Our latest webinar, held Tuesday 14th April 2020, had a look at the latest with the JobKeeper Payment Program.

The Government has released further details last week regarding the JobKeeper Payment measures.  For many employers it is a vital subsidy and the difference of being able to retain their workforce.

There has been some significant developments since we first discussed this scheme in our webinar on 31 March 2020 and as expected, you had plenty of new questions for us.

We provided an update on the JobKeeper scheme first, explained with practical insights, including:

• Who qualifies – turnover and turnover drop year on year?
• What periods can you use to measure turnover drop? 
• How do you measure turnover?
• For which employees can employers claim the subsidy?
• What and when must employers pay employees?
• How is the subsidy payable and administered? 
• Unpaid family members of owner managed businesses – who can participate?
• Sole traders – how do they qualify?

We also answered your hard-hitting questions and provided our insight on this tricky new area.

If you are in the Cooper Partners network and would like to watch this webinar, please click here to register.

This webinar is current as of 14 April 2020, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.  Please contact us to discuss.

Federal Parliament has now passed laws giving effect to the Morrison Government’s historic $130 billion wage subsidy scheme, which will deliver fortnightly payments of $1,500 to an estimated six million workers affected by the COVID-19 pandemic. 

The package passed both houses of parliament with Labor support, after the Coalition rebuffed calls to expand eligibility to one million short-term casuals and to temporary visa workers.

LATEST DEVELOPMENTS

Late Thursday night, we saw the release of the actual statutory Rules setting out the eligibility criteria and reporting obligations to be administered by the Commissioner of Tax. 

Our initial review of the Rules is that the guidelines as to eligibility generally remain consistent with the details as outlined in our earlier update of 7 April 2020. However, the Rules now introduce the level of detail that an employer must consider in determining their eligibility, and the practical processes that they will need to undertake in order to receive the payments.

The Rules impose arduous obligations and strict timeframes in which to comply, and we anticipate that this will pose an administrative burden onto some employers, who will need to ensure they have robust systems in place, in order to meet the reporting and documentation requirements on a timely basis.

EMPLOYER ACTION POINTS

Given the highly compressed timeframe toward the finalisation of the Rules and the ATO registration process, in order to receive the first JobKeeper payment employers need to:

EMPLOYEE ACTION POINTS

An employee must provide their employer with written notification confirming that they meet the eligibility requirements at 1 March 2020 and that they agree to participate in the scheme.

Eligible casuals must also attest that they are not claiming the JobKeeper payment in respect of any other employer.

Australians returning home or employees seconded to Australia may not qualify

To be eligible, an employee must generally reside in Australia and be an Australian citizen or permanent visa holder, i.e. Australian residents for tax purposes. As such, employees that are non-residents or temporary residents for Australian tax purposes will not be eligible for the payments.

It should be noted however, that certain special protected visa holders (limited) and New Zealanders who are in Australia on a subclass 444 visa, who are Australian tax residents will also be eligible.

Eligibility is also open to those Australian employees temporarily working overseas for an Australian based business if they still permanently reside in Australia and qualify as an Australian tax resident.

Contractor or employee? The distinction continues to be important

The JobKeeper payments will only apply to those individuals considered to be employees, rather than contractors. The distinction between independent contractor and employee will continue to be an important factor in the working relationship. Contractors who are sole traders may be able to claim JobKeeper under the business participation provisions.

FURTHER DEVELOPMENTS IN THE RULES

What will be the administrative load?

Employers will need to notify the Commissioner prior to the end of every fortnight that they wish to receive the JobKeeper payments. It appears that the payroll software service providers are amending their systems to assist in this regard. But it will entail prompt training of your in-house payroll officers so they are abreast of this new law so they can accurately monitor the program correctly.

For those businesses operating in Government forced shut down industries such as retail and hospitality, this onerous obligation combined with the upfront funding of employee wages will likely act as a deterrent to proceed with participation in the scheme. Where such businesses do not anticipate sufficient future cash inflows, due consideration will need to be given to the nature and the extent of future revenue derived by these impacted businesses.

Standalone eligible entities will need to consider and establish the appropriate basis for reporting their projected turnover by:

• preparing robust cashflow projections;
• identifying the correct methodology for determining turnover; and
• thoroughly documenting your position to support your claims.

Turnover test only on entry

It has now been made clear by the Rules that the decline in turnover test will be a single satisfaction test on entry into the scheme.

Businesses will be required to ascertain the appropriate turnover methodology to project their future revenue to substantiate their best guess of forecasted decline in revenue at the point of entry.

For example, is the appropriate methodology for your business based on:

• sales or services in pre-existing contracts or order?
• agreed billing timeframes? or
• work in progress or contracts of service?

Notably you are required to make a reasonable prediction and only need to demonstrate that you will satisfy the decline in turnover once. It won’t necessarily mean that you will lose your entitlement retrospectively if you end up having a lesser turnover decline than originally forecasted. But the onus will be on you to show robust evidence and sound use of assumptions supporting your application at the time.

The Commissioner will expect that consideration has been given to the facts and circumstances of each business. It may well be that your business will have a delayed impact and comparing predicted April 2020 to actual April 2019 won’t suggest a decline in turnover.  Instead, you can consider your projected June 2020 quarter turnover to the actual turnover from the June 2019 quarter.

Ongoing turnover disclosures

Employers will then need to provide actual and projected GST turnover information to the Commissioner each month. Without suitable revenue reporting systems and timely processes in place, this requirement may prove onerous and likely result in some businesses opting out of the scheme.

It is worth noting ongoing reporting obligations will not be used to test eligibility or verify projections (as this is tested only once), and nor is it intended to verify the accuracy of projections made by entities. It is instead an information gathering exercise that will allow the government to assess the economic impact of the Coronavirus on a monthly basis across Australia.

Decline in turnover test – a once only test but retesting available!

The Rules provide that the requisite decline in turnover is assessed and met for eligibility entering the scheme. However, those employers whose turnover has not yet been sufficiently affected, can test in later months to determine their eligibility.

Relief for commercial tenants is linked to the scheme

Whilst the above points highlight why some employers may choose to opt out of the scheme, those employers wishing to take advantage of the Government’s commercial rent relief measures need to be aware that the mandatory code of conduct for commercial tenancies applies to those tenants that are eligible for the JobKeeper Payment scheme and it is expected that these entities will need to demonstrate their eligibility to access the rent relief.

One in all in

The JobKeeper scheme requires an employer to actively seek to participate in the scheme, however an employer cannot pick and choose which eligible employees will participate in the scheme and all eligible employees that agree to nominate for the scheme, are in.

Employer opt out rights

Given the administrative burden and the likely initial cash flow implications, employers may be reluctant or simply not able to participate in the scheme.  Each employer will need to weigh up the financial and commercial factors at play when making this decision.

The JobKeeper scheme is not mandatory and employers are required to opt-in to the scheme. Currently, no obligation appears to exist under the JobKeeper Rules in which employers are required to inform current or recently stood down employees that they will not be participating in the scheme. 

Although an employer does not need to consult with or obtain the consent from its eligible employees under the scheme, if it chooses to not participate we strongly recommend that you obtain legal employment advice as to the implications under your relevant employment agreements and awards, particularly where you have stood employees down or modified their working arrangements under the new JobKeeper stand down provisions under the Fair Work Act.

Restructure relief is currently limited to employees

It appears the concession afforded to employees under which they will be deemed to have continuity of employment where the entity operating the business has changed recently, has not been extended to the turnover test.  In the absence of any further concession, those businesses that have recently undergone restructuring will not have the necessary comparative data to demonstrate satisfaction of the turnover test.  

We suspect this is an anomaly that we hope will be addressed. Perhaps these impacted entities can use the ‘alternative decline in turnover test’ where they have access to the previous owner’s financial records to satisfy this obligation.

Commissioner’s discretion may be limited

It is expected that there will be a range of entities that do not satisfy the turnover test and while the Rules provide for this by introducing an ‘alternative decline in turnover test’, this test will apply to classes of entities and not on a case by case basis.  Based on this, the Commissioner’s discretion in granting relief does not appear to extend to an entity’s particular facts and as such, be considerably narrower than previously set out by Treasury. 

The alternative tests are to be legislated and as such there is currently limited guidance on whether these measures will apply to businesses such as junior mining or exploration companies that do not yet have any business turnover, but that may still be affected by the economic fallout from COVID-19. The Explanatory Statement to the Rules provides some examples to which this alternative test could be applied, but it is currently a case of watch this space until this legislative guidance is released.

Do you need to revisit your centralised payroll functions?

The scheme proceeds on the basis that it is a particular entity, and not a group, which is entitled to a JobKeeper payment, and further, an entity can only be entitled to the JobKeeper payment if it is the employer of the particular individual. 

It is therefore anticipated that those groups that use a centralised employment entity to employ and pay staff on behalf of the other group entities may not meet the required decline in turnover test.

Flexibility in payment type but how will it be treated for tax?

Employers must assess fortnightly whether they have paid the requisite amount i.e. $1,500 pre-tax to each eligible employee. Amounts paid are not limited to salary and wages and may include commissions, bonus or allowances, amounts withheld by the employer for PAYG withholding purposes and amounts made under a salary sacrifice arrangement.  Where an employer’s regular pay cycle is monthly, the payments in that pay cycle must be allocated on a reasonable basis when applying this test.

Payments will be taxable income for the employee and as such the employer must withhold PAYG income tax.  At this stage, the WA State Government has not finalised its position on whether the payment will be subject to payroll tax and workers’ compensation insurance purposes.

Business participation

Further to our comments in Tuesday’s Update  7 April 2020 regarding unpaid owner managed and family employees, the Rules confirm that the JobKeeper payments will apply to such entities under the business participant provisions, but further clarifies that the following entities will not be eligible to receive the JobKeeper payments:

• Unit trusts with non-individual unitholders such as family trusts; and
• Companies with non-individual shareholders again such as family trusts.

In the latter case, these companies may be able to rely on the director provisions that allow for one director to receive the payment.

Such businesses are only entitled to receive the JobKeeper payment in relation to one nominated eligible participant.  Similarly, an individual can only create an entitlement for one entity and must not have been nominated by another employer. 

It is worth noting Treasury has inserted an integrity rule for business participants in the scheme that restricts the payments to participants of active businesses only.  We will be interested to watch out for further clarification by the Commissioner as to whether this will extend to all Landlord businesses. We will provide more details regarding this new measure in our updates to follow.

Overpayments and entitlement

The new law provides rules for overpayments, including the application of interest and the requirement to repay amounts, with joint and several liability rules also introduced, where for example an employee may have made a false or misleading statement to an employer.

Furthermore, the Rules make it clear that just because the Commissioner pays an entity a payment does not mean the entity is entitled to it, therefore ensuring the door to recovery is kept well open. It is expected that ATO audit activity will be increased over the coming periods to ensure compliance with the Rules.

No records – No payment

Employers are warned that pre-payment and post-payment record keeping requirements exist and must be met.  Where an employer does not keep the correct records for the required amount of time (5 years), they may be taken to be ineligible to receive the payments and will likely be required repay the amount plus interest.

Serious penalties for contrived schemes

The legislation also makes clear that anyone who enters or carries out a scheme for the sole or dominant purpose of obtaining a COVID-19 payment will face a wide range of administrative and criminal sanctions, including up to 10 years’ imprisonment.

CHANGES TO FAIR WORK ACT

To facilitate the introduction of the JobKeeper Payment program combined with the immediate need for many employers to manage their workforce obligations in these unprecedented times, changes have also been made to the Fair Work Act. These changes aim to provide employers with a level of flexibility over the coming 6 month period with a view to retaining their workforce for a longer term.

For those employers that are eligible and participate in the JobKeeper Payment program, they will be afforded protection within the Fair Work Act to modify the working arrangements of their employees over the 6 month period to which the JobKeeper program will operate, by enabling them to make Jobkeeper Stand Down Directions to their employees who are in receipt of JobKeeper payments.

In brief, an employer will have the ability to:

• Modify the usual workdays of an employee to be less than normal.
• Reduce the usual work hours of an employee.
• Make temporary or partial stand down orders to an employee (no work at all).
• Direct the employee to perform other duties or at a different location, where safe to do so.
• Request an employee to take paid annual leave, so long as it does not reduce an employee’s accrued entitlements to less than 2 weeks.
• Request an employee to take twice as much annual leave at half pay.

The employer must ensure that it is necessary to make the direction, in order to continue the employment of the employee(s) and must be reasonable in the circumstances.

The amendments require an employer to undertake a consultation process with the employee, and generally must provide notice in writing of at least 3 days to the employee and must maintain written record of such consultation.

In addition, the employer must ensure that wage conditions such as maintaining the same hourly base rate of pay applies, as if the direction had not been made.

An employee that is subject to a JobKeeper stand down direction, will still be entitled to accrue normal leave entitlements as if the direction had not been given, and any period under which a direction applies (including a formal stand down) continues to be counted as service.  It is noted that this may prove to be an added disincentive for certain impacted employers to take up the JobKeeper Scheme.

An employee subject to a direction, may request the employer the ability to engage in reasonable secondary employment, training or development, which the employer must similarly consider and not unreasonably refuse.

More information with regard to these changes is available at the Fair Work Ombudsman site.

WHERE WE CAN ASSIST YOU

• We can assist with assessing eligibility for the JobKeeper Payment, including cashflow forecasting and preparation of the program application.
• We can conduct independent reviews on the first round of reporting and claims to ensure accurate and within the Rules of eligibility.
• We can prepare submissions to the Tax Commissioner to apply discretion regarding eligibility.

This newsletter is current as of 10 April 2020, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.  Please contact us to discuss.

Please contact us to discuss. Cooper Partners is committed to providing general advice to our clients at no charge as part of our commitment to assist you through this period.

TREASURY UPDATED JOBKEEPER GUIDELINES

As we wait for the JobKeeper Payment legislation to be released tomorrow 8 April 2020, we wanted to make you aware of significant new information on eligibility and compliance of this wage subsidy as released today by Treasury.

The main features of the JobKeeper Payment measures are as follows:

• Eligible employers will receive $1,500 per fortnight per eligible employee for six months. This is to be offset against the employee wages, or to be passed on in full, if the payment is in excess of the wages.
• In order to be eligible, the employer has to estimate that their business turnover declined by 30% or more, if the annual turnover of the business is less than $1b. If the annual turnover of the business is more than $1b, the threshold for the reduction in business turnover rises to 50% or more. 
• Eligible employees have to be full-time, part-time, long-term casuals or recently stood down employees on the business payroll as of 1 March 2020. Long-term casuals have to be employed regularly for at least 12 months as of 1 March 2020. The employee must be aged 16 years or older, an Australian citizen, holder of a permanent visa, or a Special Category (Subclass 444) Visa Holder, and a resident of Australia for tax purposes as of 1 March 2020. 

We outline the key points and developments regarding eligibility for the JobKeeper Payment.

KEY POINTS

Employees must continue to be employed

Employers can only claim the JobKeeper Payment for eligible employees that were in their employment on 1 March 2020 and continue to be employed while the employer is claiming the JobKeeper Payment. Employees who ‘continue to be employed’ include employees who have been stood down or rehired but does not include those who have been made redundant or terminated.

The first cash subsidy to be received in May 2020

The JobKeeper Payment will be available from 30 March 2020 for a six-month period until 27 September 2020, with the first payments by the ATO being received by employers in the first week of May.

This creates a cash flow issue for those employers who do not have the funds to pay employees prior to May. The Government suggests that those businesses may want to speak to their bank to discuss their options. Interestingly, the banks have said businesses may be able to use the upcoming JobKeeper payment as a basis to seek credit in order to pay their employees until the scheme is making its first payments, although it is too early to tell whether this is in fact occurring.

Employers must pay their eligible employee

Importantly, employers will need to pay their eligible employees a minimum of $1,500 per fortnight in the scheme payment periods, commencing on 30 March 2020.

Initially it was considered that payment of wages were not required until May 2020. Now this has been clarified, payment periods are to be 14 day periods commencing on 30 March 2020.  If the employer has stood down eligible employees without pay after 1 March 2020, the employer can ‘back pay’ the employees to 30 March 2020 and will be eligible to claim the JobKeeper Payment for these employees for each 14 day period.

Enforcement of compliance

Employers must pass the full $1,500/fortnight subsidy on to each eligible employee, even if the employee did not previously earn that amount.  Enforcement and compliance to ensure the JobKeeper Payment is passed on to employees will be done by the ATO.

KEY DEVELOPMENTS

Eligible employers 

Employers (including not-for-profits) will be eligible for the subsidy if, at the time of applying they have reduced comparable turnover:

• Where annual turnover is less than $1b – estimated turnover must have fallen or will likely fall by at least 30% relative to the reporting period for the previous year.
• Where annual turnover is greater than $1b – estimated turnover must have fallen or will likely fall at least 50% relative to the previous year.
• For charities registered with the Australian Charities and Not-For-Profit Commission (ACNC) where estimated turnover has or will likely fall by at least 15% relative to a comparable period.

Turnover defined

Turnover will be defined according to the employer’s current calculation for GST purposes as reported on Business Activity Statements. Therefore, only Australian based turnover is relevant.

As the definition refers to turnover as defined under GST, all taxable supplies and GST-free supplies such as exports will be included. But input-taxed supplies like interest income will not be included.

Self-Assessment if turnover falls

The ATO will issue guidance about the self-assessment process of determining actual and anticipated falls in turnover.  Further, it has been clarified that an employer who may not initially be eligible to apply at the commencement of the scheme on 30 March 2020, may apply to receive JobKeeper payments at a later time, if their turnover subsequently falls. However, the payments will not be backdated to 30 March 2020, but will commence from when they became eligible.

Application for Commissioner’s discretion

Where it would appear not evident using the comparable period approach to substantiate a fall in turnover or where the Commissioner does not in the first place grant the subsidy, an employer has an ability to apply for the Commissioner’s discretion.

Where a business was not in operation a year earlier, or where their turnover a year earlier was not representative of their usual or average turnover for reasons such as:

• a large acquisition
• newly established
• scaling up, or
• turnover is highly variable

the Commissioner will have discretion to consider additional information that the business can provide as to the adversely effect of the Coronavirus.

Although the Tax Commissioner will be given discretion to set out alternative tests in specific circumstances, it is still not clear whether businesses such as exploration and start-up companies who have minimal or no income will be eligible. We would like to see other measures for determining eligibility introduced to address these differing circumstances or at least other sorts of measures to assist these different profiles of employers.

Employers must elect to participate

An application to the ATO will be needed when further details are announced and provide supporting information demonstrating a downturn in their business.

Employers can apply here to register interest.

Unpaid owner managed and family employees

It is common for owners and their family members of closely held businesses to not pay salary and wages to themselves, but instead take their return in other forms like dividends and trust distributions depending on their business structures.

It is pleasing that partnerships, trusts and companies that operate a business are now eligible subject to the following approach:

• Partnerships can only nominate one partner to receive the payment and a partner cannot be an employee.
• In relation to trusts where beneficiaries of a trust only receive trust distributions, rather than being paid salary and wages for work done, one individual beneficiary can be nominated to receive the payment.
• Companies with an eligible business can nominate only one director to receive the payment if they are not paid as an employee.
• An eligible business that pays shareholders by way of dividends rather than paid as an employee can nominate one shareholder.

Sole traders

People who are self-employed (as sole traders) will be eligible for the payment where at the time of applying;

• they were actively engaged in the business,
• estimate their turnover has or will fall by 30 per cent or more,
• had an ABN on or before 12 March 2020, and
• meet conditions relating to assessable income or supplies for GST purposes during the period to 12 March 2020.

All these additional guidelines are welcomed and it is very pleasing to see expanded justified groups likely to now fall within eligibility.

WA PAYROLL TAX RELIEF – NOT SO AUTOMATIC !

The WA payroll tax measures to support businesses impacted by COVID-19 are summarised in our previous newsletter.

We recap these measures:

• The payroll tax threshold will be increased to $1 million on 1 July 2020.
• A one-off grant of $17,500 will be given to employers, or groups of employers, whose annual Australian taxable wages are more than $1 million and less than $4 million.
• A full waiver of payroll tax for the months March to June 2020 for employers that have Australian taxable wages less than $7.5 million at 30 June 2020. This waiver will be reflected when undertaking the annual reconciliation. This waiver replaces the previously announced option to defer payment of payroll tax until July 2020.

ACTION REQUIRED

For employers, or groups of employers, with Australian taxable wages less than $5 million at 29 February 2020, they can claim the waiver by:

• declaring WA taxable wages as normal in Revenue Online; and
• recording the value of WA taxable wages as exempt wages using the ‘Other Exempt Wages’ field.

If you have overlooked in doing this for your March 2020 return you will need to amend your return to obtain this exemption. Otherwise the waiver won’t be applied automatically. For employers, or groups of employers, with Australian taxable wages of $5 million or more at 29 February, or new employers registered for payroll tax from 1 March 2020, they can apply to defer lodgement and payment of returns.

OUR OFFER TO YOU

• We have designated 4.00pm to 5.00pm each day to make ourselves available to answer your general queries free of charge.
• We will be holding a free interactive webinar to discuss the detail contained in the newly released JobKeeper Payment legislation on Tuesday 14 April 2020 at 12.15 pm to 1.15pm WST where you are welcome to join and ask questions regarding this measure.
• We can assist with assessing eligibility for the JobKeeper Payment, including cashflow forecasting and preparation of the program application.
• We can prepare submissions to the Tax Commissioner to apply discretion regarding eligibility.

We can assist you in calculating any required top up payments and considering your payroll and superannuation obligations.

RESOURCES

The Government’s Treasury Guide for Employers can be accessed here.

The WA State Government’s measures regarding payroll tax relief can be accessed here.

This newsletter is current as of 07 April 2020, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.  Please contact us to discuss.

While the coronavirus pandemic continues to unfold, the National Cabinet has been hard at work addressing complex issues in the commercial leasing industry.

Yesterday Scott Morrison revealed details of the National Cabinet’s deliberations and foreshadowed a potentially mandatory code to regulate relations between landlords and tenants. This proposed plan, which will apply only to commercial tenancies, will impose upon landlords and tenants a code of conduct which forces the parties to enter ‘good faith’ negotiations around rent relief. While regulation of commercial leasing is generally within the province of the States and Territories, details of the National Cabinet meetings indicate that most of the States and Territories will introduce any nationally agreed upon code of conduct.  

WHO WILL IT APPLY TO ?

As it currently stands, the code will only be mandatory for commercial leases to tenants that have annual turnover of under $50 million and which are claiming benefits under the governments recently announced JobKeeper plan. This means that tenants will need to prove a reduction in revenue of at least 30% for the code of conduct to become mandatory.

HOW WILL IT APPLY ?

While the exact details of the code are not yet finalised, the Prime Minister emphasised that it would likely impose a ‘proportionality’ concept upon short term rent arrangements.

This proportionality approach will require landlords to provide rental relief  proportional to the reduction in turnover faced by their specific tenant. Early indications are that the code will not prescribe exactly how this rental relief is provided, instead allowing parties to generate agreements that meet each of their unique requirements.  In addition the code is likely to require ‘good faith’ negotiation while providing mediation systems for tenants and landlords unable to reach agreement.

The general sentiment is that landlords and tenants will be strongly encouraged to have discussions between them to work out an arrangement that will suit both on their own terms. There are many different ways to achieve agreement from rent reductions, abatements, rent waivers combined with extensions of the term of the lease. Where the parties cannot agree however, the mandatory code will otherwise prescribe the outcome that must be adhered to. It is expected that banks will also need to come to the party, to support landlords who have had to revise their leasing arrangements.

The news is not all bad for landlords with the Prime Minister emphasising that the six month moratorium on evictions announced last week was not a moratorium on rental payments and that businesses not affected by the coronavirus pandemic would need to continue to meet their rental obligations.

The National Cabinet meets again on Tuesday and it is expected that the various States and Territories will roll out legislation following this meeting. As always, Cooper Partners will be sure to keep you abreast of these changes and the impact they will have on your business. 

In the meantime commercial tenants and landlords are encouraged to review the terms of their leases while having open and frank discussions with their tenants about how to proceed.

If you have any questions in relation to the contents of this newsletter, please do not hesitate to contact your Cooper Partners engagement representative.

This newsletter is current as of 04 April 2020, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.  Please contact us to discuss.

A lot can change in just 10 days! As the Coronavirus pandemic continues to infect global financial markets, our team has been hard at work tracking all the relevant Government responses that could impact you and your business. 

In this special edition newsletter, we summarise all the key changes proposed by the Federal Government, the Reserve Bank of Australia (RBA) and the WA State Government over the last 14 days.

Draft legislation is now before Parliament and appears to have near universal support. This legislation is expected to pass without amendment.

Encouraging employment and easing business cashflow

Boosting cashflow for employers

Since our first newsletter, the Government has doubled down on its plan to encourage the continued employment of Australian workers. The Government is now proposing to offer small and medium sized businesses up to $100,000 in cash payments to retain workers. In order to be eligible, business will need to have turnover of less than $50 million.

Under the proposed measures, eligible employers will be entitled to a cash payment equal to 100% of their total PAYG withholding amount (that is the amount of tax they would ordinarily be required to withhold from their employee’s salary and pay to the ATO).

The payment will be delivered by the ATO as an automatic credit in the activity statement system from 28 April 2020. Entities will need to lodge their Business Activity statement (BAS) to be eligible but no new forms or applications are required. A maximum payment of $50,000 will be delivered over the next three months but an additional $50,000 will then be accessible for the June to September activity statements. Employers who have less than $10,000 in PAYG withholding will be entitled to a minimum of $10,000 over the next three months. An additional $10,000 will be accessible for the June to September activity statements, but is not linked to the level of PAYG Withholding as the Government recognise the circumstances may have changed and entities may no longer be making any payment subject to withholding. Any payment received by a business will be tax free.

This entitlement would disappear if eligible employers failed to lodge their IAS’s or BAS’s, or otherwise stopped paying wages prior to the end of the first cash boost payment.  It is important that you continue to report and lodge your BAS’s on a timely basis.

This is a very generous incentive which should help to slash the cost of retaining employees for many businesses. With this in mind,eligibility for the cash flow boost is subject to a specific integrity rule to counteract artificial or contrived arrangements entered into in order to obtain the cash flow boost. Specifically, an entity will not be eligible for the cash flow boost if that entity, or an associate or agent of an entity, undertakes a scheme with the sole or dominant purpose of obtaining or increasing the amount of the cash flow boost in relation to a period. Amounts paid under the cash flow boost, where the entity was not entitled to that payment or was not entitled to the full amount of the payment, will need to be repaid to the Commissioner. The Commissioner may impose administrative penalties for fraudulent, false or misleading statements. 

Supporting apprentices and trainees

The Government is also encouraging small businesses to retain their apprentices and trainees with eligible employers entitled to receive a 50% subsidy on all apprentice and trainee wages up to $7,000 each quarter per apprentice. The subsidy will be available for 9 months from 1 January 2020 to 30 September 2020.

The payment will only be made to employers who have less than 20 employees and in respect of apprentices or trainees who were with the business at 1 March 2020.  Should an apprentice or employee of this nature be made redundant, any remaining entitlement will be available to an employer (regardless of size) who takes them on.

Employers can register for the subsidy from early April 2020 and all claims for payment will need to be lodged by 31 December 2020.

Promoting business investment

The Government’s proposed capital investment incentives outlined in our first newsletter on 13 May 2020 (insert link) have not changed. Broadly, these incentives will provide accelerated deprecation to thousands of Australian businesses with annual turnover of up to $500 million.

Those companies that have been considering capital investment should closely consider the benefits available under this scheme. Some well-placed entities may even consider bringing forward their capital investment plans.

Payroll tax concessions

The Western Australian State Government has recently announced a number of payroll tax concessions for entities with less than $7.5 million in Australian taxable wages.

The State Government has announced that it will fast track the increase in the payroll tax threshold (which will now be $1 million) to 1 July 2020. In addition, businesses with an annual payroll of between $1 million and $4 million will be eligible to receive a once-off grant of $17,500. Finally, businesses with less than $7.5 million in Australian taxable wages will be able to apply to the Office of State Revenue for a deferral of their payroll tax payment to 21 July 2020.  Other States and Territories, including NSW, Queensland, Victoria and Tasmania, have announced similar measures. Businesses with operations in these regions are encouraged to contact Cooper Partners to discuss their specific circumstances.

Promoting lending and financial support for business

Improving access to credit for small businesses

In a bid to keep struggling small businesses afloat, the Federal Government has announced that it will support short- and medium-term lending solutions. Broadly, this scheme will allow entities with under $50 million in turnover to apply for loans of up to $250,000 to fund their working capital needs. The loans will be for a period of up to three years, with an initial six-month repayment holiday. Critically, borrowers will not need to provide any assets as security for the loan.

Entities wishing to access these loans will apply directly to their preferred bank or credit provider. Banks and credit providers will be encouraged to make these loans as the government will stand guarantor for 50% of any loan balance. In addition, the Government has proposed a relaxation of responsible lending obligations for lenders providing credit to small business entities, making it easier for these entities to access finance quickly.

RBA support

On 19 March 2020, the RBA held an out of cycle meeting at which the official cash rate was cut to just 0.25%. In addition, the RBA announced that it would support banks, particularly those that lend to small business, by providing a $90 billion lending facility. Under this plan, the RBA will provide a three-year funding facility to authorised deposit taking institutions at a fixed interest rate of just 0.25%.  The more an institution lends to small business, the more they will be able to loan from the RBA at this low rate. It is hoped that these combined measures will encourage lending to smaller businesses while reducing the cost of credit.

Responding to creditor demands

The Government has proposed a number of changes to the Corporations Act 2001 and the Bankruptcy Act 1966 to provide businesses and individuals with greater time to respond to creditors demands. The minimum threshold for creditors to issue a statutory demand on a company will be increased to $20,000 (up from $2,000) while the company will now have six months to reply to a demand (previously 21 days). In addition, the threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings against an individual will increase to $20,000 (previously $5,000). All these amendments will apply for six months.

Trading while insolvent- temporary relief from personal liability

Under current legislation, company directors are held personally liable for any debts incurred while a company they direct trades while insolvent. Proposed Government changes are looking to relax this law to provide company directors with the confidence required to continue trading and employing staff during the Coronavirus crisis.

Under these changes, company directors will be shielded from personal liability in respect of any debts incurred in the ordinary course of their company’s business.  Directors will not be shielded for debts incurred outside of the ordinary course of their company’s business. These measures will apply for a limited period of just 6 months.

Supporting households and the vulnerable

Income support for individuals

The Government will implement a temporary fortnightly ‘Coronavirus supplement’ of $550 for recipients of Jobseeker, Youth Allowance Jobseeker and Parenting payments, Farm Household Allowance and Special Benefits payments. This supplement will be paid in addition to existing entitlements with the aim of reinforcing the social security safety net for any individual who loses their job.

Payments to low income households

The Government will also provide two separate payments of $750 to social security, veteran and other income support recipients and eligible concession card holders. These payments will not be made to individuals that can access the ‘Coronavirus supplement.’ They are scheduled to be made on 31 March 2020 and 13 July 2020.

Early access to superannuation

The Government has proposed to provide affected individuals with unprecedented early access to their retirement savings. Under this measure, certain individuals will be entitled to withdraw up to $10,000 from their superannuation fund during the 2020 financial year, with a further $10,000 able to be accessed in the 2021 financial year. Any amounts released will be free from taxation, and will not affect Centrelink payments.

To apply for early release an individual will need to satisfy one of the following requirements:

• Be unemployed; or
• Be eligible to receive a Jobseeker, Youth Allowance Jobseeker or Parenting payment, Farm Household Allowance or Special Benefits payment; or
• On or after 1 January 2020:
• Be made redundant; or
• Have their ordinary working hours reduced by 20% or more; or
• If they are a sole trader, have their business suspended or turnover reduced by 20% or more.

Individuals that wish to withdraw from their superannuation funds will need to apply to the ATO through their myGov account. The Government has indicated that separate arrangements will apply for members of a self-managed superannuation fund (SMSF) but have not yet indicated what this will entail. Accordingly, we caution SMSF Trustees against processing any withdrawals until the ATO releases further guidance.

Reduction of superannuation drawdown rates and social security deeming rates

In a bid to support pensioners impacted by stock market falls, the Government has proposed to reduce superannuation minimum drawdown requirements by 50%. This measure, which will apply for the 2020 and 2021 financial years, will stop pensioners from being forced to sell their superannuation funds assets in the current depleted market. In addition, the Government has announced a reduction in social security deeming rates which will provide some 565,000 Age Pensioners with increased entitlements under the Age Pension scheme. 

Administrative concessions from the ATO

The ATO has indicated that they will implement a series of administrative measures designed to assist Australians who have been unduly impacted by the Coronavirus crisis.   In particular, the ATO has indicated a willingness to provide tailored ‘support plans’ for businesses that get in touch. These support plans may include:

• The potential to defer payments due through BASs, income tax assessments, fringe benefits tax assessments and excise for up to six months;
• The ability to vary March 2020 quarter PAYG instalments to zero;
• The remittance of some interest and penalties accrued after 23 January 2020;
• The ability to switch to a monthly GST reporting cycle to gain quicker access to refunds; and
• The potential to enter low or no interest plans for existing and ongoing tax liabilities of affected entities.

Access to all these concessions will only be available where contact is made with the ATO. Should you wish to apply for any of these concessions, please contact your Cooper Partners representative who can speak with the ATO on your behalf.

Now what?

Scott Morrison has indicated that there is still plenty of work to be done and has not ruled out a third round of stimulus measures.  As further information comes to hand, we will be sure to keep you updated.

If you would like to discuss any of the above measures and how they may apply to you, please do not hesitate to contact your Cooper Partners representative. 

We acknowledge the current commercial reality and are offering telephone conferences free of charge from 4:00pm to 5:00pm daily until we all get through these challenging times. 

This newsletter is current as of 23 March 2020, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.  Please contact us to discuss.

Given the uncertainty of the times ahead, it is critical to be as prepared as possible.  We outline what you can be doing now to put your Business Continuity Plan in place to put you in the best position for the months ahead.   

Be clear of your position relating to COVID-19

Now is the time to determine your organisation’s policies in relation to COVID-19 and ensure this is clearly communicated to your staff and clients, areas you should cover in this policy include:

• Client/customer meetings.
• Event attendance.
• Staff travel.
• Working from home, including hardware and software requirements, video conferencing and management of data security.
• Infection control, including how you will respond if a member of your team becomes infected.
• Health policies, including procedures your employees should follow should they fall ill, feel unwell or come into contact with someone who has recently travelled.

Given the rapidly changing nature of what we are all dealing with, it is important to be fluid and keep everyone informed.

• Communicate regularly with your customers/clients through email, your website and social media pages to ensure they know you are open for business and to advise them of your business’ COVID-19 plans.

Advise your customers/clients about the measures and protocols you are taking to make your premises safe and how you will interact moving forward.

Employee Management

You have a duty of care towards your employees to provide a safe place of work. This includes not putting them in a position in which they could become infected by the virus without taking all reasonable precautions. To meet your duty of care, conduct a risk assessment to determine the risk that coronavirus poses in your workplace and implement necessary controls to eliminate or reduce risk.

You should be communicating openly with your employees and be clear about the options available should they be required to isolate themselves. Things you consider include:

• Policies regarding working from home, including where employees are required to stay home to mind their dependents if schools are closed.
• Offering flexible work hours.
• Potential reduced hours for staff.
• The legal requirements regarding reducing your employee’s work hours.
• Compliance with any relevant industry awards.

How you will respond if employees refuse to come to work due to the threat of infection.

Maximise your cash position

For many it is business as usual, however given the uncertainty it is critical for business to maintain an appropriate cash flow to enable continued operation.

Maximise stimulus benefits

The Federal Government has announced a number of measures (Click here to view our newsletter on this topic) to assist businesses.

• Ensure you are aware of how these work and maximise them.
• There may be an opportunity to restructure how business owners are remunerated (ie instead of dividend or trust distribution, consider paying wages) to maximise these benefits.

The WA State Government has also announced a number of measures to assist employers:

• Increase of the payroll tax threshold to $1 million effective 1 July 2020.  For employers with taxable wages less than $7.5 million this will mean an annual saving of $8,250.
• Defer payment of 2019-20 payroll tax to 21 July 2021.
• An application needs to be made to defer this payment.
• One-off grant payment of $17,500 for employers with taxable wages between $1 million and $4 million.  There is no need to apply for this grant, the grant will automatically be paid via cheque from July 2020.

Prepare a cashflow forecast

Create or update your business cash flow plan for the coming months. You need to quantify your daily and weekly planned cash position to make informed decisions

Make use of ATO support

The ATO has announced the following measures for those experiencing difficulty.

1. Individuals and businesses can request deferral of some payments (such as income tax, activity statement, FBT and excise payments) by up to 4 months.
2. Businesses with under $20 million of turnover can elect to report and pay their GST monthly instead of quarterly to accelerate access to GST refunds (but only from 1 April 2020 and the registration must remain monthly for 12 months).
3. Quarterly payers can vary their PAYG instalment for the March 2020 quarter and claim a refund of instalments paid for the September and December 2019 quarters.  Variation of PAYGI still needs to be supported by realistic expectation of income for the 2020 year.
4. Businesses can request remittance of interest and penalties applied to tax liabilities incurred after 23 January 2020.
5. Businesses can request a low interest payment plan for their existing and ongoing tax liabilities.

These measures are not automatic – businesses will need to contact the ATO using the hotline 1800 806 218.  We can of course assist you in this regard.

It is critical that businesses continue to lodge and report obligations in a timely manner. Failure to do so can result in additional penalties being charged.

Maximise cash in-flows

• Verify accounts receivable – verify outstanding invoices with customers, so you know there is no realistic reason for a customer to dispute or delay payment when the time comes.
• Confirm expected receipt dates – confirm the date that your customer has in their payable schedule for paying your invoices. You can then send reminders to ensure the payment arrives on time, and if not you have an alarm bell to be proactive in following up your cash flow.
• Chase up late payments promptly – don’t be complacent in chasing late payments. You need to set a standard with your customers of what is expected. It’s proven that setting the expectation means you will be paid quicker than the other suppliers who are not chasing up on this.
• Sell unused equipment – be realistic about what equipment you need in your business. Decide if you can sell any underutilised or obsolete equipment.

Minimise cash out-flows

• Supplier terms – discuss payment terms with your suppliers to see if you can extend your terms or receive a discount if you pay early.
• Reduce costs – reduce costs where possible. Many businesses have extras that in the good times seem to be needed (e.g. lunches, training courses). Be critical and if there is an expense that will not put you at risk or reduce productivity at this time, then think about cutting it.

Loan and lease repayments – Most banks have hardship teams offering a range of services that may be of support. For more information, or to find the number for your bank’s hardship team go to https://www.ausbanking.org.au/campaigns/financial-hardship/

Funding requirements

It is important that you consider your business’ ability to meet its creditors and service its debts over the next 6 – 12 months, particularly if you are experiencing reduced cash inflows from your customers and clients.

• Most banks have hardship teams offering a range of services that may be of support with regards to renegotiating repayments. For more information or to find the number for your bank’s hardship, team go to https://www.ausbanking.org.au/campaigns/financial-hardship/
• Consider alternative funding sources – debtor funding solutions can free up cash without requiring property security.
• Consider whether additional facilities or increased credit are appropriate in case of emergency, it may make sense putting these arrangements in place now.   

Be clear of your internal business procedures and policies

Insurance

• Review your general insurance policies for any Business Interruption Insurance inclusions. Now is the time to contact your insurance agent to review your policy to understand precisely what you are and are not covered for in the event of an extended incident.

Decision Making

• If key decision makers need to self-quarantine or are incapacitated in any way, are there mechanisms in place to ensure that the business can continue to operate.
• Ensure any EPOA and Will are up to date now and ensure your family and professional advisors know where the original signed documents are.

At Cooper Partners, it is business as usual. We are available to support you and assist you in making your business decisions over this unprecedented time. If you have queries in relation to any of the above, please contact your Cooper Partners engagement team.

This newsletter is current as of 18 March 2020, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.  Please contact us to discuss.

The Federal Government has unveiled a $17.6 billion economic stimulus package, designed to vaccinate the Australian economy from the unfolding coronavirus pandemic.

The measures, which will go before parliament in early March, are designed to support business continuity, encourage employment and maintain consumer confidence with much needed key tax breaks.

The Government’s plan is based around four key pillars, namely:

1.       Supporting business investment;

2.       Encouraging employment and easing business cashflow;

3.       Driving household spending; and

4.       Assisting severely affected regions.

Supporting Business Investment

The Government has indicated its intention to stimulate the economy by encouraging business investment. Under proposed changes to the instant asset write off program, eligible asset purchases of $150,000 (from $30,000) or less will become immediately deductible for tax purposes. In addition, the Government has proposed to open the concession to medium sized enterprises with annual turnover of up to $500 million. These measures are expected to apply until 30 June 2020.

Asset purchases in excess of $150,000 will also be encouraged with the Government allowing businesses to claim an immediate tax deduction for 50% of the asset’s purchase price. The remainder of the purchase price will be depreciated under the existing depreciation regime.  This measure is forecasted to apply until 30 June 2021 and will be accessible to business with turnover of up to $500 million.

These measures will be welcomed by profitable companies who intend to spend on additional equipment but may not provide relief to loss making businesses.

Companies that have been considering capital investments should closely follow these proposed amendments as they make their way through Parliament.

The table below demonstrates the after tax effect of the proposed changes for a profit making trading company that purchases a $100,000 tractor. It is assumed that the tractor will be purchased on 1 April 2020, has an effective life of 15 years and will be used solely in the business.

Encouraging Employment and Easing Business Cashflow

The financial centrepiece of the Government’s stimulus package is a plan to provide payments of up to $25,000 to employers with less than $50 million in turnover. Under the proposed measures, eligible employers will be entitled to a cash payment equal to 50% of their total PAYG withholding amount. Eligible business that pay wages will receive a minimum payment of $2,000 regardless of their total PAYG withholding amount.

The following example demonstrates how the changes will apply:

Sarah operates a building business and employs 8 construction workers on average full-time weekly earnings who each earn $89,730 per year. In the months of March, April and June for the 2019-20 income year, Sarah reports withholding of $15,008 for her employees on each Business Activity Statement (BAS). Under the Government’s changes, Sarah will be eligible to receive the following on lodgement of each of her BAS’s:

• A payment of $22,512 for the March period, equal to 150 per cent as a ratio to her March 2020 withholding requirement.
• A payment of $2,488 for the April period, before she reaches the $25,000 cap.
• No payment for the May or June period, as she has now reached the $25,000 cap.

The Government is also encouraging small businesses to retain their apprentices and trainees with eligible employers entitled to receive a 50% subsidy on all apprentice and trainee wages up to $7,000 each quarter per apprentice. The subsidy will be available for 9 months from 1 January 2020 to 30 September 2020.

Both of these measures are expected to be administered through the employers Business Activity Statements. This will provide an immediate stimulus to eligible employers if the design of this initiative permits the credit to be applied against the PAYG withholding obligation. This measure will benefit around 690,000 businesses that employ around 7.8 million people.

Driving Household Spending

In somewhat of a policy backflip, the Government has also decided to issue a $750 cash handout to certain low income individuals.  Whilst it is not yet clear who will be entitled to the payment, the Government has indicated that it will be directed towards recipients of social security, veterans and eligible concession card holders. The vast majority of these payments are expected to be made by mid-April.

Assisting Severely Affected Regions

The Government has laid aside $1 billion to support specific communities and industries that are disproportionately affected by the coronavirus pandemic. Whilst details have not yet been released, it is expected that the tourism, agriculture and education sectors will receive the bulk of this funding.

Now what?

It is important to note that the measures outlined above must make it through Parliament before becoming law. The Labour party has indicated in principle support for the stimulus package but the devil will be in the detail and parliamentary delays should not be unexpected. Businesses owners are advised to wait until these changes are enacted to ensure they receive the promised benefits. In the meantime, remain calm and be sure to wash your hands! Cooper Partners will be sure to keep you up to date as these measures move through Parliament.

If you have queries in relation to any of the above proposals, please contact your Cooper Partners representative.

This newsletter is current as of 13 March 2020, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.  Please contact us to discuss.