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Will the Government’s stimulus help me and my business?

By Kim Hinton / 30 March 2020
11 min.
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Worthwhile read for: Business owners, Company directors, CEO

As the economic impacts of the COVID-19 pandemic and the Government’s transmission mitigation measures begin to take shape in Australia, the Federal and Queensland Governments have announced stimulus measures to cushion the blow to businesses and households and allay fears of recession.

In this alert Special Counsel, Kim Hinton and Solicitor, Chris Cullen outline what the Federal and Queensland governments’ measures are and whether your business is eligible to receive assistance.

Federal Government 

On 12 March 2020, the Federal Government announced its first set of economic measures to combat the COVID-19 pandemic, a $17.6 billion stimulus package in a bid to keep businesses operating and workers in jobs. Since this announcement, the Federal Government’s approach has been progressive and revisionary – a testament to the ever-changing and increasing threat of COVID-19 to the economy. 

A second set of stimulus measures was announced shortly after on 22 March 2020, seeking to revise measures and ramp up support for small businesses, bringing the total fiscal spend to $189 billion across the forward estimates. To put this in perspective, this figure represents approximately 10% of Australia’s annual gross domestic product (GDP). 

The cornerstone of the Government’s economics response is short and mid-term financial assistance for Australian businesses which has taken shape as several initiatives, namely: 

The Boosting Cash Flow for Employers scheme 

Eligible businesses and not-for-profits (NFPs) will receive financial assistance to help with cash flow management, operational costs and employee retention. The payments will flow automatically through the Australian Taxation Office (ATO). 

The scheme initially provided for tax-free payments of up to $25,000 (with a minimum payment of $2,000), though funding amounts have since been revised. As of 22 March 2020, the maximum amount payable to eligible businesses is now $100,000, with a minimum payment of $20,000. 

Those eligible for payments under the scheme are small-to-medium sized businesses and NFPs (including charities) that employ workers and have an aggregate annual turnover of less than $50 million (based on prior year turnover). 

The scheme is expected to have significant reach, with Treasury estimates indicating nearly 700,000 businesses, employing approximately 7.8 million people, and 30,000 NFPs will benefit1.  

Apprentice and trainee wage subsidisation 

Eligible employers can apply for a wage subsidy of 50% for wages paid to each apprentice or trainee during 1 January 2020 and 30 September 2020. Employers will be reimbursed a maximum of $21,000 (or $7,000 per quarter) per eligible apprentice or trainee. 

To be eligible, businesses must employ less than 20 full-time employees who retain an apprentice or trainee. The apprentice or trainee must have been in training with the business as at 1 March 2020. The subsidy is also available to employers that re-engage an eligible out-of-trade apprentice or trainee. 

To access the subsidy, employers must register from early-April 2020 and ensure final claims are submitted before the deadline of 31 December 2020. 

Temporary relief for financially distressed businesses

The measures aim to reduce the threat of adverse actions being taken against businesses that may lead to insolvency or a winding up, by: 

  • increasing the threshold at which creditors can issue a statutory demand on a company from $2,000 to $20,000, and the time companies have to respond to the demand from 21 days to 6 months;
  • increasing the threshold for a creditor to initiate bankruptcy proceedings against a debtor from $5,000 to $20,000, and the time for debtors to respond to a bankruptcy notice from 21 days to 6 months;
  • temporarily relieving directors of their duty to prevent insolvent trading in relation to company debts incurred in the ordinary course of business (i.e. excluding circumstances involving dishonesty or fraud); and 
  • providing temporary flexibility in the Corporations Act 2001 (Cth) (Corporations Act) to provide targeted relief for companies dealing with unforeseen events arising due to COVID-19. Specifically, the Treasurer will be given temporary ‘instrument-making’ powers to facilitate timely amendments being made to the Corporations Act to provide relief from specific provisions and legal requirements. 

These measures will be in place for a period of six months. 

Increasing the instant asset write-off (IAWO)

The Government has increased the IAWO threshold from $30,000 to $150,000 and expanded the business eligibility criteria to include businesses with an aggregated turnover of less than $500 million (up from the previous limit of $50 million). The measure should encourage strong investment and deliver cash flow benefits to businesses in the short to mid-term.

Treasury figures indicate that 360,000 businesses utilised the IAWO scheme in the 2017-18 financial year, and current estimates indicate that the expanded eligibility criteria will extend the scheme to an additional 5,300 businesses that employ around 1.9 million people. 

It is important to note the increased IAWO threshold will be in place temporarily from the date of announcement on 12 March 2020 until 30 June 2020. The new measures will apply to new or second-hand assets first used or installed ready for use in this timeframe. 

The Backing Business Investment scheme

The temporary scheme will allow businesses to accelerate depreciation deductions for eligible assets with a view to incentivising investment and lowering taxes. 

Businesses with an aggregated turnover of less than $500 million will be eligible to deduct on the business’ tax return 50% of the cost of new assets (with existing depreciation rules to apply to the asset’s remaining cost). 

The measure applies to new assets such as plant, equipment and certain intangible assets (i.e. patents) acquired after the measure was announced on 12 March 2020 and first used or installed before 30 June 2021. Second-hand assets, buildings and other capital works are not eligible for the deduction. 

Small and medium enterprise (SME) guarantee scheme

The scheme aims to incentivise lenders to provide credit to SMEs for working capital to help them through the ongoing market disruption caused by COVID-19. Under the scheme, the Government will guarantee 50% of new, unsecured loans to eligible SMEs. 

SMEs with turnover of up to $50 million will be eligible for the guarantee scheme, though are still be subject to a lender’s credit assessment and approval processes.

If approved, the terms of the loans under the guarantee scheme will be as follows: 

  • the maximum loan amount is $250,000 per borrower; 
  • the loan term is up to three years, with an initial six-month repayment holiday; and 
  • the loans are in the form of unsecured finance – i.e. SMEs will not need to offer an asset as security for the loan. 

It is intended that the scheme will commence in early April 2020 (date yet to be confirmed) and continue until 30 September 2020.

ATO administrative relief

The ATO has announced it will provide administrative relief for taxpayers affected by the COVID-19 pandemic. The ATO measures announced will include: 

  • providing low interest payment arrangements to businesses that require assistance paying existing tax liabilities; 
  • remitting interest and penalties incurred after 23 January 2020; 
  • allowing specific businesses to defer income tax, fringe benefits tax and excise payments up to six months (to 12 September 2020); and
  • allowing businesses to vary pay as you go instalment amounts to zero for the March 2020 quarter and, where instalment amounts are varied to zero, refunding any instalments paid for the September 2019 and December 2019 quarters. 

Unlike the previous measures announced, businesses requiring assistance must contact the ATO as early as possible. The relief offered by the ATO is being provided on a case-by-case basis. 

Job Keeper scheme 

On 30 March 2020, the Federal Government announced the Job Keeper stimulus package, a $130 billion scheme aimed at incentivising businesses to retain their employees. Under the scheme, fixed fortnightly payments of $1,500 (pre-tax) will be made by the ATO to eligible businesses for each employee who was employed as at 1 March 2020. 

For employees who ordinarily receive more than $1,500 per fortnight, businesses will be responsible to pay only the balance amount up to the employee’s regular income level. For employees who ordinarily receive less than $1,500 per fortnight, businesses are required to pass on the $1,500 payment.  

In circumstances where employees have been stood down since 1 March 2020, businesses remain eligible to receive the Job Keeper payments in respect of those employees while they remain on the business’ payroll.

Businesses and NFPs will be eligible to apply for the Job Keeper payments provided:  

  • where annual turnover is less than $1 billion, the businesses current turnover has or will be reduced by more than 30% relative to a comparable period a year ago (of at least a month); or 
  • where annual turnover is greater than $1 billion, the businesses current turnover has or will be reduced by more than 50% relative to a comparable period a year ago (of at least a month),

and the business is not subject to the Major Bank Levy (which only applies to Australia’s largest banks with debt greater than $100 billion i.e. Commonwealth Bank, ANZ Bank, Westpac, National Australia Bank and Macquarie Bank).

The Job Keeper scheme will apply to all part and full-time employees and to sole traders. Casual employees are also eligible provided they have been employed by their employer on a regular basis for at least 12 months as at 1 March 2020. 

From 30 March 2020, eligible businesses can apply to the ATO for each eligible employee. Supporting documentation must be provided to the ATO evidencing the business’ downturn to the required threshold. 

Job Keeper payments will not commence until the first week of May 2020 (date to be confirmed), though will be paid retrospectively from 30 March 2020. 

The above measures have been formalised by the Federal Government through enacting the Coronavirus Economic Response Package Omnibus Act 2020 (Cth), which received royal assent on 24 March 2020.

Queensland Government

On 24 March 2020, the Palaszczuk Government unveiled a $4 billion stimulus package for Queensland seeking to support jobs, households and businesses. To date, the stimulus measures announced for Queensland comprise the largest single relief package assembled by any State or Territory in Australia. 

Of the stimulus announced, $2.5 billion is earmarked for industry and businesses. The funds will be distributed through a suite of initiatives including:

Payroll tax relief

Businesses affected by coronavirus will be provided relief from payroll tax through one or more of the following measures: 

  1. refund of payroll tax for two months – returning an average of $9,000 per business; 
  2. a payroll tax holiday for three months – reducing tax expenses by an average of $13,360 per business; and 
  3. a payroll tax deferral for the remainder of the 2020 calendar year. 

The specific relief available to businesses will depend on whether the business pays more or less than $6.5 million in Australian taxable wages per year – companies paying more than this amount will be eligible for (1) and (3) above, whereas companies paying less than this amount will be eligible for (1) and (2). 

The process to obtain relief is automatic and eligible businesses will be notified directly by email from Business Queensland. However, businesses that do not receive this email are encouraged to contact Business Queensland and apply for relief where necessary.

COVID-19 Jobs Support Loans scheme

The Government has established a $500 million concessional loan facility from which businesses can obtain low-interest loans of up to $250,000. The loans, aimed at assisting businesses with carry-on expenses like wage costs, will have favourable terms including:

  • no repayments or interest charged for the first 12 months; 
  • two years of interest only; 
  • fixed interest rate of 2.5%; and 
  • 10-year term of loan. 

Eligible business types, such as sole traders, partnerships, private and public companies and trusts, should apply to the Queensland Rural and Industry Development Authority before 25 September 2020 (or until funding is fully committed).

Industry Support Package

The package seeks to ensure large businesses who make a significant contribution to the State are able to scale up and service the community when economic activity improves. The package will be delivered through a host of measures totalling $500 million however, the specific details of how and where the measures will be implemented are yet to be publicised. 

Non-financial and other support measures

The government has also committed to offering other financial and non-financial supports to help businesses manage the day-to-day impacts of COVID-19. These measures include: 

  • a $500 rebate on electricity bills for sole traders and small and medium businesses that consume less than 100,000 kilowatt hours. The rebate will be automatically applied to businesses utility bills; 
  • establishing the Manufacturer’s Supply Matching program, which aims to connect businesses and manufacturers who experience supply-chain difficulties sourcing and providing supplies in the market; and 
  • providing rent relief to tenants of government buildings or premises. 

For small businesses currently struggling, they are encouraged to call the Queensland Government’s dedicated small business hotline on 1300 654 687.

If you would like further information or advice regarding the Federal or Queensland Government’s economic stimulus measures and the availability to your business, please don’t hesitate to contact our Banking and Finance team.

1 The Australian Government, The Treasury, ‘Support for Business’ available online at https://treasury.gov.au/coronavirus/businesses

Authors
Kim Hinton
Special Counsel
Kim is a Special Counsel who practices in all areas of banking and finance law with a focus on corporate and business finance.
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