Making sense of the ‘Cash Flow Boost’ Act – Frequently Asked Questions
By Andrew Henshaw, Director, Velocity Legal
The Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Cash Flow Boost Act) became law on 24 March 2020.
The Cash Flow Boost Act is a key pillar of the Federal Government’s COVID-19 stimulus package. With an estimated cost of $32 billion, the Cash Flow Boost Act provides a much-needed short term cash injection for small and medium-sized businesses.
Many questions surround the Cash Flow Boost Act. How does it operate? What does it mean for my business? Some frequently asked questions regarding the Cash Flow Boost Act (and importantly, answers!) are set out below.
Monthly or Quarterly Lodger?
The Cash Flow Boost system is tied to the business activity statement (BAS) lodgement system (i.e. where businesses report GST liabilities and PAYG withholding liabilities). Under the BAS lodgement system, some businesses lodge BAS’s monthly, and some quarterly. The Cash Flow Boost deals with both scenarios.
To avoid unnecessary confusion, this article focuses solely on quarterly lodgers (the principles are very similar for monthly lodgers).
Two ‘Cash Flow Boosts’
Eligible businesses will receive two cash flow boosts:
- first boost: entities that qualify will either receive the first boost entirely as part of their March BAS, or as part of their March BAS and June BAS; and
- second boost: entities that qualify will receive 50% of the second boost in their June BAS and 50% in their September BAS.
How Much are the Boosts?
- first boost: a minimum of $10,000 and a maximum of $50,000. Within that range, the amount of the first boost is based on the ‘amount withheld’ for the period from 1 January 2020 to 30 June 2020.
- second boost: a minimum of $10,000 and a maximum of $50,000. The second boost is a ‘double up’ that merely mirrors the first boost (i.e. no further withholding requirements apply).
If I withhold $50,000 during the withholding period, how much do I receive?
$100,000 (i.e. $50,000 in the first boost, and $50,000 in the second boost. This is assuming that the entity meets the qualifying criteria.
If I withhold $0 during the withholding period, how much do I receive?
$20,000 (i.e. $10,000 in the first boost, and $10,000 in the second boost). This is assuming that the entity meets the qualifying criteria.
Do I qualify?
An entity will qualify if it meets the following three requirements:
- ABN registration: the entity must have had an ABN on 12 March 2020 (other than not for profit entities);
- activity requirement: broadly, the entity must have either had assessable income during the 2018-19 income year or made a taxable supply, input taxed supply or GST-free supply between 1 July and 12 March 2020. There is also a notice requirement (e.g. previously lodging tax returns or BAS’s)
- turnover threshold: the entity must have an aggregated turnover of less than $50 million. This can be calculated based on either the 2017-18 income year, the 2018-19 income year, or some situations, the 2019-20 income year.
What entities are eligible?
Importantly, all types of entities can qualify. This includes sole traders, partnerships, companies, unit trusts and discretionary trusts. Individual partners in a partnership do not qualify.
Is the Cash Flow Boost taxed?
The Cash Flow Boost is ‘non-assessable non-exempt income’, and is not subject to tax. However, where a Cash Flow Boost is received by a company or unit trust, paying that amount to shareholders or unitholders may result in tax issues (i.e. potentially an unfranked dividend or an E4 event under the CGT rules).
Are there grouping rules? (e.g. for multiple businesses)
Other than for ‘aggregated turnover’ (i.e. turnover of less than $50 million), the Cash Flow Boost Act does not contain grouping concepts or rules. For example, a business owner may operate three gyms (via separate companies). Each company may qualify for the Cash Flow Boost. Likewise, a property developer may undertake individual developments via separate entities. Again, each entity may qualify.
Can a ‘Holding Company’ qualify?
A common business structure is for a holding company to hold shares in a subsidiary (with the subsidiary entity operating the business). The holding company itself may also qualify for the Cash Flow Boost (i.e. separately to the subsidiary entity).
What is the ‘amount withheld’?
The ‘amount withheld’ is the total of all amounts that the entity withholds under Subdivision 12-B, 12-C or 12-D in Schedule 1 to the Taxation Administration Act 1953 from payments that it makes in the period. Broadly, this includes:
- salary and wages;
- directors fees;
- eligible retirement or termination payments;
- compensation payments; and
- voluntary withholding from payments to contractors
Maximising the Cash Flow Boost – some scenarios
Can I do the following to maximise the Cash Flow Boost…
- set up a new entity now? No, the new entity will not qualify as it did not have an ABN as of 12 March 2020.
- as a director / shareholder, pay myself a salary for the first time? Potentially, subject to the anti-avoidance rules. Section 109 of the ITAA36 may also apply to deny a deduction to the company.
- pay my staff bonuses to maximise withholding? Potentially, subject to the anti-avoidance rules.
- transfer employees between related entities to maximise withholding? Potentially, subject to the anti-avoidance rules.
- move my existing contractor arrangements to voluntary withholding arrangements? Unlikely due to the anti-avoidance rules.
What are the anti-avoidance rules?
The Cash Flow Boost Act contains its own ‘Part IVA’ anti-avoidance rules. Neither the entity (nor their associates or agents) must have entered into or carried out a scheme for the sole or dominant purpose of achieving any of the following:
- making the entity entitled to the Cash Flow Boost; or
- increasing the amount of the Cash Flow Boost.
Schemes that are flagrantly designed solely to enhance a Cash Flow Boost will likely attract the ATO’s attention and the anti-avoidance rule will likely apply. For example, an entity that has no employees paying a large once-off director’s fee to its sole director.
Other situations will be much greyer. In considering the risk of this anti-avoidance rule applying, it is important to consider whether any purported action to increase a Cash Flow Boost entitlement has any ‘non-tax consequences’.
The Cash Flow Boost Act provides a much-needed short term cash injection for small and medium-sized businesses in a time of crisis.
Contact Velocity Legal to review your situation and your eligibility for the Cash Flow Boost.
Andrew leads Velocity Legal’s Sydney practice.
If you are in a fight with the ATO or looking to restructure your business, you should have Andrew in your corner. Andrew is passionate about getting wins for his clients, solving difficult legal issues, and giving his clients clear and confident guidance. Andrew is a Chartered Tax Advisor, holds a Masters of Law from the University of Melbourne and is the author of ‘Life, Death and Taxes’. Andrew is also a passionate snowboarder and is always up for the next adventure in life.