The coronavirus stimulus package. Boosting cash flow for employers
The cash flow boost provides for payments to support employers by boosting their cash flow. Another intention with this measure is to encourage the retention of employees through any follow-on downturn.
Undoubtedly, this part of the stimulus package is the most confusing. Unfortunately, it also has the potential to be rorted by unscrupulous people. That is why the measures contain an anti-avoidance provision.
Before explaining the detail, here are a number of statements about this part of the package that will assist with explaining certain aspects of what is known as the “cash flow boost”.
1. There are two rounds of cash flow boost.
2. The second cash flow boost is determined from the amount of the first cash flow boost.
3. The amount of the first cash flow boost is determined by the amount of withholdings from (broadly) wages or the minimum cash flow boost payment ($10,000), whichever is larger.
4. The maximum first cash flow boost amount is $50,000.
5. If eligible, the minimum “payment” to an entity will be $20,000 and the maximum will be $100,000 from the two cash flow boost payments.
6. The “payments” are actually credits given to the entity through the lodgement of activity statements. If the credits exceed the amount owing, a refund will be paid by the ATO to the entity within 14 days of the due date for lodgement of the activity statement.
7. The payments will operate in a different manner for monthly and quarterly lodgers of activity statements. The examples below will explain this.
Entities with an aggregated turnover under $50 million are generally eligible to receive the first cash flow boost for a period if:
· the entity makes a payment that is subject to withholding obligations (broadly, a payment of wages or salary or similar remuneration), whether or not any amount is actually withheld, in the period; and
· the period is one of the following:
o the quarters ending in March 2020 or June 2020 for quarterly payers; and
o the months of March 2020, April 2020, May 2020 or June 2020 for monthly payers; and
· if the entity:
o held an ABN on 12 March 2020; and
o either derived assessable income from carrying on a business in the 2018-19 income year or made one or more supplies for consideration in the course of an enterprise it carried on within Australia in tax periods commencing after 1 July 2018 and ending before 12 March 2020 and notice of the income or supplies was held by the Commissioner on or before 12 March 2020 or within such further time as the Commissioner allows (this notice appears to be either activity statements or an income tax return); and
· the entity (or an associate or agent of an entity) has not engaged in a scheme for the sole or dominant purpose of seeking to make the entity entitled to the first cash flow boost or increase the entitlement of the entity to the first cash flow boost.
There are some other conditions that we can help work through if you are an eligible business.
The timing of the cash flow boost needs to be noted as well. Quarterly lodgers will be eligible to receive the payment for the quarter ending March 2020 and June 2020. Monthly lodgers will be eligible to receive the payment for the March 2020, April 2020, May 2020 and June 2020 lodgements. To provide a similar treatment to quarterly lodgers, the payment for monthly lodgers will be calculated at three times the rate (300%) in the March 2020 activity statement.
The minimum payment [$10,000] will be applied to the entities’ first lodgement.
The additional payment [the second cash flow boost] will be applied to a limited number of activity statements. Where this places the entity in a refund position, the ATO will deliver the refund within 14 days.
Quarterly lodgers will be eligible to receive the additional payment for the quarters ending June 2020 and September 2020. Each additional payment will be equal to half of their total initial Boosting Cash Flow for Employers payment (up to a total of $50,000).
Monthly lodgers will be eligible to receive the additional payment for the June 2020, July 2020, August 2020 and September 2020 lodgements. Each additional payment will be equal to a quarter of their total initial Boosting Cash Flow for Employers payment (up to a total of $50,000).
The anti-avoidance provision
Be aware that the cash boost legislation contains an anti-avoidance provision. This states: “Neither the entity nor any associate or agent of the entity has entered into or carried out a scheme or part of a scheme for the sole or dominant purpose of achieving any of the following:
1. making the entity entitled to the cash flow boost for the period;
2. increasing the amount of the cash flow boost to which the entity is entitled (disregarding this paragraph) for the period.
Many taxpayers however may wonder about those owners of businesses (through trusts or otherwise) that don’t pay themselves a wage. Instead they take trust distributions, receive dividends or simply draw on the profits of the business. As legislated, the cash flow boost is only available in respect of (broadly) employment related withholdings. There may be a strong risk of falling foul of the anti-avoidance provision if someone who has not been paid salary or wages for a long period is now put on wages.
The ATO is very aware that there are schemes being entered into to take advantage of this handout, and we will let clients know if an announcement is subsequently made in this regard.