Boosting Cash Flow for Startups
A rough, and maybe biased, review of the Boosting Cash Flow legislation for new businesses.
For a business which:
- employed at least 1 person;
- only started this calendar year;
- made taxable supplies (sales) prior to 12 March; and
- reports GST quarterly,
the interpretation of section 5(6)(b) Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Cth) is going to be critical to their eligibility. Section 5(6)(b) states:
(b) the Commissioner had notice on or before 12 March 2020 (or a later time allowed by the Commissioner) that the entity had made the taxable supply.
Full text of section 5 below.
The explanatory memorandum refers to this stating:
notice of the income or supplies was held by the Commissioner on or before 12 March 2020 or within such further time as the Commissioner allows;
It is expected that the Commissioner would only rarely allow further time and only where exceptional circumstances provide good reason for a delay in lodgement of activity statements and the income tax return over the whole period.
However, what happens to entities who only lodge notice of their taxable supply quarterly in the normal course of reporting, that is after the end of March 2020? There has been no delay in reporting their taxable supply in these circumstances.
An interpretation for the benefit of legitimate Startups.
The interpretation we want to see is:
For entities which are legitimate businesses (not artificially contrived). The commissioner by virtue of allowing small businesses to report quarterly has already granted them further time pursuant to the phrase in section 5(6)(b):
or a later time allowed by the Commissioner
Therefore, new legitimate businesses would be entitled to the $10,000 Cash Flow Boost.
To provide an alternate interpretation means the Government are excluding some of the most vulnerable businesses in the country. That is businesses started by individuals just prior to COVID19.
We argue, if the legislation intended to exclude these businesses then it would have stated that the taxable supply must have been made prior to 31 December 2019, for entities reporting quarterly. It does not. In fact, it states:
(6) (a) the entity made a taxable supply in a tax period that applied to it that:
(i) started on or after 1 July 2018; and
(ii) ended before 12 March 2020;
However, if the Tax commissioner takes a strict interpretation of section (6)(b) (contrary to what we are proposing above), it may mean startups which did not lodge a quarterly BAS for the quarter ending December 2019 will not be eligible.
Our understanding is the government is going to release further information next week. Let’s hope they consider Australia’s most vulnerable employers and use the discretion to benefit all legitimate businesses.
Want to find out more?
We are watching this interpretation with bated breath because we are in the same boat.
If you send us a message using the facility below, with your email address stating ‘Subscribe’ we will keep you updated as soon as we find out more. We will include any information we have in our monthly (at most) newsletter.
There are appeal provisions in the legislation which we will consider using if startups like us are excluded. So keep in touch if you are in our boat.
5 Entitlement to cash flow boost—first boosts
Full Text of Section 5
(1) An entity is entitled to a payment (known as a cash flow boost) for a period covered by subsection (2) if:
(a) the entity makes a payment in the period; and
(b) the entity must withhold an amount from the payment under Subdivision 12‑B, 12‑C or 12‑D in Schedule 1 to the Taxation Administration Act 1953 (regardless of whether the entity actually withholds the amount); and
(c) the period applies to the entity under subsection (3); and
(d) any of the following requirements are satisfied:
(i) the entity was a small business entity or a medium business entity for the most recent income year for which there is an assessment in respect of the entity of a kind mentioned in subparagraph (a)(ii) of the definition of assessment in subsection 6(1) of the Income Tax Assessment Act 1936;
(ii) the Commissioner is satisfied on a reasonable basis that the entity is a small business entity or a medium business entity for the income year in which the period starts; and
(e) the entity notifies the Commissioner, in the approved form lodged with the Commissioner, of its withholding period total for the period; and
(f) either:
(i) the entity is an ACNC‑registered charity at any time in the period; or
(ii) the entity had an ABN on 12 March 2020, and the requirement in subsection (5) or (6) is satisfied; and
(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.
(2) The following periods are covered by this subsection:
(a) the months of March 2020, April 2020, May 2020 and June 2020;
(b) the quarters ending on 31 March 2020 and 30 June 2020.
(3) A period applies to an entity if:
(a) for a period that is a month—the entity is a large withholder or a medium withholder for the month; or
(b) for a period that is a quarter—the entity is a small withholder for a month that starts in the quarter.
(4) For the purposes of subsection (3):
(a) treat an entity that is a large withholder or a medium withholder for the first month in a quarter as being a large withholder or a medium withholder for each month in the quarter; and
(b) treat an entity that is a small withholder for the first month in a quarter as being a small withholder for each month in the quarter.
(5) For the purposes of paragraph (1)(f), the requirement in this subsection is satisfied if:
(a) an amount was included in the entity’s assessable income for the 2018‑19 income year in relation to it carrying on a business; and
(b) the Commissioner had notice on or before 12 March 2020 (or a later time allowed by the Commissioner) that the amount should be so included.
(6) For the purposes of paragraph (1)(f), the requirement in this subsection is satisfied if:
(a)the entity made a taxable supply in a tax period that applied to it that:
(i) started on or after 1 July 2018; and
(ii) ended before 12 March 2020; and
(b) the Commissioner had notice on or before 12 March 2020 (or a later time allowed by the Commissioner) that the entity had made the taxable supply.
(7) For the purposes of subsection (6), in determining whether the entity made a supply (within the meaning of the A New Tax System (Goods and Services Tax) Act 1999) that is a taxable supply:
(a) assume that the entity is registered (within the meaning of that Act); and
(b) assume that the supply is neither GST‑free (within the meaning of that Act) nor input taxed (within the meaning of that Act).
