You may not have even thought to draw a link between the COVID-19 economic stimulus measure, the cash flow boost (CFB), and the preparation of trustee resolutions or the possible requirement to lodge a franking return, but there is a nexus. This article provides a general overview and broadly explains why the CFB needs to be considered when preparing trustee resolutions and why a company may have a payment or reporting obligation under the franking rules because of receiving and distributing CFB payments.
The CFB was a highly successful economic stimulus measure which provided payments during 2020 of around $35 billion to around 800,000 businesses during the COVID-19 pandemic.
Given effect by the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 20201, the CFB provided total payments of between $20,000 and $100,000 to eligible businesses based on the PAYG withholding amounts reported in activity statements for the period from March 2020 to September 2020.2
From a trust law perspective, the trust deed will determine the ‘income of the trust estate’ (IOTE) or the trust’s distributable income. The Commissioner’s views on the meaning of IOTE as that phrase is used in Div 6 of Part III of the ITAA 1936 and related provisions is set out in draft tax ruling TR 2012/D1.
The way the CFB is distributed by a trust will depend on how the trust deed, or the trustee exercising a power under the deed, characterises the CFB amounts.
A distribution by a company to a shareholder is a frankable distribution to the extent that it is not unfrankable under s 202-45.4
A payment of an amount attributable to the CFB is not specified in the exhaustive list of unfrankable distributions in s 202-45. Accordingly, the payment of the CFB is a frankable distribution, even though it has not been subject to income tax.
For a detailed explanation of how these three areas intersect and how they affect your clients, including examples and an easy-to-follow summary of requirements, take a look at the full report below.
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1 Enacted on 24 March 2020 as Act No. 23 of 2020.
2 The amount of the second CFB (based on activity statements lodged for the tax periods from June to September 2020) was determined by the amount of the first CFB (based on activity statements lodged for the tax periods from March to June 2020).
3 Inserted into the ITAA 1997 by Schedule 3 to the Coronavirus Economic Response Package Omnibus Act 2020, enacted on 24 March 2020 as Act No. 22 of 2020.
4 See s 202-40.