COVID-19 Tax and Incentives Strategy for Australian Fintechs
written by Maryna Kovalenko and Nick Christie @ Kova Tax
Updated (25 March, 2020)
The Government is prepared to spend $189 billion dollars to support the Australian economy during this new era of COVID-19. Arguably, the most important measure for Australian fintech employers will be the cash flow boost which will give direct support to approximately 690,000 Australian SMEs. This measure is expected to cost the Government $31.9 billion. There are also a number of additional incentives being introduced both on a state and federal level.
In the current covid-era of business, your stakeholders, employees and clients are likely all looking to you for answers and guidance, and in turn I am sure you will be looking toward your advisers for answers. This article is your guidance, for fintech businesses, on the tax and compliance impacts and incentives available to you and what you should be doing as an Australian fintech in the midst of COVID-19. We have addressed the impact on each aspect of taxation and compliance as it applies to fintech businesses in Australia.
Business Cash Flow Boost
The ATO and Tax Incentives
Business Loans - SME Guarantee Scheme
State Level Business Support
Corporate Governance
Your Practical Checklist
Business Cash Flow Boost
The government has announced a stimulus package to assist businesses and lessen the financial impact that many small businesses are facing. The stimulus package will be issued in two stages:
Stage 1 - initial cash flow boost - delivered from the 28 of April 2020
Stage 2 - additional cash flow boost - delivered in the July - October 2020 period
Payments for both stages are based on your PAYG withholding obligations, and calculated through the business activity statements (BAS) lodged by the business.
Stage 1 - first boosts
The stage 1 cash flow boost is minimum payment of $10,000 and a maximum payment up to $50,000. The effective outcome for employers being that you will receive a total payment under stage 1, equal to the total PAYG tax withheld over the third and fourth quarter of the financial year. The exact timing of payments will vary depending whether you are registered for quarterly or monthly reporting. If you withheld more than $50,000 then you will be capped to the maximum of $50,000. If you withheld less than $10,000, you will still be entitled to a payment of $10,000.
Stage 2 - second boosts
The stage 2 cash flow boost is an additional payment equal to the previous payment that you were eligible for under stage 1.
Eligibility
To be entitled to the stage 1 payment, your entity must:
be a small or medium business entities with an aggregated annual turnover under 50 million, and either
derived assessable income from carrying on a business in the 2019 income year or made supplies in the course of carrying on its enterprise within Australia after 1 July 2018 and ending before 12 March 2020, and
made a payment of salary or wages in the period, and
held an ABN on or prior to the 12th of March 2020
To be eligible for the stage 2 payment, the entity must still be active at the time the payment is issued.
How the payment is issued
The payment will be delivered by the ATO as a credit in the activity statement system. The credit will be used to offset any amount owed under your business activity statement. Any credits that are leftover after offsetting will put you into a refund position and be refunded as cash. The effective outcome being that your business is better off by the amount of the payment, but not necessarily received as cash in your bank account. Both payments are tax-free and the exact timing of payments will depend on your reporting frequency.
Specific integrity rule
Eligibility for the stage-1 and stage-2 payments is subject to a specific integrity rule that is designed to stamp out artificial or contrived arrangements that are implemented to obtain access to this measure. In particular, if an employer enters into a scheme with the sole or dominant purpose of obtaining or increasing any of the above payments for a particular employer, for a period, the employer will not be eligible for any such payments for the relevant period.
In practice, this means if you are making changes to the way your business is operating, solely to access or increase the benefits under the package, you won’t be eligible due to the specific integrity rule.
Business Loans - SME Guarantee Scheme
SMEs with a turnover of up to $50 million will be eligible to receive loans backed with a 50% guarantee by the Government. Loans will be provided by lenders, but to be eligible for the guarantee they must meet the following requirements:
be unsecured loans with amounts up to $250,000
be for a term of up to three years
have an initial 6 month repayment holiday.
Draw down facilities will also be encouraged to lenders, so that SMEs will only pay interest on the amounts of the loan they actually use while still retaining a flexible buffer for the future.
The Scheme will commence by early April 2020 and will be available for new loans made by participating lenders until 30 September 2020.
The Coronavirus SME Guarantee Scheme is a federal level scheme but there are also state level initiatives that are being implemented. Queensland Government has announced a loan facility that fintech businesses may be eligible for, and the Victorian Government has also announced funding for a Business Support Fund.
State Level Business Support
State Governments are beginning to roll out support for businesses affected by COVID-19. Keep an eye out for additional support and incentives at your state level.
Queensland - COVID-19 Jobs Support Loans
Queensland Government announced a $500 million loan facility. The loans are interest-free for the first 12 months with the repayment period over 10 years. These loans are intended to support affected business to retain employees and maintain operations. Express your interest here.
Victoria - Economic Survival and Jobs Package
The Victorian government has announced $500 million to establish a Business Support Fund to assist SMEs impacted by COVID-19. Express your interest here.
Northern Territory - Business Improvement Grant
All Territory businesses will be able to access a $10,000 grant to stimulate the economy and keep residents in jobs as part of the response to COVID-19. There is also a followup of an additional $10,000 through a matched contribution. Information on this grant is available here.
The ATO and Tax Incentives
The business cash flow boost and a significant number of the announced measures will be administered by the ATO. The measures as a whole demonstrate a genuine attempt to stimulate businesses and provide measures to see them through the covid-period. In addition to the measures already announced, it would not be at all surprising if an additional third stage of measures are later introduced.
Existing debt, payment plans, penalties and interest charges
The ATO is advertising leniency on a number of taxpayer interactions.
Existing debt and repayment payment plans can be negotiated or a new one entered into. Including low interest payment plans.
Payment deferrals can be applied for on Income tax, business activity statement (BAS), PAYG instalments and FBT, by up to 6 months.
Penalties and interest fees are likely to be more negotiable in the current situation
Expected leniency on lodgement dates and accepting deferral applications
Taxpayers will need to manually apply to the ATO for relief from these obligations. We expect the ATO will be willing to help taxpayers affected by COVID-19 as much as possible. However, it will be important to explain to the ATO how COVID-19 is affecting the business, and how the relief that is being asked for will help. Your accountant can assist you in making any requests with the ATO.
Prioritised refunds
On request, the ATO will prioritise the processing of Income Tax Returns and Business Activity Statements that would result in a refund. You should talk with your accountant or BAS agent to initiate the request.
Superannuation guarantee payments
There is no-relief for employers on Superannuation guarantee payments and payment cannot be deferred. You must continue to meet your superannuation obligations for your employees or you will be hit with super guarantee penalties and interest charges.
Reporting cycle for Business Activity Statement (BAS)
Consider changing your reporting cycle to expedite any refunds your business is due under the incentives. However, know that you must stick to the decision for 12 months before you can revert back and you may have additional accounting and compliance costs to meet due to the increased reporting.
Increasing the instant asset write-off
Eligible businesses will be able to immediately deduct purchases of eligible assets costing less than $150,000 (up from $30,000). Access to the instant asset write-off will be expanded to include all businesses with aggregated turnover of less than $500 million (up from $50 million) until 30 June 2020.
Small Business Entities (SBEs) (with turnover of less than $10 million).
SBEs will be able to claim an immediate deduction for depreciating assets that cost less than $150,000, provided the relevant asset is first acquired at or after 7.30 pm AEDT on 12 May 2015, and first used or installed ready for use on or after 12 March 2020, but before 1 July 2020. Additionally, SBEs will also be able to claim an immediate deduction for the following:
An amount included in the second element of the cost of a depreciating asset that was first used or installed ready for use in a previous income year. The amount of the second element cost must be less than $150,000 and the cost must be incurred on or after 12 March 2020, but before 1 July 2020.
If the balance of an entity’s general small business pool (excluding current year depreciation) is less than $150,000 at the end of the 2020 income year, the SBE can claim a deduction for the entire balance of the pool.
Medium Business Entities (MBEs) (with turnover of at least $10 million and less than $500 million).
MBEs can immediately deduct the cost of an asset in an income year if the asset has a cost of less than $150,000 and it was first acquired in the period beginning at 7:30pm AEDT, on 2 April 2019 and ending on 30 June 2020, and used or installed ready for use for a taxable purpose in the period beginning on 12 March 2020 and ending on 30 June 2020.
Additionally, MBEs can also claim a deduction for certain amounts included in the second element of the cost of a depreciating asset, where the amount of the second element cost is less than $150,000, and is incurred on or after 12 March 2020 but before 1 July 2020. The threshold will generally be applied to the GST-exclusive cost of an eligible asset (i.e., assuming the relevant business is entitled to an input tax credit for GST).
The asset threshold applies on a per asset basis, which would enable businesses to immediately write-off multiple assets. The benefit will also apply to both new and second hand assets first used or installed ready for use in this timeframe.
Business investment incentive
There is a temporary business investment allowance for businesses with aggregated turnover below $500 million, who are purchasing certain new depreciable assets acquired after 12 March 2020 and first used or installed by 30 June 2021. This measure will allow a 50% accelerated depreciation deduction in addition to the existing depreciation deduction. Eligible assets include those depreciable under Division 40 of the Income Tax Assessment Act 1997. It does not apply to second hand Division 40 assets, or buildings and other capital works depreciable under Division 43.
R&D
AusIndustry has recognised the impact that COVID-19 has had on businesses. Although there have been no core changes to the R&D scheme, they have announced that the lodgement deadline date has been extended.
The extension is automatic and will mean that applications for the 1 July 2018 - 30 June 2019 income year will be accepted up till 30 September 2020 (instead of 30 April 2020). If you are unable to lodge your application by 30 September 2020, you may still manually request an extension of time in the usual way. All of the usual requirements for the R&D Tax Incentive apply.
PAYG instalments
If your business is a pay as you go (PAYG) instalments payer, you can vary your PAYG instalments on your activity statement. You can do this by lodging a revised activity statement before your instalment is due and before you lodge your tax return for the year. Taxpayers who vary their PAYG instalment rate or amount can also claim a refund for any instalments made during the 2020 financial year.
Where you choose to vary your PAYG instalments, the ATO won't apply penalties or charge interest to varied instalments for the 2020 financial year.
Payroll Tax (state level)
QLD - Payroll tax returns for periods between 1 February 2020 and 30 June 2020 (including the annual reconciliation) are not required to be lodged or paid until 3 August 2020. Payroll tax deferral for all businesses (no wage threshold).
VIC - Full payroll tax refunds are estimated to be worth $550 million for the 2020 financial year to small and medium-sized businesses with payroll of less than $3 million. Payments will save eligible businesses up to $113,975 a year, with businesses saving an average of $23,000. The same businesses will also be able to defer any payroll tax for the first three months of the 2021 financial year until 1 January 2021, freeing up a further $83 million in cash flow.
NSW - $450 million to waive payroll tax for three months for businesses with payrolls of up to $10 million.The NSW payroll tax threshold will also be increased to $1 million, from 1 July 2020.
ACT - Access to interest free deferrals of payroll tax commencing 1 July 2020 for all businesses up to a payroll threshold of $10 million.
WA - Payroll tax paying businesses with total Australian wages between $1 million and $4 million will receive a grant of $17,500. The grants will be issued by cheque to eligible taxpayers in July 2020 (no application is necessary). Additional payroll tax relief will also apply for small businesses as a result of the payroll tax threshold increasing to $1 million from 1 July 2020 (six months earlier than planned). There is also a payroll tax payment deferral available for businesses with total Australian wages below $7.5 million. The deferral is granted by application, and applies to the period between 1 March and 30 June. Payroll tax returns for these periods are still required to be lodged where payment deferral is granted.
TAS - SMEs with an annual payroll of up to $5 million in Australian wages will be able to apply to have their payroll tax payments waived for the three months from 31 March to June 2020. A payroll tax rebate scheme for young people will be implemented from 1 April 2020 to encourage youth employment.
Corporate Governance
AGM extension
ASIC has recognised that entities with a 31 December financial year end may find it difficult to hold their AGM by the 31 May 2020 deadline. In response to this, they have effectively provided a two-month extension by taking a ‘no-action’ position for missing the usual deadline. ASIC has also taken a no-action position on virtual AGMs and you can also consider holding a hybrid AGM. However, you should check that your constitution allows for a hybrid or virtual AGM, and consult your legal adviser.
Insolvent trading
Directors are provided a temporary safe-harbour relief for 6 months from any personal liability for insolvent trading of their companies. This is not permission to trade insolvent, but is intended to enable directors to increase focus on managing companies through COVID-19 rather than the implications on their own personal liabilities.
Responding to creditor statutory demands
For a period of six months, the Federal Government is increasing the current minimum threshold for creditors issuing a statutory demand from $2,000 to $20,000. This will limit the occurrence of a creditor forcing a company to enter into liquidation. In addition to this:
The statutory timeframe for a company to respond to a statutory demand will be extended temporarily from 21 days to six months.
The time a debtor has to respond to a bankruptcy notice will be temporarily increased from 21 days to six months.
Your Practical Checklist
There is a lot to take in and one can expect there to be ongoing changes, updates and clarification around what incentives are available and how they can be attained in practice. We have compiled a suggested checklist that any fintech business can easily go through.
Renegotiate and consolidate existing sources of debt - Call or check if your banking partners have implemented any measures such as deferment of business loan repayments, many already have.
Renegotiate any existing liabilities, payment dates and fees you have with the ATO. Talk to your accountant or tax agent to get the process started.
Note any business assets that now meet the increased instant asset write-off threshold of $150,000. Ensure these are claimed at year end.
Negotiate with any creditors on supply and payment terms.
Register and express your interest for any of the state or federal support being introduced, such as a business loan under the Coronavirus SME Guarantee Scheme.
Check with your legal advisor if any of your corporate governance such as your AGM can be conducted online.
Consider the strategic direction of your company. Stakeholders at all levels should be gathered and a plan for the business put in place. Consider where your business can remove expenses and which service lines will perform best during COVID-19. Continue the transition for employees into work-from-home arrangements.
Our Response
Kova Tax is a tech-driven accounting firm building a better digital world for businesses in the fintech and cryptocurrency sector. As a digital-native accounting firm, we were fortunate to already have the required digital literacy and infrastructure in-place to deal with the current upheaval. We were already operating and supporting our fintech clients remotely and will continue to do so throughout COVID-19 and thereafter.
We help fintechs by providing professional support for their business accounting, tax and advisory. In light of recent events, we are offering free advice and discussion for fintech businesses on the COVID-19 related incentives, including the Cash Flow Boost, ATO Tax incentives and deferral opportunities. So if your fintech is affected, and you are looking for answers, you are welcome to reach out to us. We are humbled to give back to the Australian fintech community by waiving fees on COVID-19 related advice and services. Please email through to hello@kovatax.com.au or call 0490 146 504.
Disclaimer
This article is general commentary on a topical issue and does not constitute tax, legal or financial advice. Anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the applicability of the information to their particular circumstances. All content was correct at the time of publishing.
© This article is the property of Kova Tax, and cannot be copied or reproduced without our written consent. 2020. You are welcome to share this publication with others.