When the legislation for the federal COVID-19 cash flow boost first came out, some things were unclear, but have become much clearer now.
Cash Flow Boost
The cash flow boost is about a lot of money. And hence might be a lifeline for your business.
Andrew Henshaw of Velocity Legal will cover the 7 conditions you need to qualify and respond to listener comments.
Here is what we learned but please listen in as Andrew explains all this much better than we ever could.
If you can, please first listen to the Cash Boost episode we published on 30 March 2020 and updated on 5 April.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
Conditions
There are 7 conditions you need to meet to qualify for the cash flow boost. The first three – the turnover, existence and activity test – we already covered in detail in the cash boost episode.
1 – Turnover
Your turnover needs to be below $50m in 2018/19. Grouping provisions apply to determine the total turnover, but they don’t apply to the actual cash boost.
2 – Existence
You must have had an ABN as of 12th of March 2020. So newly registered entities don’t qualify.
3 – Activity
You must have had assessable income in the 2018/19 financial year or have made a taxable supply between 1 July 2018 and the 12th of March 2020. So dormant shelf companies don’t qualify.
4 – Payment
You must have made an eligible payment that requires PAYG withholding between the 1st of January and the 30th of June. Eligible payments are salary and wages and director fees as well as retirement, termination and compensation payments. And eligible payments also include contractor payments with voluntary PAYG withholding.
And you still have time to make those payments. As long as you make them before 30 June, you pass the payment test. But the objective purpose test of course will be an issue if you made those payments after 12 March. Why did you make those payments after 12 March?
5 – Notification
You need to notify the ATO in the approved form that you have done PAYG Withholding. And the approved form is your BAS. And to have PAYG W on your BAS, you need to register for PAYG W.
So to pass the notification test, you need to register for PAYG W before 30 June 2020 – some time before 30 June, so it doesn’t whether you do this before or after the 12th of March to pass the notification test. But the objective purpose test will be an issue if you did this after 12 March.
6 – Objective Purpose
You must pass the anti-avoidance provisions contained within the Act. Anything you do differently after 12 March 2020 might be an issue.
If you register or have registered for PAYG W after the 12th of March, there is a risk that the ATO will argue that you only did this to qualify for the cash flow boost. So you need to have a valid reason – other than the boost – why you did this. And this of course also applies to anything else you do after the 12th of March.
Any of the following 12 actions might increase your cash flow boost. So for any of these, the objective purpose test will be an issue. Is there a valid reason why you did what you did apart from increasing your cash flow boost?
1 – Taking on a related party as an employee between 12 March 2020 and 30 June 2020;
2 – Paying director’s fees for the first time between 12 March 2020 and 30 June 2020;
3 – Entering into voluntary withholding arrangements with contractors for the first time between 12 March 2020 and 30 June 2020;
4 – Increasing the amount of the relevant PAYG withholding between 12 March 2020 and 30 June 2020; Lillie
5 – Bringing forward pay to the month of March 2020 (only applicable for large and medium withholders who lodge a BAS or IAS monthly); Jeremy
6 – Suspending salary sacrifice arrangements to increase PAYG withholding on salary; Maxxie
7 – Varying withholding arrangements due to employees choosing not to claim the tax-free threshold;
8 – Increasing withholding amounts for other reasons to increase the pay as you go withholding amount. Lillie
9 – Restructuring from a sole trader or partnership into a company so that the corporate entity can pay a salary or director’s fees. Jeremy
10 – Paying a bonus to a related party. Finnie
11 – Paying a bonus to an unrelated party
12 – Moving employees between entities to increase the cash flow boost
So any of these 12 actions might increase your cash flow boost in theory. But will only do so if you pass the anti-avoidance provision. You need to pass the objective purpose test.
7 – Lodgement
And you must pass the lodgement test. The ATO requires you to lodge your relevant BAS and 2019 tax returns so they can administer the cash flow boost accordingly.
ATO Powers
The ATO is the administrator, not the legislator. The ATO can’t set the rules around the cash flow boost. It all has to go back to legislation.
But the ATO has significant powers through the anti-avoidance provisions. If the objective purpose of the actions you took looks like anti-avoidance, then the ATO can deny you the cash flow boost.
Registered Charities
Charities registered with the ACNC can qualify for the cash flow boost like any other entity, but they don’t need to meet the existence or activity test. The other 5 tests still apply.
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Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.