Stimulus and Support Strategies - Business

Discussion in 'Accounting & Tax' started by [email protected], 23rd Mar, 2020.

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  1. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Strategy Tips

    #1 Switching to salary. Many affected small businesses may operate using a trust. At present the trust may distribute profits at year end. Where the trust does not produce passive income (eg investmnets, interest, rent) then it may be wise for the trust to IMMEDIATELY register for PAYG withholding and consider reporting year to date profits as salary with eligibility to stimulus measures. Some may already pay employees this way. Review of related party profits and switching to PAYG salaries etc should be considered.

    Tax advice on this and the cashflow impacts will be important. The most imprtant cashflow is the tax withheld. Example. Dave and Mabel operate a mechanics business. They pay all employees salaries but draw a share of profit at year end as a trust distribution. Its often $200K. They expect at 30 June 2020 is could be $150K. They consider paying / crediting wages instead of trust distributiosn even from $130K. They need to consider:
    1. How much more stimulus $$$ coud result ?
    2. How much PAYG withholding tax and SUPER could be imposed and become due ?

    Who cannot switch ? Sole traders and partners ina partnership CANNOT be paid wages.

    #2 BAS Timing
    The first two rounds of PAID stimulus funds will be based on two tax periods.
    1. January 2020 to March 2020; and
    2. April 2020 to June 2020.
    For employers who report a IAS monthly the trigger event is the relevant quarter's IAS or BAS.

    The earliest possible lodgement may be an important strategy. Like 1st April. However, the ATO have confirmed that on lodgement the ATO will automate the calculation of credits to be given. This will REDUCE THE AMOUNT PAYABLE and if a credit occurs a refund will be given. The refund is NOT a stand alone matter.

    eg BBC Pty Ltd has a BAS with GST of $1300 net. The PAYG witholding is $8,500. They have self asssed their stimulus support as $32,500. They would receive a refund of $22,800

    #3 PAYG Instalments of Tax
    Many taxpayers will overlook this. Its a big one so read up. It could produce major immediate cashflow IN.

    Taxpaters and entities with a tax debt in the prior years may be paying a annual (Due Oct 2020) or Quarterly Instalment of tax. This is a PAYG Instalment and may be paid as stand alone notice (individuals usually) or as part of a BAS for a business.

    The economy has changed. It is realistic many businesses will have vastly reduced profit. They may have planned a profit which is now looking like a loss. So all the past instalments of tax may be either:
    1. Varied; and also
    2. A refund requested for what was paid in earlier quarters

    Some simple rules:
    1. You must vary before the due date of the BAS.
    2. You will need to CORRECTLY vary and lodge this correctly to avoid rejections which will delay things. It happens a LOT. Tax agent support may assist. It is very quick. It shouldnt cost extra.
    3. Make sure your bank details are up to date with the ATO for BAS refunds BEFORE YOU LODGE. Tax agents and online accessable taxpayers can check this. Its important. If they dont have details they wont send a cheque. They will send a letter that may take weeks to arrive.
    4. You will vary the resent instalmnet to $0 AND
    5. You will review and include a credit for past instalments.
    *(Tip : Claim 100% of the past amounts in Sept and Dec unless you feel tax will be still payable)

    Eg : (As above)

    eg BBC Pty Ltd has a BAS with GST of $1300 net. The PAYG witholding is $8,500. They also pay $14,000 a quarter in Co Instalments each quarter. They vary to $0 and claim a credit of $28,000. They also self estimate the stimulus support as $32,500. They would receive a refund of $40,800
     
  2. Mike A

    Mike A Accountant Business Member

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    i don't believe Number 1 will work based on the following wording in the explanatory memorandum

    Paragraph 3.5 "• the entity (or an associate or agent of an entity) has not engaged in a scheme for the sole or dominant purpose of seeking to make the entity entitled to the first cash flow boost or increase the entitlement of the entity to the first cash flow boost"

    if they do so they will be requested to pay back the Cashflow Boost Tranche 1 and Tranche 2
     
  3. Propagate

    Propagate Well-Known Member

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    Flicked that one onto our accountant, thanks.

    Your Dave & Mabel example could almost perfectly be substituted with me and my business partner, it's uncanny.

    Would Bucket companies factor into this anywhere?

    I.e. Dave & Mabels machine business distributes $200k per year into their trust, then their trust distributes $50k to Dave, $50k to Mabel and $100k into A_Bucket_Enterprises Pty. where it's taxed at company tax rate and balance sits until such a time they want to dip into it. I assume there's no stimulus heading toward the bucket?
     
  4. Mike A

    Mike A Accountant Business Member

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    Bucket companies generally wouldn't have an ABN so they would not be eligible and they generally don't pay amounts subject to withholding tax

    If they started to do so would be a scheme and you would be asked to repay the amount later on.
     
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  5. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Good work Mike. I was waiting for such a clause can you send a link to the EM ?? I have been checking aph website etc waiting for this. I also query a Personal Services entity that complys and pays 100% of entity income to the individual using the PAYGW and STP system already
     
  6. Mike A

    Mike A Accountant Business Member

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    Yes mate the link to the EM is in the other post i did earlier
     
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  7. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Thats probably a bit hard to answer. The impact on the avoidance rule may be $0. If you do it to increase the stimulus bnfits then it may be a conern. It just depends. This is one of those times where having a tax adviser on the end of the phone does help.
     
  8. Jasper

    Jasper Well-Known Member

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    So if I lodged on April 1st via MYOB, do I actually pay the full amount from my bank account? Or do I pay nothing and wait for the refund? Thanks
     
  9. Mike A

    Mike A Accountant Business Member

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    Lodge what ? The PAYGW on the BAS/IAS ?

    Do you lodge your BAS monthly or quarterly ?

    The ATO has stated

    "The initial cash flow boosts will be delivered as credits in the activity statement system from the Government’s announced date of 28 April 2020. If you lodge early, you will not receive the cash flow boost before this date."

    If you have a tax liability it will be offset against your liabilities.

    Otherwise a refund. Make sure your financial details with the ATO are up to date
     
  10. Jasper

    Jasper Well-Known Member

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    • I lodge my BAS quarterly. MYOB tells me where to transfer what I owe the ATO at this time.
    • Are you saying you must lodge BAS between April 1 and April 28?
    • Good point about the ATO having our business bank details. I have no idea if I've ever provided that as I've never received money from the government for the business. Thanks!
     
    Last edited: 28th Mar, 2020
  11. Mike A

    Mike A Accountant Business Member

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    yes the March BAS has generally been due April 28.
     
  12. FrivolousPanda

    FrivolousPanda Well-Known Member

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    Is there a reason why the recent installment is varied to a zero? The business could still be making a profit, just a smaller one, hence should the installment be recalculated based on a forecast (best guess).

    Thanks
     
  13. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    ScoMo has indicated commercial tenants facing hardship will be given rent support... by landlords and it may reflect their situation eg reduced v nil income.
    For a commercial landlord it didnt sound that great for some.

    Policy reached today but to be announced Monday reported at smh.com.au
     
  14. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    MYOB wouldnt know. You tell it. MYOB doesnt factor in stimulus for example. You tell MYOB what is being paid.
     
  15. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    You didnt read the full post and in context. I said that. in another line. A business that has stopped income is likely to face losses until it recommences July + Hence all existing profit may well be eroded even in the perid april- june. All past instalments may be credited and claimed on top of vary to $0. Planing around instalments paid or payable should consider projected profit to 30 June. Claiming past instalment as arefund may assist cashflow and mUST be done before the due date or it cant be requested.

    ATO wont challenge a business on this issue as it can reasonably expect this to be 6 mths ....the PM said

    Its interest free cashflow for 13months +
     
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