Support for Business
The stimulus measures are designed to help employers manage cash flow over the next six months, with two periods for tax-free credits to cover some or all of the PAYG withholding obligations.
Tax-free credits up to $100,000 for employers
From: 28 April 2020
Eligibility: Small and medium business entity employers and not-for-profit entities, with an aggregated annual turnover under $50 million.
The Government has increased the previously announced measures to provide cash flow support to business.
What support is available?
Eligible businesses with a turnover of less than $50 million will initially be able to access tax-free cash flow support (but mostly to be applied against their tax obligations) , with the minimum amount being increased to $10,000 and the maximum amount increased to $50,000 (previously $2,000 to $25,000).
However, additional support will be provided in the July – October 2020 period so that eligible entities will receive total minimum support of $20,000 and up to $100,000.
Small business owners need to be aware that this is not an injection of funds into their business as has been widely misreported in the media. The payment represents a credit against the PAYG withheld from employees.
Which businesses qualify for this support?
In order for a business to qualify for this support it must have been established prior to 12 March 2020.
The rules are more flexible for charities because the Government recognises that new charities might be established in response to the pandemic.
How will the cash flow support be provided?
The cash flow support measures will be provided in the form of a credit in the activity statement system. The support will be provided in two phases:
- Phase 1 - The first phase ensures that eligible employers receive a credit equal to 100% of the PAYG amounts withheld from salary and wages paid to employees during the relevant period, up to the maximum amount of $50,000.
- Phase 2 - The second phase ensures that eligible employers receive another series of credits, equal to the credits that were received under the first phase. For example, if a business received $40,000 of credits in the first phase it will receive a further $40,000 of credits in the second phase. These additional credits will be spread over two or four activity statement periods, depending on whether the employer lodges on a quarterly or monthly basis.
What if your business pays salary but doesn't withhold tax?
If a business pays salary and wages to employees but is not required to withhold any tax then a minimum payment of $10,000 will be made in the first phase and a further payment of $10,000 will be made in the second phase.
How are the credits calculated and paid?
The credits are automatically calculated by the ATO and employers will need to lodge an activity statement to trigger the entitlement.
If the credit puts the business in a refund position the excess amount will be refunded by the ATO within 14 days.
Quarterly BAS Lodgements:
- Businesses that lodge activity statements on a quarterly basis will be eligible to receive credits in the first phase for the quarters ending March 2020 and June 2020.
- Credits in the second phase will be available for the quarters ending June 2020 and September 2020. The minimum $10,000 payment will be applied to the first lodgement.
Monthly BAS Lodgements
- Business that lodge on a monthly basis will be eligible for the credits in the first phase for the March 2020, April 2020, May 2020 and June 2020 lodgements.
Credits in the second phase will be available for the June 2020, July 2020, August 2020 and September lodgements. The minimum $10,000 payment will be applied to the first lodgement.
Eligibility for the measure will be based on prior year turnover.
We will have to wait for the legislation for the finer details.
Not for profit and charities
Not-for-profit employers, including charities, with an aggregated turnover under $50 million will also be able to access the cash flow support.
Solvency safety net
Many businesses are likely to find themselves in temporary financial distress because of the coronavirus pandemic so the government has put a safety net in place to lesson the threat of actions that could unnecessarily push them into insolvency and force winding up of the business.
The measures include:
- A temporary 6 month increase to the threshold at which creditors can issue a statutory demand on a company from $2,000 to $20,000.
- The time a company has to respond to statutory demands will increase from 21 days to 6 months.
- For 6 months, directors will be provided with temporary relief from personal liability for trading while insolvent.
- See also bankruptcy safety net below
It will be more important than ever for business to stay on top of their debtors.
Debts incurred will still be payable by the business. Only those debts incurred in the ordinary course of the business will be subject to the safety net measures.
Access to working capital for SMEs – supporting lenders
The Government will guarantee 50% of new loans to SMEs, up to $20 billion via its Coronavirus SME guarantee scheme. These loans are new short-term unsecured loans to SMEs.
SMEs with a turnover of up to $50 million will be eligible to receive these loans and eligible lenders with a guarantee for loans will be able to work with the following terms:
- Maximum total size of loans of $250,000 per borrower.
- The loans will be up to three years, with an initial six month repayment holiday.
- 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.
Loans will be subject to lenders' credit assessment processes with the expectation that lenders will look through the cycle to sensibly take into account the uncertainty of the current economic conditions. If you require assistance, your accountant is best placed to support you with relevant information to obtain finance.
This latest measure builds on the previous initiatives to ensure small business can access capital, including:
Sole traders and self-employed eligible for Jobseeker payment
The Government is temporarily expanding eligibility for the Jobseeker payment, providing access to a time-limited Coronavirus supplement to be paid at $550 per fornight.
The eligibility criteria to access income support payments will be relaxed to enable the self-employed and sole traders whose income has been reduced to access support for the next six months.
This supplement will be paid to both existing and new recipients of the eligible payment categories. These changes will apply for the next six months.
Temporary relief from Corporations Act requirements
The Treasurer has been given a temporary instrument-making power to amend the Corporations Act to provide relief or modifications to specific compliance obligations.
ASIC has announced measures for those companies with a 31 December financial year that need to hold their AGMs by 31 May 2020, providing a two month no action period and enabling hybrid virtual AGMs.
Please contact the Bates Cosgrave team on 02 9957 4033 or via email for support with these measures.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.