Updated 6 April 2020
Expansion of the instant asset write-off
Q: Must the asset be installed prior to 30 June to be eligible for the instant asset write up to $150,000 or will the deduction be available by entering a contract to buy, or payment of deposit?
A: Yes, the asset must be installed ready for use on or before 30 June. The deduction will not be available upon entering into a contract to buy or the payment of deposit.
Subparagraph 40-82(1)(d)(i) states that the $150,000 instant asset write off applies to "if you start to use the asset, or have it installed ready for use, for a taxable purpose in the period beginning 12 March 2020 and ending on 30 June 2020"
CA ANZ are aware that this requirement may make it difficult for businesses to access this incentive given the current supply chain constraints and restrictions on movement. Discussions will be held with relevant political and government officials.
Remember that there is also a 50% deduction for depreciating assets under the backing business investment incentive that is available until 30 June 2021.
Boosting cash flow for employers
Q: I have employees in my business, how do I apply for the cash flow boosts under the Government Economic Stimulus package and when do I get the first cash payment?
A: You do not need to apply for the cash flow boosts. If you are eligible, the cash flow boosts will be automatically applied to your account as a credit when you lodge your activity statement for the relevant periods. The cash flow boosts will be applied to reduce liabilities arising from the same activity statement. This will result in eligible entities being required to pay less to the ATO. Generally where a credit exceeds your other tax liabilities, the ATO will provide you with a refund of the excess amount.
When you first get the credit depends on whether you lodge your activity statement quarterly or monthly:
- if you lodge quarterly, you will be eligible to receive the credit on 28 April 2020 (March 2020 lodgment due date)
- If you lodge monthly, you will be eligible to receive the credit on 21 April 2020 (March 2020 lodgment due date.
Q: A BAS may require a substantial total payment to the ATO because it includes other payments (GST, PAYG instalments etc.). An initial cash flow boost credit to the client's BAS may simply result in the credit being offset against the other liabilities under the BAS rather than as an immediate cash injection into the business. Can I ask the ATO to refund the credit rather than offset it against other liabilities?
A: The ATO website guidance and the explanatory memorandum (EM) to the Coronavirus Economic Stimulus Package legislation (para 3.61) provide that practically speaking, the credit will generally be offset against other liabilities on the same activity statement. So if the business has other tax liabilities on the BAS, the credit will be offset against those first.
However, we note that the EM (para 3.62) mentions that the Commissioner does have the discretion in certain circumstances, specified in subsection 8AAZL(3) of the Taxation Administration Act 1953, to direct that the credit be refunded instead of applied against other tax liabilities.
Q: Our client has a new business that commenced in January 2020 and employs 7 people since January. The business has been registered with an ABN since commencement and has been providing services to customers. However, the business has yet to lodge its first BAS – is the business eligible for the initial cash flow boost credit?
A: Although the business had an ABN on 12 March 2020 was an active business at that time, the business has not yet lodged an activity statement, i.e. the Commissioner has not had notice on or before 12 March 2020 of an amount that is to be included in the business' assessable income (see section 5(1)(f)(ii) and section 5(5) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Boosting Cash Flow Act)). However, section 5(5)(b) of the Boosting Cash Flow Act does provide that the Commissioner had notice on or before 12 March 2020 or a later time allowed by the Commissioner. CA ANZ is seeking further clarification from the ATO whether the Commissioner may allow a later time for notice for new businesses.
Q: Our client owns a farming business, with employees, which commenced business in 2019. However, the drought has resulted in a delay in sales which began in the March 2020 quarter. Is the business eligible for the initial cash flow boost credit although it has not recorded any sales in its previous quarterly activity statements nor recorded any assessable income for the 2018-19 year?
A: Due to the sales not beginning until the March 2020 quarter means that the business has not been able to provide notice to the Commissioner that it had an amount to be included in assessable income on or before 12 March 2020. However, section 5(5)(b) of the Boosting Cash Flow Act does provide that the Commissioner had notice on or before 12 March 2020 or a later time allowed by the Commissioner. CA ANZ is seeking further clarification from the ATO whether the Commissioner may allow a later time for notice in this situation.
Q: I conduct my business through a company and usually remunerate myself through dividends. Can I pay myself a wage for the March 2020 quarter to be eligible for the initial cash flow boost credit?
If your company has no history of paying you wages, changing the way you pay yourself so you can be eligible for the cash flow boost will not enable you to become eligible. This is because there is an integrity rule built into the entitlement to the cash flow boost (section 5(1)(g) of the Boosting Cash Flow Act). The ATO web guidance states:
"You will not be eligible for cash flow boosts if you (or a representative) have entered into or carried out a scheme for the purpose of:
- becoming entitled to cash flow boosts when you would otherwise not be entitled, or
- increasing the amount of the cash flow boosts.
This may include restructuring your business or the way you usually pay your workers to fall within the eligibility criteria, as well as increasing wages paid in a particular month to maximise the cash flow boost amount.
Any sudden changes to the characterisation of payments made may cause us to investigate whether the payments are in fact wages. If the payments are wages, we may consider the characterisation of past payments, including whether they should have been subject to PAYGW and whether super guarantee contributions should have been made. You may also have FBT obligations that have not yet been met."
Q: Our clients are requesting deferrals to lodge their tax returns due 31 March 2020. Can we request a bulk deferral?
At this stage, the ATO has advised it is not proposing a bulk deferral for tax returns due 31 March 2020. However, it is encouraging tax professionals who need additional time to complete their lodgment program to request a deferral using the online form. CA ANZ, together with the other professional bodies are requesting the ATO to reconsider their position and apply blanket deferrals where possible.
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