Today the Australian Government significantly boosted its Economic Response to the Coronavirus announced on 12 March. The combined raft of measures now amounts to a massive 9.7% of Australia’s annual GPD, equal to $189 billion over the forward estimates period to fiscal 2024.
A substantial part of the expenditure measures now announced 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.
The following paragraphs provide the combined details of the March 12 and today’s announced tax changes.
ECONOMIC STIMULUS PACKAGE
The package comprises expenditures of $25.8 billion over the next 3 months, $36.3 billion in fiscal 2021 and a further $5.9 billion in fiscal 2022, a total of $68 billion. As $4.3 billion represents expenditures brought forward, the the net budgetary impact over the forward estimates comes back to $63.8 billion. Added to this is $125 billion in SME bank loan guarantee arrangements, credit enhancement and liquidity arrangements for smaller lenders and Reserve Bank of Australia measures to support the Australian economy; bring the total to $189 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 over the next 3 months, this measure provides a tax free effective cash benefit of up to $50,000 (up from the $25,000 announced on 12 March) to such business that are employers, with a minimum payment of $10,000 for eligible businesses (up from $2,000). An additional tax free effective cash benefit equal to that received in the next 3 months, will be after June.
March to June
- Eligible business employers are small and medium business entities established before 12 March 2020 and not-for-profits (NFPs), 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 100% of the employer’s withholdings payments to the ATO for tax on their employees’ salary and wages. The total credit will be capped at $50,000.
- Eligible employers will receive a minimum cash benefit of $10,000, 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 $50,000, in their June Activity statement.
- For monthly lodgers, the credit applied in their March activity statement will be 300% of the withholdings reported (subject to the $50,000 cap). This aligns their treatment with the quarterly lodgers.
June to October
- An additional tax free cash benefit equal to the total Boosting Cash Flow for Employers cash benefits received by eligible employers to 30 June, will be provided to them after June.
- For eligible employers continuing to be active, the additional cash benefit will be automatically applied by way of a credit in relevant activity statements they lodge between July and October 2020.
- Quarterly activity statement lodgers will be eligible to receive credit for half of the additional cash benefit in each of their June and September quarterly statements.
- Monthly activity statement lodgers will be eligible to receive credit for a quarter of the additional cash benefit in each of their June, July, August and September monthly statements.
This means eligible entities will receive at least $20,000 cash benefits and up to a maximum of $100,000 under both payments.
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 assets.
- 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 qualify. 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 to discuss your company’s entitlements and to ensure you obtain the optimum benefits of these measures, before making relevant investment decisions –