So while we’ve all been giving our attention to the Jobkeeper legislation we are forgotten the initial piece of legislation that the government called Cash Boost which is misleading because they don’t actually give you any cash you are just saved from paying PAYG.

As we have blogged in the past, on 12 March the Government announced an economic stimulus package in response to the novel coronavirus COV!D19. It of course need your business to still be trading and paying staff or at least processing wages for staff to make the PAYG saving.

Once Jobkeeper systems are in place this legislation certainly will help keep staff in place for businesses that have a strategy, or plan to have a business strategy for the future and need to keep good people on board. This is a piece of legislation for people who aren’t panicking and thinking hard about how their businesses will trade in the future.

When it became clear many businesses were closing all were already laying off staff we jump to Jobkeeper legislation, and while over this weekend we scramble to make sure we have everybody registered for that we can come back and look at some other aspects of the stimulus package starting with what the government called the cash boost.

A major plank of that package was boosting cashflow for employers with a PAYGW credit of up to $50,000 based on a business’s PAYG withholding . Specifically, businesses with employees which have an aggregated turnover of less than $50 million will be eligible.

Those businesses which withhold tax on employee salary and wages will receive a credit equal to 50% of the amount withheld up to a maximum of $50,000.

Those businesses with employees but have not been required to withhold tax from salary and wages will nevertheless receive a minimum payment of $20,000.

 This may apply for example to businesses whose employees all earn under the tax-free threshold, or where firms consisting solely of directors have not paid those directors salary or director’s fees during the relevant period (they may have just paid dividends instead).

DOUBLING DOWN – ADDITIONAL CASHFLOW BOOST

An additional cashflow boost is also being made from 28 July 2020 which essentially doubles the first .

Eligible entities will receive an additional credit equal to the total of all of the Boosting Cash Flow for Employers payments received.

The credits are tax-free, there will be no new forms and payments will flow automatically from the ATO as part of the Activity Statement process.

The timing of Cashflow Boost Payments will depend on the basis of PAYGW registration (monthly or quarterly) – see examples and the Useful Resources listed below.

The credits are tax-free, there will be no new forms and payments will flow automatically from the ATO as part of the Activity Statement process. The timing of Cashflow Boost Payments will depend on the basis of PAYGW registration (monthly or quarterly) – see examples below.

We have used the examples that the ATO have given us so that we all stay on the same page.

MONTHLY LODGERS

ATO EXAMPLE Sarah owns and runs a building business in South Australia and employs 8 construction workers on average full-time weekly earnings, 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). Under the Government’s changes, Sarah will be eligible to receive the payment on lodgment of her BAS. Sarah’s business receives:

• A credit of $45,024 for the March period, equal to 300 per cent of her total withholding.

• A credit of $4,976 for the April period, before she reaches the $50,000 cap.

• No payment for the May period, as she has now reached the $50,000 cap.

• An additional payment of $12,500 for the June period, equal to 25 per cent of her total Boosting Cash Flow for Employers payments.

• An additional payment of $12,500 for the July period, equal to 25 per cent of her total Boosting Cash Flow for Employers payments.

• An additional payment of $12,500 for the August period, equal to 25 per cent of her total Boosting Cash Flow for Employers payments.

• An additional payment of $12,500 for the September period, equal to 25 per cent of her total Boosting Cash Flow for Employers payments. Under the previously announced Boosting Cash Flow for Employers measure, Sarah’s business would have received a maximum payment of $25,000.

Under the Government’s enhanced Boosting Cash Flow for Employers measure, Sarah’s business will receive $100,000. This is an additional $75,000 to support her business and help her retain her staff.

For businesses that can maintain their turnover or near their turnover and their staff while you are waiting for this credit it certainly will make a significant difference compared to the cash flow scenarios that would normally occur for this business.

QUARTERLY LODEMENTS

ATO EXAMPLE Harry’s clothing store employs 5 part-time workers with average income of $30,000 per year. It reports total withholding of $3,510 for its employees for each quarterly BAS. Under the Government’s changes, Harry’s will be eligible to receive the payment on lodgement of its BAS as it has a turnover of less than $50 million. Harry’s receives:

• A credit of $10,000 for the March quarter, the minimum payment.

• An additional payment of $5,000 for the June quarter, equal to 50 per cent of its total Boosting Cash Flow for Employers payments.

• An additional payment of $5,000 for the September quarter, equal to 50 per cent of its total Boosting Cash Flow for Employers payments. Under the Government’s enhanced Boosting Cash Flow for Employers measure, Harry’s will receive $20,000.

Under the previously announced Boosting Cash Flow for Employers measure, Harry’s would receive just $4,000

NO WITHHOLDING

ATO EXAMPLE Tim owns and runs a small paper delivery business in Melbourne, and employs two casual employees who each earn $10,000 per year. In his quarterly BAS, Tim reports withholding of $0 for his employees as they are under the tax-free threshold. Under the Government’s changes, Tim will be eligible to receive the payment on lodgement of his BAS. Tim’s business will receive:

• A credit of $10,000 for the March quarter, as he pays salary and wages but is not required to withhold tax.

• An additional payment of $5,000 for the June quarter, equal to 50 per cent of his total Boosting Cash Flow for Employers payments.

• An additional payment of $5,000 for the September quarter, equal to 50 per cent of his total Boosting Cash Flow for Employers payments.

If Tim begins with holding tax for the June quarter, he would need to withhold more than $10,000 before he receives any additional payment. Under the previously announced Boosting Cash Flow for Employers measure, Tim’s business would have received a total payment of $2,000. Under the Government’s enhanced Boosting Cash Flow for Employers measure,

Tim’s business will receive $20,000. This is an additional $18,000 to support his business.

Although the above ATO examples refer to a ‘payment’, the benefit is by way of the withholding that is paid to the ATO on the BAS, and that withholding amount is tax-free to the employer. Therefore, it is not a cash payment from the ATO as such, but rather the withholding that is paid to the ATO.

Simply you get to keep the money that would have normally being paid to the government is PAYG holding.

For example, if an employer lodging their quarterly March Activity Statement was ordinarily due to withhold $40,000 in PAYG withholding from their employee’s salaries in that quarterly period, then they would just keep this money themselves (being 100% of the withholding that was due) rather than sending it to the ATO and it would be tax-free.

The rest of that Activity Statement would be dealt with normally, for instance it may be the case that GST may be owed for that quarter In summary, to receive the cashflow boost earlier than the 14-days promised by the ATO, businesses may wish to consider just not paying their PAYGW for that Activity Statement.

EXPLOITATION

Note that while this measure potentially is able to be exploited, for example by a director paying themselves a large wage in the March or June quarter when they had previously been receiving remuneration by way of a dividend, the legislation contains integrity provisions aimed at curtailing such strategies. On its website, the ATO says “This may include restructuring your business or the way you usually pay your workers to fall within the eligibility criteria, as well as increasing wages paid in a particular month to maximise the cash flow boost amount.

Any sudden changes to the characterisation of payments made may cause us to investigate whether the payments are in fact wages. If the payments are wages, we may consider the characterisation of past payments, including whether they should have been subject to PAYGW and whether super guarantee contributions should have been made.

You may also have FBT obligations that have not yet been met”.

Simply, don’t be too clever especially if you’ve been trading previously in a trust with income coming as a dividend to beneficiaries.

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