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SME COMMERCIAL LEASING PRINCIPLES DURING COVID-19在新冠期间,中小企业商业租户的法定行为准则(以下简称“准则”)
08/04/2020

ECONOMIC RESPONSE TO THE CORONAVIRUS

Interest-rate-vaccine-failed-against-coronavirus-stimulus-Australia-market-stocks

The Australian Government has announced an economic response totalling $17.6 billion across the forward estimates to protect the economy by maintaining confidence, supporting investment and keeping people in jobs. Additional household income and business support will flow through to strengthen the wider economy.

A package of Bills will be introduced into Parliament in the final Autumn sitting week in March 2020 for Parliament’s urgent consideration and passage. Following passage of the Bills through Parliament, the Government will then move to immediately make, and register, any supporting instruments. While waiting for further updates from the Government, we will briefly review the main two aspects impacting the majority of clients:

  1. Delivering support for business investment
  2. Cash flow assistance for businesses

Delivering support for business investment

  • Enhancing the instant asset write-off:
    • Lifting the threshold to $150,000 (from $30,000) and expanding access to businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020.
    • The threshold applies on per asset basis, so eligible businesses can immediately write-off multiple assets.

Example 1: 

Owen owns a company, ON Point Farms Pty Ltd, through which he operates a farming business in the Central Wheat Belt of Western Australia. ON Point Farms Pty Ltd has an aggregated annual turnover of $25 million for the 2019-20 income year. On 1 May 2020, Owen purchases a second hand tractor for $140,000, exclusive of GST, for use in his business.

 

Under existing tax arrangementsON Point Farms Pty Ltd is not able to immediately deduct  assets costing more than $30,000 and instead would depreciate the tractor using an effective life of 12 years. Choosing to use the diminishing value method, ON Point Farms Pty Ltd would claim a tax deduction of $3,899 for the 2019-20 income year.
Under the new $150,000 instant asset write-offON Point Farms Pty Ltd would instead claim an immediate deduction of $140,000 for the purchase of the tractor in the 2019-20 income year, $136,101 more than under existing arrangements. At the company tax rate of 27.5 per cent, Owen will pay $37,427.78 less tax in 2019-20.

This will improve ON Point Farms Pty Ltd’s cash flow and help his business withstand and recover from the economic impact of the Coronavirus.

 

 

Example 2: 

Samantha owns a company, Sam’s Specialty Roasters Pty Ltd, through which she operates a large food processing business in Brisbane. Sam’s Specialty Roasters Pty Ltd has an aggregated annual turnover of $150 million for the 2019-20 income year. On 1 May 2020, Samantha purchases five new conveyor belts for her production facility for $40,000 each, exclusive of GST, for use in her business.

 

Under existing tax arrangementsSam’s Specialty Roasters Pty Ltd is not eligible for the instant asset write-off and instead would depreciate the conveyor belts using an effective life of 15 years. Choosing to use the diminishing value method, Sam’s Specialty Roasters Pty Ltd would claim a total tax deduction of $4,456 for the 2019-20 income year.
Under the new $150,000 instant asset write-offSam’s Specialty Roasters Pty Ltd would instead claim an immediate deduction of $200,000 for the purchase of the conveyor belts (i.e. $40,000 for each conveyor) in the 2019-20 income year, $195,544 more than under existing arrangements. At the company tax rate of 30 per cent, Samantha will pay $58,663.20 less tax in 2019-20.

This will improve Sam’s Specialty Roasters Pty Ltd’s cash flow and help her business withstand and recover from the economic impact of the Coronavirus.

 

  • Backing business investment (BBI):
    • Offering businesses a 15 month investment incentive to support their business, by accelerating depreciation deductions. Key features of the incentive include:
BenefitDeduction of 50 per cent of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost.
Eligible Businesses

 

Businesses with aggregated turnover below $500 million.
Eligible AssetsNew assets that can be depreciated under Division 40 of the Income Tax Assessment Act 1997 (i.e. plant, equipment and specified intangible assets, such as patents) acquired after announcement and first used or installed by 30 June 2021. Does not apply to second-hand Division 40 assets, or buildings and other capital works depreciable under Division 43.

 

 

 

Example 1: 

J Construction Solutions Pty Ltd has an aggregated annual turnover of $200 million for the 2020-21

income year. On 1 July 2020, J Construction Solutions Pty Ltd installs a $1 million truck mounted concrete pump for use in the business.

 

Under existing tax arrangementsJ Construction Solutions Pty Ltd could claim 30 per cent depreciation in the first year (based on the asset’s effective life of 6⅔ years).

 

Under the new BBIJ Construction Solutions Pty Ltd can claim a depreciation deduction of $650,000 in the 2020-21 income year. This consists of 50 per cent of the concrete pump’s value under the new BBI ($500,000) plus 30 per cent of the remaining $500,000 under existing depreciation rules ($150,000). This is $350,000 more than under existing tax arrangements.

 

At the company tax rate of 30 per cent, J Construction Solutions Pty Ltd will pay $105,000 less tax in the 2020-21 income year (30 per cent of $350,000). This extra tax benefit is worth $14,000 to J Construction Pty Ltd over the asset’s life (at an interest rate of 5 per cent).

 

This will improve J Construction Solutions Pty Ltd’s cash flow and lower the after tax cost of the concrete pump to the business.

 

Example 2: 

Joan and Bruce own a company, NC Transport Solutions Pty Ltd, through which they operate a haulage business on the North Coast of New South Wales. NC Transport Solutions Pty Ltd has an aggregated annual turnover of $8 million for the 2019-20 income year. On 1 May 2020, Joan and Bruce purchase a new truck for $260,000, exclusive of GST, for use in their business.

 

Under existing tax arrangementsNC Transport Solutions Pty Ltd would depreciate the truck using their small business simplified depreciation pool. Under the pooling rules, NC Transport Solutions Pty Ltd would deduct 15 per cent of the asset’s value upon entry to the pool, leading to a tax deduction of $39,000 for the 2019-20 income year.

 

Under the new BBINC Transport Solutions Pty Ltd would instead claim an up-front deduction of 50 per cent of the truck’s value ($130,000) before placing the asset in their small business simplified depreciation pool. Joan and Bruce would then claim a further 15 per cent deduction on the depreciated value of the truck ($19,500). As a result of the two deductions, Joan and Bruce are able to claim a deduction totalling $149,500 in the 2019-20 income year, $110,500 more than under existing arrangements. At the company tax rate of 27.5 per cent, Joan and Bruce will pay $30,387.50 less tax in the 2019-20 income year.

 

Cash flow assistance for businesses
The Boosting Cash Flow for Employers measure will provide up to $25,000 back to business, with a minimum payment of $2,000 for eligible businesses. The payment will provide temporary cash flow support to small and medium businesses that employ staff. The payment will be tax free.

Eligibility:

  • Small and medium business entities with aggregated annual turnover under $50 million and that employ workers will be eligible. Eligibility will generally be based on prior year turnover.

Timing:

  • Quarterly lodgers will be eligible to receive the payment for the quarters ending March 2020 and June 2020.
  • Monthly lodgers will be eligible to receive the payment for the March 2020, April 2020, May 2020 and June 2020 lodgments. To provide a similar treatment to quarterly lodgers, the payment for monthly lodgers will be calculated at three times the rate (150 per cent) in the March 2020 activity statement.
  • The minimum payment will be applied to the business’ first lodgment.

 

Example: Monthly AS Lodgement

Sarah’s Construction Business Sarah owns and runs a building business in South Australia and employs 8 construction workers on average full-time weekly earnings who each earn $89,730 per year. In the months of March, April and June for the 2019-20 income year, Sarah reports withholding of $15,008 for her employees on each Business Activity Statement (BAS).

Under the Government’s changes, Sarah will be eligible to receive the payment on lodgment of each of her BAS. Sarah’s business receives:

  • A payment of $22,512 for the March period, equal to 150 per cent of her total withholding.
  • A payment of $2,488 for the April period, before she reaches the $25,000 cap.
  • No payment for the May period, as she has now reached the $25,000 cap.
  • No payment for the June period, as she has now reached the $25,000 cap.

 

Example: Quarterly AS Lodgement

Sean owns a hairdresser’s salon on the Gold Coast. He employs one apprentice who earns $37,970 per year and two stylists who both earn $44,260 per year. In the March and June 2020 quarterly BAS, Sean reports withholding of $4,570 for his employees.

Under the Government’s changes, Sean will be eligible to receive the payment on lodgment of his BAS. Sean’s business will receive:

  • A payment of $2,285 for the March quarter, equal to 50 per cent of his total withholding.
  • A payment of $2,285 for the June quarter, equal to 50 per cent of his total withholding.

Sean’s business will receive a total payment of $4,570.

Sean may also benefit from the assistance for existing apprentices and trainees measure.

 

Example: Quarterly AS Lodgement and Nil PAYG Withholding Tax

Tim owns and runs a small paper delivery business in Melbourne, and employs two casual employees who each earn $10,000 per year. In the March and June 2020 quarterly BAS, Tim reports withholding of $0 for his employees as they are under the tax-free threshold.

Under the Government’s changes, Tim will be eligible to receive the payment on lodgment of his BAS. Tim’s business will receive:

  • A payment of $2,000 for the March quarter, as he pays salary and wages but is not required to withhold tax.
  • No payment for the June quarter, as he has already received the minimum payment and he has no withholding obligation.

If Tim begins withholding tax for the June quarter, he would need to withhold more than $4,000 before he receives any additional payment.

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The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.