On 22 March 2020, the Australian Government released its second economic response to the coronavirus (COVID-19) worth $66.1 billion, with new tax measures for small to medium enterprises, individuals and corporate directors.
This was further to its first economic response on 12 March 2020 worth $17.6 billion. Please refer to this BDO Tax Technical Update for more detail on the tax measures in the first stimulus package. Please also refer to this BDO Tax Technical Update for the economic stimulus measures announced by every Australian State and Territory Government.
Small to medium enterprises
Cash flow payments SME employers and charities
The temporary ‘Boosting Cash Flow for Employers’ measure will now provide a tax-free payment to eligible small and medium sized enterprise entities (SMEs), with aggregated annual turnover under $50 million that employ people, of up to $100,000 ($50,000 for each of the current and next financial years) with a minimum payment of $20,000. This increases from the original $25,000 announced in the Federal Government’s first economic stimulus package.
The measure has also been extended to not-for-profits (NFPs) that employ people, with aggregated annual turnover under $50 million. This will support employment at a time where NFPs are facing increasing demand for services.
Employers will receive two payments equal to 100 per cent of their salary and wages withheld (up from 50 per cent), with the maximum for each payment being increased from $25,000 to $50,000. In addition, the minimum payment will be increased from $2,000 to $10,000. Eligible entities will receive this additional payment equal to the total of all of the first ‘Boosting Cash Flow for Employers’ payments received.
The payments will be tax-free and flow through automatically from the ATO, with no new forms to be completed. Every entity with a PAYG withholding liability (or entity which makes payments subject to withholding even if it has no withholding liability) will receive the payment.
The first cash flow boost payments, between $10,000 and $50,000, will be delivered by the ATO as a credit upon lodgment of activity statements from 28 April 2020. These cover:
- Quarterly lodgers - periods ending March 2020 (lodgment due date 28 April 2020) and June 2020 (lodgment due date 28 July 2020); and
- Monthly lodgers - periods of March 2020 (lodgment due date 21 April 2020), April 2020 (lodgment due date 21 May 2020) and May 2020 (lodgment due date 21 June 2020).
Monthly lodgers will receive a credit calculated at three times the rate (300 per cent) in the March 2020 activity statement, to align with quarterly lodgers.
The payment will also be made to all employer entities in a group based on their own payrolls without taking into account the payrolls of other entities in the group, although the employer entities still have to be SMEs based on the group having aggregated turnover of less than $50 million.
Please refer to this fact sheet released by Treasury for more detail and examples.
SME loan guarantee scheme
The Government will establish the ‘Coronavirus SME Guarantee Scheme’ to support SMEs to get access to working capital, where it will guarantee 50 per cent of new loans issued by eligible lenders to SMEs to enhance the willingness and ability of banks to provide credit to SMEs with the Scheme able to support $40bn of lending to SMEs.
The Scheme will complement announcements made by Australian banks to support SMEs with their existing loans by deferring repayments for up to 6 months as well as the Reserve Bank's $90bn term funding facility for banks, that will reduce the cost of lending, with particular incentives to lend to SMEs.
Supplement for job seekers
The Government will implement a new temporary Coronavirus supplement of $550 per fortnight, effectively doubling the current payment for job seekers. This Coronavirus supplement will be paid for the next 6 months to both existing and new recipients of the JobSeeker Payment, Youth Allowance jobseeker, Parenting Payment, Farm Household Allowance and Special Benefit. Eligible income support recipients will receive the full amount of the $550 Coronavirus supplement on top of their payment each fortnight.
Additional stimulus payments
Further to the $750 stimulus payment for pensioners announced on 12 March 2020, the Government will provide a further $750 payment to social security and veteran income support recipients and eligible concession card holders, except for those who are receiving an income support payment that is eligible to receive the Coronavirus supplement.
This second $750 payment will be made automatically from 13 July 2020 to around 5 million income support recipients and eligible concession card holders. Around half of those that benefit are pensioners. The first $750 payment will be made from 31 March 2020 to people who will have been on one of the eligible payments any time between 12 March 2020 and 13 April 2020.
Temporary relief for directors of distressed businesses
The Government will temporarily increase the:
- threshold at which creditors can issue a statutory demand on a company from $2,000 to $20,000;
- threshold at which creditors can initiate bankruptcy proceedings from $5,000 to $20,000; and
- time companies have to respond to statutory demands from 21 days to 6 months.
Temporary relief will also be provided for directors from any personal liability for trading while insolvent. The Corporations Act 2001 will also be amended to provide temporary and targeted relief for companies to deal with unforeseen events that arise as a result of the Coronavirus.
Through these changes the Government is aiming to stop directors of companies impacted by COVID-19, from electing to enter into insolvency due to the personal consequences from trading whilst insolvent and enable them to increase their focus on managing companies through the COVID-19 crisis as opposed to be concerned by the implications for their own personal positions.
Tax-free superannuation withdrawals
Affected individuals will be able to withdraw up to $20,000 from their superannuation funds. Withdrawals will be available from April of up to $10,000 in the 30 June 2020 income year and up to $10,000 in the 30 June 2021 income year. To apply for early release a fund member must satisfy any one or more of the following requirements:
- they are unemployed; or
- they are eligible to receive a Jobseeker Payment, Youth Allowance for Jobseekers, Parenting Payment (which includes the single and partnered payments), a special benefit or Farm Household Allowance; or,
- on or after 1 January 2020:
- they were made redundant; or
- their working hours were reduced by 20 per cent or more; or if they are a sole trader — their business was suspended or there was a reduction in their turnover of 20 per cent or more.
Changes to drawdown rates
The Government is temporarily reducing superannuation minimum drawdown requirements for account-based pensions and similar products by 50 per cent for the 2019-20 and 2020-21 income years. This measure is intended to provide retirees with greater flexibility in how they manage their superannuation savings.
Whilst the application process to apply for early release will be administered by the ATO, superannuation funds and their administrators will need to put in place measures to fund the payments. This may involve liquidating assets, paying benefits; and updating automated systems so that these can be processed as components not subject to PAYG withholding tax.
Increasing the SME cash flow boost from $25,000 to $100,000 will provide much needed cash flow to SMEs as well as encourages businesses to lodge their Business Activity Statements on time, which is BDO’s recommendation to all businesses at this time.
Whilst the SME loan guarantee scheme is welcome, the loans are proposed to be interest free for 6 months and with a maximum term of 3 years. BDO are concerned that period may not be long enough and we encourage the banks and government to be flexible. The grant of a guarantee must also be in accordance with the legislative provisions in the SME Lending Guarantee Bill.
Superannuation funds will need to carefully consider their asset liquidation strategy if disposals are necessary in order to fund tax-free superannuation withdrawal payments.
Please contact BDO for assistance with navigating the Australian Government’s first and second economic stimulus packages and determining your eligibility for the tax and business measures.
BDO can also help you with the development of your whole of business approach to respond to current and emerging issues arising in the current environment as well as with implementation tasks.
As certain incentives in the various economic packages will only be available for a short period of time, businesses should consider taking action as soon as practicable.
Prepare your business
How can your business respond to Coronavirus (COVID-19)?
Find out more