URGENT STRATEGY – YOU MUST ACT NOW TO MAXIMISE $25K STIMULUS PAYMENT
Ok, we’ve been through the Government’s regulations regarding the $25k business stimulus payment and have concluded that many businesses are going to need help to fully access and optimise the small business payment.
Don’t wait until June to address this because the activity statement and payment cycle begins from the March 2020 lodgement through to the June 2020 lodgement. Stimulus payments are based on the content of those activity statements and accordingly nuances in your strategy will affect the amount of payment you receive.
For example – there are a lot of small businesses currently disbursing profits on a dividend (company) or distribution (trusts) basis – which we normally endorse as a good strategy. EXCEPT YOU WILL MISS OUT ON THIS PAYMENT if you persist with this approach in the next 4 months.
There are also a lot of micro employers that may be able to access the $2k minimum payment.
EXAMPLE OF THE POTENTIAL BENEFIT USING CAREFUL TAX STRATEGY
Smith Family Trust is a discretionary trust that operates a small family business selling toilet paper online. The trust is controlled and operated by a husband and wife team. Each year the trust makes a profit of around $100,000. This is after salaries totalling $120,000 paid to the owner-operators ($60,00 each per annum).
With these salaries paid on an even monthly basis, the total PAYG withholding paid each quarter by the trust to the ATO would be $6,138. Accordingly, for the quarters ended 31 March, 2020 and 30 June 2020 the total PAYG withholding paid would be $12,276. If this strategy is maintained the stimulus payment entitlement would be $ 6,138.
However, if the salaries are increased from $120,000 to $220,000 then there would be an extra PAYG withholding amount payable in the final two quarters of the 2020 financial year. Depending on when the extra salary was paid the PAYG withholding obligation in the last six months of the 2020 financial year would increase to between $30,420 to $ 38,796.
This would result in a stimulus payment entitlement of between $15,210 and $19,398. That’s an increase in your stimulus payment entitlement of $13,260. Tax-free money.
Importantly there would be no change to their personal tax position as all trust profits would have been distributed to them anyway. The only difference is the mechanism and the requirement to pay superannuation which is not a cost and some workplace insurance (a few hundred dollars in most cases).