COVID 19 – $100,000 Cash Boost for Employers

The Government announced on 22 March 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.

Here is everything you need to know about the “Boosting Cash Flow for Employers” support package.

Am I eligible for the Cash Flow Boost?

A business (including a charity or not for profit) will be eligible for the cash flow boost if it meets the following conditions: –

Must have held an ABN on 12 March 2020. This is not relevant for charities.

Must have derived some business income in the 2018-19 income year and lodged the 2019 tax return by 12 March 2020 or made a supply of goods or services connected with Australia at some point during a GST period starting on or after 1 July 2018 and ending before 12 March 2020 and lodged a relevant activity statement by 12 March 2020.

Must make at least one payment during the relevant period that falls within the scope of certain PAYGW rules; and

Aggregated turnover less than $50 million in the previous financial year.

For charities, the rules are more flexible as the Government recognises that new charities might be established in response to the pandemic. For non-profit organisations to qualify for this measure they need to be a not-for-profit body and have aggregated turnover of less than $50m in the previous financial year or the Commissioner must be reasonably satisfied that turnover for the current year would be less than $50m.

The legislation includes integrity rules to prevent artificial or contrived arrangements or schemes being used to access the funding.

What do I have to do to get the cash flow boost?

Businesses will need to lodge their BASs showing the payments that are subject to withholding.

If the business is a charity or not-for-profit with no income tax notices of assessment, it will need to notify the Commissioner that it should satisfy the small to medium business entity requirement.

How is the boost calculated?
The support will be provided in two stages.

Under the first stage the support is calculated based on the amounts actually withheld from payments to employees, directors and certain contractors. If the entity is a quarterly lodger then the support is equal to 100% of the amounts withheld from payments to staff during the March 2020 and June 2020 quarters. If the entity is a monthly lodger then the support is equal to 300% of the amounts withheld from payments to staff in March 2020 plus 100% of the amounts withheld from payments in April 2020, May 2020 and June 2020.

The first stage support amounts are subject to a cap of $50,000. However, a minimum amount of $10,000 will apply to all eligible entities and this will be provided in the first period they are eligible. This could be relevant to entities that have employees, but the withholding amount is nil or a relatively low amount.

Under the second stage, entities that were eligible to support amounts in the first tranche will receive the same total amount again even if their circumstances have changed. However, the support payments will be spread out. Quarterly lodgers will receive 50% of the first tranche amount for each of the June 2020 and September 2020 quarters. Monthly lodgers will receive 25% of the first tranche amount for each of the June 2020, July 2020, August 2020 and September 2020 periods.

Below is how the cash flow stimulus looks for quarterly and monthly lodgements.

 

Quarterly activity statement lodgement
Tranche 1 March 2020 100% of PAYG withholding up to a maximum of $50,000
June 2020 Where the March quarter did not reach the $50,000 maximum, any remaining amount up to 100% of the PAYG withholding amount
Tranche 2 June 2020 100% of the Tranche 1 amount (i.e., up to a maximum of $50,000) provided in two equal amounts

 

Monthly activity statement lodgement
Tranche 1 March 2020 300% of PAYG withholding up to a maximum of $50,000
April 2020 Where March 2020 did not reach the $50,000 maximum, any remaining amount up to 100% of the PAYG withholding amount
May 2020
June 2020
Tranche 2 June 2020 100% of the Tranche 1 amount (i.e., up to a maximum of $50,000) provided in four equal amounts
July 2020
August 2020
September 2020

 

Example – Sarah’s Construction Business

Sarah owns and runs a building business in South Australia and employs eight full time construction workers who each earn $89,730 per year. Sarah reports withholding of $15,008 for her employees on each of her monthly Business Activity Statements (BAS).

 

Sarah will be eligible to receive the cash flow assistance payment on lodgement of her BAS. The business receives:

 

Activity statement period Credit amount  
March $45,024 300% of total withholding
April $4,976 Remainder up to $50,000 cap
May $0
June $12,500 25% of Tranche 1 amount
July $12,500 25% of Tranche 1 amount
August $12,500 25% of Tranche 1 amount
September $12,500 25% of Tranche 1 amount

 

The business will receive a total of $100,000 under this measure.

 

Adapted from fact sheet: Cash flow assistance for businesses

 

Delivery of Payments

The business or non-profit entity will generally need to lodge its activity statement for the relevant period to trigger the cash flow support.

The Commissioner has some discretion on how the cash flow support is provided to eligible entities. For example, the ATO could decide to allocate the support amount to the entity’s running balance account or could decide to apply it against other tax debts. In practice it is expected that the support amounts will generally be applied against liabilities arising from the same activity statement, reducing the net amount that needs to be paid to the ATO for that month or quarter.

Where the support amount exceeds any tax liabilities that are owed by the entity, then the excess amount will be paid as a cash refund. The Commissioner also has the discretion to provide cash refunds to entities rather than applying the amounts against tax liabilities.

If you need assistance with understanding this complex measure or assistance with lodging the Business Activity Statements please contact the team at Waterford Accountants on (02) 4940 2800.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.