These are certainly unique times that will be impacting the CapitalQ Community in unique ways.
Fortunately, the Federal Government have acted quickly (in our view) to assist from an economic point of view.
The most important element of the stimulus package announced yesterday, at least as far as the Business Owners in the CapitalQ Community are concerned, is how the cash payments assistance for small and medium businesses will work.
So the truth is, we are still waiting on more details and clarifications. We note that at the time of writing, the ATO website does not appear to have been updated with any information on the matter.
But nevertheless, here is what we know so far –
- You must have an annual turnover (generally per the 2019 financial year) under $50 million to qualify.
- You must employ workers (whether that includes yourself and family members we don’t yet know, we suspect it does). Our expectation is this will not include subcontractors.
- In the very rare case where you employ workers, but you don’t have to withhold any tax from their wages, you will receive $2,000 from the ATO. There will be very few, if any, CapitalQ Community Members that will fall into this category.
- Where you employ workers and you do withhold tax from their wages, you will receive an amount from the ATO generally equal to 50% of the tax withheld during the period March to June 2020.
- The maximum you can receive is $25,000. Which means you will need to have withheld at least $50,000 in tax from employee’s wages to receive that much.
- The credit you receive WILL BE ENTIRELY TAX FREE! Meaning you will still get a full tax deduction for the tax you withhold from wages, even though you will not have had to pay it all to the ATO.
- Now the most important thing to know is you most likely won’t receive any cash into your bank account! Instead you will receive a credit to your ATO Integrated Account. The effect will be that you won’t have to pay as much when paying your Activity Statements. Arguably the net result is the same, psychologically it is not! So from here on we won’t use the word ‘payment’ we will use the word ‘credit’.
- Plus, if you already have a debt owing to the ATO in relation to your Integrated Account, we expect the credit will simply be used to reduce that debt. So the short term cashflow benefit for you will likely be minimal.
- If the credit to your account results in an overall credit balance (meaning the ATO now owe you after taking everything into account) then yes, you will actually get that overall credit balance paid to your bank account. But when you consider you are being given only 50% of the tax withheld, plus you also have to pay your GST as part of your Activity Statement, we would say the number of Community Members that will actually receive cash back into their bank account will be small!
- The credit will occur when you lodge your Activity Statements. If you don’t lodge, it won’t occur. We don’t know what will happen if you lodge late.
- Quarterly lodgers will be eligible to receive the credit for the quarters ended March 2020 and June 2020.
- Monthly lodgers will be eligible to receive the payment for the March 2020, April 2020, May 2020 and June 2020 lodgements.
- To ensure equity between the two, Monthly lodgers will have their credit multiplied by 3 for the March 2020 Activity Statement!
This summarises pretty much everything we know at the time about the stimulus package as it applies to the small and medium business payment. If you have any further queries we would suggest holding fire until Monday as there is not a lot more we can tell you right now. If there is any more information made available we will update this post and we should be in a better position to start answering more detailed queries about this next week.