COVID-19 changes – some good, some bad...
The Commonwealth government has recently introduced and announced some key changes to the COVID-19 stimulus measures.
These include:
the end of JobKeeper for childcare providers – the Early Childhood Education and Care Relief Package will come to an end on 12 July 2020;
COVID-19 extension for Division 7A loans – the ATO has provided a streamlined process for COVID-19-affected taxpayers to apply for an extension to meet their minimum yearly repayment obligations;
an extension to the Instant Asset Write Off – those who were unable to have an asset used or installed ready for use by 30 June 2020 will now have a further 6 months to satisfy the requirements to obtain the $150,000 instant asset write off; and
a change to cash flow boost to include attributed personal service income (PSI).
The Government also announced on 30 June 2020 that the anticipated changes to Division 7A will now be delayed until 1 July 2021 at the earliest.
End of JobKeeper for childcare providers
On 8 June 2020, the Minister of Education Dan Tehan announced that the Early Childhood Education and Care Relief Package, which was introduced on 6 April 2020 to enable families to receive free childcare, would be turned off on 12 July 2020, and that the Government would resume the Child Care Subsidy on 13 July 2020.
In addition, the JobKeeper payment will cease from 20 July 2020 for employees of a Child Care Subsidy approved service and for sole traders operating a childcare service.
Instead, the Government will pay all approved early childhood education and care services a transition payment from 13 July 2020 until 27 September 2020, equivalent to 25% of their fee revenue or the existing hourly rate cap, whichever is lower, at the level of the reference period, being 17 February 2020 to 1 March 2020.
During this period:
childcare fees are be capped at the level of the reference period, being 17 February 2020 to 1 March 2020.
approved services will need to guarantee employment levels to protect staff who will no longer receive the JobKeeper payment.
Businesses outside of the childcare sector should be aware that under the JobKeeper rules, an eligible entity's entitlement to JobKeeper may be cancelled, revoked, terminated or varied by later legislation. Where businesses currently include JobKeeper payments in their cash flow planning, they should consider what their cash flow position might be if the JobKeeper payment is no longer available to them.
COVID-19 assistance for Division 7A loans
On 26 June 2020, the ATO announced a streamlined process to allow borrowers who have entered into a Division 7A loan agreements, and who are unable to make their minimum yearly repayment by the end of the company's 2019/20 income year due to COVID-19, to request an extension period to meet their minimum yearly repayment obligations.
Under the measure, a COVID-19 affected borrower may request an extension of the repayment period for 12 months by completing an online application for each amalgamated loan. The borrower will have to confirm the shortfall amount and provide an explanation of how the COVID-19 situation has affected the borrower.
Borrowers who have been granted an extension from the ATO will not be considered to have received an unfranked dividend in respect of the repayment shortfall.
The Government also announced on 30 June 2020 that the anticipated changes to Division 7A will be pushed back to 1 July 2021 at the earliest.
Extension to Instant Asset Write Off
On 12 June 2020, the Treasury Laws Amendment (2020 Measures No. 3) Bill 2020 (Cth) (the Bill) was introduced to extend the $150,000 instant asset write off for businesses with an aggregated turnover of less than $500 million, from 30 June 2020 to 31 December 2020.
The measure is designed to improve cash flow for businesses by bringing forward tax deductions for eligible expenditure. The threshold applies on a per asset basis, with businesses being able to write off multiple assets immediately, provided the cost of each asset is under $150,000.
The Bill provides that those who were unable to have an asset used or installed ready for use by 30 June 2020 will now have a further 6 months to satisfy the requirements to obtain the $150,000 instant asset write off.
The Government further announced on 30 June 2020 that the anticipated changes to will be pushed back to 1 July 2021 at the earliest.
Cash Flow Boost
Until 12 June 2020, cash flow boost payments were only calculated by reference to salary and wages subject to withholding obligations under Subdivision 12-B, 12-C or 12-D in Schedule 1 to the Taxation Administration Act 1953 (Cth). As PAYG withholding on PSI payments is remitted under Division 13 in Schedule 1 to the TAA 1953, eligibility and the amount of the cash flow boost was not available in relation to PSI payments that were not promptly paid as wages.
The Bill amended the cash flow boost to allow attributed PSI payments to count towards the cash flow boost payment.
The amendment will be unlikely have any real practical implications, as the ATO currently provides the cash flow boost to eligible recipients calculated with reference to the amounts withheld in labels W1 and W2 of a business activity statement. Attributed PSI amounts are reported at W1, and amounts withheld on attributed PSI income are reported at label W2, meaning that the ATO would likely have already included attributed PSI payments when providing cash flow boost to eligible employers.
Should you wish to discuss any aspect of these recent announcements, please contact our Tax team.
The material in this article was correct at the time of publication and has been prepared for information purposes only. It should not be taken to be specific advice or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained in this article.