The government recently announced 2 stimulus packages worth $84 billion in response to the impact the ongoing Coronavirus pandemic is having on the Australian economy. A number of the measures announced are aimed at minimising the financial impact on and supporting small and medium businesses. These measures are discussed in more detail below.
Boosting cash flow for employers
Small and medium businesses that employ workers will be eligible for tax-free payments totaling between $20,000 and $100,000. The total received by a business will depend of how much a business withholds. The payments will be made in the form of a credit to upcoming activity statements.
To be eligible businesses must have an aggregated turnover of less than $50 million (based on prior year turnover) and employ workers. There is no need to register or apply for these payments.
For businesses that withhold tax from their employees’ salary and wages, the first payment will be equal to 100% of the PAYG withheld between January 2020 and June 2020 up to a maximum of $50,000. The minimum payment is $10,000, and eligible businesses that pay salary and wages but are not required to withhold tax will still receive this minimum amount. The minimum payment will be applied to the first Activity Statement lodged. If a payment places the activity statement in a refund position, the refund will be delivered within 14 days.
The first payment will be applied to Activity Statements for the period January 2020 through June 2020 after 28th April 2020 once an activity statement is lodged. Businesses lodging on a quarterly cycle will have the first payment applied in the March 2020 and June 2020 quarters. Businesses lodging on a monthly cycle will have the payment applied in the March, April, May and June 2020 monthly Activity Statements. To ensure equal treatment between lodgement cycles, monthly lodgers will receive a payment for March equal to 300% of the PAYG tax withheld in that month.
The second payment will be made to eligible employers that received the first payment and remain active. It will be equal to the total received from the first payment and be applied to Activity Statements for the period June 2020 through September 2020. Businesses lodging on a quarterly cycle will have half of the second payment applied to the June quarter and half to the September quarter. Businesses lodging on a monthly cycle will have a quarter of the payment applied to each of the each of the June, July, August and September monthly Activity Statements.
Bob operates a construction business and employs 10 staff. Each month Bob is required to withhold $12,000 in PAYG from his employees’ wages. Bob’s business will receive:
- A payment of $36,000 for the March period,
- A payment of $12,000 for the April period,
- A payment of $2,000 for the May period (taking total payments up to the $50,000 cap),
- A payment of $12,500 for the June period,
- A payment of $12,500 for the July period,
- A payment of $12,500 for the August period, and
- A payment of $12,500 for the September period.
- The total amount received will be $100,000 – $50,000 for each of payments 1 and 2.
Nina operates a bakery and employs a number of part time and casual workers. Nina is required to withhold PAYG of $6,400 in the March quarter and $8,200 in the June quarter from her employees’ wages. Nina’s business will receive:
- A payment of $10,000 for the March quarter (being the minimum amount for payment 1), and
- Payments of $4,600 (balance of payment 1) and $7,300 (being half of payment 2), and
- A payment of $7,300 for the September quarter (being half of payment 2).
Leslie operates a bookstore and employs 2 part-time workers. Both workers generally work only a few hours a week and as such Leslie does not withhold PAYG from the wages. However, one of the staff is required to work full-time for 4 weeks in May while Leslie is away and as a result Leslie is required to withhold $1,000 in the June quarter. Leslie’s business will receive:
- A payment of $10,000 for the March quarter (being the minimum amount for payment 1),
- A payment of $5,000 for the June quarter (being half of payment 2), and
- A payment of $5,000 for the September quarter (being half of payment 2).
Leslie would need to withhold more than $10,000 in PAYG to receive any payments greater than the minimum amounts.
Supporting apprentices and trainees
Small businesses that employ apprentices or trainees may be eligible for a subsidy of 50% of wages paid to these employees. The aim of the subsidy is to help support businesses retain these workers. Where an employer is unable to retain an apprentice, the subsidy will be available to a new employer.
To be eligible a small business must be employing less than 20 full-time staff and be retaining an apprentice or trainee. The apprentice or trainee must have been in training with that business at 1 March 2020. Employers or any size as well as group training organization that re-engage an eligible our-of-trade apprentice or trainee will also be eligible for the subsidy.
The subsidy will be provided in the form of a reimbursement. The maximum subsidy will be $21,000 per apprentice and trainee ($7,000 per quarter). Final claims for the subsidy must be made by 31 December 2020.
Small businesses will need to register and apply for the subsidy which can be done from 2 April 2020. More information on how to apply will be made available as details of this measure are finalised and via Australian Apprenticeship Support Network (AASN) providers. AASN providers will also be responsible for undertaking and eligibility assessment which must be undertaken before the subsidy can be accessed.
Hector operates a small pluming business and employs 2 apprentices, Habib and Eliza. Habib is paid $650 per week and has been employed by Hector since 1 December 2018. Eliza is paid $500 per week and has been with Hector since 23 January 2020. Both apprentices were undertaking training at 1 March 2020. Hector’s business will receive:
- $12,675 for Habib (being 50% of 39 weeks wage)
- $9,000 for Eliza (being 50% of 36 weeks wage)
Increasing the instant asset write-off
For a number of years small businesses have been able to access an instant asset write-off. The concession essentially allows a business to claim full depreciation on eligible assets in the year it is purchased and ready for use. The asset cost threshold and business eligibility criteria have changed numerous times since this concession was first introduced. In its current format, the instant asset write-off is available to businesses turning over less than $50 million in aggregate and applies to assets costing under $30,000.
As part of the economic stimulus package the government has made the instant asset write-off available to businesses turning over under $500 million. It has also increased the assets eligible by increasing the cost threshold to $150,000. Importantly it continues to apply to both new and used assets.
This measure applies until 30 June 2020. Beyond this date the instant asset write-off is set to revert to a business turnover threshold of $10 million and assets costing under $1,000.
Stephanie operates a transport business. The business turns over $10 million per year. The business purchases a secondhand truck for $75,000 in May 2020. Under the new measures Stephanie can claim a tax deduction in the 2019/20 year for the full purchase price of the truck. Under the existing tax arrangements Stephanie would be required to depreciate the cost of the truck over a number of years as it exceeded the $30,000 threshold.
Franco operates a farming business. The business turns over $200 million per year. The business purchases a new mower costing $20,000 in May 2020. Under the new measures Franco can claim a tax deduction in the 2019/20 year for the full purchase price of the mower, Under the existing tax arrangements Franco would be required to depreciate the full cost of the mower over a number of years as the businesses turnover exceeded the $50 million threshold.
Backing Business Investment
Small and medium businesses will be able to accelerate the depreciation claimed on purchases of new assets. The assets must be new (not secondhand) and be purchased and installed or used in the business by 30 June 2021.
The accelerated deduction will be in the form of a 50% deduction of the cost of the asset when it is purchased and installed or first used in the business. The balance of the assets cost will be depreciated under existing depreciation rules.
Businesses must have an aggregated turnover of less than $500 million to be eligible. Most depreciating assets will be eligible, but certain assets such as buildings are excluded. Importantly the asset must be new.
Stephanie operates a transport business. The business turns over $10 million per year. The business purchases a new truck for $180,000. The truck is ordered in June 2020, but it is delivered and begins being used in the business in August 2020. Under the new measures Stephanie can claim a tax deduction of $90,000 as well as claim depreciation as normal on the balance of the truck cost in the 2020/21 year. Under the existing tax arrangements Stephanie would be required to depreciate or pool the entire cost of the truck over a number of years.
Franco operates a farming business. The business turns over $200 million per year. The business purchases a new tractor costing $200,000 in May 2020. Under the new measures Franco can claim a tax deduction of $100,000 as well as claim depreciation as normal on the balance of the tractor purchase in the 2019/20 year. Under the existing tax arrangements Franco would be required to depreciate the full cost of the tractor over a number of years.
ATO support measures for those affected by Coronavirus
In addition to the stimulus measures announced by the government, the ATO will implement a range of administrative measures to assist businesses experiencing financial difficulty as a direct result of the Coronavirus pandemic.
These measures will be tailored to each business’ situation, but may include:
- Deferral of payment of BAS, income tax and fringe benefit obligations/
- Variation of March PAYG income tax instalments to nil, and claiming a refund for September and December 2019 instalments already paid,
- Remission of interest and penalties applied after 23 January 2020 on existing tax liabilities,
- Allowing businesses to enter into low interest payment arrangements for existing and upcoming tax liabilities.
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