Following the passage of the Coronavirus Economic Response Package Omnibus Bill 2020, the profession has been put on alert in engaging in schemes to help their clients access the cash-flow boost measure.
The cash-flow boost payment provides for tax-free payments between $20,000 and $100,000 to businesses based on the amount of their PAYG withholding, excluding in essence those who are structured to receive a trust distribution or a dividend paid by a company.
Speaking to Accountants Daily, Institute of Public Accountants general manager of technical policy Tony Greco said the law was clear on schemes with the sole or dominant purpose of accessing the cash-flow boost.
“Some of our members have been contacted by their clients to ‘manufacture’ an entitlement by creating employees in entities where none previously existed,” Mr Greco said.
“This piece of legislation makes it very clear that if you try to do anything of that nature to re-characterise the way you get remunerated and therefore entitles you to this, then it’s essentially ineffective.”
The ATO has now provided further guidance on the issue, noting that it will investigate those who restructure their business or the way they pay their employees to fall within the eligibility criteria.
“Any sudden changes to the characterisation of payments made may cause us to investigate whether the payments are in fact wages,” said the ATO.
“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.”
TaxBanter senior tax trainer Robyn Jacobson, who has seen similar queries over the past week, said agents should tread carefully when choosing to help their clients restructure now.
“It’s not a problem if you suddenly decide you want to do things differently. The question I would be asking is, why are they choosing this quarter or the June quarter, to change what they’re doing?” Ms Jacobson said.
“If there are some other commercial reasons, a legitimate reason why they would have done it anyway, then perhaps that would not be caught by the integrity rule, but if they would not have done it otherwise or would not have done it at this time, and the reason is to access this benefit or maximise their entitlement, then it is problematic.
“Advisers could be exposing themselves to the promoter penalty provisions, which impose significant penalties on advisers who promote tax schemes, and if the entity is later considered to be ineligible, the ATO has the power under the legislation to recover the cash-flow boost and charge the general interest charge.”
While the intent of the bill is to encourage employers to retain employees through the downturn, Mr Greco believes the hasty introduction and passage of the bill within 24 hours has highlighted a potential unfair outcome depending on the way a business has been structured.
“If you’re a sole trader, and you just happen to incorporate and pay yourself wages, you’re [eligible], but you’re not actually employing anyone,” Mr Greco said.
“But we’ve got a lot of businesses operating through trusts; some have family members that are running around and are active participants in that business, but no one’s drawing a wage and they get their benefit via a trust distribution and they don’t qualify.”
He added: “We have to acknowledge that it has created some inconsistent outcomes. A sole trader who has incorporated and has paid himself wages will get it, and that’s not the intent because that sole trader hasn’t got employees.
“These incentives were done in haste without normal consultation. The principle to help businesses that employ was good, but the delivery has got some issues with it.”
Jotham Lian is the news editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.