The government has unveiled a $17.6 billion stimulus package, including a vastly expanded instant asset write-off and tax-free cash payments to small and medium businesses.
Prime Minister Scott Morrison has now announced a suite of measures aimed at stimulating the economy off the back of the World Health Organisation declaring the coronavirus a pandemic.
Access to the write-off will also be expanded to include businesses with aggregated annual turnover of less than $500 million, up from $50 million.
The expanded measure will only run until 30 June 2020.
The Tax Institute’s senior tax counsel, Professor Robert Deutsch, said the expanded write-off would give businesses food for thought in the current economic climate.
“Businesses that are successful often act in this counterintuitive way and it’s the old Warren Buffett quote, ‘Be fearful when others are greedy and greedy when others are fearful’,” Professor Deutsch told Accountants Daily.
“It may be an appropriate time for businesses to have the tenacity to actually make the investment, and the government is doing its level best to encourage them to do so.”
Likewise, Chartered Accountants Australia and New Zealand (CA ANZ) tax leader Michael Croker said the supercharged instant asset write-off was a big win for businesses and would potentially drive purchases of more big-ticket items.
“The question now becomes one of confidence: Will businesses open their cheque books in the current economic environment? Will lenders provide loans if needed to fund the purchases?” Mr Croker said.
Businesses with a turnover of less than $500 million will also now be able to deduct an additional 50 per cent of the asset cost in the year of purchase, as the government looks to introduce a time-limited 15-month investment incentive.
The incentive, set to run through to 30 June 2021, is set to cost the government $3.2 billion.
“Unlike the instant asset write-off extension, this measure will be in place until 30 June 2021 and the value of the eligible asset is uncapped, meaning it could be very useful in encouraging investment in the post-crisis recovery,” said CPA Australia general manager of external policy Paul Drum.
SME cash boost
The government will also roll out a measure that will see businesses with turnover of less than $50 million receive payments of up to $25,000 tax-free, with a minimum payment of $2,000.
These payments will be benchmarked to 50 per cent of the amount withheld on employees’ salary and wages, up to a maximum payment of $25,000.
Eligible businesses that pay salary and wages will receive a minimum payment of $2,000, even if they are not required to withhold tax.
The measure is expected to cost $6.7 billion and will be delivered by the ATO as a credit in the activity statement system from 28 April 2020 upon businesses lodging eligible upcoming activity statements.
Employers who lodge the BAS on a quarterly basis will be eligible to receive the payment for the quarters ending March 2020 and June 2020.
Monthly BAS lodgers will be eligible to receive the payment for the March 2020, April 2020, May 2020 and June 2020 lodgements, with a 150 per cent calculation in the March activity statement to provide the same treatment as quarterly lodgers.
The Tax Institute’s Professor Deutsch said the measure would be helpful in incentivising employers to hang on to their staff during this period of economic uncertainty.
BDO tax partner Mark Molesworth said that while it would provide a cash boost to businesses, the finer details of the measure remained to be seen.
“This will provide an immediate cash boost to eligible employers, irrespective of whether they are profitable or not,” Mr Molesworth said.
“The design of this measure will be critical. It will not be sensible if the business has to pay their full amount of PAYG withholding and then wait some weeks for the government to pay out. It will be much better if the boost is able to be offset against the PAYG payable on the business activity statement.”
The measures will have a start date from 12 March but will be subject to the passage of legislation. Shadow treasurer Jim Chalmers has since said that Labor “will not stand in the way” of the government’s measures.
“We’ll do what we can when legislation is necessary to support them through the Parliament as quickly as possible,” said Mr Chalmers.
The ATO has since followed up with a number of administrative relief measures to help businesses over the following months.