COVID-19 Stimulus & Support Update
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The federal government continues to release a range of measures to support both business and individuals as a result of COVID-19. Both the first and second government stimulus packages passed parliament last night without significant amendment.
This newsletter primarily focuses on the government’s second round of stimulus measures totalling $66.1 billion, following on from the 12 March $17.6 billion package (see our summary of the first package here). We also outline key concessions announced to date by major banks and provide a brief update on state government announcements.
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Newly announced measures, at 24 March, include:
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1. Boosting cash flow for employers
- Increase from the first announcement with maximum direct payment/credit for business employers of up to $100,000 (up from $25,000).
- To eligible a business must:
- have group aggregated turnover of less than $50m;
- have an ABN on or before 12 March 2020 and be actively carrying on a business at that date; and
- have made a payment that is subject to PAYG withholding in the period 1 January to 30 June 2020.
- Extend the above to not-for-profits and charities who are employers.
- Increase the minimum above payment/credit from $2,000 to $20,000.
- Two-stage set of payments.
- Across March-June BASs: Payment/credit for 100% of PAYG withholding (up to $50,000).
- Across July-September BASs: Additional payment equal to total of above (up to $50,000).
- The goal is to incentivise employers to keep staff whom they will, of course, continue to need when we come out the other side.
Comment:
The extension of this measure is welcome and it will have an immediate impact. It is important to note that this is not a cash refund, but a credit on your activity statement. While it will provide an immediate reduction in ATO amounts owing, in many instances there will still be an amount due on the BAS statement and no refund will be received. As discussed in our last newsletter, where necessary clients should consider deferral of some or all ATO payments. |
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2. Temporary relief for financially distressed businesses
- Relief for directors from personal liability for trading while insolvent (except in cases of dishonesty or fraud).
- Increased threshold (from $2,000 to $20,000) at which creditors can issue a statutory demand, and extended response deadline.
- Increased threshold for creditor-initiated bankruptcy.
- ATO open to easier payment terms for outstanding tax debts; lighter approach to withholding enforcement, Director Penalty Notices.
- Treasurer to be given power to modify or provide relief from obligations under the Corporations Act.
- The above measures will apply for six months.
Comment
We cautiously welcome these announcements that are aimed at lessening the threat of legal action against businesses that could cause them to become insolvent and force them into liquidation. The flipside is this may encourage business to slow pay with the threat of legal action deferred, however, ultimately debts will remain due and payable. Communication with debtors/creditors and negotiation of reasonable extended terms would be more appropriate than legal action in many situations.
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3. Government backed Loans
A small-to-medium enterprise (SME) business loan guarantee scheme:
- The government will provide a guarantee of 50% to eligible lenders of unsecured loans to be used for working capital.
- Maximum loan facility of $250,000 per borrower.
- Term of up to three years, with initial six-month repayment holiday.
- For businesses with turnover up to $50 million (interestingly, not specified as group-wide turnover).
- Subject to lenders’ credit assessment processes, with the expectation of looking through this short-term difficult period.
- The scheme is to support $40 billion of lending (ie, $20 billion guaranteed).
Comment
We see this announcement most useful as a contingency fund that is only drawn if required. We generally caution clients that using debt to fund losses should be avoided where possible and only used as a funding source of last resort and where they remain confident in the business recovery post this period. We recommend clients contact us to discuss where they are considering this option.
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4. Earlier access to superannuation
Individuals in financial distress due to the coronavirus can access up to $10,000 of their superannuation – one time – before 1 July 2020.
- Can access up to a further $10,000 – again, one time – from 1 July for approximately another three months.
- Eligible if you satisfy any one of certain criteria, including being unemployed, in receipt of certain welfare payments, made redundant, or given reduced hours.
- Also available for sole traders whose business was suspended, or suffered a 20%+ reduction in turnover.
- Tax free and will not affect Centrelink or Veterans’ Affairs payments.
- Apply through myGov, from mid-April. Must certify that you meet eligibility criteria.
- If approved, the ATO will issue a determination and provide this to your superannuation fund.
- Separate arrangements will apply if you are a member of a self-managed superannuation fund. Further guidance to follow.
- Unused funds can be contributed back to superannuation (within contribution caps).
Comment
Similar to further debt, we see this as a contingency option which should be avoided if possible.
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5. Support for retirees
- Temporary 50% reduction in minimum drawdown requirements for superannuation account-based pensions.
- For example, for the 65-74 age bracket, will reduce from 5% to 2.5%.
- Further reduction in upper and lower social security deeming rates.
Comment
A welcome relief for SMSF clients and other retirees currently accessing their superannuation. We suggest you contact our financial planning team to discuss whether you should take advantage of this relief.
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6. Income support for individuals
- Temporary additional $550 per fortnight supplement for recipients of certain payments (eg, Jobseeker Payment, Youth Allowance, Parenting Payment).
- Available for the next six months.
- Expanded access to above income support payments, including sole traders/self-employed.
Comment
Coming in addition to the existing Newstart benefits, this will see individuals receive up to a $1,115 per fortnight or $2,121 per couple. In particular, we welcome this being extended to sole traders and the self-employed.
In some instances, businesses will be able to continue to trade and the owner can still receive the benefits, subject to passing the relevant income tests. We await further clarity on how this will operate in practice and how it might apply to owners currently employed by a company or trust.
Where employers are forced to lay-off or stand down employees this will provide immediate relief and may be a more attractive option than exhausting leave balances for employees that are temporarily stood down.
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7. Payments to support households
- The first announcement of $750 payment over March-April to pensioners, social security, veteran and other income support recipients will be followed up by a second $750 payment in July (except those eligible for the above supplement).
Comment
This is welcome additional support for those in the community in most need.
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The Tasmanian State Government has not announced any new measures since our last update, however, we do expect more announcements in coming weeks. See here for details of measures previously released.
We note that all state governments continue to announce a range of support measures; with some clients operating across states we encourage them to keep abreast of announcements made in each state where they currently conduct business. |
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Banks and other lending institutions
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Many banks and other lending institutions have announced a range of concessions to support borrowers. A temporary reduction in loan repayments is available in many instances and we recommend clients consider this even as a strategy to further build a contingency reserves.
We have summarised the key announcements from the major banks below but note this list is not exhaustive and other banks and institutions will have additional announcements. Regardless we recommend clients contact their bank manager for further guidance.
CBA
- Deferring repayments on a variety of business loan and overdraft products, for 6-months.
- Reducing commercial interest rates by 0.25.
- Waiving merchant terminal fees for impacted customers with CBA payment terminals, for 90 days.
- Waiving early redraw fees on business term deposit accounts (including Farm Management Deposit accounts).
- Waiving establishment fees and excess interest on Temporary Excess products.
- Deferring repayments on vehicle and equipment finance loans, and providing tailored restructuring options that meet individual customer needs.
ANZ
- Suspending interest repayments.
- Deferral of business loan repayments for up to 6 months, assessed on a case-by-case basis.
- Providing early access to term deposits without incurring break fees.
- Providing access to additional credit, subject to approval.
NAB
- Deferral of business loan repayments for up to 6 months, assessed on a case-by-case basis.
- Extension of a business loan term by a period of up to three months, where individual circumstances warrant.
- Support to restructure existing business loans, including equipment finance.
- Business credit card deferred repayments.
Westpac
- Continuing it's hardship assistance program.
- Deferral of business loan repayments for up to 6 months, assessed on a case-by-case basis.
Bendigo
- Home Loan and Business Loan customers can apply for relief on loans for up to three months.
- Waiver of fees for the restructuring or consolidation of loans.
- Credit card customers can apply for an emergency credit card limit increase.
- Discounted interest rates on new personal loans taken out by existing Bendigo Bank customers.
- Waiver of interest rate reduction for early withdrawals on term deposits prior to maturity.
- Deferral of payments and extensions for Equipment Finance, on a case by case basis.
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Thank you for your continued trust in our firm; we will continue to focus on helping you through these times. This is a constantly shifting scenario so please keep up to date with announcements from relevant government bodies, the ATO, and public health authorities, in addition to any updates we provide you.
Please do not hesitate to contact us if you have any questions or concerns.
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