Boosting cash flow for employers
The ATO will provide temporary cash flow support (called the cash flow boost) to small and medium businesses and not-for-profit organisations that employ staff during the economic downturn associated with the COVID-19.
Cash flow boosts are tax free and not subject to GST. You will still be entitled to a deduction for PAYG withholding paid. There is no effect on tax paid by employees in respect of their salary and wages.
Cash flow boosts will not have to be repaid once times improve (although if you are overpaid, the excess will have to be repaid).
How does the cash flow boost work?
You will be eligible to receive the cash flow boost if you are a small or medium business (whether a sole trader, company, partnership or trust) that:
- held an ABN on 12 March 2020 and continues to be active;
- has an aggregated annual turnover under $50 million – this is generally based on the most recent prior year income tax assessment, but if you do not have any prior year assessments, you may still be eligible if the ATO is satisfied that you are in business and would have an aggregated annual turnover under $50 million; and
- made eligible payments you are required to withhold from (even if the amount you need to withhold is zero).
Eligible payments include:
- salary and wages;
- director fees;
- eligible retirement or termination payments;
- compensation payments;
- voluntary withholding from payments to contractors.
In addition, you must also have either:
- derived business income in the 2018-19 income year and lodged your 2019 tax return on or before 12 March 2020; or
- made GST taxable, GST-free or input-taxed sales in a previous tax period (since 1 July 2018) and lodged the relevant activity statement on or before 12 March 2020.
To be eligible, not-for-profit organisations (excluding charities) must have all of the following:
- held an active ABN on 12 March 2020;
- have an aggregate annual turnover of less than $50 million; and
- made payments to employees.
Charities registered with the Australian Charities and Not-for-profits Commission are eligible, regardless of when they were registered, if they meet the other eligibility requirements.
Initial cash flow boost
You will receive a credit equal to 100% of the amount withheld, up to a maximum of $50,000. The minimum credit will be $10,000, even if the amount required to be withheld is zero. However, you will not be eligible to receive any more cash flow boosts until your PAYG withholding exceeds $10,000 over the relevant periods.
Monthly lodgers will receive a credit that is calculated at three times the rate (300%) in the March 2020 activity statement, to align with quarterly lodgers.
The total of all initial cash flow boosts across all of the relevant periods cannot exceed $50,000.
The initial cash flow boost will be delivered as a credit in the activity statement system from 28 April 2020. If you lodge early (i.e. before 28 April 2020), you will not receive the cash flow boost before that date.
If you lodge quarterly, you will be eligible to receive the credit for:
- quarter 3, March 2020 (lodgment due date 28 April 2020); and
- quarter 4, June 2020 (lodgment due date 28 July 2020).
If you lodge monthly, you will be eligible to receive the credit for the March, April, May and June lodgment periods.
As the cash flow boost is generated on lodgment of an eligible activity statement, if the ATO has granted a lodgment deferral, the cash flow boost will generally be made at the time of the deferred lodgment.
Additional cash flow boosts
If you receive an initial cash flow boost, you will receive additional cash flow boosts, for the periods June to September 2020. The amount received will be equal to the total amount of the initial cash flow boost.
The additional cash flow boosts will be delivered in 2 or 4 instalments, depending on your reporting period. If you report quarterly, you will receive 50% of the initial cash flow boost for each BAS.
Delivery of the cash flow boost
You do not need to apply for the cash flow boosts. If you are eligible, the cash flow boosts will be automatically applied to your account when you lodge your BAS for the relevant period. The cash flow boosts will be applied to reduce liabilities arising from the same BAS. This will result in eligible entities being required to pay less to the ATO.
The ATO has said that if you do not need to lodge a BAS in respect of your PAYG withholding, it is working through a solution and will update its website with more information on what you need to do.
Where a credit exceeds your other tax liabilities, the excess amount will be refunded.
You may also receive a refund if you overpay because your system was unable to take the cash flow boost into consideration when working out how much was payable.
The ATO has said that it will generally deliver any refund within 14 days.
You will not be eligible for cash flow boosts if you (or a representative) take steps to make you eligible for cash flow boosts, or to increase the amount of your cash flow boosts.
This may include restructuring your business or the way you usually pay your workers, as well as increasing wages paid in a particular month to maximise the cash flow boost amount.
Tip! Talk to your tax agent before restructuring your business. There will be other tax issues you need to know about, such as capital gains tax.
Ref: TaxWise Business April 2020