Legislation has been passed to provide temporary cash flow support to small and medium businesses and not-for-profit organisations that employ staff during the economic downturn associated with COVID-19.
This will be done through two sets of cash flow boosts delivered from 28 April 2020 to support employers to retain employees.
The ATO will provide tax-free cash flow boosts of between $20,000 and $100,000 to eligible businesses, delivered through credits in the activity statement system, when eligible businesses lodge their activity statements.
If you are eligible, you DO NOT need to apply for these cash flow boosts, instead these will be credited with lodgement of your next ( March ) BAS – and will be paid by no earlier than 28 April, 2020.
Eligibility
- You must have an ABN as at 12 March, 2020.
- You must lodge your activity statement to receive the credit
- You must have an aggregated turnover ( as at 30/6/19 ) of less than $50 million.
- You must have made eligible payments to employees (ie: salary / wages, directors fees, eligible retirement / termination payments, compensation payments, voluntary withholding from payments to contractors. (Even if the tax withholding on these amounts is $00).
- You must have derived business income in the 2018–19 income year and lodged your 2019 tax return on or before 12 March 2020
- You must have 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
- All eligible entities that received initial cash flow boosts may be entitled to additional cash flow boosts.
Question:
What happens if I didn’t need to lodge a 2019 FY Income Tax Return?
Where you do not have any income tax assessments for prior years, you may still be eligible if the ATO are satisfied, based on other information held, that you are in business and would have an aggregated annual turnover under $50 million.
Timing
If you lodge:
- quarterly, you will be eligible to receive the credit for
- quarter 3, March 2020 (lodgment due date 28 April 2020)
- quarter 4, June 2020 (lodgment due date 28 July 2020).
- monthly, you will be eligible to receive the credit for the lodgment periods of
- March 2020 (lodgment due date 21 April 2020)
- April 2020 (lodgment due date 21 May 2020)
- May 2020 (lodgment due date 21 June 2020)
- June 2020 (lodgment due date 21 July 2020).
Initial Cash Flow Boost
Your first cash flow boost is based on your amount of PAYG withholding. You will receive a credit to the value of up to 100% of the amount withheld to a maximum of $50k.
Your minimum credit will be $10k-even if the amount you withheld on your wages was $0! (If this is the case you would not be entitled to receive any additional cash flow boosts until your PAYG Withholding exceeds $10k over the relevant periods).
The total of all initial cash flow boosts across all of the relevant periods cannot exceed the maximum limit of $50,000.
Example:
Stacey owns a small marketing company and employs 2 casual staff members whom she pays $10K per year each. In her March 2020 quarter BAS, her tax on wages ( W2 ) is $0. Stacey will receive a credit of $10K in her March BAS, however she will not receive any further cash flow boosts unless her June 2020 quarter withholding is $10K or greater.
Example:
George owns and runs an Australian plumbing business and employs 8 construction workers on average full-time weekly earnings who each earn $89,730 per year. In the months of March, April, May and June for the 2019–20 income year, George reports wages paid at W1 and withholding of $15,008 for his employees at W2 on each activity statement. For March 2020, George’s initial cash flow boost is three times his withholding (W2). This equates to $45,024 ($15,008 3). As this amount is greater than $10,000, George will receive a cash flow boost of $45,024. For April 2020, George’s withholding is $15,008, however there is only $4,976 of initial cash flow boosts remaining before he reaches the $50,000 limit. He will receive a further initial cash flow boost of $4,976. George will not receive any further initial cash flow boosts after he has reached the $50,000 limit.
Additional Cash Flow Boost
The amount of additional cash flow boosts you are entitled to is based on the value of initial cash flow boosts you received.
If you lodge quarterly business activity statements you will receive 50% of your total initial cash flow boosts for each activity statement.
If you lodge monthly business activity statements you will receive 25% of your total initial cash flow boosts for each activity statement.
Example:
Stacey received an initial cash boost of $10K ( being the minimum payment as she withheld $00 tax on wages in the March 2020 quarter). When she lodges her June and Sept 2020 BAS’s she will receive an additional $5K in each BAS respectively. The total of these payments comes to $20K which is the minimum cash flow boost total for a small business.
Further Information
- The cash flow boosts will be applied to reduce liabilities arising from the same activity statement. This will result in eligible entities being required to pay less to the ATO.
- Generally where a credit exceeds your other tax liabilities, the ATO will provide you with a refund of the excess amount.
- You may also receive a refund if you overpay your activity statement because your system was unable to take the cash flow boost into consideration when working out how much was payable.
- If you are placed in a refund position, the ATO will generally deliver the refund within 14 days.
- All cash flow boosts are tax free (non-assessable non-exempt income) and are not required to be paid back when your cash flow improves. However, if you have been paid more cash flow boosts than you are entitled to, you will be required to repay the excess.
- The boost is not subject to GST as you are not making or agreeing to make a supply for the payment.
- You will still be entitled to a deduction for PAYG withholding paid.
- You will not be eligible for cash flow boosts if you (or a representative) have entered into or carried out a scheme for the purpose of: becoming entitled to cash flow boosts when you would otherwise not be entitled, or increasing the amount of the cash flow boosts. ( For example suddenly declaring a wage to a partner whom otherwise would not have been in receipt of this wage ).
Should you have any queries regarding this email or anything else related to the stimulus package, don’t hesitate to get in touch with our team.
Stay Safe.
