On 23 March 2020, the Australian Government successfully passed the Coronavirus Economic Response Package Omnibus Act 2020 (Act). The corresponding bill, having only been announced one day prior, was fast tracked through Parliament to help address the economic crisis caused by Novel Coronavirus (COVID-19). This Act forms part of the Government’s $189 billion response to the economic downturn caused by the virus. Some of the key impacts of the Act are as follows:
Improved Tax Benefits for Businesses
Instant Asset Write Offs
The Act has amended income tax laws to increase the cost threshold of depreciating assets and certain related expenses that small businesses can claim an immediate deduction for (Instant Asset Write Off). The threshold has temporarily increased from $30,000 to $150,000 until the end of this financial year. The Act has also increased the size of businesses that Instant Asset Write Offs are available to, allowing businesses with an aggregated turnover of between $10 million and $500 million (increased from between $10 million and $50 million) to make claims.
Accelerated Deduction Rates
In addition to more Instant Asset Write Offs, the Act also allows for accelerated rates of claiming deductions for other depreciating assets. Businesses with under $500 million in aggerated turnover can now claim these accelerated rates for new assets purchases. Businesses under $10 million in aggregated turnover can claim 57.5% (increased from 15%) in deductions per year. Note that for an asset to qualify for these deductions, the asset must be new, purchased between 12 March 2020 and 30 June 2021, and not previously been used or been claimed as a deduction by another entity. These changes are designed to encourage businesses to continue making investments, and support economic growth for the next year.
Boosting Cash Flow for Employers
The Government has also implemented a scheme that will provide between $20,000 and $100,000 to eligible small and medium sized businesses, as well as non-for-profit organisations, such as charities, that employ people. This will be done through two sets of cash flow boosts delivered from 28 April 2020, and aim to support employers to retain employees. You can read more about the eligibility requirements for this cash flow injection here:
Temporary Changes to the Insolvency and Bankruptcy Regime
The Act operates to relax the application of some sections of the Corporations Act 2001 (Cth) (Corporations Act) to provide temporary relief for financially distressed businesses. It essentially provides a 6-month moratorium against directors incurring personal liability for trading a company whilst insolvent. Under usual circumstances, trading whilst insolvent is a breach of director’s duties under s 588G(2) of the Corporations Act, and will give rise to personal liability related to any debts incurred whilst insolvent. This 6-month period of relief will allow directors some flexibility in attempting to trade themselves out of insolvency during this economic slump.
It is well worth noting that this effect does not operate retrospectively, and the moratorium only applies to debt incurred in the 6 months following the commencement of the legislation (25 March 2020 to 25 September 2020). The legislation is not specific about protection granted to debts that are incurred outside the ordinary course of the company’s day to day business, so it is recommended that directors not be too liberal with this protection. The Act is also silent regarding other director’s duties, and directors should not assume they are immune from all personal liability under the Corporations Act.
The Act also operates to reduce pressure on financially distressed businesses by granting temporary relief from statutory demands. Statutory demands are a tool used to put a company on formal notice of a debt. If a company fails to respond to a statutory demand within the time limit, they are presumed to be insolvent and can have winding up proceedings brought against them. The Act makes the following notable changes:
1. The monetary threshold to issue a statutory demand has increased from $2,000 to $20,000;
2. The time limit to respond to a statutory demand before a company is presumed insolvent has been extended from 21 days to 6 months; and
3. These changes only apply to statutory demands issued during the 6 months after the commencement of the Act (25 March 2020 to 25 September 2020).
Similar to the above changes to statutory demands, amendments have also been made to personal bankruptcy laws to ease financial pressure on individuals who are bankrupt or are nearing bankruptcy. These changes are as follows:
1. The monetary threshold to issue a bankruptcy notice has increased from $5,000 to $20,000;
2. The time limit to respond to a bankruptcy notice before a debtor commits an act of bankruptcy has been extended from 21 days to 6 months; and
3. These changes only apply to bankruptcy notices issued during the 6 months after the commencement of the Act (25 March 2020 to 25 September 2020).
These changes are just a portion of the full suite of economic relief measures introduced by the Act to combat the impacts of COVID-19. Other measures include the early release of superannuation funds, stimulus payments to households, and additional support for workers with children, just to name a few. Hopefully these measures will be enough to help local Australia businesses survive the mandatory shutdown periods and continue trading well into the future.