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Has the Impact of COVID-19 Caused Your Business Debts to Spiral?

Posted by Lanyana Financial Group on Apr 9, 2020 4:16:33 PM

As the global catastrophe caused by COVID-19 continues to intensify, businesses everywhere are closed or trading with a fraction of their normal turnover. Pubs, clubs, beauticians, auction houses, play centres, galleries, libraries and gyms have all been forced to close to stop the spread of the virus. This has put hundreds of thousands of Australians out of work with expectations that more than 1 million Australians could lose their jobs if the unemployment rate reaches its predicted 10 per cent.

The Australian Bureau of Statistics (ABS) Business Impacts of COVID-19 Survey found that approximately half of Australian businesses (49 per cent) have already experienced an adverse impact due to COVID-19. ABC News says that almost 90 per cent of businesses across Australia are expected to be impacted in the coming months.

Trading restrictions and reduced local demand have caused the biggest impact to business and the restrictions of hospitality trading has been blamed for the long queues of people outside Centrelink offices. Reduced international demand, reduced supply levels and in some cases staff shortages due to social distancing measures have also affected business nation-wide. Australian industries throughout the country are crippled.  For some, it is the first time they have been faced with severe financial stress with real fears that they may never recover.

In an attempt to save the economy from complete destruction, the Australian Government has released a 3-part stimulus package worth an unprecedented $213.7 billion. The package aims to boost cash flow and keep Australians in jobs, but many are questioning how the Government is paying for all of it. To put this in perspective, Mr. Morrison's response to coronavirus will be worth $7,600 per person.

However, this may not be enough to save many businesses that were already fighting to stay afloat and have been severely impacted by the effects of COVID-19 . Some companies that were already struggling with business debt, now can’t pay creditors or employees and are unable to open due to the Government’s tight measures have made the decision to clear debts, avoid personal bankruptcy and liquidate.

If you are one of the millions of Australian businesses impacted by COVID-19, we will walk you through what Government assistance is available for your business and the options you may need to take if your business is facing irresolvable financial hardship.

What is the Australian Government’s Stimulus Package for Businesses?

Boosting Cash Flow

The Australian Government is providing cash flow assistance of up to $100,000 for eligible small and medium sized businesses (SMBs) and not-for-profits that employ people. Under this scheme, businesses will receive a payment equal to 100 per cent of an employee’s salary and wages withheld.

The first payment, a minimum of $10,000 up to a maximum of $50,000 will be delivered as an automatic credit in the BAS system from 28 April 2020.  The second payment will be delivered in the July-October 2020 period, with eligible businesses able to receive at least $20,000, up to a total of $100,000 under both payments.

Eligibility

  • You lodge your BAS and PAYG on time,
  • You withhold tax to the ATO on your employee’s salary and wages, and
  • You pay your employees a salary and wage.

Unfortunately, the payment only gives you cash back if you have paid your PAYG. If you haven’t been able to pay your employees over the last few months due to the economic impact of COVID-19, you will not be eligible for the payment.

Instead of subsidising gross wages by 70% to 80% like the United Kingdom, this payment occurs over a 6-month period. For Australian businesses that already have an ATO tax debt, this payment doesn’t help at all.

Temporary Relief for Financial Distressed Businesses

The temporary relief for financial distressed businesses scheme aims to help Australian businesses avoid insolvency and forced Company Liquidation due to the economic impact of the COVID-19 Crisis.

The Government has increased the minimum threshold for creditors issuing a business with a Statutory Demand from $2,000 to $20,000. They have also increased the timeframe for a company to respond to a Statutory Demand from 21 days to 6 months. These changes apply for 6 months.

Company Directors will also be temporarily relieved of their duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company’s business. If you incur debts while trading insolvent, you will not be held personally liable. However, any debts incurred during this time will still be payable by the company.

Increasing the Instant Asset Write-Off

To support business investment, the Government is increasing the instant asset write-off threshold from $30,000 to $150,000. This allows businesses to immediately deduct purchases of eligible assets. Eligible businesses include those with an annual turnover less than $500 million.

Accelerating Depreciation Deductions

In an effort to back business investment, the Government has introduced the ability for a businesses to deduct 50 per cent of the cost of an eligible asset on installation. Businesses with an annual turnover of less than $500 million who are purchasing new depreciable assets will be eligible.  

Assisting Apprentices and Trainees

Eligible Australian businesses who employ an apprentice or trainee can now apply for a wage subsidy of 50 per cent of the apprentice’s or trainee’s wage paid during a 9-month period from 1 January 2020 to 30 September 2020. This scheme is aimed at helping small businesses retain their apprentices and trainees.

Businesses will be reimbursed up to a maximum of $21,000 per eligible apprentice or trainee ($7,000 per quarter).

JobKeeper Payment

It was announced on 30 March 2020 that the Australian Government is offering a wage subsidy to businesses that have been significantly impacted by COVID-19. This JobKeeper payment allows Australian businesses to continue paying employees, with a fortnightly payment available of $1,500 per eligible employee. The payment will be paid for up to a maximum of 6 months. The first payment is not due to the first week of May however, so many business are still wondering where they are going to come up with money this month to pay their employees.

Eligibility

Eligible employers for the subsidy, must:

  • Have an annual turnover of less than $1 billion, with your turnover reduced by more than 30 per cent due to COVID-19, or
  • Have an annual turnover of more than $1 billion, with your turnover reduced by more than 50 per cent due to COVID-19, and
  • Your business is not subject to the Major Bank Levy.
  • Employees need to be employed full time and they must have been employed for a minimum of a year.

Eligible employees are employees who:

  • Are currently employed by the eligible employer (including those stood down or re-hired)
  • Were employed by the employer at 1 March 2020
  • Are full-time, part-time, or long-term casuals (a casual employed on a regular basis for longer than 12 months as at 1 March 2020)
  • Are at least 16 years of age
  • Are an Australian citizen, the holder of a permanent visa, a Protected Special Category Visa Holder, a non-protected Special Category Visa Holder who has been residing continually in Australia for 10 years or more, or a Special Category (Subclass 444) Visa Holder
  • Are not in receipt of a JobKeeper Payment from another employer

Small to Medium Enterprises (SME) Guarantee Scheme

With the support of the Reserve Bank of Australia (RBA) and the Australian Prudential Regulation Authority (APRA), the Australian Government is now guaranteeing 50% of new loans written by banks and SME lenders. Any Australian businesses with an annual turnover of up to $50 million will be eligible for a loan:

  • Up to $250,000,
  • Term of up to 3 years, with an initial 6-month repayment holiday,
  • In the form of an unsecured loan, so businesses don’t need to provide any asset as security.

In theory, the SME Guarantee Scheme sounds extremely helpful, however, these debts will need to be repaid and the interest doesn’t stop accruing, even with the 6-month repayment holiday.  

What About Sole Traders?

If you are a sole trader or partnership and are experiencing financial distress due to the COVID-19 crisis, the Australian Government does have support available. This includes:

  • A sole trader without employees is eligible for the increased instant asset write-off and the depreciation deduction,
  • You may also be eligible for a new Coronavirus income support through Centrelink,
  • You can access your superannuation early. You will be allowed up to $10,000 of your superannuation in 2019-20 and a further $10,000 in 2020-21,
  • The Australian Taxation Office (ATO) is providing relief for some tax obligations, and
  • You can apply for the JobKeeper Payment, only if you are not already on a JobSeeker payment.

Will Your Business Survive with Government Assistance?

Even though the government is distributing billions of dollars to help struggling Australian businesses through COVID-19, it may not be enough to help those who were already fraught with debt issues and need immediate relief to continue trading.

Once Australia emerges from its social lock-down, we all hope the economy will bounce back. However, even though the health crisis may be over, the Australian economy may take years to recover – hitting small Australian businesses the most.

Seek Help Before It’s Too Late

It’s important to seek professional assistance as soon as you recognise the warning signs of insolvency.  If your business is struggling to pay employees, suppliers and the ATO, you may need to find out about your options moving forward. Lanyana Financial Group can provide your business with the help it needs to get through COVID-19 and continue trading into the future.

Our qualified team consists of Registered Liquidators, Registered Bankruptcy Trustees, Chartered Accountants and business debt specialists with years of experience helping Australian businesses facing financial difficulties.

We can implement a business turnaround, put your business into Voluntary Administration or Liquidate it quickly to eliminate your debts and help you find financial relief.

Get in touch with us today on 1800 534 534 for a free, no obligation consultation.

First published on Tax Debt Resolved.

Topics: Business Debt

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