Now that some businesses have lodged their March activity statements, the much anticipated cash flow boost has started to be received (not offset against any tax liabilities either, as was initially a possibility).
The cash flow boosts (there is to be two of them), delivered as credits in the activity statement system, will generally be equivalent to the amount withheld from wages paid to employees for each monthly or quarterly period from March to June. The ATO says that in practice, this means an employer will get to keep the amounts they have withheld from payments for these periods. There are however a few exceptions, as follows:
- Monthly lodgers will receive a credit for March 2020 which is 300% of their withholding for that month. This will provide an approximate equivalent to lodgers reporting quarterly.
- Eligible businesses will receive a minimum of $10,000 across March to June 2020, even if their total withholding is less than $10,000.
- Total cash flow boosts for March to June 2020 cannot exceed $50,000.
An additional cash flow boost will be applied when activity statements are lodged for each monthly or quarterly period from June to September 2020. These credits will be equal to the total boosts credited for March to June, and will be paid out in either two or four instalments depending on a business’s reporting cycle.
However there continue to be aspects of the cash flow boost that has businesses, and practitioners, scratching their heads. Tax & Super Australia has received many enquiries pertaining to the cash flow boost’s application and finer details — such as the payment mechanism.
One member asked, for example, how the payments are calculated.
The minimum first cash flow boost payment is $10,000 (maximum $50,000) and is payable provided an eligible payment of any amount is made during the first cash flow boost period (regardless of whether any withholding is required) which is the period from:
- 1 March 2020 to 30 June 2020 (for monthly lodgers); and
- 1 January 2020 until 30 June 2020 (for quarterly lodgers).
There is a special rule for monthly lodgers for the month of March. So as not to disadvantage monthly lodgers whose payments made in January and February don’t qualify, monthly lodgers receive three times the amount withheld when they lodge their March activity statement (subject to the minimum $10,000 payment and maximum $50,000 payment amounts).
This effectively means that monthly lodgers who have recorded withholding on eligible payments of between $3,334 and $16,666 will receive three times that amount on lodgment of their March activity statement. This is because three times $3,334 exceeds the minimum $10,000 first cash flow boost payment and three times $16,666 equals $50,000, where the first cash flow boost cuts out.
For periods after the first period that the entity qualifies for the first cash flow boost (and is paid a minimum $10,000), the subsequent amounts in the first cash flow boost period ending 30 June 2020 will be equal to the amount of the withholding on eligible payments in each period (subject to the $50,000 cap).
For example, once an entity qualifies for the minimum $10,000 first cash flow boost for say, the month or quarter of March 2020, any subsequent withholding on eligible payments made during any of the periods between 1 April 2020 until 30 June 2020 will be matched dollar-for-dollar by additional first cash flow boost payments up to the maximum $50,000 cap. For monthly lodgers, these periods will be each of the months of April 2020, May 2020 and June 2020 while for quarterly lodgers it will be the June 2020 quarter.
There are many other questions about this matter that the Tax & Super technical team have answered. These include, but are not limited to:
- If the 2018-19 company tax return was not lodged by 12 March 2020 or the company is new and never lodged a tax return is the cash flow boost available?
- Are directors, spouses and children eligible if they get paid wages?
- If wages are paid that don’t require PAYG withholding, and the entity is not registered for GST (i.e. there is no requirement to lodge activity statements) can the entity receive the payment?
- Would a company that doesn’t have any employees but has a large number of contractors be entitled to the cash flow boost?
- Will a business that has ceased (due to downturn) after the March quarter and pays no wages in the June quarter be eligible for the first payment?
- Can you get the second cash flow boost payments if you do not have any PAYG withholding for the June quarter?
- Will the anti-avoidance measures be attracted if a company goes from paying dividends to wages instead (or back to paying wages)?
Note that there are many more questions about the cash flow boost answered on this page.
There are also three short video explanations by our Tax Counsel John Jeffreys, giving examples of how the measure works. Example 1 looks at a business that employs two casual staff. Example 2 examines the situation where a business has PAYG withholdings of greater than $10,000 in a quarter but less than $50,000. And example 3 has a business that lodges its BAS each month and obtains the maximum cash flow boost of $100,000.
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