With the raft of Stimulus packages being released to assist small business through the COVID-19 crisis, the ATO has reminded taxpayers of integrity rules to ensure funds reach the desired target. Below is a summary of the Boosting Cash Flow for Employers measure and issues to be considered.
The Boosting Cash Flow for Employers measure as part of the Federal Government’s economic response package to the COVID-19, allows eligible employers to access minimum tax-free payments of $20,000 (and up to $100,000) based on PAYG withheld as reported on the employer’s activity statements from the March 2020 month or quarter. Payments subject to PAYG withholding can include payments of salary and wages, director’s fees and payments to contactors where there has been a voluntary agreement to withhold. Payments will qualify even if there is no amount actually required to be withheld (e.g. where an amount of wages is below the tax-free threshold). To be eligible, entities need to have had an ABN on 12 March 2020.
Given the payments are based on PAYG withheld, the ATO is aware of the potential for the measures to be exploited in various ways. For example:
- A business taking on an employee who is a related party or paying director’s fees for the first time between 12 March 2020 and 30 June 2020,
- Changing owner’s drawings or dividends to a salary,
- A business increasing the amount of PAYG withholding payments in order to maximise their cash flow boost entitlement,
- Bringing forward pay to the month of March 2020 for monthly lodgers,
- Varying existing arrangements to increase the amount of PAYG withholding on the March and June BAS,
- Restructuring into an existing company or trust to pay salary to a business owner,
- Paying a bonus to a related employee.
The integrity rule contained in the measures states an entity will not qualify for any amount of the cash flow boost if it enters a scheme or arrangement for the sole or dominant purpose of qualifying or increasing the cash flow boost.
The ATO has stated it will be monitoring increases in PAYG withholding claims and backdated registrations. A sudden spike in wages or PAYG withholding will most likely attract attention. In addition a change to the character of payments to wages may result in similar past payments being treated as wages, resulting in PAYG withholding, super guarantee and FBT consequences.
Accordingly, taxpayers need to be critically mindful of actions taken in the March (or following) Activity Statement where they could potentially fall foul of this integrity rule requiring funds to be refunded and penalties applied.
It is critical to consider your unique position and how the rules apply.
Please do not hesitate to contact Brealey Quill Kenny Canning Vale should you wish to discuss this further on 9256 2777.