Government Stimulus Package Update

Posted on March 25, 2020 by admin

We hope you are keeping well. As mentioned last week, I am going to keep our correspondence with you as consistent and frequent as possible during the coronavirus pandemic.

The following is a broad summary of the Federal Government’s stimulus package announcements and support available to small businesses during these uncertain times.

We remain extremely grateful for your business and are committed to working with you through this unsettled time. If you’re unsure or have any questions at all, shoot us an email and we can give you a call to discuss how we can help.

Employers get cash of up to $100,000

Payment will be made through the BAS/IAS process to employers with a turnover of less than $50m that employ staff as at 12 March 2020. The concession has now also been extended to not-for-profits.

Initially, the Government provided up to $25,000 with a minimum of $2,000 for eligible businesses. This has now been increased to a maximum of $100,000 and a minimum of $20,000.

The payments will be made as a credit of up to 100% of the amount withheld from salary and wages [up from 50%] and will be automatically applied to activity statements starting with your March BAS.

The payment will be split though between the following periods:

• March to June 2020 Activity Statements = minimum of $10,000 and a maximum of $50,000
• June to September 2020 Activity Statements = a further minimum of $10,000 and a maximum of a further $50,000

The second additional payment will require the entity to continue to be active and will be delivered as a portion of the amount previously paid under these incentives in the earlier period. It will be paid as follows:

• Quarterly Activity Statement lodgers = half of the amount previously paid on lodgement of June BAS and a half on lodgement of the September BAS.
• Monthly Activity Statement lodgers = quarter of amount previously paid on lodgement of the June, July, August and September BAS/IAS’s.

 

When you work through the examples provided from Treasury it shows that the initial payment will be effective based on the wages for January, February and March 2020.

Example 1: Monthly PAYG Withholdings of more than $16,667 [and monthly lodger]

If your March BAS’s shows PAYG Withholdings of $16,667, you will receive payments as follows:

• 28 Apr 2020 [on lodgement of Mar BAS] = $50,000 [$16,667 x 3]
• 21 May 2020 [on lodgement of Apr IAS] = $0 [because already received max]
• 21 Jun 2020 [on lodgement of May IAS] = $0 [because already received max]
• 28 Jul 2020 [on lodgement of Jun BAS] = $12,500 [¼ of $ previously received]
• 21 Aug 2020 [on lodgement of Jul IAS] = $12,500 [¼ of $ previously received]
• 21 Sep 2020 [on lodgement of Aug IAS] = $12,500 [¼ of $ previously received]
• 28 Oct 2020 [on lodgement of Sep BAS] = $12,500 [¼ of $ previously received]

Example 2: Monthly PAYG Withholdings of $10,000 [and monthly lodger]

If your March BAS’s shows PAYG Withholdings of $10,000, you will receive payments as follows:

• 28 Apr 2020 [on lodgement of Mar BAS] = $30,000 [$10,000 x 3]
• 21 May 2020 [on lodgement of Apr IAS] = $10,000 [100% of PAYGW amount]
• 21 Jun 2020 [on lodgement of May IAS] = $10,000 [100% of PAYGW amount and max]
• 28 Jul 2020 [on lodgement of Jun BAS] = $12,500 [¼ of $ previously received]
• 21 Aug 2020 [on lodgement of Jul IAS] = $12,500 [¼ of $ previously received]
• 21 Sep 2020 [on lodgement of Aug IAS] = $12,500 [¼ of $ previously received]
• 28 Oct 2020 [on lodgement of Sep BAS] = $12,500 [¼ of $ previously received]

There are more examples in the Treasury documents at https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Cash_flow_assistance_for_businesses_0.pdf

And the good news is that this payment is ‘tax-free’!

One thing that has been made clearer now by the government is that eligibility requires you to be ‘active eligible employers established prior to 12 March 2020’.

Things to think about:

• Those of you who take dividends or distributions and don’t pay wages look like they may miss out based on our reading of the Treasury announcements.
• Many of you have asked if you can move wages into other entities rather than simply on-charging to related entities within your group. I would suggest based on our reading of the announcements you will only be eligible for the one entity that directly reported wages on 12 March 2020.

 

 

Temporary relief for distressed businesses (and their directors)

These changes will be significant for those distressed businesses that are worried about insolvency and bankruptcy implications.

Under the temporary rules, the Government is increasing the threshold of when a creditor can issue a statutory demand on a company from $2,000 to $20,000 [and this will be for 6 months].

The threshold for the minimum amount of debt for a creditor to start bankruptcy proceedings is also being increased from $5,000 to $20,000.

When a demand is issued against a company or a bankruptcy notice issued, if they fail to respond they are presumed insolvent or it is considered an act of bankruptcy. The time limit for both of these notice periods is being increased from 21 days to 6 months.

Insolvent trading rules have also been relaxed to ensure directors can make the right decisions rather than be worried about personal liability. Directors will be relieved of the personal liability that would be otherwise associated with insolvent trading for a period of six months.

Further information is available on the Treasury website https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Providing_temporary_relief_for_financially_distressed_businesses.pdf

 

 Supporting lenders by guaranteeing new debts

The Government proposes the setup of the Coronavirus SME Guarantee Scheme. The scheme will provide a guarantee equal to 50% to those that lend to SME’s to support short-term unsecured loans to SME’s with the intention of increasing the willingness of banks to lend SME’s money during these times.

Other eligibility criteria can be summarised as follows:

• Turnover will need to be less than $50million
• Maximum loans of $250,000
• Loan term up to 3 years
• No repayments required in the first 6 months
• Loans will be otherwise unsecured finance (ie no assets required to be provided)

One thing to note here is that even though you may not need to provide further security, (assuming you go to your existing lender for the additional debt) you will probably already have given them everything by way of security.

Responsible lending can also be ignored for lenders providing credit to small business customers. This exemption will also be for 6 months and will apply to any credit increase or new credit for business purposes only.

RBA also announced earlier in the week a further cut in the official cash rate to 0.25% and the establishment of a term funding facility for the bank system so that banks can have access to at least $90billion in funding at a fixed interest rate of 0.25% per annum (further reducing funding costs to banks).

Further information available on the Treasury website https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Supporting_the_flow_of_credit_1.pdf

Have further questions? We’re here to help.