When it announced this last Sunday week, the Government trumpeted this measure as way of putting money into the pockets of small business – up to $100,000 in two tranches. To my mind, that’s unlikely to happen. I’d be interested in others’ views on this.
It's important to remember that the boost is in two tranches: up to $50,000 in April and up to $12,500 a month for June, July, August and September activity statements (two tranches only for some taxpayers – similar timing).
The idea is to keep people in jobs so it’s tied to the amount businesses withhold by way of tax from wages and salaries paid. So, when you pay your March PAYGW on 21 April, you will receive a credit to your running balance account of 300% of the amount withheld, capped at $50,000.
Take a simple example:
Bloggs Industries withholds $15,000 in March and accounts for that in April to the ATO. $15,000 is debited to the running balance account (RBA).
The ATO then provides a credit of 300% of $15,000 or $45,000 to Bloggs Industries RBA. This is less than the $50,000 cap.
Provided Bloggs Industries has no other tax liabilities the ATO will refund Bloggs Industries $30,000 within 14 days – or $45,000 if it has paid its PAYGW.
The trap is in the words “no other tax liabilities”. Imagine Bloggs Industries is a medium remitter and has experienced a significant drop in business as a result of the pandemic. But it wants to keep its staff on. Bloggs will lodge its BAS for the quarter either on 21 April or on 25 May and that will contain advice of its GST liability for the quarter and (if it is a company) its company tax instalment.
Imagine GST and tax instalments total $75,000. The cash flow boost payment of $30,000 ($45k less PAYGW of $15k) won’t be refunded - it will just be a credit to the RBA offset against Bloggs Industries other tax liabilities. The ATO website confirms this.
Bloggs Industries has less to pay on its March quarter BAS, but Bloggs is struggling so its accountant plans to take advantage of the ATO’s planned generous payment plans as it can’t even pay the reduced amount it owed.
So Bloggs gets no cash now to pay its staff, which is what it really needs. Of course, there will be some cases where refunds will be available. But not for a lot of taxpayers.
A Free podcast is available Now that provides an overview of the issues. https://www.tved.net.au/StreamingMedia/audio/0320_126.mp3
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