Over the past few weeks, much has been announced about what the Australian Government will be bringing in to help mitigate the impact of Coronavirus (COVID-19) on the economy.
Keeping on top of everything that’s happening in the world at the moment is challenging, so we’ve put together this summary of the critical measures that have been announced, concerning both business owners and salary earners. You’ll also find links to helpful resources, as well as the support McKinley Plowman can provide through this challenging time. To keep up to date with our articles as they come through, be sure to check in periodically with the MP+ News Page. This is important, as the below summary is subject to legislation being passed.
- JobKeeper Payments
- Bank Care Package
- Coronavirus SME Guarantee Scheme
- ATO Relief – PAYGW Refunds
- ATO Relief – Tax Payment Deferral Options
- Instant Asset Write-Offs and Accelerated Depreciation
- Superannuation & Social Security for Individuals & Sole Traders
- Income Support for Individuals & Sole Traders
- Apprentice Relief
- Payroll Tax (WA)
- Land Tax Deferral
- Staff Considerations
- Insolvency – Temporary Relief for Financially Distressed businesses
- Retail & Commercial Leases
- Key Practical Business Considerations
1. Jobkeeper payments
Step 1 – Eligible Employers
- The first condition applies to businesses with annual turnover below $1 billion, which must have experienced a reduction in turnover of more than 30% relative to a comparable period 12 months ago.
- Tip: Practically, this means comparing the monthly turnover for the same month in the previous financial year, and determining whether the turnover has decreased by 30%.
- Those businesses with annual turnover greater than $1 billion must have experienced downturn of greater than 50% due to COVID-19 to be an eligible employer. This is relevant for large business groups/listed companies.
- It is also worth noting that businesses which are subject to the major bank levy (e.g. certain banks / financial institutions) will be ineligible for the JobKeeper Payments.
- This is an ongoing test, so if the above conditions are not satisfied then please reassess on a monthly basis in case your circumstances / eligibility change. The good news is that no matter the business structure, whether Company, Trust, Partnership, Not-For-Profits (NFPs) or sole traders, employers will be eligible, providing they meet the turnover tests detailed above.
Step 2 – Eligible Employees
- The employee must have been employed by the relevant employer as at 1 March 2020;
- Continue to be currently employed by the employer (including those who have been stood down, or, re-hired);
- Be employed on a full-time or part-time basis;
- Be employed as a long-term casual, which is defined as someone who is employed as a casual worker, who has worked regularly for the same employer for a period of 12 months or more (as at 1 March).
- Eligible employees must also be at least 16 years of age;
- An employer is not entitled to receive a subsidy payment for any employees who are eligible for the JobKeeper payment with another employer.
- Temporary resident visa holders are generally ineligible, except for those holding a Protected Special Category Visa, Non-protected Special Category Visa who have continually resided within Australia for 10 years (or more) and New Zealand citizens holding a (Subclass 444) Visa.
Step 3: Accessing the JobKeeper Subsidy
- All employers should review their eligibility for the JobKeeper payment, and keep details of this for the Australian Taxation Office (ATO).
- You will need to maintain monthly revenue and eligible employee details, and provide these each month to the ATO. In most cases, the ATO will use Single Touch Payroll to pre-populate the information.
- If you are not eligible in March, you may become eligible in another month. As such, ensure you continue to maintain appropriate records so you can reassess later down the track.
- JobKeeper applications are not yet open, however employers should register their intent to apply for the subsidy with the Australian Taxation Office (ATO) – you can do that here.
- The ATO will then advise you when you can lodge your JobKeeper application, which will can be backdated to 1 March 2020.
- Sole traders can nominate themselves as an eligible employee even if they do not have other staff. Once the details are processed, you will receive payments on a monthly basis. You should also inform employees who are eligible that they are receiving the JobKeeper allowance.
Please be aware that the JobKeeper payment is not yet law and therefore details of the Stimulus package may still change. McKinley Plowman will aim to provide ongoing updates regarding the JobKeeper payments and other Stimulus packages as they progress.
Once the registration and application for the JobKeeper subsidy is completed, expect that the payments will commence May (backdated from 1 March 2020). Employers should also advise the employees of any amounts paid to them as a JobKeeper payment.
To summarise how the JobKeeper payments will work in practice, please see below:
2. Bank care package
The Australian Banking Association (ABA) has announced a relief package that includes a deferral of principal and interest repayments for all term loans and retail loans for six months for small business customers with less than $3 million in total debt owed to credit providers. At the end of the deferral period, businesses will not be required to pay the deferred interest in a lump sum. Either the term of the loan will be extended, or the level of loan repayments will be increased. The package applies to all ABA member banks who agree to participate (listed below). Funders outside of the ABA who are providing support are also listed below:
Non ABA Members
3. Coronavirus sme guarantee scheme
This Scheme is designed to provide working capital support to SME’s (businesses with turnover of less than $50 million) to reduce the impact of Coronavirus. Under the Scheme, the Federal government will guarantee 50 per cent of new SME unsecured loans issued by eligible lenders up to the value of $250,000. This effectively represents a guarantee of $125,000.
The government will encourage lenders to provide facilities to SMEs that only have to be drawn if needed by the SME, and will remain available into the future, with interest only on the funds that are drawn down. The Scheme will commence in April 2020 and loans will be made available by participating lenders until 30 September 2020. The loans will be made under a term of 3 years with an initial 6 month repayment holiday. No assets will be required as security for these loans.
These conditions apply only to new loans, not refinanced loans. No fees will be payable on the establishment of the loans.
4. ATO relief – pay as you go withholding (paygw)
Initially announced in the first government stimulus, a $25,000 PAYGW Rebate was announced to apply for the March and June quarters. This was a minimum rebate of $2,000 and a maximum $25,000 rebate (not cash refund) equal to 50% of the PAYGW. If the employer has employees but PAYGW withholding is nil the minimum rebate was $2,000. This has now been revised as a part of phase 2, and now looks like this:
The rebate for March and June is doubled from $25,000 to $50,000 (in total), AND based on 100% of PAYGW rather than 50%.
If an employer has nil PAYGW, the minimum cash payment has increased from $2,000 to $10,000.
A cash refund has been added for June and September equal to 50% of the amount received under phase 1 of the stimulus (per quarter).
As an example, an employer that pays $35,000 PAYGW per quarter will have the following stimulus:
Phase 1 – PAYGW Rebate
- $35,000 PAYGW rebate (March quarter)
- $15,000 PAYGW rebate (June quarter) as $50,000 cap is reached
Phase 2 – PAYGW Cash Bonus
- $25,000 cash payment for June quarter i.e. 50% of PAYGW rebates
- $25,000 cash payment for September quarter i.e. 50% of PAYGW rebates
Total stimulus $100,000
As an example, an employer with wages but NIL PAYGW will have the following stimulus:
Phase 1 – PAYGW Rebate
- $10,000 PAYGW rebate (March quarter)
- $0 PAYGW rebate as $10,000 cap paid applies in March (in full)
Phase 2 – PAYGW Cash Bonus
- $5,000 cash payment for June quarter i.e. 50% of PAYGW rebates
- $5,000 cash payment for September quarter i.e. 50% of PAYGW rebates
Total stimulus $20,000.
Note: There is currently no guidance on whether Gross wage needs to be greater than $10,000 before the rebate can be received in full.
- The business must have had employees before 12 March 2020.
- The rebate/cash payment applies to businesses with an aggregated turnover of up to $50m.
- The cash payments received are tax free.
- The business must continue to remain active in June/September to have entitlement to the cash payments.
- The cash stimulus is applied as an automatic “CREDIT” for the June/September Activity Statement lodgements. This suggests that if there is an existing debt or the BAS is not paid in full then a cash payment would not be forthcoming.
- Do not forget superannuation guarantee obligations, which will still stand and ineligible for the amnesty which only applies for SGC up to 31 March 2018. This may be extended, but at this point in time no announcements have been made in this regard.
Basically, to access the PAYGW stimulus, you simply need to lodge your activity statements as normal, the rebates and cash stimulus should then be applied automatically.
Note: We recommend talking to us well before June 30 about your estimated current year income and wages to enable us to maximise your stimulus entitlement. Watch out for our tax planning newsletter in early April.
5. ATO relief – tax payment deferral options
Deferring by up to four months the payment date for BAS amounts due (including PAYG instalments), income tax assessments, FBT assessments and excise. Also:
- Allowing businesses to vary PAYG instalment amounts to zero for the March 2020 quarter; 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 outstanding 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;
- Allowing businesses 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.
Whilst interest and penalty remissions are automatic, actions will be required to implement the other options. We can assist with this if required.
6. instant asset write offs and accelerated depreciation
Applicable to assets purchased after the 12th March 2020, an increase in the instant asset write off threshold from $30,000 to $150,000 and expanding access to these write-offs to include businesses with aggregated annual turnover of less than $500 million until 30 June 2020.
For assets with a purchase price of more than $150,000 or purchased after 30 June 2020, businesses with aggregated annual turnover of less than $500 million, in addition to the standard depreciation a claim for assets, will be able to deduct 50% of the asset cost in the year of purchase via a time limited 15 month investment incentive through to 30 June 2021.
- Assuming that a business purchases equipment for $250,000 (exclusive of GST) in May 2020.
- In the 2020 tax return the business would claim an upfront deduction of $125,000. The business would also claim a further deduction for the depreciation that would have arisen on the balance of the cost.
- Assuming a depreciation rate of 15% per annum, this would mean an additional deduction of $18,750 per annum (i.e. 15% x $125,000).
- Without the introduction of this investment incentive the business would have claimed a deduction of $37,500 per annum (i.e., 15% x $250,000).
Note: Currently, there are restrictions regarding the limits on motor vehicle claims (currently $57,581), once legislation is released we will be able to provide further guidance.
Note 2: The decision to acquire an asset should consider the return on investment and future cash flow of your business.
7. Superannuation & social security for individuals and sole traders
Early release of superannuation
The Government will allow individuals in financial stress to access up to $10,000 of their superannuation in the 2020 financial year and a further $10,000 in the 2021 financial year.
To be eligible for early release of superannuation you must be either have:
- Been unemployed, or
- Been eligible to receive Jobseeker payment, Youth Allowance for job seekers, Parenting Payment, Special Benefit or Farm Household Allowance, or
- Been made redundant on or after 1 January 2020, or
- Had your working hours reduced by 20 percent or more, or if you were a sole trader had your business suspended or experienced a reduction in your turnover of 20 percent or more
Those who are eligible are able to apply through the myGov website www.my.gov.au from mid April 2020 to access the funds before 1 July 2020 for the first $10,000 and have three months after this date to access more. These funds will not be taxed and will not affect Centrelink or Veterans’ Affairs payments.
This is generally a last resort, however it may be a viable option for some individuals during a downturn. Seek appropriate advice before making any decisions.
Superannuation pensions minimum draw down rates
The Government is temporarily reducing the superannuation minimum draw down requirements for account based pensions and similar products by 50% for the 2019/20 and 2020/21 financial years. This will provide more flexibility as to how superannuants manage their superannuation assets. The government has reduces the draw down rates to buffer the withdrawal of superannuation whilst the financial markets respond to COVID-19.
No Relief for Employer Super Obligations
Employers will still need to meet their ongoing super guarantee obligations for their employees, which are payable by 28th day after the end of every quarter.
Social Security Deeming Rates
The Government is reducing the deeming rate adopted for Age Pension income testing by a further 0.25 percentage points to reflect the latest rate reductions by the RBA. As of 1 May 2020, the upper deeming rate will be 2.25 per cent and the lower deeming rate will be 0.25 per cent. This is intended to reduce deemed income when assessing social security entitlements, thus providing greater access.
8. Income support for individuals & sole traders
Two $750 stimulus payments to pensioners, social security, veteran and other income support recipients and eligible concession card holders. The first of these payments was announced on 12 March 2020 and the second will be automatically made on 13 July 2020. The payment will be tax-free and will not count as income for social security, farm household allowance, and veteran payments.
From 27 April 2020, the Government is also temporarily expanding eligibility to income support payments to include sole traders and establishing a new time limited Coronavirus Supplement to be paid at a rate of $550 per fortnight for the next 6 months on top of existing entitlements.
The Coronavirus Supplement will be paid to both existing and new recipients of the JobSeeker Payment, Youth Allowance, Parenting Payment, Farm Household Allowance and Special Benefit and be in addition to the payments made on under these allowances.
The Jobseeker payment is currently $550 per fortnight and the addition of the Coronavirus Supplement increases this payment to $1,100 per fortnight.
Sole traders and casual workers who are currently making less than $1,075 a fortnight will be eligible to receive the full supplement.
9. Apprentice relief
The government has introduced a wage subsidy to support small businesses to retain their apprentices and trainees. Businesses may be eligible to receive 50 per cent of their apprentice’s wages, capping at $21,000, per apprentice, for the nine months from 1 January 2020 to 30 September 2020.
Employers will be able to access the subsidy after an eligibility assessment is undertaken by an Australian Apprenticeship Support Network provider. Like other assessments, this is expected to be completed via a SmartForm on the Australian Apprenticeship website.
Employers can register for the subsidy from 31 March 2020, and final claims of payment must be lodged by 31 December 2020.
10. Payroll tax (wa)
Businesses paying payroll tax, with a payroll between $1m and $4m will receive a one-off grant of $17,500. The grant is automatic, with cheques expected to be issued in July 2020 (see note below).
In addition, the increase of the payroll tax threshold to $1m will be fast-tracked to 1 July 2020, six months before the originally planned date. This means smaller businesses will potentially be able to fall out of the payroll tax regime sooner than before.
Small and medium-sized businesses, who pay $7.5m or less in Australian taxable wages and have been affected by COVID-19, can apply for a deferral of their 2019/20 payroll tax payment until 21 July 2020. This a payment deferral only, and therefore lodgements should continue as normal.
Note: For employers grouped for payroll tax only a single grant will be paid to the designated group employer
11. Land tax deferral
Landowners due to pay 2020 land tax that have at least one non-residential property and total taxable landholdings below $1 million have the option of deferring their 2020 land tax payment until after 30 June 2020. The State Revenue Office will contact all taxpayers who are eligible for this deferral.
12. Staff considerations
Employee Leave Queries
The World Health Organisation (WHO) declared Coronavirus (COVID-19) a pandemic on 11 March 2020. With the impact of COVID-19 changing the business landscape daily, it is unsurprising that employers have been left asking “but what does this mean for my business and workforce?” Check out Coronavirus and the Workplace for guidance around what you can do to best meet your obligations and support your staff.
Workcover & Working From Home
An important point to note is where your team are working from home, their home becomes a place of work and is therefore covered by Workcover. Please see a link to a government checklist to assist in identifying any risks associated with working from home: https://maps.finance.gov.au/sites/default/files/2019-08/form_151.pdf
Fair Work Requirements
We have attached a link to the Fair Work Ombudsman website that addresses Coronavirus and Australian Workplace Laws. https://www.fairwork.gov.au/about-us/news-and-media-releases/website-news/coronavirus-and-australian-workplace-laws
13. Insolvency – temporary relief for financially distressed businesses
The Government has announced temporary changes on insolvency laws (Corporations Act 2001). These proposed changes are designed to give businesses time to assess their solvency, implement restructuring plans where needed and take advantage of the safe harbour provisions under the Corporations Act 2001.
The most notable changes are:
- A temporary increase in the statutory demand threshold to $20,000;
- An increase in the time to comply with a statutory demand from 21 days to 6 months;
- A temporary increase in the size of the debt required to issue a creditor’s petition to $20,000;
- An increase in the time to comply with a bankruptcy notice from 21 days to 6 months;
- The moratorium on action against a debtor following the presentation of a declaration of intent to present a debtor’s petition is increased to 6 months; and
- A six-month moratorium on directors’ insolvent trading liability, for debts incurred in the ordinary course of business.
14. Retail and commercial leases
We’ve put together a couple of tips / potential traps to help you to identify issues and opportunities around your businesses lease.
Unfortunately there are also no definitive answers and how these issues are best dealt with will come down to individual circumstances, the terms of the lease and the legal position. If you have any concerns about your exposure please do not hesitate to contact us.
- Ask for a rent concession/discount/abatement: Have the conversation with your landlord now. Asking for a 50% rent reduction for a 2 to 3 month period is not unreasonable. Landlords will want their tenants to have viable businesses on the other side of this pandemic or they face the possibility of empty shops, months with no rental income, paying costs that they would usually pass on to tenants. It’s also worth reviewing the terms of the lease to check for any terms that the tenant could use as leverage to swing a rent reduction in their favour.
- How could Coronavirus cause a tenant to breach their lease? Infection disease obligations: Tenants may have reporting obligations if the premises (or its occupants) come in contact with an infectious disease and leases often includes clauses which require tenants to advise landlords in these circumstances. Tenants can also be required to comply with directions given by government authorities; i.e. clean-up measures, at the tenant’s expense. If tenants fail to comply with the directions of their landlord or authorities, they may be in breach of their lease and also liable for costs including the landlord’s losses or damages. Stopping trading: Most leases require tenants to operate their businesses from the premises during normal business trading hours, with limited exceptions. If a tenant closes a shop without the landlord’s consent during times when it is required to trade, it may be in breach of the lease. Tenants could face losing security deposits, bank guarantees and in some situations, individuals could be personally liable for the tenant’s breach. A nationwide or state-sanctioned lock down would probably override a trading obligation but it would have to be considered on a case-by-case basis.
- When would a tenant be entitled to compensation as a result of the Coronavirus?: Tenants have legal rights to compensation in circumstances where landlords interfere with a tenant’s use of the premises and the tenant suffers a loss. A tenant may have a claim against their landlord if the landlord forced the tenant to shut their store. There are exceptions; i.e. if a landlord causes the interference in response to an emergency or at the direction of a government authority.
- Is there an opportunity to change the terms of a lease?: There’s always an opportunity if discuss it the right way but a crisis can provide opportunities to negotiate terms which can benefit both parties. Whatever the parties decide, the agreement should be documented in writing so there is clarity on what has been agreed and it’s binding. The economic climate is too uncertain to do deals on a handshake, despite how good the relationship might be.The following are examples of renegotiation options:
- If the lease is due to expire and the tenant does not have an option to renew the lease, it could agree to renew the lease for a further term (giving the landlord comfort that it will have continuous rent income), subject to the landlord agreeing to a short-term rent abatement.
- If a tenant runs a strong-performing business from the premises, it could negotiate a reduced base rent and agree to top it up with turnover rent (a percentage of the tenant’s turnover which exceeds a threshold amount).
- If there are still a number of years left in the term, a tenant could agree to carry out refurbishment works at the premises (preferably at a deferred date), subject to the landlord agreeing to a rent abatement.
15. Key practical business considerations
We expect that all businesses will be impacted in some manner. We strongly suggest that you spend some time considering the potential impacts on your business and personal life, should things escalate. We have listed some practical considerations to help you think about:
- Prepare a short term cash flow forecast (3 months) broken down into weekly cash flows, assuming a drop in revenue and identify the impact on your cash flow and work through what potential strategies you could adopt around costs savings and protecting revenue.
- McKinley Plowman’s Business Services team are on hand to help you prepare 3-way cash flow forecasts – Profit & Loss; Balance Sheet; and Cash Flow. It’s important to know the cash flow and profit position of your business as lenders are likely to request this information, should you apply for support with your finance.
- Speak to staff about short term job sharing or moving to part time employment rather than redundancies
- Consider short term salary cuts for higher salaried employees
- Communicating with staff about your policies, expectations and interactions with clients and customers – see Coronavirus and the Workplace article here.
- Consider workflow planning should there be personnel disruptions, managing casual staff/paying full time wages while on leave.
- Consider working from home requirements
- Consider Fair Work requirements for employees that may have been exposed to the virus.
- Know your cash flow position
- Consider how your product mix and sales strategy may need to change to reduce the impact of, or take advantage of, current conditions
- Revisit your marketing plan and strategy to investigate how to promote your business in low cost way
- Eliminate all non-essential or discretionary expenditure
- Reduce your labour costs – refer to section above
- Consider your operating hours to reduce running costs of your business
- Discuss reducing or deferring rent with your landlord
- Discuss converting your debt to interest only with your bank or seeking a repayment holiday as outlined above
- Review cash flow relief and support options provided by ATO and SRO as outlined above
- Identify other options for short term sources of finance
- Offer discounts for payment
- Agree payment plans where required
- Seek upfront payments for services where appropriate
- Make sure your terms and conditions are structured adequately and protect your right to recovered debts
- Proactively communicate with key suppliers and delay payments or negotiate extended payment terms
- Reduce the number of suppliers who are owed funds by clearing smaller debt as this will reduce the number of suppliers you may be required to negotiate with
- Negotiate payment discounts
- Reduce stock levels
- Sell surplus assets that do not have debt attached to them
- Consider payment plans or deferral for personal expenses such as school fees