Small and medium businesses will be entitled to a “credit” for PAYG tax withheld on their March and June quarter activity statements.
This updated Government Coronavirus Stimulus Package will be delivered tax-free in the form of a grant.
The reduction of cash outflows is designed to assist employers in keeping their staff.
As per the announcement, the maximum amount will be $50,000 per quarter per small and medium business, and is available for business with turnover up to $50m.
Businesses with turnover under $50m will benefit from a cash flow boost over a six month period as part of a Government stimulus package. This package has been upgraded with the second tranche of government stimulus announced on 22 March 2020.
Overall, it is designed to reduce the economic effects of a pandemic-based downturn, will encourage employers to keep staff by providing full “credits” of PAYG tax withheld.
- Business with turnover under $50m
- Employ staff where PAYG tax is withheld from gross payments
- Lodge Activity Statements during the period 1 January 2020 to 30 June 2020
Form of cash flow boost
The government announcements are designed to help businesses cover the cost of employee wages. The stimulus package does this by allowing a credit on 100% of PAYG withheld over a six-month period.
The minimum amount an employer would be able to receive over two quarters is $20,000, to a maximum of $100,000. Presumably, this would mean if a business employs a person where tax is withheld over the next two quarters, a refund credit should apply in the taxpayer’s ATO Running Balance Account for $10,000 per quarter.
Timing of Activity Statement “credits”
On lodgement on the March and June quarter Business Activity Statements, the ATO will automatically apply a credit to the Running Balance Account in the amount of the PAYG tax withheld reduction (ie. 100% in most cases).
For employers with monthly Activity Statement lodgements, the March 2020 credit will be calculated at three times the rate, to cover for the January and February months.
The ATO has advised that, where these credits end up with the business having a net refundable amount, these refunds will be paid within 14 days to a nominated bank account.
Our client runs a business which employs staff and lodges monthly activity statements. All staff are on salary, and a monthly withholding of $15,000 is declared each activity statement.
On the March 2020 activity statement, the $15,000 is claimed in W2. The ATO will automatically apply a credit in the Running Balance Account of $45,000 ($15,000 × 3 times).
On the April, May and June 2020 activity statements, $15,000 is claimed in W2. The ATO will automatically apply credits of $15,000 for each month. The total amount our client will receive as a “credit” will be $90,000.