Australia COVID-19 Update: Making the most of the stimulus to stay afloat
Just 10 days after the announcement of an initial $17.6 billion stimulus package to stave off the economic impacts of the coronavirus, the Morrison government has announced a second, significantly more robust version.
The enormous $66.1 billion economic package is aimed at making sure small and medium sized businesses are able to ride out the economic downturn brought on by the coronavirus, and protecting employees from job-losses. In the government’s words, the idea is to allow business to keep going as best as they can or to press pause instead of falling apart, allowing Australia to bounce back as quickly as possible once the crisis has passed.
The bill was rushed through both houses of parliament unopposed in a single day.
Coupled with the first economic package and debt facilities, about $189 billion has been allocated to economic stimulus, or 10% of Australia’s annual GDP.
There are a few key updates that will be directly relevant to small to mid-size businesses, along with some benefits that have previously been announced. These are:
Boosting cash flow for Employers
Small and medium sized employers (SMEs) will receive a 100% tax-free credit of between $10,000 and $50,000 on their PAYG withholding on wages for the March 2020 BAS. Employers will receive this payment from the ATO as a credit equal to 100% of the tax withheld on salary and wages.
A second wave of payments equal to the first credit paid will be split evenly over the June to October BAS periods, for a total maximum payment of $100,000.
In addition, the minimum payment for business has been increased from $2,000 to $10,000 per payment.
As an example, if a business pays $2,000 in PAYG tax in the March BAS, it will receive two grants of $10,000 for a total of $20,000.
On the other hand, if a business pays $50,000 or more in PAYG, it will be allowed the maximum grant of $50,000 for the current March BAS, and an additional $50,000 as part of the second wave from 21 June.
It is important to note that these payments are not directly cashbacks and are instead applied by the ATO as tax credits. These credits will be placed towards existing ATO debts, and if the credit places a business in a net refund position, a cash refund will be paid out by the ATO to the business within 14 days.
This is aimed at allowing SMEs to keep their staff on payroll as much as possible, and helping with paying rent and expenses.
Relief for business facing bankruptcy
Temporary measures have been introduced to protect businesses from bankruptcy, by increasing thresholds for demands from creditors from $2,000 to $20,000 for the next six months. In addition, the time for a company to respond to a statutory demand has been increased from 21 days to six months.
As for individuals, the threshold for initiating bankruptcy proceedings has also increased, from $5,000 to $20,000, with the time for an individual to respond increasing from 21 days to six months. This will apply for the next six months.
Finally, for the next six months personal liability for directors trading while insolvent will not be applied. This exemption does notinclude instances of fraud or dishonesty.
Increase in instant asset write-off
The expansion to the instant asset write off-scheme that was introduced in the first stimulus package still stands, and has not been further updated. This measure encourages businesses to invest in equipment. The existing instant asset write-off scheme, allowing businesses to claim a tax break for spending, has been expanded significantly. The scheme was previously restricted to companies with turnovers of up to $50 million for a maximum investment of $30,000. As part of the stimulus package, this will be lifted to allow companies with turnovers of up to $500 million to make assets write-offs of up to $150,000.
This scheme is valid now until 30 June 2020, and will be included in tax returns for the 2019-20 financial year.
Support from the ATO
The ATO has already advised that it will offer tax relief to small businesses that have been affected by the coronavirus. This will be via a number of options such as deferrals for payments due on BAS (including PAYG) and other tax assessments, and allowing business to switch from quarterly GST reporting cycles to monthly reporting (to improve cashflow by allowing quicker access to GST refunds).
These forms of relief are not automatic, and instead businesses wishing to take advantage of these benefits should contact the ATO to come up with a tailored support plan.
Measures taken by banks and loans
Last week, the RBA announced a $90 billion term funding facility for banks to use to lend to SMEs, with the amount banks are able to borrow depending on how much they lend out to SMEs. For every $1 lent to SMEs, they will gain an additional $5 in funding.
This is in addition to the $15 billion funding facility announced by the government for non-banks lenders, aimed at ensuring these lenders have the support they need to provide extra finance to SMEs. This move has been warmly received by the fintech sector.
Regarding loans, the government has pledged to guarantee 50% of new short-term, unsecured loans to small and medium business, along with up to $40 billion to further encourage new credit to SMEs.
Finally, Australian banks are pressing pause on repayments for small business loans. It is expected that this measure will apply to more than $100 billion in existing loans. It is estimated that this is expected to put up to $8 billion back into these businesses.
While the Coronavirus continues to unfold, it is already clear that we will be facing these disruptions for at the very least the next six months. The financial impacts of this crisis will continue long after this and will be severe. It is imperative that businesses ensure they are operating at maximum efficiency and reorganising where needed to ensure they can remain open and operational for as long as possible, with a quick recovery afterwards. Businesses should be taking full advantage of the government’s stimulus methods to ensure that they are best placed to be able to “weather out the storm” and come out the other side. This includes coming up with a plan in conjunction with your legal and accounting team to ensure all your bases are covered.
Harris Gomez Group is an Australian law firm with 25 years experience based in Sydney, with sister offices in Santiago and Bogotá. We specialise in business and corporations law, technology law, and cross-border issues. We assist small to medium-sized Australian businesses with a variety of issues, including employment law, property law issues (such as rental contracts) and contract disputes.
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