Jobseekers & Social Security Support

The Corona Virus Supplement

Jobseeker Payment, Youth Allowance Jobseeker, Parenting Payment, Farm Household Allowance and Special Benefit will receive income support payments via a new, time-limited Coronavirus supplement to be paid at a rate of $550 per fortnight.

The Corona Virus Supplement will be paid for the next 6 months and is in addition to the current payment each fortnight for eligible income support recipients.

Sole traders and casual workers who are currently making less than $1,075 a fortnight will be eligible to receive the full supplement.

Household Support

The Government has increased the previously announced $750 household support payment to 2 separate payments of $750.

The original payment of $750 will be paid from 31 March 2020 and will be paid to people who have been on eligible payments between 12 March 2020 and 13 April 2020. Eligible payments are included in the table below.

The second payment of $750 will be paid from 13 July 2020 and will be paid people who are in receipt of one of the eligible payments per the table below. There is an exception to this: if you have received the corona virus supplement you will not be eligible for the second payment.

Superannuation & Pension Concessions

Temporary Reduction in Minimum Drawdown Requirements

This measure is aimed at providing pensioners with more flexibility at managing their superannuation assets during this period.

The Government has announced that the minimum pension requirements for 2019/20 and 2020/21 will be re-set to half the normal rates. The revised rates for the 2019/20 and 2020/21 years will be as follows:

Changes to Social Security Deeming Rates

The Government will also reduce the pensioner deeming rates for financial investments from 1 May 2020 by 0.75%. The new rates are included in the table below.

This will provide an increase in social security benefits if you are assessed under the income test.

While deeming rates are not explicitly linked to the RBA cash rate, this latest change is largely triggered by the RBA’s decision to announce further interest rate cuts last week. The policy logic is that pensioners may well see their incomes decline and hence lower income levels from investments should be factored in when calculating their age pension and other social security benefits.

Temporary Early Access to Superannuation

As a general rule, preserved superannuation benefits may only be accessed in lump sum form once members turn 65 or reach their preservation age and retire (or satisfy some other condition of release such as permanent incapacity, terminal illness etc). However, in times of financial distress, there are some circumstances under which members may be able to bypass these rules and access their super earlier.

Unfortunately, the current rules which allow access to those suffering from “severe financial hardship” or qualify on “compassionate grounds” are very narrow and release has only been available under very limited circumstances.

The Government has announced a quite significant, but temporary, extension to these rules.

Who is eligible for the new rules?

A new opportunity for early release will be available to individuals who:

• are unemployed, or
• are eligible to receive a Job Seeker Payment (previously known as Newstart Allowance), youth allowance for job seekers, parenting payment, special benefit or Farm Household Allowance, or

on or after 1 January 2020:

• were made redundant, or
• had their working hours reduced by 20% or more, or
• for sole traders, their business was suspended or there was a reduction in their turnover of 20% or more.

Further information is needed in relation to how this 20% reduction is to be determined, but it appears it will be by comparing current hours/turnover with the average for the period 1 July 2019 to 31 December 2019.

Importantly, there is no requirement that the individual is already receiving Commonwealth income support payments and there is no waiting period. The payment can be requested immediately once the new rules come into effect (see below).

There are no income or assets tests. Even someone with a very high salary who remains employed and has other assets could access this payment as long as their salary has been reduced by 20% after 1 January 2020. While they might choose not to, many could well do so if their superannuation is more easily accessed in cash than other assets and if their reduced income is not sufficient to meet living costs that cannot be adjusted quickly to reflect their new situation (eg large mortgage payments, rent etc).

How much will be available?

Eligible individuals will be able to access up to $10,000 before 1 July 2020. A further amount of up to $10,000 will be available from 1 July 2020 but only for approximately three months after that time (exact timing to depend on the passage of legislation).

Only one payment will be permitted in each financial year.

Government Cash Flow Assistance

One of the Stimulus Package measures the Government announced last week was a cash flow measure for small and medium businesses who are employers.

The Criteria

• You are a small or medium business with an aggregated annual turnover of less than $50 million
• You are registered for PAYG Withholding
• You make and report a payment of wages between now and 30 June 2020.

How Much?

The minimum amount for all businesses is $2,000.

The maximum amount is $25,000.

The actual amount you will receive is dependent on how much PAYG Withholding you report. We have listed the relevant activity statement reporting periods these concessions apply to in the table below.

We have also included some examples further in this email.

How and When Will I Get it?

The Government will “pay” this as a credit to your activity statement with the ATO. This will be credited upon lodgement of the activity statement for the relevant period and will be used to “pay” the activity statement lodged and/or any other outstanding debt.

For most businesses this will reduce the amount payable for the total activity statement. However, if after application of the credit you are entitled to a refund, the ATO will pay this to you within 14 days.

How is it Calculated?

This will depend on if you are a monthly or quarterly lodger:
For quarterly PAYGW lodgers the credit will be 50% of the PAYGW reported in each quarter.

For monthly lodgers:

• The month of March will be 150% of the PAYGW reported. This is to allow for catch up for the months of January and February and provide similar treatment to quarterly lodgers.
• For the months of April, May and June the credit will be 50% of the PAYGW reported.

Examples

These examples have been taken from the Government’s fact sheet:

Sarah’s Construction Business

Sarah owns and runs a building business in South Australia and employs 8 construction workers on average full-time weekly earnings who each earn $89,730 per year. As Sarah is a medium withholder, Sarah must report withholding monthly. In the months of March, April and June for the 2019-20 income year, Sarah reports withholding of $15,008 for her employees on each Business Activity Statement (BAS).

Under the Government’s changes, Sarah will be eligible to receive the payment on lodgment of each of her BAS. Sarah’s business receives:

• A payment of $22,512 for the March period, equal to 150 per cent of her total withholding.
• A payment of $2,488 for the April period, before she reaches the $25,000 cap.
• No payment for the May period, as she has now reached the $25,000 cap.
• No payment for the June period, as she has now reached the $25,000 cap.

Sean’s Hairdresser Salon

Sean owns a hairdresser’s salon on the Gold Coast. He employs one apprentice who earns $37,970 per year and two stylists who both earn $44,260 per year. As Sean is a small withholder he only reports withholding quarterly in each BAS. In the March and June 2020 quarterly BAS, Sean reports withholding of $4,570 for his employees.

Under the Government’s changes, Sean will be eligible to receive the payment on lodgment of his BAS.

Sean’s business will receive:

• A payment of $2,285 for the March quarter, equal to 50 per cent of his total withholding.
• A payment of $2,285 for the June quarter, equal to 50 per cent of his total withholding.

Sean’s business will receive a total payment of $4,570.

Sean may also benefit from the assistance for existing apprentices and trainees measure.

Tim’s Courier Run

Tim owns and runs a small paper delivery business in Melbourne, and employs two casual employees who each earn $10,000 per year. As Tim is a small withholder he only reports withholding quarterly in each BAS. In the March and June 2020 quarterly BAS, Tim reports withholding of $0 for his employees as they are under the tax-free threshold.

Under the Government’s changes, Tim will be eligible to receive the payment on lodgment of his BAS.

Tim’s business will receive:

• A payment of $2,000 for the March quarter, as he pays salary and wages but is not required to withhold tax.
• No payment for the June quarter, as he has already received the minimum payment and he has no withholding obligation.

If Tim begins withholding tax for the June quarter, he would need to withhold more than $4,000 before he receives any additional payment.

Markets

• Market Performance – ASX200 dropped 3.7% in September.
• Sector Performance – healthcare was up 0.9%, IT dropped 6.8%, energy was down 11.1%.
• Global – in the US the S&P500 index fell 3.8% in September.
• Gold – dropped further to $1,886.90/oz, a fall of $70.45.
• Iron Ore – dropped $5.00 to $120/ton.
• Oil – fell to US$40.95/bbl down $4.33.

Property

• Housing – dwelling prices dropped 0.4% in August and 0.2% in September. A staggering $229 billion worth of loan repayments have been deferred. No migration into the country will also result in a fall in demand.
• Values –Sydney was down 0.5% for August and 0.7% in September while Melbourne dropped 1.1% in August and 1.20% in September. Melbourne is now down 4.3% from its peak while Sydney is down 2.4%.
• Auction Clearance Rates – in Sydney September saw clearance rates steady at 71%.
• Residential Building Approvals – at 164,000 in August which is a steady trend but not strong.
• Vaucluse House Smashes Reserve – a Vaucluse house has sold for an eye-watering $24.6 million, smashing its reserve by $10.6 million and making it the most expensive house sold at auction in Australia. The five bedroom house at 42 Vaucluse Road attracted 25 registered buyers, of whom only 12 got a chance to bid. The hammer fell at $24.6 million, well above the $14 million reserve.
• Finance – On 25 September, the Morrison government announced their intention to repeal responsible lending obligations from March 2021. This would replace the current practice of “lender beware” with a “borrower responsibility” principle. Bank shares rallied on the news and this move should support property prices going forward.

Economy

• Interest Rates – were left on hold at 0.25% but expectations are that a further cut is imminent.
• Retail Sales – jumped in June by 2.7%m/m and a further 3.3% in July and now 4.2% in August.
• Bond Yield – Australian 10 year government bond yields fell to 0.79% in September.
• Consumer Confidence – Westpac Melbourne Institution consumer sentiment surged 18% in August.
• Exchange Rates – the Australian Dollar fell again against the US Dollar to AUD0.71 cents.
• Unemployment – fell from 7.5% in July to 6.8% in August.
• Chicago Purchasing Managers Index (PMI) – having fallen for 11 straight months to 32.3 in May and jumped to 36.6 in June, the Chicago PMI jumped strongly to 51.9 in July well above the 50 level indicating a growing economy. September has seen a massive jump to 62.4 signifying huge demand growth and a strongly improving economy in the US.
• Chinese Economy – Chinese economic data strengthens with their July trade surplus totalling $62.3 and $58.9 billion in August. These numbers are well above expectations.
• GDP – dropped 7% in June 2020 following a 0.3% decline in the March quarter. Two consecutive negative quarters of growth signal a technical recession ending almost 3 decades of recession-free economic growth in Australia.
• US Employment – September 2020 saw a huge 661,000 jobs created in the US and the unemployment rate dropping 0.5% to 7.9%. This indicates again significant improvement in the economy. This is on top of the 1.37 million jobs created in August which brought the unemployment rate down from 10.2% to 8.4%.

Comment

Castlerock pays record c$57m for Wollongong office

The Melbourne based fund manager has paid more than $57 million on a 5.5 percent passing yield for 45-53 Kembla Street.

The seven year old 6761 square metre building, majority leased to the Australian Taxation Office with smaller spaces to ANZ, Australian Red Cross and a café, includes four storeys of commercial area, ground level retail and a 92-bay basement car park.

It sits on a 2675 sqm parcel.

The deal is the priciest for a Wollongong office since Castlerock collected $50.83m selling 90 Crown Street in late 2018.

Bosses are burning out

Bosses have faced some of their biggest leadership challenges in 2020, but new research reveals just how heavy a toll the coronavirus pandemic has taken, with four in five leaders seeing themselves at risk of burnout.

Three-quarters said they felt pulled in too many directions in their role and 60 per cent were drowning in unnecessary admin or red tape according to the Global Leadership Wellbeing Survey, released recently.

Chief Executive Audrey McGibbon said while many bosses were well aware of their obligations towards looking after their staff during the pandemic, many were feeling unsupported themselves.

In a separate study directly comparing the same group of leaders two in five said they rarely or never unplugged from their work technology an hour before bed and nearly a quarter almost never get enough sleep.

Taxes

Well known economist Saul Eslake has proposed the introduction of an Inheritance Tax at 9% of values exceeding $1million. Death taxes were abolished in Australia over 50 years ago. Prime Minister Scott Morrison also left the door ajar in June when asked about an increase in the GST to help fund state government budgets when he indicated it would only be pursued with strong support from the states. (The GST is collected by the federal government but distributed entirely to the state and territory governments).

Sources: UBS, Westpac, S&P Dow Jones Indices, ABS, US BLS, CoreLogic, Morningstar, realestatesource.com.au, The Australian Financial Review.

Coronavirus

The COVID-19 virus, more commonly referred to as coronavirus, has been making headlines for over two months and the fear and uncertainty have been accelerating in the last week as the number of cases in Australia and around the world continue to rise and share markets have tumbled. Many of you have been paying attention and wondering when and how this may have an impact on your business.

We have put together a quick guide of some of the factors you should be considering. Keep in mind some of these factors revolve around your legal obligations in the workplace such as conditions of employment and the health and safety of your workers.

Government Stimulus

This week the Government have announced a stimulus package to assist the economy both recover from the recent bushfires and weather the coronavirus storm. Three of these measures will impact small business:

Business Investment:

• A temporary increase to the instant asset write-off threshold from $30,000 per item to $150,000 as well as an increase to the eligibility threshold from $50 million turnover p.a. to $500 million turnover p.a.). This will apply to all asset purchases from 12 March to 30 June 2020.
• Accelerated depreciation measures for large asset purchases that do not qualify for the instant asset write-off. Under these measures you will claim a depreciation deduction as usual and then claim an additional depreciation deduction of 50% of the cost of the asset.

Cash for assistance for small and medium business (turnover less than $50 million):

• Tax free payments of up to $25,000 for employers. This will be via a credit applied to your activity statement account at the ATO equal to 50% of the PAYG tax withheld from wages reported on quarterly activity statements for the March and June quarters, as well as the monthly activity statements for April and May (if you report your wages monthly).
• Wage subsidy of up to 50% of an apprentice or trainee wage for businesses with less than 20 employees for 9 months. This is capped at $21,000 per apprentice. This is only available to apprentices or trainees already employed and undertaking their training as at 1 March.

Targeted support for severely affected sectors, regions and communities. This is targeted at the tourism, agriculture and education sectors and will be developed in partnership with the affected industries and communities.

The ATO may also provide some administrative relief to affected businesses on a case-by-case basis including deferral of tax payments by up to four months.

For a fact sheet providing more information regarding these measures, please click on the following link. A PDF will automatically download:

https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Assistance_for_businesses.pdf

Business Strategies

What Opportunities Are There?

For some businesses the current impact on your business may present some opportunities:

• Consider what cash assistance you will receive under the Government Stimulus package and factor this into your cash flows.
• Consider whether you have the cash flows and resources to bring forward any major asset purchases to take advantage of the more generous instant asset write off and accelerated depreciation stimulus package.
• Take the time to review your business and get out In front of your (key) customers.
• Prepare a cash flow forecast. This will get you thinking about what necessary expenditure is and what your projected income will be over the coming months.

Make a Plan

A business continuity plan is critical when dealing with major disruptions.

You will need a plan in place for the impact on your employees including their health and well-being and also the impact of public policies such as the closure of public transport or their fear of using public transport.

For your business you should be identifying the critical people, processes, materials and technologies that if affected could have the biggest negative impact on your business. You may need to consider:

• Outsourcing
• Commuting options
• Flexible working arrangements, including working from home
• Back up plans with suppliers

Review Your General Operations

Debt Collection: Make sure you are on top of your debtors and collecting what is owed to you.

Trim the fat: Review your overheads and determine what is necessary expenditure and what can be postponed or cancelled.

Review stock and ordering practices from both a cost reduction perspective and a supply chain perspective:

• If you are experiencing a slow down consider how long your existing stock will last you, when you may need to reorder and whether you can reduce your reorder levels.
• Alternatively, you may need to consider stockpiling inventory if there may be a disruption to the supply chain.

Review your workflows and customer orders. These form the basis of your business and is often an area of inefficiency of both employee time and use of resources. Consider the timing of when your customer needs their product or service. This will then help you make decisions around staff rostering and hours as well as stock ordering.

Reconsider travel and meetings. Coronavirus is transmitted from person to person, so consider whether travel or meetings can be postponed or held electronically.

Be proactive and start taking action sooner.

• No business will be exempt from the impact of coronavirus and this may cause longer wait times to reach personnel within an organisation due to both increased demand and a potential reduced capacity to deal. Delivery delays should also be expected.
• If you are having problems or think you will have problems paying suppliers get in contact with them and sort out revised payment terms for the coming months.

Employees

Whilst all businesses want to look after their employees, they must also look after the health of their business. The coronavirus impact on your business may require you to cut back production, services and/or staff hours. You should consider the following:

• Review casual rostering
• Direct employees to take annual leave
• Discuss with employees their long service leave
• Undertake a combination of reduced hours with the potential for the remaining ordinary hours to be paid as annual leave. (e.g. work 3 days, annual leave 2 days)

We have provided more detailed information below on Fair Work requirements in relation to coronavirus and employee leave.

Finances

In relation to loans and other finance, you should always talk to your bank manager first, however some actions you should be considering include:

• Meeting with your bank manager to discuss the potential impact of coronavirus on your business and what they can do to help you guide your business through this and manage your cash flows
• If you are ahead on your loan repayments discuss whether you can skip a few payments to assist your short-term cash flow
• If you are in any doubt about missing a payment make sure you are talking to your bank manager in advance to minimise any impact on your credit rating and serviceability of the loan.

Insurance

Review your insurance policies to consider what and if you are covered for in situations such as the coronavirus pandemic. This could include chatting with your insurance broker or directly with the insurer. Policies you may hold that should be reviewed include:

• Travel insurance
• Workers’ compensation insurance
• Public liability insurance
• Management liability and directors and officers’ liability insurance
• Business interruption insurance
• Cancellation or abandonment of events insurance
• Marine cargo insurance for goods in transit.

Work & Health Safety

Work Health and Safety legislation requires the employer to take all reasonable steps to protect their employees. Precautions you should consider include:

• Reconfiguring the physical workspace so that there is more distance between employees
• Increasing the frequency of work-place cleanings, in particular work surfaces, telephones and keyboards
• Providing hand sanitiser
• Review your work from home policy
• Educate your employees on recommended hygiene practices such as frequent washing of hands, coughing or sneezing into a disposable tissue (preferable) or the corner of your elbow, no shaking of hands (fist bumps or elbow claps may be an acceptable alternative)
• Making it clear when employees should not attend work and encouraging employees to stay at home if they are experiencing related or indicative symptoms
• Remind employees they have a duty of care to not adversely affect the health and safety of others.

Fair Work Requirements

When considering the impact of coronavirus on both your business and your employees you should review the minimum conditions set out by:

• The Fair Work Act 2009 and the National Employment Standards
• The applicable Modern Award, Enterprise Agreement or Employment Contract

An employee or their family member is sick with COVID-19

Paid personal leave is available to all full and part time employees if they cannot come to work because they are sick or are caring for a family member who is sick with coronavirus.

Two days unpaid carer’s leave are available to casual employees and full or part time employees who have exhausted all of their paid personal leave. This is on a per occasion basis. Given the 14 day quarantine status for people who contract coronavirus you would need to come to an agreement with the employee in relation to extending the unpaid leave beyond 2 days.

As an employer you are entitled to request evidence of the illness, such as a medical certificate.

An employee has been quarantined

The Fair Work Act does not provide any specific rules for this situation. Employees and employers need to come to their own arrangement which may include:

• Taking personal leave if the employee has coronavirus or caring for a family member who has coronavirus
• Taking annual leave
• Taking any other leave available to them (such as Long Service Leave, Time-in-lieu or other leave available under an Award, Enterprise Agreement or Employment Contract)
• Arranging any other paid or unpaid leave by agreement between the employee and the employer.

Up-to-date quarantine requirements can be found on the Department of Health’s website.

https://www.health.gov.au/health-topics/novel-coronavirus-2019-ncov

This would also apply to employees who are stuck overseas because of the coronavirus.

The employee wants to stay home as a precaution

Where an employee wants to stay home as a precautionary measure, they will need to make a request to work from home (if possible) or take some form of paid or unpaid leave. Any requests for such leave should be in accordance with your normal leave application processes.

The employer wants their staff to stay home

In the context of the coronavirus there may be a variety of situations whereby you have to shut your doors for a period of time, including lack of customer orders, lack of materials for manufacture, keeping your employees safe from exposure to coronavirus.

If you are considering shutting your doors for a period of time you will need to consider whether the primary reason is due to factors outside of your control as this will impact on whether you have to pay your employees their ordinary pay during this period.

Under the Fair Work Act an employee can only be stood down without pay if they can’t do useful work because of equipment breakdown, industrial action or a stoppage of work for which the employer can’t be held responsible. There may be additional conditions in the Modern Award, Enterprise Agreement or Employment Contract.

https://www.fairwork.gov.au/leave/annual-leave/directing-an-employee-to-take-annual-leave/direction-to-take-annual-leave-during-a-shut-down

Long service leave needs to be taken in accordance with the relevant requirement Award, Enterprise Agreement and State or Territory legislation. A full list of relevant agencies can be found on the following link:

https://www.fairwork.gov.au/leave/long-service-leave

Sources of Information

Department of Health

https://www.health.gov.au/health-topics/novel-coronavirus-2019-ncov

Fair Work and the National Employment Standards

https://www.fairwork.gov.au/about-us/news-and-media-releases/website-news/coronavirus-and-australian-workplace-laws

https://www.fairwork.gov.au/employee-entitlements/national-employment-standards

Work Safety

https://www.safeworkaustralia.gov.au/doc/coronavirus-covid-19-advice-pcbus

https://www.safework.nsw.gov.au/news/safework-public-notice/coronavirus

Markets

• Market Performance – The ASX200 experienced one of its best years since 2009, with the index crossing the 7,000 point threshold for the first time, gaining 23% for the 2019 calendar year. The ASX200 returned 4.98% in January.
• Sector Performance – The top performing sector for 2019 was the Healthcare Sector returning 43.47% followed by the Information Technology Sector returning 33.47% and the worst performing sector was the Financials Sector returning 13.53%.
• Banks – All the big 4 banks rose during the month of January, CBA 6.7%, NAB 5.0%, ANZ 4.5% and Westpac 3.7%. Over 2019, CBA recorded the highest annual gain of 10.4% followed by NAB 2.3%, ANZ 0.7% and Westpac fell -3.2%.
• Global – The S&P 500 fell -0.16% in January and returned 28.9% over 2019. The Shanghai Composite Index also fell -2.4% in January and returned 22.3% over the 2019 calendar year.

Property

• House Prices – Monthly national housing prices rose 1.1% in December and 0.9% in January. Sydney and Melbourne recorded capital gains of 5.3% over the year to 31 December 2019.
• Auctions – The final week of Auction Reporting for 2019 saw 2,750 homes taken to auction nationally. The preliminary auction clearance rate came to 69.2%. One year ago, across the combined capitals, 2,406 auctions were held with only a 40% success rate.
• Rental Yields – Sydney recorded the lowest rental yields at 3.0% and the highest were in Darwin at 5.8% over the past 3 months.

Economy

• Interest Rates – UBS and many other economists predict two interest rate cuts this financial year in April and June. Throughout 2019, the RBA cut interest rates three times, reducing the rate to a historic low of 0.75% in October.
• Gross Domestic Product – GDP growth in the September third quarter was up 0.4%, drawing annual GDP growth to 1.7%.
• Inflation – CPI rose 0.7% for the December fourth quarter and 1.8% on an annual basis.
• Bond Yield – The Australian 10-year Government bond yield fell over the month of January to 0.95%.
• Consumer Confidence Index – According to the Westpac Melbourne Institute the Consumer Confidence Index fell 1.8% in January.
• Commodities – The Australian dollar gold price has risen 34% to $2,378 an ounce in February from a low of $1,775 an ounce in April 2019.
• Employment – Employment increased by nearly 40,000 jobs in November and 29,000 in December, boosted by part-time employment. This compared to a fall of 19,000 jobs in October. The unemployment rate fell to 5.1% in January. The participation rate held steady at 66.0%.
• Exchange Rates – The Australian Dollar fell against the US Dollar to $0.6688 over January. A 4.7% fall since the start of 2019 and almost 20% below where it traded 2 years ago, and now at an 11 year low.
• US – US jobs growth increased by 266,000 in November and 145,000 in December. Over the last 5 years, the US economy has added 9.8 million jobs, representing a 7% increase in the workforce. The unemployment rate fell slightly to 3.5%, the lowest jobless rate since 1969, being a 50-year low. The US and China signed a ‘phase one’ trade deal, easing pressure from an 18-month conflict.
• PMI – The Manufacturing Purchasing Managers’ Index dropped slightly lower at 47.2 in December compared with 48.1 in November. The lowest since June 2009 and the fifth consecutive month of declines.

Sources: UBS, Westpac, S&P Dow Jones Indices, ABS, US BLS, CoreLogic, BIS Oxford Economics.

Comment

The start of 2020 makes me think of that classic Charles Dicken’s quote

“It was the best of times, it was the worst times” in A Tale of Two Cities.

In January the ASX200 Index saw its best start to a year since 1987, posting strong gains early on.

Record highs have also been seen recently in both the Dow and S&P 500 Index in the US.

Having said that we have also seen:

• The US killing an Iranian general.
• Iran shooting down the Ukrainian 737 by mistake.
• The uncertainty of Brexit actually happening after 3 years of stop and start.
• Trump’s Impeachment come and go.
• A 17 year old school girl gets nominated for the Nobel Peace Prize.
• Australian drought and bushfires.
• Coronavirus in China and now many other countries as well.
• Trump signing Phase 1 of a US and China trade deal.
• Millions of Chinese workers and government officials instructed not to go to work as one of the largest manufacturing hubs in the world shuts down.
• African swine flu continues to decimate the Chinese pork industry with roughly half of all stock or an estimated 100 million pigs being wiped out since August 2018.

Unfortunately, 1987 also saw the ASX200 drop 25% in one day (in the global financial crisis of 2007/2008 it took 18 months to experience the full fall).

Despite all of this uncertainty, financial markets march on unperturbed, for now, as record low interest rates push asset prices to unprecedented levels.

We live in interesting times!

Markets

• Market Performance – The ASX200 experienced a decline of 7.7% over the month of February. The market has fallen an additional 13.4% since the end of February. This was sparked by fears of the coronavirus and its effect on global growth.
• Sector Performance – All sectors of the ASX200 ended the month of February in the red. The Information Technology, Energy and Materials Sectors declined more than 10%, the Utilities Sector declined the least, falling 3.6%.
• Banks – All the big 4 banks fell during the month of February, Westpac fell 5.9%, CBA fell 4.1%, ANZ fell 3.6% and NAB fell 2.9%.
• Global – The S&P500 fell 8.5% in February. The Shanghai Composite Index also fell 3.2%.

Property

• House Prices – Monthly national housing prices rose 0.9% in February. Sydney and Melbourne rose 1.1% and 1.2% respectively over the month of February.
• Auctions – The last week of February saw 2,933 homes taken to auction nationally. The preliminary auction clearance rate came to 77.1%. A higher volume than the previous week where 2,517 auctions were held. Over the same time last year, across the combined capitals, 2,201 auctions were held with only a 50.4% success rate.
• Rental Yields – Sydney recorded the lowest rental yields at 3.0% and the highest were in Darwin at 5.8% over the past 3 months.

Economy

• Interest Rates – The RBA cut interest rates to 0.50% on 3^rd March 2020.
• Gross Domestic Product – GDP growth in the December fourth quarter was up 0.5%, drawing annual GDP growth to 2.2% prior to the coronavirus and bushfire crises.
• Bond Yield – The Australian 10-year Government bond yield fell over the month of February to 0.82%.
• Consumer Confidence Index – According to the Westpac Melbourne Institute the Consumer Confidence Index rose 2.3% in February, compared to a 1.8% fall in January.
• Employment – Employment increased by 13,500 jobs in January. The unemployment rate rose to 5.3% in January. The participation rate rose slightly to 66.1%.
• Exchange Rates – The Australian Dollar fell against the US Dollar to $0.645 over February.
• US – US jobs growth increased by 225,000 in January. The unemployment rate rose slightly to 3.6%. The US Federal Reserve cut interest rates by an unexpected 0.50% to 1.25%, down from 1.75%.
• PMI – The Manufacturing Purchasing Managers’ Index rose to 50.9 in January from 47.8 in December.
• China – Chinese car sales dropped 92% in the first half of February and was down 22% over January. China PMI also collapsed from 50 to 35.7, worse than GFC levels.

Sources: UBS, Westpac, S&P Dow Jones Indices, ABS, US BLS, CoreLogic, BIS Oxford Economics.

Comment – Oil Price War

At last Friday’s Organisation of the Petroleum Exporting Countries (OPEC) meeting, Saudi Arabia and Russia could not come to an agreement on supply restrictions, which sparked fears of an all-out price war. The Saudis had proposed a cut in production of 1.5 million barrels per day, to try and deal with the current supply glut. Russia is believed to have rejected the production cut as they saw an opportunity to hurt the US shale producers who had been benefiting from the OPEC restrictions and contributing to the market glut.

After an agreement couldn’t be reached, Saudi Arabia increased its oil production from 9.7 million to 10 million + barrels a day and announced it would be offering discounts to key markets by up to 20% to punish Russia. When markets reopened on Monday, West Texas Intermediate (WTI) and Brent Crude posted their worst declines since 1991, dropping 24.59% and 24.1 respectively.

Economic implications

It’s unclear how this dispute will play out, but it is unlikely to be resolved in the next few days with both sides playing hard ball. Russia has been building up a ‘rainy-day’ fund over the past few years and believe this will help counterbalance a price war, and at the conclusion of the OPEC meeting, the Saudis said the Russians “will live to regret this decision.”

While normally a declining oil price is a benefit for consumers and the economy as a whole, we are unlikely to see these benefits flow through to the market. As a result of the Coronavirus (COVID-19) airlines are cancelling flights, factories are unable to get supplies, and consumers are being forced to stay at home, so we aren’t seeing the benefits we would normally see after a decline in oil prices.

The fall in the oil price has also put extra pressure on oil producing economies who are less efficient than the large OPEC countries, the most significant being the US. The US’s breakeven is around $48‑54 per barrel, so a protracted price war, where prices could get as low as $20-30 a barrel, would be devastating for the world’s largest economy as well as the global economy as it would result in the closure of many oil rigs and significant job losses in an industry that contributes around 7.6% to US GDP. Donald Trump has already begun discussions on possible stimulus packages to help support the Oil and Gas industry, and markets believe that the Fed will likely cut another 100bps over the course of the year.

The major concern is that this price dispute might be the match in the powder barrel that results in a sharper than anticipated global economic slowdown and possibly a global recession.

Investment implications

Much like COVID-19, the oil dispute has been bad news for markets around the world and the future markets indicate that this could continue for days to come. The talk of a prolonged price war further enhanced the risk aversion of investors and saw stock markets that were already shaken from the spread of COVID-19 and its economic fallout decline sharply.

On Monday, the S&P ASX200 was down 7.33%, the NIKKEI 225 was down 5.07% and the Shanghai Composite was down 2.93%. As expected, the US markets also saw large declines, with the S&P500 down 7.60%, US government yields fell to 0.52%, and the US currency fell against all major trading partners.

Portfolio implications

Markets have experienced significant falls in a short period of time and so the natural question arises – when do we start increasing exposure to risk assets (e.g. equities)? We don’t think that time is now given the level of uncertainty and the possibility of markets digesting further negative news as COVID‑19 continues to spread throughout the western world.

Yesterday we saw the markets bounce some 3% but there is a lot more news to come in the weeks and months ahead.

As always, we will monitor developments closely and advise on any adjustments to portfolios as required.

JobMaker Hiring Credits: What We Know So Far

We’ve had quite a few questions about the JobMaker hiring credit announced in the 2020-21 Federal Budget. The legislation enabling the JobMaker scheme has not passed Parliament as yet and until this occurs, the JobMaker rules are not certain and may change. More details should be available soon and we’ll let you know as soon as we have some certainty. Here is what has been announced so far:

What is JobMaker?

JobMaker is a credit available to eligible businesses for hiring additional employees (not if you are merely replacing someone who left). The hiring credit is available for jobs created from 7 October 2020 until 6 October 2021.

The credit provides:

• $200 per week for new employees between 16 to 29 years of age, and
• $100 a week for new employees between 30 to 35 years of age.

Payment is from the start date of the employee for 12 months.

When do the credits start?

Assuming the legislation passes Parliament and your business and the employee are eligible, and the ‘additionality’ test is passed (see How can we access JobMaker), credits can be claimed for employees hired from 7 October 2020 until 6 October 2021. The credit will be claimed quarterly in arrears by the employer from the ATO from 1 February 2021. The credit is an incentive for the employer to support wage costs and not passed onto the employee.

How can we access JobMaker?

There are three tests for JobMaker:

Government entities or agencies, banks and other institutions subject to the bank levy, businesses in liquidation, and foreign Government entities (unless a resident entity), are unable to access JobMaker.

I can only claim JobMaker if the number of employees and payroll increases. What happens if one of my team resign? Through no fault of the business?

Your business can only receive JobMaker for your eligible employees if total employee headcount and payroll increases. If the headcount or payroll decreases or remains the same, JobMaker cannot be claimed for that period.

For example, if you had three staff at September 2020 and hired an additional two employees in late October 2020, your business can claim JobMaker for the two new employees assuming the business and the employer are eligible and payroll has increased compared to the September 2020 quarter. However, in December 2020, one of your original staff members resigns. As a result, your business can only claim JobMaker for one eligible employee in December as your headcount has increased by one, not two, compared to the September 2020 baseline.

A similar baseline concept applies to payroll. If you employed new eligible employees in October 2020 but your overall payroll remained the same or only increased marginally because the hours of your existing staff reduced when the two new employees were employed, then the JobMaker credit will only be the additional payroll amount. That is, if the JobMaker credit for the two employees for the quarter is $8,960, but payroll compared to the September 2020 quarter only increased by $1,200, then the JobMaker credit you receive would be $1,200. The JobMaker credit cannot exceed the increase in payroll.

Each month, employers will need to ensure they pass these ‘additionality’ tests before claiming.

Your headcount and payroll increase is measured on the last day of each reporting period from the date your first new employee started. For example, if your first new employee joined in October 2020, your baseline is set at that point. If a new employee starts in January 2021, your payroll and headcount baseline is measured from the last reporting period, in this case, December 2020 for headcount and the December quarter for payroll. That is, your baseline commences from the date your new employee starts and then is reassessed each reporting period to ensure there is an increase.

If I don’t hire new staff until January 2021, can I claim JobMaker for 12 months or only up to 6 October 2021?

JobMaker is available for 12 months for eligible employees hired from 7 October 2020 until 6 October 2021. If you hire new employees from January 2021, JobMaker is available for 12 months for these employees assuming that the employees and business are eligible and the ‘additionality’ test is passed.

The baseline for the ‘additionality’ tests – headcount and payroll – starts from the start date of your new employee. The Government has indicated that the baseline for the ‘additionality’ test will be adjusted in the second year of the program to ensure an employer can only receive JobMaker for 12 months for each additional position created. The detail of exactly how these rules will work has not been released as yet.

My business did not have employees in September but I hired my first employee in late October. Can I claim the JobMaker credit for them?

Businesses with no employees on 30 September, cannot claim JobMaker for their first employee. However, JobMaker can be claimed for your second and any subsequent employees that started on or before 6 October 2021.

Can the business get JobKeeper and JobMaker?

No. Once your business exits JobKeeper and is no longer receiving JobKeeper payments for any employees or business participants, if eligible, the business could then start to receive JobMaker credits. The business is eligible for the hiring credit in the reporting period following your JobKeeper exit date.

The JobMaker credit and the details of how the rules will apply are subject to change. Please do not make decisions based on the JobMaker information available as the final shape of the legislation could change. We will provide a summary of the rules and how you can claim the JobMaker hiring credit as soon as the rules are confirmed.

Tax deductions for investing in your business

Stimulating investment is high on the Government’s agenda. To encourage spending, the 2020-21 Budget introduced a measure that allows businesses with turnover under $5bn* to immediately deduct the cost of new depreciable assets and the cost of improvements to existing assets in the first year of use. This means that an asset’s cost will be fully deductible in the year it’s installed ready for use, rather than being claimed over the asset’s life. And, there is no cap on the cost of the asset.

When it comes to second-hand assets the rules are a bit different depending on the size of the business. Businesses with an aggregated turnover under $50 million can claim an immediate deduction for the cost of second-hand assets under the new measures.

Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the existing enhanced instant asset write-off. Businesses that hold assets eligible for the enhanced $150,000 instant asset write-off will have an extra six months, until 30 June 2021, to first use or install those assets.

For small business entities that have assets in a general pool the changes seek to ensure that pool balances are completely written-off for tax purposes in the 2021 and 2022 income years.

These super-charged immediate deduction rules tie into the existing instant asset write-off for businesses with a turnover under $500 million (summarised below).

The instant asset write-off only applies to certain depreciable assets. There are some assets, like horticultural plants, capital works (building construction costs, etc.) and certain intangible assets that don’t qualify for the new rules.

If your business will make a tax profit this year, this measure is likely to reduce the taxable income of the business for the year and it may be possible to vary upcoming PAYG instalments to improve cash flow. If your business operates through a company and will make a tax loss, you might be able to use the loss to offset tax paid in previous years (see Refunds for Tax Losses). Alternatively, tax losses can generally be carried forward to a future year.

Refunds for Tax Losses

If your company has made a loss, you may be able to claim a tax refund for tax previously paid on profits.

In the 2020-21 Federal Budget, the Government announced that businesses with turnover under $5bn* will be able to offset any losses made between 2019-20 and 2021-22 against previously taxed profits between 2018-19 and 2020-21.

The loss carry-back rules enable a company to offset tax losses against profits taxed in a previous year, generating a refundable tax offset. The amount carried back can be no more than the earlier taxed profits, limiting the refund to the company’s tax liabilities in the profitable years. The company can choose to carry-back a loss or carry it forward. That is, tax losses for the 2019-20, 2020-21 or 2021-22 income years can either be:

• Carried forward and deducted against income derived in later income years; or
• Carried back against income of earlier income years as far back as the 2018-19 income year to produce a refundable tax offset.

Previously, tax losses could only be carried forward and deducted against income in later income years.

This is not the first time that carry-back losses have been allowed. The loss carry-back rules were introduced some years ago by the Gillard government for the 2012-13 year, then repealed.

The loss carry-back rules also interact with the Government’s Budget measure allowing immediate expensing of investments in capital assets (See Tax deductions for investing in your business). The new investment will generate significant tax losses in some cases which can then be carried back to generate cash refunds for eligible companies.

What entities are eligible to carry-back losses?

Corporate tax entities are eligible to carry-back losses – a company, a corporate limited partnership, or a public trading trust – BUT only if the entity has lodged an income tax return for the current year and each of the five years immediately preceding it. If your company has not kept up to date with its reporting obligations, it might not be able to use the new rules.

Claiming the refundable tax offset

Businesses will need to elect to utilise their carry-back losses when they lodge their 2020-21 and 2021-22 tax returns. That is, even if the company made a loss in the 2019-20 year, it cannot claim that loss until the 2020-21 tax return is lodged.

For the 2020-21 income year, a loss carry-back tax offset may be available to a company if:

• It has a tax loss in the 2019-20 income year and/or the 2020-21 income year;
• It has an income tax liability in the 2018-19 income year and/or the 2019-20 income year; and
• For the 2020-21 income year and each of the previous five income years, either the entity has lodged an income tax return; the entity was not required to lodge a return; or the Commissioner has made an assessment of the entity’s income tax.

The carry-back cannot generate a franking account deficit. That is, the refund is further limited by the company’s franking account balance.

The 2020-21 Budget delivered a range of incentives for business to invest. If you would like us to review your position and the tax impact of any investments you are contemplating, please call us and we can assist you to get the best possible outcome.

*Aggregated turnover. Aggregated turnover is your turnover plus the annual turnover of any business connected with you or that is your affiliate.

Tax table reminder

The 2020-21 personal income tax cuts announced in the Federal are now law. Employers need to ensure that the tax withheld from employee salaries is correct. The ATO has published updated tax tables that apply from 13 October 2020. Employers have until 16 November 2020 to implement the changes.

JobKeeper clawback begins

At the recent Senate Estimates hearing, Jeremy Hirschhorn, the ATO’s Second Commissioner, stated that $120 million in JobKeeper payments had been clawed back from those either deliberately seeking to rort the system or who had made reckless mistakes. Mr Hirschhorn went on to say that there did not appear to be widespread fraud across the Government’s stimulus measures and most mistakes were honest. In the cases identified so far, JobKeeper had not been clawed back from employers making honest mistakes but these employers were prevented from making future claims.

In September, the ATO noted that compliance checks had halted 55,000 JobKeeper applications at the very first stage, because they did not meet the eligibility criteria, and delayed $1bn in payments to more than 75,000 applicants for further review. Eleven matters have been referred to Serious Financial Crime Taskforce operations and around 50 matters referred for criminal investigation. But overall, the Tax Commissioner stated, “the vast majority of Australians have done the right thing and only claimed the amounts they were entitled to.”

APRA reveals $34.4bn super early release

Over $34.4bn has been released from Australian Superannuation Funds under the COVID-19 early release scheme, the Australian Prudential Regulation Authority revealed. The figures, which do not include self-managed super funds, show the deep impact of the scheme on superannuation balances. 3.3 million initial applications and 1.3 million subsequent applications were received by funds.

Markets

• Market Performance – ASX200 dropped 3.7% in September but rose 1.9% in October.
• Sector Performance – IT up 9%, financials up 6%, consumer staples up 5%.
• Global – in the US the S&P500 index fell 3.8% in September and another 2.7% in October.
• Gold – dropped a further $5.00 to $1,881.
• Iron Ore – dropped $5.00 to $120/ton in September and $2.00 in October to $118/ton.
• Oil – fell to US$40.95/bbl down $4.33 in September and $3.49 in October to US$37.46/bbl.

Property

• Housing – national prices dropped 0.4% in August and 0.2% in September but rose by 0.2% I October. All capital cities except Sydney and Melbourne rose.
• Auction Clearance Rates – Sydney’s auction clearance rate was a healthy 76% on 7th November.
• Residential Building Approvals – rose a strong 15.4% in September.
• Finance – new home loans boomed 12.6% in August and are up 19.3% year on year.

Economy

• Interest Rates – were cut to 0.10% on 3 November.
• RBA – announces it will buy $100 billion of government bonds to lower rates for longer.
• Retail Sales – jumped in June by 2.7%m/m and a further 3.3% in July and now 4.2% in August.
• Bond Yield – Australian 10 year government bond yields fell to 0.79% in September but rose slightly to 0.83% in October.
• Consumer Confidence – Westpac Melbourne Institution consumer sentiment surged 18% in September and 11.9% in October.
• Exchange Rates – the Australian Dollar fell again against the US Dollar to AUD70.2 cents.
• US Unemployment – was 6.9%. The number of long term unemployed (those jobless for 27 weeks or more) increased by 1.2million to 3.6 million accounting for 32.5% of the total unemployed.
• Chicago Purchasing Managers Index (PMI) – remained strong in October at 61.1 indicating a strong economy bouncing back from COVID-19 lows.
• Chinese Economy – remains strong. China’s global surplus fell in September to US$37 billion from highs of US$58.9 billion in August and US$62.3 billion in July. Chinese exports to the US continued to grow over the past year despite US trade tariffs being imposed by the Trump administration.
• US Employment – rose by 638,000 in October.
• Global COVID-19 Cases – continue to rise with new cases rising to a record 552,000 on 28th October. France, German, Italy and Spain have led the way with nation-wide or full mobility restrictions. Many other European countries have implemented softer mobility restrictions.

Comment

Interest Rates

While the RBA lowered the official cash rate to just 0.10% in their November meeting, the more important news was that the RBA will spend $100 billion buying Australian Government Bonds going forward.

Importantly this measure is designed to keep rates lower for longer and hence this action should see a prolonged period of very low rates.

That period is thought to be 3-5 years.

In addition to this measure the Reserve Bank has reduced the rate of interest it will charge the large trading banks under its Term Funding Facility (TFF) which was established in March 2020.

The rate was lowered to just 0.1%. So under this facility trading banks can access loan funds from the RBA for just 0.1% for eligible borrowers.

As a result, we saw last week the CBA come out with a fixed home loan rate offering of 1.99% which was quickly followed by an announcement from Westpac at 1.89% for their fixed rate home loan facility.

Socialism v Government Support

The table below gives you an idea of government spending as a percentage of GDP by country.

As governments borrow more and more to support economic growth the more likely we are to drift into Socialism by default as we expect government to solve all our problems and to keep the economy growing at all costs.

Sources: UBS, Westpac, S&P Dow Jones Indices, ABS, US BLS, CoreLogic, Morningstar, OECD Data.

JobKeeper: The next steps

The first tranche of JobKeeper ended on 27 September 2020. We look at the issues for those seeking to qualify for the second tranche of JobKeeper and for those no longer eligible.

Wrapping up JobKeeper

If your business is no longer eligible for JobKeeper payments, there are a few things you need to do:

• Advise your employees and business participant. For anyone receiving JobKeeper payments from your business, you should advise them in writing that the business is no longer eligible, JobKeeper payments ceased on 27 September 2020, and their pay will revert to the conditions that apply under their employment agreement. This is particularly important for those who have been receiving top-up payments.
• Ensure payroll adjusts – Double check your payroll to ensure that top-up JobKeeper payments have been removed from 28 September 2020 onwards.

Make sure you keep all of your records relating to JobKeeper including your calculations and rationale for the decline in turnover test, your employee JobKeeper nomination forms, and any other records for at least five years.

What’s the 10% decline in turnover test?

The 10% decline in turnover test is a test that enables employers previously participating in JobKeeper to continue to use the JobKeeper provisions (with some modifications) under the Fair Work Act. These employers are ‘legacy employers’. This test does not impact on your business’s eligibility to receive JobKeeper payments, it only impacts on an employer’s use of the JobKeeper provisions under the Fair Work Act.

If an employer qualifies under the 10% test, they can:

• Issue JobKeeper enabling stand down directions (with some changes)
• Issue JobKeeper enabling directions in relation to employees’ duties and locations of work
• Make agreements with employees to work on different days or at different times (with some changes).

Employers can continue to utilise the JobKeeper provisions if they:

• Previously participated in the JobKeeper scheme but no longer qualify (or choose not to participate) from 28 September 2020, and
• Can demonstrate at least a 10% decline in turnover for a relevant quarter and get a certificate from an eligible financial service provider (small business employers can make a statutory declaration).

To meet the turnover test, a legacy employer needs to demonstrate at least a 10% decline in actual GST turnover for the quarter in 2020, when compared to the same quarter in 2019. See Legacy employers on the Fair Work Ombudsman’s website.

Is my business eligible for JobKeeper payments from 28 September?

Existing JobKeeper participants need to pass the extended decline in turnover test to continue to receive JobKeeper payments on behalf of employees. This extended test looks at your actual GST turnover for the September 2020 quarter (for JobKeeper payments between 28 September to 3 January 2021), and again for the December 2020 quarter (for payments between 4 January 2021 to 28 March 2021).

To pass the extended decline in turnover test, your business will need to show an actual decline in turnover between the September 2020 quarter (July, August, September 2020), and the same period in 2019 by 30% (15% for ACNC registered charities and 50% for large businesses).

My business has not received JobKeeper previously. Can we get it now?

If your business passes the eligibility criteria, you can access JobKeeper when you need it for your eligible employees. For JobKeeper, your business needs to pass the eligibility tests for the period you are seeking to claim JobKeeper payments.

My business can’t pass the decline in turnover test because we were impacted by a natural disaster/drought in 2019

Special rules exist to ensure that businesses trading (or partially trading) in a region impacted by natural disasters or drought in 2019 are not detrimentally impacted when calculating the decline in turnover tests. Assuming the drought or disaster impacted your GST turnover, the alternative test enables you to use a period in the year immediately preceding the year in which the drought or natural disaster was declared for the decline in turnover test comparison. This is, if your business was impacted by drought/disaster in the September quarter of 2019, you can use the September quarter of 2018 for your comparison period. If 2018 was also a drought/disaster zone, you can keep going back until the first year preceding the declaration of drought/disaster.

To use this test, your region must be subject to a formal declaration of drought or disaster (for example from Government) or have been publicly identified by an agency such as the Bureau of Meteorology.

My business fails the test because its turnover is ‘lumpy’

If your business has ‘lumpy’ or irregular turnover, there is an alternative decline in turnover test that you might be able to apply. This test only applies if your GST turnover is irregular, like what often occurs in the building and construction industry, and not simply a seasonal variation. To understand if your turnover is irregular, look at the 12 months before the test period and divide the 12 months into 3 month periods. If the lowest GST turnover for any of these 3 month periods is no more than 50% of the highest of the 3 month periods, then the test can be applied as long as your business’s turnover is not cyclical. Alternatively, you can look at the 12 months before 1 March 2020 instead of the 12 months immediately before the test period.

If your GST turnover is irregular you can compare your current GST turnover for the test period with the average current GST turnover for the 12 months immediately before the applicable test period or 1 March 2020, multiplied by 3.

My business is a new business without a 2019 comparison period. Can it receive JobKeeper payments?

If the business is a new business that started trading after 1 March 2020, the business will not be eligible for JobKeeper payments (although there are special rules for not-for-profit or registered charities in some circumstances).

If your business started trading before 1 March 2020 but after 1 July 2020, there are alternative tests you can use to determine whether your business is eligible for JobKeeper payments from 28 September 2020:

• Comparing the actual GST turnover for the test period with the turnover of the 3 months immediately before 1 March 2020 (for example, comparing the September quarter 2020 with the 3 months prior to 1 March 2020).
• Comparing actual GST turnover for the test period (for example, the September quarter 2020) with the average turnover since the entity commenced (using whole months).

What happens if a business restructure (or sale or acquisition) impacts on your numbers?

An alternative decline in turnover test is available where there has been a disposal or acquisition of part of the business, or restructure in the business, or combinations of those, and this changed the entity’s current GST turnover.

The alternative test compares the GST turnover for the test period with the current GST turnover for the relevant month immediately after the disposal, acquisition or restructure, multiplied by 3. If there is not a whole month after the last acquisition, disposal or restructure, and before the turnover test period, then the month immediately before the turnover test period is used.

Where there have been multiple disposals, acquisitions or restructures, you can use the whole month immediately after any of the disposals, acquisitions or restructures, multiplied by 3 for the alternative test.

What happens if fast pre COVID-19 growth makes the comparison period unrealistic?

If your business was experiencing strong growth before the pandemic hit, your comparison period numbers can be skewed. This alternative test is for entities with substantial pre COVID-19 growth. First you need to test if your growth is considered substantial. That is, GST turnover increased by:

• by 50% or more in the 12 months before the turnover test period or before 1 March 2020, or
• by 25% or more in the 6 months before the turnover test period or before 1 March 2020, or
• by 12.5% or more in the 3 months before the turnover test period or before 1 March 2020.

If there is substantial growth and you used the period immediately before the turnover test period to determine whether there is a substantial increase in turnover, then the alternative test compares GST turnover for the test period (for example, the September 2020 quarter) with turnover for the 3 months immediately before the test period.

If you are using the period immediately before 1 March 2020 to determine whether there is a substantial increase in turnover, then the alternative test compares GST turnover for the test period (for example, the September 2020 quarter) with turnover for the 3 months immediately before 1 March 2020.

I am a sole trader (or partnership) impacted by illness, injury or leave

For sole traders and small partnerships (4 partners or fewer) with no staff, your income is often impacted by your ability to work. If your comparison period is impacted by illness, injury or leave, you can use the month immediately before the month with sickness, injury or leave is used, then multiplied by 3.

Does the business need to re-enrol?

Your business does not need to re-enrol if it is already receiving JobKeeper payments. Employers continuing to receive JobKeeper payments will need to:

• Advise the ATO of the payment tiers of eligible employees (or your business participant), and
• Advise your eligible employees of the payment tier that is applicable to them.

Make sure you keep records of your calculations for the decline in turnover test, and the JobKeeper payment tiers for employees.

Identifying the JobKeeper payment rates

If your business is eligible for JobKeeper from 28 September 2020, you will need to identify all of your eligible employees and the JobKeeper payment rate applicable to them.

From 28 September 2020, the JobKeeper payment rate will reduce and split into a higher and lower rate based on the number of hours the employee worked in a specific 28 day period prior to 1 March 2020 or 1 July 2020.

For eligible employees who have been employed since 1 March 2020, employers need to choose the reference period that provides the best outcome for the employees. For many employers, this will be the pre COVID-19, 1 March 2020 reference date. For eligible employees employed after 1 March 2020, use the pay periods prior to 1 July 2020.

If the pay cycle is longer than 28 days, a pro-rata calculation needs to be completed to determine the average hours worked and on paid leave across an equivalent 28 day period. For example, if the relevant monthly pay cycle has 31 days, you take the total hours for the month and multiply this by 28/31.

Speaking to a MyBusiness podcast, ATO Deputy Commissioner James O’Halloran said the ATO is, “…looking for what is a natural record or support that does demonstrate that effort of active participation in a business on behalf of businesses and in terms of employees on what basis the hours have been done.”

What happens if the employee’s hours were different to normal in the reference period?

Alternative tests are available where:

• The reference period is not typical of the employee’s hours or you use a rostering system and there is no typical pattern in a 28 day period – use an earlier 28 day period or multiple 28 day periods that more accurately represent the employee’s typical arrangements. That is, you select the next 28 day period before 1 March 2020 or 1 July 2020 that represents the employee’s typical employment pattern. For workers that don’t have a typical pattern because of a rostering system like fly-in-fly-out workers, an average of the hours worked over the employee’s rostering schedule and proportionally adjusted over 28 days can be used to work out a typical 28-day period.
• The employee started work during the reference period. Use a forward-looking alternative test. In these circumstances, use the pay cycle immediately on or after 1 March 2020 or 1 July 2020. For employers with fortnightly or weekly pay cycles, you must use consecutive weeks. Where an employee was stood down, use the first 28 day period starting on the first day of a pay cycle on or after 1 March 2020 or on or after 1 July 2020 in which they were not stood down.

What happens if the employee’s salary is not linked to hours?

Some employees will automatically qualify for the higher JobKeeper payment rate. To qualify for the higher rate, these employees: were paid at least $1,500 in the reference period; were required to work at least 80 hours under an industrial award, enterprise agreement or contract; or, it is reasonable to assume that they worked at least 80 hours during the applicable period.

What about directors and partners in a partnership?

Business participants (sole traders, the self-employed with an ABN, or one partner in a partnership, beneficiary of a trust, or director/shareholder), must use the month of February 2020 (the whole 29 days) as their test period. The test looks at the number of hours you were actively engaged in the business – actively operating the business or undertaking specific tasks in business development and planning, regulatory compliance or similar activities.

Other than sole traders, a business participant must provide a declaration to the business entity confirming their hours worked over the reference period. Sole traders need confirm details with the ATO.

Where February 2020 was not typical, you can use the next typical 29 day period, or if you commenced during February, March 2020.

My employer is no longer eligible for JobKeeper. Can I receive JobKeeper from another employer?

Employees and business participants can normally only have one nominated employer for the JobKeeper scheme (ever). If your nominated employer is no longer eligible for JobKeeper payments, you cannot be a nominated employee of another employer. The main exception to this is where the individual ceased to be employed or actively engaged in the business (as a business participant) of the original entity after 1 March 2020 but before 1 July 2020. They must also have met the conditions to be treated as an eligible employee of the new employer at 1 July 2020.

Preventing a tsunami of insolvencies

The Government has stepped in to prevent a wave of insolvencies when the COVID-19 support measures run their course in December 2020.

Temporary insolvency and bankruptcy protections are in place until 31 December 2020 to enable businesses to trade through the pandemic. The measures provide:

• A temporary increase in the threshold at which creditors can issue a statutory demand on a company (from $2,000 to $20,000) and the time companies have to respond to statutory demands they receive (21 days to 6 months);
• A temporary increase in the threshold for a creditor to initiate bankruptcy proceedings (from $5,000 to $20,000), an increase in the time period for debtors to respond to a bankruptcy notice (21 days to 6 months), and extending the period of protection a debtor receives after making a declaration of intention to present a debtor’s petition;
• Temporary relief for directors from any personal liability for trading while insolvent; and
• Flexibility in the Corporations Act 2001 to provide targeted relief for companies from provisions of the Act to deal with unforeseen events that arise as a result of the Coronavirus health crisis.

Between March and July 2020, there was a 46% decrease in the number of companies that have gone into external administration compared to the same period in 2019.

Anticipating a wave of insolvencies in early 2021, the Government has moved to streamline insolvency laws to enable small business to either restructure or efficiently wind up. There are three key elements to the reforms:

• A new formal debt restructuring process for companies that will enable a business to keep trading under the control of its owners while a debt restructuring plan is developed and voted on by creditors.
• A new, simplified liquidation pathway for small businesses to allow faster and lower-cost liquidation.

The measures will be available to businesses with liabilities of less than $1 million. You can find further information on the proposed insolvency reforms here.

In Australia, the insolvency laws currently do not differentiate between large and small businesses. Everyone goes through a similar process. For small business, the complexity and the cost of adhering to the current insolvency system often leaves little for creditors, makes it difficult to restructure, and places control of the business in the hands of an administrator. These reforms should help simplify the process.

Quote of the month

“Fight for the things that you care about, but do it in a way that will lead others to join you.”

US Supreme Court Justice, Ruth Bader Ginsburg

Merry Christmas

What a year. Instead of a handful of bright, shiny material things all I really want for Christmas is an effective COVID-19 vaccine, a safe environment for my friends and family, the opportunity for every person to use their abilities and make a genuine contribution to the greater good, and a return to the days when leadership was about the capacity to bring people together and push forward, rather than simply the loudest or most consistent voice – surely not too much to ask!

This year has taught us resilience and patience. We have had a stark reminder of what is really important in life. We have learned the painful lesson of expecting life to be on a constant, consistent path and promise to approach life like an optimist but plan like a pessimist – personally and professionally.

So, here is to a fresh start with renewed energy and vigour in 2021. Stay safe, stay well and we’ll look forward to working with you again in the New Year to make the most of the opportunities available to you on your pathway.

Office Closure

Our office will close for the Christmas period at 1.00pm Wednesday 23rd December and re-open on Monday 11 January 2021.

We wish you and your family all the very best for the festive season.

Extended December JobKeeper deadlines

The ATO has extended the JobKeeper monthly business declaration deadline for the month of December until 28 January 2021 (from 14 Jan 2021). This applies to the JobKeeper fortnights ending on 6 December 2020 and 20 December 2020.

The deadline for meeting the minimum wage condition for the JobKeeper fortnight ending on 3 January 2021 has been extended to Monday, 4 January 2021.

Last chance to access COVID-19 early access to super

31 December 2020 is the last day you can apply to access your superannuation early under the COVID-19 early access measures. The ATO has warned that those wanting to access their superannuation pre-Christmas will need to complete the application by 11 December 2020.

The ability to access up to $10,000 of your super is available to those that have been made redundant, have had their working hours reduced by more than 20%, and have been adversely financially impacted by COVID-19. If you are not in financial hardship you should not access your superannuation. The application process through myGov is a self-assessment process that you are responsible for. Penalties of up to $12,000 may apply for providing false or misleading information.

2021 Risks & Opportunities

With the borders between the State and Territories all but open and 2021 in sight, there is a hunger for a return to ‘normal’. The recent Westpac-Melbourne Institute Index of Consumer Sentiment articulates this desire to ‘get on with things’; sentiment reached its highest level since November 2013 and Christmas spending is expected to be consistent with previous years.

However, the Reserve Bank of Australia cautions that the recovery will be uneven and drawn out and GDP is not expected to return to pre-pandemic levels until the end of 2021. The risks are not limited to the pandemic but Australia’s geopolitical relationships, notably with our largest trading partner, China.

Here’s our key risks and opportunities as we head into 2021:

Opportunities

Employers & job building

Reducing unemployment is a national priority. While the unemployment rate is expected to decline in 2021, further rises are expected as businesses restructure in response to the pandemic. Wage growth will also be subdued with excess capacity in the market.

New analysis from the Reserve Bank of Australia suggests one in five jobs were saved by JobKeeper. The November 2020 analysis states, “one in five employees who received JobKeeper (and, thus, remained employed) would not have remained employed during this period had it not been for the JobKeeper Payment. Given that 3½ million individuals were receiving the payment over the period from April to July 2020, this implies that JobKeeper reduced total employment losses by at least 700,000 over the same period.”

The number of businesses accessing JobKeeper reduced by around 450,000 in October 2020 with the transition to more stringent eligibility requirements. The shift now is to create jobs, not just keeping them. There are a number of incentives for employers to grow employment and skills:

• JobMaker – A 12 month “hiring credit” available for jobs created from 7 October 2020 until 6 October 2021 that provides a payment to employers of $200 per week for eligible new employees aged between 16 and 29, and $100 per week for eligible employees aged between 30 to 35 years. Eligibility restrictions apply to the business and the employee. Employees need to have been out of work and receiving Government support for at least one month within the three months before they were hired.
• Apprenticeship subsidies – subsidies of 50% of an apprentice’s wage (up to $7,000) are available for new and existing apprentices to keep them employed. The schemes apply to the wages of new apprentices from 5 October 2020 and 30 September 2021, and existing apprentices from 1 January 2020 to 31 March 2021. Eligibility requirements apply to the business and the apprentice.

In addition, subsidies are available for employers engaging apprentices in key industries with skills shortages including carpenters and joiners, plumbers, hairdressers, plasterers, bakers and pastrycooks, vehicle painters, wall and floor tilers, arborists, bricklayers and stonemasons and air-conditioning and refrigeration mechanics.

There is also additional support for adults reskilling and undertaking an apprenticeship and for apprentices with a disability.

• State based incentives – Tax breaks to encourage employers to employ more workers are big right now. The Victorian government recently announced a New Jobs Tax Credit for SMEs of ten cents for every dollar of increased taxable Victorian wages. NSW has reduced payroll tax to 4.85% from 5.45% from 1 July 2020. There are also a myriad of incentives targeted to specific areas like the NSW regional growth fund. WA has an Employer Incentive Scheme with a base payment of $8,500 for employing apprentices. It’s worth seeing what is available in your region and in your industry.

Federal Government incentives generally do not overlap. That is, your business cannot receive incentives for JobKeeper and JobMaker, or JobMaker and an apprenticeship subsidy.

First JobMaker deadline looms

6 January 2021 is the final day of the first JobMaker Hiring Credit period and the deadline for enrolling in the scheme to access payments for this period. While the ATO has the ability to extend this deadline, there has not been any advice on this to date. Enrolments are not open as yet but because of the tight turnaround times, if your business would like to access JobMaker for the first period, it will be important to assess eligibility.

For individuals, JobTrainer offers those aged between 17 and 24 the ability to upskill or reskill and minimal cost.

HomeBuilder & the housing industry

The HomeBuilder scheme provides a tax-free grant to those building a new home or renovating. To date, around 27,000 homes are expected to be covered by the scheme. The highest number of applications so far have come from Victoria (7,636), followed by Queensland with 5,954. New South Wales property prices mean that many homes exceed the eligibility threshold (4,350).

The Assistant Treasurer recently announced an extension of the HomeBuilder scheme from 1 January 2021 to 31 March 2021. For all new build contracts signed between 1 January 2021 and 31 March 2021:

• Eligible owner-occupier purchasers will receive a $15,000 HomeBuilder grant (down from $25,000); and
• The property price caps for new builds in New South Wales and Victoria will be increased to $950,000 and $850,000 respectively (from $750,000).

In addition, the construction commencement deadline will be extended from three months to six months for all eligible contracts signed on or after 4 June 2020 (applications for HomeBuilder can be submitted up to 14 April 2020).

There is also a change in the licensing requirements and registration for builders and developers:

• Where an eligible contract is signed on or after the 29 November 2020, the builder or developer must have a valid licence or registration before 29 November 2020.
• Where an eligible contract is signed before 29 November 2020, the builder or developer must have a valid licence or registration before 4 June 2020.

The eligibility criteria to access HomeBuilder remains the same. To be eligible you need to be an individual owner occupier, 18 years of age or more, an Australian citizen, and pass the income test. The income test for individuals is $125,000 and $200,000 for couples (based on your 2018-19 or later tax return).

The grants are available if you build a new home where the value of the house and land does not exceed the threshold ($750,000 to $950,000 depending on when the contract was signed and the State you live in), or a renovation where the value of the property is $1.5m or less.

Extended rules for writing off assets: Australian subsidiaries of global companies to benefit

In the 2020-21 Federal Budget, the Government introduced a measure that allows businesses with turnover under $5bn* to immediately deduct the cost of new depreciable assets and the cost of improvements to existing assets in the first year of use. This means that an asset’s cost will be fully deductible in the year it’s installed ready for use, rather than being claimed over the asset’s life. And, there is no cap on the cost of the asset.

Last month the Government announced it will modify the rules again enabling a broader range of businesses to access the instant write-off.

The amended rules will enable businesses with an aggregated annual turnover of $5bn or more (the current maximum threshold) to access the measures if they can satisfy an alternative test. Entities are able to pass this test if they have:

• Less than $5 billion in total statutory and ordinary income in either the 2019 or 2020 income year; and
• Incurred more than $100 million in expenditure on tangible depreciating assets between the 2017 and 2019 income years.
• This will allow some Australian businesses that are connected with large global groups to access the measure.

In addition, the Government will enable businesses to opt-out of using the new instant asset write-off and accelerated depreciation rules on an asset by asset basis. Currently, the rules apply automatically if certain conditions are met, which for some businesses is not an effective use of the deduction. However, at this stage, it appears the choice to opt out of the instant asset write-off might not be available to small business entities that choose to apply the simplified depreciation rules.

*Aggregated turnover. Aggregated turnover is your turnover plus the annual turnover of any business connected with you or that is your affiliate.

The Risks

COVID-19 rules and regulations

Despite feeling like we are emerging from the pandemic, the promise of a widely available vaccine is still over the horizon and the risk of another wave remains very real. For business, it will be essential to ensure that COVID-19 safe conditions are maintained. Aside from the obvious health risks of not maintaining a safe environment, a lockdown risks your business’s survival and the fines for breaching public health orders are hefty. The ABC reports that “more than $5.2 million has been raked in nationwide since pandemic laws came into effect in March this year.” In most regions, fines of around $1,000 apply to individuals and $5,000 for businesses and in Queensland, fines of up to $13,345 and prison might apply to individuals and business operators flagrantly defying the heath order.

Australia’s relationship with China

There is a scene in the movie Love Actually where the British Prime Minister (played by Hugh Grant) is asked about his views on the Britain-US relationship following a particularly disappointing trade negotiation:

“I love that word relationship; covers all manners of sins, doesn’t it? I fear this has become a bad relationship. A relationship based on the President taking exactly what he wants, and casually ignoring all those things that really matter to Britain.

“We may be a small country, but we’re a great one too. A country of Shakespeare, Churchill, The Beatles, Sean Connery, Harry Potter, David Beckham’s right foot, David Beckham’s left foot.

“A friend who bullies us is no longer a friend. And since bullies only respond to strength, from now onward I will be prepared to be much stronger. And the President should be prepared for that.”

In the movie, the only reaction from the US was a stern look from the President (played by Billy Bob Thornton). However, the reality of megaphone diplomacy is very different.

Non-compliance with China’s political will comes at a cost. In response to Australia’s public positioning, China has flexed its economic muscle through the disruption of Australian exports.

• April – Australia pushes for a formal WHO inquiry into the origins of COVID-19.
• May – 80.5% tariff on Australian barley on the basis that barley is undervalued and subsidised. China imports approximately 70% of Australia’s barley crop.
• May – Suspension of beef exports from four Australian processing plants relating to a 2019 investigation regarding inconsistencies with labelling and consignment certificates for some frozen and chilled beef products. China is the largest importer of Australian beef at 24%. Japan is second at 23% and the USA at 20%.
• September – China states that Australian exports of wheat will face “enhanced inspection.” At the same time, wheat imports from the US to China have increased.
• October – Chinese importers unofficially instructed to stop buying seven types of Australian exports – coal, barley, copper ore and concentrate, sugar, timber, wine and lobster. Goods in transit at the time the ban was imposed have been in limbo – $2m of rock lobsters were left on the tarmac unable to clear customs at Shanghai airport.
• November – 107% to 212% “provisional” tariff imposed on Australian wine on the accusation that Australian wine is being dumped on the Chinese market causing “substantial” damage to Chinese wine manufacturers. Treasury Wine Estate, that make Penfolds, and represent an estimated 40% of the total annual wine export market to China, went into a trading halt after China’s announcement.

China is Australia’s largest trading partner by a margin that dwarfs trade with any other single nation (Europe $118bn, ASEAN $110bn and Japan $77bn). The value of exports to China has doubled in the five years since the signing of the China-Australia Free Trade Agreement from $75b in 2014-15 to $150b in 2019-20; imports have also grown significantly up 42% over the same period.

Iron ore remains Australia’s top export to China (in 2019-20, exports of iron ore accounted for 56% of all Australian goods exported to China) and a high demand resource to fuel the expansion of China’s economy – China is the world’s largest steel producer. The South China Morning Post reports that Australian iron ore makes up 60% of China’s supply.

It is not the first time China has undertaken a concerted campaign to use its economic might to secure its policy goals. Canada, India, the UK and New Zealand have all faced some form of retribution in the past. When Sweden banned Huawei from its 5G network the foreign ministry spokesman Zhao Lijian reportedly called on Sweden to correct its “wrong decision” and avoid a “…negative impact on China-Sweden economic and trade cooperation, and on the operations of Swedish companies in China.” Economic threats and oppressive rhetoric are commonplace.

During a speech to the Press Club in August, Minister Wang Xining stated that any long term relationship is based on “mutual respect”. Australia’s perceived lack of respect was highlighted by the 14 grievances leaked by a Chinese diplomat to Channel 9. The grievances are wide ranging from the banning of Huawei from Australia’s 5G networks on “unfounded” national security concerns (as have all members of the 5 eyes intelligence alliance except Canada – US, UK, and New Zealand, and France and Sweden), foreign interference laws (initiated with the establishment of the Counter Foreign Interference Taskforce focussed on democratic institutions, education and research, media and communications, diverse communities, and infrastructure), calls for an inquiry into COVID-19 and siding with the US anti-China campaign, speaking out on the contested South China sea territories (and supporting US gunboat diplomacy), and “thinly veiled” allegations against Chinese cyberattacks.

So, what does 2021 hold? There is conciliatory language from the Australian Government with both the Prime Minister and the Defence Minister acknowledging China’s economic success lifting millions out of poverty and our strong ‘people to people’ relationship. But Australia has not publicly backed down or been any less vocal with the announcement of a new defence pact with Japan and a continued pro-democracy stance on Hong Kong. There is likely to be more pain to come for Australian exports to China and no short-term resolution or conciliation.

Cashflow crunch

Australian economists are fairly united that there are a number of “zombie businesses” that are being kept alive by JobKeeper. These are the businesses that are only surviving because salary and wages are propped up by the subsidy. The danger with these businesses is that they are continuing to take on debt. JobKeeper ends in March 2021, which coincides with one of the traditionally worst cashflow months of the year. It will be important to ensure that your business stays on top of its debtors and doesn’t become a bank for your customers. It will also be important to understand your cashflow position, don’t over commit, and stay on top of labour costs.

Quote of the month

“There is no such thing as work-life balance. Everything worth fighting for unbalances your life.”
Alain de Botton, philosopher and author

Markets

• Market Performance – ASX200 rose 10.2% in November – its best month in 32 years.
• Global – in the US the S&P500 index rose 10.9% in November.
• Gold – dropped $119.30 to $1,762.55.
• Iron Ore – rose to an amazing $130.50/ton.
• Oil – rose to US$47.59/bbl up $10.13 in the month of November.

Property

• Housing – National CoreLogic dwelling prices rose 0.7% month on month in November with houses gaining more than units and regional areas outpacing capital cities.
• Auction Clearance Rates – have been steady at 77% (previously 76%).
• Residential Building Approvals – rose a strong 15.4% in September and an additional 3.8% in October.
• Finance – home loans rose again in September 5.9% month on month. This brings home loan approvals (excluding refinancing) to a 25% increase year on year.

Economy

• Interest Rates – were cut to 0.10% on 3 November – the lowest on record.
• RBA – announces it will buy $100 billion of government bonds to lower rates for longer.
• Retail Sales – continued their climb up 1.6% in October.
• Bond Yield – Australian 10 year government bond yields fell to 0.79% in September but rose slightly to 0.83% in October and rose slightly to 0.90% in November. US 10 year government bond yields remained unchanged at 0.85%.
• Consumer Confidence – Westpac Melbourne Institution consumer sentiment surged 18% in September, 11.9% in October and rose again 2.5% in November to a 7 year high!
• Exchange Rates – the Australian Dollar rose against the US Dollar to AUD73.7 cents.
• Business Conditions – rebounded to 1.5% in November from 0.2% in October.
• Employment – October saw 179,000 new jobs created in Australia well ahead of expectations and the unemployment rate rose (less than expected) to 7.1% as many business’ entitlement to JobKeeper 1.0 ceased.
• New Motor Vehicles – sales in Australia increased 12% year on year in November, coming off a negative 1% in October. This is the first positive monthly increase after 31 consecutive negative months.
• GDP Growth – bounced strongly by 3.3% in the September quarter. While good news domestically the US GDP growth bounced 7.4% and the UK 15.6% for the same period.
• Chicago Purchasing Managers Index (PMI) – remained strong in October at 61.1 indicating a strong economy bouncing back from COVID-19 lows. The index dropped to 58.2 in November as the economy looks to be slowing down.
• US Unemployment – job numbers rose by 245,000 in November and the unemployment rate dropped to 6.7%.
• COVID-19 – 3 Vaccines have been announced and distribution will commence in December in some countries.

Comment

Residential Property Prices to Rise

Predictions abound that housing prices will rise over 2021 and 2022.

Such forecasts are based on the several key tailwinds, namely:

• Record low interest rates;
• Pent-up demand;
• Increased savings rates;
• Government support – both State & Federal.

With interest rates at a record low repayment affordability has increased significantly.

You can obtain finance on a 3 year fixed interest rate loan for less than 2% per annum.

The RBA having lowered rates to just 0.10% have also entered into QE by buying government bonds and stating they intend to keep rates low for at least 3 years even if inflation does raise its head.

So people can borrow with the comfort that rates will most probably not rise for 3 years and possibly a lot larger. This will apply to both fixed rate and variable rate loans.

During 2020 social distancing and lockdown rules have basically curtailed economic activity in a way we have never witnessed before.

Young couples or singles wanting to buy their first property have been unable to do so because of those restrictions.

Similarly, those wanting to upgrade to accommodate a growing family or those wishing to relocate for family or employment reasons have been denied this opportunity during 2020.

As a result, there is significant pent-up demand now coming into the system and pushing house and unit prices up.

With Australians effectively locked up in our own country as the Morrison government imposed an overseas travel ban, combined with lockdown laws generally, many people have been saving (if they still have a job) money they would otherwise have spent. Australia’s current saving rate is at a record high as a result.

The cost of overseas travel is significant. Those who have saved these funds during 2020 and will possibly do the same in 2021 have in some cases turned those funds into an opportunity to upgrade their current residence or buy something bigger.

Similarly, those who were saving for a trip may now find they have enough for a deposit on a property.

In addition to the factors outlined above both State and Federal Governments have implemented housing support policies which include significant stamp duty concessions as well as cash hand-outs to assist certain buyers and first home buyers in particular.

The Federal Government even has a scheme whereby they will guarantee up to 15% of the 20% deposit most banks require for a first home buyer loan.

This enables many to enter the property market for the first time with as little as a 5% deposit.

So, as you can see those tailwinds when combined should push the property market forward over the next few years.

There are 2 key headwinds that this view may encounter. The first is the advent of a major COVID19 outbreak in Australia without an effective vaccine available and the other is an absence of immigration for an extended period. The RBA has conservatively forecast that net immigration is likely to be negative for the next 2 years because of COVID19 and obviously the rollout and effectiveness of various vaccines around the globe will take time and not be without its difficulties and delays.

Sources: UBS, Westpac, S&P Dow Jones Indices, ABS, US BLS, CoreLogic, Morningstar.

We Are Still Open for Business

We want to reassure you as one of our valued clients that we are still open for business and will remain open for business throughout the Coronavirus Pandemic.

Whilst the Government allows, the physical office will remain open with a skeleton staff. All other staff will be working remotely from home.

You will no doubt have noticed an increase in newsletter communications from us. We will endeavour to provide you with updates on the stimulus or other measures impacting on business, superannuation or investments as soon as possible after any announcement. Please keep an eye out on your emails for these updates.

We understand that this is an uncertain and anxious time for a large number of people. Everything that we do is aimed at looking after the best interests and health of our clients and staff.

Client Meetings

Meetings are an integral part of our service. They help us build our relationship with you and understand your needs so that we can provide the best possible service to you.

We will continue to hold meetings with you, however in the current climate where possible they will not be face to face. Our default position will be to schedule all meetings either via phone or via a video link.

Source Documents

If you can please provide documents electronically via email or the MYOB Portal, it would be greatly appreciated. We do recognise that for some of you, you may not be able to do this. If this is the case, then please feel free to mail the documents or drop them in to the office.

Please see the section below for further detail on the MYOB portal.

We re-iterate, that if the provision of a document, in particular a signed document, is time sensitive, do not hesitate to drop this in directly to the office in person.

Signing of Documents

Where the law allows, we will be sending out documents for signature electronically via the MYOB portal.

Where we require a physical signature, we will either send the document to you electronically or by mail for you to sign and return. Alternatively, if the signature is time sensitive, the document may be held at reception for you to sign on-site.

If you are dropping in to sign a document at reception, please consider our Social Distancing policies as outlined below. We also ask that you consider bringing in your own pen.

Social Distancing

We are adhering to the social distancing guidelines, so please do not be offended if we do not stand directly next to you or make physical contact such as shaking your hands. We will also have hand sanitiser available for all staff and clients to use.

Working from Home

For most of the team we are currently transitioning to a working from home environment. This will be a learning curve for us all, so we ask for your patience as we resolve any initial teething problems.

All our staff are contactable via email or you can still phone reception and the call will be transferred to the staff member. As always, we will endeavour to get back to you as soon as possible.

MYOB Portal

The MYOB Portal is a secure encrypted portal whereby we can exchange documents electronically. The MYOB Portal also has eSignature functionality.

We have been using the MYOB Portal successfully with some clients now for a while.

Where we send you a document or other information via the portal, you will receive an email alert asking you to login. You can click on the link and login.

The following link includes instructions on how to setup your MYOB Portal Login, as well as how to upload documents and electronically sign documents.

https://levelone.com.au/wp-content/uploads/Level-One-MYOB-Portal.pdf

If you cannot remember your login details, you may need to reset your password. You can do this from the login screen by clicking on the Forgotten your password? link.

If you require any assistance with the portal, please do not hesitate to contact us.

Markets

• Market Performance – The ASX200 experienced a decline of 20.7% over the month of March.
• Global – The S&P500 fell 12.4% in March.
• Gold prices were volatile in March but reached their highest level at one point since 2013 at $1,608.95/oz.

Property

• House Prices – Sydney and Melbourne house prices rose 1.1% and 0.5% respectively over the month of March.
• Residential building approvals jumped in February to 188,000, the highest level in a year. This was driven primarily by unit developments where house approvals were flat.
• Since the June 2019 low, prices have climbed 8.3% nationally.
• UBS forecast residential property prices to fall 10-20% over the next 12 months.
• Property sales volumes will collapse in coming months as long as the ban on auctions and open house inspections continue.
• The extent and duration of price falls is very uncertain given the hit from demand expected from the looming recession and the rise in unemployment that will accompany it.
• Damage to the property market will be insulated from the governments enforced 6 month deferred mortgage repayments which will prevent a lot of forced sales.
• If property prices do fall significantly with the subsequent economic impact that would follow there is likely to be further government support in the form of: expanding the first home buyers scheme; the introduction of First Home Owner grants; reductions in State Government stamp duty and land tax; or support for the build-to-rent industry.

Economy

• Interest Rates – The RBA cut interest rates to 0.25% in March. This is the lowest rate recorded in history.
• Bond Yield – The Australian 10-year Government bond yield fell over the month of March to 0.76%.
• Consumer Confidence Index – ANZ Roy Morgan weekly consumer confidence index fell approximately 40% in March its lowest since data was collected in 1973.
• Employment – Employment increased by 26,700 jobs in February. The unemployment rate fell to 5.1% in February.
• Exchange Rates – The Australian Dollar fell against the US Dollar at March end to $0.612 but fell to only $0.55 at its lowest point in the month.
• US – US jobs growth increased by 273,000 in February.
• US Federal Reserve – Cut interest rates from a 1.5-1.75% range to 0-0.25% range and announced the Fed would buy unlimited Treasury Bonds and mortgage back on securities.
• PMI – The US Manufacturing Purchasing Managers’ Index fell to 50.1 in February from 50.9 in January. March has come in at 49.1.
• China – China PMI (purchasing manufacturing index) also collapsed from 50 to 35.7, worse than GFC levels in February but bounced back to 52.0 in March.
• Oil prices fell sharply in March on fears of reduced global demand due to a COVID 19 induced slowdown and an increase in OPEC production. Brent crude oil prices dropped to a 17 year low of $22.74 per barrel.
• Stimulus packages announced so far from the Federal Government amount to $213.6 Billion plus to combat the effects of the COVID19 downturn.

Sources: UBS, Westpac, S&P Dow Jones Indices, ABS, US BLS, CoreLogic, BIS Oxford Economics.

Comment

The Coronavirus outbreak has reached every corner of the globe and governments around the world are taking drastic measures to contain the spread. Uncertainty remains about the duration and severity of the outbreak, but it is certain that the drastic policy measures taken will have a devastating and lasting economic, psychological and emotional impact.

Fiscal and monetary policy makers have taken steps to mitigate the negative impact on companies and households. These measures will cushion the adverse effects on growth but cannot prevent the coming downturn.

Drastic restrictions on movement and public gatherings are an important step in limiting the further spread of the virus. We must all do our bit.

Global growth is slowing rapidly.

What is extraordinary is that initial reports seemed to indicate China would go from normal activity to mass disruption and lockdown to almost full recovery – or say 85% thereof over a period of about 2 months.

Interestingly there have been some reports that Chinese infection rates could be rising and restrictions reintroduced. Time will tell.

China obviously enjoys the benefit in these circumstances of a completely centralised government system where people are controlled a lot more easily than in the democracies enjoyed in Europe, America, most of Asia and Australia.

Western governments obviously cannot shut down society and the economy like China can and accordingly such a rapid recovery should not be expected in the west.

On Friday UBS revised down their real GDP forecast for 2020 to a negative 6.1%

This is by far the worst since World War II.

In addition, UBS estimated unemployment was likely to peak to 10.5%, similar to past recessions or over 1 million people. (Goodman Sachs forecast unemployment to peak at 8.5%).

Importantly, total Australian Government Debt will exceed $1 trillion.

While Scott Morrison talks of a six month period of restrictions the NSW Police Commissioner says we will be in our current mode of lockdown for at least 90 days.

The effect of this on people’s lives is only beginning to unfold.

The Australian Share Market has been hit significantly with the market having dropped by 35% in early March and is currently down 27% having rallied 8% in recent days.

For the long-term investor, the message is clear that you don’t sell and crystallise losses in down markets.

Our focus over the next few months will be on 2 things.

a) Reduce Cash and Fixed Interest holdings were appropriate

• Investors should have cash or fixed interest investments they can access in the event they require funds. We call this “rainy day money”.
• Furthermore, any excess cash or fixed interest investments can be invested into this crash over the coming months. We call this “dry powder”. While the return on these funds in recent times has been minimal we can now put these funds to work.
• As our clients term deposits mature, we will be speaking to you about this further.
• Purchasing stocks now or over the coming months at attractive prices will ensure good returns in the years ahead.

b) Look to remove stocks that may not come out of this crisis in a favourable position

• The world is changing rapidly and no doubt some industries and businesses will suffer more than others.
• If we sell a stock and replace it with another that is better placed to trade successfully after this pandemic is over the better the returns will be going forward.

In making these decisions we must look forward and assess the future prospects of a company’s potential and not look back. The future for each and every company has changed. The past is the past and we must keep a laser like focus on the path ahead.

Remember that the health data coming out from different countries is the most critical issue here. Once the health data indicates that we have achieved peak infection rates we will then focus on the economic data. The economic data will bottom out in a few months time and will always lag the health data.

We will be in recession for probably about 6-9 months and then we will see signs of improvement from there.

Please feel free to call our office to discuss your portfolio or personal circumstances at any time.

Markets

• Market Performance – having risen by 8.8% in April the ASX200 continued to climb rising 4.4% in May.
• Sector Performance – IT (+7.7%) Materials (+6.7%) & Industrials (+6.4%) sectors outperformed.
• Global – in the US the S&P500 index rose 4.8% after a 12.8% jump in April.
• Gold – continued its strong rise to another all time high of $1,728.70/oz, an increase of over $25.00 in the month of May.
• Iron Ore – rose to $101.50/ton with strong demand continuing and supply from Brazil being hindered by COVID 19.
• Oil – rose to US$35.33/bbl as at the end of May from $25.27 at the end of April.

Property

• Housing – dwelling prices dropped 0.1% in May.
• Home Sales – CoreLogic estimate sales activity bounced back 15.5% in May after a decline of approximately 30% in April.
• Property Prices – national home values remain 8.3% higher than they were a year ago. While Sydney is up 14.3% and Melbourne up 11.7% Perth was down 2.1% and Darwin down 2.6%.
• National Rental Index – rose 0.2% over the month of May following a decline of 0.4% in April.
• Inter City Apartment Rents – with a large number of new inner city apartment projects being recently completed or due to complete soon, along with stalled migration and frozen foreign student arrivals rents are more likely to continue to fall in the inner city apartment sector. Significant job losses in the hospitality, tourism and arts sectors will also exacerbate this.

Economy

• Interest Rates – on hold at 0.25%.
• Bond Yield – Australian 10-year Government bond yields were steady at 0.88% while US Government 10-year bond yields dropped only 3 bps to 0.64%.
• Consumer Confidence – the Westpac-Melbourne Institute of Consumer Sentiment jumped to 88.1 in May up from 75.6 in April as COVID 19 containment and lockdown restrictions were being slowly lifted.
• Exchange Rates – the Australian Dollar was steady against the US Dollar at 0.664.
• Unemployment – rose in April from 5.2% to 6.2%, representing 600,000 lost jobs in the month. June will see significant further job losses.
• Chicago Purchasing Managers Index (PMI) – sank further for the 11^th straight month to 32.3 as business confidence continues to contract in the US.
• JobKeeper Program – the anticipated cost to the Federal Budget was revised down from $130 billion to $70 billion. While it had been reported recently that the scheme was covering some 6.5 million employees that number has been reduced to only9 million.
• Recession – GDP growth was a negative 0.3% in the March quarter in Australia. June is likely to be a lot worse resulting in 2 consecutive quarters of negative GDP growth. This is the strict definition of a recession. It is likely we could get 4 consecutive quarters of negative growth or more in what many predict will become our worst recession since the Great Depression in the 1930’s. We are only just beginning to see this play out in the economy, but one thing is for sure – it is going to get a lot worse before it gets better.
• US Jobs – 20.5 million jobs were lost in the month of April representing 14.7% of the workforce. It is expected the unemployment rate will rise above 20% once May’s data is collated.
• German Factory Orders – have fallen by 25% in the months of March and April.
• French Consumption – of goods have fallen by 20% in April following a decline of 16.9 in March.

Sources: UBS, Westpac, S&P Dow Jones Indices, ABS, US BLS, CoreLogic, Morningstar.

Comment – Uncertain Times

The rally in equity markets over the past 2 months has many equity strategists and research analysts confounded. Given the level of opaqueness in corporate Australia right now, the basis for this rally in Australian equities are leading to the conclusion that a “V” shaped recovery is already being priced in (as opposed to a U or L shaped recovery).

Delving deeper and looking at earnings and market multiples of the ASX 200, we see that the market is looking through most of the negative news and focusing on a recovery in FY-2021. According to UBS, earnings growth for the ASX 200, FY20 is predicted to fall 21.4%. If you recall, at the height of the pandemic in March and April, the market was calling for a minimum of 25% earning revisions and potentially 30% which was more likely of a typical recession. The fact the revisions are now being considered less harsh could be considered a positive for equity markets, but it still begs the question of what price do you pay for these earnings.

In February when the ASX 200 hit its intraday record high of 7197, the market was on a PE (Price Earnings Ratio) of just over 19 times. No doubt the impact of the so-called growth stocks had a major part in dragging the average PE higher with CSL on over 50 times and the Tech and Info-Tech sector at even more lofty multiples. Before the impact of COVID-19 and the fall in equities, many were asking is this too high a price to pay? The level of doubt was tangible, with many funds sitting on high levels of cash, in the expectation of some form of correction. Despite not picking the cause (COVID-19) the effect on markets was a significant correction and a new level of doubt surrounding corporate earnings for 2020 and in most respects 2021.

This doubt on company earnings still remains as we edge closer to reporting season in August. Yet the market is now pricing the ASX 200 on a PE of 18.2 times.

With record government spending and extremely low or negative interest rates around the globe, time will tell as to whether the markets will rally higher into a “new normal” or crash back to more historic levels as the economic carnage of the Coronavirus plays out along with a deterioration of Chinese relations with numerous countries around the world.

National Cabinet Mandatory Code of Conduct

This Code applies to all tenancies that are suffering financial stress or hardship as a result of the COVID-19 pandemic as defined by their eligibility for the Commonwealth Government’s JobKeeper programme, with an annual turnover of up to $50 million (herein referred to as “SME tenants”).

Overarching Principles

The objective of the Code is to share, in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period, whilst seeking to appropriately balance the interests of tenants and landlords.

It is intended that landlords will agree tailored, bespoke and appropriate temporary arrangements for each SME tenant, taking into account their particular circumstances on a case-by-case basis.

The following overarching principles of this Code will apply in guiding such arrangements:

• Landlords and tenants share a common interest in working together, to ensure business continuity, and to facilitate the resumption of normal trading activities at the end of the COVID-19 pandemic during a reasonable recovery period.
• Landlords and tenants will be required to discuss relevant issues, to negotiate appropriate temporary leasing arrangements, and to work towards achieving mutually satisfactory outcomes.
• Landlords and tenants will negotiate in good faith.
• Landlords and tenants will act in an open, honest and transparent manner, and will each provide sufficient and accurate information within the context of negotiations to achieve outcomes consistent with this Code.
• Any agreed arrangements will take into account the impact of the COVID-19 pandemic on the tenant, with specific regard to its revenue, expenses, and profitability. Such arrangements will be proportionate and appropriate based on the impact of the COVID-19 pandemic plus a reasonable recovery period.
• The Parties will assist each other in their respective dealings with other stakeholders including governments, utility companies, and banks/other financial institutions in order to achieve outcomes consistent with the objectives of this Code.
• All premises are different, as are their commercial arrangements; it is therefore not possible to form a collective industry position. All parties recognise the intended application, legal constraints and spirit of the Competition and Consumer Act 2010.
• The Parties will take into account the fact that the risk of default on commercial leases is ultimately (and already) borne by the landlord. The landlord must not seek to permanently mitigate this risk in negotiating temporary arrangements envisaged under this Code.
• All leases must be dealt with on a case-by-case basis, considering factors such as whether the SME tenant has suffered financial hardship due to the COVID-19 pandemic; whether the tenant’s lease has expired or is soon to expire; and whether the tenant is in administration or receivership.
• Leases have different structures, different periods of tenure, and different mechanisms for determining rent. Leases may already be in arrears. Leases may already have expired and be in “hold-over.” These factors should also be taken into account in formulating any temporary arrangements in line with this Code.
• As the objective of this Code is to mitigate the impact of the COVID-19 pandemic on the tenant, due regard should be given to whether the tenant is in administration or receivership, and the application of the Code modified accordingly.

Leasing Principles

In negotiating and enacting appropriate temporary arrangements under this Code, the following leasing principles should be applied as soon as practicable on a case-by-case basis:

• Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).
• Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this Code. Material failure to abide by substantive terms of their lease will forfeit any protections provided to the tenant under this Code.
• Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals (as outlined under “definitions,” below) of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period.
• Rental waivers must constitute no less than 50% of the total reduction in rent payable under principle #3 above over the COVID-19 pandemic period and should constitute a greater proportion of the total reduction in rent payable in cases where failure to do so would compromise the tenant’s capacity to fulfil their ongoing obligations under the lease agreement. Regard must also be had to the Landlord’s financial ability to provide such additional waivers. Tenants may waive the requirement for a 50% minimum waiver by agreement.
• Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.
• Any reduction in statutory charges (e.g. land tax, council rates) or insurance will be passed on to the tenant in the appropriate proportion applicable under the terms of the lease.
• A landlord should seek to share any benefit it receives due to deferral of loan payments, provided by a financial institution as part of the Australian Bankers Association’s COVID-19 response, or any other case-by-case deferral of loan repayments offered to other Landlords, with the tenant in a proportionate manner.
• Landlords should where appropriate seek to waive recovery of any other expense (or outgoing payable) by a tenant, under lease terms, during the period the tenant is not able to trade. Landlords reserve the right to reduce services as required in such circumstances.
• If negotiated arrangements under this Code necessitate repayment, this should occur over an extended period in order to avoid placing an undue financial burden on the tenant. No repayment should commence until the earlier of the COVID-19 pandemic ending (as defined by the Australian Government) or the existing lease expiring, and taking into account a reasonable subsequent recovery period.
• No fees, interest or other charges should be applied with respect to rent waived in principles #3 and #4 above and no fees, charges nor punitive interest may be charged on deferrals in principles #3, #4 and #5 above.
• Landlords must not draw on a tenant’s security for the non-payment of rent (be this a cash bond, bank guarantee or personal guarantee) during the period of the COVID-19 pandemic and/or a reasonable subsequent recovery period.
• The tenant should be provided with an opportunity to extend its lease for an equivalent period of the rent waiver and/or deferral period outlined in item #2 above. This is intended to provide the tenant additional time to trade, on existing lease terms, during the recovery period after the COVID-19 pandemic concludes.
• Landlords agree to a freeze on rent increases (except for retail leases based on turnover rent) for the duration of the COVID-19 pandemic and a reasonable subsequent recovery period, notwithstanding any arrangements between the landlord and the tenant.
• Landlords may not apply any prohibition on levy any penalties if tenants reduce opening hours or cease to trade due to the COVID-19 pandemic.

Binding Mediation

Where landlords and tenants cannot reach agreement on leasing arrangements (as a direct result of the COVID-19 pandemic), the matter should be referred and subjected (by either party) to applicable state or territory retail/commercial leasing dispute resolution processes for binding mediation, including Small Business Commissioners/Champions/Ombudsmen where applicable.

Landlords and tenants must not use mediation processes to prolong or frustrate the facilitation of amicable resolution outcomes.

Commencement / Expiry

This Code comes into effect in all states and territories from the date each State or Territory determines under their respective legislation.

Appendix I

Examples of the Application of the Principle of Proportionality

The following scenarios are examples only, noting the circumstance of each landlord, SME tenant and lease are different, and are subject to negotiation and agreement in good faith.

Examples of practical variations reflecting the application of the principle of proportionality may include, but are not limited to:

Qualifying tenants would be provided with cash flow relief in proportion to the loss of turnover they have experienced from the COVID-19 crisis

ie. a 60% loss in turnover would result in a guaranteed 60% cash flow relief.

At a minimum, half is provided as rent free/rent waiver for the proportion of which the qualifying tenant’s revenue has fallen.

Up to half could be through a deferral of rent, with this to be recouped over at least 24 months in a manner that is negotiated by the parties

• So if the tenant’s revenue has fallen by 100%, then at least 50% of total cash flow relief is rent free/rent waiver and the remainder is a rent deferral. If the qualifying tenant’s revenue has fallen by 30%, then at least 15% of total cash flow relief is rent free/rent waiver and the remainder is rent deferral.
• Care should be taken to ensure that any repayment of the deferred rent does not compromise the ability of the affected SME tenant to recover from the crisis.

The parties would be free to make an alternative commercial arrangement to this formula if that is their wish.

JobKeeper Subsidy

A subsidy of $1,500 per fortnight per employee, administered by the ATO, will be paid to businesses that have experienced a downturn of more than 30% (50% for businesses over $1bn).

To be a part of the subsidy, employers will need to ensure that their employees receive at least $1,500 per fortnight (before tax). See the example below.

Relevant Details

Date

• From 30 March 2020 for six months
• For employees employed at and from 1 March 2020
• First payments in first week of May 2020

Applies to

• Based on comparable periods:
• Employers <$1 bn that have experienced a downturn of more than 30%

Employers >$1 bn that have experienced a downturn of more than 50%

Eligibility

There are two levels of eligibility:

1. for employers; and
2. for employees.

Eligible Employers

Eligible employers are those with:

• Turnover below $1bn that have experienced a reduction in turnover of more than 30% relative to a comparable period 12 months ago (of at least a month); or
• Turnover of $1bn or more that have experienced a reduction in turnover of more than 50% relative to a comparable period 12 months ago (of at least a month); and
• Are not subject to the Major Bank Levy.

Sole traders and the self-employed with an ABN, and not-for-profits (including charities) that meet the turnover tests are eligible for the JobKeeper payment.

Eligible Employees

Eligible employees are those who:

• Were employed by the relevant employer at 1 March 2020; and
• Are currently employed by the employer (including those who have been stood down or re-hired); and
• Are full time, part-time, or long term casuals (a casual employee employed on a regular basis for 12 months as at 1 March); and
• Are at least 16 years of age; and
• Are an Australian citizen, hold a permanent visa, are 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; and
• Are not in receipt of a JobKeeper Payment from another employer.

While it appears that businesses without employees can potentially qualify for JobKeeper Payments, it is not clear at this stage what conditions will need to be satisfied.

How the support is calculated

The ATO will administer this program and will make the $1,500 payments based on payroll information. The payments will be made monthly in arrears, so it is essential that you ensure your business and your employees continually meet the eligibility criteria.

The business will continue to receive the payments for eligible employees while they are eligible for the payments. While the program is expected to run for 6 months, payments will stop if the employee is no longer employed by the relevant employer.

How the support is provided

We are more than happy to help you access the JobKeeper subsidy, in particular to provide assistance with the registration process and calculations.

If you want to manage the process yourself, you must:

1. Register
2. Assess your turnover
3. Identify eligible employees

Register

• Applications are not yet open. However, you should register your intent to apply for the JobKeeper subsidy with the ATO. Click here for the registration link. The ATO will provide you with regular updates and advise you when you can lodge your application

Assess turnover

The Government has not released details on how they will assess revenue, however as a starting point you should:

• Ensure you have an accurate record of your revenue for the 2018-19 income year and for the 2019-20 year to date
• Ensure you keep an accurate record of revenue from March 2020 onwards
• Compare your revenue for the whole of March 2019 with the whole of March 2020
• Measure the % decline in your revenue and ensure it has declined by more than 30%
• If you are not eligible in March, you may become eligible in another month

Identify eligible employees

• Nominate the employees eligible for the JobKeeper payments – you will need to provide this information to the ATO and keep that information up to date each month. The ATO will use Single Touch Payroll to prepopulate the information in most cases.
• Notify all eligible employees that they are receiving a JobKeeper payment. Employees can only be registered with one employer.
• Pay eligible employees at least $1,500 per fortnight (before tax). If an employee normally receives $1,500 or more per fortnight before tax the employee should continue to receive their regular income.
• Pay superannuation guarantee on normal salary and wages amounts paid to employees. If the employee normally receives less than $1,500 per fortnight before tax, the employer can decide whether to pay superannuation on the additional amount that is paid as a result of the JobKeeper program.

Sole traders and the self-employed can register their interest in applying for the JobKeeper payment with the ATO. These businesses will need to provide an ABN for the business, nominate an individual to receive the payment, provide the individual’s TFN and declare their continued eligibility for the payments. Payments will be monthly to the individual’s bank account.

Example

Adam owns a real estate business with two employees. The business is still operating at this stage but Adam expects that turnover will decline by more than 30% in in the coming months.

The employees are:

• Anne, a full-time employee who earns $3,000 per fortnight (before tax)
• Nick, a part-time employee who earns $1,000 per fortnight (before tax)

Both Anne and Nick are still working in the business.

Adam registers his interest in the JobKeeper scheme (from 30 March 2020), then applies to the ATO providing details of his eligible employees. Adam also advises Anne and Nick that he has nominated them as eligible employees to receive the payment. Adam will provide information to the ATO on a monthly basis and receive the payment monthly in arrears.

Adam’s business is eligible to receive the JobKeeper Payment for each employee.

For Anne, the business will:

• Continue to pay Anne her full-time salary of $3,000 per fortnight before tax,
• Receive $1,500 per fortnight from the JobKeeper Payment

Pay superannuation guarantee on Anne’s salary

For Nick, the business will:

• Continue to pay Nick $1,000 per fortnight before tax salary
• Pay Nick an additional $500 per fortnight before tax (totalling $1,500)
• Receive $1,500 per fortnight from the JobKeeper Payment
• Pay superannuation guarantee on Nick’s wage of $1,000 per fortnight (but can choose to pay SG on the full $1,500)

Adapted from Treasury fact sheet: JobKeeper payment — information for employers

New and Enhanced Stimulus Measures

Over the weekend the Government has announced a second round of stimulus measures, including several aimed at small to medium businesses. We have included a summary below of the main measures intended to assist small businesses and their cash flow throughout the coming months. These measures include:

• Enhancements to the previously announced cash flow boost of $25,000
• Temporary Relief from the ATO
• Government Secured Loans for SMEs
• Reduced lending standards for existing bank customers applying for credit or credit limit increases.

Government Stimulus Increased to $100,000

The previously announced cash flow boost, covering the period to 30 June 2020, of up to $25,000 has been enhanced:

• The payment will now be equal to 100% of PAYG withheld (increased from 50%)
• The maximum payment has been increased from $25,000 to $50,000
• The minimum payment has been increased from $2,000 to $10,000

An additional payment has been introduced for the period to 30 September 2020, calculated on the same basis, i.e. the payment will be calculated as 100% of PAYG withheld capped at $50,000 with a minimum of $10,000.

Eligibility

The eligibility for the enhanced original cash flow boost is:

1. You are a small or medium business with an aggregated annual turnover of less than $50 million. This has been extended to Not-For-Profits
2. You are registered for PAYG Withholding
3. You make and report a payment of wages between now and 30 September October 2020
4. You were an established employer prior 12 March 2020

To qualify for the additional payment, the employer must remain active. The Government has not elaborated on what “active” means, however, the intended purpose of the stimulus is to encourage businesses to continue employing people which draws one to the conclusion that you must still have employees with continuing employment and paying wages to access the cash flow boost.

Timing of the Cash Flow Boost

The actual amount you will receive is dependent on how much PAYGW you report. The payment will be as a credit directly to your activity statement account on lodgement of your activity statement and will reduce the amount owing for the activity statement. If this pushes you into a refund position, the ATO will refund the remaining credit within 14 days.

For small lodgers, those who are either a first-year lodger or have PAYGW to report of less than $25,000, you will most likely lodge quarterly.

For medium lodgers your PAYGW is between $25,000 and $1 million per year will lodge monthly via an IAS and via the BAS at the end of each quarter.

Timing of the Additional Payment

The timing and method of the additional payment is like the cash flow boost, as it too is linked to the activity statements lodged. The payment will be as a credit directly to your activity statement account on lodgement of your activity statement and will reduce the amount owing for the activity statement. If this pushes you into a refund position, the ATO will refund the remaining credit within 14 days.

Calculation of the Cash Flow Boost

The cash flow boost is calculated based on the PAYGW you report.
For quarterly lodgers it is calculated as 100% of the PAYGW reported in your activity statement, with a cumulative cap of $50,000.

For monthly lodgers, you will receive:

• For the month of March, 300% of the PAYGW reported in your activity statement
• For the remaining months of April, May and June, 100% of the PAYGW reported in your activity statement.

Like for quarterly lodgers, this is capped at a cumulative total of $50,000 over all four activity statements.

For both quarterly and monthly lodgers, if you pay wages but are not required to withhold PAYGW then you will receive a minimum of $10,000. If in a subsequent activity statement, you pay wages and are required to withhold PAYGW then you must have withheld at least $10,000 (i.e. equal to the minimum payment) before you are eligible to receive any additional cash flow boost.

The examples at the end of this email illustrate how this is calculated for a variety of different lodgers.

Calculation of the Additional Payment

For quarterly lodgers, the additional payment will be paid in two instalments. Each instalment will be equal to 50% of the total amount you have received as the cash flow boost.

For monthly lodgers, the additional payment will be paid in four instalments. Each instalment will be equal to 25% of the total amount you have received as the cash flow boost.

Keep in mind, that for each of these payments the ATO will assess whether you are an active employer. If you are not an active employer, you will not receive the payment for that period.

The examples at the end of this email illustrate how this is calculated for a variety of different lodgers.

Examples for the $100,000 Cash Flow Boost and Additional Payment

These examples have been taken from the Government’s fact sheet:

Sarah’s Construction Business

Sarah owns and runs a building business in South Australia and employs 8 construction workers on average full-time weekly earnings, who each earn $89,730 per year. As Sarah is a medium withholder, Sarah must report withholding monthly. Sarah reports withholding of $15,008 for her employees on each of her monthly Business Activity Statements (BAS).

Under the Government’s changes, Sarah will be eligible to receive the payment on lodgement of her BAS. Sarah’s business receives:

• A credit of $45,024 for the March period, equal to 300 per cent of her total withholding.
• A credit of $4,976 for the April period, before she reaches the $50,000 cap.
• No payment for the May period, as she has now reached the $50,000 cap.
• An additional payment of $12,500 for the June period, equal to 25 per cent of her total Boosting Cash Flow for Employers payments.
• An additional payment of $12,500 for the July period, equal to 25 per cent of her total Boosting Cash Flow for Employers payments.
• An additional payment of $12,500 for the August period, equal to 25 per cent of her total Boosting Cash Flow for Employers payments.
• An additional payment of $12,500 for the September period, equal to 25 per cent of her total Boosting Cash Flow for Employers payments.

Under the previously announced Boosting Cash Flow for Employers measure, Sarah’s business would have received a maximum payment of $25,000.

Under the Government’s enhanced Boosting Cash Flow for Employers measure, Sarah’s business will receive $100,000. This is an additional $75,000 to support her business and help her retain her staff.

Sean’s Hairdresser Salon

Sean owns a hairdresser’s salon on the Gold Coast. He employs 12 hairdressers, with average salary of $50,000 per year. As Sean is a medium withholder, Sean must report withholding monthly. Sean reports withholding of $8,788 for his employees in each of his monthly BAS.

Under the Government’s changes, Sean will be eligible to receive the payments on lodgement of his relevant BAS.

Sean’s business will receive:

• A credit of $26,364 for the March period, equal to 300 per cent of his total withholding.
• A credit of $8,788 for the April period.
• A credit of $8,788 for the May period.
• A credit of $6,060 for the June period, before he reaches the $50,000 cap. Sean will also receive an additional payment of $12,500 for the June period, equal to 25 per cent of his total Boosting Cash Flow for Employers payments.
• An additional payment of $12,500 for the July period, equal to 25 per cent of his total Boosting Cash Flow for Employers payments.
• An additional payment of $12,500 for the August period, equal to 25 per cent of his total Boosting Cash Flow for Employers payments.
• An additional payment of $12,500 for the September period, equal to 25 per cent of his total Boosting Cash Flow for Employers payments.

Under the previously announced Boosting Cash Flow for Employers measure, Sean’s business would have received a total payment of $25,000.

Under the Government’s enhanced Boosting Cash Flow for Employers measure, Sean’s business will receive $100,000. This is an additional $75,000 to support his business.

Tim’s Courier Run

Tim owns and runs a small paper delivery business in Melbourne and employs two casual employees who each earn $10,000 per year. As Tim is a small withholder, he only reports withholding quarterly in each BAS. In his quarterly BAS, Tim reports withholding of $0 for his employees as they are under the tax-free threshold.

Under the Government’s changes, Tim will be eligible to receive the payment on lodgement of his BAS.

Tim’s business will receive:

• A credit of $10,000 for the March quarter, as he pays salary and wages but is not required to withhold tax.
• An additional payment of $5,000 for the June quarter, equal to 50 per cent of his total Boosting Cash Flow for Employers payments.
• An additional payment of $5,000 for the September quarter, equal to 50 per cent of his total Boosting Cash Flow for Employers payments.

If Tim begins withholding tax for the June quarter, he will need to withhold more than $10,000 before he receives any additional payment.

Under the previously announced Boosting Cash Flow for Employers measure, Tim’s business would have received a total payment of $2,000.

Under the Government’s enhanced Boosting Cash Flow for Employers measure, Tim’s business will receive $20,000. This is an additional $18,000 to support his business.

Help for the Homeless Op-Shop

Help for the Homeless, a registered charity, runs an op-shop to support its programs and employs 5 part-time workers with average income of $30,000 per year. It reports total withholding of $3,510 for its employees for each quarterly BAS.

Under the Government’s changes, Help for the Homeless will be eligible to receive the payment on lodgement of its BAS as it is a charity. Help for the Homeless receives:

• A credit of $10,000 for the March quarter, the minimum payment.
• An additional payment of $5,000 for the June quarter, equal to 50 per cent of its total Boosting Cash Flow for Employers oayments.
• An additional payment of $5,000 for the September quarter, equal to 50 per cent of its total Boosting Cash Flow for Employers payments.

Under the Government’s enhanced Boosting Cash Flow for Employers measure, Help for the Homeless will receive $20,000. Under the previously announced Boosting Cash Flow for Employers measure, NFPs were not eligible for the support.

Temporary Relief from the ATO

ATO leniency

The ATO have been directed to work with business owners that are struggling due to the Coronavirus. This may include a temporary reduction of payments or deferrals of payments or delays in legal enforcements including Director Penalty Notices and windups.

If you are struggling to pay creditors, then we recommend discussing your cash flow issues with this office and we will assist you in coming to an arrangement with the ATO.

Refund of PAYG Income Tax Instalments

Another already existing ATO relief which we can use is to apply for a credit for PAYG Income Tax Instalments you may have paid in previous quarters. Please note, these instalments need to have been paid to be credited back to you.

For example, in the September and December quarter Business Activity Statements an income tax instalment of $10,000 per quarter was included. Now as a result of the impact of Coronavirus on trading conditions you expect that your business will not much of a profit, if any, for the full 2019/20 financial year. When we lodge the March quarter Business Activity Statement we can notify the ATO that your expected tax for the year is nil, and claim a credit for the $20,000 of income tax instalments already paid. This credit will be applied against the total amount payable for the activity statement as well as any other ATO debts. If there is a credit remaining, this will be refunded to you.

Government Secured Loans

The Government have announced the Coronavirus SME Guarantee Scheme where the Government will guarantee 50% of the value of a loan to a Small to Medium Enterprise (SME) for new unsecured loans to be used for working capital.

The purpose of this scheme is to enhance lenders’ willingness and ability to provide credit to SME’s.

To be an eligible SME your turnover must be less than $50 million and the loan must have the following terms:

• Maximum loan of $250,000
• The loan is for three years, with an initial six-month repayment holiday
• The loan is unsecured (i.e. no asset is required as security for the loan)

The loans are still subject to the lenders’ assessment process. The Government has the expectation that most lenders will look at the history of the business and take into account the uncertainty of the current economic environment.

The Government anticipates that the scheme will commence in early April and be available for new loans granted until 30 September 2020.

Quick and Efficient Access to Credit

Where a lender provides credit to an existing small business customer, the Government is providing an exemption to the lender from their responsible lending obligations.

The exemption will apply for six months and will be applied to any credit applications for business purposes, including new credit, credit limit increases, credit variations and restructures.

Income Support and the Coronavirus Supplement

Over the last couple of weeks, we have seen many businesses shutdown or change how they trade. This has resulted in large amounts of people either being made redundant or temporarily stood down without pay.

To assist many of these people throughout this period, the Government has provided the following income support to individuals who may be affected by this:

1. Temporarily expanding the eligibility criteria for JobSeeker income support payments.
2. Temporarily increasing the amount your partner can earn before your entitlement to the job seeker payment is lost.
3. Establishing the time-limited Coronavirus supplement.

This information has been collated from the Federal Treasury Factsheets along with information from Services Australia (Centrelink) and we hope will be of assistance to you should you find yourself or someone you know in a position where they may require income support.

Expanded Eligibility Criteria

There are two forms of income support available for JobSeekers:

1. Youth Allowance for job seekers for those aged 16 to 21; and
2. JobSeeker Payment for those aged 22 to Age Pension Age.

The Government has temporarily expanded the eligibility criteria by:

• Expanding the groups of people who are eligible to apply
• Waiving the assets test for the next 6 months.
• Waiving the liquid assets waiting period

We have focussed the information below on the JobSeeker Payment.

We also note that if you are eligible for additional support payments this should increase your entitlement.

Who is Eligible?

Generally, to be eligible for either of these payments you must be either:

• Unemployed and looking for work; or
• Sick and temporarily unable to work for a short period of time.

The Government has temporarily expanded this to also include:

• Those who are stood down or lose their employment
• Casual workers
• Sole traders
• The self-employed
• Contract workers

When Will I Get It?

Another temporary change the Government has made is to waive the one week waiting period and the liquid assets test.

Ordinarily there is a minimum one week waiting period, and this is normally extended if you have savings or other money (the liquid assets test) that you could arguable live off for a period of time.

From 25 March 2020, the liquid assets test will not apply until such time as the Government deems.

Do I Still Have to Look for Work?

The Government has altered the mutual obligation requirements so that these can be undertaken flexible and safely.

These obligations will be tailored to your circumstances and reviewed regularly. These obligations will consider the need to self-isolate should you come into contact with a person infected with the Coronavirus.

Under these mutual obligation requirements, you must have a job plan and will most likely be required to review this regularly with an Employment Services Provider.

The Assets Test

Ordinarily if your assets are higher than the asset limits you will not receive any entitlements regardless of what your income is. This test has temporarily been waived.

This will mean that you should receive your first payment in the first payment cycle after your application has been approved. Centrelink will advise you of this date via your Centrelink online account as part of the application approval process.

Coronavirus Supplement

Over the next six months, the Coronavirus supplement of $550 per fortnight will be paid to all existing and new recipients of the following payments.

• JobSeeker Payment 1
• Youth Allowance JobSeeker
• Parenting Payment (Partnered and Single)
• Farm Household Allowance
• Special Benefits recipients
• There is no scaling of this payment, provided you are entitled to receive some of one of the above payments, you will receive the full $550 per fortnight.

The payment of the supplement will commence from 27 April 2020.

1. This also includes all payments that are transitioning to the JobSeeker Payment including Partner Allowance, Widow Allowance, Sickness Allowance and Wife Pension)

How Much Will I Get?

How much JobSeeker payment you receive will depend on the following:

• Whether you are single, partnered and/or have children
• How old you are
• How much income you earn
• How much income your partner earns
• Whether you are eligible to receive any other support payments such as rent assistance.

Details of all payments can be found at here.

Maximum Fortnightly Entitlement

The maximum amount of JobSeeker Payment you can receive fortnightly is detailed in the table below. This may be increased by other entitlements such as Rent Assistance, Pharmaceutical Allowance and Family Benefits. The Coronavirus supplement of $550 is paid in addition to these payments. These amounts are before tax. Centrelink will withhold tax as required from these payments.

Impact of Other Income

Your JobSeeker payment will decrease depending on:

• how much other income you earn per fortnight; and
• how much your partner earns per fortnight.

These rates are detailed in the tables below. We have also included the published fortnightly income cut off at which you will no longer receive the job seeker payment.

You will need to report your income to Centrelink fortnightly via your Centrelink online account. This income includes wages, salary sacrificed super, rental income, dividends and other investment income.

If you think you are on the borderline of being eligible, we recommend that you apply to Centrelink. They will assess your situation and advise whether you are entitled.

You may find that as your other income, or your spouse’s income, may vary from fortnight to fortnight that your entitlement will change from week to week.

Singles

For singles, whilst the Assets test is waived:

• An adult who is single with no dependents earning less than $104 per fortnight will receive the full JobSeeker payment.
• An adult who is single can earn up to $1,086.50 per fortnight before they do not receive any JobSeeker payment.

Couples

For couples, it is a little more complicated as you must consider the income that is earned by both spouses.

Step 1: Assess your partner’s income. Provided your partner earns less than $3,068 per fortnight ($79,762 p.a.) you may be entitlement to the JobSeeker payment. You will also be entitled to the Coronavirus supplement of $550.

Unfortunately, at the date of writing this, the Government is still to release the temporary rate and thresholds at which your partner’s earnings will impact your entitlement.

Step 2: Assess your income. The thresholds for your income are the same as for a single, i.e. you can earn up to $104 per fortnight before your entitlement starts to reduce and the rate it reduces increases after you earn $254 per fortnight.

Rates and Cut-off Points

How to Apply

Given the current social distancing requirements, the Government is requesting that you make your claim online wherever possible.

If you have any problems claiming online, you can call them on the Job seekers line on 132 850 or go to your local service centre. Please note that due to the high volume of applicants there may be significant wait times on both the phone line and at the local service centre.

Detailed instructions on how to apply can be found here:

You will need a myGov account and a Centrelink online account. Instructions on how to set these up can be found at:

• Create myGov account
• Link Centrelink online account

NOTE: To setup and link your Centrelink online account you will need your Customer Reference Number (CRN) and you may need to confirm your identity. If you do not have, or cannot find, your CRN you will need to call Centrelink.

Once you have submitted your claim, Centrelink will provide you with a transaction receipt which will allow you to track the progress of your claim. This receipt will also provide you with an estimate of when your claim is complete. Centrelink will notify you of the result of your claim by sending a letter to your myGov inbox. You can also elect to have your mail sent electronically.

You can track the progress of your claim online by logging into myGov and going to Centrelink.

If Centrelink requires additional information, they will provide you with details of the information they require.

You can also keep track and access your mail via the Express Plus Centrelink mobile app.

Centrelink Contact Numbers

We have summarised the main JobSeeker numbers below. Please click here for a full list of Centrelink phone numbers.

Sources

Services Australia, JobSeeker: https://www.servicesaustralia.gov.au/individuals/job-seekers

Treasury Factsheet for individuals: Fact_sheet-Income_Support_for_Individuals_0

Introduction

The Government has announced grants of $25,000 to encourage people to build a new home or substantially renovate their existing home.

The HomeBuilder scheme targets the residential construction market by providing tax-free grants of $25,000 to eligible owner-occupiers, including first home buyers, to build a new home or substantially renovate their existing home.

The grants will be distributed by the revenue office of the State or Territory where you live or plan to live.

There are a few complexities to this grant that both home builders/renovators and the building industry need to be across before jumping in and signing a new contract on the expectation that the grant will apply.

Eligibility

Eligibility criteria apply to the individuals applying for the grant and the building project:

Individual eligibility

The HomeBuilder scheme is available to owner occupiers including first home buyers. It is not accessible to owner builders, developers or investors.

To be eligible you need to be:

• An individual (not a company or trust); and
• 18 years of age or older; and
• An Australian citizen.

And, you need to meet the income test. To be eligible, you cannot earn more than:

• Individuals – $125,000 based on your 2018-19 or later tax return
• Couples – $200,000 based on both of your 2018-19 or later tax returns

The building project eligibility

The building contract must be signed between 4 June 2020 and 31 December 2020. And, the construction or renovation must commence within three months of the contract date.

The grants are available if you build a new home or renovate a home to live in (your principal place of residence) where:

If you own or have purchased land but have not signed a contract to build your home, you may meet the eligibility criteria if you:

• Own a property (house and land), and knock down the house to rebuild – this will be counted as a substantial renovation, and therefore subject to the renovation price range of $150,000 to $750,000 provided the total value (house and land) of the property does not exceed $1.5 million pre-renovation;
• Own vacant land before 4 June 2020, and then build, the total value of the land and new build cannot exceed $750,000; or
• Buy the land after 4 June 2020, and then build, the total value of the land and build cannot exceed $750,000.

Integrity measures and pricing

Building contracts must be at arms-length, that is, the parties cannot be related or connected.

Renovations or building work must be undertaken by a registered or licenced building service ‘contractor’ (depending on the state or territory you live in) and named as a builder on the building licence or permit.

When it comes to price, the terms should be commercially reasonable, and the contract price should not be inflated compared to the fair market price. The rules enable the purchaser to request that the builder demonstrate that the contract price for the new build or substantial renovation is no more than a comparable product (measured by quality, location and size) as at 1 July 2019.

Interaction with first home owner grant schemes

The HomeBuilder grant does not exclude first home buyers from accessing other grants and concessions such as the First Home Owner Grant, stamp duty concessions, the First Home Loan Deposit Scheme, and First Home Super Saver Scheme.

Problem areas

As the building contract is entered into before the grant is approved, it will be important that the grant is not essential to finance the building project, just in case the grant is not approved.

In addition, as the builder needs to commence work within three months of the contract date, it will be important to ensure that the contract recognises the commencement dates.

Markets

• Market Performance – The ASX200 rose 8.8% in April.
• Sector Performance – April saw the top 3 performing sectors being Energy, Information Technology and Consumer Discretionary sectors
• Global – The US S&P500 Index jumped 12.8%.
• Gold – rose to $1,702.75/oz – an all time high.
• Iron Ore – was steady at $83.50/ton.
• Oil – Brent rose to US25.27/bbl. During the month oil crude futures went into negative territory trading at -US$37.63 a barrel. With storage facilities full investors paid not to take delivery.

Property

• Housing – Dwelling prices rose 0.3% in April.
• Home Sales – volumes fell by approximately 28% in April compared to prior year.
• Dwelling Commencements – are predicted by UBS to drop to approximately 100,000 over the following year to levels not seen for decades.
• Property Prices – are predicted to fall a minimum of 10%.

Economy

• Interest Rates – The RBA cash rate remained at 0.25% in April – the lowest on record.
• Bond Yield – The Australian 10-year Government bond yield rose over the month of April to 0.89% while the US 10 year government bond yield dropped to 0.62%.
• Consumer Confidence – The Westpac-Melbourne Institute of Consumer Sentiment plunged 17.7% to 75.6 in April from 91.9 in March. This is the single biggest monthly fall in the 47 year history of the survey. The Index registered 64.6 in the recession we had in the early 1990’s and 75.5 in the recession we had in the early 1980’s.
• Exchange Rates – The Australian Dollar was steady against the US Dollar at 0.655.
• Chicago Purchasing Managers Index (PMI) – sank to 35.4 in April. This was the 10^th straight sub-50 reading. An index reading of 50 or more indicates a growing economy.
• New Car Sales – fell by 48.5% to 38,926 in April compared to 75,550 in April 2019.
• Private credit – jumped 1.1% in March being the strongest increase since 2007. This was mainly driven by business drawing down on lines of credit to insulate them in these uncertain times. The contraction in personal credit accelerated sharply with the largest decline since the GFC and a very negative sign for consumption.
• Global Growth – contracted in the Global Financial Crisis (GFC) by .0.1%. The International Monetary Fund (IMF) is projecting a 3% contraction in 2020.
• Italy, France & Spain – have seen their largest quarterly GDP falls on record.
• US Jobs – have been smashed as 33 million Americans have filed for unemployment benefits in the last 4 weeks. It is anticipated that the US unemployment rate will be between 15-20%. Only 2 months ago the US unemployment rate was at a 50 year low of 3.5%.
• Unemployment in Australia – is projected to rise above 10%.
• JobKeeper Program – has already seen 725,000 businesses register that employ 4.7 million Australians.
• JobSeeker – paid to the unemployed has risen by about 900,000 in the last 6 weeks to a total of 1.5 million people in total.

Sources: UBS, Westpac, S&P Dow Jones Indices, ABS, US BLS, CoreLogic, Morningstar

Comment – The Bank of Uncle Sam

On 9 April the US Federal Reserve announced a series of measures worth $2.3 trillion in loans to support business and the economy.

The size of this expenditure is just breathtaking.

Effectively the US taxpayer is providing loans to business to retain employees. In addition business debt facilities which would otherwise have been recalled by financial institutions or could not effectively be rolled over on maturity, and hence would have been in default, will now be bailed out by the American taxpayer or The Bank of Uncle Sam.

Effectively the taxpayer has underwritten the business community known as Main Street as well as the financial community known as Wall Street.

To put this single spending initiative into perspective the US Federal Government Budget for 2020 was originally predicted to generate gross income/taxes of $3.7 trillion, with spending predicted to be $4.8 trillion resulting in a deficit of $1.1 trillion.

So you can see the size of this commitment is 50% of the American annual budget and we are not anywhere near coming out of this recession.

Furthermore, in March the total US Federal Government Debt amounted to $23.7 trillion before the recent COVID 19 budget spending announcements. This debt was $20 trillion when Trump came to power and was $10 trillion when Obama became President. Wars in Iraq & Afghanistan, rising costs of Social Security and Medicare as well as supporting the economy & business in times such as the GFC have been expensive.

The COVID 19 Pandemic will add significantly to this pile of debt.

It’s tax time again!

Another financial year has passed and your 2020 Income Tax Return is now due. As with previous years, we have prepared this summary with the aim of making this annual event as efficient for you as possible.

COVID-19 has impacted us all and we have included a dedicated section on what you can claim if you were required to work from home between the period 1 March 2020 to 30 June 2020.

This summary should act as a checklist of items to consider when collating your information for us.

To view our summary please click through to here.

Markets

• Market Performance – ASX200 continued to climb adding 0.5% in July.
• Sector Performance – Materials (+5.8%), IT (+4.6%) & Communication Services (+3.4%) sectors outperformed.
• Global – in the US the S&P500 index rose 5.6% in July after a 1.8% jump in June and 4.8% in May.
• Gold – continued its strong rise to another all time high of $1,964.90/oz, an increase of over $196 in the month of July.
• Iron Ore – rose to $109.50/ton from $103.20/ton in June.
• Oil – rose to US$43.30/bbl as at the end of July.

Property

• Housing – dwelling prices dropped 0.8% in July nationally. Sydney was down 0.9% while Melbourne was down 1.2% in July
• Values –Sydney dwelling values are still 4.4% below the July 2017 peak while Melbourne is still 3.5% below the July 2017 peak. Interestingly ACT (Canberra) property values rose 0.6% in July to an all time record high.
• Home Sale Trends – homes are taking longer to sell, increasing from 43 days on average in the March quarter to 45 days in the June quarter and now 49 days in the 3 months to the end of July.
• Auction Clearance Rates – dropped to 55.9% in July from 58.9% in June. This compares to clearance rates of about 80% in the first half of 2017.
• Dwelling Approvals – declined a further 4.9% over June to 12,213; the lowest volume of approvals since July 2012.
• Housing Finance – in May, the portion of new housing finance to investors fell to a record low of 25%.

Economy

• Interest Rates – were left on hold at 0.25%.
• CPI – June quarter inflation collapsed down 1.9%, the largest fall in the 72 years history of data collected by the ABS. Annual inflation has been running below the RBA’s 2-3% target band for a period of 24 straight quarters.
• Retail Sales – jumped again in June by 2.7%m/m. The level is now 7% above the February 2020 pre COVID level. Online sales are a massive 72% higher than a year ago.
• Bond Yield – Australian 10-year Government bond yields were 0.82% while US Government 10-year bond yields dropped only 10 bps to 0.55%.
• Consumer Confidence – the ANZ Roy Morgan weekly consumer confidence index fell to 89 at the end of July. This represents a 4% decline in the month if July and a massive 18% decline since mid-February.
• Exchange Rates – the Australian Dollar rose against the US Dollar to 0.71 (from 0.693 in May) a rise of over 2 cents.
• Unemployment – rose to 7.4%. in June, a 22 year high.
• Chicago Purchasing Managers Index (PMI) – having fallen for 11 straight months to 32.3 in May and jumped to 36.6 in June, the Chicago PMI jumped strongly to 51.9 in July well above the 50 level indicating a growing economy, despite the obvious problems of COVID, BLM and the upcoming November 3 election.
• German Factory Orders – jumped a huge 27.9% in June but are still 11.3% lower than in February this year before COVID restrictions were put in place. June’s result was strong evidence of rising levels of demand within the German economy.
• UK Economy – contracted 2.2% in GDP terms in the first quarter of 2020; the largest drop since 1979.
• Chinese Economy – grew by 3.2% in the second quarter of 2020 to June 30. This was a strong rebound from the massive 6.8% contraction in the first 3 months of the year following COVID 19 lockdown restrictions.

Sources: UBS, Westpac, S&P Dow Jones Indices, ABS, US BLS, CoreLogic, Morningstar.

Comment – Fishing Wars & Food Security

There was a very interesting article in one of the mainstream papers recently on the increasing international tensions over fishing rights. The cause of these tensions is again something that Australia takes for granted, food security. In this case it was a serious altercation between our most populous northern neighbour Indonesia and the main instigator of aggression in the South China Sea being China. The incident which occurred in December last year did not get wide scale press in Australia due to the severity of the bushfires that were ravaging large parts of Australia. China had sent a fleet of 63 commercial fishing vessels with 4-armed coast guard vessels as escort into Indonesia’s Exclusive Economic Zone in an area known as the Natuna Sea.

In Indonesia, fish accounts for more than 50% of total protein intake and the fishing industry employs some 12 million people. The loss of fisheries for such countries could contribute to violent extremism, political instability and potentially even large-scale population movements. The scale to which these 63 commercial fishing vessels could deplete Indonesia’s fish stocks is obvious and as a country of 268 million people who have genuine food security issues, this event was met with an iron fist.

President Joko Widdodo instructed the Indonesian Navy, several coast guard vessels, its own commercial fishing vessels and four F-16 fighter jets to repel the insurgent Chinese fleet.

Australia is blessed with a relatively small population sitting on a massive land mass of 7.7million square kilometres with a massive 59,736 kilometres of coastline. The control the Australian government has extends well beyond our immediate coastline. Australia’s “Exclusive Economic Zone” extends 200 nautical miles (370km) beyond the coastline and is regulated by the United Nations Convention on the Law of the Sea or UNCLOS.

When the same 200km EEZ is applied in the South China Sea, things get a little vague. With Japan, China, Vietnam, Malaysia, Taiwan, Thailand, Singapore, The Philippines, Brunei, and Indonesia all having rights to a defined 200km EEZ, and given the importance of the sea as a commercial shipping route, fishing industry and undiscovered oil & gas reserves, all bordering countries are sensitive to any incursions. In 2009, in a submission to the United Nations, China lodged a map of the South China Sea with a vaguely defined 9 dash line, which comprised most of the area and overlapped with the legitimate EEZ boundaries of the other coastal countries in the region.

The major islands and reef formations, being the Spratly Islands, Parcel Islands, the Natuna Islands and Scarborough shoal, have in the last 10 years become the target of significant Chinese development with land reclamation, key military infrastructure development, and troop deployments. In a report to congress titled US-China Strategic Competition in South & East China Seas: Background & Issues for Congress on 23rd June 2020, it noted “Chinese domination over or control of its near-seas region could help China to do one or more of the following on a day-to-day basis:

• control fishing operations and oil and gas exploration activities in the South China Sea (SCS);
• coerce, intimidate, or put political pressure on other countries bordering on the SCS;
• announce and enforce an air defence identification zone (ADIZ) over the SCS;
• announce and enforce a maritime exclusion zone (i.e., a blockade) around Taiwan

The US is concerned that China’s actions will challenge the existing principle of peaceful resolution to disputes between the affected nations and that it opposes the “might makes right” approach which China is adopting.

Fishing rights is the first and obvious issue for many of the surrounding countries. With China’s almost insatiable demand for fish and the South China Sea accounting for 15% of the global catch in 2015, control and exploitation of these seas is critical. 59 million people work in the fishing or aquaculture industry with 85% of those in Asia according to United Nations Food & Agriculture Organisation, and over 3.5million fishing vessels, the pressure on the fish stocks in the South China Sea is enormous and possibly unsustainable. With fishing boundaries tied to agreed geopolitical boundaries, and endorsed by UNCLOS, the actions by China in the region could be concern for all.

China of course does not limit itself to the South China Sea. It has raised the ire of many African nations as well as South America while here in Australia, where we have the prized Southern Blue Fin Tuna, illegal fishing is also very actively defended. China has a very small Exclusive Economic Zone relative to their population and in recent times have increasingly looked at other geographic fishing grounds to fill their growing need for fish protein. In this regard Indonesia’s actions against China in December can be seen as being resolute in the defence of international law and is but another significant issue the world faces in these challenging times.

Source: Mason Stevens

With 30 June fast approaching its time to review your superannuation position to see if there are any potential strategies that you might be able to take advantage of.

Contribution Caps

There are limits to the amount you can contribute into superannuation per year. These caps are:

Non-concessional contributions are after-tax contributions including spouse contributions and contributions made under the Super Co-Contribution Scheme. Non-concessional contributions were previously known as undeducted contributions.

Concessional contributions are before-tax contributions and include your employer’s compulsory contributions, additional employer contributions, and any amounts that you salary sacrifice into superannuation.

Tax Deductible Superannuation Contribution

From 1 July 2017, individuals eligible to make contributions to superannuation, have been able to claim an income tax deduction for personal superannuation contributions up to the concessional contribution cap of $25,000.

Note the $25,000 cap also includes your employer compulsory contributions.

If you have surplus cash funds available in your own name, you could make an additional contribution and claim a tax deduction for the contribution in your tax return. The additional contribution would result in a reduction in taxable income and therefore personal income tax liability. Please see the below example based on taxable income for the year of $80,000.

Tax Saving by making a $10,000 contribution $1,950 ($18,067 – $16,117)

Catch Up Contribution

From 1 July 2018, individuals with superannuation balances of less than $500,000 will be able make additional concessional (before-tax) contributions up to 5 consecutive years’ worth of unused cap. Only unused amounts accrued from 1 July 2018 can be carried forward and utilised as catch-up contributions. Hence the maximum catch up contribution that you could use this financial year is $50,000.

This could be a good strategy if your income was higher or you made a capital gain and have unused contributions from 2018/2019.

Superannuation Co-Contribution

Superannuation co-contributions help eligible people boost their retirement savings. If you’re a low or middle-income earner and make personal (after-tax) contributions to your super fund, the government may also make a contribution (called a co-contribution) up to a maximum amount of $500.

The eligibility criteria is as follows:

• Your total income is equal to or less than the lower threshold of $38,564 for the 2019/2020 financial year;
• 10% of your assessable income must come from employment-related activities, carrying on a business, or a combination of both;
• You were less than 71 years old at the end of the financial year;
• You lodge a tax return; and
• You make personal contributions of $1,000 to your super account.

If you satisfy the above criteria we would recommend a $1,000 contribution before 30 June 2020. The result is – contribute $1,000 and get $500 – that’s a 50% guaranteed return! If your eligible income is above the lower threshold of $38,564 but below the upper threshold of $53,564 for the 2019/2020 financial year, and you satisfy the above criteria, you will be eligible for a reduced Government Co-Contribution.

You don’t need to apply for the super co-contribution. When you lodge your tax return, the ATO will determine if you’re eligible. If the super fund has your tax file number (TFN) the payment will be made directly to your superannuation account.

Spouse Contribution

If you have a spouse who earns less than $37,000 and you make a spouse super contribution of up to $3,000, you can claim a personal tax offset of 18% of the contribution up to the maximum rebate of $540. The tax offset phases out when your spouse earns $40,000 or more.

Your spouse’s income includes their assessable income, reportable fringe benefits and any reportable employer super contributions such as salary sacrifice.

Non-Concessional Superannuation Contribution

Minimum Pension Drawdown

You are required to drawdown a minimum amount of pension each year to satisfy legislative requirements. This amount must be withdrawn before 30 June.

The Government reduced the minimum pension drawdown for 2019/20 and 2020/21 to assist retirees following the Covid-19 pandemic. The minimum drawdown factor is determined by your age and is calculated each year. The table below illustrates the reduced minimum pension factors for each age group for the 2019/2020 financial year:

Markets

• Market Performance – ASX200 continued to climb adding 2.8% in August.
• Sector Performance – IT was up 15.5% while consumer discretionary spending was up 8.7%.
• Global – in the US the S&P500 index rose 7.7% in August after a 5.6% jump in July.
• Gold – dropped from $1,964.90/oz, to $1,957.35/oz $196 in the month of July.
• Iron Ore – rose strongly to $125.00/ton from $109.50/ton in July.
• Oil – rose to US$45.28/bbl as at the end of August up US$1.98/bbl.

Property

• Housing – dwelling prices dropped 0.4% in August nationally. Sydney was down 0.5% while Melbourne was down 1.1% in August.
• Values – home values fell for the 4th consecutive month in August by 0.4% nationally. Sydney was down 0.5% for August while Melbourne dropped 1.2% for the month.
• Auction Clearance Rates – in Sydney August saw clearance rates of 69.6% from 565 auctions while Melbourne saw a 30% clearance rate from only 30 auctions.
• Dwelling Approvals – declined a further 4.9% over June to 12,213; the lowest volume of approvals since July 2012.
• Finance – total credit in July fell 0.1% dragging the yearly decline to 2.4%.

Economy

• Interest Rates – were left on hold at 0.25%.
• Retail Sales – jumped in June by 2.7%m/m and a further 3.3% in July.
• Bond Yield – Global bond yields rose sharply in August with US 10 year government bonds rising 17 basis points to 0.70% while Australian government bonds rose to 0.98% from 0.82% in July.
• Consumer Confidence – the August Westpac Melbourne Institution consumer sentiment fell 9.5% (it was down 6.1% in July).
• Exchange Rates – the Australian Dollar rose again against the US Dollar to 0.74 (from 0.693 in May) a rise of over 4 cents.
• Unemployment – rose from 7.4% to 7.5% in July, a 22 year high.
• Chicago Purchasing Managers Index (PMI) – having fallen for 11 straight months to 32.3 in May and jumped to 36.6 in June, the Chicago PMI jumped strongly to 51.9 in July well above the 50 level indicating a growing economy. Despite the obvious problems of COVID, BLM and the upcoming November 3 election the index feel back to 51.2 in August. If this index stays above 50 it reflects a growing US economy despite all the problems.
• Chinese Economy – Chinese economic data strengthens with their July trade surplus totalling $62.3 billion which was well ahead of expectations of $42 billion.
• COVID 19 – on August 31 India broke USA’S record of highest COVID 19 cases in a single day registering 80,000 new cases in 24 hours.

Sources: UBS, Westpac, S&P Dow Jones Indices, ABS, US BLS, CoreLogic, Morningstar

Comment

COVID 19 has hit economies around the globe. The table shows that while Australia experienced a 7% decline in GDP in the June quarter; that when you compare that to other countries we have performed better than most according to Treasury statistics.

Treasury says our unemployment rate will rise from the current 7.5% to over 9% by Christmas. Many forecasters estimate the unemployment rate will exceed 10%.

To put that into perspective that means around 1.2 million people will be wanting to work but do not have a job.

If you go back 6 months Australia’s unemployment rate was about 5%.

So in effect an additional 500,000 to 600,000 people will lose their job as a result of COVID 19 and that is if the forecasts are accurate.

After 28 years of economic growth a lot of people are about to learn what a recession really is.

To date JobKeeper has insulated many, but from October as the stimulus is wound back from the Federal Government, economic reality will kick in for a lot more Australian’s.

The NSW Government has recently announced the Small Business COVID-19 Recovery Grant.

The grant is available for small businesses reopening or up-scaling their operations as the NSW Government removes restrictions on movement and business trading.

How Much is the Grant?

The grants are between $500 and $3,000 and are to assist with costs such as:

• fit-out changes and temporary physical changes (for example, plastic barriers at checkouts)
• staff training and counselling
• business advice and continuity planning
• cleaning products and additional cleaning services
• additional equipment necessary to comply with social distancing or other public health measures
• marketing, communications and advertising
• digital solutions (for example, e-commerce or business websites).

The grants only apply to eligible expenditure incurred after 1 July 2020 and only where no other Government support is available.

Eligibility

To be eligible for this grant, you must as at 1 March 2020:

• be a small business or a not-for-profit organisation (see guidelines) based in NSW
• have an ABN registered in NSW
• have an annual turnover of more than $75,000
• employ less than 20 full-time equivalent (FTE) staff (non-employing businesses can apply)
• your 2019-20 payroll must be below $900,000
• be in a highly impacted industry by the Public Health (COVID-19 Restrictions on Gathering and Movement) Order 2020 (see guidelines)
• have experienced at least 30% decline in turnover from March to July 2020 compared to the equivalent period (of at least 2 weeks) in 2019
• have costs associated with safely reopening or up-scaling your business from 1 July 2020.

How to Apply

Applications are now open and should be applied for directly via the online application form.

Applications close Sunday 16 August 2020.

What You Need to Apply

You will need all documentation ready before you commence the online application. You will need:

• a MyServiceNSW Account
• two proof of identity documents (see application instructions)
• your ABN (or ACN)
• your bank account details
• your latest Business Activity Statement (BAS)

As part of the application you will need to make a declaration that you meet the eligibility criteria.

The future of JobKeeper

Between April to May 2020, JobKeeper was taken up by 920,000 organisations and around 3.5 million individuals – 30% of pre-Coronavirus private sector employment.

On 21 July 2020, the Government announced an extension of the JobKeeper program to 28 March 2021 but with tighter access and reduced rates. From 28 September 2020, employers seeking to claim JobKeeper payments will need to reassess their eligibility and prove an actual decline in turnover.

If your business currently receives JobKeeper, your arrangements will generally remain unchanged until 27 September 2020.

We’ve summarised the key details for employers on JobKeeper 2.0 below.

Let us know if we can assist you in any way.

JobKeeper 2.0

The second tranche of the JobKeeper scheme changes the eligibility test for employers and the method and amount paid to employees.

If your business currently receives JobKeeper, your arrangements will generally remain unchanged until 27 September 2020. From 28 September 2020, employers seeking to claim JobKeeper payments will need to reassess their eligibility and prove an actual decline in turnover.

Eligibility

To continue receiving JobKeeper payments, employers will need to reassess their eligibility with reference to actual GST turnover for the June and September 2020 quarters (for payments between 28 September to 3 January 2021), and ag

ain for the June, September and December 2020 quarters (for payments between 4 January 2021 to 28 March 2021).

Eligible employers

The broad eligibility tests to access JobKeeper remain the same with an extended decline in turnover test.

To be eligible, on 1 March 2020, you must have carried on a business in Australia or was a non‑profit body pursuing its objectives principally in Australia; and

1. before the end of the JobKeeper fortnight, it met the decline in turnover test*:
   • ​being 15% or more for an ACNC-registered charity (excluding universities, or schools within the meaning of the GST Act – these entities need to meet the basic turnover test), or
   • being 50% or more for large businesses (aggregated turnover for the test or comparison period is likely to be $1 billion or more), or
   • being 30% or more for all other qualifying entities.
2. And, was not:
   • on 1 March 2020, subject to Major Bank Levy for any quarter ending before this date, a member of a consolidated group and another member of the group had been subject to the levy; or
   • a government body of a particular kind, or a wholly-owned entity of such a body; or
   • at any time in the fortnight, a provisional liquidator or liquidator has been appointed to the business or a trustee in bankruptcy had been appointed to the individual’s property.

1 March 2020 is an absolute date. An employer that had ceased trading, commenced after 1 March 2020, or was not pursuing its objectives in Australia at that date, is not eligible.

*Additional tests apply from 28 September 2020.

Eligible employees

Employee eligibility will remain broadly the same but the value of the payment will change from 28 September based on average weekly hours in February 2020. The revised eligibility is:

1. On 1 March 2020:
   • Was aged 16 years and over; and
   • If the individual was aged 16 or 17, was either financially independent or was not undertaking full-time study;
   • Was an employee other than a casual, or was a long-term casual*; and
   • Was an Australian resident (under the meaning of the Social Security Act 1991), or a resident for tax purposes and held a Subclass 444 (Special category) visa**.
2. And, at any point during the JobKeeper fortnight:
   • Was an employee of the employer; and
   • Was not an excluded employee:
     • An employee receiving parental leave pay or dad and partner pay; or
     • An employee receiving workers compensation payments in relation to total incapacity.
3. And, has provided the JobKeeper Payment Employee Nomination to the employer:
   • Agreeing to be nominated by the employer as an eligible employee under the JobKeeper scheme; and
   • Confirming that they have not agreed to be nominated by another employer; and
   • If they are a long-term casual, they do not have permanent employment with another employer.

*A ‘long term casual employee’ is a person who has been employed by the business on a regular and systematic basis during the period of 12 months that ended on 1 March 2020 (1 March 2019 to 1 March 2020). These are likely to be employees with a recurring work schedule or a reasonable expectation of ongoing work.

JobKeeper Payments

Assessing if an employee has worked 20 hours or more

Markets

• Market Performance – ASX200 continued to climb adding 2.5% in June, and a total of 16.2% in the June quarter although the index fell 10.89% for the year.
• Sector Performance – IT (+5.96%) Consumer Discretionary (+5.37%) & Consumer Staples (+5.09%) sectors outperformed.
• Global – in the US the S&P500 index rose 1.8% in June after a 4.8% jump in May.
• Gold – continued its strong rise to another all time high of $1,781.89/oz, an increase of over $53.00 in the month of June. An increase of 3% for the month.
• Iron Ore – rose to $103.30/ton with strong demand continuing.
• Oil – rose to US$39.68/bbl as at the end of June.

Property

• Housing – dwelling prices dropped 0.7% in June nationally. Melbourne was down 1.1% while Sydney dropped 0.8% in the month.
• Sydney Dwelling Values – are however still down 3.5% below their record high in July 2017.
• Home Sales Volumes – have increased in May and June but are still 15.8% lower than the recent peak in March.
• Home Sale Trends – homes are taking longer to sell increasing from an average of 43 days in the March quarter to 45 days in the June quarter while vendor discounting increased from 4.3% to 4.4% over the same period.
• Residential Building Approvals – slumped 16.4% in May (month on month) the biggest monthly decline since 2017 to 153,000 dwellings, an 8 year low.

Economy

• Interest Rates – were left on hold at 0.25%.
• Bond Yield – Australian 10-year Government bond yields were steady at 0.90% while US Government 10-year bond yields rose only 2 bps to 0.66%.
• Consumer Confidence – the ANZ Roy Morgan consumer confidence survey fell to 93.0 in late June 2020 compared to the recent peak of 109.1 in February 2020. That represents a 15% fall.
• Exchange Rates – the Australian Dollar rose against the US Dollar to 0.693 (from 0.664 in May).
• Unemployment – rose to 7.1%.
• Chicago Purchasing Managers Index (PMI) – having fallen for the 11th straight month to 32.3 in May, the index jumped to 36.6 in June. While a welcomed increase it is still well short of the 50 plus index reading required to indicate a growing economy.
• US Jobs – surprisingly 4.8 million jobs were added in the month of June and the unemployment rate fell to 11.1%.
• German Factory Orders – rose 10.4% have fallen by approximately 37% in the months of March and April.
• French Consumption – of household goods jumped 36.6% in June. While this represents a strong recovery household consumption is still 7.2% below its February level.

Sources: UBS, Westpac, S&P Dow Jones Indices, ABS, US BLS, CoreLogic, Morningstar

Comment – Innovation

Example 1

Apple generated 61% of its revenue from iphones in the first quarter of 2020.

However last year it sold 2 million units only in India where Samsung sold 30 million units and Xiaomi sold 44 million units with its cheap price point mobile phone.

Apple has traditionally taken a premium price position in the market and has accordingly struggled for market share.

Identifying the problem Apple recently launched the iphone SE budget phone that retails for about $400.00. Apple hope to gain market share in India as a result and magnify its global dominance of the iphone market.

The moral to this story is – even companies that dominate the global stage continually innovate to compete, grow and prosper. It’s the companies that don’t that disappear.

Example 2

Afterpay is a relative new business which allows you to pay for simple retail purchases in 3 monthly instalments. Whether you are buying a new TV or a new shirt lots of people are turning to Afterpay to spread the cost of the purchase out over time. It’s only if you are late with a payment that you are charged with a fee.

Interestingly, Afterpay claims it is not providing a credit service and for the time being avoids being regulated by the tsunami of regulations that surrounds the provision of credit services.

Anyway on July 1, 2020, an analyst from Citi upgraded the price target for Afterpay from $27 to $64 despite the fact the company does not yet make a profit.

Forward estimates indicate the company may become profitable in 2022.

If it achieves those forecasts (which is optimistic) it means the company is currently trading on a Price Earnings (PE) multiple of 283 times where the ASX market average is about 20.

This type of valuation challenges the traditionally orthodox view that value is a function of profitability.

How much profit this company can make in the future will be based on 2 key factors:

a) fees for late payment; and

b) income from the sale of customer spending habits to data retailers and advertisers.

It is this second income stream that is the big unknown and why people say we live now in a world of BIG DATA.

Example 3

Tesla is currently valued at $224 billion US dollars. By way of comparison other vehicle manufacturing companies are valued as follows:

So once again you can see that valuations can differ widely. Knowing which companies are profitable now or likely to be profitable in the future is important. The investor needs to understand whether he is buying a promise or hope in a future technology race or is he/she buying a known profitable and experienced team who continually deliver in good times and bad.

Often the choice is:

“Do you want an investment, or do you want a punt (or gamble)?”

Obviously, the choice is more complex than this but often the high flyer’s are also high risk.

We always knew that a Government scheme swiftly distributing cash during a crisis was going to come with equally swift compliance and review measures, particularly when eligibility was self-assessed. Two major Australian Taxation Office (ATO) initiatives are searching out fraud and schemes designed to take advantage of the Government’s Coronavirus Economic Response Package.

Tip lines, tax returns and STP

The tip line, tax returns, and single touch payroll are just a few of the data sources the ATO is using to identify “inappropriate behaviour.”

The tip line has already delivered its first target with the very public outing in the Australian Financial Review of The Australian Comfort Group, which owns SleepMaker and Dunlop Foams for an alleged scheme to deliberately depress monthly revenue to qualify for up to $11 million in wage subsidies. Internal emails allegedly from an employee who has also lodged a claim under the Fair Work Act against the manufacturer, appear to demonstrate an internal effort to push invoicing to other periods. The Australian Comfort Group have vehemently denied any wrong-doing.

Tips from employees about their employer’s efforts to manipulate revenue to meet the JobKeeper eligibility criteria is not hard to find. The ATO’s community forum notes one respondent who states:

“My employer is defrauding the ATO and is set to receive close to $1 million in Jobkeeper payments which the company is certainly not eligible for as the company has not had a 30% decline in sales. The company has already received the first payment relating to the month of April in Jobkeeper from the ATO.

The director of the company is emailing employees constantly to stop invoicing, change invoice dates, make sure the company shows a 30% fall in sales compared to the same period in 2019, to keep him updated each week on sales to not exceed the 30% fall, how much will the company receive, when the funds are received to shift them into offset accounts immediately. It just goes on and on. I have copies of the emails from the company director giving instructions on how to create this fraud so the company meets the eligibility criteria.”

The ATO has noted that it has received intelligence on a number of schemes circulating, one of which is the withdrawal of money from superannuation and re-contributing it to get a tax deduction.

ATO Deputy Commissioner Will Day said that, “Not only is this not in the spirit of the measure (which is designed to assist those experiencing hardship), severe penalties can be applied to tax avoidance schemes or those found to be breaking the law. If someone recommends something like this that seems too good to be true, well, it probably is.”

The ATO has made its targets clear. For JobKeeper, these include ensuring that:

• Entities meet the eligibility requirements in relation to business income
• Entities are claiming for eligible employees
• Eligible business participants are correctly making claims
• Entities are not manipulating their turnover in order to satisfy the decline in turnover test.

For the early release of superannuation measure, behaviours attracting ATO attention include:

• Applying when there is no change to your regular salary, wage, or employment information
• Artificially arranging your affairs to meet the eligibility criteria
• Making false statements or fraudulent attempts to meet the eligibility criteria
• Withdrawing and re-contributing super for a tax advantage – this could not only trigger anti-avoidance rules but also result in additional taxes and impact your eligibility for a super co-contribution.

Where individuals have not met the early access measure’s hardship eligibility criteria, the ATO has stated that fines of up to $12,000 will apply for each false and misleading statement made. In addition, where a scheme has been entered into to obtain a tax benefit, such as claiming a tax deduction for recontributing super withdrawn under the early release measures, Part IVA may apply. That is, the ATO is actively looking for individuals who have utilised the early release measures when they didn’t need it, then recontributing all or part of the super for the purpose of claiming a tax deduction.

For the Cash Flow Boost, the ATO is looking for schemes designed to:

• Artificially restructure businesses to gain access to the cash flow boost
• Artificially changing the character of payments to salary or wages to maximise the cash flow boost
• Inflating reported withholding amounts to maximise the cash flow boost
• Resurrecting dormant entities or phoenixing
• Making false statements or fraudulent attempts to create an entitlement.

Genuinely made a mistake? The ATO has stated that if you work with them, and the mistake is genuine, they will give you the support you need, without the worry of accruing a debt, repaying money or getting penalised.

3 million individuals in data matching program

In a massive data matching program, the ATO and Services Australia will share the records of approximately 3 million individuals to ensure that those accessing benefits are eligible to receive them.

For those who access their superannuation early under the COVID-19 measures, Services Australia will verify their eligibility where they have indicated that they are eligible for the JobSeeker payment, parenting payment, special benefit, youth allowance or the farm household allowance. The program will review the records of those applying for early access between 19 April 2020 to 24 September 2020.

The records of 45,000 prisoners in state and territory correctional facilities are also being compared against applications for JobKeeper, temporary early access to superannuation, and the eligibility criteria for cash flow boost to confirm appropriate access. The records gathered will cover the period from 1 March 2020 to 27 September 2020.

What now? Where to get help if you need it

Help for business

JobKeeper 2.0

The Government has announced further changes to the JobKeeper scheme. The good news is that employees that missed out on JobKeeper because they were not employed on 1 March 2020 might now be eligible. The proposed changes would enable employees employed on 1 July 2020 to receive JobKeeper payments from 3 August if they meet the other eligibility criteria. If you have employees impacted by this change, you will still need to work through the eligibility requirements including providing JobKeeper Payment Employee Nomination, but just remember that these changes are not yet law.

JobKeeper will also be extended beyond 27 September 2020. To receive JobKeeper from 28 September 2020, employers will need to reassess their eligibility with reference to actual GST turnover for the September 2020 quarter (for JobKeeper payments between 28 September to 3 January 2021), and again for the December 2020 quarter (for payments between 4 January 2021 to 28 March 2021).

Most businesses will generally use their Business Activity Statement (BAS) reporting to assess eligibility. However, as the BAS is generally not due until the month after the end of the quarter, eligibility for JobKeeper will need to be assessed in advance of the BAS reporting deadlines to meet the wage condition for eligible employees.

However, the ATO will have discretion to extend the time an entity has to pay employees in order to meet the wage condition.

From 28 September 2020 the payment rates for JobKeeper will reduce and split into a higher and lower rate. Whether an eligible employee can access the higher or lower rate will depend on the number of hours they worked during a 4-week test period. The higher rate will apply to employees who worked at least 20 hours a week on average in the four weeks of pay periods prior to either 1 March 2020 or 1 July 2020. Between 28 September 2020 and 3 January 2021, the higher rate is $1,200 per fortnight, and $750 for the lower rate. Between 4 January and 28 March 2021, the higher rate is $1,000 per fortnight and $650 for the lower rate.

Cashflow boost payments

If your business received the first cashflow boost tranche, you will receive a further cashflow boost for the June to September quarters of the same amount. If you report quarterly, the cashflow boost will be paid in two equal payments for June and September. If you report monthly, the cashflow boost is provided in four equal payments.

The cashflow boost is applied to reduce any liabilities in the same reporting period with any excess amount being paid as a cash refund from the ATO.

Support for business employing apprentices and trainees

JobTrainer provides a 50% reimbursement to eligible employers for the cost of apprentice or trainee wages up to $7,000 per quarter. Originally only for small businesses employing less than 20 employees, the subsidy recently expanded to include businesses with under 200 employees.

For small businesses (under 20 employees), the apprentice had to be employed on 1 March 2020 or on 1 July 2020 for claims after this date (claims are open now). For medium sized businesses (under 200 employees), the apprentice had to be employed on 1 July 2020 (claims open 1 October 2020). To access the subsidy, you will need to provide evidence of wages paid to the apprentice.

The subsidy is also accessible to larger employers employing apprentices let go by a small/medium business where that apprentice was eligible for the wage subsidy.

The subsidy is scheduled to end on 31 March 2021.

State & territory based support

In addition to general waivers, reductions or rebates on some Government licensing and fees, each State and Territory has some form of support accessible to certain businesses impacted by COVID-19.

New South Wales

• Payroll tax deferral – Option of deferring 2019-20 payroll tax to October 2020. Instalment plans can be entered into after October 2020. Payroll tax threshold has increased to $1m for 2020-21.
• Small business recovery grant – Grants of between $500 and $3,000 to help small business reopen safely. Closes 16 August 2020.
• Export assistance grants – Up to $10,000 for up to 1,000 eligible small or medium NSW export businesses that have experienced disruptions to freight channels or reductions in orders. Opening soon.

Australian Capital Territory

• Rate deferrals – Rate deferrals for commercial property owners affected by COVID-19. Closes 1 April 2021.
• Payroll tax deferral – All ACT businesses with Australia-wide wages of up to $10 million can apply to defer their 2020-21 payroll tax, until 1 July 2022.

Northern Territory

• Business hardship package – A package of concessions including payroll tax waiver or deferral, council rates, utilities and rate concessions. Closes 30 September 2020.

Queensland

• Adaption grant – Funding of up to $10,000 for regional micro and small businesses to adapt and sustain operations. Closes when allocation exhausted.
• Payroll tax relief – Payroll tax deferrals for the 2020 calendar year. Closes 31 December 2020.

South Australia

• Support when employing apprentices – A range of grants and support when you hire an apprentice – up to $5,000 for hiring an apprentice, $1,500 on equipment reimbursement, and up to $5,200 off the Group Training Organisation charge out rate. Closes generally 31 August 2020.

Tasmania

• Small business sustainability – Grants of up to $5,000 for businesses with fewer than 20 employees to reopen and rebuild. Closes 24 August 2020.

Victoria

• Business Support Fund – One-off grant of $10,000 for employers in metropolitan Melbourne and Mitchell Shire and $5,000 in regional local government areas. Closes 14 September 2020.
• Regional Tourism Accommodation Support – Up to $225 per night up to a maximum of $1,125 per bookable accommodation for cancelled bookings during stage 3 restrictions. Closes 19 August 2020.
• CBD Business Support Fund – $20m fund for CBD businesses. No details available as yet but register your interest.
• Night-time economy support – $30m fund for hospitality businesses. No details available as yet but register your interest.
• Payroll tax deferrals – Businesses with payrolls up to $10 million can defer their liabilities for the first half of the 2020-21 financial year.
• Payroll tax refunds – Eligible businesses can claim an emergency tax relief refund of payroll tax already paid in the 2019-20 financial year.

Western Australia

• International competitiveness co-investment – Matched funding of between $50,000 and $100,000 for existing exporters (under 200 employees) of food, beverages and services into Asia. Closes 12 August 2020.
• Payroll tax relief – The tax-free threshold increased to $1m on 1 July 2020.
  Automatic grants of $17,500 are being paid to employers with annual Australian taxable wages of more than $1m and up to $4m in 2018-19.
• Support when employing apprentices – A one-off payment of $6,000 for an apprentice and $3,000 for a trainee employed from 1 July 2020. Closes 30 June 2021.
• Incentive to employee apprentices – Incentive of up to $8,500 for employing an apprentice or trainee from 1 July 2019.
• Local Capability Fund – Fund to increase capability of SMEs for planning, improvements to internal infrastructure, plant and equipment and training. Current rounds include cost recovery for: PPE manufacturing (up to $500k) and feasibility (up to $20k), and general recovery and growth (up to $100k) for supply to certain industries.

Help for individuals

Services Australia has an online payment guide that guides you through the payments available if you are impacted by COVID-19 and what you might be able to access.

Pandemic Leave Disaster Payment for Victoria

If you have to self-isolate or quarantine at home because of COVID-19 or are caring for someone who is, and cannot earn an income as a result, you might be eligible for a $1,500 payment.

Tightening of access to income support

From 25 September 2020, the assets test and the Liquid Assets Waiting Period (applies to those with assets such as cash savings worth over $5,500 for singles or $11,000 for singles with children and partnered people) will be reintroduced for access to income support payments.

In addition, partner income testing will resume from 25 September 2020, albeit with higher thresholds than those pre COVID-19. That is, you will not be eligible for income support if you are not earning an income but your partner earns $3,086.11 per fortnight or $80,238.89 per annum.

Job seeking requirements that were suspended from 24 March 2020 have been introduced from 9 June 2020. Some leniency has been provided for Victorians if you maintain contact with your employment service provider.

Coronavirus supplement

The Coronavirus supplement will continue, albeit on a reduced rate of $250 per fortnight (from $550), from 25 September until 31 December 2020 for eligible individuals.

• 27 April to 24 September 2020 – $550 per fortnight
• 25 September to 31 December 2020 – $250 per fortnight

Early access to superannuation

Figures from the Australian Prudential Regulation Authority show that over $30 billion has been taken from superannuation to date under hardship provisions. If you are an Australian citizen or permanent resident and New Zealand citizen, you can apply to release up to $10,000 of your superannuation between 1 July 2020 and 31 December 2020 if you were made redundant, your working hours have been reduced by more than 20%, and you have been adversely financially impacted by COVID-19. If you are not in financial hardship you should not access your superannuation. The application process through myGov is a self-assessment process that you are responsible for. Penalties of up to $12,000 may apply for providing false or misleading information.

Some financial institutions are reporting that early access to superannuation will be a factor taken into account for those seeking to apply for loans – lenders may interpret early access as meaning that you are unable to meet your commitments and or are insolvent, and this is likely to impact on your credit worthiness.

Your questions answered

During lock down I have had to work from home. I’ve set up a full home office with paintings, plants, a desk, computer equipment, a water tower and a sculpture. I presume I can claim everything I have purchased for this office and claim part of my mortgage and running costs?

In general, home office expenses are designed for those who run their business out of home. If you are merely working from home and not running a business at home, then it’s unlikely you will be able to claim occupancy expenses such as mortgage interest or rent. Keep in mind that if you claim occupancy costs, this will impact on your access to the CGT main residence exemption.

The water cooler is unlikely to be deductible as food and drink is considered to be private in nature. The items that beautify your office will generally only be deductible if they are displayed in open viewing areas in premises used for income producing purposes including reception areas, waiting rooms and foyers.

If you are working from home and have set up a home office for this purpose, you can claim a deduction for your expenses based on the 80 cents per hour short cut method, the 52 cents per hour method (which excludes phone, internet, or the decline in value of equipment which are all claimed separately), or the actual method.

COVID-19 and your SMSF

COVID-19 has had an impact on many SMSFs. We look at the key issues.

Early release of superannuation

When a member of your fund wants to access up to $10,000 of their superannuation early under the COVID-19 measures, there are some additional steps that trustees need to take. Trustees will need to ensure their deed allows for early release, the member has met the eligibility criteria for release, and ensure that no funds have been released until the release authority from the ATO has been received. This will be a 2019-20 audit area of focus.

Tenant Rent Relief

Setting rent for a tenant that is less than market value in an SMSF is usually a breach of superannuation laws. If the rental relief is provided to a related party, then the situation can become trickier as the difference between the rent charged and the market value can amount to a loan and potentially put the fund in breach of the in-house asset rules.

However, to manage COVID-19 rent reductions for SMSF landlords, the ATO has stated that for the 2019-20 and 2020-21 financial years it will not take action where the rental relief is provided on arms-length terms. That is, the relief is in line with the National Cabinet Mandatory Code of Conduct for commercial leasing principles, has a set timeframe to it, and the reason for the relief and the relief provided is documented.

Relief for related party loans

If your SMSF has a limited recourse borrowing arrangement in place with a related party, and that related party provides repayment relief, this would ordinarily be a breach of the superannuation rules. The ATO however will accept the relief if it is provided on reasonable terms similar to commercial banks (see the Australian Banking Association’s website for comparison), the relief and the reasons for it is documented, and is for a set period of time.

A fall in asset values

If the assets of your SMSF have fallen in value, you should consider whether the current asset allocation is consistent with the fund’s investment strategy, and if the long-term goals of the fund continue to be met.

If you need to sell assets and make a capital loss, such as a loss on residential real estate, this loss can be offset against any capital gains. If the capital loss exceeds any gains, this loss can be carried forward and applied against future capital gains.

No deductions are available for unrealised gains (a fall in value for assets the fund continues to own).

Minimum pension payments

For funds drawing a pension, minimum draw down rates for the 2019-20 and 2020-21 years has been halved.

On 21 July 2020, the Government announced changes to the COVID-19 income support measures. We explore the details.​

Coronavirus supplement

The Coronavirus supplement will continue, albeit on a reduced rate of $250 per fortnight (from $550), from 25 September until 31 December 2020 for eligible individuals.

27 April to 24 September 2020 – $550 per fortnight

25 September to 31 December 2020 – $250 per fortnight

Eligibility remains the same. That is, those receiving:

• JobSeeker Payment (and all payments transitioning as a result of JobSeeker Payment)
• Youth Allowance
• Parenting Payment (Partnered and Single)
• Austudy
• ABSTUDY Living Allowance
• Farm Household Allowance
• Special Benefit
• Eligible New Enterprise Incentive Scheme participants
• Department of Veterans’ Affairs Education Schemes

The eligibility criteria and some of the tests for access to income support is changing.

Eligibility and access

The expanded eligibility criteria for the Jobseeker Payment and the Youth Allowance Jobseeker will continue to apply until 31 December 2020:

• Permanent employees who have been stood down or lost their jobs (and are not receiving payments from an employer or through insurance),
• Sole traders, the self-employed, casuals or contractors who meet the income and assets tests.

In addition, if you receive JobSeeker or Youth Allowance payments, the amount you can earn before impacting income support has been increased to $300 per fortnight from 25 September 2020 until 31 December 2020.

However, a number of restrictions have been reintroduced.

Reintroduction of assets and partner income tests

From 25 September 2020, the assets test and the Liquid Assets Waiting Period (applies to those with assets such as cash savings worth over $5,500 for singles or $11,000 for singles with children and partnered people) will be reintroduced for access to income support payments.

In addition, partner income testing will resume from 25 September, albeit with higher thresholds than those pre coronavirus. That is, you will not be eligible for income support if you are not earning an income but your partner earns $3,086.11 per fortnight or $80,238.89 per annum. The partner income test taper rate will increase from 25 cents for every dollar of partner income earned over $996 per fortnight to 27 cents for every dollar of partner income earned over $1,165 per fortnight.

Reintroduction of job seeking requirements

Job seeking requirements that were suspended from 24 March 2020 have been introduced from 9 June 2020. The mutual obligation requirements include:

• Voluntary job searches
• At least one phone or online appointment with a jobseeker’s employment services provider
• Voluntary participation in activities, either online or in person, and
• No payment suspensions or penalties for failure to comply.

Waiting periods continue to be waived

Some waiting periods for access to income support will continue to be waived until 31 December 2020:

• The one-week ordinary waiting period is waived.
• The newly arrived resident’s waiting period for new migrants (previously four years). Claimants will still need to meet residency requirements, that is they will need to hold a permanent visa. Affected claimants will need to serve the remainder of this waiting period at the end of the period the Coronavirus Supplement is paid for.
• The Seasonal Work Preclusion Period for those who are eligible for the Coronavirus supplement -this applies to those who finished seasonal, contract or intermittent work in the six months prior to claiming income support.

Funding for the arts: what’s available and how can you get it

Will the Prime Minister’s targeted $250 million package of funding to support cultural and creative projects and initiatives save the industry?

The arts funding is aimed at kick starting the sector with funding preferencing commercial initiatives that generate jobs and are expected to have a positive economic impact. That is, this is an economic package as opposed to creative or cultural funding.

Outside of the funding package, SupportAct received $10m in funding for COVID-19 crisis relief grants. Crisis funding is accessible to:

• musicians, crew and music workers who are unable to access Government benefits due to eligibility or other issues
• music workers who have been able to access Government benefits but are still facing financial hardship; and to
• those who are suffering financial hardship as a result of injury, ill-health or a mental health issue that is managed through a current Mental Health plan.

To be eligible, you will need to be a musician, crew or music worker, who:

• is an Australian citizen, permanent resident or have a valid working visa
• can prove they been working in the music industry for three years
• can provide names and details of two professional referees
• have household expenses greater than household income.

Other financial support is available through JobKeeper (including the self-employed) or JobSeeker.

For more details see The Office for the Arts COVID-19 update.

For many in this sector, the funding is helpful but the future will be determined by how quickly or otherwise the distancing measures are retracted. After all, most entertainment relies on a crowd.

JobKeeper and termination payments

An employment termination payment (ETP) is a lump sum payment made to an employee when their job is terminated. ETP’s are generally made up of unused sick leave or unused rostered days off, payment in lieu of leave, genuine redundancy payments, etc.

For some employers, JobKeeper will not be enough to keep the employee employed. If you do need to let staff go, the ATO has stated that from JobKeeper fortnights from 8 June onwards until the end of the scheme, ETPs cannot be included as part of the $1,500 an employer needs to pay to eligible employees to access JobKeeper payments.

If any JobKeeper payments include an ETP to a terminated employee between 30 March to 7 June, the ATO has stated that it will not recover an overpayment.

Minimum wage increases by 1.75%

An increase to the minimum wage of 1.75% will start rolling out for the first full pay period from 1 July 2020.

The increase applies to minimum rates in awards in 3 stages:

Group 1 Awards – from 1 July 2020

• Frontline Heath Care & Social Assistance Workers
• Teachers and Child Care
• Other Essential Services

Group 2 Awards – from 1 November 2020

• Construction
• Manufacturing
• A range of other industries

Group 3 Awards – from 1 February 2021

• Accommodation and Food Services
• Arts and Recreation Services
• Aviation
• Retail
• Tourism

You can find the full list of impacted Awards on the Fair Work Ombudsman’s website.

For anyone not covered by an award or an agreement, the new national minimum wage of $753.80 per week or $19.84 per hour, applies from the first full pay period starting on or after 1 July 2020.

The minimum wage increase does not impact on workers receiving above the minimum wage.

For employees at or close to the minimum wage, it is essential that employers are aware of the impact and timing of the increase to avoid falling foul of their industrial and superannuation obligations.

The new flexible Parental Leave Pay rules

From 1 July 2020, parents accessing the Government’s parental leave pay (PPL) scheme will have greater flexibility and options.

Targeting the self-employed and small business owners, the changes introduce a new flexible paid parental leave pay period of 30 days.

Previously, new parents could apply for PPL for a continuous block of up to 18 weeks. The changes split this time period into two:

• A continuous period of up to 12 weeks, and
• 30 flexible days.

Parents can take the 18 weeks in one block or, under the new rules, take the 12 week period and then use the additional 30 days at a period and in a way that suits them but before the child turns 2 years of age. For example, assume that when Jane, who works five days per week, has a child, she initially claims 12 weeks. Jane returns to work part time for three days per week. In that case, Jane would apply to be paid parental leave pay on the two days per week that she is not working.

The administration of the PPL will change in some scenarios. For Jane’s case above, the employer would administer the scheme for the first 12 weeks but then the Government would directly pay Jane for her flexible days.

If an employee wishes to access flexible parental leave pay, they will need to negotiate time off work or a part time return to work with their employer. If the employer is unable to accommodate the request, then the employee may take the 18 weeks as one block.

The changes to the paid parental leave scheme apply to babies born on or after 1 July 2020. The scheme commences from 1 April 2020 to give parents applying for leave the flexibility to use the new arrangements (but only if their child is born on or after 1 July 2020).

The 2020/2021 Federal Budget sees a record $213.7 Billion deficit and net debt predicted to peak at $966 Billion (44% GDP) by June 2024.

The Government is lowering taxes and increasing spending with a focus on low/middle income earners, small business, senior Australians and transport infrastructure.

Unemployment is predicted to peak at 8% in December 2020 and with the Government focus on growing the economy and creating jobs, and will hopefully reduce to 6.5% by June 2022.

Key Initiatives

The key initiatives of the 2020-21 Federal Budget are listed below with further detail provided after our summary.

The Budget also contains two additional Economic Support payments of $250 to pensioners and other eligible welfare recipients to drive money back into the economy.

By comparison to many, Australia has managed the COVID-19 pandemic well, but good management isn’t enough to protect us from the $213.7 billion deficit in 2020-21. The Government has taken to heart the old adage, “You have to spend money to make money” to trade our way out of a black hole.

Some of the measures are aimed at addressing the harsh lessons COVID-19 has taught us and seek to centralise production back in Australia to ensure our industries can be self-reliant.

Outside of the big ticket tax measures, what is striking about this Budget is the sheer volume of initiatives it funds – too many to itemise in this update. Many of the initiatives aim to improve how Government interacts with the community and business in particular. This funding is focussed on streamlining interaction and compliance with Government requirements and investing in the IT infrastructure required to digitise the compliance process.

The final comments in the Treasurer’s Budget speech paint a cautionary tale. The focus right now is on the path to growth and stabilising debt in an effort to boost consumer and business confidence. However, once “recovery has taken hold and the unemployment rate is on a clear path back to pre-crisis levels” of below 6%, the second phase will kick in – the deliberate shift from providing temporary and targeted support to stabilising debt.

Accelerated Personal Tax Cuts

The Government has brought forward planned income tax cuts by two years at a cost of $17.8 billion.

The tax cuts will be backdated and come into effect from 1 July 2020.

In addition, the low- and middle- income tax offset (LMITO) which provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000 will be retained for 2020-21.

The Low- income tax offset (LITO) will increase from $445 to $700.

In 2020-21, low- and middle- income earners will receive tax relief of up to $2,745 for singles, and up to $5,490 for dual income families compared to the 2017-18 settings.

Extended Instant Asset Write-Off

The Government is really keen for business to invest and have extended and broadened the access to the Instant Asset Write-Off.

Previous COVID measures had temporarily increased the Instant Asset Write-Off threshold to $150,000 per asset for all assets purchased and installed ready for use prior to 31 December 2020. The new measures have removed this cap, extended the period to which it applies and increased the number of businesses that have access to the write-off.

This means that from 7:30pm AEDT 6 October until 30 June 2022 businesses with a turnover up to $5 billion will be able to deduct the full cost of eligible depreciable assets upfront rather than being claimed over the asset’s life.

For businesses with turnover up to $50 million, the extended write-off also applies to second-hand assets.

Eligible businesses that acquired new or second hand assets under the existing $150,000 threshold will also have an extra six months (to 30 June 2021) to first use or install those assets.

Small Business Loss Carry Back

Companies with turnover up to $5 billion will be able to carry back losses from the 2019-20, 2020-21 and 2021-22 income years to offset previously taxed profits in the 2018-19, 2019-20 and 2020-21 income years. This will generate a refundable tax offset in the year in which the loss is made.

The tax refund will be available on election by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns.

If a company does not elect to carry back losses they will continue to carry losses forward as normal.

This measure will interact with the Extended Instant Asset Write-Off as new investment in assets may generate significant losses in some cases which can then be carried back to generate cash refunds for eligible companies.

Additional R&D Incentives

The Government has injected an additional $2 billion into the Research and Development system through the Research and Development Tax Incentive (R&D tax offset).

For small claimants with turnover less than $20 million, the refundable R&D tax offset will increase and there will be no cap on annual cash refunds.

For larger claimants with turnover greater than $20 million, the intensity test will be streamlined and the non-refundable R&D tax offset will be increased.

For all claimants, the R&D expenditure threshold will increase from $100 million to $150 million per annum.

These changes will apply from 1 July 2021.

Expanded Small Business Tax Concessions

Announced pre Budget, a range of generous tax concessions normally only available to small and medium businesses, will be available to businesses with a turnover of up to $50 million.

The expanded concessions will be rolled out in three phases:

Phase 1: from 1 July 2020

• Immediate deduction for certain start-up expenses such as professional, legal and accounting advice as well as statutory fees.
• Immediate deduction for prepaid expenditure where the payment is for a period of services which is 12 months or less and ends in the next income year.

Phase 2: from 1 April 2021

• FBT car parking exemption will apply on certain car parking benefits provided to employees
• FBT exemption on portable electronic devices that are mainly used for work use such as phones and laptops.

Phase 3: from 1 July 2021

• Simplified trading stock measures allow a business to elect not to conduct a stock take where there is a difference of less than $5,000 between the opening value of trading stock and a reasonable estimate of the closing value of trading stock at the end of the income year.
• PAYG Income Tax Instalments can be calculated using a GDP adjusted amount based on the last reported income instead of as a percentage of instalment income.
• Settle excise duty and excise-equivalent customs duty monthly instead of weekly.
• Two-year amendment period to income tax assessments, excluding entities that have significant tax dealings or particularly complex affairs.
• Simplified accounting method and reporting for GST purposes.

Super reforms

Superannuation accounts ‘stapled’ to an individual

This reform will ensure individuals continue to use their existing superannuation fund when they change jobs. The fund will be “stapled” to the individual to prevent the duplication of superannuation fund accounts when changing employers.

From 1 July 2021:

• If an employee does not nominate an account at the time they start a new job, employers will pay their superannuation contributions to their existing fund.
• Employers will obtain information about the employee’s existing superannuation fund from the ATO.
• The employer will do this by logging onto ATO online services and entering the employee’s details. Once an account has been selected, the employer will pay superannuation contributions into the employee’s account.
• If an employee does not have an existing superannuation account and does not make a decision regarding a fund, the employer will pay the employee’s superannuation into their nominated default superannuation fund.

The Government expects that future enhancements will enable payroll software developers to build systems to simplify the process of selecting a superannuation product for both employees and employers through automated provision of information to employers.

Accountability of underperforming funds

From July 2021, the Australian Prudential Regulation Authority will conduct benchmarking tests on the net investment performance of MySuper products, with products that have underperformed over two consecutive annual tests prohibited from receiving new members until a further annual test shows they are no longer underperforming.

If a fund is deemed to be underperforming in the first of these annual tests, it will need to inform its members of its underperformance by 1 October 2021. When funds inform their members about their underperformance they will also be required to provide them with information about the YourSuper comparison tool (see below). Underperforming funds will be listed as underperforming on the YourSuper comparison tool until their performance improves.

Non-MySuper accumulation products where the decisions of the trustee determine member outcomes will be added from 1 July 2022.

Performance transparency

A new interactive tool (YourSuper) will enable a comparison of simple super (MySuper) products ranked by fees and investment returns. The tool will also provide links to other MySuper products and show current super accounts if the individual has more than one.

The tool will be administered by the ATO.

Trustee accountability

The obligations on superannuation trustees will be strengthened to ensure their actions are consistent with members’ retirement savings being maximised. By 1 July 2021:

• Superannuation trustees will be required to comply with a new duty to act in the best financial interests of members.
• Trustees must demonstrate that there was a reasonable basis to support their actions being consistent with members’ best financial interests.
• Trustees will provide members with key information regarding how they manage and spend their money in advance of Annual Members’ Meetings.

Transport Infrastructure Spend

Infrastructure investment announced in the Budget now totals $14 billion in new and accelerated projects over the next four years. The projects are expected to support 40,000 jobs during their construction.

There is also an additional $3 billion for small scale road safety and the Local Roads and Community Infrastructure Program supporting a further 10,000 jobs. Funding will be provided to state and local governments on a ‘use it or lose it’ basis.

$2.7 billion of this infrastructure spend has been allocated to NSW projects. Key investments include:

• $560 million for the Singleton Bypass on the New England Highway
• $360 million for the Newcastle Inner City Bypass between Rankin Park and Jesmond
• $120 million for the Prospect Highway Upgrade
• An additional $491 million for the Coffs Harbour Bypass taking the total contribution to $1.5 billion.

And, for those that catch the train each day to work, there are upgrades planned for commuter carparks along the North Shore to St Marys (T1), and the T8 East Hills Line at Campbelltown, Revesby and Riverwood.

JobMaker Hiring Credit

The JobMaker Hiring Credit will be available to eligible employers over 12 months from 7 October 2020 for each additional new job they create for an eligible employee.

Eligible employers will receive:

• $200 per week if they hire an eligible employee aged 16 to 29 years or
• $100 per week if they hire an eligible employee aged 30 to 35 years.

The JobMaker Hiring Credit will be paid quarterly in arrears. It will be available for up to 12 months from the date of employment of the eligible employee with a maximum amount of $10,400 per additional new position created.

Employers will need to demonstrate that the new employee will increase overall employee headcount and payroll.

To be eligible, the employee will need to have worked for a minimum of 20 hours per week, averaged over a quarter, and received the JobSeeker Payment, Youth Allowance (other) or Parenting Payment for at least one month out of the three months prior to when they are hired.

New Apprenticeships and Trainees

Announced pre Budget, from 5 October 2020 a business (or Group Training Organisation) that takes on a new Australian apprentice will be eligible for a 50% wage subsidy, regardless of geographic location, occupation, industry or business size. The scheme will be available until the 100,000 cap has been reached.

Under the subsidy, employers will be eligible for up to 50% of the wages of a new or recommencing apprentice or trainee for the period up to 30 September 2021. The maximum subsidy is $7,000 per quarter.

The subsidy is paid in arrears and is available for wages paid from 5 October 2020 to 30 September 2021.

Eligible businesses are those that:

• Engage an Australian Apprentice between 5 October 2020 and 30 September 2021, and
• The Australian Apprentice or trainee is undertaking a Certificate II or higher qualification, and has a training contract that is formally approved by the state training authority.

The first tranche of JobKeeper ends on 27 September 2020. Those needing further support will need to reassess their eligibility and prove an actual decline in turnover.

To receive JobKeeper from 28 September 2020, eligible employers need to assess their decline in turnover with reference to actual GST turnover for the September 2020 quarter (for JobKeeper payments between 28 September to 3 January 2021), and again for the December 2020 quarter (for payments between 4 January 2021 to 28 March 2021).

From 28 September 2020, the JobKeeper payment rate will reduce and split into a higher and lower rate based on the number of hours the employee worked in a specific 28-day period prior to 1 March 2020 or 1 July 2020.

To access JobKeeper payments from 28 September 2020, there are three questions that need to be assessed:

1. Is my business eligible?

2. Am I and/or my employees eligible? and

3. What JobKeeper rate applies?

It is important to note that eligibility for one JobKeeper period does not entitle you to, or exclude you from, payments in another period. Each eligibility period is addressed separately. That is, there might be businesses that qualified for the first tranche of JobKeeper, don’t qualify for the second tranche but qualify for the third.

We have summarised the key details in this update.

Let us know if we can assist you in any way.

Is my business eligible

Businesses already enrolled in JobKeeper

For businesses already enrolled in JobKeeper, to receive payments from 28 September 2020, you need to meet an extended decline in turnover test based on actual GST turnover.

Businesses enrolling for the first time

Businesses that are enrolling for the first time, need to meet both the:

• basic eligibility test, and
• the decline in turnover test/s for the relevant period.

Basic Eligibility

An eligible employer is an employer that:

• On 1 March 2020, carried on a business in Australia; and
• Before the end of a JobKeeper fortnight, met the original decline in turnover test; and
• Was not an excluded entity

Decline in Turnover Tests

Calculating GST turnover for tranches 2 and 3 of JobKeeper is different to the original JobKeeper requirements as entities will only be using current GST turnover figures (not projected GST turnover). Furthermore, you must now use the same method that is used for GST reporting purposes.

Click here to find out more – Section 1

Wage Condition

The employer must have paid the eligible employee at least the applicable JobKeeper payment for the relevant fortnight.

Am I and/or my employees eligible?

The eligibility for employees has remained largely the same. The key change being the date at which you assess whether an employee is eligible.

This date has now been brought forward to 1 July 2020, meaning that employees who may not have qualified previously may now qualify.

Click here to find out more – Section 2

What JobKeeper rate applies?

From 28 September 2020, the payment rate for JobKeeper will taper from the flat rate of $1,500 and split into a higher and lower rate.

What is a reference period?

Click here to find out more – Section 3

JobKeeper fortnights