A key part of the Federal Government economic support package is what they are calling the ‘Cash Boost Payments’.  But, should it really even be called a payment … it is more of a credit against other BAS liabilities than a payment as such [although it may in some circumstances create a refund].

Employers get cash of up to $100,000

Payment/credit will be made through the BAS/IAS processes to employers with a turnover of less than $50m that employ staff as at 12 March 2020. The concession has now also been extended to not-for-profits [including charities].

Initially, the Government provided up to $25,000 with a minimum of $2,000 for eligible businesses. This has now been increased to a maximum of $100,000 and a minimum of $20,000.

The payments will be made as a credit of up to 100% of the PAYG amount withheld from salary and wages [up from 50%] and will be automatically applied against your activity statements starting with your March BAS.

The payment will be split though between the following periods:

  • March to June 2020 Activity Statements = minimum of $10,000 and a maximum of $50,000
  • June to September 2020 Activity Statements = a further minimum of $10,000 and a maximum of a further $50,000

The second additional payment will require the entity to continue to be active and will be delivered as a portion of the amount previously paid under these incentives in the earlier period. It will be paid as follows:

  • Quarterly Activity Statement lodgers = half of the amount previously paid on lodgement of June BAS and a half on lodgement of the September BAS.
  • Monthly Activity Statement lodgers = quarter of amount previously paid on lodgement of the June, July, August and September BAS/IAS’s.

When you work through the examples provided from Treasury it shows that the initial payment will be effective based on the wages for January, February and March 2020.

Example 1: Monthly PAYG Withholdings of more than $16,667 [and monthly lodger]

If your March BAS’s shows PAYG Withholdings of $16,667 or more, you will receive payments as follows:

  • 28 Apr 2020 [on lodgement of Mar BAS] = $50,000 [$16,667 x 3]
  • 21 May 2020 [on lodgement of Apr IAS] = $0 [because already received max]
  • 21 Jun 2020 [on lodgement of May IAS] = $0 [because already received max]
  • 28 Jul 2020 [on lodgement of Jun BAS] = $12,500 [¼ of $ previously received]
  • 21 Aug 2020 [on lodgement of Jul IAS] = $12,500 [¼ of $ previously received]
  • 21 Sep 2020 [on lodgement of Aug IAS] = $12,500 [¼ of $ previously received]
  • 28 Oct 2020 [on lodgement of Sep BAS] = $12,500 [¼ of $ previously received]

Example 2: Monthly PAYG Withholdings of $10,000 [and monthly IAS lodger]

If your March BAS’s shows PAYG Withholdings of $10,000, you will receive payments as follows:

  • 28 Apr 2020 [on lodgement of Mar BAS] = $30,000 [$10,000 x 3]
  • 21 May 2020 [on lodgement of Apr IAS] = $10,000 [100% of PAYGW amount]
  • 21 Jun 2020 [on lodgement of May IAS] = $10,000 [100% of PAYGW amount and max]
  • 28 Jul 2020 [on lodgement of Jun BAS] = $12,500 [¼ of $ previously received]
  • 21 Aug 2020 [on lodgement of Jul IAS] = $12,500 [¼ of $ previously received]
  • 21 Sep 2020 [on lodgement of Aug IAS] = $12,500 [¼ of $ previously received]
  • 28 Oct 2020 [on lodgement of Sep BAS] = $12,500 [¼ of $ previously received]

Example 3: Quarterly PAYG Withholdings of $6,000 per quarter [the equivalent of $2,000 per month]

If your March Qtr BAS’s shows PAYG Withholdings of $6,000, you will receive payments as follows:

  • 28 Apr 2020 [on lodgement of Mar BAS] = $10,000 [being the minimum boost]
  • 28 Jul 2020 [on lodgement of Jun Qtr BAS] = $2,000 [being that total PAYGW for the 6 months is $12k and already received $10k]
  • 28 Jul 2020 [on lodgement of Jun Qtr BAS] additional boost = $6,000 [being ½ of the total boost for the period up to and including the June BAS]
  • 28 Oct 2020 [on lodgement of Sep BAS] = $6,000 [ ½ of total boost for the previous period]

There are more examples in the Treasury documents at https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Cash_flow_assistance_for_businesses_0.pdf

And the good news is that this payment is ‘tax-free’!

Eligibility

One thing that has been made clearer now by the government is that eligibility requires you to be ‘active eligible employers established prior to 12 March 2020’.

If you do not lodge an activity statement you will not be eligible for the payment.  There is a situation where you may not need to lodge an activity statement for your PAYG withholding and so the ATO is yet to advise on how they will treat this for the purpose of calculating your entitlement.

To be eligible you will need to be a small or medium business entity [including not-for-profit organisations, sole traders, partnership, company or trust] that:

  1. held an ABN on 12 March 2020 and continues to be ‘active’ [we interpret ‘active’ as still operating the business], and
  2. has an aggregated annual turnover under $50 million [generally based on prior-year turnover), and
  3. made eligible payments [such as wages] you are required to withhold tax from [even if the amount you need to withhold is zero], and
  4.  you must have either:
    1. derived business income in the 2018–19 income year and lodged your 2019 tax return on or before 12 March 2020 [essentially you need to have lodged last years tax return showing business income], or
    2. 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 [essentially lodged a BAS for this financial year].

How will it be paid?

The ATO has advised that ‘cash flow boost’ will first be applied to reduce any other amounts you owe on the same activity statement [for example GST].  That is, if you lodge a BAS with say PAYG withholding of $5,000 for the quarter and net GST for the quarter of $10,000 you would have a normal liability of $15,000.  Given your entitlement to the ‘cash flow boost’ this entitlement would be reduced by your entitlement of $10,000.  If you have already paid the $15,000 normal liability, you will get a refund of $10,000.  If however you haven’t paid the BAS but only lodged it, the $10,000 would offset the $15,000 liability and you now only need to now pay $5,000

The way the measure will work is not necessarily resulting in a ‘payment’ to you … but, it instead allows you to keep some or all of the tax you will have already deducted from your team wages.

Things to think about:

  • Those of you who take dividends or distributions and don’t pay wages look like they will miss out based on our reading of the legislation and ATO website.
  • Many of you have asked if you can move wages into other entities rather than simply on-charging to related entities within your group. I would suggest based on our reading of the legislation and ATO website you will only be eligible for the one entity that directly reported wages prior to 12 March 2020.
  • We also note that the legislation includes anti-avoidance provisions which will be triggered if you do anything contrived to try and increase your entitlement.  Any attempt to increase your entitlement will result in you getting no entitlement at all.

Go back to the main COVID support/stimulus blog including all other support on offer from all the State and Federal Governments, tips for business owners, webinar recording, etc … please click here.

If you need help with your business during these times or would like us to help with your applications for the support on offer, please reach out at 1300BDEPOT or oneplace@businessdepot.com.au.