COVID-19 Update No.4

On Sunday the Federal Government released details of an additional $66 billion of measures to deal with the economic impact of COVID-19.  Not surprisingly the key measures were support for businesses and individuals currently bearing the brunt of the economic fallout of the pandemic.  We’ve summarised the key details which may impact our clients below.

Minimum Pension draw down rates reduced by 50%

There will be a temporary reduction in minimum drawdown requirements, similar to what occurred during the GFC in 2008/09.  Minimum pension requirements for 2019/20 and 2020/21 will be re-set to half the normal rates as per below:

Whilst most Government measures are about putting more money in people’s hands, the rationale for the 50% reduction is the fall in investment markets and the concern pensioners have in selling assets at distressed prices to make payments.  Whilst our clients have tailored asset allocations which include bond portfolios to avoid the need to sell equities in volatile markets, members of industry and retail super funds typically have all assets in their portfolios sold down on a pro rata basis, meaning they’re forced into redeeming equities even though prices have fallen. This measure should potentially relieve some pressure for large super funds to sell assets to manage their liquidity needs.

Note that if a pensioner has already drawn more than their reduced minimum, there is no mechanism to return surplus pension payments to the fund unless it forms part of normal contribution rules.

Access to Super savings

Access to superannuation savings will be broadened where you’re in financial distress because of the Coronavirus and meet certain eligibility conditions. If you’re eligible you’ll be able to access up to $10,000 before 30 June 2020 and an additional $10,000 from 1 July for approximately three months (depending on the timing of legislation).

However, eligibility is quite narrow and includes:

• You’re unemployed

• You’re eligible to receive Jobseeker Payment, Youth Allowance, Parenting Payment, Special Benefit or Farm Household Allowance.

• On or after 1 January 2020, you were made redundant, your hours of work reduced by at least 20%, or if you’re a sole trader, your business was suspended or your turnover reduced by at least 20%.

Applications will be through MyGov and you’ll need to certify that you meet one of the above eligibility requirements. Once the ATO confirms you’re eligible, they will issue you and your super fund with a determination and the payment will be made to you. Payments will be tax-free and amounts received will not impact Centrelink or DVA entitlements. It is expected that claims can be made from mid-April.

The Treasurer said this measure would release less than 1 per cent of the $3 trillion saved in superannuation, and that the prudential regulator had advised there would be no significant impact to the industry.

Business Investment

Small business loans – relief package

Australian banks will provide support to eligible small businesses by deferring loan payments for up to six months, where assistance is required as a result of COVID-19. The intention is for banks to implement this as soon as possible. Interest will continue to be capitalised.

Coronavirus Guarantee Scheme

The Coronavirus Guarantee Scheme will provide a Government guarantee of 50% of the value of new loans issued by eligible lenders to small and medium sized businesses. The intention of this measure is to increase access to loans by businesses impacted by the Coronavirus.

Additional lump sum payments to employers

Small and medium sized businesses and not-for-profit organisations that employ people will receive a payment of between $20,000 and $100,000 to assist with operating expenses.

The Government had previously announced payments to businesses linked to withholding tax for employees. This measure has been amended to double the amounts that eligible employers can receive. The amount of payment depends on whether the business is required to withhold tax on salary and wages for employees.

Where the employer is required to withhold tax on salary and wages, the employer will be entitled to an amount equal to 100% of the amount withheld (up to a maximum of $50,000). Those employers who are not required to withhold tax will receive a minimum payment of $10,000. The payment will be tax free and received as a credit on the business’ activity statements by the ATO from 28 April 2020. The timing of the credit will vary depending on the required frequency of lodgement of activity statements (e.g. monthly or quarterly).

Instant asset write-off

From 12 March 2020, the instant write-off threshold increased from $30,000 to $150,000. It has also been broadened and will be available to businesses with an annual turnover of up to $500 million for the current financial year (an increase from $50 million). This applies to new or second-hand assets used or installed ready for use by 30 June 2020. The increased write-off threshold will apply on a per asset basis until 30 June 2020.

Accelerated depreciation

Accelerated depreciation of 50% will apply to eligible assets until 30 June 2021. Eligible assets are those acquired after the announcement and are used or installed ready for use by 30 June 2020. However, it does not apply to second-hand assets, building or other capital works deductible under separate tax provisions. This concession will be available to business with aggregated turnover of less than $500 million.

Residential Mortgages

The banks know that a mass of mortgage defaults in the current market would be serious, given the high levels of debt many households have.  The response of the four major banks to loan repayments vary somewhat, but can be summarised as:

• CBA – ability to pause loan repayments for 6 months

• Westpac – for customers who have lost jobs or suffered loss of income due to COVID-19, you can contact the bank for a 3 month deferral of repayments, with a further 3 months available after review.

• NAB – customers can pause home loan repayments for six months, including a 3 month checkpoint.

• ANZ – request a deferral of home loan repayments for six months, with a 3 month review and interest capitalised.

Whilst only ANZ mentioned it, for people who defer repayments, interest will continue to be charged and capitalised, so you will be going backwards financially during the deferral period. Consequently we would not recommend deferring mortgage repayments unless your cashflow position necessitated it.

Author: Rick Walker