The effects of Covid-19 are being felt worldwide by individuals, small businesses, large corporations and government bodies. With it, comes a lot of new and unfamiliar territory, the likes of which the world has never seen.
For individuals and small business, the financial effect can be significant and could continue for the coming months and years. Putting strategies and business plans in place now for the months that lie ahead could mean that your small business can weather the harsh times and still be operating once the dust has settled. This is the hope for us, and for your small business too.
We have received a lot of enquiries from our small business clients in relation to their Lease obligations and the financial impact sustained as a result of a loss of income. This article outlines the recent government advice and packages regarding:
- commercial tenancies;
- JobKeeper payments;
- PAYG withholding cash boost;
- Queensland Government support including electricity rebates, payroll tax refunds and deferrals;
- childcare education and relief package;
- early superannuation access; and
- changes to bankruptcy law.
A Moratorium on Evictions
The National Cabinet has agreed that short-term intervention is needed for commercial tenancies.
A moratorium on evictions over the next 6 months has been implemented ensuring that tenants cannot be evicted because of failed payment of their lease commitments due to the financial stress suffered as a result of Covid-19.
This decision has been made to allow businesses to “hibernate” so that they can come out of the other side of the pandemic, still intact.
Commercial tenants, landlords and financial institutions are encouraged to sit down together and negotiate.
The National Cabinet agreed to a common set of principles to underpin and govern intervention to aid commercial tenancies as follows:
- a short term, temporary moratorium on eviction for non-payment of rent to be applied across commercial tenancies impacted by severe rental distress due to coronavirus;
- tenants and landlords are encouraged to agree on rent relief or temporary amendments to the lease;
- the reduction or waiver of rental payment for a defined period for impacted tenants;
- the ability for tenants to terminate leases and/or seek mediation or conciliation on the grounds of financial distress;
- commercial property owners should ensure that any benefits received in respect of their properties should also benefit their tenants in proportion to the economic impact caused by coronavirus;
- landlords and tenants not significantly affected by coronavirus are expected to honour their lease and agreements; and
- cost-sharing or deferral of losses between landlords and tenants, with Commonwealth, state and territory governments, local government and financial institutions to consider mechanisms to provide assistance.
In negotiating and enacting temporary arrangements, the National Cabinet has provided a 14-point code of conduct. Additionally, if an agreement cannot be reached by both parties, the matter can be referred by either party for binding mediation.
You can read the full statement, including the code of conduct, from the National Cabinet here.
Business as usual?
When negotiating, it is important to keep in mind that even if the Covid-19 situation resolves in the next six months and the country resumes business as usual, it is likely that small business trading will be slow to start.
That being the case, cashflow may not be strong enough to sustain full rent at the start. You may also wish to negotiate a return to work solution.
PAYING STAFF: JOBKEEPER
In addition to rent relief, you might also want to consider and register for the JobKeeper support package the government announced recently to help keep staff employed and businesses operating.
Under the JobKeeper payment, businesses that are significantly impacted by Covid-19 will be able to access a subsidy from the government to continue paying employees. Under this scheme, the government will provide $1,500 per fortnight per employee.
Employers are eligible for the scheme if:
- their business has a turnover of less than $1 billion and their turnover has fallen by more than 30%; or
- their business has a turnover of $1 billion or more and they estimate their turnover has fallen by 50% or more; and they are not subject to the Major Bank Levy.
For charities registered with the ACNC, they will need to show a fall of 15% or more.
Employers will be expected to establish that their turnover has or will likely fall in the relevant month or quarter (depending on the BAS reporting period) relative to their turnover in a corresponding period a year earlier.
The 30% decline is to be applied over the whole of the business. This means that you cannot single out a decline in only one division or group of divisions.
The relevant test months are March and April 2020. There is also an option to assess your projected drop in income over the April to June 2020 quarter. If you don’t qualify but later do qualify then you can apply for the support from the month in which you qualified.
Once a decline in turnover has been met, your business is entitled to JobKeeper payments for the rest of the duration of the package, even if your turnover increases. Additionally, there is no requirement to directly link the decline to Covid-19. Therefore, the test only needs to be met once without the need for further review.
Employees are eligible if:
- they are currently employed by the employer (including those stood down or re-hired);
- were employed by the employer at 1 March 2020;
- are full-time, part time or long-term casual (a casual employed on a regular and systemic basis for longer than 12 months as at 1 March 2020);
- are at least 16 years of age at 1 March 2020;
- are an Australian citizen, the holder of a permanent visa or a Special Category visa at 1 March 2020 and were a resident for tax purposes; and
- are not in receipt of a JobKeeper payment from another employer.
There is a “one in, all in” requirement, meaning that all eligible employees must be included in JobKeeper payments.
There has been some controversy over the requirement for a casual employee to be long term. There is some scope to claim for casual employees and their continuity of employment is what is of importance over that 12 month period.
Self-employed and closely held entities
Individuals who are not employees of their business may qualify for JobKeeper payments if they are:
- a sole trader;
- a partner in a partnership;
- an adult beneficiary in a trust; or
- a shareholder in or director of a company.
Only one actively involved business participant (director, partner etc.) can be nominated per business and the ABN must have been held since at least 30 March 2020.
Application Process, PAYG & Super
Employers can register their interest via ato.gov.au from 30 March 2020.
Eligible employers will need to identify eligible employees and provide monthly updates to the ATO. The entire payment must be passed onto the employee. However, it will be up to the employer if they want to pay superannuation on any additional wage paid because of the JobKeeper payment. Additionally, the payment is a before tax amount – tax must be withheld.
The payment will be available from 30 March 2020 until 27 September 2020. The first payment will be received by employers from the ATO between May 1 and May 14. The payment will be made by the ATO monthly, in arrears. The last payment will be made on 27 September 2020.
However, employers must make payment to employees for the first two fortnights from 31 March, before the end of April for these weeks to be covered by the JobKeeper payment.
Employers have a number of obligations when receiving these payments. These include a duty to inform employees of utilising the JobKeeper payment, making minimum payments to employees and reporting employee data and turnover to the ATO on a monthly basis. The ATO has released some of these forms and will continue to release reporting forms in the coming weeks.
More information is available here.
BOOSTING CASH FLOW: PAY AS YOU GO WITHHOLDING
In addition to the JobKeeper payments, the ATO will provide cash flow boosts delivered as credits in the activity statement system from 28 April 2020.
Eligible businesses include:
- small or medium businesses or not-for profit businesses with an aggregated annual turnover less than $50 million;
- held an ABN on 12 March 2020;
- made a payment to employees subject to withholding (even if the amount withheld is 0) such as salary and wages, director fees, eligible retirement or termination payments, compensation payments of voluntary withholding from payments to contractors; and
- the business lodged, before 12 March 2020:
- a 2018-19 tax return showing an assessable income in relation to carrying on a business; or
- an activity statement or GST return for any tax period that started after 1 July 2018 and ended before 12 March 2020 showing a taxable, GST-free or input-taxed sale.
Eligibility is with each employer entity. It is not a group test. Note also that there are anti-avoidance measures that will be taken by the ATO ie. If a structure is split after the announcement. There will be a statutory obligation to repay the boost if you are aware that your business is not entitled to it.
The cash boost may still be applicable if you took over an existing business after 12 March 2020.
Amount of cash flow boost
These businesses will receive between $20,000 and $100,000 in cash flow boost amounts by lodging all activity statements up to the month or quarter of September 2020.
The amounts will generally be equivalent to the amount withheld from wages paid to employees in the March to June 2020 periods. Essentially, it will equal the amount of your PAYG withholding.
Eligible businesses that withhold tax on their employees’ salary and wages will receive a credit equal to 100% of the amount withheld, with the following exceptions:
- Monthly lodgers will receive a credit for March 2020 which is 300% of their withholding for that month. This will provide an approximate equivalent to lodgers reporting quarterly.
- Eligible businesses will receive a minimum of $10,000 across March to June 2020, even if their total withholding is less than $10,000.
- If you receive a minimum credit of $10,000 you will not be eligible to receive any more cash flow boosts until your PAYG withholding exceeds $10,000 over the eligibility periods.
- Total cash flow boosts for March to June 2020 cannot exceed $50,000.
This cash flow boost is tax free, unlike the JobKeeper payment.
Delivery of cash flow boost
This cash flow boost will be applied automatically by the ATO.
The cash flow boosts will be applied to reduce liabilities arising from the activity statement. If there is credit remaining after this occurs, you will generally receive a refund of that amount.
An additional cash flow boost will be applied when activity statements are lodged for June to September 2020. These credits are equal to the total boosts credit for March to June 2020.
The credits will be paid out in either two or four instalments depending on your business’s reporting cycle.
If you lodge quarterly, you will be eligible to receive the credit for:
- Quarter 3 (January – March 2020). Lodgment due date is 27 April 2020.
- Quarter 4 (April – June 2020). Lodgment due date is 28 July 2020.
If you lodge monthly, you will be eligible to receive the credit for:
- March 2020. Lodgment due date is 21 April 2020.
- April 2020. Lodgment due date is 21 May 2020.
- May 2020. Lodgment due date is 22 June 2020.
- June 2020. Lodgment due date 21 July 2020.
ADDITIONAL QUEENSLAND GOVERNMENT SUPPORT
The Queensland Government has released a variety of measures to assist businesses. We encourage you to follow the relevant links to secure further information. You can use the business assistance finder to find support available for you.
Payroll tax relief
The Queensland Government will provide immediate payroll tax refunds and deferral for Covid-10 affected businesses. More information is available here.
All small and medium businesses in Queensland will be eligible for:
- a two month refund of payroll tax, giving an average of nearly $9,000 cash
- a three month payroll tax holiday, saving an average of $13,360
- deferral of all payroll tax payments for the rest of 2020
The Queensland Government considers a small or medium business to be one with annual payrolls of $6.5 million or less.
Larger businesses affected by Covid-19 will be eligible for:
- the two month payroll tax refund
- the deferral extended for all of 2020.
A larger business is one with annual payrolls over $6.5 million.
Job support loans
The Queensland Government has also created a loan facility of at least $500 million to support businesses impacted by Covid-19 to retain employees and maintain operations.
They will provide low interest loans of up to $250,000 for carry on finance with an initial 12-month interest free period. Any eligible business can apply for a loan. Information is available here.
Power bill rebates
Sole traders, small and medium businesses will receive a $500 rebate on their power bills from the Queensland Government.
Any business consuming less than 100,000 kilowatt hours will receive the rebate, which will be automatically applied on business electricity bills.
Extended operating hours
Businesses that mainly sell food or groceries can open for longer to enable people to obtain essential services.
Mentoring for small business
Additionally, they have created a Mentoring for Growth program ready to provide tailored support to impacted small businesses. This includes financial mentoring and business planning.
Businesses can access information and one-on-one support by calling the Small Business Hotline on 1300 654 687 or completing the online survey at business.qld.gov.au. Find out more here.
The Federal Government announced the Early Childhood Education and Care Relief Package on 2 April 2020.
From 6 April 2020, weekly payments will be made directly to early childhood education and care services. Payments will be made until 28 June 2020 and will complement JobKeeper payment. Additionally, families will not be charged fees during this time.
More information is available from the Department of Education, Skills and Employment here.
The government is allowing individuals affected by Covid-19 to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21. Tax will not need to be paid on amounts released and it will not need to be included in your income tax return.
To apply for early release, one or more of the following requirements must be met:
- you are unemployed;
- you are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment, special benefit or farm household allowance; or
- on or after 1 January 2020, either you were made redundant, your working hours were reduced by 20% or, if you were a sole trader, your business was suspended or there was a reduction of 20% or more.
More information is available from the ATO here.
CHANGES TO BANKRUPTCY AND COMPANY INSOLVENCY LAWS
The temporary debt relief measures include the following:
- a temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond;
- 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
- 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.
More information is available here.