The COVID-19 virus is having a devastating effect on Australian businesses.
Federal, State, and Territory Governments have introduced a range of business stimulus measures and the Australian Taxation Office (ATO) is supplying administrative support to affected taxpayers. We expect further support initiatives as the crisis unfolds.
Below is a summary of the main elements of the support available to businesses as at 27 March 2020.
Federal Government
On 12 March 2020 and 22 March 2020, the Federal Government announced two stimulus packages. The measures are now law. Follow this link to the Treasury Fact Sheets on the measures in the packages.
Boosting cash flow for employers
Businesses that have employees and an aggregated annual turnover of less than $50 million (based on the prior year turnover) will be eligible for tax-free payments totaling up to $100,000 between April 2020 and October 2020.
While the receipt of the payments is tax-free. If received by a company or trust there could be taxation consequences if paid to shareholders or beneficiaries.
An entity will be eligible if it satisfies the following requirements, the entity:
has aggregated annual turnover under $50m (based on prior year turnover);
makes payments of salary or wages liable to pay-as-you-go (PAYG) withholding (even if no withholding is required);
had an Australian Business Number (ABN) at 12 March 2020;
either
had assessable income from carrying on a business in the 30 June 2019 income year and had lodged its income tax return for that year by 12 March 2020; or
had made taxable, GST-free, or input-taxed supplies between 1 July 2019 and 12 March 2020 and lodged an activity statement for the relevant period;
notifies the ATO of entitlement using the approved form; and
the entity (or its associate or agent) has not engaged in a scheme for the sole or dominant purpose of seeking to make the entity entitled to the payment or to increase the entitlement of the entity to the payment.
Charities registered with the ACNC will also be eligible for the payments.
For qualifying entities, the payments will be:
First boost
April 2020: a minimum payment of $10,000 (up to $50,000):
quarterly remitters: 100% of PAYG withheld in March activity statement (lodged in April) if that amount exceeds $10,000 (or $10,000 minimum payment); or
monthly remitters: 300% of PAYG withheld in March activity statement if that amount exceeds $10,000 (or $10,000 minimum payment);
May to July 2020: possible further payments for entities that received less than the maximum $50,000 in April representing amounts withheld in the April, May, and June activity statements (monthly remitters) or the June activity statement (quarterly remitters) up to a maximum of $50,000 (for all payments including the payment in April 2020).
Second boost
Further payments equal in size to the entity’s first payment(s) with the second boost payments payable when the entity lodges its activity statements for the June and September quarters or the June to September months. The practical effect is that the second payments will be for a minimum of $10,000 up to a maximum of $50,000.
For example, a quarterly remitter that received a first payment of $50,000 will receive a further payment of $25,000 when it lodges its June quarter activity statement and another $25,000 when it lodges its September quarter activity statement. A monthly remitter would receive $12,500 when the entity lodges each of its June to September activity statements.
Wage subsidies for apprentices and trainees until 30 September 2020
A wage subsidiary for employers of apprentices and trainees. The key elements are:
the subsidy will be 50% of the apprentice of trainee’s wages for the period from 1 January 2020 to 30 September 2020 with a maximum subsidy of $21,000 ($7,000 per quarter) per apprentice or trainee;
the employer must have less than 20 full time employees, must retain the apprentice or trainee, and the apprentice or trainee must have been in training as at 1 March 2020; and
employers of any size that re-engage an eligible apprentice or trainee, who could not be retained by a small employer, are also eligible for the subsidy.
Increasing instant asset write-off until 30 June 2020
Temporarily increasing the asset and turnover thresholds for eligibility to the instant asset write-off until 30 June 2020. The key requirements are:
the asset threshold is increased to $150,000 (from $30,000);
the aggregated turnover threshold is increased to $500 million (from $50 million);
the increased thresholds apply from 12 March 2020 until 30 June 2020;
the measure will be available for new, used, or second-hand assets first used or installed ready for use within that timeframe.
For entities with turnover of less than $10 million that use the ‘pooling’ depreciation method under Division 328, there is an immediate deduction for the balance of the ‘General Small Business Pool’ if the pool balance is less than $150,000 at 30 June 2020.
Backing business investment through accelerated depreciation
An investment incentive until 30 June 2021 (that is, 15 months) which allows eligible businesses to claim accelerated depreciation deductions on eligible assets. The key elements are:
the entity must have aggregated turnover of less than $500 million;
immediate deduction of 50% of the cost of new depreciating assets first used or installed between 12 March and 30 June 2021 (the remaining 50% will be depreciated under the existing rules);
the asset must be in Australia and intended for use within Australia;
the measure does not apply to:
second-hand Division 40 assets;
buildings or capital works that are depreciable under Division 43; or
assets for which an instant asset write-off is available (see above).
For entities with aggregated turnover of less than $10 million that use the ‘pooling’ depreciation method in Division 328, an immediate deduction of 57.5% of the amount added to the General Small Business Pool is available with the remaining balance (42.5%) added to the General Small Business Pool and depreciated at 30%.
ATO support
The ATO has introduced administrative concessions for businesses affected by COVID-19. Links to the ATO COVID-19 support and frequently asked questions (FAQ) pages are here and here.
Corporate tax PAYG concessions
PAYG instalment taxpayers can vary their instalments on their activity statements and claim a refund for instalments already paid in the 2020 income year by:
varying the PAYG instalment amount to zero from the March 2020 quarter (or March month for monthly remitters); and
claiming a refund for any instalments made for the September 2019 and December 2019 quarters (or for the July 2019 to February months for monthly remitters).
This measure is a cashflow timing benefit only and will not change total tax payable for the 2020 income year. The ATO will not impose penalties or interest on varied (or refunded) PAYG instalments. However, taxpayers need to be mindful not to have varied (or refunded) PAYG instalments and cause a franking account deficit as at 30 June 2020.
Payment deferral for amounts payable through activity statements
Taxpayers can telephone the ATO on 1800 806 218 and ask for a deferral of the payment of amounts due on activity statements including net goods and services tax (GST) liabilities, PAYG instalments (if not varied or refunded under the above), and fringe benefits tax until up to 12 September 2020. The ATO will not charge interest on the deferrals.
This measure is a timing cashflow benefit only, there is not a deferral of lodgments.
Moving from quarterly to monthly GST reporting
Taxpayers on a quarterly GST reporting cycle may telephone the ATO on 1800 806 218 to change to monthly GST reporting to get faster access to GST refunds.
The changes can only be made from the start of a GST quarter, so the change would take effect from 1 April 2020 with the change to last for at least 12 months (at which time the taxpayer can revert back to quarterly reporting).
Interest, penalties, and payment plans
Taxpayer’s affected by COVID-19 can telephone the ATO on 1800 806 218 to:
remit interest and penalties incurred on or after 23 January 2020 on tax liabilities;
ask for low interest payment plan to pay for existing and ongoing tax liabilities.
Tax residency and permanent establishments
The ATO has published a revised approach to central management and control residency test to take into account the impact of travel restrictions and lockdowns on board meetings conducted via telephone or video conference.
The ATO says that if the only reason for holding board meetings in Australia or directors attending board meetings from Australia is because of impacts of COVID-19, then it will not apply compliance resources to determine if central management and control is in Australia.
The ATO states that foreign companies will not be treated as having a permanent establishment in Australia due to the presence of employees in Australia because those employees are temporarily relocated or restricted in their travel because of COVID-19.
State and Territory Government measures
The State and Territory Governments of all States and Territories have announced economic stimulus and relief packages.
This summary focuses on the Victorian measures as at 27 March 2020:
businesses with payroll of less than $3 million (Victorian wages, single entity basis) will be eligible for full refunds of payroll tax for the 2020 year (a refund of up to $113,975);
the same businesses can defer payment of payroll tax for the first three months of the 2021 year until 1 January 2021;
commercial tenants in Victorian Government buildings can apply for rent relief;
2020 land tax payments will be deferred for eligible small businesses;
the Victorian Government will pay all outstanding supplier invoices within 5 business days; and
the waiver of liquor licensing fees for 2020 for affected venues and small businesses in the hospitality sector.
The Victorian State Revenue Office (SRO) is sending out emails to eligible businesses for payroll tax relief but the business still needs to apply for refund. For businesses not contacted by the SRO, an eligible business will receive the refund when it lodges its annual payroll tax reconciliation.
Details of the Victorian and other State and Territory measures are at the following links.
Summary
The support currently available by Governments, the ATO, and SROs is not limited to the ‘taxation based’ measures (outlined above) and is likely to increase if the COVID-19 crisis deepens or continues for an extended period. We will provide further updates as these develop.
Sladen Legal’s Business Law team can help you with understanding and availing of the COVID-19 support available. For further information please contact:
Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E: nbrydges@sladen.com.au
Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327| T +61 3 9611 0105
E: dsmedley@sladen.com.au
Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E: pbroderick@sladen.com.au
