6 must-listen podcasts for accountants
Tune in to instructive leadership and growth stories, technology insights, useful discussions with accountants in...
READ MORE
Deservingly, health workers were appropriately singled out and acknowledged for their efforts during the height of the pandemic. The silent heroes working in the background were the army of accountants. Our profession can take a bow and I am proud of the way we responded helping clients during this difficult time. Members understandably find it difficult to switch off when clients are experiencing difficulties and as their trusted adviser, put their clients’ needs in front of their own
The demand on accountants was confirmed by the ABS, which recently released data on businesses seeking COVID-19 related advice. It says: Three out of five (60 per cent) Australian businesses sought external advice in response to COVID-19. Businesses were most likely to seek advice about government support measures (86 per cent).
Accountants heavy lifters also providing emotional support
Accountants had to do the heavy lifting in helping clients navigate the government stimulus measures put in place to mitigate the adverse implications of COVID-19 restrictions. Most had to put aside their normal compliance work and direct all resources to helping clients access the cash flow boost and JobKeeper packages. Both of these initiatives accounted for the bulk of the federal government’s stimulus measures and were delivered through the tax system.
Accountants found themselves caring for anxious staff and clients, all while trying to keep their own businesses afloat. Accountants were inundated with clients seeking advice on how to deal with the impacts of COVID-19 on their businesses and assisting them to navigate the relief measures. The ripple effect of the coronavirus pandemic was huge, sending consumer and business confidence to record lows. The economic uncertainty had taken an emotional toll on both business owners and the accountants servicing them. At the height of the social distancing restrictions and business closures to curb the spread of coronavirus, client sentiment turned from feeling mildly nervous to deeply distressed.
Most businesses took a significant hit to revenue and cash flow. Accountants found themselves not only as business advisers but providing much needed emotional support.
Accountants were challenged trying to work out what advice they should be giving their clients not knowing what the future looked like. The restrictions put even the most resilient businesses in financial stress. Dentists, for example, who could not perform procedures unless they were considered an emergency, saw revenues fall off a cliff.
Non-billable hours skyrocketed
Accountants put the health of their practice on the backburner as non-billable hours suddenly skyrocketed and the focus turned to helping their clients get through the immediate impacts of the crisis. Most practitioners willingly provided advice not knowing whether the client would survive the lockdown. Obtaining a strong understanding of the stimulus measures in the short time available challenged all accountants, putting more pressure on billable hours. Practitioners had no choice but to immerse themselves in understanding JobKeeper.
This effort in understanding the eligibility criteria around the stimulus measures added to their existing workloads. Most accountants were spending up to half a day reading just to keep on top of potential tax impacts on clients. It was that fluid. They would wake up each day to something new as the guidance was being developed in real time. One upside is that accountants have a better understanding of their clients’ businesses, providing the opportunity to expand the services they can provide their clients in addition to compliance work going forward. In addition, clients will remember the assistance provided, which will hopefully make that client a very sticky one wetted to the firm which supported it when times turned sour.
Accounting bodies and the ATO
The accounting bodies were quick to recognise the added workload and requested blanket deferrals from the ATO for the 2019 lodgment program. The accounting bodies were appreciative of the ATO responding positively to our requests, understanding the heavy load placed on our profession. The ATO was thrusted into the stimulus arena becoming the Centrelink of the business world. No other agency could have coped with the demands placed on its shoulders. Full credit goes to the ATO in putting together the infrastructure required to pull off something of this size in such a short period. Its focus of being a tax collector turned to that of being a COVID-19 cash dispensing lifeline for distressed businesses. With only minor hiccups, it managed to provide the necessary service delivery standards expected under enormous pressure.
The cash flow boost was essentially an automatic process, however not so for JobKeeper. The cash flow boost applied automatically to businesses that lodged their business activity statement (BAS) or instalment activity statement (IAS). JobKeeper on the other hand was much more labour intensive as it required lots more advice, hand holding and assistance.
Government response – go hard, go early
The government responded quickly and decisively throughout the crisis. Go early and hard was the catch cry. The size of the stimulus measures namely cash flow boost and JobKeeper and the speed of implementation certainly lived up to the rhetoric.
Looking back at what unfolded, it is easy to unpick some of the less than ideal aspects of the cash flow boost and JobKeeper initiatives. Taking nothing away from the government, these initiatives did not have the luxury of a normal consultation process. JobKeeper, for example, was announced on 30 March and legislation followed in less than 10 days.
There was simply no time to waste to deal with the evolving consequences of the pandemic. The government had to act quickly, and we applauded the speed of delivery and fully understand the predicament it was facing. Particularly, just prior to the JobKeeper announcement where long queues were forming outside Centrelink offices. I will never forget that image. Once JobKeeper was announced it provided a welcome security blanket over the entire economy and more importantly slowed the number of employees being laid off in response to the pandemic.
JobKeeper managed to lower anxiety in the community and bought valuable time for the government to focus on dealing with the health issues and recovery measures. We should be proud as citizens that we live in a country that values human life and put in place the necessary measures to limit the number of deaths associated with the pandemic.
While the economic costs of the restrictions will be huge and something future generations will be paying back over an extended period; history tells us that it was right call.
Cash flow boost
The policy intent was to provide temporary cash flow assistance to entities who employed staff during the economic downturn associated with COVID-19. Eligible businesses and not-for-profits (NFP) could receive between $20,000 to $100,000 in cash flow boost amounts based on the amount of tax withheld from payments such as wages. Only genuine employment relationships were recognised with some odd exceptions (see below).
Some of the issues that caused concerns are:
Odd inclusions
While generally only available to employers who paid wages, if an entity employed contractors that had entered into voluntary withholding arrangements, then this also entitled the entity to receive cash flow boost. Similarly, if the entity earned personal services income (PSI) that was attributed to the individual due to failing the personal services income tests, it was originally not entitled to the cash flow boost. On 15 June 2020 (Treasury Laws Amendment (2020 Measures No.3) Bill 2020), the rules were changed so that entities that failed the PSI tests would now be eligible. The rationale for the inclusion is that entities that fail the PSI rules, are still carrying on a business.
JobKeeper
The JobKeeper Payment scheme is also a temporary subsidy for businesses significantly affected by coronavirus (COVID-19). Eligible employers, sole traders and other entities can apply to receive $1,500 per eligible employee per fortnight. This stimulus measure recognised active participants in a business that were not remunerated via wages, addressing one of the major concerns with the cash flow boost. Some of the design features of JobKeeper were its design faults. The government had to strike the right balance between maintaining integrity and simplicity. Anything overly complex would not have been capable of implementation in the time frame required, so it is understandable that there were tradeoffs in the system design.
Fortunately, the ATO came to the rescue with PCG 2020/4. In the PCG the ATO provided examples of service entity arrangements where the commissioner was not likely to commit compliance resources such as where the employer entity reduces a service fee in proportion to the decline in turnover of the main operating entity. If the rule change and ATO compliance guide were not forthcoming it would have left service entities no choice but to undertake major retrenchment of staff.
JobKeeper mid-point review
With any government initiative of this mammoth size, it is entirely appropriate that it remains targeted as we are using borrowed money to help businesses survive the downturn and continue to employ their staff. Businesses that are still in hibernation due to continuing restrictions are a different category and will need ongoing support when JobKeeper ends in September 2020.
The government has now had the opportunity to address some of the things it had no time to consider when JobKeeper was implemented. Too many changes will not be welcomed by the community but addressing some of the anomalies may be warranted.
By the time the review is announced we only have two months of JobKeeper left for the scheme, so the government could easily allow it to run its course warts and all. The Treasurer has the almighty power to tweak the rules as he sees fit and we have seen a number of changes where he has in fact done so.
There is speculation that the $1,500 fixed amount might be adjusted. Another possibility is having entities re-establish their turnover eligibility. When the decline in turnover thresholds were put in place it was in the darkest of times heading into the unknown. The question I ask myself is whether we should still be supporting businesses that have basically returned to normal, so I am a fan of re-establishing eligibility. This way support remains highly targeted to those in need. The other burning issue is how the government continues to support viable businesses that through no fault of their own require ongoing support until the new normal resumes. JobKeeper does not discriminate between a business worth saving and one already in decline and here lies one of the intriguing challenges for policy makers when life support is withdrawn. The number of business foreclosures interestingly has been below the normal rate indicating that the life support provided is prolonging the inevitable. Economists refer to these types of entities as “zombie firms”. ASIC data had revealed a 34 per cent year-on-year decrease in insolvencies since late March.
Not out of the woods – more challenging times ahead
As a final note to all our members, thanks to all the support you have provided to all the small businesses around the country. Your emotional and financial advice reaffirms why accountants are referred to as the “trusted adviser”. The sad reality will be that despite all the efforts our profession has provided during the pandemic, some businesses will not survive once support is withdrawn so some difficult conversations are ahead of us and we are by no means out of the woods.
The pandemic has accelerated certain trends such as the move to online shopping away from retail, the importance of having digital presence, remote working, migration to cloud software, and less need for interstate and overseas travel to name a few. The new normal may make some businesses not viable anymore unless they have already adapted to the new environment. JobKeeper has provided a wage subsidy but unfortunately does not cover many of the fixed costs the business incurs (i.e. rent, overheads etc) so in a lot of cases, debt has accumulated during this slow down period.
While all the banks have deferred repayments and landlords may have helped with rent relief, most businesses will have more debt to service and that’s not including tax debts. The ATO has been very accommodating allowing businesses to defer tax debts, which has only exacerbated the pre-COVID-19 small business tax debt scenario. Entities will be facing liquidity issues especially when government support ends, so it is important for accountants to pre-empt these conversations.
In some cases, the best advice will be for the business owner to call it a day to prevent more debt being accumulated. An accountant should consider a referral to a turnaround specialist or liquidator may be an appropriate course of action for some clients.
Tony Greco FIPA, general manager of technical policy, IPA