COVID-19: Australian Stimulus Packages Unpacked
Updated March 24, 2020
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Obtaining full and complete information on certain measures of the Commonwealth Government’s stimulus package is difficult because, in most cases, bills (before they become legislation) have not yet been introduced to parliament.
Nonetheless, we’ve put together a comprehensive overview (about 10 minutes worth of reading), regarding the Commonwealth Government’s First and Second Stimulus packages, as well as a few other announcements.
The measures, announced by the government, are primarily to get Australia through the next 6 months. The government has specifically left the door open to ensure appropriate action is taken should circumstances change.
Whilst there are some concerning features (including changes to statutory demands), the measures provided appear to be significant and will be helpful to keep businesses running and individuals supported or employed.
Whether you’re an individual or a small business, we hope that you stay safe and are financially able to get through these uncertain times.
If you do need assistance with debts, possible bankruptcy, loss of employment or general litigation, we may be able to offer you additional assistance given the measures put in place by State and Federal Governments.
Second Stimulus Announced 22 March 2020
The second stimulus packaged announced on 22 March 2020 brings the total amount to be injected into the economy, from the Commonwealth Government and RBA, up to $189 billion. The breakdown is as follows:
- $17.6 billion from the first economic stimulus package
- $90 billion from the RBA and $15 billion from the Commonwealth Government to increase access to finance in the banking system (mostly for SME’s); and
- $66.1 billion from the second economic stimulus package.
Changes to Statutory Demands and Bankruptcy Notices
COST: Unknown – Likely negligible
The proposed changes to bankruptcy and liquidation laws include the following:
- Statutory demands – debt of $2,000 will be increased to $20,000; and
- Bankruptcy notices – debt of $5,000 will be increased to $20,000.
Further, instead of 21 days to pay or dispute the debt, the time to respond will increase to 6 months.
The period of protection for debtors declaring an intention to enter into voluntary bankruptcy has also been extended from 21 days to 6 months to give debtors further time to consider any options available to them. This means that unsecured creditors are unable to take further action to recover debts for a period of 6 months after the debtor has presented a debtor’s petition.
It is currently unknown when these changes will take effect.
The changes to these laws will undoubtedly have both positive and negative consequences. Fewer individuals and companies will go bankrupt or into liquidation, but debts due and owing are likely to be purposely delayed.
Creditors chasing debts may still resort to state-based legislation, including the seizing and selling of assets, garnishing wages and more.
Trading Insolvent – Director Liability
The government has announced a proposed exemption for directors to avoid personal liability for trading insolvent over the next 6 months with respect to debts incurred by companies in the ordinary course of the company’s business.
The proposed exemption has been introduced to discourage boards of directors from quickly entering into insolvency processes as the only available measure to avoid the risk of trading insolvent.
As information on this proposal is limited, directors should carefully monitor precisely what the laws are once introduced, because as of 22 March 2020, this proposal has not yet passed parliament and directors may still be held liable.
Further, directors duties generally still apply, and criminal penalties will still apply to cases involving dishonesty and fraud.
If your company is trading insolvent, or may be trading insolvent, you should immediately seek legal and financial advice to help reduce or avoid personal liability.
Payments of between $20,000 and $100,000 for SME’s
COST: $31.9 billion (including the measures previously announced)
All employing SMEs with revenues up to $50 million will receive at least $20,000 in credit in BAS lodgements or Instalment Activity Statements, and some of the larger SMEs will receive up to $100,000 in credit in BAS lodgements.
This is extended to $30,000 for not-for-profit organisations (including charities) with an annual turnover of under $50 million.
This scheme builds on the first stimulus package and now provides a payment equal to 100 per cent of the salary and wages withheld.
The first payment will be available from 28 April 2020* and will include:
- A minimum of $10,000; and
- A maximum of $50,000 of the salary and wages withheld (assumedly withheld in the 3rd quarter being January to March 2020).
The second payment will be available from 28 July 2020* and will include:
- A further minimum of $10,000; and
- A maximum of $50,000 of the salary and wages withheld (assumedly withheld in the 4th quarter being April to June 2020).
*We assume that credit will be applied within 14 days from this date.
This results in a total minimum payment of $20,000 over the two quarters and a total maximum payment of $100,000.
The payment is to be automatically paid through the tax system, and no new forms will be required from Australian SMEs.
Government Guaranteeing SME Loans
COST: Up to $20 billion (but likely a lot less)
Starting in early April 2020, this $40 billion scheme will provide unsecured loans of up to $250,000 for three years for SMEs with a turnover of less than $50 million.
To reduce the risk on banks, the government will guarantee 50% of new loans issued by eligible lenders to SMEs.
No repayments are required for the first 6 months.
SMEs need to talk to their bank about what options may be available to them.
This new measure is on top of existing measures, including:
- The reduction in red tape measures announced on 20 March 2020 to make it quicker and easier to get access to credit;
- $15 billion from the Commonwealth Government’s Australian Office of Financial Management to invest in wholesale funding markets for smaller lending institutions; and
- $90 billion from the Reserve Bank of Australia for authorised deposit-taking institutions (including the big four banks) to reduce the cost of lending and increase access to funding.
Note: although this does not apply to existing facilities, many banks and lending institutions have already implemented generous and significant relief and assistance packages for SMEs. Contact your bank to see how they can help.
The Jobseeker Allowance (Previously Newstart)
COST: $14.1 Billion
The JobSeeker Allowance will effectively be doubled with a Coronavirus temporary supplement.
The Coronavirus temporary supplement will be up to $550 per fortnight to eligible income support recipients and will last for 6 months.
The assets test and waiting period will also be waived.
The JobSeeker Allowance may also be available to sole traders and casual workers who meet the income test.
The government has also announced 5,000 new staff for Services Australia (Centrelink) to assist in delivering new government measures.
$750 Payment for Some on Income Support
COST: $4 Billion
On 12 March 2020, the government announced a $750 payment for Australians on income support.
From 13 July 2020, a further $750 payment will be paid to eligible social security recipients, including those receiving the Aged Pension, the Carer’s Allowance, Family Tax Benefits and the Commonwealth’s Seniors Health Card.
However, this will not be available to Australians who are already eligible for the Coronavirus temporary supplement.
Reduction in Deeming Rates
COST: $876 million
The government is proposing to reduce the deeming rates by a further 0.25 per cent for individuals on income support.
Deeming rates are used to calculate income from financial assets, even if they do not actually earn the person an income. This includes listed shares, savings, term deposits, managed investments, some gifts, some income streams (usually superannuation) and more.
By reducing deeming rates, the income earned by assets will decrease in the eyes of the government, and subsequently, a person impacted by deeming rates should see an increase in their payment amount.
As of 1 May 2020, the lower deeming rate will be 0.25 per cent and the upper deeming rate will be 2.25 per cent. National Seniors Australia estimated, based on a 0.5 per cent decrease, that the average increase would be $219 per year (and ostensibly, with this further 0.25 per cent, another $110 per year).
Deeming exceptions still apply in certain circumstances.
Deeming rates do not apply to family tax benefit payments.
COST: $1.2 Billion
From April 2020, individuals that have had their employment affected by Coronavirus and are eligible for the Coronavirus supplement may be able to draw down from their superannuation.
Sole traders or casuals who are not otherwise eligible for the Coronavirus supplement may be entitled to draw down on their superannuation as well if their income has fallen, or their hours worked have decreased by 20% or more, because of the Coronavirus.
The drawdowns are capped at $10,000 this financial year and $10,000 the next financial year, and are tax-free.
Applications will be made online through myGov and will include a declaration to the ATO.
- First $10,000 – apply through myGov by 1 July 2020
- Second $10,000 – you will have three months to apply from 1 July 2020
Access under this scheme is on top of hardship and compassionate grounds that otherwise allow early access of superannuation.
A drawdown will not affect Centrelink or Veterans’ Affairs payments.
Note: your superannuation may be invested in domestic or international shares that have felt the impact of the Coronavirus. You should consider whether drawing from your superannuation is the right thing for you. Seek appropriate financial advice.
Retirees with Superannuation
COST: Unknown – Likely negligible
Currently retirees are required to draw down a minimum of 4% a year (which increases with age) from their superannuation.
The government has proposed to reduce the minimum drawdown requirements by 50 per cent for 2019-20 and 2020-21.
Whilst this scheme may actually decrease cash in the economy (outside of superannuation and pension schemes), it does provide more ability for pensioners and other eligible persons to manage their assets, which is particularly important given the volatility of global share markets, and subsequently, many superannuation accounts.
First Stimulus Announced 12 March 2020
The first stimulus package is worth approximately $17.6 billion (note rounding means the below figures add up to $17.7 billion):
- $700 million for instant asset write-off threshold increases
- $3.2 billion for depreciation increases
- $6.7 billion for BAS or Instalment Activity Statements tax-free subsidies
- $1.3 billion for employers of apprentices and trainees
- $4.8 billion for one-off $750 payments to certain people
- $1 billion for severely-affected regions
Instant Asset Write-Off Threshold
COST: $700 million
Starting on and from 12 March 2020, the government increased the instant asset write-off threshold from $30,000 to $150,000 and has expanded it to include businesses with a turnover of up to $500 million (up from $50 million).
This measure only applies until 30 June 2020.
Speak to your accountant to take maximum advantage of this scheme.
COST: $3.2 billion
Starting on and from 12 March 2020, businesses with a turnover of less than $500 million will benefit from additional depreciation on assets until 30 June 2021.
Businesses will be able to deduct an additional 50 per cent of the cost of an asset in the year of purchase.
Cash Payments of up to $25,000
This measure has been built on by the second stimulus package announced on 22 March 2020. See our updated post above about measures now up to $100,000.
Apprentices and Trainees
COST: $1.3 billion
Eligible employers may apply for 50 per cent of the wage of an apprentice or trainee for up to 9 months starting from 1 January 2020 to 30 September 2020.
$750 Cash Payment
COST: $4.8 billion
The government has announced a $750 one-off cash payment to eligible concession card holders, pensioners, social security, veteran and other income support recipients.
The payment is tax free and does not count as income for social security, veteran or farm household allowance.
If a person is eligible for the $750 in multiple ways, they will only receive one payment.
Payments will be made from 31 March 2020 on a progressive basis; 90 per cent of payments are expected to be made by mid-April.
Note: the government has subsequently announced a further $750 cash payment to be made from 13 July 2020 (for some, that is a total of $1,500). For those not eligible for the second $750 cash payment, you may be entitled to the Coronavirus temporary supplement – read above for more information.
COST: $1 billion
The government has announced a further $1 billion for severely affected regions disproportionally affected by the Coronavirus.
This is likely to include those heavily reliant on tourism, education or agriculture.
Fees and charges related to the Great Barrister Reef Marine Park and Commonwealth National Parks will be waived for eligible tourism businesses, money will be directed to targeted tourism advertising, and assistance in helping businesses identify alternative exporting markets and supply chains will be made available.
Further ways to distribute the remaining funds will be announced after consultation with industry and communities.
The government has also announced relief and deferral of certain tax obligations for businesses affected by the Coronavirus, including the ability for businesses to defer tax payments for up to four months on a case-by-case basis.
- $444.6 million for the workforce in aged care, including:
- $234.9 million ‘retention bonus’ for staff in both residential and home care
- $78.3 million to assist with residential care continuity of workforce supply
- $26.9 million to supplement the viability of aged care facilities (particularly the Torres Strait and Homelessness providers)
- $92.2 million for the Commonwealth Home Support Program (including Meals on Wheels)
- $12.3 million to myAgedcare Services
- $715 million for the aviation industry, including removing the fuel excise and other reductions for fees and charges.
Struggling Financially? You have Options
If you are struggling financially, you have several options available:
1. In addition to the above measures there are various state-based stimulus packages available. These are significant. For example, the Queensland Government is seeking expressions of interest for interest-free loans of up to $250,000 to Queensland businesses, and up to $500,000 for agribusiness exporters impacted by the Coronavirus;
2. You may be able to access your Superannuation early on grounds of compassion, severe financial hardship, having a terminal medical condition or incapacity. Visit the ATO for more details;
3. If you are a business, seek business and financial advice (including from your accountant and lawyer) – diagnose the issues you are facing. You may be able to optimise revenue, reduce expenses, defer expenses (including from the ATO), obtain finance, maximise your use of the support packages available from the government and identify and realise support from your financial institutions;
4. If you are an individual, seek financial advice (including from your accountant and lawyer). You may be able to restructure your debts, negotiate repayments, improve your tax planning and more; and
5. Administration, liquidation, bankruptcy or entering into a debt agreement may be the right choice, but given the recent measures announced by the government, there may be a better way.
How Gibbs Wright can help
We may be able to assist you with your:
Employment: including unfair dismissal and breach of employment contract
Debts: we regularly assist our clients in recovering, negotiating and defending debts
Contract Disputes: we may be able to help you get out of (or enforce) a contract because of Coronavirus or through other methods
Professional Negligence: if your broker, accountant, advisor, lawyer or other professional has given you negligent advice causing loss, we can help (excluding personal injury)
Insurance: if you’re struggling with getting your insurance matter paid out, we may be able to help speed up the process and improve your chances of payment
Tax Disputes: we can help you negotiate with, or fight, the Australian Taxation Office or Queensland Office of State Revenue
Administrative Decisions: if you’ve been denied a grant or other support, we may be able to help
Set Aside a Bankruptcy Notice or Statutory Demand: if you’ve been served with a bankruptcy notice or statutory demand, call us immediately as strict time limits apply
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