COVID-19 – how does the cash flow boost for employers work?

The laws setting out the Federal Government’s response to Coronavirus were introduced into Parliament on 23 March 2020. We now have details of how the laws will operate in practice.

This article looks at one of the measures – the cash flow boost for eligible employers who may receive up to $100,000 tax-free.

Am I eligible for the cash flow boost?

A business (including a charity or not-for-profit) will be eligible for the cash flow boost if it meets the following conditions.

1. The business must make a payment that is subject to the withholding tax provisions – the most common example will be payments of salary or wages.
2. The business must be one of the following:
   (a) a small business entity – which generally means carrying on business in the relevant income year and with an aggregated turnover of less than $10 million
   (b) a medium business entity – which generally means carrying on business in the relevant income year and with aggregated turnover of less than $50 million
   (c) a charity or other not-for-profit entity of an equivalent size.The legislation tests turnover for the most recent income year that the business has received an income tax notice of assessment.If this is not possible, which may be relevant for charities and other entities that are exempt from income tax, the alternative is for the Commissioner to be satisfied that there is a reasonable possibility the business will meet the criteria for the relevant income year (either the 2020 income year or the 2021 income year).
3. The business must have notified the Commissioner of the payment that was subject to withholding tax in the approved form. This will usually be done by lodging the relevant Business Activity Statement (BAS).
4. The payment must relate to either:
   (a) for monthly withholders – the months of March 2020, April 2020, May 2020 or June 2020
   (b) for quarterly withholders – the quarters ending March 2020 or June 2020.
5. The business must have held an ABN on 12 March 2020. This is not relevant for charities.
6. The business must have either:
   (a) derived assessable income from carrying on a business in the 2019 income year
   (b) made supplies in the course of carrying on its enterprise within Australia after 1 July 2018 and before 12 March 2020.

What if the business has not historically paid salary or wages?

We have received good questions about helping clients access the boosts – in some cases where the client has not made payments subject to withholding. This may be because the owners have historically taken dividends or drawings.

The legislation contains integrity rules that prevent businesses from trying to manoeuvre into the eligibility conditions.

One condition for getting the boosts is that the client (and their agents and associates) did not enter into an arrangement for the sole or dominant purpose of getting the boosts, or getting increased boosts.

We will update this article if we receive any guidance as to whether switching from drawings/ dividends to salary, for example, when all of the other conditions are satisfied, will trigger the anti-avoidance provisions.

What do I have to do to get the cash flow boost?

Businesses will need to lodge their BASs showing the payments that are subject to withholding.

If the business is a charity or not-for-profit with no income tax notices of assessment, it will need to notify the Commissioner that it should satisfy the small to medium business entity requirement.

How much are the cash flow boosts?

There are two cash flow boosts. The minimum amount for each cash flow boost is $10,000 – so $20,000 in total. The maximum cap for each cash flow boost is $50,000 – so $100,000 in total.

Subject to the minimum amount and maximum cap, the cash flow boost is 100% of the amount that has been withheld for the period.

However, if the payment is for the month (not quarter) of March 2020, the cash flow boost is 300% of the amount that has been withheld. This means there is no difference between monthly and quarterly reporting.

How do I get the first cash flow boost?

The Commissioner has the power to direct how the cash flow boost payments will be made.

In practice, we expect that the Commissioner will allocate the payments as credits to the business’ tax liabilities – either on the running balance account or the non-running balance account tax debt. In many cases, this will result in a credit to offset against the business’ GST liability. The Commissioner should then refund any excess.

However, the Commissioner also has a discretion to refund amounts instead of applying them as credits against other tax liabilities.

How do I get the second cash flow boost?

The second cash flow boost is the same amount as the first cash flow boost. There are further eligibility conditions, but most will be satisfied if the business remains in business.

For large and medium withholders, the second cash flow boost will be made in four equal amounts for the months of June 2020, July 2020, August 2020 and September 2020.

For other businesses, the second cash flow boost will be made in two equal amounts for the quarters ending June 2020 and September 2020.

If you have any questions, please contact a member of our team to discuss.