DFK Hirn Newey - COVID-19 Latest Update

DFK Report on Government tax measures responding to Coronavirus outbreak

1. Cash flow assistance moving forward
2. ATO Administrative Relief for existing obligations
3. Personal cash relief
4. Supplementary Material - Australian Government's Economic Response

1. Cash flow assistance for employers with an aggregated annual $50m turnover or less.  This includes non-profit organisations

• A tax-free payment to eligible businesses that employ people of up to $100,000 ($50,000 for each of the current and next financial years) with a minimum payment of $20,000. This increases from the original $25,000 announced in the first announcement. The payment will be equal to the lesser of 100 percent of PAYG withheld on employees’ salary and wages (up from 50 per cent), or $50,000 for both the year ended 30 June 2020, and the next financial year from July through to September. 
• Eligible businesses that are not required to withhold tax will receive a minimum payment of $20,000 (up from $2,000).  The ATO will deliver this payment as a credit in the business activity statement system, starting with those due on 28 April 2020.
• Quarterly lodgers will receive the payment for the quarters ending March 2020 and June 2020, while monthly lodgers will be eligible to receive the payment for the March 2020, April 2020, May 2020 and June 2020 lodgements.
• Monthly lodgers the payment will be calculated at a 300 per cent rate in their March 2020 activity statement (up from 150 per cent in Tranche One). So an eligible monthly remitter withholding $15,000 PAYG in both their March and April BAS would be eligible to receive $45,000 for the March period, with the $5,000 balance being received for the April period and no payment in the May period as they have reached the $50,000 cap.
• Eligible businesses that are not required to withhold tax will receive a minimum payment of $10,000 for the March 2020 quarter.
• Apprentice and trainee wage subsidy: providing eligible small businesses a wage subsidy of 50% of an apprentice or trainee's wage from 1 January to 30 September 2020, capped at $21,000.
• Increasing the instant asset write-off: the instant asset write-off threshold is increased from $30,000 to $150,000 for businesses with an aggregated annual turnover below $500m (up from $50m). This measure applies from 12 March 2020 to 30 June 2020 to new or second-hand assets first used, or installed to be ready for use in this timeframe.
• The Commonwealth is also offering to guarantee unsecured loans of up to $250,000 for up to three years

 2. ATO Administrative Relief

The ATO will provide administrative relief for some tax obligations for people affected by the Coronavirus outbreak:-

• Deferring by up to four months the payment date of amounts due through the business activity statements (BAS, including PAYG instalments), income tax assessments, FBT assessments and excise.
• Allowing businesses on a quarterly reporting cycle to opt into monthly GST reporting in order to get quicker access to GST refunds they may be entitled to allowing businesses to vary PAYG instalment amounts to zero for the April 2020 quarter; businesses that vary their PAYG instalment to zero can also claim a refund for any instalments made for the September 2019 and December 2019 quarters.
• Remitting any interest and penalties, incurred on or after 23 January 2020, that have been applied to tax liabilities, and working with affected businesses to help them pay their existing and ongoing tax liabilities by allowing them to enter into low-interest payment plans.

Employers will still need to meet their ongoing super guarantee obligations for their employees.
 

3. Cashflow Relief for individuals including social security, veteran and other income support recipients and eligible concession card holders

• A stimulus payment of $750 will be paid from 31 March 2020.
• The second $750 payment will be automatically paid on 13/07/2020.
• Government will double the jobseeker payment with an additional $550 a fortnight. This payment will be available to sole traders, and casual workers. The asset test is waived.
• Taxpayers who lost their jobs or lost over 20% of their income will be able to withdraw $10,000 from superannuation fund tax free for this financial year and another $10,000 in the following financial year.
• 50% reduction in superannuation minimum drawdown requirements for account-based pensions in the current financial year end the following financial year 2020-2021.

4. Supplementary Material - Australian Government's Economic Response 

The Australian Government’s Economic Response to the Coronavirus is stated below and can be found at https://treasury.gov.au/coronavirus
 
The economic impacts of the Coronavirus and health measures to prevent its spread could see many otherwise profitable and viable businesses temporarily face financial distress. It is important that these businesses have a safety net to make sure that when the crisis has passed they can resume normal business operations. One element of that safety net is to lessen the threat of actions that could unnecessarily push them into insolvency and force the winding up of the business.

SUMMARY

The elements of the package are:

• A temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive;
• A temporary increase in the threshold for a creditor to initiate bankruptcy proceedings, an increase in the time period for debtors to respond to a bankruptcy notice, and extending the period of protection a debtor receives after making a declaration of intention to present a debtor’s petition;
• Temporary relief for directors from any personal liability for trading while insolvent; and
• Providing temporary flexibility in the Corporations Act 2001 to provide targeted relief for companies from provisions of the Act to deal with unforeseen events that arise as a result of the Coronavirus health crisis.

For owners or directors of a business that 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.
 
TEMPORARY HIGHER THRESHOLDS AND MORE TIME TO RESPOND TO DEMANDS FROM CREDITORS
 
A creditor issuing a statutory demand on a company is a common way for a company to enter liquidation. The Government is temporarily increasing the current minimum threshold for creditors issuing a statutory demand on a company under the Corporations Act 2001 from $2,000 to $20,000. This will apply for six months.

Not responding to a demand within the specified time creates a presumption that the company is insolvent. The statutory timeframe for a company to respond to a statutory demand will be extended temporarily from 21 days to six months. This will apply for six months.
 
To assist individuals, the Government will make a number of changes to the personal insolvency system regulated by the Bankruptcy Act 1966. The threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings against a debtor will temporarily increase from its current level of $5,000 to $20,000. This will apply for six months.
 
Failure to respond to a bankruptcy notice is the most common act of bankruptcy. The time a debtor has to respond to a bankruptcy notice will be temporarily increased from 21 days to six months. The extension will give a debtor more time to consider repayment arrangements before they could be forced into bankruptcy. This will apply for six months.
 
When a debtor declares an intention to enter voluntary bankruptcy by making a declaration of intention to present a debtor’s petition there is a period of protection when unsecured creditors cannot take further action to recover debts. This period will be temporarily extended from 21 days to six months. This will give debtors more time to consider the options that are best for them. This will apply for six months. 
 
Creditors, many of whom are themselves small businesses, will still have the right to enforce debt against companies or individuals through the courts.
 
TEMPORARY RELIEF FROM DIRECTORS’ PERSONAL LIABILITY FOR TRADING WHILE INSOLVENT

Directors are personally liable if a company trades while insolvent. This can lead to boards of directors feeling under pressure to make quick decisions to enter into an insolvency process if there is any risk that the company will experience periods where it will be trading while insolvent.
 
To make sure that companies have confidence to continue to trade through the Coronavirus health crisis with the aim of returning to viability when the crisis has passed, directors will be temporarily relieved of their duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company’s business. This will relieve the director of personal liability that would otherwise be associated with the insolvent trading. It will apply for six months.
 
Temporary relief from personal liability for insolvent trading will apply with respect to debts incurred in the ordinary course of the company’s business. Egregious cases of dishonesty and fraud will still be subject to criminal penalties. Any debts incurred by the company will still be payable by the company.
 
Example

Steph, Mon and David own a small company that operates a chain of yoga studios in Sydney. Social distancing measures require the participants in the yoga class to be significantly reduced. As a result, their company incurs more debt, to the point where it cannot meet its debts as and when they become due and payable.
 
Under the provisions of the Corporations Act, the three owners would be personally liable if the business took on further debt without entering an insolvency procedure like voluntary administration or liquidation. 
 
However, during the six month period in which the temporary relief is offered, their business can continue to open their yoga studios so that they can maintain their customers and quickly resume normal operations when the crisis has passed, and continue to incur debt. When economic conditions improve, the company can pay back the debt incurred.
 
PROVIDING THE TREASURER AN INSTRUMENT-MAKING POWER UNDER THE CORPORATIONS ACT
 
The impact of the Coronavirus and the health measures in place to limit its spread, in particular social distancing, is giving rise to unprecedented issues for businesses’ ability to comply with the provisions of the Corporations Act. 
 
The Australian Securities and Investment Commission (ASIC) has the power to offer relief from some provisions or to take no action for not complying with some provisions. But this can require companies to make individual requests to ASIC, which takes time. Importantly, it can still leave companies open to legal action from others, such as shareholders or creditors. 
 
Companies are needing to make very quick decisions in the context of very uncertain trading conditions. To encourage business to make the hard decisions, it is important that the Government can provide regulatory certainty and provide it as quickly as possible. And the unprecedented nature of the Coronavirus health crisis makes it difficult to predict what regulatory issues will arise.
 
To deliver regulatory certainty at a time when Parliamentary sittings will also be disrupted, the Treasurer will be given a temporary instrument-making power in the Corporations Act 2001 to temporarily amend provisions of the Act to provide relief from specific obligations or to modify obligations to enable compliance with legal requirements during the crisis. The instrument-making power will apply for six months. Any instrument made under this power will apply for up to six months from the date it is made.