Governments around the world are quickly responding to the COVID-19 outbreak. Italy and Spain have basically shut down their entire countries.
India has closed the borders and suspended all tourist visas.
Both demand and supply chains are being disrupted, with many economists fearing the virus could trigger the next economic recession.
In order to stave off a looming recession, the Australian Government has announced its $17.6 billion Economic Stimulus package.
The stimulus package includes both cash and tax incentive measures, as followed:
Real, Cash Money for Small Business Owners
50 per cent cashback on PAYGW, up to $25,0000
- Eligible small and medium-sized employers will be provided a 50 per cent tax-free ‘cash back’ of up to $25,000 (and a minimum of $2,000) on your PAYG Withholding on wages between 1 January 2020 and 30 June 2020.
- I should clarify, you do not get 50 per cent of your total wages expenses as a credit. You are entitled to 50 per cent of the PAYGW associated with the wages
- So, breaking this down, if you have spent more than $50k in PAYGW for the six-month period between 1 January and 30 June 2020, you should receive $25,000 in cash from the Government. If you have spent $30k in PAYGW for the same period, you will get $15,000 (50 per cent of $30k)…and so on
- The payment will be tax free and delivered by the ATO as a credit in your Business Activity Statement (BAS) system effective from 28 April 2020
- So, if you lodge a quarterly BAS, you will get the credit in the June-20 quarter BAS. If you lodge a monthly IAS, the total amount will be credited by 50 per cent from the March-20 IAS up to the June-20 IAS.
A couple of other points on this:
- If you take your ‘salary’ as a dividend or directors’ drawing and want to maximise your ‘cash back’, you could explore changing the treatment of your remuneration from drawings to salary…
- If you have an existing debt with the ATO, it’s unclear if this cash payment will simply offset your existing debt (hopefully not!)
50 per cent subsidy on apprentice wages, up to $21,000
- Eligible employers can apply for a wage subsidy of 50 per cent of apprentice or trainee wages for up to nine months from 1 January 2020 to 30 September 2020 (up to a maximum of $21,000 per eligible apprentice or trainee).
- If a small business is not able to retain an apprentice, the subsidy will be available to a new employer that employs that apprentice.
Tax incentives for Small Business Owners
- The immediate tax deduction threshold has been increased from $30,000 to $150,000.
- Assets over $150,000 will attract an additional 50 per cent depreciation rate of the asset cost in the year of purchase.
A couple of other points on this:
- It’s important to note that these are tax incentives, not cash back incentives. In other words, you need to spend the money, and pay income tax in order to get the tax benefit.
- The tax benefit will be applicable for your FY20 tax return, which means you won’t see any benefit until you’ve lodged your 2020 return.
My personal thoughts:
Australia hasn’t experienced a legit economic recession in like 30 years. I was still in nappies when the last one happened in the early 1990’s.
Our healthy trade relationship with China and SE Asia and fairly regulated credit system shielded us from the 2000 and 2007 global recessions.
I’m not an economist, nor claim to be an expert in the matter, but this cycle seems a little bit different.
We’ve had close to three decades of sustained, economic growth.
Our key partner, China is currently in shutdown and is also showing signs of cracking.
Cheap debt has propped up global markets for several years now and I think the COVID-19 outbreak has been the ‘Black Swan’ that may (will probably) be the domino which triggers the next recession.
The Government knows there is trouble in the water – hence these economic incentives.
Their policy has made the directive clear to business owners:
- Keep employing staff
- Invest in your business!
Small business owners – like you and me, are the engine room of the economy.
The Government is doing something to help ease the pressure, but it’s largely up to us to keep things ticking along.
Over the next few months, I’ll be focusing on how you can prepare your business for a recession.
I’ll be unearthing case studies and practical financial tools and tactics that you can implement in your business.
Call it a playbook for keeping you above water.
A recession could be seen as ‘doom and gloom’.
Or, it could be seen as an opportunity.
It’s what you make of it.
About the Author
Jason Andrew is a chartered accountant, founder and business advisor to high-growth businesses. His accounting firm, SBO.Financial focuses on helping growth businesses with their numbers – ranging from bookkeeping, financial control and profit and cash flow maximisation strategies.