by Jahnvi Modi and Devan Bishop

Introduction

The Morrison Government announced a $17.6 billion economic plan on 12 March 2020 to keep Australians in jobs, keep businesses in business and support households and the Australian economy as the world deals with the significant challenges posed by the spread of the coronavirus.

This significant action has been taken in the national interest to guard against more severe economic impacts of the Coronavirus outbreak. The package is front-loaded in order to instil confidence in businesses and households and help firms keep people employed. This will ensure that the economy is in the best possible position to recover as the shock subsides. The Government wants the stimulus package to be temporary and targeted, which will offer an immediate boost to the economy rather than making permanent changes to the budget.

The Government’s economic response targets four key areas:

  • $3.9 billion for delivering support to business investment;
  • $8 billion of cash flow assistance to help small and medium sized business to stay in business and keep their employees in jobs;
  • $4.8 billion of stimulus payments to households to support growth that will benefit the wider economy; and
  • $1 billion for providing targeted support for the most severely affected sectors, regions and communities.

The Government has committed, 

  • An additional $2.4 billion to support our health system to manage any further outbreak in Australia. The package provides support across primary care, aged care, hospitals, and research. It will ensure the capacity of our health system to effectively assess, diagnose and treat people with the Coronavirus in a way that minimises its spread in the community and protects vulnerable Australians. 
  • To cover 50 per cent of additional hospital costs incurred by states and territories related to the diagnosis and treatment of patients with, or suspected of having, the Coronavirus.

Summary of the stimulus package

1.  Delivering support for business investment ($3.9 billion)

The two business investment measures in this package are designed to assist Australian businesses and economic growth in the short term, and encourage a stronger economic recovery following the Coronavirus outbreak. 

Increasing the instant asset write-off (“IAWO”)

The Government has increased the instant asset write-off threshold from $30,000 to $150,000 and will expand access to include businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020. 

The higher IAWO threshold will provide cash flow benefits for businesses that will be able to immediately deduct purchases of eligible assets each costing less than $150,000. The threshold applies on a per asset basis, so eligible businesses can immediately write-off multiple assets. The IAWO will revert to $1,000 for small businesses (turnover less than $10 million) from 1 July 2020. 

Backing business investment

The Government is introducing a time limited 15-month investment incentive (through to 30 June 2021) to support business investment and economic growth over the short term, by accelerating depreciation deductions. Businesses with a turnover of less than $500 million will be able to deduct 50 per cent of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost. 

These two measures will support over 3.5 million businesses (over 99 per cent of businesses) employing more than 9.7 million employees. 

2.     Cash flow assistance for businesses ($8 billion)

This assistance will support businesses to manage cash flow challenges resulting from the economic impacts of the Coronavirus and help businesses retain their employees. These two measures are designed to support employment in small and medium enterprises and to improve business confidence. 

Boosting cash flow for employers

The Boosting Cash Flow for Employers measure will help small and medium businesses with aggregated annual turnover under $50 million to cover the costs of employee wages and salaries equal to 50 per cent of PAYG withheld for businesses that withhold tax, with a minimum of $2,000 and a maximum of $25,000 over six months. Businesses that pay salary and wages but are not required to withhold tax will also receive the minimum payment of $2,000. The payment will provide cash flow support to businesses with aggregated annual turnover under 50 million that employ staff. The payment will be tax free. 

This measure will benefit around 690,000 businesses employing around 7.8 million people. 

Supporting apprentices and trainees

The Government is supporting small business to retain their apprentices and trainees. Eligible employers can apply for a wage subsidy of 50 per cent 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 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. 

This measure will support up to 70,000 small businesses, employing around 117,000 apprentices. 

3.     Stimulus payments to households to support growth ($4.8 billion)

The Government will provide a one-off $750 payment to welfare recipients, including social security, veteran and other income support recipients and eligible concession card holders. There will be one payment per eligible recipient. For example, if a person qualifies for the one-off payment in multiple ways, they will only receive one payment. The payment will be tax free and will not count as income for Social Security, Farm Household Allowance and Veteran payments. 

This measure will assist around 6.5 million lower income Australians, which will support confidence and domestic demand in the economy. 

4.     Assistance for severely affected regions ($1 billion)

The Government has set aside $1 billion to support those regions and communities that have been disproportionately affected by the economic impacts of the Coronavirus, including those heavily reliant on industries such as tourism, agriculture, and education. This will include:

  • waiver of fees and charges for tourism businesses that operate in the Great Barrier Reef Marine Park and the waiver of entry fees for Commonwealth National Parks;
  • additional assistance to help businesses identify alternative export markets or supply chains;
  • Develop targeted measures to further promote domestic tourism;
  • Administrative relief from the Australian Taxation Office, for some tax obligations for people affected by the Coronavirus outbreak, on a case-by-case basis. The ATO will consider ways to enhance its presence in significantly affected regions, making it easier for people to apply for relief (e.g. set up of temporary shop fronts and face to face options). 

Stimulus Package Implementation

The Government will move quickly to implement this package. To that end, a package of Bills will be introduced into Parliament in the final Autumn sitting week in March 2020 for Parliament’s urgent consideration and passage. Following passage of the Bills through Parliament, the Government will then move to immediately make, and register, any supporting instruments.

Key tax planning strategies for the year ended 30 June 2020

Based on our review of the economic stimulus package, we have noted below key tax planning strategies to be considered for the year ended 30 June 2020:

Business eligibility criteriaStrategy
For businesses with turnover < $500 millionBring forward purchase of business assets costing <$150K prior to 30 June 2020, to claim the instant asset write off of up to $150K per asset. Ensure that the asset is ready for use prior to 30 June 2020.Bring forward purchase of depreciable assets >$150K prior to 30 June 2021, in order to claim 50% accelerated depreciation deduction for the year ending 30 June 2020 and 30 June 2021 respectively.
For businesses with turnover < $50 millionClaim credit for 50% of PAYG withholding (maximum cap of $25K and minimum cap of $2K) by lodging quarterly/monthly activity statements for the period from 1 Jan 2020 to 30 June 2020.Claim minimum credit of $2K, if salary and wages paid during the period but no PAYG withheld.
For business with 20 employeesClaim subsidy up to maximum amount of $21K, if the business has employed trainee/apprentice as at 1 March 2020.
For all businesses irrespective of sizeClaim subsidy up to maximum amount of $21K, if the business has re-employed trainee/apprentice as at 1 March 2020.Contact ATO for lodgement deferrals if business has been affected by coronavirus outbreak

We recommend to review the measures and should you have any queries in relation to the economic stimulus package and how it affects you and your business, please do not hesitate to contact us on (03) 9069 7700.