Small to medium employers who intend to claim the “cash flow boost payment” (minimum of $10,000 and a maximum of $50,000) announced in the second round of stimulus hoping to receive an injection of cash should beware. The “payment” is not actually a payment, rather it is a credit that will be offset against of the liabilities that appear on the BAS and any debits in a taxpayer’s RBA. While it is still likely to support employment by reducing the amount businesses have to pay the ATO, businesses hoping to get a cash injection will be sorely disappointed.
As a part of the second round of economic stimulus in response to the COVID-19 pandemic, the government legislated a measure to boost cash flow for employers. Put simply the cash flow boost payments are intended to support employment, by providing Federal support for employers – through the tax system. It is admirable yet will likely prove very complex to administer.
To recap, the measure ensures that an eligible employer receives an amount equal to 3 times the amount of tax withheld from ordinary salary and wages as disclosed in the March monthly BAS, or equal to the amount of tax withheld from ordinary salary and wages for the quarter – both subject to minimum of $10,000 and a maximum of $50,000. The payment is due on 28 April 2020 and other payments will follow later this year.
The cash flow boost payments are only available to entities that qualified as small or medium entities for the income year for which they have been most recently been assessed. In other words, entities that have turnover less than $50m. Put conversely, there will be no cash flow boost payments for entities that have turnover greater than $50m. Note, there is also a withholding requirement (ie the payment will only be made to entities that first notified the Commissioner that it has a withholding obligation through the lodgement of a BAS or IAS for the period).
Therefore, the key to the system is the BAS that entities lodge for March, either monthly or quarterly. Pretty much everything will be automatically generated from that. That BAS determines how much is paid, and when it is paid.
A word of caution, however. The headline numbers (and dates) can be a tad misleading. It is not a minimum $10,000 payment that will be received, it is a minimum gross credit of $10,000 that taxpayers will be entitled to (in respect of the March BAS). This credit will be offset against of the liabilities that appear on the BAS and any debits in a taxpayer’s RBA. This may result in refund, but more likely for most taxpayers will result in a reduction in the amount they owe to the ATO.
Even assuming that the ATO owes the taxpayer money (ie a refund), it will not be paid on 28 April, but rather within 14 days of lodging the BAS. So, any hopes that a taxpayer holds that an amount of $10,000 is to be deposited into its bank account on 28 April will not be met. The ATO has already stated that lodging a BAS early will not give rise to an early payment of the first cash flow boost payment.
Another important feature to note in the legislation is that eligibility is subject to a specific integrity rule to overcome artificial or contrived arrangements or schemes. The Tax Office has stated a “scheme” for these purposes includes restructuring a business or the way an entity usually pays its workers to fall within the eligibility criteria, as well as increasing wages paid in a particular month to maximise the cash flow boost payment amount.
If your small or medium business is thinking of claiming the payment, it would be prudent to analyse how much you will get based on current levels of salary and wages you make to your employees as the ATO states that any sudden changes to the characterisation of payments made may cause it to investigate whether the payments are in fact wages. Call us today if you need any help or assistance.