Coronavirus – $17.6 billion Stimulus Package
On 12 March 2020, the Morrison Government announced a $17.6 billion economic stimulus package in response to the coronavirus (COVID-19). The package, which is expected to provide direct support for up to 6.5 million individuals and 3.5 million businesses, includes the following four key areas:
Business investment initiatives
Instant asset write-off extended and increased to $150k
The instant asset write-off threshold will be increased from $30,000 to $150,000 and expanded to include access for businesses with aggregated annual turnover of less than $500m (up from $50m) until 30 June 2020.
The threshold applies on a per asset basis, so eligible businesses can immediately write off multiple assets.
This proposal applies from announcement (12 March 2020) until 30 June 2020 for new or second-hand assets first used or installed ready for use in this timeframe. Anything purchased prior to 12 March 2020 does not qualify for the higher rate but may qualify for one of the other thresholds. Similarly, anything purchased, but not installed ready for use by 30 June 2020, will not qualify.
By way of example, a company with a 27.5% corporate tax rate which purchases an asset worth $100,000 before 30 June 2020, can claim a deduction for the whole asset purchase, rather than depreciating it over its useful life. A $100,000 deduction will provide the corporate with a tax saving of $27,500 when they lodge their 2020 tax return. Under current rules, the instant asset threshold reverts to $1,000 from 1 July 2020.
This represents the fourth increase or extension to the instant asset write-off and businesses will need to be careful of what they are claiming as follows:
Small businesses (aggregated turnover under $10 million)
1-Jul-18 to 28-Jan-19 = $20,000
29-Jan-19 to 2-Apr-19 = $25,000
2-Apr-19 to 12-Mar-20 = $30,000
12-Mar-20 to 30-Jun-20 = $150,000Medium businesses (aggregated turnover greater than $10 million but under $50 million)
1-Jul-18 to 28-Jan-19 = nil
29-Jan-19 to 2-Apr-19 = nil
2-Apr-19 to 12-Mar-20 = $30,000
12-Mar-20 to 30-Jun-20 = $150,000Large businesses (aggregated turnover greater than $50 million but under $500 million)
1-Jul-18 to 28-Jan-19 = nil
29-Jan-19 to 2-Apr-19 = nil
2-Apr-19 to 12-Mar-20 = nil
12-Mar-20 to 30-Jun-20 = $150,000
Investment allowance
In addition to the increased instant asset write-off rules, accelerated depreciation deductions will apply from 12 March 2020 until 30 June 2021 for the purchase of certain new depreciable assets. This will bring forward deductions that would otherwise be claimed in later years.
In this regard, 50% of the asset’s cost can be claimed in the year of purchase, with existing tax depreciation rules applying to the balance of the asset’s cost.
The investment allowance will be available to businesses with aggregated turnover below $500 million. It will apply to assets first used or installed by 30 June 2021. Note however, this concession will not apply to second-hand assets or capital works.
This initiative will presumably only apply to businesses that cannot already claim an immediate deduction for the full cost of the asset. Consequently, for those entities with a turnover below $500 million, this initiative will apply to assets:
costing more than $150,000 that are purchased between now and 30 June 2020; or
costing more than $1,000 that are purchased between 1 July 2020 and 30 June 2021.
By way of example, let’s assume that a business purchases a new truck for $250,000 (exclusive of GST) in July 2020. In the 2021 tax return the business would claim an upfront deduction of $125,000. The business would also claim a further deduction for the depreciation that would have arisen on the balance of the cost. If the business is a small business entity and using the simplified depreciation rules, this would mean an additional deduction of $18,750 (i.e., 15% x $125,000). The total deduction in the 2021 tax return would therefore be $143,750. Without the introduction of this investment incentive, the business would have claimed a deduction of only $37,500 (i.e., 15% x $250,000).
Cash flow assistance
For Small and Medium-Sized Businesses (“SMEs”):
Boost to employers
Tax-free cash flow support between $2,000 and $25,000 will be available to eligible businesses with a turnover of less than $50 million that employ staff between 1 January 2020 and 30 June 2020.
This is not a direct cash payment but a credit equal to 50% of the PAYG amounts withheld from salary and wages paid to employees. The employer will need to lodge an activity statement to trigger the entitlement. If the credit puts the business in a refund position, the excess amount will be refunded by the ATO within 14 days.
If a business pays salary and wages to employees but is not required to withhold any tax then a minimum payment of $2,000 will still be made.
Businesses that lodge activity statements on a quarterly basis will be eligible to receive the credit for the quarters ending March 2020 and June 2020. Business that lodge on a monthly basis will be eligible for the credit for the March 2020, April 2020, May 2020 and June 2020 lodgements. The minimum $2,000 payment will be applied to the first lodgement.
Eligibility for this measure will be based on prior year turnover. We will have to wait for the legislation for the finer details.
Support to businesses taking on apprentices
Eligible employers with less than twenty full time employees 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.
Where a small business is not able to retain an apprentice, the subsidy will be available to a new employer that employs that apprentice.
The subsidy will be up to a maximum of $21,000 per eligible apprentice/trainee and payable up to $7,000 per quarter.
Household stimulus payment
A one-off $750 stimulus payment will be made to pensioners, social security, veteran and other income support recipients and eligible concession card holders.
Payments will be made from 31 March 2020 on a progressive basis, with over 90% of payments expected to be made by mid-April.
The payment will be tax free and not count as income for Social Security, Farm Household Allowance and Veteran payments.
There will be one payment per eligible recipient. If a person qualifies for the one-off payment in multiple ways, they will only receive one payment.
Support for impacted sectors, regions & communities
Support of $1 billion will be provided for sectors, regions and communities that have been disproportionately impacted by the economic impacts of the coronavirus, including those heavily reliant on industries such as tourism, agriculture and education. This will include the waiver of fees and charges for tourism businesses that operate in the Great Barrier Reef Marine Park and Commonwealth National Parks. It will also include additional assistance to help businesses identify alternative export markets or supply chains.
Targeted measures will also be developed to further promote domestic tourism. The Prime Minister said further plans and measures to support recovery will be designed and delivered in partnership with the affected industries and communities.
Administrative relief will be provided for certain tax obligations, including deferring certain tax payments by up to four months, on a case-by-case basis.
The ATO will also set up a temporary shop front in Cairns within the next few weeks with dedicated staff specialising in assisting small business. In addition, the ATO will consider ways to enhance its presence in other significantly affected regions to make it easier for people to apply for relief, including considering further temporary shop fronts and face-to-face options.
Please note that whilst these measures start immediately, they are subject to the passage of legislation. It is expected that the Government will move to implement the stimulus package through legislation to Federal Parliament in the final sitting week of March 2020.
Let’s Talk
For more information or a more detailed discussion of these measures, please feel free to contact us on + 61 3 9527 5041.