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.
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.