COVID-19 Cash Flow Boost
COVID-19 Cash Flow Boost Explained:
Legislation setting out the Australian Federal Government’s response to the Coronavirus pandemic was introduced to Parliament on 23 March. We now have details of the way the legislation will function and be applied in practice.
This report examines one of those measures of: the cash flow boost to eligible employers, giving them the opportunity to receive tax-free payments, totaling up to $100,000.00.
Who is eligible for the COVID-19 cash flow boost?
A company such as a charity or not-for-profit (NFP) will now qualify for the cash flow boost, if it satisfies the following conditions:
- The company has to make a payment that is subject to the withholding tax provisions — wages or salary are the most common payments.
- The company has to be one of these:
(a) A small business entity which typically means carrying on business in the appropriate income year and having an aggregated turnover of less than $10 million.
(b) A medium sized-business entity which normally implies carrying on business in the appropriate income year and has an aggregated turnover below $50 million.
(c) A charity or not-for-profit entity must have an aggregate turn over of below $50 million.
- The company needs to have advised the Commissioner of Taxation of the payment which has been subject to withholding tax in the accepted form. This will ordinarily be carried out by lodging the appropriate Business Activity Statement (BAS).
- The payment has to link to either:
a) per month for monthly withholders for the months of March 2020, April 2020, May 2020 or June 2020; or
b) for quarterly withholders for the quarters ending March 2020 or June 2020.
- The organization needs to have held an ABN on 12 March 2020. However, this is not applicable to charities, seeing as some are opening at present, and more will open, to combat the devastating effects caused by COVID-19 experienced by the entire community.
- The company should have either:
a) a yearly derived assessable income from carrying on a business during the 2019 income year; or
b) produced supplies throughout the course of carrying on its business inside Australia after 1 July 2018 and prior to 12 March 2020.
‘But my business has not paid salary or wages?’
Our firm has received questions about assisting clients with, and providing information about, the cash flow boosts. In certain circumstances, the client has not made payments subject to withholding tax. This might be due to the owners historically taking drawings or dividends.
These new laws contain ethics-based rules which prevent businesses from attempting to
maneuver into the eligibility requirements.
One requirement for receiving the boosts is that the client and their representatives and associates did not enter into an agreement for the sole or dominant purpose of receiving the boosts, or an increase in the boost.
‘How do I get the cash flow boost?’
Companies will need to lodge their business activity statements (BASs), displaying the payments subject to withholding tax.
In the event that the company is a not-for-profit or a charity without any income tax notices of assessment, it is going to need to inform the Commissioner that it should fulfill the SME requirement.
‘How much money will I receive from the boosts?’
There are only two cash flow boosts at this present stage. There is a minimum sum of money for each boost, with the minimum being $10,000.00. Thus, at a bare minimum, a company is entitled to a cash flow boost of $20,000.00 in total. Just as there is a minimum, there is also a maximum cap on the boosts at $50,000.00 each. So, the maximum entitlement is $100,000.00.
The cash flow boost is 100 percent of the sum that has been withheld for the period, subject to the minimum and maximum amounts.
However, in the event the payment is for the month, not the quarter, of March 2020, the cash flow boost is 300 percent of the amount that’s been withheld.
First cash flow boost
The Commissioner has the capacity to direct the manner in which the cash flow boost payments will be made.
In practice, we expect that the Commissioner will allocate payments as credits into the company’s tax liabilities, on either the running balance account or the non-running balance account tax debt. Oftentimes, this will lead to a credit to offset against the business’ GST liability. Any excess should then be refunded by the Commissioner.
On the other hand, the Commissioner has a discretion to repay amounts rather than applying them as credits against tax liabilities.
Second cash flow boost
The following cash flow boost is exactly the same amount as the prior cash flow boost. With that being said, there are additional eligibility requirements that need to be met, buy many will probably be satisfied if the company stays in business over the coming months.
For medium and large withholders, this cash flow boost is going to be given in four equal amounts spread over four months: June 2020, July 2020, August 2020 and September 2020.
The second cash flow boost is going to be made in two equal parts. The first amount will be be made for the quarters ending June 2020, with the second amount being made for the quarter ending September 2020. Both amounts are to be equal.
‘I need further advice about or help with the cash flow boost. What now?’
If you are an employer or represent a business and you fit the above criteria, but want additional help with the cash flow boost, you are encouraged to speak with a lawyer at our Brisbane law firm. We are more than happy to answer your questions and discuss the next steps available to you.