On 12 March 2020, the Australian Government announced a $17.6 billion economic stimulus package to support individuals, businesses and households affected by the rapidly spreading COVID-19. The package announced by the Australian Government has four main focus areas.
1. Supporting business investment (effective from 12 March 2020)
Increasing the instant asset write-off
The Government is increasing the instant asset write-off threshold from $30,000 to $150,000 and it has been expanded to include all businesses with aggregated annual turnover of less than $500 million (up from $50 million). This proposal applies from 12 March 2020 until 30 June 2020, for new or second-hand assets purchased and first used, or installed ready for use within this timeframe.
For example, a company has an aggregated annual turnover of $25 million for the 2019-20 income year. On 1 May 2020, the company purchases a second-hand asset for $140,000, exclusive of GST, for use in their business. Under existing tax arrangements, the company is not able to immediately deduct assets costing more than $30,000 and instead would depreciate the asset over its effective life. Under the new $150,000 instant asset write-off, the company would instead claim an immediate deduction of $140,000 for the purchase of the asset in the 2019-20 income year.
Accelerating depreciation deductions – backing business investment (BBI)
Businesses with a turnover of less than $500 million will be able to deduct 50% of the cost of an eligible asset on installation (with the balance to be depreciated using existing rules). This proposal applies to those eligible assets first used or installed between 12 March 2020 and 30 June 2021.
Eligible assets include all new assets that can be depreciated under Division 40 of the Income Tax Assessment Act 1997 (that is, plant, equipment and specified intangible assets, such as patents). It does not apply to second-hand Division 40 assets, or buildings and other capital works depreciable under Division 43.
For example, a company has an aggregated annual turnover of $8 million for the 2019-20 income year. On 1 May 2020, the company purchases a new asset for $260,000, exclusive of GST, for use in their business. Under existing tax arrangements, the company would depreciate the asset using their small business simplified depreciation pool. Under the new BBI, the company would instead claim an up-front deduction of 50% of the asset’s value ($130,000) before placing the asset in their small business simplified depreciation pool. The company would then claim a further 15% deduction on the depreciated value of the asset ($19,500). As a result of the two deductions, the company is able to claim a deduction totalling $149,500 in the 2019-20 income year.
2. Cash flow assistance for businesses
Cash payments of up to $25,000 for employers
Businesses with turnovers of less than $50 million that employ staff between 1 January 2020 and 30 June 2020 will receive tax-free cash payments of 50% of their Business Activity Statement or Instalment Activity Statement from 28 April 2020.
Eligible businesses that withhold tax to the ATO on their employees’ salary and wages will receive a payment equal to 50% of the amount withheld, up to a maximum payment of $25,000.
Eligible businesses that pay salary and wages will receive a minimum payment of $2,000, even if they are not required to withhold tax.
Timing of payment
The payment will be applied for a limited number of activity statement lodgments. The ATO will deliver the payment as a credit to the business upon lodgment of their activity statements. Where this places the business in a refund position, the ATO will deliver the refund within 14 days.
Quarterly lodgers will be eligible to receive the payment for the quarters ending March 2020 and June 2020.
Monthly lodgers will be eligible to receive the payment for the lodgment months of March 2020, April 2020, May 2020 and June 2020. To provide a similar treatment to quarterly lodgers, the payment for monthly lodgers will be calculated at three times the rate (150%) in the March 2020 activity statement.
The minimum payment will be applied to the business’ first lodgment.
For example, in the months of March, April and June for the 2019-20 income year, a business reports withholding of $15,008 for their employees on each Business Activity Statement (BAS). Under the Government’s changes, the business will be eligible to receive the payment on lodgment of each of the BAS. The business receives:
· A payment of $22,512 for the March period, equal to 150% of the total withholding.
· A payment of $2,488 for the April period, before reaching the $25,000 cap.
· No payment for the May or June period, as business has now reached the $25,000 cap.
Wage subsidies of 50% of apprentice or trainee wage
Eligible employers can apply for a wage subsidy of 50% of the apprentice’s or trainee’s wage for up to 9 months from 1 January 2020 to 30 September 2020. The subsidy of up to a maximum of $21,000, will be available to businesses employing fewer than 20 full-time employees who retain an apprentice or trainee, or, where a small business is not able to retain an apprentice, the subsidy will be available to a new employer.
3. Household stimulus package (effective from 12 March 2020)
The Government will provide a one-off cash payment of $750 to certain taxpayers, such as those on Newstart, carers’ allowance, youth allowance, family tax benefits and aged pensioners. The one-off payment will be paid automatically from 31 March 2020 by Services Australia or the Department of Veterans’ Affairs.
4. Assistance for severely-affected businesses
The Government has announced assistance to support those regions, communities and sectors (e.g. tourism, agriculture and education) most severely affected by the COVID-19 pandemic.
As with the Government’s bushfire relief package, there is also administrative relief for certain tax obligations – including deferring tax payments up to four months.
The Government intends to introduce legislation in late March 2020 to implement its Economic Response to Coronavirus.
If you have any questions about your eligibility for the Government Stimulus Package or need assistance accessing any of the support measures announced, please contact your Blaze Acumen advisor.
For further details regarding the Government’s economic response to the Coronavirus see > https://treasury.gov.au/coronavirus
Blaze Acumen response
Blaze Acumen is committed to ensuring that we will continue to provide our clients with the highest level of service and professionalism.
As the Government’s response to the COVID-19 pandemic continues to develop, we acknowledge all businesses and communities are facing potentially significant challenges to which they need to respond rapidly.
In the event of any quarantine measures that may be required by the Government in response to controlling the spread of COVID-19 you can be confident that we will remain online and available to you. We are prepared so that our services, other than hosting physical meetings, are presently enabled so that they can be managed by our team working remotely.