As the Coronavirus pandemic continues to impact everyone's lives across the globe, Governments around the world have been implementing stimulus packages to help support businesses and employees during these difficult times.
In this article, we will explore the Australian Government's stimulus response, where the money is going, what the eligibility requirements are as a small to medium enterprise and how the stimulus may impact your operations.
How much is committed and where is the money going?
On March 30, the Australian Government announced the final piece of its stimulus package response to the public in the form of the JobKeeper Payment. This brings the fiscal response to the pandemic to a staggering $320 billion, or around 16.4% of Australia's annual GDP. This stimulus is six times larger than the stimulus provided during the Global Financial Crisis.
The largest fiscal response comes in the form of the JobKeeper Payment, costing the budget an estimated $130 billion. The package is targeted at businesses that have suffered a reduction in their turnover, giving them access to a $1,500 per fortnight payment that is passed on to the employee to assist in paying their wages. This package will enable employers to keep staff on which they would have otherwise had to terminate without access to the package.
Boosting Cash Flow for Employers
The other major package aimed at supporting the cash flow of Australian businesses by providing eligible businesses with tax-free cash flow boosts between $20,000 and $100,000 and is estimated to cost the budget $31.9 billion. These cash flow boosts will be provided as credits through the activity statement systems on the lodging period for that business, be that monthly or quarterly. If you have lodged your most recent Business Activity Statement and are eligible, you have most likely already seen the initial cash flow boost hit your bank account.
The final major package businesses can take advantage of come in the form of increasing the threshold for instant asset write-offs from $30,000 to $150,000. The goals of this stimulus are to support businesses in continuing to invest by enabling a greater immediate tax-write off, lowering their overall taxes they will have to pay. It is designed for enabling innovation in a difficult climate. This measure is estimated to have a net cost of $700 million.
How to make the most of the Government benefits
As we'll outline further below, some stimulus packages have strict eligibility requirements. The instant asset write off is not one of those. There is only one requirement to be met to take advantage of the increase in the instant asset write-off. If your business has an aggregated annual turnover of less than $500 million (which is up from $50 million), you will be able to take advantage of the instant tax write-off.
While some businesses may not be in a position to invest further, it's worth considering if your business can make the most of incentives like the instant asset write off. COVID-19 has highlighted the need to accommodate a remote working environment. One particular pain point for many businesses has been software systems that have been implemented as stop-gap solutions to continue operating. With the instant asset write off increasing to $150,000 there is a good opportunity to create a custom solution that suits the unique processes of your company.
If you're considering leveraging the instant asset write off to build a software system for your business then let us know.
Who can access the stimulus package?
From March 30 to September 27, 2020, affected employers will be able to access the $1,500 payment per employee per fortnight. As a small business, if your turnover has fallen by or will likely fall bay 30% or more, you are considered eligible for the JobKeeper Payment.
Whilst you may qualify as an affected business, it is also important to consider which of your employees are eligible as part of your application for the payment. The criteria for eligible employees are:
- Employees currently employed by you (including those stood down or re-hired);
- Were employed by you on the 1st of March 2020;
- Are a full-time, part-time, or long-term casual;
- Are a permanent employee, or if a long-term casual, not a permanent employee of another business;
- Are at least 16 years of age as of the 1st of March 2020;
- Are an Australian Citizen, permanent visa or special category (subclass 444) visa holder on the 1st of March 2020;
- Were a resident for Australian tax purposes on the 1st of March; and
- Not receiving JobKeeper Payment from another business.
Boosting Cash Flow for Employers
The cash flow boost for employers requires no application and is calculated based on your logged activity statements and the Withholdings you must make as an employer. To be considered eligible, your business must be considered a small to medium business:
- Held an ABN on 12 March 2020 and is still active;
- Has an aggregated annual turnover less than $50 million; and
- Made eligible payments that your business is required to withhold
Eligible payments are:
- Salary and wages
- Director fees
- Retirement or termination payments
- Compensation payments
- Voluntary withholding from payments to contractors
If you meet these criteria, after completing your most recent activity statements, you should find your cash flow payments automatically calculated and included as credits back to your business.
How will this impact my operation
In a perfect world the Government's plan would see the stimulus help keep your operations as close to business as usual from before the Coronavirus pandemic. The JobKeeper Payment will enable your business to keep your staff employed by covering all or part of their wages. The cash flow boost will provide an instant cash injection for your business. The asset write-off will enable you to continue investing in your organisation by taking advantage of the reduced tax you will need to pay on new investments.
It is important to reach out to your trusted accountant or financial officer to discuss your businesses eligibility against the criteria to ensure you are getting the most out of the various stimulus packages.