Following the World Health Organisation’s announcement confirming the Coronavirus’ as PANDEMIC, our government has put together a scheme to keep our economy rolling on. On the morning of Thursday 12 of March, our prime minster Scott Morrison presented a number of measures, including cash payouts and small business relief resulting in $17.6 billion stimulus package. I’m going to be running these, particularly the incentives that directly affect small business here in Australia.
As quoted, “the measures are designed to support business sticking with investment they had planned and encouraging them to bring investment forward to support economic growth over the short term”.
The package has four parts:
- Supporting business investment
- Providing cash flow assistance to help small and medium sized business to stay in business and keep their employees in jobs
- Targeted support for the most severely affected sectors, regions and communities;
- Household stimulus payments that will benefit the wider economy
Immediate asset write off $30k to $150k
Let’s run through the first small business incentive, the increase of the immediate asset write off from $30k to $150k. Now this is crazy! For those who don’t know what the immediate asset write off is, it’s a tax benefit where up to the specific threshold, now $150k, small businesses can immediately write off or claim a deduction for a new assets purchased. For example, if you are a small business looking to purchase some particularly expensive, new manufacturing equipment, says it costs $90k, then you can go out and purchase this asset right now and claim a full tax deduction.
This threshold will be applied from 12 March 2020 to 30 June 2020, so essentially the government wants you to spend money (buy assets) and claim the tax benefit over a period of about 3 and a half months.
Now a word of warning, just because you can claim a higher tax deduction for new assets purchases doesn’t mean you should. These decisions need to be made wisely and there’s no point spending a dollar to get a fraction of tax back. But you can see how this incentive is trying to get small business to SPEND!
Also, don’t be sucked into misleading ads where some business may try to sell you something based on $150k ‘tax back’, which sounds like you would be immediately entitled to and we know is this not necessarily the case. Every time the government releases a new tax incentive all these weird and wonderful ads pop up informing consumers of the wrong entitlements. You’ve been warned!
Small businesses with apprentices: up to $21,000 to keep apprentices in work through wage subsidies
Now let’s talk wage subsidies! Employers with less than 20 full-time employees may be entitled to apply for Government funded wage subsidies amounting to 50% of an apprentice’s or trainee’s wage. This applies for up to nine months from 1 January 2020 to 30 September 2020. The maximum subsidy for each apprentice or trainee is $21,000. Where a small business is not able to retain an apprentice, the subsidy will be available to a new employer that employs that apprentice. So, it’s clear that the government is doing its best to keep people in jobs!
Small to medium-sized businesses: between $2,000 and $25,000 to help with cashflow
Did someone say $25k tax free incentive? For eligible small businesses, payments from $2k to $25k may be accessed to provide cashflow support between 1 January 2020 and 30 June 2020. This is based on PAYG withholding obligations, which you might know as tax withheld on employee wages. Businesses will receive payments of 50% of their Business Activity Statements or Instalment Activity Statement from 28 April with refunds to then be paid within 14 days.
Unfortunately, it’s not going to be some money that’s magically appears in your bank account like maybe your tax refund does. It’s going to be reducing ATO payment obligations as part of your BAS with the rebate being as little as $2k. So, if you lodge a monthly or quarterly activity statements with PAYG withholding payments, stay tuned!
Just to note, if you are a sole trader who doesn’t have any employees, therefore don’t pay tax on wages, this isn’t going to apply to you – sorry. Again, it’s clear the government wants small business owners to keep people in jobs by reducing normal tax obligations.
Welfare recipients: an extra $750 per person
So what’s all this about a $750 cash payment? The government has confirmed it will provide one-off payments of $750 to people on Newstart and to pensioners, in order to boost the economy by getting people spending #Centrelink. The payment is tax-free and will not count as income. It is estimated that around half of those who will benefit will be pensioners – so the oldies be like #cashmoney #dolladollabillyo – no, I’m joking! These payments will commence to be automatically made from 31 March 2020. So if you get a government welfare benefit, good news for you. For the rest of us, unfortunately no cash bonus.
With a good chunk of this going to pensioners, I’m not sure how much this will stimulate the economy. If we see the majority saving and not spending, like we did with the $1,080 ‘tax bonus’ we got for lodging 2019 tax returns then it’s not going to work as it’s intended…only time will tell.
Administrative relief & assistance to directly affected regions
There is also administrative relief from the ATO for some tax obligations and assistance to severely affected regions. We recently saw something similar at the start of the year where directly bushfire affected communities automatically had their December 2019 BAS lodgement deadlines extended until May 2020.
In summary, those on welfare and small business owners get the direct benefit, that will have an eventual flow on effect to the greater community. It’s cash in pockets to spend on local and small business, so don’t think “Oh, I’m missing out”, you’ve got to look at the bigger picture. This type of stimulus package definitely something we haven’t seen since the 2008 Global Financial Crisis. From my point of view I think Australia’s economic state going to get worse before it gets better, but I’m really hoping I’ll be proved wrong! Not to say we need to panic just yet.
I’ve already seen clients struggle to get new stock with China in shut down and the subsequent implications along the supply chain. With a slowdown in travel, our tourism will suffer, so it’s going to be a matter of how big the impact is and how long it will last.
For small business owners, keeping trading on with business as usual as best you can, but as the economy slows down there’s definitely going to be some challenges ahead. Business is never easy, right? Keeping on top of cashflow is going to be so important and making the right business decisions as this the economic landscape continues to change. I don’t want to sound all ‘doom and gloom’ but being a business owner means understanding your finances and making the right business decisions so you can do the best for you and your business. It’s about being proactive, not reactive!