Corona Virus Tax Grants and Incentives

The impact of the COVID-19 virus pandemic on Australian and the rest of the world have been profound. The social, economic and political impacts do not need repeating or embellishment in this article. This has been a tough situation for the world to adapt to.

In response to this staggering event, which is without comparison in living memory, an equally seismic response was delivered by the Federal Government. Stimulus payments and incentives for both individuals and business were announced. Our article will focus on the payments and concessions to businesses:

• Cash-Flow Boost (CFB) Payments, and
• JobKeeper Wage Support Payments
• Temporary revisions to the Instant-Asset Write-Off

 

CASH-FLOW BOOST (CFB) PAYMENTS

This measure is, as the name suggests, a direct boost to cash-flow to support businesses and non-for-profit organisations (NFPs) during the virus crisis. While the funds can be used for any payment or liability the business sees fit, the intention is, in the first instance, they are used to help retain employees.

The payments will be made as credits applied to activity statements lodged by a business from the 28^th April ’20 onwards and will be paid across two distinctive stages: 1) initial and 2) additional.

If a business lodges a quarterly activity statement, it will be eligible to receive the initial payments for the Jan – Mar ‘20 and Apr – Jun ‘20 lodgements. The additional payments will be credited in the Apr – Jun ‘20 and Jul – Sep ’20 lodgements, being 50% each of the total amount of initial CFBs received. The minimum payments will be $10,000 with a maximum of $50,000.

If the business lodges monthly, it will be eligible to receive initial payments for the Mar ’20, Apr ’20, May ‘20 and Jun ‘20 lodgements. The additional payments will be credited across the Jun ’20, Jul ’20, Aug ‘20 and Sep ‘20 lodgements, being 25% each of the total initial CFBs received. Again, the minimum payments will be $10,000 with a maximum of $50,000.

In either situation (lodging an activity statement quarterly or monthly), when combining the payments at both stages, eligible business will receive a minimum of $20,000 and a maximum of $100,000. Note that the Apr – Jun ’20 (quarterly) or Jun ’20 (monthly lodgement) will effectively have components of both the initial and additional CFBs. In practise, it means a business gets to keep the PAYGW from wages payment, upto the $100,000 maximum, that it would ordinarily have had to pay.

The CFB payments will first be applied by the ATO against any other payable components on the activity statement from which they are generated, such as net GST payable or Pay As You Go (PAYG) income-tax instalments.

If a business has any pre-existing debts with the ATO, any remaining refundable amounts from the lodgement will not be applied to these debts, with these entirely of these remaining refundable being paid as cash.

Ordinarily, any such remaining amount would be applied against any pre-existing debts (be it either from activity statements or income-tax returns), however Treasury have offered this additional concession to further support businesses during this crisis.

From a bookkeeping point of view, these payments are classed as non-assessable non-exempt income, which means they are tax-free. They will increase accounting profit, but not taxable profit. There is no additional tax payable by employees, or changes to the amounts that are included in their group certificates.

 

Criteria for businesses

• Aggregated annual turnover is under $50 million for the previous financial year, with specific sub-criteria as follows:
  • Aggregated turnover includes the turnover of entities or affiliates that a business may be grouped with;
  • If a business has recorded more than $50 million in turnover in a previous period, but there is an expectation turnover will be less than $50 million for the 20FY, the business may still be eligible for the CFBs pending the outcome of specific inquires with the ATO.
  • A business with multiple branches, sites or stores will be assessed for eligibility on a combined business basis; the CFB payments will not apply for each branch.
• Australian Business Number must have been held and registered on or before 12^th March ‘20
• Payments (salary/wages, director fees, eligible retirement or termination payments, compensation payments and/or payments to contractors) have been made to employees, from which:
  • Pay As You Go withholding (PAYGW) was required to be withheld.
  • PAYGW was determined to be NIL.
• Either of the following lodgement conditions prevail:
  • derived business income in the 19FY and lodged its 19FY income-tax return, unless the business is part of a tax consolidated group, on or before 12th March ‘20; or
  • the business made GST taxable, GST-free or input-taxed sales in a previous tax period, starting from at 1st July ‘18) and lodged the corresponding activity statement on or before 12^th March ‘20.
• NFPs must be registered with the Australian Charities and Not-for-profits Commission (ACNC), regardless of when registration occurred.

 

How to Claim & Maximum Payments

The payments will be made to businesses upon lodgement of their activity statements and be based on the amount of the PAYGW reported.

Businesses that withhold tax on their employees’ salary/wages will receive a payment equal to 100% of the amount withheld, up to a maximum of $50,000. The minimum payment will be $10,000, even if the PAYGW amount is NIL. However, if this occurs, businesses will not be eligible to receive any more CFBs until their PAYG withholding exceeds $10,000 over the relevant periods.

Monthly lodgers, specifically, will receive a payment that is three times the rate of the PAYGW amount in the Mar ‘20 activity statement, so that they align with quarterly lodgers. The total of all initial CFBs across all the initial periods cannot exceed $50,000.

The CFB payment entitlement will exist for upto two years from the lodgement due date. However, if lodgement deferrals have been granted by the ATO, the entitlement will extend upto those granted due dates and will still be receivable by a business. An identical situation prevails for deferrals granted to the 19FY annual income-tax return.

At the time of writing, the ATO is working on a solution to make the payments available to businesses who are not registered for GST and do not have to lodge activity statements at all; as distinct to when the PAYGW is NIL.

JOBKEEPER WAGE SUPPORT PAYMENTS

This measure is, in effect, a partial replacement of the revenues that businesses and NFPs are losing as a result of the virus crisis.

It is designed to help keep employees employed within the business, so that their positions and, if possible, their leave entitlements, remain intact once society and commerce can begin functioning normally again.

The JobKeeper payment provisions are structured to operate around a 13-fortnight timetable, starting on 30^th March ’20 and ending on 27^th Sep ’20.

This is a flat payment of $1,500 per fortnight for each employee for a period of six months. Payments will commence in the first week of May and will be paid in arrears by the ATO.

Unlike the CFB payments, the JobKeeper payments will be taxable income for the business, with corresponding deductions allowable for any expenses incurred in administering the payments. No additional superannuation will be payable to employees who register for the scheme. No GST will be payable on the payments either.

 

Criteria for businesses hiring employees

• Small & Medium Enterprises have suffered a fall in turnover of 30% or more
• Entities with a turnover of $1 billion or more have suffered a fall in revenue of 50% or more
• NFPs suffered a fall in turnover of 15% or more and be registered with the ACNC
• Carrying on an enterprise on 1^st March ‘20
• A NFP that was actively trying to achieve their strategic objectives on 1^st March ’20
• Employed at least one employee that meets the criteria (below) on 1^st March ’20
• The business is not in liquidation
• The business is not a foreign entity

 

Criteria for employees (to be met during each of the 13 fortnights)

• They have to be an Australian Resident, Australian Citizen or a holder of a protection VISA as as of 1^st Mar ‘20
• Were at least 16 years old on 1^st Mar ‘20
• Need to have been employed from 1^st Mar ‘20, in either a full-time or part-time basis
• Casual employees would have to have been employed on a regular and systematic manner for at least a 12-month period that ends of 1^st Mar ‘20
• Are on a fixed-term contract that was in place and being met on 1^st Mar ‘20
• New Zealanders citizens working in Australia under a 444 VISA
• Not any other foreign workers on temporary VISAs
• Employed by the same business (which includes being employed by another entity within a larger group, the business changing hands or a structural change for a NFP.
• An employee can be stood-down and re-hired during any of the 13 fortnights, however eligibility is lost for the intervening fortnights.
• Any employee registered for the JobKeeper would need to be paid a minimum of $1,500 (be PAYGW) per fortnight, pro-rated depending on the business’ usual payroll interval.
• Employees are ineligible if they already receive:
  • Parental Leave Pay
  • Dad & partner pay
  • Certain Workers’ Compensation Payments

 

How to Claim & Maximum Payments

Registration can occur through two sperate actions: 1) registering the business, and 2) registering employees.

Registrations by businesses to benefit from the scheme will commence from 20^th April ’20, which will require the completion and submission of online ATO forms through the Business Portal or the tax Agent Portal with the requisite information clearly identified.

Business management will then need to supply employees with a JobKeeper employee nomination notice, which can be downloaded from the ATO. These notices must be signed and returned from employees by 30^th April (so eligibility for all 13 fortnights is secured), however they do not need to be submitted to the ATO. A business is not able to claim the JobKeeper payments for an employee who does not agree to be nominated and who have not returned the nomination notices.

Important: An employee must not submit this nomination notice with more than one employer.

Unlike the CFB payments:

• the JobKeeper payments are not administered through the business’ activity statements, and
• Treasury hasn’t mentioned a maximum number of employees, or maximum amount of JobKeeper applications, for which the payments will be made.

Applications for the first JobKeeper payments can commence from the 4^th May onwards. Again, this will be done through the ATO Business and Tax Agent Portals and will require standard data about employees and payroll figures for the appropriate payments to be calculated.

Businesses will be required to report monthly to the ATO to show that the minimum $1,500 (plus PAYGW) is being paid to employees and advise periodic turnover levels so they can assess if the business is still entitled to the payments. Consensus so far is that this will be done via applications such as STP.

The payments will be treated as income gained by employees or ex-employees for social security purposes. As employees may not be immediately aware of this, it is advisable that, where possible, businesses advise employees or ex-employees that are on income support to report the receipt of the $1,500 minimum to Services Australia.

 

 

Calculating the fall in revenue

The criteria of the fall in revenue only needs to be met once within one of the 13 fortnights for eligibility to commence. There is no need to test and check turnover for each month.

At the time of writing, Treasury have only announced the parameters to work out a fall in turnover for the period 1^st March ’20 to 30^th June ’20. A business can compare either:

• GST turnover for Mar ‘20 with GST turnover for Mar ’19,
• projected GST turnover for Apr ‘20 with GST turnover for Apr ‘19
• projected GST turnover for the quarter starting Apr ‘20 with GST turnover for the quarter starting Apr ‘19.

GST turnover will most commonly be turnover from goods and services less any goods and services that are input taxed (such as dividends and trust distributions), supplies not connected with Australia.

There is no impact on the test parameters if the business is part of a larger group. The test is conducted for each business that employs staff, and not for any other members of a group. GST grouping should also be disregarding for this purpose.

Alternate tests are available when the business has been in operation for less than one year, which the ATO will announce further details of in the coming weeks.

Ongoing monthly reporting of turnover will be required once eligibility is established. Again, Treasury and the ATO will provide more information on this in the coming weeks and progressive milestones approach and implementation details are refined.

 

ANTI-AVOIDANCE PROVISIONS

Implicit in the legislation covering both Government grants are integrity provisions that warn against businesses conceiving and entering into a contrived scheme that will either:

• entitle a business to a cash flow boost when one would not be ordinarily entitled; or
• artificially increasing a cash flow boost where the entitlement criteria is met.

The Federal Treasury have flagged that significant structural changes or deviations in payroll activity could threaten the integrity of the payments, aware that their size could attract fraudulent activity.

As a result, the ATO will be on alert for occurrences such as sudden business group restructures, altered characterisation of payments or unusual increases in the number of employees in periodic payruns. All could indicate such a contrived scheme in action.

In addition to the compulsory repayment of cash-flow boost payments to the ATO, interest charges and administrative fines could be imposed. In extreme cases, the ATO has the authority to trigger criminal proceedings against a business and any of their agents implicated with entering into such a contrived scheme. Businesses should also note the longer-term consequence of future lodgements and submissions attracting additional ATO scrutiny and possibly audits; colloquially being “on their radar”.

The ATO has flagged that it will be conducting audit activities to ensure ongoing integrity and prevent fraudulent receipt of these payments.

The standard ATO requirements of retaining records and information for five years will be essential for businesses to maintain, so any audit obligations can be fulfilled.

 

CASH-FLOW BOOST

Examples of occurrences the ATO may consider as part of a contrived scheme to increase payments from the CFB payments could include:

• increasing wages paid to staff during March, April, May & June to maximise the CFB payments;

 

• taxpayers who have a history of receiving and declaring dividends or trust distributions in their taxable income begin receiving wages (which could lead to an expectation of retrospective PAYGW or superannuation obligations being raised);

 

• superannuation guarantee entitlements being accrued and paid for taxpayers who have a history of receiving dividends or trust distributions;

 

• making unusual or wholesale changes to the way that a business operates in order to become entitles to the CFBs when, ordinarily, the business would not have been eligible.

 

• taxpayers who have a history of receiving wages-style payments without PAYGW component begin having a reportable PAYGW component;

 

• fraudulent employee profiles being established, and employee nomination notices being forged.

 

• Past employee profiles being included for nomination.

 

• Fraudulent or prior entities used by a business, or a group, to reporting wages, PAYGW and nomination forms.

Given the widespread use of Single Touch Payroll, the ATO has the data available to compare payroll submissions and BAS lodgements both before and after the CFB was introduced to detect a possible contrived scheme. The annual reconciliation between a business’ wages submissions and the group certificates issued to all employees on the payroll is another safeguard the ATO has in place.

 

 

JOBKEEPER WAGE SUPPORT PAYMENTS

Examples of occurrences the ATO may consider as part of a contrived scheme to increase payments from the JobKeeper wage support could include:

• accruing monies received as revenues in advance, and not as revenue as it should be recognised in the current period, in order to understate revenue

 

• not moving amounts out of legitimate revenue in advance, as part of a contract (building industry, milestone style work/goods/services being provided again, in order to understate revenue

 

• Fraudulent employee profiles being established, and employee nomination notices being forged.

 

• Claiming payments for employees that will be joining the business in the future, or claiming for employees in anticipation of their joining the business in the future. The payments are paid in arrears by the ATO, which means they are driven by wages legitimately earned and paid.

Treasury have seemingly allowed reasonable pay increases to be granted to employees so they can cross the threshold, if they ordinarily received less than $1,500 before PAYGW each fortnight. (e.g. from $1,300 to $1,500). However, on a case-by-case basis, unrealistic or significant pay increases may still come under suspicion.

Treasury has not provided any guidance on changes to an employee’s mode of work in order to cross the $1,500 threshold. i.e. being moved from part-time to full-time hours. As with a pay increase, each case, if they are even investigated, would need to be concluded as being a reasonable and realistic in the circumstances.

 

CURRENT GREY AREAS

As a direct consequence of the incredibly short period of time in which these incentives and the underlying rules and legislation had to be developed, there are understandably some scenarios which were not clearly explored. Subsequently, some situations and arrangements have not received due consideration.

One of the biggest grey areas concerns individuals who operate a business within a trust structure, and who historically have recorded trust distributions as their taxable income, rather than a wage payment. Their position as beneficiaries means that their trust would not have reportable PAYGW which would quality it for the CFBs, and their sudden registration as “employees” in order to receive the JobKeeper payments means they theoretical risk being accused of entering into a contrived scheme and being denied the payment, or having to return it.

 

Temporary revisions to the Instant-Asset Write-Off 

From 12^th Mar ‘20 until 30^th Jun ‘20 the instant asset write-off has changed as follows:

• the cost threshold for each asset is $150,000, up from $30,000, and

 

• the aggregated turnover threshold is less than $500 million, up from $50 million.

The essential requirement is that an asset be either first used, or installed and ready for first use, between 12^th Mar ‘20 and 30^th Jun ’20. The existing plan to reduce the cost threshold to $1,000 and the turnover threshold to less than $10 million from 1^st July 20 also remains in place.

The same list of excluded assets also remains as it was before the virus crisis, which includes:

• assets that are leased out, or expected to be leased out, for more than 50% of the time on a depreciating asset lease;
• second-hand depreciating assets;
• assets that a business was committed to acquire before 12^th Mar ’20;
• the business-portion cost of motor vehicles in excess of the car limit of $57,581 as it stands for the 20FY
• assets you allocated to a low-value assets (pool) before using the simplified depreciation rules;
• horticultural plantsincluding grapevines;
• software allocated to a software development pool(but not other software, such as in-house software), and
• capital works