Tax Office clarifies cash-flow boost compliance focus
Closely held entities with different salary and wage scenarios will not be explicitly targeted by the Tax Office’s ongoing cash-flow boost compliance program.
Earlier this month, the ATO began contacting a number of cash-flow boost recipients who had made an “unusual or unexpected change” to the amount of salary and wages reported in their business activity statements, expressing concerns that these recipients had sought to inflate their entitlement.
The ATO was urged to take into account closely held entities and their inconsistent wage cycle, with the Institute of Certified Bookkeepers executive director Matthew Addison noting that these entities were not looking to game the system by making those wage changes to the March or June quarter this year.
In response, the ATO said it recognises the different scenarios closely held entities take with payments made to directors or owners, and that its compliance work will instead focus on scenarios where no payments have been made in the past.
“The principle applied when looking to substantiate salary and wages for the purpose of cash-flow boost is that the ATO is looking for a payment in the general sense. There have been instances where clients have recorded salary and wages and withholding amounts in their activity statements and there has been no payment made,” the ATO said at a recent Tax Practitioner Stewardship Group meeting.
“Activity that attracts attention is if all transactions are done after 12 March 2020 and there is no record of this pattern or behaviour in the past, or record of employer relationship or director’s fees etc.
“Each of these cases will have to be looked at individually, taking into consideration the facts and circumstances.”
The ATO also noted that scenarios where salary and wages are being paid to a director or owner but is agreed to be offset against existing loans will be accepted for the purposes of the cash-flow boost.
However, evidence of the loan being in place will need to be substantiated, as well as evidence of the agreement that salary and wages will be a constructive payment against the loan.