A detailed look at key COVID-19 financial measures for SMEs

The Australian Government has released three financial measures in response to the coronavirus (COVID-19): an initial package of $17.6 billion followed by a $66.1 billion raft of measures for SMEs, individuals and corporate directors. Here is my analysis of the most significant measures:

Cash Boost

The Government will provide tax-free payments up to $100,000 for eligible SMEs with aggregated annual turnover under $50 million (based on their most recent tax assessment). The boost pays up to $50,000 before June and then up to another $50,000 after June.

The payment applies to every entity with a PAYG-W liability (or which makes payments subject to withholding even if it has no withholding liability).

The first payment is:

  • a minimum of $10,000 and
  • a maximum of the lesser of 100% of the PAYG-W liability on the March BAS; or $50,000
  • There are some concerns with the “fine print” because to be eligible for the boost, the entity must have an ABN and have lodged on or before 12 March 2020 either:
  • a tax return for the 2019 financial year showing an amount of income from a business; or
  • a BAS for one of the periods starting on 1 July 2018 and ending before 12 March 2020 showing consideration for a supply.

So, if you haven’t lodged such a document (e.g. because the business only came into existence in January 2020), then it’s not looking good. Also, entities that are annual GST lodgers potentially will not have had a deadline before 12 March. The ATO can extend the 12 March deadline in “exceptional circumstances”.

Payment appears generally to be intended to offset against the business’s running balance account. That is, in general, the cash boost will act as a reduction of the liability on the BAS. Given that the intention was to give a cash boost to businesses, having this treated as a reduction in a liability that the business may have been able to defer with help from the ATO anyway means that it may not create much of a boost. However, there is hope. The ATO can choose not to offset the boost payment and can choose, instead to pay it directly to the business. Let’s hope sanity prevails.

Instant Asset Write-off

For the extension of the instant asset write-off, for assets first used (or installed ready for use) from 12 March to 30 June 2020 the asset value threshold increases to $150,000 from $30,000; and the turnover eligibility threshold increases to $500m from $50m. The only sting in the tail here is that the current income year has to finish on or before 30 June 2020. So, taxpayers whose income year runs to 31 December, rather than 30 June, will not be able to take advantage.

My key advice is that businesses should still lodge their BAS on time. Negotiating debt deferrals is a much better option than not lodging and exposing directors to personal liability for unpaid taxes and a loss of tax deductions, which is what can happen where BASs are lodged late.

JobKeeper Package

The wage subsidy scheme means that eligible employers – those with turnovers of under $1 billion that have taken a 30 per cent hit and turnovers of over $1 billion that have taken a 50 per cent hit – will receive a $1500 per fortnight job keeper payment. This must be paid (before tax) to each employee as at 1 March who has either been stood down since that date or will be kept on over the next six months.

The extension of this measure to sole traders who have an ABN will be a huge relief. At present, few of the stimulus measures have helped this group specifically. This package will provide them with some hope of coming out the other side of this crisis.”

For an employee stood down entirely, the payment will be worth $1308 per fortnight after tax ($1500 less $192 PAYG withholding, assuming claim of the tax free threshold and no HECS debt etc).

Mark Molesworth, Tax Partner, BDO Australia 

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