Boosting Cash Flow for Employers (and our thoughts)
Update: 22 March 2020
This is totally out of date now. THE WORST. But only because it got better. Hold tight.
We are ALL for helping employers. Because they pay the employees. Employees don’t get paid, the economy gets a sedative.
Now, the package announced by the government is not legislation yet. That makes it really hard to interpret, as the devil is always in the detail. So we’re giving you the plain english translation from the government announcement.
Boosting Cash Flow for Employers
The Boosting Cash Flow for Employers measure will provide up to $25,000 back to business, with a minimum payment of $2,000 for eligible businesses. The payment will provide temporary cash flow support to small and medium businesses that employ staff during the economic downturn associated with coronavirus. The payment will be tax free.
Ok, so you will get given some money, between 2k and 25k, and it won’t form part of your taxable income. SWEEET. We had initial concerns that you would then have to pay tax on this, and that would be sucky. Like how scholarships are taxed.
Eligibility
Small and medium business entities with aggregated annual turnover under $50 million and that employ workers will be eligible. Eligibility will generally be based on prior year turnover.
Ok, aggregated annual turnover means that if you own an empire across multiple legal entities, then all your companies and trusts that you are an owner of, they get grouped together. Then, when you group them together, you work out the whole group’s income and if it’s less than 50m, you’re over the first hurdle.
The second hurdle is that you employ workers. This means contractors are out. They are employees who you would withhold tax for.
Interestingly, the “eligibility will generally be based on prior year turnover”. This provides ambiguity for any legal entity that was not in existence in the prior year. If they started trading 1 January 2020…..are they excluded?
The payment will be delivered by the ATO as a credit in the activity statement system from 28 April 2020 when eligible businesses lodge (see below) upcoming activity statements.
Eligible businesses that withhold tax to the ATO on their employees’ salary and wages will receive a payment equal to 50% of the amount withheld, up to a maximum payment of $25,000.
Eligible businesses that pay salary and wages will receive a minimum payment of $2,000, even if they are not required to withhold tax.
This one is easy. When you lodge your March BAS, the amount listed as PAYGW (which is how much you have to pay to the ATO) becomes A.
A x 50% = B. If B, is less than $2,000, then you get $2,000. If it’s more than $25,000 then you get $25,000. Otherwise, you get B.
The kicker is, for most businesses, this is just going to reduce the amount payable. Unless you just pay your whole BAS, then you will get it as a refund. If you are on a payment plan, at this stage we assume it will go onto your payment plan.
Timing
The Boosting Cash Flow will be applied for a limited number of activity statement lodgments. The ATO will deliver the payment as a credit to the business upon lodgment of their activity statements. Where this places the business in a refund position, the ATO will deliver the refund within 14 days.
Quarterly lodgers will be eligible to receive the payment for the quarters ending March 2020 and June 2020.
So, it’s going to happen twice. Same deal, but for the March and June BAS. Bear in mind though, the 25k cap is a total, so if you get 20k from your March BAS, then you will be capped at 5k for the next one.
In summary, it’s going to reduce the pain for SME businesses in meeting their tax obligations. But for micro and sole traders, it’s going to be a world of pain. And for new entities with employees - we are still waiting for more information. mm