe devastating for some Australian businesses and accordingly the Government has announced a $17.6 billion investment package to support the economy as we brace for the impact of the coronavirus and is currently considering a further package.
These measures are only available for a limited time and have the potential to provide significant cash flow opportunities to small businesses in the short term it is important you put your plans in place now. Action needs to be taken immediately an assessment needs to be made whether you qualify for these measures and potential planning done. Please ring us now to consider your tax situation and what action is required.
FIRSTLY PLAN AHEAD
Business continuity planning is essential as it will strengthen your business. It could be months before the virus reaches its peak and an effective vaccine in the short-term. Despite a much better result than predicted in Australia’s December GDP figures with growth at 0.5%, Australia’s economy will be severely impacted. Clever ideas can be put in place to restructure your business to weather this situation.
Protecting your business
There are practical steps businesses should implement into their business plan. Some businesses make the mistake of not responding at all while others make too drastic a change.
An appropriate reaction might be to reassess stock levels, defer capital Investments or new ventures. But it might be an over-reaction to dismiss staff. The labour force is critical to our businesses and the economy when a better idea might be to reduce their hours.
A contingency business plan should be set in place with a review of your business: ie customers/clients, products, supply chain, employee and debt structure and very importantly a cash-flow should be done. Please don’t hesitate to contact us to assist with this.
It is important to have a cash reserve or debt facility to see you though at least three months. Cash-flow is critical in a crisis so it should form a central part of the recovery business contingency plan. Work on your debtors now.
Protecting your workplace and your customers
Protecting your employees and customers from the risk of infection is essential. Businesses should have a written policy to assure customers and employees that the correct protocols are in place. It could be as simple as distributing the Health Department’s guidance and reviewing insurances for staff required to travel.
Fair Work Australia notes that, “The Fair Work Act does not have specific rules for these kinds of situations so employees and employers need to come to their own arrangement.” If an employee is impacted and needs to be isolated, and cannot work from home effectively, then the time will generally be taken as paid or unpaid personal leave.
THE BUSINESS STIMULUS PACKAGE
The yet to be legislated four part package focuses on business investment, sustaining employers and driving cash into the economy.
For business
- Business investment
- Increase and extension of the instant asset write-off
- Accelerated depreciation deductions
- Cash flow assistance for small and medium sized business
- Tax-free payments up to $25,000 for employers
- Wage subsidy of up to 50% of an apprentice or trainee wage
- Targeted support for severely affected sectors, regions and communities
For individuals
- Household stimulus payments to drive cash into the economy
- Tax-free $750 payment to social welfare recipients
Parliament sits on 23 March. The Prime Minister has stated, “we have no plans to change the parliamentary sitting schedule.”
Here’s what we know so far:
For Businesses
Increase and extension of the instant asset write-off (available to 30/6/2020)
From 12 March 2020, the instant asset write-off threshold will
increase from $30,000 to $150,000, and access to the write-off will be expanded
to include businesses with aggregated annual turnover of less than $500 million
until 30 June 2020.
The instant asset write-off is a tax deduction that reduces the tax liability
of your business. It enables your business to claim an upfront deduction for
depreciating assets in the year the asset was purchased and used (or installed
ready to use). For example, if your business is a base rate entity (turnover
under $50m) in a company structure you will get back 27.5% in your 2019-20
company return if the company acquires an asset that is used by 30 June 2020.
If your business is likely to make a tax loss for the year, then the instant
asset write-off is unlikely to provide a short-term benefit to you.
This is the fourth increase or extension to the instant asset write-off and
businesses will need to be wary of what they are claiming and when:
| Instant asset write-off thresholds | Small Business* | Medium business** | Large business*** |
| 1 July 2018 – 28 Jan 2019 | $20,000 | – | – |
| 29 January – 2 April 2019 | $25,000 | – | – |
| 2 April – 12 March 2020 | $30,000 | $30,000 | – |
| 12 March – 30 June 2020 | $150,000 | $150,000 | $150,000 |
* aggregated turnover under $10 million
** aggregated turnover under $50 million
***aggregated turnover under $500 million
Assets will need to be used or installed ready for use from when the changes were announced on 12 March 2020 until by 30 June 2020 to qualify for the higher threshold.
There are some assets that don’t qualify such as horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc.
What businesses can access the instant asset write-off
To access the instant asset write-off, your business needs to be a trading business (the entity buying the assets needs to carry on a business in its own right). It also needs to have an aggregated turnover under $500 million.
Accelerated depreciation deductions (available to 30/6/21)
In addition to the increased instant asset write-off rules, accelerated depreciation deductions will apply from 12 March 2020 until 30 June 2021. This will bring forward deductions that would otherwise be claimed in later years.
Businesses with a turnover of less than $500 million will be able to deduct 50% of the cost of the asset in the year of purchase. They can also claim a further deduction in that year by applying the normal depreciation rules to the balance of the asset’s cost. This will presumably only be relevant if the business cannot already claim an immediate deduction for the full cost of the asset.
For example, let’s assume that a business purchases a new truck for $250,000 (exclusive of GST) in July 2020. In the 2021 tax return the business would claim an upfront deduction of $125,000. The business would also claim a further deduction for the depreciation that would have arisen on the balance of the cost. If the business is a small business entity and using the simplified depreciation rules, this would mean an additional deduction of $18,750 (i.e., 15% x $125,000). The total deduction in the 2021 tax return would be $143,750. Without the introduction of this investment incentive the business would have claimed a deduction of $37,500 (i.e., 15% x $250,000).
This incentive will only be available in relation to new assets that are acquired after 12 March 2020 and are first used or installed ready for use by 30 June 2021. It will not apply to second-hand assets or buildings and other capital works expenditure.
IMPACT FOR YOU – possibility to reduce 2020 tax payable and also vary PAYG instalments with these larger write offs. A trust or company will have different outcomes if claiming these write-offs so be careful where they occur. There are planning opportunities to defer tax to 30 June 2021 when the company tax rate reduces to 26%. Also there is no asset value cap on the 50% tax deduction leading to significant tax savings.
Cash flow assistance for small and medium sized business
Tax-free payments up to $25,000 for employers (available to 30/6/2020)
Tax-free cash flow support between $2,000 and $25,000 will be available to eligible businesses with a turnover of less than $50 million that employ staff between 1 January 2020 and 30 June 2020.
This is not a direct cash payment but a credit equal to 50% of the PAYG amounts withheld from salary and wages paid to employees. The employer will need to lodge an activity statement to trigger the entitlement. Businesses will receive credits on their BAS or Instalment Activity statements from 28 April (starting with the March BAS or IAS up to June lodgements) and will be refunded by the ATO within 14 days. The minimum $2,000 payment will be applied to the first lodgement.
If a business pays salary and wages to employees but is not required to withhold any tax then a minimum payment of $2,000 will still be made. Eligibility for the measure will be based on prior year turnover. We will have to wait for the legislation for the finer details.
IMPACT FOR YOU – At this stage this looks like it applies to multiple employers within a group – tax planning can be done for contractors and business owners with PAYG instalments and the consideration of paying a reasonable salary or bonus (instead of a dividend or trust distribution) before 30 June 2020 however all on-costs such as super, workcover and payroll tax should be considered. Also where there are trust distributions tax free amounts can be distributed to beneficiaries
Wage subsidy of up to 50% of an apprentice or trainee wage (available to 30/9/2020)
Eligible employers can apply for a wage subsidy of 50% of the apprentice’s or trainee’s wage for up to 9 months from 1 January 2020 to 30 September 2020. The payments are accessible to businesses with less than 20 employees. Employers will receive up to $21,000 per apprentice ($7,000 per quarter).
Where a small business is not able to retain an apprentice, the subsidy will be available to a new employer that employs that apprentice.
In order to qualify for this payment the apprentice or trainee must have been in training with the business as at 1 March 2020. Employers of any size and Group Training Organisations that re-engage an eligible out-of-trade apprentice or trainee will also be eligible for the subsidy.
It is expected that employers will be able to register for the subsidy from early April 2020. Final claims for payment must be lodged by 31 December 2020.
Targeted support for severely affected sectors, regions and
communities
$1 billion has been committed to support sectors, regions and
communities disproportionately affected by the economic impact of the
coronavirus. Tourism, agriculture and education are specifically mentioned.
Initial measures include:
- Waiver of fees and charges for tourism businesses that operate in the Great Barrier Reef Marine Park and Commonwealth National Parks
- Additional assistance to help businesses identify alternative export markets or supply chains
- Measures to promote domestic tourism
Further plans and measures will be developed with the affected industries and communities. Administrative relief for certain tax obligations will also be provided, including deferred tax payments up to four months. The ATO will establish a temporary shop front in Cairns within the next few weeks to support the region’s small businesses. Other initiatives to bring support to the communities are being considered.
For Individuals
Household stimulus payments to drive cash into the economy
Tax-free $750 payment to social welfare recipients
A one-off, $750 cash payment will be made to pensioners, social security, veteran and other income support recipients and eligible concession card holders. Payments will be from 31 March 2020 on a progressive basis, 90% are expected to be made by mid-April.
The payment will be tax-free and will not count as income for Social Security, Farm Household Allowance and Veteran payments.
There will be one payment per eligible recipient even if they qualify in multiple ways.
Casual employees able to access the Newstart ‘sickness payment’
While not part of the stimulus package, the Prime Minister has stated that casual employees required to self-isolate or who contract the coronavirus will be eligible for a sickness payment (jobseeker payment) through Newstart. The normal waiting period for this payment will be waived.
ATO support measures to assist those affected by COVID-19
The ATO has announced it will implement measures to assist Australians experiencing financial difficulty as a result of the COVID-19 outbreak.
These include:
- Deferring by up to four months the payment date of amounts due through the business activity statement (including PAYG instalments), income tax assessments, fringe benefits tax assessments and excise.
- Allow businesses on a quarterly reporting cycle to opt into monthly GST reporting in order to get quicker access to GST refunds they may be entitled to
- Allowing businesses to vary Pay As You Go (PAYG) instalment amounts to zero for the March 2020 quarter. Businesses that vary their PAYG instalment to zero can also claim a refund for any instalments made for the September 2019 and December 2019 quarters .
- Remitting any interest and penalties, incurred on or after 23 January 2020, that have been applied to tax liabilities.
- Working with affected businesses to help them pay their existing and ongoing tax liabilities by allowing them to enter into low interest payment plans.
IMPACT FOR YOU – possibility of assistance with your cash flow by deferring ATO payments or requesting refunds of interest and penalties or reducing March 2020 PAYG Instalments but you must apply directly to the ATO for this assistance.
Please contact us today if you would like assistance with this amnesty
or further explantation.
Kind regards
Michael Wunsch
Wunsch & Co
02 9816 3111
[email protected]