Coronavirus stimulus package: How does it affect your clients?
The Government has passed legislation containing stimulus measures in response to the economic impact of the Coronavirus. The stimulus measures contain changes that affect super, tax and social security. The key changes include a new time-limited condition of release on super, tax concessions for small businesses and additional payments for certain social security recipients. These changes are contained in the Coronavirus Economic Response Package Omnibus Bill 2020 which received Royal Assent on 24 March 2020.
The Government has announced that they will not sit again until August meaning other Bills that have not been passed may not be legislated until the new financial year. Furthermore, the Prime Minister, Scott Morrison has announced the Federal Budget will be delayed until 6 October 2020.
We will continue to monitor the stimulus package and provide relevant updates as more information becomes available.
Access to lump sums from super
Eligible people may access up to $10,000 of their super before 1 July 2020. A further $10,000 can be accessed from 1 July 2020 until 24 September 2020. It is expected that the ATO will start to accept applications via MyGov from 20 April 2020.
To be eligible to access lump sums from super, a person must be:
- eligible for a Jobseeker payment, Youth Allowance for job seekers, Parenting Payment (including the single and partnered payments), special benefit or farm household allowance
- on or after 1 January 2020:
- made redundant
- had their working hours reduced by 20% or more
- be a sole trader and had their business suspended or there was a reduction in business turnover of 20% or more.
These payments are tax-free and not treated as income under the Centrelink income test.
Steps to follow to apply for the lump sum payment from super:
- Contact the super fund to ensure it has the person’s current bank account details and proof of identity documents.
- The person applies for the lump sum through to the Australian Taxation Office (ATO) via their myGov account through the myGov website.
- If eligible, the Australian Taxation Office (ATO) will issue a determination to the person and will also provide a copy to the super fund.
- The super fund pays the lump sum to the person’s bank account. There is no need for the person to apply to the super fund.
Self-managed super funds (SMSFs) will use a different process which will be released shortly.
What is the impact of the measure?
This measure will provide some cash flow to those affected sole traders and employees who are on reduced hours or who are stood down because of the COVID-19 crisis.
Reduced minimum pension payments 2019/20 and 2020/21 financial years
The minimum pension payments required from account-based pensions, transition to retirement pensions and market linked pension (term allocated pensions) will be reduced by 50%:
Default minimum drawdown rates (%)
Reduced rates by 50% in 2019/20 and 2020/21 income years (%)
|95 and older||14||7|
What is the impact of the measure?
Pensioners who invest in growth investments may crystallise smaller capital losses as they may dispose of a smaller proportion of their investments to meet minimum pension payments. This may allow any remaining growth investments to potentially grow in value when the markets recover.
Two $750 tax-free lump sum payments for eligible people
Up to two, separate, tax-free $750 lump sum payments may be paid to people who receive one of the following payments or who hold any of the following concession cards, as shown in Table 2 below. A person who holds more than one of these will only receive a maximum of two lump sums. A person can only receive one $750 payment in each round of payments even if they qualify for each round of payment in multiple ways. For example, someone receiving a Carer Payment and Carer Allowance may receive a first payment of $750 and a second payment of $750, but they won’t receive four lots of $750.
Those who are eligible for the Coronavirus Supplement will only receive the first lump sum payment and will not be eligible for the second lump sum payment.
Eligibility criteria to receive $750 tax-free lump sums
To be eligible for these payments the person must be residing in Australia.
The first payment will be paid from 31 March 2020. Those who lodged a claim for an eligible payment or concession card at any time between 12 March 2020 to 13 April 2020, which is subsequently approved, will also receive the first payment.
The second payment will be made from 13 July 2020.
Table 1: Eligible payments and concession cards
|Individuals receiving the following income support payments are eligible for up to two $750 lump sums||Individuals receiving the following income support payments may receive the first lump sum of $750 but will receive the $550 per fortnight 'Coronavirus Supplement' instead of the second $750 lump sum|
The payments will not be treated as income for Social Security, Department of Veterans’ Affairs (DVA) and Farm Household Allowance purposes.
What is the impact of the measure?
This means a single person may receive up to $1,500 and couples may receive up to $3,000 from the first and second payments.
From 27 April 2020, if client's are eligible (see column two of table above) they will be automatically paid the Coronavirus Supplement. The Coronavirus Supplement is a $550 fortnightly payment for six months. The payments are taxable and are not assessed for the social security income tests.
To provide more access to income support payments the following arrangements will apply during the six-month period:
- Waiving the asset test for the Jobseeker Payment, Youth Allowance Jobseeker, and Parenting Payment.
- The income test will continue to apply to the other payments the person receives.
- The one-week ordinary waiting period, liquid assets waiting period, seasonal work preclusion period and newly arrived residents waiting period will not apply during this period. These waiting periods will be waived for those currently serving these waiting periods.
- Income maintenance periods and compensation preclusion periods will continue to apply as payments received by the person are treated as income.
New applicants are encouraged to lodge claims for eligible payments online through their myGov account for faster processing. Applications can also be done by phoning Centrelink.
Reduced deeming rates
From 1 May 2020, the upper deeming rate for income in excess of the income threshold will reduce from 3% to 2.25%, and the lower deeming rate from 1% to 0.25%.
|Deeming rate (1 May 2020)||Single||Pensioner couple (combined)|
|0.25%||First $51,800 ($129.50)||First $86,200 ($215.50)|
|2.25%||On amounts exceeding $51,800||On amounts exceeding $86,200|
These reductions reflect the low interest rate environment and its impact on the income from savings.
What is the impact of the measure?
As the coronavirus situation is expected to last for most of the remainder of this year, many pensioners and income support recipients will experience a significant reduction in the value of their investments which are assessed under Social Security, DVA and Aged Care assets tests. This decline in value, combined with the reduction of deeming rates from 1 May 2020, is expected to make more people eligible for the Age Pension or other types of income support. Many people who are currently receiving part pensions and less than the full rate of income support may receive increased entitlements.
Tax measures for business
Increasing the instant asset write-off thresholds for small businesses
From 23 March 2020 until 30 June 2020, small business’ with aggregated annual turnover of less than $500 million (increased from $50 million) may be eligible for an instant asset write-off on assets of up to the value of $150,000 (from $30,000).
From 1 July 2020, this threshold reduces to $1,000 (for businesses with less than $10 million turnover).
The measure applies to new or second-hand assets first used, or installed ready for use, between 12 March 2020 until 30 June 2020 (inclusive). Certain assets are excluded, for example, horticultural plants and capital works deductions.
The threshold applies on a per asset basis, so eligible businesses can immediately write-off multiple assets.
Clients should confirm the entitlement to the tax deduction with their accountant.
Boosting cash flow for employers
From 12 March 2020 eligible small or medium business will get payments up to a total of $100,000 and a minimum of $20,000, to help with cash flow in order to keep operating, pay bills and retain employees. Not -for-profit organisations and charities are also included.
The ATO will pay this as an automatic credit to the business upon lodgement of your business activity statement or instalment activity statement. The credit can offset the business’ tax liabilities and the ATO will refund remaining credit within 14 days. Clients don’t need to fill out any new forms and the payments are tax-free.
Eligibility criteria to receive small and medium business payments to help with cashflow.
To be eligible the business must:
- be a small to medium businesses which held an Australian Business Number (ABN) on 12 March 2020 and carried on a business in the 2018/19 financial year (or made supplies for consideration in the course of an enterprise carried on after 1 July 2018 and before 12 March 2020) and has not engaged in a scheme for the sole or dominant purpose of seeking to gain or increase entitlement to the first cash flow boost
- be a not-for-profit organisation and/or charity registered at any time, and
- have an aggregated annual turnover under $50 million, based on the prior year's turnover
- make a payment of salary or wages that is subject to PAYG withholding obligations, whether or not any amount is actually withheld, in the relevant period.
The payments will be delivered in two tranches:
- First cash flow boost
Payments equal to 100% of tax withheld from salary and wages up to a maximum total payment of $50,000. Eligible employers will receive a minimum total payment of $10,000, even if they are not required to withhold tax.
- Second cash flow boost
Additional payments to be introduced for the July to October 2020 period, equal to the total of all first cash flow boost payments received. The maximum total payment is $50,000 and the minimum total payment is $10,000.
What is the impact of the measure?
Eligible small and medium businesses, not-for-profits and charities, which employ staff and withhold tax from their wages can plan to receive cash refunds of 100% of the tax withheld up to $50,000 (or a minimum of $10,000) for the March and June 2020 quarters and up to $50,000 (or a minimum of $10,000) from July to October 2020. Eligible employers should ensure they lodge their business activity statements (BAS) on time as credits are delivered on lodgement.
Support for apprentices and trainees
Eligible employers can apply for a wage subsidy of 50% of the apprentice’s or trainee’s wage paid during the nine months from 1 January 2020 to 30 September 2020. Where a small business is not able to retain an apprentice, the subsidy will be available to a new employer. Employers will be reimbursed up to a maximum of $21,000 per eligible apprentice or trainee ($7,000 per quarter).
Support will also be provided to the National Apprentice Employment Network, the peak national body representing Group Training Organisations, to co-ordinate the re-employment of displaced apprentices and trainees throughout their network of host employers across Australia.
Eligibility criteria for wage subsidy:
- Employ fewer than 20 full-time employees who retain an apprentice or trainee.
- The apprentice or trainee must have been in training with a small business as at 1 March 2020.
- Employers of any size as well as Group Training Organisations that re-engage an eligible out-of-trade apprentice or trainee will be eligible for the subsidy.
- Employers will be able to access the subsidy after an eligibility assessment is undertaken by an Australian Apprenticeship Support Network (AASN) provider.
- Employers can register for the subsidy from early April 2020. Final claims for payment must be lodged by 31 December 2020.
Temporary relief for financially distressed businesses
The following relief measures will be implemented for eligible businesses for six months.
- An increase in the threshold (from $2,000 to $20,000) at which creditors can issue a statutory demand on a company and the time (from 21 days to six months) that companies must respond to statutory demands they receive.
- An increase in the threshold for a creditor to initiate bankruptcy proceedings (from $5,000 to $20,000), an increase in the time period (from 21 days to six months) for debtors to respond to a bankruptcy notice, and an extension to the period of protection (from 21 days to six months) a debtor receives after making a declaration of intention to present a debtor’s petition (this is the period during which unsecured creditors cannot take further action to recover debts).
- Relief for directors from any personal liability for trading while insolvent with respect to any debts incurred in the ordinary course of the company’s business.
- Due to the health measures implemented, it may be difficult for businesses to meet all their obligations under the Corporations Act. The Treasurer will be granted the power to provide targeted relief for companies from provisions of the Corporations Act 2001 to deal with unforeseen events that arise as a result of the Coronavirus health crisis. Any instrument made under this power will apply for up to six months from the date it is made.
For owners or directors of a business who are currently struggling due to the Coronavirus, the ATO will tailor solutions for their circumstances, including temporary reduction of payments or deferrals, or withholding enforcement actions including Director Penalty Notices and wind-ups.
If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.
The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.