Tax Update: Coronavirus relief packages

Over the weekend the Federal and State Governments both announced additional relief packages and other measures that will be of benefit to our small business clients and, to some extent, retirees.

This is the second phase of economic stimulus measures that have been announced, and the Prime Minister has indicated that a third economic package is being drafted in preparation of a total shutdown to the economy.

Some of the key measures have been summarised below.

Federal Government Relief

Small Business Cash Subsidy – Employer Payments

Last week we mentioned the government was introducing a wage subsidy of up to $25,000 for eligible small businesses. The package announced on Sunday ramps up the subsidy to a maximum set of tax-free payments totalling $100,000 between April and October.

Eligible businesses that pay salary and wages will receive minimum payments of $20,000, even if they are not required to withhold tax. The first $10,000 credit is to be applied against the March activity statement, and then $5,000 applied against the June quarterly lodgement and $5,000 against September.

The payments are aimed at small and medium businesses with turnover less than $50m.

The tax-free payment is calculated against PAYG Withholding reported on activity statements.  Businesses that lodge quarterly will receive a 100% credit applied against the March quarter, with further adjustments in April and May up to a limit of $50,000.  Businesses that lodge activity statements monthly will receive a 300% credit applied against the March monthly statement, with further adjustments in April and May.

The second tranche of $50,000 payments will be split into four credits of up to $12,500 for each of the June, July, August and September periods.  These credits will be calculated as 25% of the credit applied to the March period.

The first amount will be automatically calculated by the Australian Taxation Office from 28 April 2020, with refunds expected to be delivered within 14 days.

Loan Guarantee Scheme

The government has also announced a new “coronavirus SME guarantee scheme”, which will support lending to small and medium-sized businesses worth $40bn.

It will be available to all businesses with a turnover of less than $50m.

Under the proposal, the commonwealth will guarantee 50% of an eligible loan through participating banks and non-bank lenders to businesses disrupted by the coronavirus.

Loans will be used for working capital purposes, provided on an unsecured basis and for loans granted within six months starting 1 April 2020.

Lenders will not be charged a fee for accessing the guarantee scheme. Loans will be repayment-free for six months. The maximum that can be borrowed under the guarantee facility will be $250,000 on terms up to three years.

Retiree Minimum Pension Requirements

As the government did in the GFC they have announced a temporary reduction in superannuation minimum drawdown rates for account-based pensions and similar products.

This will be a 50% reduction in the rate for 2019-20 and 2020-21, which the government says will benefit retirees by providing them with more flexibility as to how they manage their superannuation assets.

This means that where you are currently required for example to take a pension of 5% you can now reduce this to 2.5%. If you can meet your living needs with the reduced pension amount this will help preserve cash in your fund while we wait for asset values to recover.

Early Access to Superannuation

The government has announced new measures that will allow job seekers, the unemployed and people whose hours have been cut by 20% to dip into their retirement savings.

People will be able to access up to $10,000 in a tax-free payment before 1 July, and then a second tax-free payment up to $10,000 in the new financial year.

Other Announcements by the Federal Government

• A second payment of $750 (in addition to the payment announced last week and payable around the end of March) will be paid to eligible Social Security recipients sometime in July;

• A $550 coronavirus supplement is to be paid fortnightly for the next six months to job seekers. This will include self-employed and sole traders although an income test will apply.

Victorian State Government Relief

Payroll Tax Refund – Victoria

As part of the package, the Victorian Government will provide full payroll tax refunds for amounts already paid for the 2019-20 financial year.  This applies to small and medium-sized businesses with payroll of less than $3 million – giving $550 million back to businesses who need it.

Payments will start flowing next week and will save an eligible business up to $113,975 a year, with businesses saving an average of $23,000. This assistance is a refund, not a loan.

The same businesses will also be able to defer any payroll tax for the first three months of the 2020/21 financial year until 1 January 2021, freeing up a further $83 million in cashflow.

Rent Relief

If you are a tenant in a government building you can apply for rent relief – a move private landlords are also being encouraged to undertake – and 2020 land tax payments will be deferred for eligible small businesses.

The Victorian Government will also support the hospitality sector by waiving liquor licensing fees for FY2020 for affected venues and small businesses.

They will also provide $500 million to establish a Business Support Fund. The fund will support the hardest hit sectors, including hospitality, tourism, accommodation, arts and entertainment, and retail. Details on this to follow.