Done. The federal COVID-19 stimulus bill has passed and is now law.
UPDATE COVID-19 Stimulus Bill
The federal COVID-19 stimulus bill passed both the House of Representative and the Senate on Monday night, 23 March 2020. And received royal asset straight away the next morning on 24 March 2020.
The bill saw some minor amendments but basically passed both houses without any objections. The way the bill calculates the cash boost is quite different to the way we originally thought it would work.
Bob Deutsch – Senior Tax Counsel of the Tax Institute – will walk you through the details in this episode, recorded in the morning of 26th of March, online via Zoom. Here is what we learned but please listen in as Bob explains all this much better than we ever could.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
Measures
The official name of the bill is the ‘Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020’. Let’s just call it the act or bill.
The act covers 5 main measures. Cash boost of up to $100,000 – instant asset write off of $150,000 – investment incentive – $20,000 access to super – and the 50% government guarantee for business loans.
Cash Boost
Employers with a turnover below $50 million who maintain an active business (so don’t close down) during the next 6 months will receive a cash boost of at least $20,000 per employer and up to a maximum of $100,000 per employer. Not for profit entities and charities are also eligible if they are employers and withhold PAYG.
For most employers the boost will be front loaded, so they receive a larger amount by late April with smaller amounts coming through thereafter.
How the cash boost is actually paid depends on whether the employer is a monthly or quarterly withholder.
For monthly withholders the cash boost consists of the PAYG W for March 2020 times three plus the actual PAYG W for April, May and June 2020, capped at $50,000. Let’s call this the first wave.
The employer then receives exactly the same amount again spread over June to September 2020. Let’s call this the second wave.
Sounds confusing, so let’s go through three examples. They are identical or close to the examples Bob went through during the interview.
Peter – Monthly Withholder
1st Wave
March BAS – PAYG W $15,000 – Cash Boost 3 x $15,000 = $45,000
April IAS – PAYG W $15,000 – Cash Boost $5,000
May IAS – PAYG W $15,000 – Cash Boost $0
June BAS – PAYG W $15,000 – Cash Boost $0
Total paid for 1st wave = $50,000
2nd wave
June, July, August and September – 25% every month of total paid in 1st wave. So if Peter lets staff go in April, he still gets the full 2nd wave cash boost.
Paul – Monthly Withholder
1st Wave
March BAS – PAYG W $9,100 – Cash Boost 3 x $9,100 = $27,300
April IAS – PAYG W $9,100 – Cash Boost $9,100
May IAS – PAYG W $9,100 – Cash Boost $9,100
June BAS – PAYG W $9,100 – Cash Boost $4,500
Total paid for 1st wave = $50,000
2nd Wave
Same as Peter, but Paul would have to hang on to his staff until mid June to get the full cash boost.
Shaun – Quarterly Withholder
1st Wave
March BAS – PAYG W $30,000 – Cash Boost $50,000
June BAS – PAYG W $30,000 – Cash Boost $0
Total paid for 1st wave = $50,000
2nd Wave
Same as Paul and Peter except 2nd wave will be paid in one or two lots, not 4. And Shaun could have let everybody go by the end of March and still get the full cash boost.
Instant Asset Write Off and Investment Incentive
Watch out for timing. Because amounts, thresholds and dates changed so often, there is a complicated array of possible scenarios.
$20k Super
Depending on how many people will need to access their super, this could have a real impact on the sharemarket.
50% Loan Guarantee
Whether this makes it easier for small business to access funding remains to be seen. Too early to call.
Reflection
Bob raises some very good points and questions during the interview as well as in his preamble to The Tax Institute newsletter that came out today, 27th March 2020.
1- The measures are far too complicated – sixteen pages of difficult, at times almost impenetrable, legislation. The UK approach to just pay a certain percentage of wages would have been more straight forward.
2 – The link to PAYG withholding disadvantages employers whose employees have reduced their PAYG W, for example because they negatively gear an investment property.
3 – The first employer payment under these arrangements will come at the end of April 2020. That is more than a month away and might be too late for many.
4 – What happens to those who run a business but have not drawn down a wage before 12 March 2020 but instead paid dividends? They seem to miss out even though they run a business and technically “employ” staff.
5 – What happens to sole traders and partners in a partnership who just ’employ’ themselves? Sole entrepreneurs operating through a company can pay themselves a wage, sole traders can’t.
6 – Are there any grouping provisions? What happens if a business operates through various entities, for example a restaurant chain who operates each location through a separate company? Can they claim up to $100,000 for each company?
We will try and answer these open questions in the next update on the COVID-19 measures, scheduled for Monday 30 March 2020.
MORE
Federal COVID-19 Stimulus Package
Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.