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Read: Federal Government announces second COVID-19 economic stimulus plan
The first stimulus package was aimed at providing support to business taxpayers and employers. This included concessional depreciation rules, support payments for PAYGW and support payments for trainees and apprenticeships – read more. The second stimulus package provides increased support payments for PAYGW, temporary relief under the Corporations Act for distressed companies and a suite of credit support measures to provide finance to small to medium sized (SME) businesses.
Below, we look more closely at the measures to support businesses.
Extension of PAYGW support
One of the more significant measures, this is aimed to provide up to $100,000 in cash payments to a business. Under the new proposal, eligible employers can receive a payment equal to 100 per cent of their salary and wages withheld (up from 50 per cent), with the maximum payment being increased from $25,000 to $50,000. In addition, the minimum payment is being increased from $2,000 to $10,000.
An additional payment is also being introduced in the July – October 2020 period, where eligible entities will receive an additional payment equal to the total of all payments they have received. Accordingly, eligible businesses may receive a total from $20,000 up to a total of $100,000.
This measure will apply to small and medium sized business (SME) entities and not-for-profits (NFP) with aggregated annual turnover under $50 million and that employ workers. An eligible employer is one established prior to 12 March 2020 (however, charities which are registered with the Australian Charities and Not-for-profits Commission will be eligible regardless of when they were registered, subject to meeting other eligibility requirements). Turnover thresholds will generally be based on prior year turnover.
The payment will be provided as an automatic credit in the activity statement system from 28 April 2020. 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 the maximum (i.e. $50,000). The minimum will be equal to $10,000 even if they are not required to withhold tax. To qualify for the additional payment, the entity must continue to be active.
Details of this measure remain scarce. While the payment is intended to be automatic, it is unclear how the ATO will access details pertaining to group turnover to automatically assess whether the group has aggregated turnover of less than $50 million. This is likely to affect a small proportion of employers that may be on the borderline of the threshold requirements.
Detailed information released by Treasury on these measures can be accessed here.
Temporary relief for financially distressed businesses
The Federal Government will provide a safety net to lessen the threat of actions that could unnecessarily push business entities into insolvency and force the winding up of the business. There are four main elements of the package.
- There will be a temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive. The dollar value for insolvency claims will increase from $2,000 to $20,000 and the dollar value to initiate bankruptcy claims will increase from $5,000 to $20,000. Certain time periods (e.g. for responding to bankruptcy claims and responding to statutory demands) will be increased from 21 days to 6 months. There will also be an extension of the period of protection a debtor receives after making a declaration of intention to present a debtor’s petition from 21 days to 6 months. These measures will apply for a six-month period.
- Directors will be temporarily relieved of their duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company’s business. This measure will apply for six months. However, egregious cases of dishonesty and fraud will still be subject to criminal penalties. Any debts incurred by the company will still be payable by the company.
- The Treasurer will also be given a temporary instrument-making power in the Corporations Act 2001. This will enable the Treasurer to temporarily amend the Act to provide relief under the Act or to modify obligations to enable compliance during the crisis. The instrument-making power will apply for six months.
- Lastly, for owners or directors of a business that are currently struggling due to COVID-19, the ATO will look to tailor solutions. This may include temporary reduction of payments or deferrals or withholding enforcement actions including Director Penalty Notices and wind-ups.
For more information about these changes, click here. Additionally, a copy of the Treasury information sheet can also be access here.
Support for the aviation industry
The Federal Government has proposed a package of measures specifically targeting at the aviation industry. Under this $715 million package, government will look to:
- reimburse aviation fuel taxes,
- provide relief from Airservices Australia charges
- provide a rebate for Domestic Aviation Security and
- fund regional aviation security.
Most of these measures will apply from 1 February and will be provided for a period of 8 months.
Measures to provide credit support
The Government, together with the Reserve Bank of Australia and the Australian Prudential Regulation Authority, are taking a coordinated action to ensure there is a flow of credit in the Australian economy, especially for small to medium sized businesses. Detailed information on the measures from Treasury can be accessed here.
Coronavirus SME Guarantee Scheme
This scheme includes measures to ensure businesses can continue to access small business loans during this period of uncertainty. The government will look to provide a guarantee of 50 per cent to SME lenders for new unsecured loans to be used for working capital. SMEs with a turnover of up to $50 million will be eligible to receive these loans. The loan must have a maximum total size of $250,000 per borrower, be up to three years (with an initial six-month repayment holiday) and in the form of unsecured finance. The Scheme will commence early April 2020 and available for new loans made by participating lenders until 30 September 2020.
Measures by the Reserve Bank of Australia
The Reserve Bank of Australia (RBA) has announced a term funding facility for the banking system, which will allow banks to have access to at least $90 billion at a fixed interest rate of 0.25 per cent. The facility offers additional low-cost funding to banks if they expand their business lending, with particular incentives applying to new loans to SMEs. The RBA also announced a further reduction in the cash rate to 0.25 per cent and is taking active steps to target a 0.25 per cent yield on 3-year Australian Government Securities.
Supporting non-ADI and smaller ADI lenders in the securitisation market
The Australian Office of Financial Management (AOFM) will be provided with $15 billion to invest in structured finance markets used by smaller lenders, including non-authorised deposit-taking institutions (Non-ADI) and smaller authorised deposit-taking institutions (ADI). This support will be provided by making direct investments in primary market securitisations by these lenders and in warehouse facilities.
What are the next steps?
It is critical to consider your position and how the rules apply. Contact your Pitcher Partners representative to review your situation and determine what action is required.