What the coronavirus stimulus package means for you.
16 March 2020.
Like you, we’ve been watching the unfolding coronavirus situation closely – keeping an eye on both the health and human impacts, but also the knock-on economic challenges that lay ahead.
More welcome news arrived late last week, as the federal government announced a $17.6 billion economic stimulus package designed to keep Australians in jobs, support vulnerable communities and sectors, and encourage spending.
Australia’s last recession was 1993. So, for many businesses, this may be your first really hard test, economically-speaking. To weather the storm ahead, now is the moment to trim the sails and get strategic with your planning.
This is traditionally the time of year to do strategic tax planning for your business anyway – and in the face of coronavirus and the recent stimulus announcements, tax planning is now more crucial than ever.
To our clients who are currently self-isolating or social distancing: you have our full support.
Kearney Group strongly supports social distancing measures, in our professional and private lives as well. We are throwing our business’ full weight behind this initiative in the hopes of helping to flatten the curve on coronavirus. We are in the fortunate position to be able to work and provide our services remotely, with relative ease.
To this end, we’re available for video hook ups to discuss the stimulus package and conduct tax planning deep-dives for your business. If you’d like to speak with your advisory team and ensure your business is fighting fit, you can always contact us.
So what’s in the stimulus package?
Late last week, the federal government announced a $17.6 billion economic stimulus package aimed to support both businesses and households in the wake of coronavirus.
The stimulus package is intended to encourage employers to retain staff and ensure as much money as possible flows into the economy, with $11 billion to be paid out by June 2020.
The government’s four-part economic plan is summarised with explanatory details below.
Support for businesses:
- Business Investment
- – Asset write-off extension and increase
- – Accelerated depreciation deductions
- Cash flow assistance for small and medium businesses
- – 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.
Support for individuals:
- Social welfare recipients will receive a one-off tax-free $750 payment.
Increase and extension of instant asset write-off.
The current instant asset write-off threshold will increase from $30,000 to $150,000 taking immediate effect from the date of the stimulus announcement – 12 March 2020.
If your business has an aggregated annual turnover (that is, the annual turnover of your business plus the annual turnover of any ‘affiliates’ or ‘connected entities’) of less than $500 million, you will have access to the instant asset write-off measure until 30 June 2020.
The instant asset write-off will allow your business to claim an upfront tax deduction for a depreciating asset in the year it is purchased. Should your business make a tax loss for the 2020 financial year, the benefit of the instant asset write-off may not be realised until your business returns to profitability.
Assets purchased prior to 12 March 2020 do not qualify for the higher threshold rate of $150,00. They may be eligible for the previous thresholds, however, as outlined in the table below:
It’s important to note that the instant asset write-off applies only to assets purchased and used by your business to generate income.
If you have any questions about the timing of an asset purchase or the relevance of this initiative for your business, please contact us.
Accelerated depreciation deductions.
In addition to the increased instant asset write-off rules, accelerated depreciation deductions will apply from 12 March 2020 until the end of the 2021 Financial year, 30 June 2021.
This measure will only be relevant if your business cannot already claim an immediate deduction for the full cost of the asset. If your business turns over less than $500 million, it will be able to deduct 50% of the cost of the asset in the year of purchase. In addition, you can also claim a further deduction in that year by applying the normal depreciation rules to the balance of the asset’s cost.
For example, let’s imagine your business purchases a new truck for $250,000 in July 2020. In the 2021 financial year taxation return, your business would claim an upfront deduction of $125,000 – 50% of the asset cost. It would also claim a further deduction for the depreciation that would have arisen on the balance of the cost. If your 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.
By way of comparison, before the introduction of this investment incentive your business would have claimed a deduction of $37,500 (i.e. 15% x $250,000).
Cash flow assistance for small and medium business.
Tax-free payments up to $25,000 for employers.
If your business turns over less than $50 million and employs staff between 1 January 2020 and 30 June 2020, you will be eligible for tax-free cash flow support between $2,000 and $25,000. Eligibility for this measure will be based on your prior year.
This will not be a direct cash payment but a credit issued by the ATO equal to 50% of the PAYG amounts withheld from salary and wages paid to employees. An activity statement will need to be lodged to trigger the entitlement. However, if the credit puts your business in a refund position, the excess amount will be refunded by the ATO within 14 days.
If you’re an eligible business paying a salary or wages to employees, but are not required to withhold any tax, then a minimum payment of $2,000 will still be made.
Businesses that lodge activity statements on a quarterly basis will be eligible to receive the credit for the quarters ending March 2020 and June 2020.
Businesses that lodge on a monthly basis will be eligible for the credit for the March 2020, April 2020, May 2020 and June 2020 lodgements.
The minimum $2,000 payment will be applied to the first lodgement.
Contact us to assist with completion and timely lodgement of your businesses activity statements to ensure access to the PAYG Withholding credit.
Wage subsidy of up to 50% of an apprentice or trainee wage.
Eligible employers can apply for a wage subsidy of 50% of an 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 and 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 whether that be a large business or a registered training organisation.
In order to qualify for this payment the apprentice or trainee must have been in training with the business as at 1 March 2020.
It is expected that employers will be able to register for the subsidy from early April 2020 with final claims for payment being lodged by 31 December 2020.
Please contact the team at Kearney Group if you require assistance with the registration process.
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
The Federal Government has noted further plans and measures will be developed for the affected industries and communities.
Household stimulus payments.
Tax-free $750 payment to social welfare recipients.
A one-off, $750 cash payment will be made to pensioners, social security, veterans and other income support recipients and eligible concession card holders. This includes those on Newstart, those on a seniors card and families receiving family tax benefits.
Payments will be made from 31 March 2020 on a progressive basis, with 90% expected 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 only one payment per eligible recipient even if you qualify in multiple ways.