On 22 March 2020, the Australian Government announced an expanded economic response to help businesses and households through the period ahead in light of the broader and more prolonged impact of the Coronavirus outbreak.
Building on the previous measures (which were outlined in our Client Alert No.59 COVID-19 Update – Government Economic Stimulus Package) this package is designed to support businesses in managing short-term cash flow challenges, provide support to individuals and to position the Australian economy to recover strongly once the health challenge has been overcome.
1. Support for businesses
Boosting cash flow for employers
The Government is enhancing the Boosting Cash Flow for Employers measure it announced on 12 March 2020. The Government is now providing up to $100,000 (previously up to $25,000) to eligible small and medium-sized businesses (SMEs) and not-for-profits (NFPs) that employ people, with a minimum payment of $20,000 (previously up to $2,000)
Business entities with aggregated annual turnover under $50 million and that employ workers are eligible. NFPs, including charities, with aggregated annual turnover under $50 million and that employ workers will now also be eligible.
Under the enhanced scheme, employers will receive a payment equal to 100% of the amount withheld on their employees’ salary and wages (up from 50%), with the maximum payment being increased from $25,000 to $50,000. In addition, the minimum payment is being increased from $2,000 to $10,000 (this is for the period 1 January 2020 to 30 June 2020).
An additional payment is also being introduced for the July 2020 to October 2020 period. Eligible entities will receive an additional payment equal to the total of all of the Boosting Cash Flow for Employers payments they have received. This means that eligible entities will receive at least $20,000 up to a total of $100,000 under both payments.
The cash flow boost provides a tax free payment to employers and is automatically calculated by the Australian Taxation Office (ATO).
Timing of payment – Boosting Cash Flow for Employers payments
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 businesses 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 (300%) in the March 2020 activity statement.
The minimum payment will be applied to the business’ first BAS lodgment.
Timing of Additional payment
Quarterly lodgers will be eligible to receive the additional payment for the quarters ending June 2020 and September 2020. Each additional payment will be equal to half of their total initial Boosting Cash Flow for Employers payment (up to a total of $50,000).
Monthly lodgers will be eligible to receive the additional payment for the June 2020, July 2020, August 2020 and September 2020 lodgments. Each additional payment will be equal to a quarter of their total initial Boosting Cash Flow for Employers payment (up to a total of $50,000).
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). The business will be eligible to receive the payment on lodgment of each of the BAS. The business receives:
- A payment of $45,024 for the March 2020 period, equal to 300% of the total withholding.
- A payment of $4,976 for the April 2020 period, before reaching the $50,000 cap.
- No payment for the May 2020 period, as business has now reached the $50,000 cap.
- An additional payment of $12,500 for each of the June, July, August and September 2020 periods, equal to 25% of the total Cash Flow for Employers payments (up to a total of $50,000).
Blaze Acumen Comment
The above initiatives by the Government are welcome for businesses in Australia.
Note of Caution
However, we add a note of caution that the eligibility criteria for businesses is for their Aggregated Turnover is required to be less than $50 Million (or less than $500 million for certain instant asset write-off benefits – refer to Client Alert 59).
Under other existing legislation where “Aggregated Turnover” is an eligibility criterion it is the turnover of the entity plus the turnover of connected and affiliated entities. While no legislation has been released yet it is likely this will also be the case for the stimulus package.
For example, in the case of a foreign owned company “Aggregated Turnover” includes the turnover of the Australian company plus the turnover of the foreign parent company and that of any sister companies around the world.
Temporary relief for financially distressed businesses
Temporary higher thresholds and more time to respond to demands from creditors
The Government is temporarily increasing the current minimum threshold for creditors issuing a statutory demand on a company under the Corporations Act 2001 from $2,000 to $20,000. This will apply for six months. The statutory timeframe to respond to a statutory demand has been increased from 21 days to 6 months. This changed measure will apply for 6 months.
Temporary relief from Directors’ personal liability for trading while insolvent
To make sure that companies have confidence to continue to trade through the Coronavirus health crisis with the aim of returning to viability when the crisis has passed, directors will be temporarily relieved of their duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company’s business. This will relieve the director of personal liability that would otherwise be associated with the insolvent trading. It will apply for six months.
This temporary relief will apply to debts incurred in the ordinary course of the company’s business. Egregious cases of dishonesty or fraud will be subject to criminal penalties. Debts incurred will still be payable by the company.
The ATO will also tailor solutions for owners or directors of business that are currently struggling due to the Coronavirus, including temporary reduction of payments or deferrals, or withholding enforcement actions including Director Penalty Notices and wind-ups.
2. Supporting the flow of credit
Support for immediate cash flow needs for SMEs (Coronavirus SME Guarantee Scheme)
Under the Scheme, the Government will provide a guarantee of 50% to SME lenders for new unsecured loans to be used for working capital.
SMEs with a turnover of up to $50 million will be eligible to receive these loans.
The Government will provide eligible lenders with a guarantee for loans with the following terms:
- Maximum total size of loans of $250,000 per borrower.
- The loans will be up to three years, with an initial six month repayment holiday.
- The loans will be in the form of unsecured finance, meaning that borrowers will not have to provide an asset as security for the loan.
Loans will be subject to lenders’ credit assessment processes with the expectation that lenders will look through the cycle to sensibly take into account the uncertainty of the current economic conditions.
As part of the loan products available, the Government will encourage lenders to provide facilities to SMEs that only have to be drawn if needed by the SME. This will mean that the SME will only incur interest on the amount they draw down. If they do not draw down any funds from the facility, no interest will be charged, but they will retain the flexibility to draw down in the future should they need to.
The Scheme will commence by early April 2020 and be available for new loans made by participating lenders until 30 September 2020.
Quick and efficient access to credit for small business
The Government is providing an exemption from responsible lending obligations for lenders providing credit to existing small business customers. This exemption is for six months, and applies to any credit for business purposes, including new credit, credit limit increases and credit variations and restructures.
Responsible lending obligations do not currently apply to lending which is predominantly for a business purpose, but it can take time and effort for lenders to be satisfied that the money borrowed meets this test. By providing a temporary exemption from responsible lending obligations, this reform will help small businesses get access to credit quickly and efficiently.
3. Support for individuals and households
Income support for individuals (Coronavirus supplement)
Over the next six months, the Government is temporarily expanding eligibility 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 Jobseeker Payment, Youth Allowance Jobseeker, Parenting Payment, Farm Household Allowance and Special Benefit.
Payments to support households
The Government is now providing two separate $750 tax free payments to social security, veteran and other income support recipients and eligible concession card holders. The first payment will be made from 31 March 2020 and the second payment will be made from 13 July 2020. The second payment will not be made to those eligible for the Coronavirus supplement.
Temporary early release of superannuation
The Government is allowing eligible individuals affected by the Coronavirus to apply online through myGov to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21.
Individuals will not need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments.
To apply for early release you must satisfy any one or more of the following requirements:
- you are unemployed; or
- you are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or
- on or after 1 January 2020:
- you were made redundant; or
- your working hours were reduced by 20 per cent or more; or
- if you are a sole trader — your business was suspended or there was a reduction in your turnover of 20 per cent or more.
Self-managed superannuation fund (SMSF)
Separate arrangements will apply if you are a member of a SMSF. Further online guidance will be made available by the ATO.
You will be able to apply for early release of your superannuation from mid-April 2020.
4. Support for retirees
Temporarily reducing superannuation minimum drawdown rates
The Government is temporarily reducing superannuation minimum drawdown requirements for
account-based pensions and similar products by 50% for 2019-20 and 2020-21 income years.
This measure will benefit retirees with account-based pensions and similar products by reducing the need to sell investment assets to fund minimum drawdown requirements.
Age Default minimum drawdown rates (%) Reduced rate by 50 per cent for the 2019-20 and
2020-21 income years (%)
Under 65 4 2
65-74 5 2.5
75-79 6 3
80-84 7 3.5
85-89 9 4.5
90-94 11 5.5
95 or more 14 7
For example, under current minimum drawdown requirements, a 66 year old retiree is required by legislation to drawdown 5% of their account balance over the course of the 2019-20 and 2020-21 income years. Following the temporary reduction in minimum drawdown requirements, the retiree will now only be required to drawdown 2.5% of their account balance. If the retiree has already withdrawn over the reduced rate for 2019-20, they will not able to put the amount above the reduced rate back into their superannuation account.
Reducing social security deeming rates
As of 1 May 2020, the upper deeming rate will be 2.25% and the lower deeming rate will be 0.25%.
For example, assume an age pensioner couple have $550,000 worth of financial assets and hold $300,000 in a superannuation account with a conservative investment strategy which returned around 5% last year. They have invested $130,000 in a term deposit with an annual return of 1.5% and hold the remainder in a cash transaction account earning a negligible rate of interest. Under the former deeming rates, the couple’s Age Pension would have been reduced by $65 each per fortnight. Under the new deeming rates, the couple’s Age Pension will only be reduced by around $32 each per fortnight.
The Government is moving quickly to implement this package. It is intended that a package of Bills is being introduced into Parliament on 23 March 2020 for urgent consideration.
For further details regarding the Government’s economic response to the Coronavirus see: https://treasury.gov.au/coronavirus
If you have any questions about your eligibility for the Government’s Expanded Stimulus Package or need assistance accessing any of the support measures announced, please contact your Blaze Acumen advisor.
State Government Initiatives – Refer to Client Alert 61 for these Initiatives