The cash flow boost provides for payments to support employers by boosting their cash flow. Another intention with this measure is to encourage the retention of employees through any follow-on downturn. Undoubtedly, this part of the stimulus package is the most confusing.
Before explaining the detail, here are a number of statements about this part of the package that will assist with explaining certain aspects of what is known as the “cash flow boost”.
- There are two rounds of cash flow boost;
- The second cash flow boost is determined from the amount of the first cash flow boost;
- The amount of the first cash flow boost is determined by the amount of withholdings from (broadly) wages or the minimum cash flow boost payment ($10,000), whichever is larger;
- The maximum first cash flow boost amount is $50,000;
- If eligible, the minimum “payment” to an entity will be $20,000 and the maximum will be $100,000 from the two cash flow boost payments.
- The “payments” are actually credits given to the entity through the lodgement of activity statements. If the credits exceed the amount owing, a refund will be paid by the ATO to the entity within 14 days of the due date for lodgement of the activity statement;
- The payments will operate in a different manner for monthly and quarterly lodgers of activity statements. The examples below will explain this.
Entities are eligible to receive the first cash flow boost for a period if:
- the entity makes a payment that is subject to withholding obligations (broadly, a payment of wages or salary or similar remuneration), whether or not any amount is actually withheld, in the period; and
- the entity was a small or medium business entity (aggregated turnover under $50 million), or a charity or other not-for-profit entity of equivalent size, for the most recent income year of the entity for which an assessment of income tax has been made; and
- the entity has notified the Commissioner of their entitlement in the approved form (this is an activity statement); and
- the period is one of the following:
- the quarters ending in March 2020 or June 2020 for quarterly payers; and
- the months of March 2020, April 2020, May 2020 or June 2020 for monthly payers;
and
- if the entity is not an Australian Charities and Not-for-profits Commission registered charity, it
both:
- held an ABN on 12 March 2020; and
- either derived assessable income from carrying on a business in the 2018-19 income year or made one or more supplies for consideration in the course of an enterprise it carried on within Australia in tax periods commencing after 1 July 2018 and ending before 12 March 2020 and notice of the income or supplies was held by the Commissioner on or before 12 March 2020 or within such further time as the Commissioner allows (this notice appears to be either activity statements or an income tax return); and
- the entity (or an associate or agent of an entity) has not engaged in a scheme for the sole or dominant purpose of seeking to make the entity entitled to the first cash flow boost or increase the entitlement of the entity to the first cash flow boost.
With regard to the boosting cash flow for emploers:
The following is information that is taken directly from the Government’s fact sheet “Cash flowassistance for business”:
First cash flow boost.
“The Boosting Cash Flow for Employers payment will be applied to a limited number of activity statement lodgements. The ATO will deliver the payment as a credit to the entity upon lodgement of their activity statements. Where this places the entity in a refund position, the ATO will deliver the refund within 14 days.”
Quarterly lodgers will be eligible to receive the payment for the quarter ending March 2020 and June 2020.
Monthly lodgers will be eligible to receive the payment for the March 2020, April 2020, May 2020 and June 2020 lodgements.
To provide a similar treatment to quarterly lodgers, the payment for monthly lodgers will be calculated at three times the rate (300 percent) in the March 2020 activity statement. The minimum payment [$10,000] will be applied to the entities’ first lodgement.
Second cash flow boost.
“The additional payment [the second cash flow boost] will be applied to a limited number of activity statements. Where this places the entity in a refund position, the ATO will deliver the refund within 14 days.”
“Quarterly lodgers will be eligible to receive the additional payment for the quarters ending June 2020 and September 2020. Each additional payment will be equal to half of their total initial Boosting Cash Flow for Employers payment (up to a total of $50,000).
Monthly lodgers will be eligible to receive the additional payment for the June 2020, July 2020, August 2020 and September 2020 lodgements. Each additional payment will be equal to a quarter of their total initial Boosting Cash Flow for Employers payment (up to a total of $50,000).”
Examples of how the cash flow boost payment operates
Example 1
Tim employs two casual workers in his business. No withholding is made from the wages of the two employees because they don’t earn enough. Tim lodges his BAS for the quarter ending 31 March 2020 on 16 April 2020. Tim will receive a credit of $10,000 from the ATO in relation to his March BAS.
This is the first cash flow boost payment. He will receive the minimum payment ($10,000) because his withholdings from wages (nil) are less than $10,000. If a refund is due to Tim, it will be paid within 14 days of the due date for lodgement of the BAS.
Tim will also receive the second cash flow boost payment. This is equal to the first cash flow boost payment of $10,000. However, this is received in two credits of $5,000. The first of these credits will be applied when he lodges his June 2020 BAS. The second of these credits will be applied when he lodges his September 2020 BAS.
Example 2
Jack employs staff and in the quarter ending 31 March 2020, he makes withholdings from wages of $22,000 and lodges his quarterly BAS with that information. Jack will receive a credit of $22,000 from the ATO in relation to his March BAS.
His withholdings are above the minimum amount of $10,000, and less than $50,000, so he receives 100% of his withholdings as a credit. In the June 2020 BAS, Jack has withholdings of $15,000. He will also receive a $15,000 credit for this amount as part of the first cash flow boost. His total cash flow boost is $37,000, which is below the maximum amount of $50,000.
With regard to the second cash flow boost, Jack will also receive credits for $37,000. Half of this ($18,500) will be received as a credit in the June 2020 BAS. The other half will be received as a credit in the September 2020 BAS.
Example 3
Sarah lodges her BAS on a monthly basis. The withholdings for her employees in the months of January 2020, February 2020 and March 2020 were $13,000, $15,000 and $11,000 respectively.
When she lodges her March 2020 BAS, she will be entitled to a credit of $33,000 (3 x $11,000). Her credit is based on multiplying the March withholdings amount by 3. The January and February withholdings are irrelevant.
In her April 2020 BAS, the withholdings total $9,000. She is then entitled to a $9,000 credit. The total so far of the first cash flow boost is $42,000, which is under $50,000.
In her May 2020 BAS, the withholdings are $13,000. She will receive a credit of $8,000. This is because she has reached the maximum cash flow boost of $50,000.
Sarah will be entitled to a further $50,000 of credit under the second cash flow boost. This will come to her by way of a credit for $12,500 for each of the June 2020, July 2020, August 2020 and
September 2020 BASs.
Have you made your COVID-19 plan?
It is important to note this factsheet does not constitute advice tailored for your individual circumstances, and should not be relied on solely for your decision making. You should contact us to discuss your specific individual and personal needs to navigate through the months ahead. New measures are being announced frequently to support individuals and businesses through this period.
We are currently helping clients to make business recovery plans, forecast cashflow and navigate the Government assistance available. Please contact us for any enquiry or call 0403 158 481.