Coronavirus stimulus: Tax tips for self-employed people and small business owners

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Coronavirus stimulus: Tax tips for self-employed people and small business owners


The coronavirus pandemic is proving to be disastrous for small business. Coming hot on the heels of a bushfire-induced slowdown, the economic outlook for the whole country is looking bleak.

Only last week, the federal government announced a $17.6 billion stimulus package, with much of that funding allocated to measures targeted at small business, and all the indications are that a second stimulus package is about to be announced, before the first tranche is even legislated.

Much of the initial stimulus package is geared towards a series of tax breaks designed to boost small business investment, keep funds circulating in the wider economy and reduce the overall tax burden. So, what do the already announced measures mean for Australian small business?

Big boost to the instant asset write-off

The instant asset write-off threshold has been increased from $30,000 to $150,000, and access to the write-off has been expanded to include businesses with aggregated annual turnover of less than $500 million (up from $50 million) until June 30, 2020.

The instant asset write-off allows businesses to buy large items of capital equipment for their business and to obtain an immediate tax deduction for doing so (rather than depreciating the cost over a number of years, as was previously the case).

In 2017-18, there were more than 360,000 businesses that benefited from the current instant asset write-off, claiming deductions to the value of over $4 billion. The government is clearly hoping that amount can be substantially increased with this new boost.

Provided the cost of each purchase is less than the threshold (now $150,000), the full cost can be written off if the asset is acquired and in use by June 30, 2020.

Amongst the items small businesses could look to purchase are:

  • Cars, utes and delivery vans;
  • Computer equipment, including laptops, tablets and printers;
  • Premises fit-out, including office furniture, works of art and TVs;
  • Solar systems for business premises; and
  • Plant, equipment and tools.
    It is important to note there is also a different measure that provides a 50% asset write-off.

Businesses with a turnover of less than $500 million will be able to deduct 50% of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost. This scheme applies for purchases through until June 30, 2021 (a year later than the instant asset write-off scheme).

In effect, both schemes appear to run in tandem until June 30, 2020, but of course, any eligible business will take advantage of the instant asset write-off in the period to June 30, 2020, rather than the 50% write-off. The 50% write-off scheme will come into its own from July 1, 2020, to June 30, 2021, after the instant asset write off expires.

The instant asset write-off has always been a popular tax break for small businesses and this very substantial increase, both in the threshold and the number of businesses eligible to claim, represents an opportunity for businesses to take advantage of making large purchases through until June 30, 2020.

What’s less clear is whether businesses that are doing it tough, and likely to continue to do so for some months, are in the mood to spend money on large capital items, even with a generous tax break attached. Time will tell. In addition, an immediate tax deduction is not especially helpful to a business that is making losses, as many small businesses now will be.

For businesses that already have planned purchases coming up, this is a great opportunity, and businesses that have a pressing need to make purchases (such as primary producers that lost plant and equipment in the bushfires and need to re-equip) are also well placed to take advantage. So, as part of a wider rescue package, this a good move, but in isolation, it is unlikely to be enough to encourage small businesses to spend.

Cash stimulus

The government will make tax-free payments of up to $25,000 to small and medium-sized businesses, with a minimum payment of $2,000 for eligible businesses. The payment is intended to provide cashflow support to businesses with annual turnover of less than $50 million, but is only available to those businesses that employ staff.

Whilst the exact details are not yet available, it appears these payments will be administered by the Australian Taxation Office. Eligible businesses will automatically receive a payment equal to 50% of their PAYG withheld, delivered as a credit in their BAS for the June 2020 quarter.

Reducing compliance

The ATO has also announced a series of administrative concessions to assist businesses affected by COVID-19.

Deferring the payment of tax amounts by up to four months, including payments due through the BAS (including PAYG instalments), income tax assessments, FBT assessments and excise by affected businesses.
Allowing businesses on a quarterly reporting cycle to opt into monthly GST reporting to get quicker access to any GST refunds.
Allowing affected businesses to vary PAYG instalment amounts to zero for the April 2020 quarter. Businesses that vary their PAYG instalment to zero can also claim a refund for any instalments made for the September 2019 and December 2019 quarters.
Remitting any interest and penalties, incurred by affected businesses on or after January 23, 2020, that have been applied to tax liabilities.
Allowing affected businesses to enter into low-interest payment plans for their existing and ongoing tax liabilities.

What are the next steps?

The federal government has already acknowledged the measures announced last week won’t be sufficient to keep the small business sector afloat, and it appears more stimulus measures will be announced imminently as the economic clouds darken.

Whilst additional tax deductions and reductions in compliance burdens are welcome, these sorts of measures don’t really address the fundamental problem, which is a collapse in customer demand and a drying up of cashflow.

The next round of stimulus must be aimed at boosting customer demand and injecting cash into struggling businesses so they can carry on trading through the downturn, and hopefully return to profitability once some degree of normality returns.

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