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Update Wednesday 8 April 2020

The Federal Government has announced a rent relief package for commercial tenants affected by COVID-19. The package is a key part of the government’s hibernation strategy.

Under the scheme, landlords will be instructed to reduce their commercial tenant's rent in proportion to the tenants lost revenue due to the impact of COVID-19.

A mandatory code will apply to tenancies including retail, office and industrial:

  • where the tenant or landlord is eligible for the JobKeeper program

  • where businesses have a turnover of $50 million or less.

The code will be rolled out and implemented in each state and territory and also stipulates:

  • landlords must not terminate the lease or draw into a tenant’s security bond

  • likewise, tenants must not terminate the lease.

The scheme will be implemented through a combination of rent waivers and deferrals. The waivers will have to account for 50% of the reduction in business and deferrals (payments that will need to be paid but can be put off) must be spread over the remaining lease term, but for no less than 24 months.

The purpose of the code is to impose a set of good faith leasing principles to commercial tenancies (including retail, office and industrial) between owners, operators, landlords and their tenants.

The National Cabinet also expects Australian and foreign banks, along with other financial institutions operating in Australia to support landlords and tenants with appropriate flexibility as the code is implemented.

Click below for more information on the code.

Source and credit:

The Australian Taxation Office (‘ATO’) has announced a temporary simplified short cut method to make it easier for individual taxpayers to claim deductions for additional running expenses incurred (e.g., additional heating, cooling and lighting costs), as a result of working from home due to the Coronavirus pandemic.

The ATO will allow individuals to claim a deduction for all running expenses incurred during the period 1 March 2020 to 30 June 2020, based on a rate of 80 cents for each hour an individual carries out genuine work duties from home.

ATO’s 80 cents per hour method covers all running costs

The 80 cents per hour method is designed to cover all deductible running expenses associated with working from home and incurred from 1 March 2020 to 30 June 2020, including the following:

  • Electricity expenses associated with heating, cooling and lighting the area at home which is being used for work.

  • Cleaning costs for a dedicated work area.

  • Phone and internet expenses.

  • Computer consumables (e.g., printer paper and ink) and stationery.

  • Depreciation of home office furniture and furnishings (e.g., an office desk and a chair).

  • Depreciation of home office equipment (e.g., a computer and a printer).

This means that, under the 80 cents per hour method, separate claims cannot be made for any of the above running expenses (including depreciation of work-related furniture and equipment). As a result, using the 80 cents per hour method could result in a claim for running expenses being lower than a claim under existing arrangements (including the existing 52 cents per hour method for certain running expenses).

Furthermore, according to the ATO’s announcement, under the 80 cents per hour method:

(a) there is no requirement to have a separate or dedicated area at home set aside for working (e.g., a private study);

(b) multiple people living in the same house could claim under this method (e.g., a couple living together could each individually claim running expenses they have incurred while genuinely working from home, based on the 80 cents per hour method); and

(c) an individual will only be required to keep a record of the number of hours worked from home as a result of the Coronavirus, during the above period. This record can include time sheets, diary entries/notes or even rosters.

Contact our team at WD Nicholls for assistance with the new ATO Home Office guidelines.

Source and credit:

The Federal Government’s latest fiscal stimulus programme centred around a wage subsidy to help combat the impact on the economy of coronavirus-driven shutdowns has generated much community support.

But how will it be paid for? Can we afford it? How does RBA quantitative easing fit into it? And what are the longer-term consequences in terms of inflation and debt?

A rise in public debt of half a trillion

These are valid questions given that together with the previous two fiscal stimulus packages it will add dramatically to Federal Government’s budget deficit – by around $200 billion over the next year (or about 10% of GDP). And to this needs to be added the hit to public revenue from the economic downturn we are now in. So the total rise in public debt could be $500 billion or so (or about 25% of GDP).

To the question of how it will be paid for the answer is simple: the Government will issue bonds and borrow the money required.

However, there are several things to say on all this.

First, it’s absolutely necessary. In normal circumstances, such a massive public stimulus program and boost to public debt - which is nearly double what we saw in the GFC – could not be justified. But these are not normal times. The hit to economic activity in Australia from the shutdowns could be 10% to 15% of GDP. This requires a similarly-sized stimulus programme to offset it, otherwise, we risk doing immeasurable collateral damage to the economy. It will take much longer to recover from such damage, ultimately resulting in an even bigger hit to the budget.

Second, to borrow from classic Keynesian economics, it makes sense for the public sector to borrow from households and businesses at a time when they are stuck at home and can’t spend. Government spending the borrowed funds helps smooth out the economy.

Sure the stimulus won’t stop the virus or spur immediate spending when people are locked up inside but it will help support businesses and household income. Then they can survive this period of hibernation and hopefully bounce back once it comes to an end. The trick for the Federal Government is to curtail the stimulus and its borrowing once the economy bounces back and the private sector starts to borrow again otherwise the competition for funds will boost interest rates and create problems for the economy.

Third, Australia’s public debt is far lower than in other comparable countries. In fact, net public debt as a share of GDP is around a quarter of what it is in comparable advanced economies. See the next chart. So Australia has far greater scope to undertake fiscal stimulus than other comparable countries.

Fourth, the cost of borrowing for the Federal Government right now is very low at just 0.25% for three years and 0.75% for 10 years. So it’s not as if the Federal Government is incurring a huge interest bill or ‘crowding out’ private sector borrowing or investment.

Finally, the budget blowout may risk a downgrade in Australia’s AAA sovereign debt rating, but ratings are a bit of a relative game and Australia’s public finances will still look relatively better than others. I would rather a rating downgrade than a deep depression/recession any day … particularly when any downgrade will have no impact on the Federal Government’s cost of borrowing!

Source and Credit:

Just a reminder that our office will be closed for Easter from Good Friday, 10 April and returning to operations on Tuesday, 14 April.

We will continue to share with you the most up to date news as it happens, and we are here to answer any questions you might have.

Wishing you and your loved ones a very peaceful and Happy Easter.

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