Employer’s cash flow boosts explained – How does it work?

Employer’s cash flow boosts explained – How does it work?

To assist employers during the Coronavirus crisis, the Federal Government has implemented a plan to boost employer’s cash flow. The cash flow benefit will be delivered through the tax system with credits to accounts being provided either:

• Monthly: around the end of each of these months – April May June July August September and October 2020 (all months in this piece refer to 2020) if you lodge your Activity Statement monthly; or

Quarterly: at the end of April, July and October if you lodge quarterly.

Updated fact sheet 31/3/2020 : www.ato.gov.au

Following on other communications this guide might add more context and clarity to the current changes.

There will be 2 Cash Flow Boosts.

If you lodge monthly the first boost covers the months of March, April, May and June; the second covers the months of June, July, August and September.

If you lodge quarterly, the first boost covers the quarters ending 31 March and 30 June; the second covers the quarters ending 30 June and 30 September.

You are only eligible to get a Cash Flow Boost if:

  • your annual total turnover is less than $50 million;
  • you had an ABN as at 12 March 2020;
  • essentially (the legislation is complex) you make taxable supplies, GST free supplies or input taxed supplies for GST.

 

MONTHLY LODGERS

The First Boost: March – you get the greater of

  1. $10,000; and
  2. Three times the tax withheld for employees for March

For each of April, May and June – The amount of tax withheld for employees for the month

NOTE – The total of the First Boost cannot exceed both $50,000 and the total tax withheld for employees over the 4-month period.

The Second Boost: For each of June, July, August and September, you get 25% of the total of your First Boost

QUARTERLY LODGERS

The First Boost: For the quarter to 31 March – you get the greater of

  1. $10,000; and
  2. The tax withheld for employees for the quarter

For the quarter to 30 June – you withhold the amount for employees for the quarter

NOTE – The total of the First Boost cannot exceed both $50,000 and the total tax withheld for employees over the 2 quarters

The Second Boost: For each quarter ended 30 June and 30 September, you get 50% of the total of the First Boost.

With some apprehension, I will now try some examples.

The process is convoluted and hence the numbers are hard to track – if anyone sees any errors in my calculations below, please let me know ASAP so I can correct for everyone.

EXAMPLES – MONTHLY LODGER

Assume an eligible employer withholds tax each month of March, April, May and June of:

  • $3,000
  • $9,000
  • $25,000
  • $60,000

 

The employer will always receive both a First Boost and a Second Boost.

The boosts will be:

$3,000

The First Boost:

  • March – $10,000 (i.e. 3 x tax paid ($3,000) or $10,000 whichever is the greater)
  • April – $2,000 (you have hit a ceiling being the total tax paid during the First Boost)
  • May – Nil
  • June – Ni

 

The Second Boost: June, July, August, September – $3,000 for each month

$9,000

The First Boost:

  • March – $27,000 (i.e. the amount withheld x 3)
  • April – $9,000
  • May – Nil (you have hit a ceiling being the total tax paid during the First Boost)
  • June – Nil

 

The Second Boost: June, July, August, September – $9,000 for each month

$25,000

The First Boost:

  • March – $50,000 (i.e. the tax paid x 3, but the total cannot exceed $50,000 for the First Boost)
  • April – Nil (total cannot exceed $50,000 for the First Boost)
  • May – Nil
  • June – Nil

 

The Second Boost: June, July, August, September – $12,500 for each month

$60,000

The First Boost:

  • March – $50,000 (total cannot exceed $50,000 for the First Boost)
  • April – Nil
  • May – Nil
  • June – Nil

 

The Second Boost: June, July, August, September – $12,500 for each month

EXAMPLE – QUARTERLY LODGERS

(Some of these are unlikely as they would be monthly lodgers, but I am covering it for this exercise.)

Assume an eligible employer withholds tax in each quarter to 31 March and 30 June:

  • $9,000
  • $27,000
  • $75,000
  • $180,000

 

The employer will always receive both a First Boost and a Second Boost.

The Boosts will be:

$9,000

The First Boost:

  • March – $10,000 (the tax withheld (i.e. $9,000) or $10,000 whichever is greater)
  • June – $8,000 (you have hit a ceiling being the total tax paid during the First Boost)

 

The Second Boost: $9,000 for each quarter, being June and September

$27,000

The First Boost:

  • March – $27,000
  • June – $23,000 (total cannot exceed $50,000 for The First Boost)

 

The Second Boost: $25,000 for each quarter, being June and September

$75,000

The First Boost:

  • March – $50,000 (total cannot exceed $50,000 for the First Boost)
  • June – Nil

 

The Second Boost: $25,000 for each quarter, being June and September

$180,000

The First Boost:

  • March – $50,000 (total cannot exceed $50,000 for the First Boost)
  • June – Nil

 

The Second Boost: $25,000 for each quarter, being June and September

*Extract from Taxation Institute of Australia March 31/3/2020 – Bob Deutsch, CTA. This explanation has been provided by KMT Partners as general information for its clientele and network for general information for your consideration of the consequences for your business

This is not professional advice. Please call us to discuss your specific circumstances:                          Michael 0417 826 863 or michael@kmtpartners.com.au

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