Employer Cash Flow Boost What you need to know

What is it?

The Employer Cash Flow Boost is a new piece of legislation which has recently passed, which provides employers with some temporary cash flow assistance over the coming months. It is essentially a refund program of sorts, in which employers get to keep their Pay As You Go withholding payments once they have submitted their activity statements. By submitting their activity statements, this starts the process for obtaining this new financial support. The supports will be between $20,000 and $100,000 in total for the activity statements submitted for the periods of March – June, and June – September 2020, providing 2 cash flow boosts.

What you need to know

  • Generally speaking, the cash flow boost will be applied to your account when you submit your activity statement
  • The cash flow boost is applied in order to reduce the amount you pay in liabilities from the same activity statement period. A refund will be processed for any remaining credit after the cash flow boost has been applied.
  • The minimum amount you can receive from the first boost will be $10,000.

Eligibility

To receive the cash flow boost, the following sets of criteria must be met.

Primary Criteria

  • The entity must be either a small, medium business or Not-For-Profit organisation. If you are unsure what size your entity is, your aggregated yearly turnover must be under $50 million.
  • You had an Australian Business Number on the 12th of March, 2020
  • You paid wages or other payments to employees of which withholding is required, even if nothing was withheld
  • You have, on or prior to 12 March, 2020, submitted at least one of the following: A 2018-2019 income tax return which clearly displays amounts related to carrying out a business in your assessable turnover, a GST return or an activity statement for any tax period after the 1st of July, 2018, which shows that you made sales of either a GST-free, taxable or input taxed sale.

Special Eligibility

Some rules have been created surrounding special eligibility for entities under certain circumstances. These are:

  • Charities
  • Businesses with ‘related parties’ or that are a part of a group
  • Businesses which have more than one branch
  • Entities which are not required to be registered for GST

Entities that are not required to be registered for GST

If your business does not need to be registered for GST, AND you don’t need to lodge a 2018-2019 income tax return, you need to contact the ATO directly and discuss your options with them. Make sure to have your business activity information on hand.

Charities

If you are a charity registered with the Australian Charities and Not-For-Profits Commission, you’re eligible regardless of when you were registered as a charity or Not-For-Profit IF:

  • You made payments which you were required to withhold from ( These payments must be eligible ) even if the withholding amount was $0
  • Your aggregated annual turnover was under $50 million – usually based on the previous year.

Businesses that are part of a group, or have related parties

Your aggregated turnover, will encompass the entirety of all turnover made by the entire group, including any related parties. This will affect eligibility if totals are not less than $50 Million.

If you are part of a GST group or a tax-consolidated group, any affiliates outside of these groups will also need to be included in any aggregated turnover amounts.

If you are unsure what an affiliate is; an affiliate is an entity that executes or could reasonably be expected to execute requests, regarding their business dealings.

The ATO will determine your eligibility by looking at your annual turnover inside previous tax returns and any other on-hand information they have regarding your entity. If your annual turnover ( including any affiliates turnovers ) exceeds $50 Million, you will not be able to receive the boost.

If by some unfortunate circumstance that previous years tax returns are not available for evidentiary support, the ATO could still deem your entity eligible if they are certain that your annual turnover does not exceed $50 Million.

Businesses with more than one branch

If your entity has more than one branch, but remains under the same Australian Business Number, it will for the purpose of eligibility, be considered as one business, and so all of the combined branches turnover must be less than $50 Million to be eligible for the cash flow boost.

Effects of lodgement deferrals

You won’t be affected for any deferrals given by the ATO before the 12th of March, 2020, if the deferral was for:

  • 2018-2019 tax return ( or it is not yet due )
  • Activity Statements ( unless you do not need to provide one )

Under these circumstances, the ATO will need further information to deem you eligible, if:

  • You have not lodged because of the deferral, OR
  • Are unable to lodge your deferred activity statement or income tax return before you lodge your activity statement for March 2020.

If you can lodge your deferred item before you lodge your March 2020 activity statement, there should not be any issue regarding the ATO figuring out if you are eligible or not.

Providing more information regarding eligibility

Some businesses will need to provide further information regarding their eligibility to receive the cash flow boost. These businesses are:

Businesses with an aggregated turnover that declines below $50 Million for the 2019-2020 financial year and businesses that are not obligated to lodge one or both of:

  • An income tax return for 2018-2019 which shows amounts associated with operating a business
  • A GST return or an activity statement for tax periods between the 1st of July, 2018 and the 12th of March, 2020 which shows a GST-Free, Input taxed or taxable sale.

If this sounds like your business, your best option is to contact us to discuss your eligibility concerns.

On a side note, if your business is not eligible, but you are concerned that the cash flow boost might be credited to you by mistake, you should also call the ATO.

Additional Supporting Documents

If you have been in touch with the ATO and they somehow haven’t been able to figure out if you’re eligible for the cash flow boost or not, they might ask you for further documentation to satiate their requirements.

For businesses whose turnover has declined to under $50 million:

  • Business records showing all of your turnover
  • Government orders that prohibit trading or any other documentation showing a reason for the loss of turnover

For businesses that haven’t lodged activity statements or tax returns:

  • Invoices
  • Advertising information
  • Records of your payment facilities
  • Evidence surrounding your corporate structure
  • Business bank statements
  • Tenancy agreements
  • Business contracts
  • Permits

If you need to provide employee information:

  • Employment contracts
  • Any tax forms or declarations
  • Payroll information
  • Workers compensation insurance or other employer insurances
  • Tax information
  • Superannuation payments paid by you

Cash flow boost delivery

First cash flow boost

The first cash flow boost will be made available after you submit your monthly or quarterly activity statement for the period of March – June 2020.

Eligible entities which withhold tax from employees will receive credits equal to all of the withheld monies with the following conditions:

  • Those who lodge monthly will get their lodgement amount in March 2020 tripled, to even things out with those who lodge quarterly
  • The minimum that eligible businesses will receive is $10,000 regardless if their withheld amounts are less than $10,000 or not
  • Total cash flow boost amounts can’t go beyond $50,000 for March – June 2020
  • You can’t get more than the minimum $10,000 unless your withheld tax monies exceed $10,000. If you got $10,000 for March – June, and your withheld amounts are still less than $10,000 for June – September, you won’t receive any further cash flow boosts.

Lodgement Dates

To receive the cash flow boosts for financial quarters 3 and 4, the due dates for the lodgement of your activity statements are the 28th of april and the 28th of July 2020, respectively.

For monthly lodgements, the March due date is 21 April. The due date for April is 21 May. The due date for May is 22 June, and the due date for June is 21 July. All dates are in 2020.

Bear in mind that if you were affected by the recent bushfires, the automatic lodgement deferral date is 28 May, 2020.

Second cash flow boost

The second cash flow boost will be made available for eligible entities when they lodge their activity statements for June to September 2020. The second cash flow boost amounts will be equal to the initial cash flow boost amounts.

Lodgement Dates

If you lodge quarterly, the quarter 4 lodgement due date is 28 July, 2020. The lodgement due date for quarter 1 is 28 October, 2020. You will receive half of your total cash flow boost amount for each activity statement lodged.

If you lodge monthly, your due date for June 2020 is 21 July, 2020. The due date for July is 21 August, 2020. The due date for August is 21 September, 2020. The due date for September is 21 October, 2020. You will receive a quarter of the total initial cash flow boost amount for each activity statement you lodge.

Consequences

There is no tax payable on the cash flow boost. However, if it is transferred outside of the entity, there may be tax consequences for the recipient. When your cash flow increases, you won’t need to repay the cash flow boost. However, any overpayments will need to be repaid to the ATO, so keep an eye on how much you get, and make sure you know what you’re entitled to, in order to avoid a debt.

Your entitlement for a deduction on PAYG withholding will remain unchanged. There is no effect on taxes paid by employees from their wages.

Schemes

You will be deemed ineligible for the cash flow boost if you or a representative becomes involved with a scheme to become eligible for the cash flow boost when you would otherwise be ineligible, or to increase your cash flow boost amounts. The ATO will be investigating any suspicious business restructuring or suspected fraudulent increases in wages to increase cash flow amounts. If you try to artificially set yourself up for more, you could end up with massive fines and extra liabilities for extended periods.

Some of the things the ATO are on the lookout for are:

  • Falsifying records and inflating PAYG withholding amounts for more cash flow boost amounts
  • Reactivating dormant entities
  • Artificially restructuring your business or changing the characterisation of payments to unlawfully raise cash flow boost entitlements
  • Splitting businesses into two, to bring your aggregated turnover below $50 Million

Large penalties and interest charges may arise from any attempts to defraud the ATO.

Of course, extra scrutiny will be applied to all parties who have been shown to be involved in a scheme to defraud the ATO.

Advisors

Any advisors assisting clients in fraudulently creating a cash flow boost entitlement could become guilty of promoting a tax scheme and civil penalties under the Promoter Penalty Laws could be sought after.

Registered Tax Agents who advise taxpayers to claim the cash flow boost fraudulently may end up being put in front of the Tax practitioners board to decide if a breach of the Tax Agent Services Act 2009 exists.

All in all, these additional levels of financial assistance have been put together to help those who truly need it.

This document was prepared with information obtained via the Australian Taxation Office online materials. They are:

https://www.ato.gov.au/Business/Business-activity-statements-(BAS)/In-detail/Boosting-cash-flow-for-employers/

https://www.ato.gov.au/Business/Business-activity-statements-(BAS)/In-detail/Boosting-cash-flow-for-employers/?anchor=Taxconsequences#Taxconsequences

https://www.ato.gov.au/General/Tax-planning/In-detail/Cash-flow-boost-for-employers—schemes-to-artificially-create-or-inflate-entitlements/

https://www.ato.gov.au/General/Tax-planning/In-detail/Cash-flow-boost-for-employers—fraudulent-arrangements/