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Small businesses will be the hardest hit by the ramifications of Covid-19.  The following is more information to help small business owners better understand some of the business support that's now available.

Late last week there was an article added to this site about the Federal Governments stimulus package.

Then 4 Fact Sheets became available to help understand the stimulus package.  Plus more information can be found here .

  1. Cash flow assistance for business
  2. Stimulus payments to households to support growth
  3. Assistance for severely affected regions
  4. Delivering support for business investment
     

This latest update provides more detail on how the stimulus package operates.  For example, Cash flow payment for employers.  'Eligible businesses will automatically receive payments of 50 per cent of their Business Activity Statements or Instalment Activity Statement from 28 April 2020, with refunds to be paid within 14 days.'  Read more detail here.

 

ATO
Treasury
Small Business WA

 

 

The Prime Minister has announced a stimulus plan to curb the economic impact of the coronavirus and keep “Australians in jobs and businesses in business”. 

           

The package, aimed to provide an immediate stimulus to the economy, will be worth $17.6 billion, with a projected impact of $22.9 billion.

It includes tax relief for small businesses, a $750 one-off cash payment for welfare recipients and wage assistance to keep apprentices in work.

“Each measure is temporary, each measure is targeted, and each measure is proportionate to the challenges we face,” Treasurer Josh Frydenberg told media in Canberra. 

Prime Minister Scott Morrison confirmed that the government plans to spend $11 billion before June 30 this year, with the remainder to be injected into the economy before the end of the next financial year.

“This plan is about keeping Australians in jobs. This plan is about keeping a business in business, particularly small and medium-sized businesses, and this plan is about ensuring the Australian economy bounces back stronger on the other side of this and, with that, the Budget bounces back with it,” Mr Morrison told media. 

Under the plan, the government is lifting the threshold for the instant asset write-off from $30,000 to $150,000, and expanding it to businesses with an annual turnover up to $500 million, up from $50 million. It has also announced a 50 per cent accelerated depreciation deduction above existing deductions, which will be available to June 30, 2021.

Additionally, businesses with turnover up to $50 million will receive a tax-free cashflow boost for employers worth up to $25,000, designed to help pay wages. 

It has also set up a coronavirus regional and community fund aimed to assist those in the most impacted areas such as tourism and export. 

 

 

Maja Garcia Djurdjevic
12 March 2020
mybusiness.com.au

 

 

There are often upsides and downsides in any piece of legislation, especially when it comes to superannuation.

       

That's the case with the Federal Government's “downsizer measure” announced in the 2017-18 budget, which came into effect on 1 July, 2018.

On the surface, there are significant upsides for individuals and couples wanting to top up their superannuation accounts either in retirement, or just before.

The measure allows individuals aged 65 years old or older, who meet specific eligibility requirements, to contribute up to $300,000 into their superannuation using the proceeds from selling their home. Couples can contribute up to $600,000, and a downsizer contribution can still be made even if one's total super balance is higher than the Government's mandated $1.6 million pension transfer balance cap.

There are various rules around the legislation, including that the home sold must have been owned for at least 10 years, and contributions into superannuation need to be made within 90 days of receiving the proceeds from the sale.

The downsizing data

To put some context around this article, we contacted the regulator of the downsizer legislation, the Australian Tax Office (ATO).

Since coming into effect 18 months ago, neither the Government nor the ATO has published data on how often the home downsizing measure has been accessed. However, the ATO has advised that, as of 17 January, 2020, it had received $2.19 billion in downsizer superannuation contributions on behalf of 9,429 individuals.

The ATO says downsizer contributions have been reported for every state and territory, with 55 per cent of contributions having been made by women. The average superannuation contribution has been approximately $232,000.

But the regulator adds that, as its data is based on individual contributions, and there can be multiple superannuation contributions made for the same home, for example from a husband and wife, it does not have data on the number on homes sold since the legislation was introduced.

Based on the aggregated numbers, the downsizer measure is proving popular for some retirees. Adding more than $200,000 in additional contributions into superannuation by freeing up equity from a home, and which will generate tax-free income for those in pension phase, can go a long way to funding one's needs in retirement.

Yet, it's also important for individuals and couples considering the downsizer measure to fully understand the potential downsides of downsizing.

A potential pension trap

Having enough money in retirement to maintain a comfortable lifestyle is obviously an aspiration for most Australians.

Longevity risk – the risk of running out of money in retirement – is a clear danger for many.

Yet, while the home downsizing measure may seem attractive for those aged over 65 wanting to get more into their superannuation or pension account to offset longevity risk, it also presents potential financial risks.

Those risks primarily relate to eligibility for a full or part Age Pension, because a large cash injection into a superannuation account may result in a breach of the assets test rules.

Consider that the family home is an exempt asset when calculating entitlements for the Age Pension, while all other assets outside of the home including superannuation are taken into account.

Under what's known as the taper rate, Age Pension entitlements are reduced by $3 per fortnight for every $1,000 in assets over the Government's asset test thresholds.

The current assets test limits are shown in the table below.

Full Age Pension Homeowner Non Homeowner
Single $263,250 $473,750
Couple $394,500 $605,000
     
Part Age Pension Homeowner Non Homeowner
Single $574,500 $785,000
Couple $863,500 $1,074,000

Source: Department of Human Services, limits effective 20 September 2019

 

The problem is that, in the current environment of record low interest rates and forecasts of lower investment returns for longer, some retirees could find that they are actually worse off.

Once an individual or couple breach the limits for the full Age Pension, their fortnightly payments will gradually reduce using the taper rate. Those on a part pension could find their payments cease altogether if they move above the maximum thresholds.

So, even with a higher superannuation balance as a result of their home sale, their total income stream could be less than what they received when they qualified for a full or part Age Pension.

Look before you leap

Average superannuation account balances at retirement already put many Australians close to the Age Pension assets test thresholds.

Using the data provided by the ATO, where the average downsizer superannuation contribution has been around $232,000, it's likely that some of the individuals and couples that have taken up the measure will have breached the maximum assets test levels.

What's most important for individuals and couples considering the downsizer measure is to review your personal circumstances to determine if it is going to work for you financially.

Do the numbers stack up? Keep in mind that any additional tax-free superannuation income earned in pension phase may be completely offset by a loss of Age Pension income if you breach the assets test rules.

For those wanting to downsize, how your home proceeds are reinvested, to maximise investment returns in retirement, is key.

It's therefore essential to seek out professional financial advice before proceeding, especially with respect to social security means testing.

 

 

Tony Kaye
Personal Finance Writer, Vanguard Australia
18 February 2020
vanguardinvestments.com.au

 

 

Following confirmation from the government that legislation to extend the work test exemption to age 67 will be passed by the end of the financial year, SMSF professionals should hold off on large contributions for 65-year-old clients to extend their ability to contribute to super for longer.

           

Addressing the SMSF Association National Conference 2020 on the Gold Coast on Tuesday, BT head of financial literacy and advocacy Bryan Ashenden said the extension of the exemption would mean clients could trigger the bring-forward rule and make up to $300,000 worth of contributions up to age 67.

As a result, it may be worth holding off on triggering the bring-forward for 65-year-old clients to maximise their ability to contribute up to the non-concessional cap until they reached age 67, Mr Ashenden said.

“Instead of doing the $300,000 bring-forward, maybe we would only do a $100,000 contribution this year because we know the government is going to get the legislation through to bring in that work test deferral, which means no work test requirements and the ability to use your bring-forward until you turn 67,” he said.

“So, if [a client] is currently 65, we might be better off to only do a $100,000 contribution now instead of $300,000 because next financial year we could then do the other $300,000.”

While relying on rules which were not legislated yet was not ideal, Mr Ashenden said the consequences for clients who missed out on additional contributions through not utilising the new rules could be significant.

“You have to be careful because if you used the $300,000 this year, you’re not going to have that ability to get the $300,000 down the track unless you can utilise the work test exemption in a future year, which means you would have to go back to work,” he said.

“It’s important to remember because if you trigger it this year, if you turn around to your client who has turned 65 in this financial year and say based on current rules you could make a contribution of up to $300,000, and then the rules change to say it’s different from 1 July next year, you’ve knocked them out of the ability to get an extra $200,000 into super.”

The comments come following confirmation from assistant Minister for Superannuation, Financial Services and Financial Technology Jane Hume earlier at the SMSF Association National Conference that legislation to extend the work test exemption to age 67 would be passed before the end of the 2019 financial year.

 

 

Sarah Kendell
20 February 2020
smsfadviser.com

 

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