On Thur 20.1.2022, the ATO released a Decision Impact Statement (“DIS”) in relation to MJ and IT Holdings Pty Ltd and FCT [2021] AATA 3250. In that case, the AAT found that MJ and IT Holdings Pty Ltd was not entitled to the cash flow boost (“CFB”) in respect of an amount paid to its sole director because it entered into a scheme with the dominant purpose of increasing its entitlement to the cash flow boost.
The facts were these:
- The dispute centred on the claim by the taxpayer to have made a $25,000 payment, being a director’s fee and expensed by way of a journal entry in the accounting records of the taxpayer, between 29 and 31 March 2020. This was after the CFB announcement on 12 March 2020.
- The taxpayer contended that, though no money had changed hands at the time, there was a constructive payment by way of offset of the director’s fee against the director’s loan account, evidenced by the accounting records.
- The Commissioner contended that there was, in fact, no payment made by the taxpayer to the director. The Commissioner additionally contended that the taxpayer had entered into a scheme to increase their CFB entitlement by inflating their withholding amount for the month of March 2020.
- Tthe taxpayer objected to the decision reducing the amount of CFB under Part IVC of the TAA. The taxpayer’s objection was disallowed
The DIS states:
- that the AAT’s conclusion that the payment made displayed a dominant, if not sole purpose, of increasing the March 2020 CFB entitlement was consistent with the Commissioner’s interpretation and application of the “integrity rule” in s 5(1)(g) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020.
- The DIS also states that the AAT’s decision that the taxpayer made a constructive payment of $25,000 to the director in the month of March 2020 is fundamentally a finding of fact particular to the evidence in this specific case, where the Commissioner considers that the aspect of the decision may have limited application beyond the scope of this case.
COMMENTS are due by 18 February 2022.
CATCHWORDS – Senior Member K James
TAXATION – Coronavirus Economic Response Package – Cash Flow Boost – whether Applicant entered into scheme for the sole or dominant purpose of obtaining a Cash Flow Boost – integrity provision issues raised – whether payments withheld was on constructive receipt – meaning of withholding – withholding tax – payments from which amounts are to be withheld – financial statements – financial records keeping – objection decision sets aside and substituted.
The ‘Boosting Cash Flow’ Act
5. Entitlement to cash flow boost–first boosts
(1) An entity is entitled to a payment (known as a cash flow boost ) for a period covered by subsection (2) if:
…
(g) neither the entity nor any associate or agent of the entity has entered into or carried out a scheme or part of a scheme for the sole or dominant purpose of achieving any of the following:
(i) making the entity entitled to the cash flow boost for the period;
(ii) increasing the amount of the cash flow boost to which the entity is entitled (disregarding this paragraph) for the period.
[LTN 23, 20/1/22]
[Tax Month – January 2022 – Previous 2021] 26.1.22