Cashflow Boost Integrity Measures & JobKeeper Challenges

Cashflow Boost Integrity Measures & Employer funding for JobKeeper Payments

Further guidance has been provided by the ATO to tax professionals helping clients navigate their entitlements to the government stimulus measures. Namely the “Cashflow Boost” & the “Job Keeper” payment.

These measures have been trumpeted by the Federal Government as a mechanism to get much needed support to small business owners in need. However, it now appears that they have enable the ATO to act as the gate keeper who will actively challenge and review eligibility and access under the threat of legal proceedings if you get it wrong.

Cashflow Boost: Micro-Business & Advisers in the spotlight

Tax practitioners and Employers have been threatened with Criminal proceedings and professional sanctions where the ATO believes that a scheme of arrangement has been entered, resulting in an employer becoming eligible for payments under the Cashflow boost where they wouldn’t have been eligible otherwise.

What does this mean in practice? Accountants and tax advisers are not able to assist their clients in restructuring how they are remunerated in their business purely for the purpose of becoming eligible to receive or to increase their entitlement under the Cashflow boost.

This is particularly relevant for small business owners who operate through a company, and typically don’t pay themselves a wage, but rather declare dividends annually. Alternatively, for those that operate a business through a trust and usually are in receipt of a trust distribution. In both cases, if you seek to reclassify these Dividends/Distribution payments as salary and wages – this will breach the integrity provisions and potentially become subject to proceedings, penalties and interest charges on overpayments.

Small business owners in this position are now faced with the prospect of not being entitled to the “Cash flow boost” – even though they rely on their business earnings as their sole source of income.

Unfortunately, if the business does not have a history of paying wages and they suddenly start reporting wages effective from the March 2020 quarter, they will likely be subject to further scrutiny by the ATO to ascertain the validity of the wage payments.

JobKeeper – Challenges for access and funding

While the JobKeeper measures are still to be passed through parliament, we expect to see guidance on eligibility and the application process once this is finalised. But there are a couple of measures that require a little consideration:

The JobKeeper will be available for Sole-Traders, Partnerships & Other businesses that don’t have any employers. This is great news for Sole Traders, they will be able to register and nominate themselves to receive the Job Keeper payment of $1500 per fortnight.

The news is not so good for Partnerships or other businesses. Take a partnership for example – Partners in a partnership are not able to employ themselves, they receive a partner share of profits. For a partnership of 2-3 people, they will be able to register for the JobKeeper as a partnership, but they will only be able to nominate 1 (one) partner to receive the payment! That’s one $1,500 per fortnight payment to be shared among the 2-3 partners. This is also the case for businesses operated through a company and more than 1 director in the business.

What has not been widely reported on is that the JobKeeper will be paid monthly….in arrears! What does this mean? It means that for employers who have stood-down employees, or are re-hiring employees they will actually need to fund salary payments to these employees for the month of April out of their own pocket……and then be refunded by the ATO in May. That is in some cases 4-6 weeks of wages they need to fund before they get the compensation support from the government – which they will likely need to use to fund May wages and wait until they get further funding in June creating a continuous circle of pain for the small business employer. Many may just choose to opt out and leave the employees to go back to Services Australia for their Job seeker payment.

If you would like some guidance on these matters, as usual please reach out to your AGS Accountant or adviser.

Published : 07 Apr 2020

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