On Friday 27 March 2020, in the Tax Institute’s weekly tax bulletin: TaxVine (No. 11), their Senior Tax Counsel’s Report, Bob Deutsch wrote and article entitled: CORONAVIRUS: Understanding the Employer’s benefit measures and doing the right thing! referring to the ‘cash boost’ for employers recently announced Tranche 1 COVID-19 stimulus/rescue package announced on 12 March 2020 (see related TT article) and legislated on 24 March 2020 (see related TT article).
See below for further detail. And if you’re not sure you understand this complex measure – try this article – it’s great.
CORONAVIRUS: Understanding the Employer’s benefit measures and doing the right thing!
This week’s news is understandably dominated by COVID-19 related issues.
Today, I propose to deal with just one aspect of the Government’s economic stimulus package – the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (the Boost Act). The measures in this Act are designed to assist employers through the enormous difficulties that they face in staying afloat through what is likely to be a tumultuous next 6 months.
The broad thrust of the measures is clear –
- employers with turnover anywhere below $A50 million;
- who remain active in a business sense during the next 6 months;
- will receive financial assistance from the Federal Government of:
- at least $20,000 per employer and
- up to a maximum of $100,000 per employer.
- Most of the amount will usually be front loaded – with a larger amount often paid from late April with smaller amounts coming through thereafter.
Some of the basic principles involved include:
- Large employers with turnovers of $50 million or more get no assistance under this measure. All other employers are eligible;
- Not-for-profit entities and charities are eligible, provided they employ people – even though they may pay no income tax;
- The first broad period covered is the period from 1 March to 30 June 2020;
- If the employer lodges monthly, for the month of March 2020, the cash boost the employer receives is equal to three times the amount of tax withheld from ordinary salary and wages as disclosed in the employer’s relevant Business Activity Statement (BAS) (“the amount withheld”) (see section 7(3) of the Boost Act with a minimum of $10,000 and a maximum of $50,000;
- If the employer lodges quarterly, for the quarter to 31 March 2020, the cash boost the employer receives is equal to the amount of tax withheld [over that quarter] from ordinary salary and wages with a minimum of $10,000 and a maximum of $50,000;
- For the months of April, May and June 2020 and the quarter to 30 June 2020, the cash boost the employer receives is equal to the amount withheld provided the maximum of $50,000 is not exceeded for the 4 months of March, April, May and June 2020;
- The second broad period covered is the period from 1 July to 30 September 2020;
- If the employer lodges monthly, for the months of June, July, August and September 2020, the cash boost the employer receives is equal to 25% of the total cash boost in the 4 months from March to June 2020 subject to the minimum of $10,000 and a maximum of $50,000 for this second period;
- If the employer lodges quarterly, for the quarters ending 30 June 2020 and 30 September 2020, the cash boost the employer receives is equal to 50% of the cash flow boost in the previous 2 quarters subject to the minimum of $10,000 and a maximum of $50,000 for this second period;
- Cash flow benefits will be denied, through an integrity measure, in circumstances where an entity or associate or agent of the entity enters into a scheme for the sole or dominant purpose of becoming entitled to a cash flow boost or increasing such a boost – see section 5 (1)(g) of the Boost Act.
You should note the amount of cash boost an employer receives in the second payment period does not relate to the tax withheld in that period.
- Rather, it is calculated as a percentage of what the boost was in the first period.
- This, I think, is important because if an employer survives to June 30 with its pre-COVID-19 employees intact, in the second period the employer receives the entitlement based on the first half tax withheld.
- Thus, even if the employer has to let three-quarters of the staff go on 30 June 2020, the employer still gets the amount based on the original pre-COVID -19 employee tax withheld in the second payment period.
- If widely understood this might help. However, it is not easy to see and the point may well be lost in a sea of complexity.
The above bullet points summarise some of the key principles as I understand them..
This example might help.
Oscar runs a hospitality business employing 6 people. He lodges monthly and for March his employee related tax withholding is $9,100 in total.
Oscar’s first cash boost will be:
- $27,300 (ie the March withholding x 3) for the March 2020 period;
- $9,100 for the April 2020 period;
- $9,100 for the May 2020 period;
- $4,500 for the June 2020 period (this payment is limited at $4,500 due to the $50,000 cap).
Oscar’s second cash boost will be:
- $12,500 for each of the months of June, July, August and September 2030.
This is a huge cash boost which, will cost the Federal Government, across the nation, in the order of $A32 billion.
I strongly endorse this measure as employers are going to desperately need this help, in the next 6 months, if they are to hang on and come out the other side of this crisis . Keeping employees employed is vital and this measure will help a lot.
A number of criticisms.
- First, why this measure has to be so complicated is beyond me.
- Sixteen pages of difficult, at times almost impenetrable, legislation is very unhelpful at this critical stage for Australia’s employers and employees.
- If the Government really wants to help, why not just provide a Federal Government wage subsidy along the lines of what has been done in the UK and elsewhere? [Well, a wage subsidy has now been announced on 30 March 2020 – see related TT article – I’m presuming that both benefits continue, and the ‘JobKeeper’ wages, that employers pay, won’t affect the ‘cash boost’, because this is based on wages paid in prior to that in March or the March quarter.]
- The drafting would be relatively straight forward, take no more than 2 pages and, most importantly, would be easy for employers to follow.
- This Act is none of those things.
- Secondly, it seems odd to tie the boost to the amount of tax withheld from employee’s wages. If an employee has asked for their PAYG withholding to be reduced, the employer gets a lesser boost – that seems illogical as the cost to the employer has not changed by less tax being collected through employer withholding.
- Thirdly, the first employer payment under these arrangements will not happen until the end of April 2020 – that is more than a month away and for most employers that is an eternity right now. In fairness, it will be a large amount because of the trebling of the base for that first payment but it would be preferable if the payment was being delivered by end of March rather than end of April. The end of April will be too late for many employers.
- Fourthly, what happens to those who run a business but have not drawn down a wage before 12 of March 2020. Instead, dividends may have been paid to shareholders who also worked for the company. They seem to miss out even though they run a business and technically “employ” staff.
The Tax Institute is working closely with all the relevant professional bodies and the ATO – member feedback on issues are welcome and we will use our best endeavours to secure a response.
On a tangential point, as I have already said, there are integrity measures built into the system – never has it been more important than now for only those who are legitimately entitled to receive this Government support. I implore everyone to do the right thing.
This is a TEAM AUSTRALIA moment.
It’s not a time for people to play games trying to secure payments to which under the law they are not entitled.
I don’t want to end on a negative note – for all its faults, the package is sensational and needs our support. We, as a community, are facing unexpected, unprecedented challenges through this COVID-19 disaster.
Ironically, we need to physically stay apart so as to metaphorically pull together.
Stay well everyone. For the first time in our history, I think, both you and your nation are relying on everyone to be alone as much as possible. It’s time to unite and solve our common problems together.
Bob Deutsch, CTA