We are all aware of the difficult and unprecedented challenges the world is facing right now.
For small business owners across Australia, the battle to stay open is real and there are measures introduced by the government and other institutions to start to provide the support business owners need to keep employing their staff and to keep fighting.
The Australian Government is supporting businesses to manage cash flow challenges and to retain staff during a time of downturn in income.
The second stimulus package announced on March 22 has raised a level of confusion for many Australian’s, so Mentored will providing ongoing coverage, including commentary from Mark Bouris, about what measures are available to help small business owners.
1. Get access to working capital
Under the Coronavirus SME Guarantee Scheme, the Government will provide a guarantee of 50% to SME lenders for short term unsecured loans taken out by SME’s.
Elements of the scheme
- SMEs, including sole traders, with a turnover of up to $50 million.
- Maximum total size of loans of $250,000 per borrower.
- Loans will be up to three years, with an initial six month repayment holiday.
- Unsecured finance, meaning that borrowers will not have to provide an asset as security for the loan.
- Responsible lending criteria no longer applies
- Looking at last year’s business activity, not previous months.
One of the issues this solves is to help businesses immediately inject cash flow into their business.
Issues with this measure?
- The government is working with financial institutions to make these loans available by April.
- Lending criteria hasn’t been finalised so you may have different results across different banks.
- Small business owners seem to be hesitant on this. Mark Bouris said “I can’t see why. These are low risk, low interest rate, government guaranteed loans with a deferral in principal and interest repayments for six months. I know taking a loan out might be scary but these are unprecedented times. Business owners need to be reaching out to their financial institutions to see what is possible for them to access”
Mark’s tip:
- “Talk to your bank. Start the process. Don’t just sit on your ass. At least know that you’ve initiated the process so if you need cash, you’ll be able to access the loan facility.”
2. Cashback payments on PAYG Withholding, between $20,000 and $100,000
In another measure to inject funding into small businesses, the government is providing up to $100,000 to eligible small and medium-sized businesses, and not for-profits (NFPs) that employ people, with a minimum payment of $20,000.
How does this work? For businesses that turnover less than $50 million annually, the tax you withhold from your employees’ salary and wages will be paid back to you by the ATO.
Features:
- This will be done for up to $50,000 for the first quarter BAS statements of 2020, and repeated for the second quarter BAS statements of 2020.
- The payment will be delivered by the ATO as an automatic credit in the activity statement system from 28 April 2020 as soon as employers lodge eligible upcoming activity statements.
- Eligible employers that withhold tax to the ATO on their employees’ salary and wages will receive a payment equal to 100 per cent of the amount withheld, up to a maximum payment of $50,000.
- Eligible employers that pay salary and wages will receive a minimum payment of $10,000 (per quarter, so $20,000 all up), even if they are not required to withhold tax.
Example:
- Let’s assume in the first quarter of March, you paid your employee $1000 a week. So that’s $12,000.
- But you only pay your staff member $750 a week because you with hold $250 in PAYG.
- The government is now saying that when you submit your first quarter BAS statement, they will refund the tax you withheld for the PAYG.
- This payment to you can be up to an amount of $50,000 for the first quarter. And the same measure is available for the second quarter of 2020. So that is $100,000 all up.
Mark’s tips:
- Make sure your financials are clear and up to date.
- Meet with your financial advisor or your accountant and get your BAS statements sorted and start to update your cash flow projections.
3. Temporary release of $10,000 in superannuation.
The Government is allowing individuals affected by the Coronavirus to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21. Individuals will not need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments.
Mark’s tip:
- You do not have to take up this measure. This is purely just the government opening up another way for people to get their hands on some cash in this difficult period.
4. Increasing the instant asset write off:
The Government is increasing the instant asset write-off (IAWO) threshold from $30,000 to $150,000 and expanding access to include all businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020.
Businesses will be able to immediately deduct purchases of eligible assets each costing less than $150,000. The threshold applies on a per asset basis, so eligible businesses can immediately write-off multiple assets.
This proposal applies from announcement until 30 June 2020, for new or second-hand assets first used or installed ready for use in this timeframe.
The key idea is that the previous measures were aimed at covering the expense line of your business – you have wages, rent, suppliers and so on. With less income being generated as the community is not spending as much, the government had to open up avenues of cash so business owners could replace the lost income.
The instant asset write off is aimed at encouraging business owners to spend and buy assets that will hopefully generate another source of income. So this measure is aimed at the revenue line – to stimulate the economy. The government is encouraging business owners to spend money on assets that will hopefully generate money.
5. Back Business Investment
Again, this measure is aimed at the revenue line for business owners. It’s an attempt to stimulate the economy.
The Government is introducing a time limited 15 month investment incentive to support business investment and economic growth over the short-term, by accelerating depreciation deductions.
Assets must be acquired after 12 March 2020 and first used or installed by 30 June 2021.
The key features of the incentive are:
- benefit — deduction of 50 per cent of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost;
- eligible businesses — businesses with aggregated turnover below $500 million; and
- eligible assets — new assets that can be depreciated under Division 40 of the Income Tax Assessment Act 1997 (i.e. plant, equipment and specified intangible assets, such as patents) acquired after announcement and first used or installed by 30 June 2021. Does not apply to second-hand Division 40 assets, or buildings and other capital works depreciable under Division 43.
6. Supporting apprentices and trainees
The Government is supporting small businesses to retain their apprentices and trainees. Eligible employers can apply for a wage subsidy of 50 per cent of the apprentice’s or trainee’s wage for 9 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 that employs that apprentice. Employers will be reimbursed up to a maximum of $21,000 per eligible apprentice or trainee ($7,000 per quarter).
Employers can register for the subsidy from early April 2020 with final claims for payment due by 31 December 2020.
7. Supporting the flow of credit
The Government, the Reserve Bank of Australia and the Australian Prudential Regulatory Authority have taken coordinated action to ensure the flow of credit in the Australian economy – simply this means these institutions are ensuring the banks have enough money at a cheap enough interest rate, to fund an influx of loans to business owners and financially struggling individuals.
One important thing to know is that both sides of government in parliament have to agree on the amount of indebtedness that the government can go into in any one year.
The government has managed to increase this from $600 billion to $850 billion. What this means is that the government has secured a facility of $250 billion to spend, if they need it.
This indicates that the government may be preparing for a few more rounds of stimulus to the economy to make sure we can all manage ourselves during the economy.
The Reserve Bank of Australia has also released a further $100 billion of cash, to the banks at 0.25%!
This is conditional. The RBA are releasing this $100 billion to the banks on the basis that the banks will on-lend this money to small business owners.
Mark’s tip:
- The banks are getting cheap money, it means there is plenty of liquidity, and now we need business owners and sole traders to be out there, lining up to access this money through the various loan options.
- Don’t be scared to ask for this money, especially if your revenues are down.
- This is vital – we need business owners to stay alive to keep paying staff, contractors, suppliers, landlords – so we can all keep on keeping on.
- The Government’s Fact Sheet
8. ATO support
Now it goes without saying you need to be talking to your accountant. Staying on top of your financials has never been so critical. Don’t put it off. Just sit down and sort it out.
If you don’t have easy access to your accountant or financial adviser, the ATO has set up an emergency support line to help you further understand some of these measures.
If you are experiencing financial difficulties with your tax and super obligations because of COVID-19 (novel coronavirus), phone the ATO’s Emergency Support Infoline on 1800 806 218 up to 10pm (AEDT) week nights & for help tailored to your circumstances.
9. Conclusion – a message from Mark
Now this is a moving beast. It’s difficult to judge what is going to happen, with the situation changing day by day and new measures being introduced regularly. You need to stay informed. You can see all the latest information at MENTORED.COM.AU/UPDATES and by following me across my socials.
Recently I put a message out there on my instagram which said: “the best time to plant a tree was 20 years ago and the second best time is right now.”
It’s so critical to understand that the key to getting through all this is positive action: this can materialise in a whole host of ways, be it shifting your services to digital, creatively communicating with your team, innovating new service offerings, or simply staying at home and making use of your isolation by learning new skills online
Aussie business owners eat resilience for breakfast, and now more than ever, you need to show it. You can’t sit around and complain.
Negativity will get us nowhere as a business community.
Take action. Innovate. Make calls. Get a grip of digital mediums. Get your hands on cash.
And keep fighting to keep Australia strong.
Stay Safe.
MB.
Make sure you stay up to date with the latest COVID19 updates that affect small business owners right here at Mentored.com.au/updates and across our social media.
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