COVID-19 – a 'taxing' time for everyone
The Australian government has been quick to respond to the rapidly changing economic climate due to the COVID-19 pandemic. In particular, the Australian Taxation Office (ATO) has introduced a number of tax relief measures in a bid to assist taxpayers with cash flow and solvency strains resulting from this outbreak. This article won't detail the direct financial stimulus packages unveiled - but will focus on the wider ranging and associated initiatives foreshadowed, including:
- Payroll tax relief
- Temporary (ancillary legal) measures to support financially distressed business
- Temporary relief for directors for trading whilst insolvent
- Boosting cash flow/Small business PAYG concessions
- Payment deferral for amounts due through Business Activity Statements (BAS) for up to four months
- Moving from quarterly to monthly BAS reporting to access refunds
- Interest and penalty remissions
- Increased small business instant asset write-off threshold
Although these concessions or measures have yet to be legislated, they are being immediately implemented and are currently available to eligible tax payers.
1. Payroll tax relief
Payroll tax relief for the below states include:
- NSW - the Office of State Revenue will waive payroll tax for businesses with payroll up to $10 million for three months
- Queensland - businesses that are registered for payroll tax will be able to defer the remainder of the 2019/2020 financial year payroll tax payment obligations until 31 July 2020
- Victoria - the government will provide payroll tax refunds for the 2019/2020 financial year in full to small and medium-sized businesses with payroll of less than $3 million
- ACT - Payroll tax liabilities will be waived for six months for businesses in the hospitality, creative arts and entertainment industries
- WA - small businesses (with payroll between $1-4 million) will receive a one-off grant of $17,500.
2. Temporary (ancillary legal) measures to support financially distressed business
A stimulus package to assist financially distressed businesses was announced on 22 March 2020 and some of the legal support for businesses will include:
- Statutory demand
A creditor can issue a statutory demand to a corporate entity which has defaulted on payments owed to them. Under the Corporations Act, a statutory demand can often lead to that entity being wound up as a result of a failure to respond within 21 days (for companies and individuals) triggers a default that the entity is insolvent.
- 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. Under this relief, for the next six months, the statutory demand threshold will be increased from $2,000 to $20,000 for companies. Companies will also be given six months to respond rather than the usual 21 days
- Bankruptcy proceedings against individuals
Similarly, under Bankruptcy Act, which governs individual solvency, for a creditor to initiate proceedings the minimum debt required has been increased from $5,000 to $20,000 for the next six months.
Individuals will also have six months to respond rather than the usual 21 days. This gives the debtor the capacity to consider repayment arrangements prior to being forced into bankruptcy.
Based on our experience, now is perhaps a favourable time to (re)negotiate payment arrangements and amounts payable through the BAS. If you have upcoming tax payments due (including PAYG) you can vary these.
3. Temporary relief for directors for trading whilst insolvent
Generally, companies cannot trade while insolvent and directors have a personal duty to ensure the company doesn't trade while insolvent or they could face personal liability.
For directors of a business that are currently struggling due to COVID-19, the ATO will customise solutions for their circumstances, including temporary reduction of payments or deferrals, or withholding enforcement actions including Director Penalty Notices and wind-ups.
The rationale behind this is to ensure that companies continue to trade during this period of uncertainty, without directors feeling the pressure to enter into insolvency processes to avoid the risk of being involved in trading while insolvent.
These measures are expected to apply for six months and will apply to debts incurred in the ordinary course of a company's business. Once economic conditions improve again, the debts incurred will be payable by the company.
This exemption will not pertain to egregious cases of dishonesty or fraud, where criminal penalties will still apply.
At this moment, these measures are not currently in force but are expected to come into law in the very near future. These are sensible initiatives from the Government demonstrating a more far-sighted approach - in supporting businesses to come through to the other side of the current crisis.
4. Boosting cash flow/Small business PAYG concessions
The ATO will assist with business cash flow by providing two payments to businesses who employ staff during the downturn resulting from COVID-19.
To be eligible for this concession, entities must be either a:
- small to medium entity (with an aggregated turnover of less than $50 million last financial year)
- not-for-profit organisation; or
Eligible entities will receive two tax-free "Cash Flow Boost Payments" up to $100,000 in total and will be issued as credits on their activity statements.
The first payment of up to $50,000 will be issued from 28 April 2020, the exact amount dependent on their PAYG withholding amounts for the period ending March 2020.
The second tax-free cash flow boost payment will be for the same amount as the first payment, irrespective of PAYG withholding amounts reported and will be issued upon lodgement in the June to September 2020 activity statements.
5. Payment deferral for amounts due through Business Activity Statements for up to four months
This is available to taxpayers who can provide the ATO with a valid reason as to how their business has been affected by COVID-19.
Taxpayers will be able to defer liabilities due on their activity statements such as GST liabilities, PAYG instalments and fringe benefits tax instalments for up to four months.
6. Moving from quarterly to monthly BAS reporting to access refunds
Effective from 1 April 2020, taxpayers with quarterly reporting obligations can choose to report monthly, giving them access to refunds sooner, such as GST credits.
7. Interest and penalty remissions
The ATO will consider the remission of interest and penalties incurred paid after 23 January 2020 for affected businesses.
The information and guidance coming out of the ATO has 'flagged' their intentions to show flexibility to business in order to ensure that they have sufficient cash flows to see them through the crisis. Businesses should ensure that they take advantage of these concessions now.
8. Increased threshold for small business instant asset write-offs
The instant asset write-off threshold for small business entities will increase from $30,000 to $150,000. Small business entities will include business with an aggregated turnover of less than $500 million (up from $50 million) until 30 June 2020.
This article provides a high level analysis of some of the measures being put in place to protect businesses - particularly small to medium-sized enterprises. There is additional detail in the legislation itself. If you require assistance navigating these various initiatives, we can help.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.