On 12 March 2020, the Australian Government announced a significant Economic Response to the Coronavirus, The raft of measures amounts to 0.9% of Australia’s annual GPD, equal to a $17.6 billion over the forward estimates period to 30 June 2024.
The expenditure measures in the package predominantly comprise 3 short-term income tax related measures:
- a tax free effective cash benefit for eligible business employers.
- An enhanced instant asset [tax] write-off (IAWO) for eligible business assets acquisitions.
- accelerated depreciation tax deductions for new eligible depreciable assets.
ECONOMIC STIMULUS PACKAGE
The package comprises expenditures of nearly $11 billion over the next 3 months, $6.6 billion in fiscal 2021 and a further $5.4 billion in fiscal 2022, a total of $23 billion. As some of this represents expenditures brought forward, the savings in later years bring the net budgetary impact over the forward estimates back to $17.6 billion.
The expenditure measures in the package predominantly comprise 3 income tax related changes.
BOOSTING CASH FLOW FOR EMPLOYERS
To provide some temporary cash flow relief for small and medium business, this measure provides a tax free effective cash benefit of up to $25,000 to such business that are employers, with a minimum payment of $2,000 for eligible businesses.
- Eligible business employers are small and medium business entities, with aggregated annual turnover under $50 million (generally based on prior year turnover).
- The cash benefit will be by way of a credit automatically applied in activity statements lodged by eligible businesses due from 28 April 2020 (for the March quarter).
- The credit will be applied at the rate of 50% of the employer’s withholdings payments to the ATO for tax on their employees’ salary and wages. The total credit will be capped at $25,000.
- Eligible employers will receive a minimum cash benefit of $2,000, even if not required to withhold tax from their employees’ salary and wages.
- Quarterly activity statement lodgers will receive the credit in their March activity statement with any balance up to the maximum $25, 000, in their June Activity statement.
- For monthly lodgers, the credit applied in their March activity statement will be 150% of the withholdings reported (subject to the $25,000 cap). This aligns their treatment with the quarterly lodgers.
- Refunds created by the credits will be paid within 14 days.
INSTANT ASSET WRITE-OFF INCREASE
The current and popular instant asset write-off (IAWO) of the cost of certain assets for tax purposes is to be significantly enhanced for a short, sharp period.
The current asset-cost threshold for the IAWO is increased from $30,000 to $150,000 and eligibility for the IAWO is expanded to all businesses with aggregated annual turnover of less than $500 million (10 times the current threshold of $50 million). The threshold increase and expansion of eligibility is short-term only, until 30 June 2020.
- The higher IAWO threshold of $150,000 cost of an eligible asset applies on a per asset basis, so eligible businesses can immediately write-off multiple assets.
- To be eligible, businesses must have an aggregate annual turnover of less than $500 million.
- The IAWO is available for the cost of both new and second-hand
- The IAWO is not available for expenditure on assets predominantly leased out, low-value asset pool assets, software development pool assets (but is available for other software), horticultural plants and capital works.
- To use the IAWO, the asset purchased from 12 March 2020 must be used or installed ready for use for a taxable purpose on or before 30 June 2020.
- From 1 July 2020, the IAWO asset cost threshold reverts to $1,000 and eligibility reverts to small businesses (turnover less than $10 million).
BACKING BUSINESS INVESTMENT
To provide a short-term stimulus for business investment and economic growth, accelerated depreciation tax deductions will be introduced.
This incentive tax measure is as follows:
- Eligible businesses will be entitled to deduct 50% of the cost of eligible assets in the income year of installation. The remaining 50% will be deducted under the existing tax depreciation rules.
- Eligibility applies to all businesses with aggregated annual turnover of less than $500 million.
- Only new assets Second-hand assets are ineligible.
- Qualifying assets must be depreciating assets (ie plant, equipment and specified intangible assets, eg patents). Expenditure on capital works, including certain buildings, subject to so-called amortisation tax deductions does not qualify.
- To qualify, the new asset must be acquired after the stimulus package announcement on 12 March 2020 and must be first used or installed on or before 30 June 2021.
There is overlap of the IAWO and accelerated depreciation measures for new eligible assets costing less than $150,000 purchased and installed between 12 March and 30 June 2020. For sufficiently tax paying businesses that have this overlap, the IAWO will be the most beneficial option.
It is important to note that all of these measures require legislation to be enacted by the Australian Parliament and take effect. The Government plans to seek the urgent passage of relevant Bills through both houses of federal parliament in the final Autumn sitting week this month. Businesses should ensure the measures have become law before finally committing to actions in reliance on them.
BENEFITING FROM THESE INCENTIVE MEASURES
ICGTAX has top-level taxation expertise and deep experience in all the business taxation issues touched on by these measures.
Contact Don Green or Chris Gibbs at ICGTAX to discuss your company’s entitlements and to ensure you obtain the optimum benefits of these measures, before making relevant investment decisions –
ICGTAX Ph: +612 8599 8320
Don Green Email Mob: +61 (0)4 1234 6104
Chris Gibbs Email Mob: +61 (0)4 0317 8599