What does it mean for you?
In a rapidly evolving response to the spread of COVID-19, the Federal Government's second support package announced over the weekend has flicked the switch to more income support for retirees and workers. The Victorian State Government has also released stimulus measures to assist small business as well as investors.
The following is a summary of the packages that have been offered to date. We will continue to provide you with any further new measures as they happen.
Increasing the instant asset write-off for businesses
In last year's federal budget, the Government increased the instant asset write-off threshold to $30,000 and made it available to any business with turnover of less than $50 million.
The Government has now announced it will increase the instant asset write-off threshold to $150,000 with the write-off being available to any business with turnover of less than $500 million.
The new measure (which will apply to the purchase of new or second-hand assets) will allow businesses to invest in many types of business-related assets and obtain an immediate tax deduction for their expenditure.
The new measure will apply up until 30 June 2020.
Increasing tax depreciation deductions for new investment assets made by business
For assets not eligible for the above treatment, the Government has announced that for purchases of new assets made by businesses with annual turnover of less than $500 million before 30 June 2021, the business will be eligible to claim an immediate tax deduction for 50% of the purchase price of the asset with the existing depreciation rules applying to the balance of the value of the asset.
Supporting apprentices and trainees
The Government has pledged to provide wage subsidies to small businesses of up to $21,000 to fund 50% of the wage of the apprentice or trainee for a period of up to 9 months between 1 January 2020 and 30 September 2020. The measure will apply to small businesses that employ less than 20 full time employees.
Assistance for regions severely impacted by Coronavirus
The Government has announced that it has set aside $1 billion to support regions and communities that have been disproportionately impacted by Coronavirus in areas such as tourism, education and agriculture.
Cash assistance to businesses
The Government has expanded the original cash grant stimulus measure announced last week for small businesses. Under the revised stimulus announcement, businesses with under $50M in turnover that employ staff will be eligible to receive refundable credit entitlements relating to their PAYG withholding liabilities of between $20,000 and $100,000 (the exact amount of the credit will depend on the PAYG withholding they have previously paid).
The revised cash grant stimulus measure will operate via two separate phases and the timing of the refundable credits will depend on whether the eligible business pays PAYG withholding monthly or quarterly via their Activity Statements.
The cashflow boost to small businesses is a tax-free payment to employers and is automatically calculated by the Taxation Office. There are no new forms required to be lodged. We would advise that clients lodge their Business Activities Statements on or before the due date in order to take advantage of this measure.
This particular measure will be available to all small businesses that employed staff as at 12 March 2020.
Providing additional protection to businesses and directors
In the updated stimulus announcements, the Government has announced they will introduce a range of temporary measures to protect businesses and directors. The measures include increasing the threshold of when a creditor can issue a statutory demand (from $2,000 to $20,000), providing relief against claims of insolvent trading against directors and deferring the actioning and issuing of Director Penalty Notices against directors for unpaid superannuation, PAYG withholding and GST of the business.
SME Guarantee Scheme
The Government will provide a guarantee of 50 per cent to SME lenders for new unsecured loans to be used for working capital. This will enhance these lenders' willingness and ability to provide credit, which will result in SMEs being able to access additional funding to help support them through the upcoming months. SMEs with a turnover of up to $50 million will be eligible to receive these loans. The Government will provide eligible lenders with a guarantee for loans with the following terms:
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.
As part of the loan products available, the Government will encourage lenders to provide facilities to SMEs that only have to be drawn if needed by the SME. This will mean that the SME will only incur interest on the amount they draw down. If they do not draw down any funds from the facility, no interest will be charged, but they will retain the flexibility to draw down in the future should they need to.
The Scheme will commence by early April 2020 and be available for new loans made by participating lenders until 30 September 2020.
VICTORIAN STATE GOVERNMENT TAX RELIEF
The Victorian Government has announced tax measures to support businesses through Victoria's State of Emergency, as part of a broader economic survival package in response to COVID-19. This includes:
Minimum pension drawdowns halved
Similar to the response in the wake of the Global Financial Crisis, minimum drawdown rates for account-based pensions and similar products will be halved for the 2020 and 2021 financial years.
This means retirees will be under less pressure to sell shares or other pension assets in a falling market to meet the minimum payments they are required to withdraw each financial year.
We will be notifying our clients who have Self-Managed Superannuation Funds affected by this of their revised minimum pension withdrawals required prior to 30th June 2020 shortly.
Early access to super
The Government is allowing individuals affected by the Coronavirus to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21 for eligible individuals. Through an online application via myGov (the process for SMSF is to be advised shortly), an individual may be eligible to access:
For an individual to be able to apply for early release, they must satisfy one or more of the following requirements:
Eligible individuals that can access their superannuation will receive these payments tax-free, that they will be treated as non-assessable, non-exempt income (NANE). This appears to be regardless of the proportion of taxable and tax-free components of an individual's superannuation interests which must be paid proportionately as a lump sum. Any withdrawals will not affect Centrelink or Veterans' Affairs payments.
While this provides an additional safety net for individuals and families who face the loss of a job or a significant fall in income, we do urge our clients to consider accessing their super as a last resort.
Taking a chunk out of your retirement savings now, after a big market fall, would not only crystallise your recent losses but it also means you would have less money working for you when markets recover.
Before you do anything, speak to us and look at other income support measures.
HOUSEHOLD STIMULUS PAYMENTS
Relief for those out of work
All individuals, including casuals and sole traders, who lose their job or are stood down due to the coronavirus shutdown, will be eligible for a temporary expansion of Newstart (now called JobSeeker) payments to new and existing recipients.
Individuals who meet the income test will receive a coronavirus supplement of $550 a fortnight on top of their existing payment for the next six months. This means anyone eligible for JobSeeker payments will receive approximately $1100 a fortnight, effectively doubling the allowance. These payments will be taxable to the recipient.
This measure includes people on Youth Allowance, Parenting Payment, Farm Household Allowance and Special Benefit.
Importantly, the extra $550 will go to all recipients, including those who get much less than current maximum fortnightly payment because they have assets or have found a few hours of part-time work.
Expanding Eligibility and Qualification for JobSeeker payments and Youth Allowance payments
From 27 April 2020, the Government has also put expanded eligibility and qualification criteria in place for six months.
Eligibility for JobSeeker Payment and Youth Allowance for jobseekers will also be expanded to assist:
The Government will temporarily waive, for certain payments:
Also, from 27 April 2020, access to payments will become easier with a temporary removal of the requirement for an Employment Separation Certificate, proof of rental arrangements and verification of relationship status.
Support for pensioners
Pensioners have also received additional support. On top of the $750 payment announced on March 12, an additional $750 will be paid to any eligible recipients, as at 10 July 2020, receiving the Age Pension, Veterans Pension or eligible concession card holders.
Deeming rates cut again
In addition to the cut in pension deeming rates announced in the first stimulus package, the Government has cut deeming rates by a further 0.25 percentage points. This reflects the Reserve Banks latest cut in official interest rates to a new low of 0.25 per cent.
Deeming rates are the amount the Government 'deems' pensioners earn on their investments to determine eligibility for the Age Pension and other entitlements, even if that rate is lower than they actually earn.
This move will bring deeming rates closer in line with the interest rates pensioners are receiving on their bank deposits, especially those with lower balances.
From 1 May 2020, deeming rates will fall to 0.25 per cent on investments up to $51,800 for singles and $86,200 for couples. A rate of 2.25 per cent will apply to amounts above these thresholds.
More support to come
This latest support package is unlikely to be the last as the Government responds to a rapidly evolving health crisis and progressive shutdown of all but essential economic activity.
Further information can be obtained from https://treasury.gov.au/coronavirus
If you have any questions about your investment strategy or entitlements to government payments, please don't hesitate to call our office.