Government and ATO COVID-19 Support Packages Summarised

Both Federal, State and Territory Governments and the Australian Taxation Office (ATO) have adopted measures to assist taxpayers and businesses through the current COVID-19 crisis.

Federal Government

On 12 March 2020 and 22 March 2020, the Federal Government announced two stimulus packages, as summarised below.

Boosting cash flow for employers

Businesses (and registered charities) that have employees and an aggregated annual turnover of less than $50 million (based on the prior year turnover) will be eligible for tax-free employee payments of up to $100,000 between April 2020 and October 2020 (however, there could be taxation consequences if those payments are passed on to shareholders or beneficiaries).

An entity will be eligible for the tax-free payments if the entity:

• has an aggregated annual turnover under $50m (based on prior year turnover);

• makes payments of salary or wages liable to pay-as-you-go (PAYG) withholding (even if no withholding is required);

• was not dormant at 12 March 2020;

• notifies the ATO of the entitlement using the approved form; and

• the entity (or its associate or agent) has not engaged in a scheme for the sole or dominant purpose of seeking to make the entity entitled to the payment or to increase the entitlement of the entity to the payment.

First boost

For qualifying entities:

• April 2020: regarding payment of between $10,000 and $50,000:

  • quarterly remitters: 100% of PAYG withheld in March activity statement (lodged in April) if that amount exceeds $10,000 (or $10,000 minimum payment); or

  • monthly remitters: 300% of PAYG withheld in March activity statement if that amount exceeds $10,000 (or $10,000 minimum payment); and

• May to July 2020: possible further payments for entities that received less than the maximum $50,000 in April representing amounts withheld in the April, May, and June activity statements (monthly remitters) or the June activity statement (quarterly remitters) up to $50,000 (for all payments including the payment in April 2020).

Second boost

Further payments equal in size to the entity’s first payment(s), with the second boost payments payable when the entity lodges its activity statements for the June and September quarters or the June-September months. Effectively, the second payments will be for a minimum of $10,000 up to a maximum of $50,000.

For example, a quarterly remitter that received a first payment of $50,000 will receive a further payment of $25,000 when it lodges its June quarter activity statement and another $25,000 when it lodges its September quarter activity statement. A monthly remitter would receive $12,500 when the entity lodges each of its June to September activity statements.

Wage subsidies for apprentices and trainees until 30 September 2020

Employers may be eligible for apprentice/trainee wage subsides as follows:

• the subsidy will be 50% of the apprentice or trainee’s wages for the period from 1 January 2020 to 30 September 2020 with a maximum subsidy of $21,000 ($7,000 per quarter) per apprentice or trainee;

• the employer must have less than 20 full-time employees, must retain the apprentice or trainee, and the apprentice or trainee must have been in training as at 1 March 2020; and

• employers of any size that re-engage an eligible apprentice or trainee, who could not be retained by a small employer, are also eligible for the subsidy.

Increasing instant asset write-off until 30 June 2020

The asset and turnover thresholds for eligibility to the instant asset write-off will be temporarily increased until 30 June 2020. The key requirements are:

• the asset threshold is increased from $30,000 to $150,000;

• the aggregated turnover threshold is increased from $50 million to $500 million;

• the increased thresholds apply from 12 March 2020 until 30 June 2020; and

• the measure will be available for new, used, or second-hand assets, first used or installed ready for use within that timeframe.

For entities with turnover of less than $10 million that use the “pooling’” depreciation method under Division 328 of the Income Tax Assessment Act 1997 (Cth) (ITAA 97), there is an immediate deduction for the balance of the “General Small Business Pool” if the pool balance is less than $150,000 at 30 June 2020.

Backing business investment through accelerated depreciation

An investment incentive which allows eligible businesses to claim accelerated depreciation deductions on eligible assets will be available until 30 June 2021 as follows:

• the entity must have aggregated turnover of less than $500 million;

• immediate deduction of 50% of the cost of new depreciating assets first used or installed between 12 March and 30 June 2021 (the remaining 50% will be depreciated under the existing rules);

• the asset must be in and used or intended to be used in Australia;

• the measure does not apply to:

  • second-hand assets under Division 40 of the ITAA 97;

  • buildings or capital works that are depreciable under Division 43 of the ITAA 97; or

  • assets for which an instant asset write-off is available (see above).

For entities with aggregated turnover of less than $10 million using the “pooling” depreciation method as above, an immediate deduction of 57.5% of the amount added to the “General Small Business Pool” is available, with the remaining 42.5% balance added to the “General Small Business Pool” and depreciated at 30%.

ATO support

The ATO has introduced administrative concessions for businesses affected by COVID-19.

Corporate tax PAYG concessions

PAYG instalment taxpayers can vary their instalments on their activity statements and claim a refund for instalments already paid in the 2020 income year by:

• varying the PAYG instalment amount to zero from the March 2020 quarter/month (as applicable); and

• claiming a refund for any instalments made for the September 2019 and December 2019 quarters/month (as applicable).

This measure provides a cashflow benefit only and will not change total tax payable for the 2020 income year.

While the ATO will not impose penalties or interest on varied (or refunded) PAYG instalments, taxpayers need to be mindful not to have varied (or refunded) PAYG instalments and cause a franking account deficit as at 30 June 2020.

Payment deferral for amounts payable through activity statements

In another cashflow timing benefit, taxpayers can telephone the ATO on 1800 806 218 and ask for a deferral of the payment of amounts due on activity statements including net goods and services tax (GST) liabilities, PAYG instalments (if not varied or refunded under the above), and fringe benefits tax until up to 12 September 2020. The ATO will not charge interest on the deferrals, however, this will not defer the taxpayer’s obligation to make a lodgement.

Moving from quarterly to monthly GST reporting

Taxpayers on a quarterly GST reporting cycle may telephone the ATO on 1800 806 218 to change to monthly GST reporting to get faster access to GST refunds.

The changes can only be made from the start of a GST quarter, so the change would take effect from 1 April 2020 with the change to last for at least 12 months (at which time, the taxpayer can revert back to quarterly reporting).

Interest, penalties, and payment plans

Taxpayer’s affected by COVID-19 can telephone the ATO on 1800 806 218 to:

• remit interest and penalties incurred on or after 23 January 2020 on tax liabilities; or

• ask for a low-interest payment plan to pay for existing and ongoing tax liabilities.

Tax residency and permanent establishments

The ATO has published a revised approach to the central management and control residency test to take into account the impact of travel restrictions and lockdowns on board meetings conducted via telephone or video conference.

If the only reason for holding board meetings in Australia or directors attending board meetings from Australia is because of the impacts of COVID-19 travel restrictions, then it will not apply compliance resources to determine if the central management and control of the company is in Australia.

Additionally, foreign companies will not be treated as having a permanent establishment in Australia due to the presence of employees in Australia as a result of COVID-19 travel restrictions.

State and Territory Government measures

The State and Territory Governments have announced economic stimulus and relief packages.

In Victoria:

• businesses with payroll of less than $3 million (Victorian wages, single entity basis) will be eligible for full refunds of payroll tax for the 2020 year (a refund of up to $113,975);

• the same businesses can defer payment of payroll tax for the first three months of the 2021 year until 1 January 2021;

• commercial tenants in Victorian Government buildings can apply for rent relief and cannot be evicted from the premises for failure to pay rent;

• 2020 land tax payments will be deferred for eligible small businesses;

• the Victorian Government will pay all outstanding supplier invoices within 5 business days; and

• the waiver of liquor licensing fees for 2020 for affected venues and small businesses in the hospitality sector.

The Victorian State Revenue Office (SRO) is sending out emails to eligible businesses for payroll tax relief but the business still needs to apply for a refund. For businesses not contacted by the SRO, an eligible business will receive the refund when it lodges its annual payroll tax reconciliation.

Summary

The support currently available by Governments, the ATO, and the SRO is not limited to the ‘taxation based’ measures (outlined above) and is likely to increase as the COVID-19 crisis continues. We will provide further updates as these develop.

We can help you with understanding and accessing available COVID-19 support. For further information please contact:

Paul Gray
Principal
T: 03 5225 5231
E: pgray@ha.legal

Rod Payne
Principal
T: 03 5226 8541
E: rpayne@ha.legal

Alasdair Woodford
Senior Associate
T: 03 5225 5217
E: awoodford@ha.legal

Alexander Gulli
Lawyer
T: 03 5226 8573
E: agulli@ha.legal