The Government will provide tax-free payments up to $100,000 for eligible small and medium sized entities (SMEs), and not-for-profits (including charities, “NFPs”) that employ people, with a minimum payment of $20,000. The payments will be made in 2 stages, which are referred to as “cash flow boost” payments in the legislation.
The first cash flow boost payment for employers will be available from 28 April 2020. Employers will receive a payment equal to 100% of their salary and wages withheld, with the maximum payment being $50,000. In addition, the minimum payment will be $10,000.
The second cash flow boost payment for employers will be made from 28 July 2020. Eligible entities will receive an additional payment equal to the total of the first cash flow boost payment received.
This means that eligible entities will receive at least $20,000 up to a total of $100,000 under both payments. The 2-phase payment is intended to provide cash flow support over a longer period (thereby increasing confidence, helping employers to retain staff and helping entities to keep operating, etc).
Eligibility
Small and medium sized business entities and NFPs with aggregated annual turnover under $50m and that employ workers will be eligible for the cash flow boost payments. There is also an overriding “carrying on a business” test. Eligibility will generally be based on prior year turnover, although there is scope for the Commissioner to deem an entity as eligible (ie if “reasonably satisfied” etc).
To qualify for the second cash flow boost payment, the entity must continue to be active.
The payments will only be available to active eligible employers that were established before 12 March 2020.
When first announced, the payments were not available for NFPs. However, they have now been included (subject to the $50m threshold etc). Charities are not subject to the 12 March 2020 deadline, ie charities which are registered with the ACNC will be eligible regardless of when they were or will be registered. This recognises that new charities may be established in response to the COVID-19 pandemic.
Anti-avoidance rules
Eligibility is also subject to a specific integrity rule to overcome artificial or contrived arrangements.
the potential scope of these anti-avoidance provisions has generated quite a bit of concern among taxpayers, accountants and advisors. If taxpayers structure their affairs to ensure that they qualify for what may be a business-saving payment, will this fall foul? For example, what are the consequences converting what would otherwise be a payment outside the PAYG rules to ensure that it qualifies as a PAYG payment (eg a dividend paid to a shareholder who works in the business)?
Another consideration is the promotor penalty regime. Accountants would obviously be promoting their services in this field as a matter of urgency at this time. Does it then mean that they will later have to be concerned about falling foul of the rules in Div 290 of Sch 1 to the TAA, which deal with the promotion of tax exploitation schemes?
Hopefully, there will be some clear and sensible guidance on this from the ATO relatively soon. If there is one measure that seems to stand tall over the others, in terms of its importance to businesses, it is the cash flow boost payments. It will be vital to helping keep businesses afloat. If people profiteer, go after them. But if it saves a few businesses who push the envelope, then so be it at this challenging time.
Payment and processing
The payments will be automatically calculated by the ATO and will flow automatically through the ATO. There are no new forms required. The payments will be tax-free.
All payments will be delivered by the ATO as a credit to the entity upon lodgment of their activity statements. Where this places the entity in a refund position, the ATO will deliver the refund within 14 days.
The first cash flow boost payments will be delivered by the ATO as an automatic credit in the activity statement system from 28 April 2020, upon employers lodging eligible (upcoming) activity statements.
Eligible employers that withhold tax to the ATO on their employees’ salary and wages will receive a payment equal to 100% of the amount withheld, up to a maximum payment of $50,000. Eligible employers that pay salary and wages will receive a minimum payment of $10,000, even if they are not required to withhold tax.
In terms of the second cash flow boost payment, payment processing will depend on whether the taxpayer is a monthly or quarterly remitter.
For monthly activity statement lodgers, the second cash flow boost payments will be equal to a quarter of their first cash flow boost payment following the lodgment of their June 2020, July 2020, August 2020 and September 2020 activity statements (up to a total of $50,000).
For quarterly activity statement lodgers, the second cash flow boost payment will be equal to half of their total first cash flow boost payment following the lodgment of their June 2020 and September 2020 activity statements (up to a total of $50,000).
ATO administration
The ATO has released a fact sheet which contains further details on how it intends to administer the cash flow boost payments measures.
If entities lodge early, the ATO confirms that, regardless, they will not receive the first cash flow boost payment before 28 April 2020.
The ATO states that eligible entities must also have either:
- derived business income in the 2018–19 income year and lodged 2019 tax returns on or before 12 March 2020; and
- 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.
The ATO will generally determine whether an entity is a small or medium business entity based on its most recent income tax assessment for a prior year. However, where it does not have any income tax assessments for prior years, it may still be eligible – providing the ATO is satisfied, based on other information, that the entity is in business and would have an aggregated annual turnover under $50m.
The fact sheet goes to state the following:
“We may also give you further time to provide us notice that business income or supplies were made. This will generally be the case where you have a lodgment deferral in place. If you did not have a lodgment deferral in place, you will not become eligible if you lodge or amend returns for those periods now.”
(Although this would not be intended, arguably it seems to unfairly punish those who do not have a deferral already in place. It could even be argued that this is against the spirit of what is after all a rescue package.)
However, the ATO does go on to say that, as the cash flow boost is generated on lodgment of an eligible activity statement, if a lodgment deferral has been granted by the ATO, the cash flow boost will generally be made at the time of the deferred lodgment. This ensures that eligible entities that have received deferrals, eg due to recent natural disasters such as the bushfires, do not miss out on the payment or have to forgo their extended time to lodge to qualify.
In addition, entities may choose to lodge before the deferred due date (but only on or after 28 April 2020) in order to access the cash flow boost earlier, eg those expecting GST refunds.
The ATO states that, to be entitled to the cash flow boost payments, eligible entities need to lodge the relevant activity statements within 2 years of when the activity statements were due to be lodged. This ensures that the measure is targeted at helping employers during the period affected by C-19.
Importantly, the ATO states that to access the cash flow boost, entities must lodge their activity statement. If an entity does not need to lodge an activity statement in respect of its PAYG withholding, the ATO is “working through a solution” and will update its website with more information on what such an entity needs to do.
Finally, the ATO notes that entities will still be entitled to a deduction for PAYG withholding paid. And for those readers with a GST bent, the ATO confirms what you already know – that payment will not be treated as consideration for a taxable supply as the entity is not making or agreeing to make a supply for the payment (ie it is not subject to GST).