The federal government has now officially announced part two of its COVID-19 stimulus plan to give further support to affected businesses, workers and the broader community. Below is a summary of the key updates in addition to the First Federal and State Government Stimulus Package (announced on 12 March 2020) which will directly impact you and your business. We also outline the announcements made in relation to bank lending and insolvency rules.
Increased Cash Flow Support Offered to your Business
The easiest way to understand these developments is to scratch from memory the amounts announced in the first stimulus package, announced on 12th March. This cashflow support to employers has been significantly enhanced in this second round.
First payment – 100% cashback on PAYG withholding (tax-free), up to $50,000 in total
Applicable period – From 1 January to 30 June 2020
Eligibility – Small-to-medium businesses with annual turnover of up to $50 million, that employ staff in the period between 1 January and 30 June 2020. The business entity must have been established prior to 12 March.
- You will receive a payment equal to 100% of the amount withheld (up from the 50% announced in the 12 March package), up to a maximum payment of $50,000 in total (up from the $25,000 maximum announced in the 12 March package)
- If your business is eligible and even if you are not required to withhold tax from wages and salary paid, you can still receive the minimum payment of $10,000 (up from the $2,000 which was announced in the 12 March package)
- The payment is delivered as a credit in the ATO activity statement system from 28 April 2020 upon lodging eligible upcoming activity statements
- Where the credit applied results in a refund, the ATO will deliver this within 14 days.
Additional payment – Tax-free, cash payment which is equal to the first payment
Applicable period – From 1 July to 30 September 2020
Eligibility – To qualify for the additional payment, the entity must continue to be active and must have been entitled to the first payment
- You will receive the same total benefit as under the first payment, received in equal instalments, following lodgement of each activity statements for this 3-month period
- This means that if your business is an eligible employer it will receive, in total, a minimum payment of $20,000 up to a maximum of $100,000 across both payments
- The cash flow boost provides a tax-free payment to employers and is automatically calculated by the Australian Taxation Office (ATO) through the activity statement system. There are no new forms required.
- For monthly activity statement lodgers, the additional payment will be delivered as four equal automatic credits in the activity statement system, each one equal to one quarter of the first payment. Credits will be allocated following each of the four lodgements for the months of June 2020, July 2020, August 2020 and September 2020 (up to a total of $50,000).
- For quarterly activity statement lodgers, the additional payment will be delivered as two equal automatic credits in the activity statement system, each one equal to one half of the first payment. Credits will be allocated following the lodgement of your June 2020 and September 2020 activity statements (up to a total of $50,000).
- A requirement for the additional payment is that the business must continue to be “active”. There are no guidelines yet on how a business can demonstrate that it is active for this purpose. It is our view that business activity would be demonstrated by ongoing activity through the business accounts such as income and continued costs (even if these are reduced).
Banking Concessions Offered
SME Government Guarantee Scheme
A new “coronavirus SME guarantee scheme” has been introduced to support lending to small and medium-sized businesses worth $40bn.
Eligibility – Small-to-medium businesses with turnover of up to $50 million
The government will guarantee 50% of an eligible loan issued by eligible lenders to businesses disrupted by the coronavirus.
- Maximum total size of loans of $250,000 per borrower
- The loans will be up to three years, with an initial 6-month repayment holiday starting 1 April 2020
- 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.
- The Scheme will complement the announcement the Government has made to cut red-tape to allow SMEs to get access to credit faster.
RBA Funding for Lending to SMEs
The Reserve Bank of Australia has announced a term funding facility for the banking system. Banks will have access to at least $90 billion in funding at a fixed interest rate of 0.25 per cent, with incentives applying to new loans to SMEs. The intention is that this will reduce interest rates for SME borrowers.
Bank Loan Deferrals – Business and Home Loans
The Australian Banking Association announced on Friday that Australian banks will defer loan repayments for small businesses affected by COVID-19 for six months.
Shortly after that announcement each of the four big banks (Westpac, NAB, ANZ and CBA) announced similar relief for home loans, all on broadly the same terms – where incomes have been impacted by the coronavirus, they will offer a 6-month deferral of payments on business loans upon application, and subject to a review after 3 months.
Temporary Relief for Businesses and Individuals in Financial Distress
- Increase in the debt threshold for commencing insolvency proceedings on companies, under a statutory demand, from $2,000 to $20,000.
- Response period to a statutory demand will be temporarily extended from 21 days to six months.
- Directors are released from the statutory duty to avoid training while insolvent for a temporary period of 6 months, in relation to debts incurred in the ordinary course of their business. Egregious or reckless cases of incurring credit during this period is not covered by this temporary relief.
- Increase in the debt threshold for commencing insolvency proceedings on individuals, under a Bankruptcy Notice, from $5,000 to $20,000.
Increased Income Support Offered to Individuals including Sole Traders
Coronavirus supplement – $550 per fortnight for 6 months from 27 April 2020
Eligibility – you must be receiving one of the following income support payments:
- JobSeeker Payment (formally Newstart. This includes all payments progressively transitioning to JobSeeker Payment; those currently receiving Partner Allowance, Widow Allowance, Sickness Allowance and Wife Pension)
- Youth Allowance JobSeeker
- Parenting Payment (Partnered and Single)
- Farm Household Allowance
- Special Benefit recipients
The Coronavirus supplement is in addition to the payment received under each of these categories above.
Enhanced Access to Income Support Payments
- Access to JobSeeker Payment and Youth Allowance JobSeeker will now be more readily available if you are a permanent employee who is stood down or loses your employment; a sole trader; a casual worker or a contract worker who meets the income tests as a result of the Coronavirus. This could also include a person required to care for someone who is affected by the Coronavirus.
- The full JobSeeker payment is allowed if an individual earns less than $104 per fortnight, with reduced amounts claimable for income over that.
- The asset test and waiting period usually required for these support payments are not required to be met during this 6-month period, together with other related requirements.
- You cannot access employer entitlements (such as annual leave and/or sick leave) or income protection insurance, at the same time as receiving these income support payments.
Additional Tax-free Stimulus Payment – $750 (once-off)
Eligibility – you must be residing in Australia and be receiving one of the payments or holding one of the concession cards that were eligible for the first payment ($750 announced on 12 March, to be paid automatically on 31 March), except those payments that make you eligible for the $550-a-fortnight coronavirus supplement (see above). You cannot receive both the second $750 payment and the coronavirus supplement.
Early Access to super up to $10,000 (tax-free)
Eligibility – you must satisfy any one or more of the following requirements:
- you are unemployed; or
- you are eligible to receive JobSeeker payment, Youth Allowance JobSeeker, 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.
The Government is allowing individuals affected by the Coronavirus 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.
Retirees Drawing from Superannuation
The minimum drawdowns from account-based pensions and similar products have been reduced by 50% for income years 2019/20 and 2020/21. The drawdowns required will now range from 2% to 7% depending on the age of the pension recipient, down from the range of 4% to 14%.
What should you do now?
Access Cashflow Boost Payments
If you are eligible for the cashflow boost payments, you should lodge your Activity Statement for the period ended 31 March 2020 early in April to access the payment credits as early as possible, i.e. from 21 April for monthly lodgers and 28 April for quarterly lodgers. Any refunds due would be issued within 14 days.
Consider Temporary Unsecured Lending
Contact your bank to enquire about the new lending measures available from 1 April. Even if your business is not impacted immediately by Covid-19, having a pre-approved low rate, additional line of credit on hand if you do need it, could see you through the impact of this crisis down the line.
Keep your accounts and cash flow forecasts up to date. These will assist you to accurately monitor your position and will enable you to provide financial information requested by your bank, if you do apply for finance during this period.
Consider Deferring Loan Repayments
If you foresee cashflow difficulties in making your business or home loan repayments, you should contact your bank to discuss accessing the repayment deferrals on offer. Please note, however, that interest on the loan outstanding would continue to be added to the loan amount, so after the 6-month period, your loan amount would be higher than it is before the deferrals commenced.
Access Income Support if you Need It
If you suffer a reduction in your income because of this crisis, you may be eligible for the Job Seeker Payment, subject to your other income, regardless of whether you are a temporarily stood down permanent employee, a casual worker or a sole trader. You are advised to claim online rather than going to the Centrelink office. If you do not already deal with Services Australia, you will need to set up a myGov account, call to verify your identity and get a link to your Centrelink online account. Please click here for more details.
Review your Insurance Entitlements
If you have a business interruption and/or an income protection insurance policy, contact your insurer to determine if you are entitled to claim under it.
If you are concerned that disruption to your business operations may cause you to fall behind with your tax and super obligations, refer to the ATO’s information on Covid-19, or speak to us to discuss any concerns regarding these or other financial obligations.