What the COVID-19 Stimulus Package means for you
Written by Shereen Churchill (Financial Adviser)
We’re big advocates of the benefits of continually reviewing your situation to make sure you’re making the most of the available opportunities as and when they become available. The COVID-19 Stimulus Package signals the need for a review.
The Government is acting decisively in the national interest to support households and businesses and address the significant economic consequences of the Coronavirus (COVID-19).
While the full economic effects from the virus remain uncertain, these actions seek to provide timely support to affected workers, businesses and the broader community. The Government’s economic response targets three areas namely:
- Supporting individuals and households
- Support for businesses
- Supporting the flow of credit
Below is a report of issues that may impact some of our clients, but please note that:
- The summary is not an exhaustive list of all the stimulus measures and benefits available; but rather those which we believe will benefit some of our clients;
- The situation is changing daily, and individual State Governments are also undertaking their own measures;
- If, on or after 1 January 2020 you meet any of the following criteria, you should contact us as soon as possible to discuss those particular stimulus measures which may be available to assist you:
- made redundant, or;
- your working hours were reduced by 20 per cent or more, or;
- you are a sole trader — your business was suspended or there was a reduction in your turnover of 20 per cent or more, or
- your business is in financial distress.
Supporting individuals and households
Government Payments to support households
- Two separate $750 payments to social security, veteran and other income support recipients as well as eligible concession card holders will be made.
- The payments are available to those who are eligible payment recipients (for example; Age Pensioners, Veteran Service pensioners and Disability Support Pensioners) and concession card holders (for example; Pensioner Concession Card (PCC) holders, Commonwealth Seniors Health Card holders, Veteran Gold Card holders and Family Tax Benefit recipients) at any time between 12 March and 13 April 2020 inclusive, and again on 10 July 2020.
- In the case of the second payment, the $750 payment is not payable for those who are receiving an income support payment that is eligible to receive the Coronavirus supplement.
- The first payment will be paid automatically from 31 March 2020 and the second automatically from 13 July 2020.
- The payment will be exempt from taxation and will not count as income for the purposes of Social Security, Farm Household Allowance and Veteran payments.
- The complete list of eligible income support payments and concession card is available here: https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Payments_to_support_households.pdf.
Reduction in Income stream drawdown rates
- There will be a temporary 50% reduction in the minimum annual amount that you’re required to withdraw from your super income stream.
- Minimum annual amounts are set on 1 July of each year based on your pension balance and age.
- The reduction in the minimum drawdown rates will apply for the duration of this financial year and for the 2020/21 financial year.
- Opportunity: You might have alternative sources of income or cash that you can live on.
- Consideration: You might wish to retain as much as possible in your tax-effective pension.
Reduction in social security deeming rates
- As of 1 May 2020, the upper deeming rate will be 2.25 per cent (currently 2.5 per cent) and the lower deeming rate will be 0.25 per cent (currently 0.5 per cent).
- On average, this will result in the receipt of around $105 more from the Age Pension in the first full year that the reduced rates apply.
Boosting cashflows for employers
- The Government is providing up to $100,000 to eligible small and medium-sized businesses and not- for-profits (NFPs) that employ people, with a minimum total payment of $20,000.
- Small and medium sized business entities and NFPs with aggregated annual turnover under $50 million and that employ workers will be eligible.
- Eligibility will generally be based on prior year turnover.
- Under the scheme, employers will receive a payment equal to 100 per cent of the business’ salary and wages withheld, with the maximum payment of $50,000 and a minimum payment of $10,000.
- The payment will be delivered by the ATO as an automatic credit in the activity statement system from 28 April 2020 upon employers lodging eligible upcoming activity statements.
- Eligible employers that withhold tax to the ATO on their employees’ salary and wages will receive a payment equal to 100 per cent of the amount withheld, up to a maximum payment of $50,000.
- Eligible employers that pay salary and wages will receive a minimum payment of $10,000, even if they are not required to withhold tax.
- The payments will only be available to active eligible employers established prior to 12 March 2020.
- Quarterly lodgers will be eligible to receive the payment for the quarters ending March 2020 and June 2020.
- Monthly lodgers will be eligible to receive the payment for the March 2020, April 2020, May 2020 and June 2020 lodgements. To provide a similar treatment to quarterly lodgers, the payment for monthly lodgers will be calculated at three times the rate (300 per cent) in the March 2020 activity statement.
- An additional payment is also being introduced in the July-October 2020 period: Eligible entities will receive an additional payment equal to the sum of all the Boosting Cash Flow for Employers payments they have received as above. This means that eligible entities will receive at least $20,000 up to a total of $100,000 under both payments.
- The cash flow boost provides a tax-free payment to employers and is automatically calculated by the ATO. There are no new forms required.
Increasing the instant asset write-off
- The Government is increasing the instant asset write-off (IAWO) threshold from $30,000 to $150,000 and expanding access to include all businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020.
- The higher IAWO threshold provides cash flow benefits for businesses that will be able to immediately deduct purchases of eligible assets each costing less than $150,000.
- The threshold applies on a per asset basis, so eligible businesses can immediately write-off multiple assets.
- The IAWO is due to revert to $1,000 for small businesses (turnover less than $10 million) from 1 July 2020.
Backing business investment
- The Government is introducing a time limited 15-month investment incentive to support business investment and economic growth over the short-term, by accelerating depreciation deductions.
- The key features of the incentive are:
- Benefit– deduction of 50 per cent of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost.
- Eligible businesses– businesses with aggregated turnover below $500 million.
- Eligible assets– new assets that can be depreciated under Division 40 of the Income Tax Assessment Act 1997 (i.e. plant, equipment and specified intangible assets, such as patents) acquired after announcement and first used or installed by 30 June 2021.
Support for individuals, households and businesses
The JobKeeper payment consists of payments to help businesses subsidise the cost of paying employees throughout the COVID-19 pandemic. If a business has had to stand employees down, this payment will help keep them connected with their employees.
Key info for employees
- Ultimately, it will be up to your employer to register and apply for the payment.
- If they do, the payment will provide $1,500 per fortnight for each of their eligible employees, before tax.
- Your employer will work out if you are an eligible employee.
- You’ll be considered an eligible employee if:
- You’re currently employed by them – even if you were stood down or have been rehired;
- On 1 March 2020 you were employed by them;
- You’re either full-time, part-time or a long-term casual who has been with them on a regular basis for longer than 12 months as at 1 March 2020;
- You’re at least 16 years of age;
- You’re an Australian citizen, holds a permanent visa or certain other visa categories; and
- You’re not receiving a JobKeeper payment from any other employers.
- Although the payment is made directly to employers, you’ll be able to receive the payment in several ways if your employer receives the JobKeeper payment for you.
- If you would normally earn $1,500 or more in income per fortnight before tax, you’ll continue to receive your regular income in line with your current arrangements.
- The JobKeeper payment may subside part of your wages.
- If you would normally earn less than $1,500 per fortnight before tax, your employer will be required to pay you a minimum of $1,500 per fortnight before tax. It will be your employer’s decision to pay superannuation guarantee on any amount you receive above your normal wage as a result of the JobKeeper payment.
- If you were employed on 1 March 2020, ceased employment and have now been re-engaged by that employer, you will receive a minimum of $1,500 per fortnight before tax.
- There is little that you may have to do as an employee. Your employer is required to notify you if they are receiving the JobKeeper payment. However, if you have multiple employers, you’ll need to notify the relevant employer that they are your primary employer. You may have some additional obligations if you end up in receipt of an income support (such as JobSeeker).
Key info for employers
- The measure is available to eligible employers including businesses structured through a company, partnership, trusts, as well as sole traders. Not for profit businesses, including charities, will also be eligible.
- If your business has been impacted by COVID-19, and you meet the eligibility criteria, you may access $1,500 per fortnight per eligible employee, from 30 March 2020.
- The subsidy will be available for a maximum period of six months.
Who is an eligible employer?
- To be considered an eligible employer a business must meet one of the following criteria:
- The business has a turnover of less than $1 billion and turnover will be reduced by more than 30% relative to a comparable period a year ago, or
- The business has a turnover of $1 billion or more and turnover will be reduced by more than 50% relative to a comparable period a year ago.
- However, an employer will not qualify if their business is subject to the Major Bank Levy.
- In order for a business to receive the JobKeeper payment, it is also a requirement that employees will need to have been employed by the business as at 1 March 2020 and the employer will need to confirm that each eligible employee is currently engaged in order to receive the JobKeeper payment.
- Refer to the “key info for employees” section for employee eligibility criteria.
How does the JobKeeper Payment work?
- Businesses will be responsible for identifying which of its employees are eligible for the JobKeeper payment and provide monthly updates to the ATO.
- A fortnightly payment of $1,500 will be made to the business for each eligible employee, essentially as a wage subsidy.
- Businesses are required to take certain steps with the payments they receive.
- For each eligible employee who earns less than $1,500 per fortnight, their salary will need to be increased to this level.
- Any additional salary topped (by the JobKeeper Payment) will not be subject to superannuation guarantee, but an employer can choose to pay super on this amount if they wish.
- For employees earning $1,500 or more per fortnight already, the JobKeeper payment essentially subsidises the wages that would have been paid, which can free up some cash flow for the business.
- Employers can register their interest in receiving the JobKeeper payment online via ato.gov.au from 30 March 2020.
- The first payment will be made to businesses in early May 2020.
While the COVID-19 situation is changing rapidly, it is important to consider how individuals, households and businesses can boost their immunity to the financial impacts. A professional financial adviser in conjunction with a business tax adviser, can potentially assist you in understanding what you may be eligible for now, to cushion the financial impact on your situation.
Contact us to find out how we can help you and your family and/or business take steps for financial success into the future.
This information has been prepared and issued by ITL Financial Planning and is current as at 8 April 2020. Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This Information may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. It should not be considered a comprehensive statement on any matter nor relied upon as such. ITL Financial Planning does not accept responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. The tax position described is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice.