An important part of the Federal Government's economic response to the COVID-19 pandemic is the Cash Flow Boost. Under this scheme, employers with a turnover of less than $50 million are eligible for a refund of their employees' tax instalment deductions up to a maximum of $100,000 – tax free.
For quarterly BAS lodgers the scheme works by providing a refund of tax instalment deductions for the March 2020 quarter of up to $50,000. Where the full $50,000 is not able to be utilised in the March quarter, the balance can be carried forward and used in the June quarter.
A further refund of half that amount is then allowed for each of the June and September 2020 quarters.
The minimum amount of cash flow boost for the March quarter is $10,000. Therefore where a microbusiness has a small number of low paid employees, it may well receive a cash flow boost that is far in excess of its actual tax instalment deductions. Such a business will not be eligible to receive any further Cash Flow Boost amounts beyond the actual amount of its tax instalment deductions.
In order to be eligible for the scheme, a business must have held an ABN as at 12 March 2020 and must pay an amount that is subject to tax instalment deductions by 30 June 2020.
There does not appear to be a requirement that a business was registered for PAYG withholding prior to the announcement of the scheme. However where a staff member first appears in the March or June quarter making the entity eligible for the scheme you would expect that the ATO would seek to apply the anti avoidance provisions.
Under those provisions, where an entity undertakes a scheme for the sole or dominant purpose of making a business eligible for the Cash Flow Boost or increasing its entitlement to the Boost then the Boost will not be available.
These anti avoidance provisions could also potentially apply to other arrangements that might have the effect of increasing the entitlement to the Boost such as suspending salary sacrifice arrangements, entering into voluntary contractor withholding arrangements, paying wages in advance or paying abnormal bonuses.
The Cash Flow Boost for the March quarter will be credited on lodgement of your March BAS but no earlier than 28 April 2020. Where a business has lodged its BAS early and paid in full then the Cash Flow Boost will be refunded to it. Importantly, any refund will not be applied against other liabilities that the business might have to the Tax Office outside of the BAS that has been lodged.
Sole traders will not qualify for the Cash Flow Boost in respect of their own remuneration. This problem has been acknowledged by the Government but unfortunately sole traders will only have recourse to the subsidy provided by JobKeeper. Of course a sole trader with one or more employees can still qualify for the Cash Flow Boost in respect of the tax instalment deductions for those employees.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.
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