As Australia continues to deal with the adverse effects of the coronavirus pandemic, the government is introducing financial support measures in the form of ‘cash flow boosts’ of up to $100,000, specifically to help small-to-medium businesses maintain liquidity.
To get the most out of the measures, SME employers in Australia should be aware of the support available to them, and whether or not they qualify for it.
What support is available?
The government has introduced cash flow boosts of between $20,000 and $100,000 for qualifying SMEs in Australia.
The cash flow boosts will be applied automatically when employers lodge their business activity statements. In more detail, employers must submit activity statements for each monthly or quarterly period from March to June 2020, by the end of September 2020. The cash flow boosts will be delivered as credit roughly equivalent to the amounts withheld from employee wages during that March to June period.
A second cash flow boost will be applied for the period running from June to September 2020. This secondary credit will be equivalent to the total amount of boosts offered for March to June 2020.
How will employers receive the cash flow boosts?
The boosts will each be paid in 2 to 4 installments and will be automatically credited to a business’ account when activity statements are lodged. Each boost will be applied to the liabilities arising from the relevant activity statement. If there is credit still available after that application, businesses will receive a refund from the ATO (usually) within 14 days - unless the ATO uses it against a business’ outstanding tax debts.
Businesses that have deferred an earlier activity statement, or those that are not required to lodge an income tax return yet, will not be disadvantaged.
Which businesses are eligible for the cash flow boost?
The cash flow boosts are intended for SMEs in Australia, including sole traders, companies, partnerships, and trusts, and not-for-profit organisations. In order to qualify for the boosts, businesses must have:
- An annual turnover of less than AUD$50 million
- Held an Australian Business Number on 12 March 2020
- Made payments to employees that are subject to withholding regulations: those payments may be for employee salaries, wages, director fees, retirement or termination payments, compensation, or voluntary withholding.
- Lodged an income tax return for their business for 2018-2019 on or before 12 March 2020, or lodged an activity statement (or GST return) for any tax period falling between 1 July 2018 and 12 March 2020 on or before 12 March 2020.
In certain circumstances it may be possible to gain an extension to the 12 March 2020 cut off date - at the discretion of the ATO (see below). Deferrals from earlier activity statements will not disadvantage employees seeking to receive the cash flow boost.
Employers will not be eligible for the cash flow boost if they are determined to have altered their operational behaviour for the purpose of receiving the support.
Certain special eligibility criteria apply for certain entities that would not otherwise be eligible for cash flow boost financial support. The special criteria apply to the following organisation and circumstances:
- Recently established entities (new to business)
- Businesses that created their PAY withholding role after 12 March 2020.
- Entities not registered for GST
- Entities that have had a turnover reduction taking them below the $40 million threshold
- Businesses that are part of a group or that have related entities
- Multiple-branch businesses
- Businesses involved in a GST joint venture
- Businesses that use a separate entity to manage their payroll process
An example of the special eligibility criteria might involve a restaurant that has been in operation for several years, that has an ABN and pays employees every week, but is not due to lodge an income tax return for 2018-2019 until May 2020. As long as all activity statements have been lodged since July 2018, the restaurant employer is eligible for the cash flow boost
Businesses that are eligible for the cash flow boost will receive a minimum credit of $10,000 upon lodgment of their March activity statement.
Is it possible for businesses to receive cash flow boosts after the 12 March eligibility cut off?
The ATO does have the discretion to extend the 12 March eligibility cutoff in exceptional circumstances. That extension may be granted in order to allow businesses without an ABN to obtain one, or to give businesses time to provide evidence that business incomes and supplies were made.
The ATO will consider the following factors and circumstances when deciding whether to extend the cut off:
- Businesses that were operating prior to the 12 March 2020 but were not required to hold an ABN during that time. Some businesses operating in Australia’s external territories, for example, are not required to hold ABNs.
- Businesses that have deferred lodgment after being granted an extended lodgment date by the Commissioner of Taxation. Many businesses affected by the 2019 bushfires for example, have ATO lodgment deferrals in place: these businesses may lodge their business activity statements after 12 March 2020.
The ATO is unlikely to extend the 12 March date if it determines that a business is applying for an extension for the dominant purpose of becoming eligible for the cash flow boost - rather than to cope with the effects of the coronavirus crisis. New entities, for example, or entities that are revived after a period of dormancy, are likely to have their extension applications denied. If employers are uncertain about their eligibility or ineligibility, the ATO has provided online guidance.
For more information on Australia's labour laws, tax, and payroll landscape, browse activpayroll’s Australia Global Insight Guide: find background on Australia’s global economic profile, major industrial sectors and common business practices.
To learn more about coronavirus support measures for Australian businesses, contact activpayroll today.