There is no doubt that we are currently experiencing unprecedented times. The coronavirus (COVID-19) is having a significant impact on our personal lives and is likely to have a significant impact on our businesses and financial positions.
To support you our clients through these uncertain times we have compiled a number of the stimulus and support measures recently announced by the Government and the Australian Taxation Office to give you a central source of information to review.
Economic Stimulus Measures
The package of economic stimulus measures announced by the Government on the 12th of March 2020 include the following. It is important to note that these announcements are not currently legislated and the Government intends to introduce legislation later this month.
Increasing the instant asset write-off
The threshold is proposed to be increased from $30,000 to $150,000 effective from 12th of March 2020 through until 30 June 2020 and will extend to businesses with an annual turnover of less than $500 million (up from the previous $50 million threshold).
Boosting Cashflow for Employers
Employers with an aggregated turnover of less than $50 million (based on 2019 turnover) maybe eligible to receive a cash payment of up to $25,000 to provide temporary cash flow support. The payment will be tax free.
It has been advised that the payment will be delivered by the ATO via Activity Statements.
The payment will be equal to 50% of the amount withheld on employee payments up to a maximum of $25,000. Quarterly lodgers will be eligible to receive the payment for the quarters ending March and June 2020. Monthly lodgers will be eligible to receive the payment for the lodgement months March through to June 2020.
Employers that are not required to withhold tax may still receive a minimum payment of $2,000.
Backing Business Incentive
A time limited 15 month investment incentive to support business investment and economic growth accelerating depreciation deductions will be introduced. It will apply to assets acquired from 12th March 2020 that are first used or installed ready for use by 30 June 2021. Businesses with a turnover of less than $500 million will have the ability to deduct 50% of the cost of an eligible asset on installation with existing depreciation rules applying to the balance of the asset cost.
Eligible assets are those assets that can be depreciated under Division 40 of the ITAA 1997 (ie. plant and equipment and certain intangible assets). It will not apply to second-hand assets, buildings or capital works.
Example: Joan and Bruce own a company, NC Transport Solutions Pty Ltd, through which they operate a haulage business on the North Coast of New South Wales. NC Transport Solutions Pty Ltd has an aggregated annual turnover of $8 million for the 2019‑20 income year. On 1 May 2020, Joan and Bruce purchase a new truck for $260,000 exclusive of GST, for use in their business.
Under existing tax arrangements, NC Transport Solutions Pty Ltd would depreciate the truck using their small business simplified depreciation pool. Under the pooling rules, NC Transport Solutions Pty Ltd would deduct 15 per cent of the asset’s value upon entry to the pool, leading to a tax deduction of $39,000 for the 2019-20 income year.
Under the new BBI, NC Transport Solutions Pty Ltd would instead claim an up-front deduction of 50 per cent of the truck’s value ($130,000) before placing the asset in their small business simplified depreciation pool. Joan and Bruce would then claim a further 15 per cent deduction on the depreciated value of the truck ($19,500). As a result of the two deductions, Joan and Bruce are able to claim a deduction totalling $149,500 in the 2019-20 income year, $110,500 more than under existing arrangements. At the company tax rate of 27.5 per cent, Joan and Bruce will pay $30,387.50 less tax in the 2019-20 income year.
This will improve NC Transport Solutions Pty Ltd’s cash flow and help Joan and Bruce’s business withstand and recover from the economic impact of the coronavirus.
(Backing Business Investment, 2020)
ATO Support Measures
The ATO have also announced that they will implement a series of administrative measures to assist businesses experiencing financial difficulties as a result of the Covid-19 outbreak.
Options that may be available include:
- Deferring by up to four months the payment date of amounts owing on Business Activity Statements, Income Tax Assessments and/or Fringe Benefits Tax Assessments.
- Allowing businesses currently 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 PAYG instalment amounts to zero for the March 2020 quarter. It is understood that 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.
Whilst these administrative measures have been announced, they are not applied automatically. Contact needs to be made with the ATO to access these measures and there is an expectation that the business must be able to demonstrate the financial difficulties it is facing are a result of the outbreak.
The ATO have stated that there will be no deferral offered on Super Guarantee payments and that there is an expectation that employers will continue meet these obligations. Employers should also be mindful of the Super Guarantee Amnesty currently in place that is due to cease at the end of August 2020. To find out more about this amnesty read our article here.
There is no doubting that the coming weeks and months are going to place stress on many businesses across the Country. It is imperative that business owners do what they can to monitor their financial situation and consider steps and actions that should be put in place should financial difficulties arise. If you are concerned about your ongoing business viability and/or solvency it is important that you seek guidance to ensure you are protected as much as possible from a personal perspective.
The team at Davidsons are here to help and will remain contactable to support our clients during this difficult time. We have resources in place to enable our team to work remotely if the need arises and we will navigate this journey with our clients over the coming weeks, supporting where it is needed. If you need us please call our office on 03 5221 6399 or email us at firstname.lastname@example.org.
Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.