The Covid-19 crisis has been undoubtedly tough on businesses, many of which have struggled to maintain cash flow throughout the past year. If you have a small or medium-sized business, you may be eligible for a cash flow boost from the government. Here’s what you need to know.
Boosting cash flow for employers: how it works
The Australian Tax Office (ATO) has approved temporary cash flow boosts for eligible businesses to help weather economic difficulties related to Covid-19. Not-for-profit organisations along with small and medium businesses employing staff could be eligible.
Those who qualify receive cash amounts between $20,000 and $100,000 to boost business. The cash flow boost is intended to be the equivalent of money withheld from employee payroll between March and June 2020, essentially allowing you to keep those withheld payments to boost business cash flow. A second round of cash flow boost payments is applicable for payments between June and September 2020.
If you think you’re eligible, you’ll need to lodge your activity statements up to September 2020. Cash flow boosts are then delivered as credits within the ATO’s activity statement system, delivered in either two or four instalments.
Cash flow boost payments qualify as non-assessable non-exempt (NANE) income so must be recorded on your next tax return.
Cash flow boost eligibility requirements
Are you wondering if you qualify for this cash flow boost? Here are the cash flow boost eligibility requirements:
You are a small or medium business or not-for-profit organisation
Your aggregated annual turnover is less than $50 million
Your business has an Australian business number (ABN)
You made payments to employees like salary and wages, director fees, or other forms of compensation
These payments were subject to withholding, even if the withholding amount was zero
You lodged a 2019 tax return related to your business on or before 12 March 2020 OR
You lodged an activity statement covering any period between 1 July 2018 and 12 March 2020
There are a few additional circumstances that could make you eligible for the cash flow boost, so it’s worth checking on the ATO website for more details.
How cash flow boosts are delivered
To cover 2020’s activity statements, the cash boosts are delivered in two phases: initial and additional. Initial cash flow boosts cover the period between March and June 2020, and additional cash flow boosts cover June through September 2020.
Each cash boost is delivered as credits in the online activity statement system. To trigger these payments, you must first lodge your activity statement for the qualifying periods. The amount is based on your employees and PAYG withholding. Credits are equal to 100% of the withheld tax, up to a maximum of $100,000 for both periods.
The minimum credit is $10,000, so what happens if you run a small business with only a handful of employees? You can receive the first minimum credit, but you wouldn’t receive any additional cash flow boosts until your business’s PAYG withholding exceeds $10,000.
Tax implications of cash flow boost
You’ll need to report your cash flow boosts on your business tax return. Fortunately, the ATO is offering further support to eligible businesses by refunding extra credits rather than using them to offset tax debts. However, you should be aware that if you have any other outstanding government debts, your excess cash boost amounts might be used to pay them off.
Businesses can also be refunded when the activity statement is overpaid. If you’re owed a refund, the ATO aims to pay it within a 14-day period.
As with any tax credits, your cash flow boosts should show up on your business’s statement of account. These will appear under the heading ‘cash flow boost 1’ for the first instalment and ‘cash flow boost 2’ for the second. Be sure to verify the amounts to make sure all of your own accounts are accurate.
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