COVID-19 Cash Flow Booster – Entitlement “Manufacture”
One of the questions the accounting profession is receiving after the “Cash Flow Booster” Stimulus Update was delivered, was whether it would be a good time to “implement a wage” or “increase wages”.
Accountants have been put on alert in regard to questions that may imply and appear to the ATO to be an “intention to benefit” from the Covid-19 measures announced.
The primary instance is where a client has chosen to receive trust distributions or dividends, and now starts receiving wages instead. Other instances are startups that are currently operating at a loss or break even position, or where business owners are not yet drawing a fully tax effective wage, and wages are suddenly implemented or increased.
The creation of employees where none previously existed, or increasing wages significantly compared to that lodged previously with the ATO by Single Touch Payroll, will be considered to be the “manufacture” of an entitlement.
The legislation makes it clear that if a business is restructured or the way a person gets remunerated is re-characterised entitling a business to the Cash Flow Booster, an investigation will be triggered and the legislation will be held ineffective. The Cash Flow Booster will have to be paid back and interest and penalties applied.
If changes are made to the way things were previously operating, the ATO will be asking why this was done in the March or June quarters 2020. The only way such changes would not be caught out by the integrity rule is if there is a legitimate and commercial reason for doing so. As a result of Single Touch Payroll, the ATO is able to monitor activity closely around the Stimulus measures.
Please note: We will not provide or promote any advice that falls into the category of a potential tax scheme. Our firm takes no responsibility for consequences where a client has acted on advice outside of our firm and in the event that this occurs we reserve the right to terminate our engagement immediately.
It is clear that the Cash Flow Booster legislation has excluded certain parties, in particular those that receive trust distributions instead of wages. We don’t advise this arrangement unless a client specifically requests it so this doesn’t affect many of our clients. Due to the haste at which the Stimulus updates have being issued, there are scenarios presenting that will take time to iron out.
Today being 31 March, the last day of the first quarter of Stimulus Package benefits, take extra care that your Single Touch Payroll and BAS lodgements are in line with prior activities. Tax Planning season is coming up and if plans justify an adjustment to wages at that time, the report would be used to substantiate any changes made then.
If you have any questions regarding the Cash Booster Package and the presentation of your Quarter 3 payroll and financials prior to lodgements with the ATO, please contact me by email or phone.
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