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Government's big boost to stimulus package!

Federal stimulus boost provides $66b for those on the coronavirus economic frontline

23 Mar 2020

Prime Minister Scott Morrison and Treasurer Josh Frydenberg announced an additional $66b in COVID-19 economic support.  In announcing these measures, the PM stated that the priority for this stimulus remains support for small businesses, with wage subsidies of up to $100,000, and access to a further $20b in government guaranteed unsecured loans (capped at $250,000) on offer.

This newsletter outlines the federal government measures across all announcements to date.

Boosting cash flow for employers

  • An increase from the first package, small and medium business and not-for-profit (including charities) employers with aggregated annual turnovers of under $50m will be eligible for tax-free payments of up to $100,000 per employer. The first payment (capped at $50,000) will be made after 28th April and the second payment (also capped at $50,000) after 28 July 2020. This is the single largest measure in this package.
  • Eligible businesses that pay salary and wages but are not required to withhold tax will receive a minimum payment of $20,000, up from $2,000 in the first package.
  • The payment will be available from 28 April 2020 and, as stated in the previous stimulus update, will be paid as a credit to the business upon lodgement of their activity statements.
  • The payments are tax free, there will be no new forms and payments will flow automatically through the ATO. 
  • Details, including timing of payments, are on the factsheet available here.

Coronavirus SME Guarantee Scheme

  • The Government commits to underwrite $20b worth of loans as a 50 per cent guarantee to support lending of up to $40 billion to SMEs from bank and non-bank lenders.
  • Starting in early April, this will apply to eligible loans for businesses with annual turnovers of up to $50 million and will include an upfront six month freeze on repayments.
  • The loans will be unsecured but used only for working capital purposes and will apply to loans granted within six months from April 1, 2020. New and existing bank customers will be able to apply for loans up to $250,000 over three years.

Providing temporary relief for financially distressed businesses

  • Temporary increase to the threshold at which a creditor can take action to initiate insolvency or bankruptcy from $2000 to $20,000 and giving companies and individuals six months instead of 21 days to respond.
  • Relief for directors for personal liability when the company is trading while insolvent.
  • The Corporations Act 2001 will be amended to provide temporary and targeted relief for companies to deal with unforeseen events that arise as a result of the coronavirus.
  • This relief will be provided over the next six months.
  • ASIC has also released guidance on AGMs and reporting for listed entities.

Payments for households

  • The government is now providing 2 separate payments of $750 to social security and veteran income support recipients and eligible concession card holders, except for those who are receiving an income support payment that is eligible to receive the coronavirus supplement. The first payment will be paid automatically from 31 March 2020 and the second payment will be made automatically from 13 July 2020.

Coronavirus supplement

  • Temporary eligibility expansion to income support payments and establishing a new, time-limited Coronavirus supplement to be paid at a rate of $550 per fortnight.
  • This will be paid to both existing and new recipients of the JobSeeker Payment, Youth Allowance jobseeker, Parenting Payment, Farm Household Allowance and Special Benefit.
  • The Coronavirus supplement will be paid for the next 6 months. Eligible income support recipients will receive the full amount of the $550 Coronavirus supplement on top of their payment each fortnight.
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Early release of superannuation

  • From April, individuals will be able to access their superannuation, capped at $10,000 this financial year and a further $10,000 next financial year. The withdrawals will be tax-free and will be made available to those eligible for the coronavirus supplement as well as sole traders who have seen that hours of work, or income fall, 20% of more as a result of the coronavirus.
  • Eligible individuals will be able to apply online through myGov for access of up to $10,000 of their superannuation before 1 July 2020. They will also be able to access up to a further $10,000 from 1 July 2020 for another three months. They will not need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans' Affairs payments. This measure is estimated to cost $1.2 billion over the forward estimates period.

Superannuation minimum drawdown rates and social security deeming rates

  • Temporary reduction to superannuation minimum drawdown requirements for account based pensions and similar products by 50 per cent for 2019-20 and 2020-21.
  • Reduction of the deeming rates by a further 0.25 percentage points to reflect the latest rate reductions by the RBA. As of 1 May 2020, the lower deeming rate will be 0.25 per cent and the upper deeming rate will be 2.25 per cent. This measure is estimated to cost $876m over the forward estimates period.

ATO Relief for COVID-19 affected businesses

ATO COVID-19 Relief Announced

As part of the government's coronavirus response package, it has provided for the ATO to give administrative relief for some tax obligations for people affected by the coronavirus outbreak, on a case-by-case basis.

Business operatives affected by the coronavirus should contact the ATO to discuss relief options. Options include:

  • deferring by up to four months the payment date of amounts due through BAS (including PAYG instalments), income tax and FBT assessments and excise;
  • 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;
  • allowing businesses to vary PAYG instalment amounts to zero for the April 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 tax liabilities; and
  • working with affected businesses to help them pay their existing and ongoing tax liabilities by allowing them to enter into low-interest payment plans.

Employers will still need to meet their ongoing SG obligations for their employees.

Christmas Cheer with no FBT fear

As with any benefit that a business provides to staff, the question of whether it is a (taxable) fringe benefit or not needs to be considered.

The Australian Tax Office states that there are no different FBT rules that apply to Christmas parties (entertainment) than to any other entertainment.  The good news is that these parties may come under the "minor benefits" umbrella.  A minor benefit will be FBT-exempt where, broadly, the benefit is less than $300 per person and provided on an infrequent and irregular basis.

The FBT law allows however (perhaps getting into the spirit of the season) for the minor benefits threshold to apply to each benefit provided, not to a total value of "associated benefits".

So if, as a generous employer, you put on a barbecue and hand out gifts, the meal and the gift are considered separately for FBT purposes.  If each is less than $300, they are both generally FBT-free.

Exemption Negates Deduction

It is worth noting however that as such minor benefits are exempt from FBT, sadly a business cannot then claim the expenses as a tax deduction, nor can claims be made for any GST credits.

Where Do Taxis Stand?

For an employer thinking of paying for this travel option for staff, the important consideration in regard to this will be venue. If the taxi travel is from home to an entertainment venue (that is not the workplace) and home again, the Tax Office will include the cost of the ride as part of the entertainment and deem that it is to be included in the cost-per-head total (that is, it counts towards the $300 minor benefit limit).

But if the cab trip is from home to a function held at the workplace, and/or from the workplace back to home after the festivities, the taxi fare is exempt from FBT.

Spreading the Joy

The safest option FBT-wise would be to hold the Christmas party on the business premises on a working day, as providing the food and drinks will be FBT free; if it's only employees who attend.  If spouses or partners are invited (the law refers to them as "associates") the cost will still be FBT free if less than $300.  And if bona fide clients attend there is no FBT in respect of them.  If the party is held off-premise, at say a restaurant or pub, the $300 limit applies to both employees and associates.

Some canny business operators have taken the convivial, and tax effective, approach of holding more than one social event over the year.  Rather than have just one large bash at Christmas, a business may decide to spread the entertainment budget out to, say, an end-of-financial-year function in winter.

Dividing the party purse into two events can reduce the value of the entertainment each employee enjoys below the minor benefits limit of $300, and keeps the FBT liability of an employer to a happy minimum.  It should be remembered however that to be a minor benefit it is necessary that the particular benefit (or similar benefits) be provided irregularly and infrequently.