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• PAYG withholding rebate, COVID-19 Boosting Cash Flow Stimulus for Small Business Employers

It’s not business as usual!

Are you feeling the weight of responsibility?

The help is here.

Let's figure out how to use this tax stimulus efficiently.

Wages Support Package

• Under the new scheme, an eligible business that withholds tax on employees’ salary and wages will receive a payment equal to 100% of the amount withheld to a maximum payment of $100,000 (over the quarters March, June and September).
• Even if you have not had to withhold anything to date, the minimum payment is now $10,000
• The payment is tax free and commences from 31 March Quarter BAS.
• Timing of the payment varies depending on whether you lodge monthly/quarterly and how much of the benefit you are entitled to.
• The payment will be delivered as an automatic credit on your business’s ATO activity statement account from 28 April 2020 upon lodging of eligible activity statements.

Wages Support Eligibility

The payment will be available to “active employers” established prior to 12 March 2020.

An Active Employer must satisfy the following criteria (prior to March 12th 2020):

• Turnover under $50 million (based on prior year’s turnover)
• Have an active ABN (This goes for sole traders, companies, partnerships, trusts and NFPs (non for profit organisations))
• Be registered as an employer (Ie. Registered for PAYGW) where you are set up to withhold tax from:
  • Salary or Wages
  • Director Fees
  • Eligible Retirement or Termination Payments
  • Compensation Payments
  • Voluntary Withholding from Payments to Contractors

And here is the kicker - Even if the amount withheld to date is zero you will still get the minimum amount (see below for examples)

If you are an employee of your own business, you can still use the stimulus.

Additional requirements:

• You have derived business income in the 2018-19 income year and lodged your 2019 tax return on or before 12 March OR
• Made GST taxable, GST-free or input-taxed sales in a previous period (since July 2018) and lodged relevant statements on or before 12 March 2020.

When is it going to be available?

The credit will be available on the 28th of the month following the BAS or IAS. So don’t stress out if you don’t see it straight away after your BAS or IAS is lodged.

IMPORTANT: It does not include GST or Income Tax.

How does it work? What you will get

The best part of this is that it will be automatically credited to your ATO client account after you lodge your relevant activity statements (BAS or IAS).

NO applications are necessary.

Quarterly lodgers - Each eligible employer (entity) will receive a 100% credit for PAYG declared on their March BAS for up to $50,000.00 OR a minimum of $10,000.00 if you have nothing to withhold (see Scenario 1 below). Then an extra of 100% credit delivered evenly over the next 2 BAS periods. So a total of up to $100,000 or a $20,000 minimum.

Monthly lodgers will be eligible to receive the payment for the March 2020, April 2020, May 2020 and June 2020 lodgments. To provide a similar treatment to quarterly lodgers, the payment for monthly lodgers will be calculated at three times the rate (300 per cent) in the March 2020 activity statement. The minimum payment will be applied to the entities’ first lodgment.

Scenario 1: Active Employers with NO PAYG withholding tax or a small withholding of <$5000/qtr

Why it might happen:

• You had staff earlier in the financial year (1 Jul 2019 - now) but don’t have anyone now.
• Staff earning under threshold (e.g. apprentices).

You will still receive a total credit of: $20,000.00

It will apply in three stages:

• Lodgement of BAS March 2020: you will receive an automatic credit of $10,000.00 to your ATO account on 28th of April 2020
• Lodgement of BAS June 2020: you will receive an automatic credit of $5,000.00 credit on 28th of July 2020
• Lodgement of BAS September 2020: you will receive an automatic credit of $5,000.00 on 28th of October 2020

If you owe any money on your account, the credit will offset that. If you don’t owe anything you will receive a cash deposit into your nominated account in 14 days.

Example 1.1

BAS March 2020

Before Rebate PAYG Withholding = $4,000.00 GST Payable = $5,000.00 Total Payable = $9,000.00

After Rebate PAYG Withholding= $4,000.00 ATO Credit= ($10,000.00) GST Payable= $5,000.00 Total Refund= ($1,000.00)

BAS June 2020

Before Rebate PAYG Withholding = $0.00 GST Payable = $5,000.00 Total Payable= $5,000.00

After Rebate PAYG Withholding= $0.00 ATO Credit= ($5,000.00) GST Payable= $5,000.00 Total Payable= $0.00

BAS Sep 2020

Before Rebate PAYG Withholding = $2,500.00 GST Payable = $5,000.00 Total Payable = $7,500.00

After Rebate PAYG Withholding = $2,500.00 ATO Credit = ($5,000.00) GST Payable = $5,000.00 Total Payable = $2,500.00

Scenario 2: Monthly IAS and Quarterly BAS

BAS March 2020 you receive a credit of 300% of the total PAYG withholding for the period from 1 March to 31 March only. This is it to reflect that IAS January 2020 and IAS February 2020 that has already been lodged.

We can only guess, but it looks like they have done it to encourage the majority of employees to keep people employed to get maximum out of the stimulus.

Example 2

Employer who remits PAYG monthly and BAS quarterly and is over the minimum threshold

BAS/IAS March 2020

Before Rebate PAYG Withholding = $15,000.00 GST Payable = $25,000.00 Total Payable = $40,000.00

After Rebate PAYG Withholding= $15,000.00 ATO Credit= ($45,000.00) GST Payable= $25,000.00 Total Refund= ($5,000.00)

IAS April 2020 you receive a credit of 100% of the total PAYG withholding for the period from 1 April to 30 April.

Before Rebate PAYG Withholding= $15,000.00 Total Payable = $15,000.00

Before Rebate PAYG Withholding = $15,000.00 ATO Credit = ($5,000.00) cap reached Total Payable = $10,000.00

IAS May 2020 no credit as cap of $50,000 has been reached

Before Rebate PAYG Withholding= $15,000.00 Total Payable= $15,000.00

Before Rebate PAYG Withholding = $15,000.00 Total Payable = $15,000.00

BAS June 2020 you receive a credit of 25% of the total Boosting Cashflow payment $12,500

Before Rebate PAYG Withholding = $15,000.00 GST Payable = $20,000.00 Total Payable = $35,000.00

After Rebate PAYG Withholding = $15,000.00 ATO Credit = ($12,500.00) GST Payable = $20,000.00 Total Payable = $22,500.00

Total credit per employer (entity) is $50,000.00.

More information and examples can be found here.

WARNING: If you are a multi-entity business and considering options to move staff to different employers (entities) or otherwise become entitled to cash flow boosts when you would otherwise not be entitled, ATO published these warnings: Boosting cash flow for employers, Schemes.

Tax Consequences

Income Tax

PAYG Withholding Rebates or Cash Flow Boosters are tax free and considered being: non-assessable non-exempt income.

GST

The rebate is not subject to GST.

Deduction

You are still entitled to a deduction for PAYG withholding paid.

Advantages

• Assistance with business cash flow
• Even if you are a tiny business that employed people, you will receive a minimum of $20,000.00

Disadvantages

• Only up to $50,000.00 per entity, so if you are a larger employer you will quickly reach this threshold. However, Queensland government has also provided payroll tax relief for larger employers.²
• While the benefit is large and the businesses it applies to also very generous, it really only covers the PAYG Withholding of the employees. The employer must still pay for the net wage and employee superannuation. This unfortunately won’t benefit businesses like Restaurants and Gyms (to the same extent), where the business has been forced to close or turnover is significantly down.
• Some employers may get carried away with the cash boost and think that they are getting workers for free. This rebate relates mainly to the tax portion that you pay for employees, so normal rules for quality control of productivity, billable hours and ROI still apply. Don’t forget that this stimulus is to provide support for your regular cash flow, to keep businesses that employ people afloat.
• The active date of 12 March is also a disappointment, with businesses who are not on structured wages by that date, missing out on the benefit.

Reference Links

1. Small business sector contribution to the economy, Research Paper, Parliament of Australia
2. Queensland Government, Coronavirus payroll tax relief

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