Ten emerging business and tax impacts from coronavirus (COVID-19)
Coronavirus is proving a particularly difficult challenge for many Australian and most likely global businesses given lingering uncertainty on the duration and extent of the outbreak, says Michael Croker, Australian Tax Leader at Chartered Accountants ANZ.
And while we recommend you contact your local Chartered Accountant for general business advice during tough times, there are some specific issues to bear in mind.
- Your workforce
With so much uncertainty about, a clear communication strategy is essential to maintain connections with employees. Share details of the actual and possible future business impact of COVID-19. Ask not only for employee support, but also their ideas on how the business can get through this.
Get advice about helping employees with emergency health-related benefits – including bringing expat families home – without attracting Fringe Benefits Tax (FBT). Workplace vaccinations against known strains of the flu are FBT free, as are workplace hygiene programs (including the provision of hand sanitisers).
An employer’s expenditure in providing such assistance would be tax deductible as a business cost of employing labour.
On the HR front, there are many sensitive issues such as crafting policies for:
- Employees who express a desire to avoid workplace contact with others;
- Situations where a worker is feeling unwell or is suspected of being unwell but is still showing up for work (e.g. because of nil sick leave entitlements);
- Reduced hours employment arrangements; and
- Leave without pay.
For contractors, review contract terms to determine the rights and obligations of the respective parties.
- Managing a downturn
The hospitality, travel and tertiary education sectors have already been severely impacted, and the flow-on impact is growing day by day.
Typical pump-priming responses to downturns will come into play, such as promotional offers and discounts, but be wary of incentives which offer delayed payment arrangements: at times like this, cashflow is key.
Some businesses can and should adjust their marketing strategy (e.g. from an overseas audience to a domestic one).
When it comes to cost reduction, there are a range of topics to discuss with your Chartered Accountant.
Manage debts owed to your business proactively.
For debts owed by your business, contact suppliers and seek their support. Landlords may be open to temporary rent reductions or lease variations.
Review all planned outlays on inputs such as consumables, trading stock and equipment.
It’s important to realise that business resilience has as much to do with recovering after COVID-19 as it is about managing temporary setbacks. Hasty decisions can prove costly in the long run. This is particularly true of labour costs. Idle employees with valuable skills could be encouraged to take leave or accept reduced hours. Employers need to think very carefully before resorting to redundancies.
If reducing employee numbers does become necessary, there are a range of options to consider such as tailored arrangements for those already contemplating retirement (known in tax circles as “approved early retirement schemes”).
- Supply chain
Talk to critical suppliers about their ability to deliver reliably. Consider temporarily seeking alternative suppliers where the current business supply chain involves China or other countries severely impacted by COVID-19.
Network with similar businesses to see if they have surplus supplies to sell. Promote those product lines less impacted by supply chain issues.
For your customers, communication and work-around solutions are key.
Legal advice may be needed to manage contractual risk on business inputs and outputs. For example, does a contract have a “force majeure” clause and if so, does coronavirus fall within it scope. Or could the contractual doctrine of “frustration” apply to end the contract because an intervening event – COVID-19 – arose through no fault of the parties.
- Travel restrictions
Management and HR teams should continue to monitor Australian Government warnings about travel to countries with major COVID-19 outbreaks. Many businesses have already gone further and stopped business travel to countries not yet officially listed.
Different restrictions may apply depending on the individual’s travel history (countries visited), whether they are Australian residents (entry permission and quarantine arrangements) and the health-related entry rules of the destination country.
Address the loss of face-to-face contact with online communication methods.
Director or board meetings which must physically be held offshore for tax or other regulatory reasons should be deferred in the absence of approval to conduct such meetings remotely.
Bear in mind that relocating employees to keep them safe may, depending on the circumstances, have unintended consequences (e.g. tax residency may change). Consider whether such employees remain on or off the Australian payroll, and whether the source of their income for tax purposes changes because of the relocation.
The residence of key senior employees could be relevant to the tax residence of companies which they control and manage.
- Your online strategy
If a business is experiencing a downturn in passing trade, can the online marketing strategy be ramped up to attract a new pool of online customers?
For employees, check whether your IT systems facilitate working from home arrangements and video conferencing. Are employees adequately trained to use such tools effectively in a way which reduces cyber risk?
Customers and suppliers may also express a preference for online engagement, so consider whether they can also be set-up with the software necessary to engage with your business online.
- Compensation receipts
Check current insurance policies carefully to see if there is any scope for claiming and discuss with your adviser the taxable nature of any compensation receipts received.
- Financing commitments
Engage early with financiers if there will be difficulty in meeting interest and loan repayments. These discussions need to be formal and should include the steps currently being taken to manage the downturn and the recovery plan for when conditions improve.
- PAYG instalment (PAYG-I) variations
Australia’s PAYG-I tax payment system has built-in mechanisms allowing taxpayers to vary their instalment which, for most, are paid quarterly. The March 2020 quarter looms as an important opportunity to consider varying the instalment payable late April.
PAYG-I variations calculated with reasonable accuracy by a tax professional can provide timely cashflow benefits.
- Tax payment problems
Our recent discussions with the ATO indicate there’s a lot of empathy towards small businesses doing it tough right now due to factors outside their control.
The ATO is more open to tax debt deferment requests from taxpayers who have their tax returns and Business Activity Statements up to date and can articulate how and when tax payments are likely to get back on track. Laying low and hoping they’ll just go away isn’t a good strategy when dealing with the ATO.
- Government support
Your business may be eligible for government incentives and concessions. For example, the Queensland Government has announced a payroll tax deferral package for small and medium Queensland businesses impacted by the coronavirus.
Further government announcements are expected in coming weeks to help small businesses in particular.