Boosting cash flow for businesses and not-for-profit organisations

By Michael Hansel and Christina Hooper / 16 April 2020
3 min.
Worthwhile read for: CEO, CFO, Board Members, Small Business Owners

The Federal Government has recently passed legislation to allow the provision of temporary cash flow to not-for-profit organisations (NFP) and eligible small and medium businesses that employ staff and have been affected by the economic downturn associated with COVID-19.

Eligible businesses and NFP will receive $20,000 and $100,000 in cash flow amounts (Cash Flow Boosts) by lodging all their activity statements up to the month or quarter of September 2020. 

The Cash Flow Boosts will be delivered as credits in the activity statement stream from 28 April 2020. The ATO have advised that early lodgements will not result in early Cash Flow Boosts. 

The ATO have advised that the Cash Flow Boosts amount will generally be equivalent to the amount withheld from wages paid to employees in the March to June 2020 periods.

Practically, this means that the amounts that have been withheld from payments for these periods will be kept by the business.

An additional cash flow boost will be applied when activity statements are lodged for June to September 2020. These credits are equal to the total boosts credited for March to June 2020. These amounts will be paid in either two or four instalments (and dependent on the reporting cycle).

The activity statement must be lodged to receive the cash flow boosts. 

What is an eligible small or medium business?

To be eligible, the small or medium business (or NFP of equivalent size is) must have:

  • aggregated annual turnover of less than $50million; 
  • held an ABN on 12 March 2020; 
  • made payments to employees subject to withholding (even if the amount withheld is $0), such as salary and wages, director fees, eligible retirement or termination payments, compensation payments, voluntary withholding from payments to contractors; and
  • lodged, before 12 March 2020, at least one of:
  1. a 2018-2019 income tax return showing that the business had an amount included in assessable income in relation to carrying on a business; or 
  2. an activity statement or GST return for any tax period that started after 1 July 2018 and ended before 12 March 2020 showing that the business made a taxable, GST-free or input-taxed sale.

The ATO have advised that they have discretion to give businesses further time (that is, after 12 March 2020) to hold an ABN or provide notice that the business income or supplies were made. This discretion is quite narrow and only applies to circumstances where the business wasn’t required to hold an ABN as a matter of law (for example, an entity that operates in external Territories of Australia) or because the lodgement was deferred under an extension granted by the Commissioner of Taxation (for example, an extension was granted because the business was affected by the bushfires in late 2019).

Tax consequences 

The ATO have advised that neither GST nor tax is not payable on the Cash Flow Boost and the amounts do not need to be repaid when cash flow improves. 

The business will still be entitled to a deduction for the PAYG withholding paid and there is no effect on tax paid by employees (with regards to their salary or wages).

Michael Hansel
Michael is a Partner in our Corporate practice with expertise in mergers and acquisitions, capital raisings, due diligence, takeovers, joint ventures, corporate restructuring and private equity transactions. Michael is also the co-lead of our Asia...
Christina Hooper
Christina is an Associate in our Corporate practice.
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