COVID-19 Direct Tax Bulletin

This Bulletin provides an outline of the more significant COVID-19 tax-and superannuation related measures enacted by the Federal government.  In addition, in this Bulletin, we summarise some of the emergency administrative measures announced by the ATO.

Introduction

As well as the critical health threats, the COVID-19 pandemic has triggered a myriad of economic issues for Australian businesses and residents.  

The Federal and State governments have responded with numerous comprehensive measures aimed at stimulating the economy, protecting business cash flows and preserving jobs and personal income.  

The name of the game is to keep as many of Australia's businesses, large and small, alive as going concerns until the worst of the pandemic passes and the lockdowns are lifted.  Of course, the length of the lockdown period is currently unknown and whether the current and any future measures will be sufficient to achieve these aims is unknown.

This Bulletin provides an outline of the more significant COVID-19 tax-and superannuation related measures enacted by the Federal government.  In addition, in this Bulletin, we summarise some of the emergency administrative measures announced by the ATO.

A separate State Taxes Bulletin covers the COVID-19 related measures enacted by the State governments, including payroll tax .  

Federal Coronavirus Economic Response Package

The Coronavirus Economic Response Package Omnibus Bill 2020 passed both Houses and received royal assent on 25 March 2020.  The more significant measures contained in the Bill are summarised below.

1. Businesses

1.1 Enhancing the Instant Asset Write-Off

With effect from 12 March 2020:

• the cost threshold below which small business entities can access an immediate deduction for depreciating assets and certain related expenditure (instant asset write-off) will be increased from $30,000 to $150,000 until 30 June 2020;
• the turnover cap to access an instant asset write-off will be increased to cover entities with an aggregated turnover of $10 million or more but less than $500 million (up from the existing cap of $50 million); and
• the cost threshold for the instant asset write-off will be increased to cover assets costing less than $150,000 until 30 June 2020 (up from the existing threshold of $30,000).

1.2 Time limited accelerated depreciation

A temporary (15 month) accelerated depreciation rate of 50% will be available for businesses with aggregated annual turnovers of less than $500 million.  The existing depreciation rules will apply to the balance of the asset’s cost after the initial 50% deduction is claimed.

Broadly to qualify, the depreciating asset must: 

• be new and not previously held by another entity (other than as trading stock or for testing and trialling purposes); 
• be an asset for which an entity has not claimed depreciation deductions, including under the instant asset write-off rules; and 
• be first held, and first used or installed ready for use, for a taxable purpose between 12 March 2020 and 30 June 2021 (inclusive). 

1.3 Boosting employers' cash flow

The Commissioner of Taxation will make tax free payments (known as the first and second cash flow boost payments) to assist eligible businesses and not-for-profits to keep operating, pay their rent, electricity and other bills and retain staff.  The Government predicts that this measure will benefit 690,000 businesses employing around 7.8 million people, and 30,000 not for profits (including charities).

Eligible employers are business entities or not for profit entities (including charities) with aggregated annual turnover under $50 million (generally based on prior year turnover) that employ workers. 

The first cash flow boost payments of between $10,000 and $50,000 will be made by the ATO to each eligible employer in the quarters ending in March 2020 or June 2020 (for quarterly activity statement lodgers) or the months of March 2020, April 2020, May 2020 or June 2020 (for monthly lodgers).  

The payment will be delivered by the ATO as an automatic credit in the activity statement system from 28 April 2020 upon employers lodging eligible upcoming activity statements.  Eligible employers will receive a payment equal to 100 per cent of the amount withheld, up to a maximum payment of $50,000.  The minimum payment of $10,000 will be paid to eligible employers that pay salary and wages even if they are not required to withhold tax.

The second cash flow boost payments will be made by the ATO in the July – October 2020 period.  Eligible employers must continue to be active and will receive additional payments equal to the total of the first cash flow boost payments they have received.  This means that eligible employers will receive at least $20,000 and up to a total of $100,000 under both cash flow boost payments.

The additional payments will also be delivered as an automatic credit in the activity statement system.  For monthly lodgers, this will be equal to a quarter of their total first cash flow boost payments following the lodgement of their June 2020, July 2020, August 2020 and September 2020 activity statements (up to a total of $50,000).  For quarterly activity statement lodgers the additional payments will be equal to half of their total first cash flow boost payments following lodgement of their June 2020 and September 2020 activity statements (up to a total of $50,000).

Entities will not qualify for the cash flow boost payment if there is a scheme entered into for the sole or dominant purpose of seeking to make the entity entitled to the first cash flow boost or increase the entitlement of the entity to the first cash flow boost. 

2. Individuals

2.1 Stimulus payments to households to support growth

The Government will make two tax free economic support payments of $750 to approximately 6.6 million Social Security and Veterans’ income support recipients, Farm Household Allowance recipients, Family Tax Benefit recipients and holders of a Pensioner Concession Card, Commonwealth Seniors Health Card or Commonwealth Gold Card.

The first payment (announced on 12 March 2020) will be available to people who are eligible payment recipients and concession card holders at any time from 12 March 2020 to 13 April 2020 inclusive whilst the second payment will be available to people who are eligible payment recipients and concession card holders on 10 July 2020.  The payments will not count as income for the purposes of Social Security, Farm Household Allowance and Veteran payments.

2.2 Increased and accelerated income support

The Government is expanding eligibility to income support payments and establishing a new, time-limited Coronavirus supplement to be paid at a rate of $550 per fortnight for a six month period, commencing 27 April 2020 (this period may be extended by the Minister for Families and Social Services.  This supplement will be paid to both existing and new recipients of the eligible payment categories. 

The income support payment categories eligible to receive the Coronavirus supplement are: 

• Jobseeker Payment
• Youth Allowance Jobseeker
• Parenting Payment (Partnered and Single)
• Farm Household Allowance
• Special Benefit recipients

For the period of the Coronavirus supplement, there will be expanded access to the income support payments listed above:

• Jobseeker Payment and Youth Allowance Jobseeker criteria will be expanded to provide payment access for permanent employees who are stood down or lose their employment; sole traders; the self-employed; casual workers; and contract workers who meet the income tests as a result of the economic downturn (including people required to care for others affected by the Coronavirus).
• Asset testing for Jobseeker Payment, Youth Allowance Jobseeker and Parenting Payment will be waived for the period of the Coronavirus supplement.  Income testing will still apply to the person’s other payments, consistent with current arrangements.
• Many of the required waiting periods have been temporarily waived.
• Application and claims processes will be accelerated and streamlined. 

People will not qualify for Jobseeker Payment and Youth Allowance Jobseeker benefits if they are accessing employer entitlements (such as annual leave and/or sick leave) or Income Protection Insurance.

2.3 Temporary early access to superannuation 

The Government recognises that for those significantly financially affected by the Coronavirus, accessing some of their superannuation today may outweigh the benefits of maintaining those savings until retirement. 

Eligible individuals will therefore be able to apply online through www.my.gov.au to access up to $10,000 of their superannuation before 1 July 2020 and up to a further $10,000 from 1 July 2020 for approximately three months.  Amounts released under this measure will be tax free to the recipient and will not affect Centrelink or Veterans’ Affairs payments.

To be eligible, individuals must be:

• unemployed;
• eligible to receive a Jobseeker payment, Youth Allowance Jobseeker payment, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or
• on or after 1 January 2020, be made redundant, have their working hours reduced by 20 per cent or more or, in the case of sole traders, their business is suspended or suffers a reduction in turnover of 20 per cent or more.

2.4 Providing support for retirees

The Government is temporarily reducing superannuation minimum drawdown requirements for account-based pensions and similar products by 50% for the 2019-20 and 2020-21 income years.  The upper and lower social security deeming rates will also be reduced by a further 0.25% in addition to the 0.5% reduction to both rates announced on 12 March 2020.

ATO administrative support measures

The ATO is offering tailored support for COVID-19 affected businesses and has also announced a number of assistance options which are potentially available, including:

1. Deferring income tax, activity statements, PAYG instalments, FBT and excise payments by up to 6 months – in this respect, the ATO has stated that taxpayers cannot defer due dates for tax payments that were due before 23 January 2020, but can request a remission of interest that has accrued on those debts from 23 January 2020; and also an interest-free payment arrangement.  Taxpayers can request a deferral of due dates for tax payments that were due after 23 January 2020. 

2. Allowing businesses on a quarterly GST reporting cycle to temporarily elect into monthly reporting in order to more quickly access GST refunds.

3. Allowing taxpayers to vary their PAYG instalments down if the instalments that the taxpayer has been paying will be more than the tax liability it will owe at the end of the year.  Where this occurs, the ATO will not apply penalties or charge interest to varied instalments for the 2019-20 financial year.  In this regard, a taxpayer may vary an amount:

• to zero, to make no payment this coming quarter; or 

• a negative figure, for the amount the taxpayer has already overpaid this financial year – notably, this will generate a refundable credit for the amount already overpaid.

4. Remitting any interest and penalties incurred on or after 23 January 2020.  COVID-19 remission of interest and penalties is not available if incurred before 23 January 2020.  However, for interest and penalties owed before 23 January 2020, the ATO can: 

• consider whether the taxpayer's circumstances before 23 January 2020 would enable it to be granted a remission of interest and/or penalties; or

• arrange to stop interest being charged while the COVID-19-affected period continues, and for the life of a payment arrangement if the taxpayer puts one in place.

5. Allowing affected businesses to pay their existing and ongoing tax liabilities under low interest payment plans.

It should be noted that these additional relief options do not apply automatically and taxpayers will need to contact the ATO to discuss what relief can be offered on a case by case basis.

The ATO has also quite helpfully included a series of FAQs on their website, covering tax issues of relevance  to individuals (eg, deductibility of home office expenses and residence issues), employers (including the FBT implications of providing COVID-19 benefits) and international businesses (including permanent establishment and residence issues).