As a part of the second round of economic stimulus in response to the COVID-19 pandemic, the Australian Government has legislated a measure to boost cash flow for employers. Put simply, the cash flow boost payments are intended to support employment by providing Federal support for employers through the tax system. This is admirable yet is likely to prove complex to administer.
Small to medium employers who intend to claim the "cash flow boost payment" (a minimum of $10,000 and a maximum of $50,000) and hoping to receive an injection of cash should beware. The "payment" is not actually a payment; rather, it is a credit that will be offset against the liabilities that appear on the business activity statement (BAS) and any debits in a taxpayer's running balance account (RBA). While this is still likely to support employment by reducing the amount businesses have to pay to the ATO, anyone hoping to get a cash injection will be sorely disappointed.
The measure ensures that an eligible employer receives an amount equal to three times the amount of tax withheld from ordinary salary and wages as disclosed in the March monthly BAS, or equal to the amount of tax withheld from ordinary salary and wages for the quarter. Both are subject to a minimum of $10,000 and a maximum of $50,000. The payment is due on 28 April 2020 and other payments will follow later this year.
The cash flow boost payments are only available to entities that qualified as small or medium entities (ie with turnover less than $50 million) for the income year when they were most recently assessed. There will be no cash flow boost payments for entities with turnover greater than $50 million. There is also a withholding requirement – the payment will only be made to entities that first notified the ATO that they have a withholding obligation through the lodgment of a BAS or an instalment activity statement (IAS) for the period.
Therefore, the key to the system is the BAS that entities lodge for March (either monthly or quarterly). That BAS will determine how much is paid, and when it is paid.
A word of caution, however. The headline numbers (and dates) can be a tad misleading. This "boost" measure is not a minimum $10,000 payment – instead, it is an entitlement to a minimum gross credit of $10,000 in respect of the March BAS. This credit will be offset against the liabilities that appear on the BAS and any debits in a taxpayer's RBA. This may result in refund, but more likely for most taxpayers will result in a reduction in the amount they owe to the ATO.
Even assuming that the ATO owes the taxpayer money, that refund will not be paid on 28 April, but rather within 14 days of lodging the BAS. The ATO has already stated that lodging a BAS early will not give rise to an early payment of the first cash flow boost payment.
Another important feature to note is that eligibility is subject to a specific integrity rule to overcome artificial or contrived arrangements or schemes. The ATO has stated that a "scheme" for these purposes includes restructuring a business or the way an entity usually pays its workers to fall within the eligibility criteria, as well as increasing wages paid in a particular month to maximise the cash flow boost payment amount.