ATO issues integrity warning to employers over $20,000 - $100,000 PAYG withholding cash flow boost
The new legislation in regards to the PAYG withholding cash flow boost was introduced into law with an integrity rule. An entity not being entitled to any amount of the cash flow boost who manipulates their affairs and records with the sole or dominant purpose of gaining access to the measure (or increasing the amount to be received under the measure) may fall foul of the rule.
The Australian Taxation Office has stated it will be monitoring increases in PAYG withholding claims and backdated registrations and will be seeking to apply the integrity rule.
It is our view that someone in business who has structured themselves to draw income under a loan / dividend strategy should not be denied access to stimulus when their business and income has suffered. However, the ATO has made it clear that they may revisit the treatment of past payments where there are sudden changes in the characterisation of payments. Any strategy to alter the characterisation of such payments needs to be carefully considered in light of the ATO position.
Clients need to be mindful of actions taken in the March (or following) Activity Statement where they could potentially fall foul of this integrity rule.
As the announcement is very recent we are watching commentary and also for the legislation to confirm the position.
What has the ATO stated?
The ATO has issued a warning that the integrity rule may apply where a business is restructured or the way in which workers are usually paid is changed so that the business becomes eligible for the cash flow boost or to maximise the cash flow boost. Therefore, any sudden spike in wages or PAYG withholding will attract the attention of the ATO.
Critically, the ATO will monitor any sudden changes to the character of payments to determine if they are in fact wages. This may further result in similar past payments being treated as wages with PAYG withholding, super guarantee and FBT consequences arising.