The Australian Government yesterday announced cash flow assistance measures for small and medium businesses in response to the Coronavirus.
We believe this assistance will be vital to the survival of many businesses over the coming months.
To ensure that your business is best positioned to come through this period of economic uncertainty, you should update your business and personal cash flow forecasts on a weekly basis so you can get an accurate picture of the future including any cash flow shortfalls giving you maximum time to address them.
Below is a summary of one of the key measures which we hope you find useful in working out the cash flow assistance available to your business as part of budgeting your cash flow over the coming months.
Boosting Cash Flow for Employers
What is it?
Boosting Cash Flow for Employers will provide cash flow assistance to small and medium businesses to help them retain employees.
This measure will provide up to $25,000 in tax free payments from the Australian Taxation Office (ATO) to small and medium businesses that have employees, with a minimum payment of $2,000 for eligible businesses.
Is my business eligible?
To be eligible your business must have:
- An annual turnover of less than $50m, and
- Employees
So, if you’re a sole trader with no employees you will not be eligible.
How much will my business receive?
Eligible businesses that withhold & remit tax to the ATO on their employees’ salaries and wages will receive a payment equal to 50 per cent of the amount withheld, up to a maximum amount of $25,000.
Eligible businesses that pay salaries and wages will receive a minimum payment of $2,000 even if they are not required to withhold tax.
When and how will my business receive the assistance?
The assistance will be made by the ATO as a credit in the activity statement system from 28 April 2020 reducing your business monthly or quarterly salary and wage withholding tax payments for March to possibly June 2020. If the credit places your business in a refund position, the ATO will transfer the refund to your business bank account within 14 days.
If your business is eligible for the minimum payment of $2,000, it will be applied to your business’ first lodgment.
If your business is a monthly lodger, it will be eligible to receive the credits 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 in processing the March 2020 activity statement.
Examples
Monthly Lodger
Sarah owns and runs a building business in South Australia and employs 8 construction workers on average full-time weekly earnings who each earn $89,730 per year. In the months of March, April and June for the 2019-20 income year, Sarah reports withholding of $15,008 for her employees on each Business Activity Statement (BAS).
Under the Government’s changes, Sarah will be eligible to receive the payment on lodgment of each of her BAS. Sarah’s business receives:
A payment of $22,512 for the March period, equal to 150 per cent of her total withholding.
A payment of $2,488 for the April period, before she reaches the $25,000 cap.
No payment for the May period, as she has now reached the $25,000 cap.
No payment for the June period, as she has now reached the $25,000 cap.
Quarterly Lodger
Sean owns a hairdresser’s salon on the Gold Coast. He employs one apprentice who earns $37,970 per year and two stylists who both earn $44,260 per year. In the March and June 2020 quarterly BAS, Sean reports withholding of $4,570 for his employees.
Under the Government’s changes, Sean will be eligible to receive the payment on lodgment of his BAS.
Sean’s business will receive:
A payment of $2,285 for the March quarter, equal to 50 per cent of his total withholding.
A payment of $2,285 for the June quarter, equal to 50 per cent of his total withholding.
Sean’s business will receive a total payment of $4,570.
Sean may also benefit from the assistance for existing apprentices and trainees measure outlined here.
Minimum Payment
Tim owns and runs a small paper delivery business in Melbourne, and employs two casual employees who each earn $10,000 per year. In the March and June 2020 quarterly BAS, Tim reports withholding of $0 for his employees as they are under the tax-free threshold.
Under the Government’s changes, Tim will be eligible to receive the payment on lodgment of his BAS.
Tim’s business will receive:
A payment of $2,000 for the March quarter, as he pays salary and wages but is not required to withhold tax.
No payment for the June quarter, as he has already received the minimum payment and he has no withholding obligation.
If Tim begins withholding tax for the June quarter, he would need to withhold more than $4,000 before he receives any additional payment.
Struggling to forecast and manage your business cash flow? Contact us today to book a 1-hour complimentary meeting to find out how we can help you.
Source: Australian Government Economic Response to the Coronavirus Fact Sheet – Cash Flow Assistance for Small Business
