We have all been surprised by the swift and potentially devastating impact the COVID-19 (Coronavirus) pandemic shutdowns are having on the welfare of business operators, their staff and their businesses. We are doing everything we can to ensure businesses have the best opportunity to come out the other side of this in good shape.
All businesses are being affected differently. Some can only cease, some will be able to continue at reduced capacity, and some will even thrive.
There are some important things to consider before you make your next move:
- You need to keep in mind that the pandemic will end
- Your business must be prepared to re-start and scale up as demand increases on the other side
- Decisions you make now could have a permanent impact on your business
We are here to help you maintain your cash flow and interpret the government stimulus packages. We can work with you now, to help you make the best decisions for long term recovery.
What should I do?
Be informed. Consider the following carefully. We are here to help.
- Understand the impact of the pandemic on your business. What is the turnover loss, how have operations been affected? Explain the changes to your advisor, who can help to assess the business impacts.
- Any reduction in turnover will prompt an automatic drop in your variable costs. You need to assess your fixed costs. The biggest issues for many will be the costs of permanent staff, rent and finance.
- Consider your workforce requirements. Will you scale back or stand down? The rules are complex so you should seek professional employment advice.
- Consider seeking rental assistance from your landlord, if possible. Federal Government support through a rental deferral scheme has been raised however, there is no confirmation yet that this will be actioned.
- The government has relaxed the laws around insolvency. These may allow you some flexibility in continuing the business. Discuss your circumstances with your advisor.
- Take stock of your bank facilities, cash holdings and reserves. How long will they last?
- Once you have a basic understanding of the costs, key business decisions and forward-looking cash flow, you may identify a shortfall. You can use the ATO’s $20,000 to $100,000 cash incentives to assist with wage and BAS payments to manage the shortfall by:
- Deferring ATO payments on long term plans and potentially creditor payments
- Varying PAYG instalments and the crediting back of those already paid in the 2020 tax year to provide a quick injection for immediate cash needs
- Defer loan repayments and interest reductions with your financiers
- If the above is not enough, consider working with your bank on a government-backed loan. It’s critical that you can fund the loan and then repay it once the pandemic desists. It is subject to credit approval and banks will be assessing this ability, however they will also consider further funding than the $250,000 proposed in appropriate circumstances.
If you are in a strong position:
- Take advantage of the accelerated depreciation claims for assets below $150,000 and 50% write off for those to 30 June 2021 for business-critical assets
- Use any downtime to improve business processes, undertake critical maintenance and re-open with a better organised and efficient enterprise.
What immediate support is the Federal Government providing?
The Federal Government recently passed several measures to provide immediate financial support businesses and individuals impacted by COVID-19.
Cash flow boost for business
The ATO is making a series of cash payments (which will reduce tax payments to the ATO with a balance paid to you in cash) to eligible businesses between April and October 2020. If you are eligible, the minimum payment you will get is $20,000.
The minimum $20,000 is received as:
- $10,000 in April 2020
- $5,000 in June 2020#
- $5,000 in October 2020
Where the amounts you withhold from your employees in the period January to June 2020 is higher than $10,000, you will receive a higher amount##. You will then receive the same higher amount in the period June 2020 to October 2020. The total maximum payments you can receive are $100,000.
Janine runs a small construction business through a private company. She pays wages to employees for the work they perform. The employee tax withheld from wages each quarter is $6,000.
Janine’s company should be entitled to the following payments:
- $10,000 in April 2020 on lodgement of the March 2020 BAS. $6,000 will reduce the tax she would otherwise pay to the ATO. $4,000 will be available to distribute as cash (or reduce other tax liabilities)
- $8,000 in July 2020 on lodgement of the June 2020 BAS. $6,000 will reduce the tax she would otherwise pay to the ATO. $2,000 will be available to distribute as cash (or reduce other tax liabilities)
- $6,000 in October 2020 on lodgement of the Sept 2020 BAS. This may reduce liabilities or be paid in cash depending on the amounts due on the BAS.
Max runs a plumbing business through a discretionary trust. He pays his wife a $400 per month salary for looking after the administration of the trust. He does not need to withhold from the salary as she is under the tax threshold. Max and his family receive trust distributions at year-end.
Max’s trust should receive the following payments:
- $10,000 in April 2020 on lodgement of the March 2020 BAS. This may reduce liabilities or be paid in cash depending on the amounts due on the BAS
- $5,000 in July 2020 on lodgement of the June 2020 BAS. This may reduce liabilities or be paid in cash depending on the amounts due on the BAS
- $5,000 in October 2020 on lodgement of the March 2020 BAS. This may reduce liabilities or be paid in cash depending on the amounts due on the BAS.
The ATO will determine your eligibility based on what you lodge on your March to June 2020 Business Activity Statements and other information they have available from your previous lodgements. Therefore, you need to make sure existing lodgements are correct and up-to-date and
you complete your March 2020 BAS correctly.
We can assist you with these lodgements to ensure you maximise your entitlement.
Cash payments to individuals
There are two $750 payments to recipients of eligible social security payments:
- The first payment is made on or after 31 March 2020
- The second payment will be made from 13 July 2020.
The payments are made to Australian residents eligible to receive one of the following payments or concessions:
|Age pension||Widow B pension||Newstart allowance
|Disability support pension||ABSTUDY||Jobseeker payment
|Parenting payment|| Austudy||Youth allowance
|Wife pension||Bereavement allowance||Partner allowance
|Sickness allowance||Special benefit||Widow allowance
|Family tax benefit||Carer allowance||Pensioner concession card
|Commonwealth Seniors Card||Veteran Service pension||DVA PCC holders
|Veteran cardholders||Farm allowance holders||
The payments will be paid automatically by Services Australia based on their records. You should review your eligibility for any of the payments or concessions and lodge your claim before 13 April 2020.
There are various other time-limited concessions available to help give you cash flow support during this time including:
- Accelerated depreciation claims on asset acquisitions
- Limited access to superannuation to support cashflow
- Deferral of lodgement and payment of existing tax debts
- Concessional funding for financiers, and
- Other direct and indirect government support through tax and fee reductions and grants programs.
We are keeping an updated list of the concessions at our COVID-19 Australian tax measures page.
Let us help you
Your Bentleys advisor can help you tailor a cash flow support package which will help you, your business and your employees survive during this time. Initial consultations are complementary.
We can also help you and your business identify opportunities arising from the different programs available.
Contact us for a no obligation discussion. We want all businesses to have the best opportunity to endure and grow through COVID-19.
# Assuming you are a ‘small’ PAYG withholder preparing BAS quarterly. For a monthly payer the minimum is paid in four equal monthly instalments of $2,500 from June 2020.
## For a monthly payer only the amounts withheld from March to June are relevant. However, the March amount is multiplied by three in calculating the entitlement.The maximum is $50,000.
Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.