Cash crisis: tax changes and legislative responses to COVID-19 - Corporate Tax

As we inevitably grind to a self-imposed lock-down of the Australian economy and both its international and state borders, businesses are facing a severe crisis of cash flow with revenues for some industries – airlines, pubs and clubs, casinos and entertainment – crashing to zero.

The reality that is dawning on the Australian economy is one of severe disruption, loss of jobs and higher incidence of insolvency.

Both state and federal governments have taken a number of measures to alleviate, where possible, the cash crisis faced by business. The following are some of the key measures that Governments have introduced to assist businesses in this context.

Federal Responses

Australian Taxation Office (ATO)

The ATO has announced a range of options to assist businesses impacted by COVID-19. These relief measures will not be automatically applied and businesses must contact the ATO to discuss the specific options available to them. Measures potentially available to affected businesses include:

Deferring by up to six months the payment of liabilities due through business activity statements (including PAYG instalments), income tax assessments, fringe benefit tax assessments and excise;
Allowing businesses on a quarterly GST reporting cycle to opt into monthly reporting to expedite access to GST refunds. Once businesses elect to revert to monthly reporting, they must maintain this for 12 months before being able to revert back to quarterly reporting;
Allowing businesses to vary PAYG instalment amounts to zero for the March 2020 quarter and claim a refund for instalments paid for the September 2019 and December 2019 quarters. If businesses wish to vary their March 2020 PAYG instalment amounts, they must lodge a revised activity statement before an instalment is due and prior to the business lodging its annual tax return;
Remitting any interest and penalties, incurred after 23 January 2020, which have been applied to tax liabilities; and
Allowing businesses to enter into low interest payment plans to assist with existing and ongoing tax liabilities.

Businesses will still be required to meet ongoing superannuation guarantee obligations for employees.

Reserve Bank of Australia (RBA)

On 19 March 2020, the RBA announced a support package for the economy. The package included:

Reducing the cash rate to a record low 0.25% until progress towards full employment is made and the RBA becomes confident that inflation will remain between 2-3%;
Providing a three-year $90 billion funding facility to banks at a fixed rate of 0.25%. Authorised deposit-taking institutes will be able to access initial funding of up to 3% of their existing credit and will be entitled to access greater funds if they increase business lending, particularly small to medium-sized businesses.

Government - Omnibus Bill

On 23 March 2020, the federal government introduced several Bills to Parliament to give legislative effect to the $189 billion economic support package aimed at assisting businesses and households deal with the impacts of COVID-19.

The Coronavirus Economic Response Package Omnibus Bill 2020 (Omnibus Bill) seeks to amend a variety of Acts in order to provide businesses with tax concessions, enable cash flow payments and allow individuals affected by COVID-19 to access part of their superannuation funds. Additionally, the Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Response Package) Bill 2020 (SME Bill) has also been introduced to Parliament to enable the Commonwealth to guarantee loans to small and medium enterprises.

Details of the amendments and the eligibility criteria and timing of concessions are outlined below:

Enhancing Instant Asset Write Offs

On 12 March 2020, the federal government announced it would increase the instant asset write-off threshold and allow access for a broader range of businesses.

The Omnibus Bill gives effect to these changes by amending both the Income Tax Assessment Act 1997 (Cth) (ITAA) and the Income Tax (Transitional Provisions) Act 1997 (Cth) (Transitional Provisions Act).

Following amendment to s 40-82 of the ITAA, entities can apply the instant write-off provisions for assets valued at up to $150,000 which have been acquired between 12 March 2020 and 30 June 2020. The Omnibus Bill has also increased the eligibility for such write-offs to include businesses with a turnover of up to $500 million.

Accelerated Asset Depreciation

In addition to increasing the availability of instant asset write-offs, the Omnibus Bill enables accelerated asset depreciation via the insertion of the 'backing business investment' provisions at sections 40-120 to 40-135 of the Transitional Provisions Act.

The provisions apply to businesses with an annual turnover of less than $500 million which acquire an asset in the period beginning 12 March 2020 and ending 30 June 2021.

Under the scheme, businesses can depreciate an asset acquired during the relevant period by 50% of its cost. In circumstances where the asset's start time occurred in an earlier year, the asset can be depreciated by 50% of its opening adjusted value for the current year.

Assets expressly excluded from the accelerated depreciation scheme are:

those acquired before, or as a result of commitments entered into before, 12 March 2020;
second hand assets;
assets not located in Australia;
eligible work related items under the Fringe Benefits Tax Assessment Act 1986; and
capital works or films pursuant to s 40-45 of the ITAA.

Cash Flow Payments for Employers

The federal government had also announced cash flow assistance payments for small and medium-sized businesses. The details and eligibility requirements for these payments are covered by the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Bill 2020 (Cash Flow Bill).

Eligibility

Under the Cash Flow Bill, entities that are entitled to cash flow boost payments are businesses which:

held an ABN on 12 March 2020 and operated during the 2018-19 financial year and had reported such operations to the Commissioner prior to 12 March 2020, or registered not-for-profits or charities;
have a turnover of up to $50 million;
have made payments that are subject to withholding obligations under subdivisions 12-B, 12-C or 12-D of the Taxation Administration Act 1953 (broadly, wages, salary or similar remuneration), whether or not any amount was actually withheld; and
have notified the Commissioner of their entitlement in the approved form. It is currently understood that the approved form will likely be the entity's business activity statement or instalment activity statement based on the Cash Flow Bill's Explanatory Memorandum.

The Bill enables the Commissioner to make two cash flow boost payments to eligible entities.

Eligible entities will receive a first cash flow boost payment equal to the amount withheld following the payment of wages, salary or similar remuneration for a period of:

the months of March 2020, April 2020, May 2020 or June 2020 for large and medium withholders; or
the quarter ending June 2020 for small withholders.

Payments calculated on a monthly basis for the amounts withheld in March 2020 will be increased by 300% to ensure the entitlement is equal to that received by entities who report on a quarterly basis.

The payment is capped at $50,000, however all entities are entitled to a minimum of $10,000 regardless of whether the amount withheld during the period was less.

Entities will also be eligible for a second cash flow boost payment equal to that of the first cash flow boost payment, regardless of any changes to their circumstances, so long as the entity lodges a GST return for the relevant period and notifies the Commissioner.

Timing

The Commissioner must pay the first cash flow boost payment at the later of:

the time the entity notifies of the Commissioner of the entitlement; or
the time the entity was due to notify the Commissioner of the amount of their withholding for the period in accordance with subsection 16-150(1) of the Taxation Administration Act 1953.

For large and medium withholders, the second cash flow boost will be made in four equal amounts for the months of June 2020, July 2020, August 2020 and September 2020. Payments will be made at the later of:

the date when they are due to lodge their GST return for the months of June, July August and September 2020;
the time when the entity notifies the Commissioner in relation to the payment; or
the time when the entity actually lodges the GST return.

For entities that are quarterly withholders, the second cash flow boost payments will be made in two equal amounts for the quarters ending June 2020 and September 2020. Payments will be made at the later of:

the date when they are due to lodge their GST returns for June and September 2020 quarters;
the time when the entity notifies the Commissioner in relation to the payment; or
the time when the entity actually lodges the GST return.

Payments will generally be applied to reduce other tax liabilities noted on the entity's business activity statement. However, in circumstances where the payment exceeds any liabilities, the Commissioner has the discretion to refund the amounts. Any payments under the cash flow boost scheme are to be treated as non-assessable non-exempt income under the ITAA.

Early Release of Superannuation

The Omnibus Bill also enables eligible individuals to access a portion of their superannuation funds in order to deal with the adverse effects of COVID-19 by amending the Transitional Provisions, the Retirement Savings Accounts Regulations 1997 and the Superannuation Industry (Supervision) Regulations 1994.

Eligibility

A person can apply to have a portion of their superannuation or retirement savings released on compassionate grounds if the person is either:

unemployed;
already entitled to jobseeker, parenting or special benefit payments under the Social Security Act;
eligible for youth allowance or receives farm household allowance; or
on or after 1 January 2020 the person was either made redundant, or their hours were reduced by at least 20%, or in the case of sole traders, the person's business was suspended or suffered a reduction in turnover of at least 20%.

Two applications may be made under the above eligibility criteria, one each for the financial years ending June 2020 and June 2021 respectively. However, applications may only be made within 6 months of this scheme being implemented.

Whilst the eligibility criteria appears broad, it is important to note that it remains for the Regulator to determine that the applicant has satisfied the conditions for a release of their funds on compassionate grounds following the economic impact of the COVID-19 pandemic.

Payment

Eligible individuals may receive payments of up to $10,000 per determination, which are to be paid by the trustee of their superannuation fund as soon as practicable after they have received a written determination from the Regulator. No further application is to be required from the applicant.

Further discussion of the implications of early release superannuation, in particular for superannuation funds, can be found here.

Guarantee of Lending to Small and Medium Enterprises

Under the new SME Bill, the Commonwealth may provide a guarantee to a financial institution for a loan to be made to a small or medium enterprise (SME).

The Consolidated Revenue Fund is to be appropriated to meet any liabilities arising under the SME Bill, however the amount to be appropriated is capped at a total value of $20 billion.

The granting of a guarantee is limited to circumstances where the Minister is satisfied that the guarantee will assist in dealing with the economic impacts of COVID-19 and the loan is to be made by a financial institution that is a constitutional corporation. The financial institution may be either an Authorised Deposit-taking Institute (ADI) or a non-ADI as defined by the Banking Act 1959.

The SME Bill does not define what constitutes an SME for the purposes of eligibility. Instead, the SME Bill provides scope for the Minister to enact legislative rules addressing more detailed requirements at a later date.

Increased Flexibility in the Corporations Act

The Omnibus Bill amends the Corporations Act to grant the Minister powers to exempt the operation of certain provisions in circumstances where the person has been economically impacted by COVID-19.

Relief for Financially Distressed Individuals and Businesses

The Omnibus Bill also amends the Bankruptcy Act and the Corporations Act to provide temporary relief to individuals and businesses placed in financial distress as a result of COVID-19.

State Responses

New South Wales

The New South Wales Government has announced payroll tax concessions for businesses, including:

The waiver of payroll tax for businesses with payrolls up to $10 million for the final three months of the 2019-20 financial year; and
Bringing forward the next round of payroll tax cuts by raising the threshold limit from $900,000 to $1 million in 2020-21 financial year.

Queensland

A $500 million loan facility has been announced to support businesses in retaining employees. The facility will provide loans up to $250,000 with an initial 12-month interest free period. More information on the loans can be found here.

The state government has extended its initial payroll tax deferral program to all businesses. This enables businesses to defer payroll tax until 31 July 2020. The Queensland Office of State Revenue intends to work with businesses to create repayment plans for deferred liabilities.

Western Australia

The Western Australian Government has announced several payroll tax measures to assist businesses:

A one-off $17,500 grant for small businesses that pay payroll tax;
A deferral of payroll tax payments until 21 July 2020 for businesses affected by COVID-19 who pay up to $7.5 million in taxable wages; and
The $1 million payroll tax threshold which has been brought forward by six months to 1 July 2020.

Victoria

The Victorian Government and State Revenue Office as of 21 March 2020, have released several tax measures to support businesses:

Payroll tax will be waived for business with up to $3 million in taxable wages for the 2019-20 financial year. Eligible businesses must continue to lodge returns, but further payments will not be required. The State Revenue Office of Victoria will contact businesses who are eligible for refunds on payroll tax already paid this financial year;
Land owners that have at least one non-residential property and total taxable landholdings below $1 million can elect to defer land tax due in 2020 until after 31 December 2020. The State Revenue Office will contact eligible land owners; and
Liquor licence fees have been waived for 2020, and reimbursements are available for businesses that have already paid.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.