Announcements
Worried you’re missing part of your refund? Remember, the low and middle income tax offset isn’t a refund on its own – it’s used to offset (or reduce) the amount of tax you pay. The offset amount you may be entitled to is automatically applied and could range between $255-$1080, depending on things like your taxable income and how much tax you’ve paid.
Still not sure? Ask the Community

ATO Community

Re: Cash flow boost paid as salary from a company and tax loss issues

Initiate

Replies 0

Hi dante_941,

 

I have amended the scenario you outlined to represent the treatement of the CFB in 

relation to PSI attribution as well as how the CFB is treated as PSI/income more generally,  as simply as possible, not sure I succeeded, but here goes:

 

If you received the CFB you would also have received a JobKeeper payment, as the CFB was  to cover the cash flow for PAYG tax payments on JobKeeper payments. Therefore if the scenraio was applied to the 2020FY it would read:

 

Section 6.
Income - On Co.Tax Return (If entire Income was 100K)
PSI Income: $84K

Other Income: $6K (JobKeeper - Label Q on Company Tax Return)
Other Income (NANE): $10K (CFB - Label R on Company Tax Return)

 

Section 6. Expenses - On Co.Tax Return (If entire Expenses was 100K)
Superannuation: $10K (Label D on Company Tax Return)
Gross Wages + Bus.Deductions: $90K (Label S on Company Tax Return - 85K Wages + 5K Bus, Exp.)
Section 6. Total PNL: $0

 

Section 7. Reconcilliation to Taxable Income or Loss - on Co.Tax Return

TPOLA: $0

Less:
Other Income Not Included
in Assessable Income: $10K (Label Q on Co. Tax Return)
Taxable/Net Income or Loss: $10K (L) (Label T on Co. Tax Return)

 

Section 8. Financial & Other Information on Co. Tax Return
Total Salary & Wages Expenses: $85K (Label D on Co.Tax Return)

 

Section 13. Losses Information
Tax Losses Caried FWD
to Later Income Years: $10K (Label U on Co. Tax Return)

 

Section 14. Personal Services Income
PSI Included at Item 6: $84K
Deductions against PSI: $5K

 

2020 EOFY Co. Tax Return Calculation Statement
Taxable or Net Income: $0K
Gross Tax: $0K
Total Amt PAyable/Refundable: $0K

 

The result is a 10K loss carried over to 2021FY.

 

If your Income was higher. lets say $94K PSI, $6K JobKeeper and $10K CFB and you did not pay out all your income as expenses (i.e. expenses remained at $100K), then the 10K would likely have generated a "0" profit manifested a $10K in cash, or unfranked dividends if they were to be paid out in this FY or any following FY.

 

The general reason a loss is generated is that most business spend the entire CFB on expenses other than the PAYG component of the JobKeeper payments. In addition, if you generate a loss due to the fact that you paid out the CFB as all types of expenses other than the PAYG tax component of wages, then the loss you generate will only be evident at the EOFY, and the loss itself cannot be claimed in the same the income year it was generated (NB: Base Tax Rule).

 

The CFB does not form a component of PSI within the PSI calculation as the CFB is non-assessable. (i.e. no personal service or service of any kind was delivered to secure a CFB payment).

 

Therefore, the PSI attribution calculation does not include the CFB. In other words, the CFB
is considered as "other income", not PSI, so continuing on with the scenario, the EOFY 2021
would read:

 

Section 6.
Income - On Co.Tax Return (If entire Income was 110K)
PSI Income: $86.5K

Other Income: $13.5K (JobKeeper - Label Q on Company Tax Return)
Other Income (NANE): $10K (CFB - Label R on Company Tax Return)

 

Section 6.

Expenses - On Co.Tax Return (If entire Expenses was 100K)
Superannuation: $10K (Label D on Company Tax Return)
Gross Wages + Bus.Deductions: $70K (Label S on Company Tax Return - 65K Wages + 5K Bus, Exp.)
Section 6. Total PNL: $20K

 

Section 7. Reconcilliation to Taxable Income or Loss - on Co.Tax Return
TPOLA: $20K
Less:
Other Income Not Included
in Assessable Income: $10K (Label Q on Co. Tax Return)
Tax Losses Deduicted: $10K (Label R on Co. Tax Return)
Taxable/Net Income or Loss: $0K (Label T on Co. Tax Return)

 

Section 8. Financial & Other Information on Co. Tax Return
Total Salary & Wages Expenses: $85K (Label D on Co.Tax Return)

 

Section 14. Personal Services Income
PSI Included at Item 6: $86.5K
Deductions against PSI: $5K

 

2021 EOFY Co. Tax Return Calculation Statement
Taxable or Net Income: $0K
Gross Tax: $0K
Total Amt PAyable/Refundable: $0K


In EOFY2021 the company will be holding 20K as cash which would generally be paid as a unfranked dividends.


In other words, if you were to recover the 20K in losses, it would need to be paid out as dividends, which is the same way as if it had resulted in a loss to a company without PSI, a trust or sole trader.

 

Just be aware that even though the CFB in not assessable, it is also non-exempt. The non-exempt interpretation means that the CFB is delared as other income, even though it is non assessable (i.e. no tax due - therefore not taxed), but is journalled into the PNL, appears on your tax as other income, which is why it reconciles to a loss.

 

Another important thing to remember is the CFB is a payment made by the ATO to cover the injected cash flow for the PAYG component of salaries. If you pay less than the $20K in PAYG tax, then the balance may need to be returned to the ATO.

 

In your example:

 

If the $85K in wages resulted in PAYG tax of $20K being paid, (i.e. $65K net and $20K PAYG Tax), then the CFB of $20K is equal to the $20K CFB and you will have no liabilities showing on your ATO tax account.

 

However, IF your PAYG tax component of wages/salaries paid out is less than the CFB there is an expectation you will need to return the shortfall in PAYG tax payment as the CFB was over-paid paid to you:

 

For example, if the CFB received by you was $20K and you only paid out $15K in PAYG Tax, (i.e. $65K Net + $15K PAYG Tax), then you will owe the ATO $5K (i.e. $20K CFB payment - $15K PAYGTax = $5K own on the ATO Integrated Account).

 

In summary, The CFB is not considered an element of PSI and therefore does not reduce the
PSI amount declared post PSI attribution calculation, the individual will still be assessed on the PSI income amount (i.e. $80K). The $20K is an "other income" classified item as descibed above, will likely generate a loss, that when recovered, will generally be paid out as an unfranked dividend, just like a company, trust or sole trader would.

 

Cheers - KnowledGenX.