Australia COVID-19 Update: Making the most of the stimulus to stay afloat

Written by Luke Musto, Associate

The ongoing coronavirus pandemic continues to have severe and worsening impacts on Australian businesses. With government restrictions forcing many businesses to close indefinitely, and nearly all businesses being affected in some way, all businesses should have a plan in place responding to these disruptions and to manage the impacts.

As the spread of the virus has broadened, the Australian Federal Government has announced a series of stimulus packages aimed at limiting the economic impacts of the coronavirus as much as possible. The total value of the Government’s support currently comes to $320 billion, or 16.4% of the annual GDP, dwarfing the stimulus package used in the GFC.

The idea is to ensure businesses are able to ride out the economic downturn brought on by the coronavirus, and to protect employees from job-losses. In the government’s words, by assisting businesses to keep going as best as they can or to press pause instead of falling apart, this will allow Australia to bounce back as quickly as possible once the crisis has passed. 

While there are a variety of measures that will be applicable to different businesses depending on individual circumstances, there are a few key updates that will be directly relevant to small to mid-size businesses. These are: 

Wages Tax Stimulus – Boosting cash flow for Employers

The Australian Government is providing up to $100,000 to eligible small and medium sized businesses that employ people, with a minimum total payment of $20,000. These payments are intended to assist in maintaining these businesses’ cash flow and allow their continued operation, and payment of rent and other expenses etc.

Small and medium sized employers will receive a 100% tax-free credit of between $10,000 and $50,000 on their PAYG withholding on wages for the Quarter 3 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 paid for the Quarter 4 period, for a total maximum payment of $100,000.

The minimum payment for each quarter will be $10,000 per payment, for a total minimum of $20,000.

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 quarter 3 BAS, and an additional $50,000 as part of the next quarter 4 BAS from the end of 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. 

JobKeeper

The JobKeeper package has the specific aim of ensuring that employers are able to stay afloat and keep paying salaries in these difficult times. Primarily, this payment will pay eligible employers $1,500 per fortnight per employee so they are able to continue paying their employees. This will be paid by the ATO directly to employers. This payment is intended to support employers to maintain their connections with employees, and will allow businesses to “reactivate” operations quickly without having to go through the rehire process.

Employers will be eligible for this subsidy if they meet the following criteria:

• Their business turnover is less than $1 billion, and their turnover has fallen by more than 30 per cent for at least a month’s time; or
• Their business turnover is $1 billion or more, and their turnover has fallen by more than 50 per cent for at least a month’s time; and
• The business is not subject to the Major Bank Levy.

In addition, employees must also meet their own criteria:

• Have been employed by an eligible employer at 1 March 2020;
• Can be either sole traders, full-time, part-time or long-term casuals (employed on a regular basis for longer than 12 months prior to 1 March 2020);
• Cannot be receiving the JobKeeper payment from another employer;
• Be at least 16 years of age; and
• Be an Australian citizen, the holder of a permanent visa, holding a protected special category visa or a non-protect special category visa if they have resided continually in Australia fro 10 years or more, or a New Zealander on a subclass 444 visa.

The subsidy will be calculated as starting 30 March 2020, with the first payments to be made to employers during the first week of May. This payment can be made to workers who have been stood-down, and can also be made to employees who may have ceased employment after 1 March 2020 but were subsequently re-engaged by the same employer. However, this payment will not be automatic, and employers will need to apply. At the moment, you can register your interest at the ATO website to receive further updates.

Relief for businesses 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 not include 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

The RBA has 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. 

Conclusion

While the coronavirus pandemic 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 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. 

To better understand how we can support your management team, please contact Harris Gomez at hmg@hgomezgroup.com

Our Sydney office is located at Level 7, 92 Pitt Street, Sydney NSW 2000.