15 December 2020
As the global spread of COVID-19 continues, the economic impacts both locally and overseas are just beginning to be felt. As highlighted by the Prime Minister and Treasurer in their initial announcement on 12 March 2020, Australia is well placed to respond to the economic challenges it faces with a budget returned to balance last year. Both the IMF and OECD have indicated that Australia is in one of the best positions within advanced economies to provide fiscal support without endangering debt sustainability. The tax concessions and cash flow support announced at both the Federal and State level have been welcomed by many small and medium businesses, although practical challenges will remain.
Below we summarise the relief currently available to businesses at both the Federal and State level, including administrative concessions announced by the Australian Taxation Office (ATO). For a summary of the key measures relevant to individuals, refer to our Guidance on tax obligations and relief for individuals affected by COVID-19 website. For other consequential impacts of the practical challenges created by COVID-19 such as global mobility, immigration and other tax issues, refer to our other sites in the links above.
On 12 March 2020, the Federal Government announced its first package (AUD17.6 billion) of measures to respond to the current economic challenges confronting the Australian economy as a result of the continued spread of the coronavirus (COVID-19). This was followed by a second package announced on 22 March 2020 which brought the total relief by all arms of Government to AUD189 billion at that stage. One week later, a further AUD130 billion JobKeeper package was announced on 30 March 2020, following a comprehensive health package announced on the previous day. Subsequent announcements were then made to extend and expand these initial packages.
The focus of the relief measures is supporting businesses and employers to keep operating as best and for as long as they can and so as to be in the best-placed position when this crisis has passed to help keep Australians in jobs. From a tax perspective, this includes significant concessions for capital investment in the form of enhanced tax write-offs for depreciable assets, as well as cash flow assistance to almost all business and not-for-profit employers.
Further measures to support businesses during the COVID-19 recovery were announced in the 2020-21 Federal Budget on 6 October 2020. For details of these measures, please see our summary of tax measures in the 2020-21 Federal Budget.
All States and Territories have also been progressively announcing various stimulus measures, including relief for various State based taxes.
The economic stimulus packages announced by the Prime Minister and Treasurer to date have a number of components including:
JobKeeper payments to help businesses keep staff employed;
Supporting business capital investment through enhanced tax concessions;
Cash flow assistance for small and medium-sized businesses as well as not-for-profits (NFPs) to help them stay in business and keep their employees in jobs;
Targeted support for the most severely affected sectors, regions and communities;
Measures to support the flow of credit such as a Government guarantee of 50 per cent to support new short-term unsecured loans to small and medium enterprises;
Temporary relief for financially stressed business including, among other measures, relief for directors from any personal liability for trading while insolvent; and
Support for individuals and households in the form of stimulus payments and income support, temporary measures to allow early access to superannuation and reducing the superannuation minimum drawdown rates.
On 30 March 2020, the Federal Government announced the “JobKeeper” program, which broadly comprises a wage subsidy to help businesses keep staff employed. The subsidy of AUD1,500 per fortnight, per eligible employee, will be paid to almost all employer types (including not-for-profits and charities) and self-employed individuals (businesses without employees) (i.e. there is no limit on employer size). With the initial phase of the JobKeeper program concluding in September 2020, the Government announced on 21 July 2020 a second phase which extends the program for an additional six months through to March 2021, with a lower two-tier payment structure and a requirement for employers to retest its decline in turnover to continue to access the payment.
The following concessions are available in relation to business capital investment for depreciating assets and apply from 12 March 2020 to all businesses with an annual aggregated turnover of up to AUD500 million:
A new and improved depreciating asset write-off was announced in the 2020-21 Federal Budget on 6 October 2020 to apply to business with an annual aggregated turnover of up to AUD5 billion. This measure - referred to as temporary full expensing - will in many cases override the above listed initial measures, which going forward will be limited to assets or entities that do not qualify for the new measure. For further details on the temporary full expensing measure, please refer to our Tax Alert.
These measures have the potential to apply to approximately 99 per cent of Australian businesses. Multinational businesses will need to carefully consider eligibility having regard to the aggregated turnover threshold which, in accordance with existing tax law, also takes into account the ordinary business income of connected and affiliated entities (Australian or foreign), whether or not it is assessable in Australia.
Faster tax write-offs on depreciable assets such as plant, motor vehicles and equipment, have the effect of reducing taxable income and tax payable much quicker, with the tax benefit of such measures realised through the existing income tax return and payment system.
Small and medium-sized businesses and NFPs are eligible to receive a temporary cash flow boost - “Boosting Cash Flow for Employers measure”- with an automatic payment or credit applied on activity statement obligations of at least AUD20,000 and up to AUD100,000 for those businesses which have aggregated turnover of less than AUD50 million and that have employees. This tax-free cash flow boost is delivered automatically through the tax system as a credit applied upon businesses lodging their relevant March 2020 activity statement.
The manner in which it is calculated differs for quarterly and monthly payers:
The benefit to be delivered between the March 2020 and the June 2020 period is capped at a cumulative maximum payment of AUD50,000 (the initial maximum cap). All eligible businesses that pay salary and wages will receive a minimum payment of AUD10,000 with respect to this initial period, even if no amounts are required to be withheld from employees’ salary and wages. The payments are only available to active eligible employers established prior to 12 March 2020. However, charities that are registered with the Australian Charities and Not-for-profits Commission are eligible regardless of when they were registered.
This initial payment is followed by a second round of payments from late July 2020 for those eligible businesses that continue to be active. Eligible entities can receive additional payments equal to the total of all of the ‘Boosting Cash Flow for Employers’ payments received. The manner in which this additional payment is delivered differs for quarterly and monthly payers as follows:
Under this measure (combining the initial payments and additional payments), eligible entities will receive at least AUD20,000 up to a maximum of AUD100,000.
A further cash flow boost applies to certain small and medium businesses who retain an apprentice or trainee. The Federal Government originally announced a wages subsidy to eligible small business employers of up to 20 full-time employees who retain an apprentice or trainee who was in training with a small business as at 1 March 2020. The subsidy is calculated at 50 per cent of the apprentice’s or trainee’s wage paid during the nine months from 1 January 2020 to 30 September 2020, up to a maximum of AUD7,000 per eligible apprentice or trainee per quarter.
On 16 July 2020, the Government announced an expansion of this package to extend it until March 2021 in respect of an apprentice or trainee who was in training with a small business as at 1 July 2020, and expand it to include medium-sized businesses with less than 200 employees who had an apprentice in place on 1 July 2020. Claims for eligible small businesses are currently open and claims for eligible medium businesses will be open from 1 October 2020, with final claims to be lodged by 31 December 2020.
Additional measures to support businesses that take on a new apprentice or trainee were announced in the 2020-21 Federal Budget. Businesses or Group Training Organisations that engage an Australian Apprentice on or after 5 October 2020 may be eligible for a subsidy of 50 per cent of wages paid to an apprentice between 5 October 2020 and 30 September 2021, to a maximum of AUD7,000 per quarter. For further details, please refer to our summary of the tax measures in the 2020-21 Federal Budget.
There are a number of ATO administrative measures available to assist taxpayers experiencing financial difficulty as a result of the COVID-19 outbreak.
Options that are potentially available to assist impacted businesses include:
Working with affected businesses to help them pay their existing and ongoing tax liabilities by allowing them to enter into low-interest payment plans.
Similar assistance is available for individuals that may be impacted by the current conditions.
As part of a broader package of measures to provide relief for financially distressed businesses, the ATO will also work with businesses and directors of businesses that are struggling to meet their tax obligations to tailor solutions to their circumstances, including withholding enforcement actions including Director Penalty Notices and wind-ups.
Access to these relief measures is assessed on a case by case basis. Taxpayers are encouraged to reach out to their tax agent and/or liaise with the ATO directly.
The ATO has provided guidance on emerging tax issues in frequently asked questions on its website.
The States and Territories have also announced their own stimulus packages to support businesses, with most offering some form of relief in relation to payroll tax, rent relief for commercial tenants in government buildings, land tax deferrals, land tax rebates and waiving or refunds of rates and licencing fees.
For details of the measures relating to payroll tax, stamp duty and land tax for each State and Territory, refer to our State Taxes website.
In addition to the potential direct and indirect benefits of these support packages, there are a range of other issues that businesses should consider as they face the challenges posed by COVID-19. For further information, visit our firmwide COVID-19 response website.
People & Organisation Tax Leader, PwC Australia
Tel: +61 2 8266 5864
Partner, PwC Australia
Tel: +61 2 8266 1050