Boosting cash flow for employers - New laws in effect, are your clients eligible?

As part of its economic response measures to COVID-19, the Federal Government is providing a temporary cash flow boost to small and medium-sized businesses and not-for-profit organisations that employ staff. The measures, which became law on 24 March 2020, provide tax-free payments between $20,000 and $100,000 to eligible businesses and not-for-profits.

What are the measures?

The new law took effect on 24 March 2020 as part of the Federal Government measures aimed at supporting the Australian community and economy during COVID-19 crisis.

The cash flow boosts will provide eligible entities with tax-free payments of up to $100,000 (with a minimum payment of $20,000) to assist those entities with cash flow so they can continue operating, paying bills and retaining staff.

Who is eligible?

Entities will be eligible to receive the cash flow boosts provided they are a small or medium business (including not-for-profit organisations). This is regardless of the business structure they use (so sole traders, companies, partnerships and trusts are all eligible).

Eligible entities must:

• have held an ABN on 12 March 2020;
• have aggregated annual turnover under $50 million (see below); and
• made eligible payments that result in a withholding obligation (even if the amount required to be withheld is zero). Eligible payments include salary and wages to employees, director fees, retirement and termination payments, compensation payments and voluntary withholding from contractors.

In addition, eligible entities must also have either:

• derived income in the 2018-19 income year and lodged their 2019 income tax return on or before 12 March 2020; or
• made GST taxable supplies, GST-free supplies or input-taxed supplies in a previous tax period (since 1 July 2018) and lodged the relevant activity statement on or before 12 March 2020.

The income tax assessment for the 2019 income year will generally determine whether an entity satisfies the $50 million turnover threshold (which includes turnover of related entities). However, in the absence of any income tax assessments for prior years, entities may still be eligible if the Australian Taxation Office (ATO) can use other information to determine that the turnover requirement is satisfied.

Charities registered with the Australian Charities and Not-for-profits Commission are eligible regardless of when they were registered if they meet the other eligibility requirements. This recognises that some charities may be established to respond to the COVID-19 crisis.

Note there are specific provisions in place to prevent entities from being eligible for the cash flow boosts where they have entered into or carried out a scheme to:

• becoming entitled to cash flow boosts when it would otherwise not be entitled; or
• increasing the amount of the cash flow boosts.

How will the boosts be calculated?

The first cash flow boost will be based on entities' PAYG withholding liability for the relevant periods. Eligible entities that are required to withhold and remit tax on amounts (such as employees' salary and wages) will receive a credit equal to 100% of the amount withheld (up to a maximum of $50,000) in the activity statements for the following periods:

• for entities that lodge quarterly:
  • - quarter 3 ended March 2020; and
  • - quarter 4 ended June 2020; and
• for entities that lodge monthly:
  • - March 2020
  • - April 2020
  • - May 2020
  • - June 2020

Note that monthly lodgers will receive a credit that is calculated at 300% in the March 2020 activity statement to align with quarterly lodgers.

The minimum credit will be $10,000, even if the amount required to be withheld is zero. However, entities will not be eligible to receive any more cash flow boosts until their PAYG withholding exceeds $10,000 over the relevant periods.

The second cash flow boost, payable for activity statements for June to September 2020 to will be based on the value of initial cash flow boosts the entity received, payable as follows:

• for entities that lodge quarterly, they will receive 50% of the total initial cash flow boosts in each activity statement.
• for entities that lodge monthly, they will receive 25% of the total initial cash flow boosts in each activity statement.

How will the boosts be delivered?

The cash flow boosts will be administered by the ATO and delivered through credits/refunds in the activity statement system when eligible entities lodge their regular activity statements with the ATO. No separate form or application is required.

Upon lodgement of their activity statement, the first amount will automatically be credited to eligible entities' account.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of topics, such as:

• Your SMSF Investment Strategy and COVID
• Leasing during lockdown-land tax and payroll tax relief during COVID-19
• Getting business done during lockdown-how your governing documents allow you to get on with business during COVID-19
• Your lock-down to-do list-estate planning

Order related document packages

• Company Registration
• Discretionary (Family) Trust
• Superannuation Trust (SMSF)
• Update to SMSF

[1] The new law is the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Cth)