With the impact of COVID-19 being felt around the whole community, the government has released some very significant government stimulus measures. This brings with it the question of how to correctly account for them. Below we have addressed each of the relevant measures. Please keep in mind that the GST, income tax and financial accounting treatment in each case can be different.
Please scroll down for details on:
Cash Boost for Employers
JobKeeper
WA Payroll Tax changes
Synergy Electricity credits
Note: In relation to the financial accounting treatment, we have assumed that you are applying the recognition and measurement criteria of the Australian Accounting Standards. For some very small organisations preparing Special Purpose Financial Reports, you may have additional flexibility in this application.
Boosting Cash Flow for employers
The government is providing cash flow relief in the way of credits through the Activity Statements system.
Eligible businesses and Not-for-profit (NFP) organisations who employ staff between 1 January 2020 and 30 June 2020 will receive between $20,000 to $100,000 in cash flow boost amounts by lodging their activity statements up to the month or quarter of September 2020.
For most businesses, the cash flow boost will automatically be credited to your account when you lodge your activity statement.
When you lodge your 30 June 2020 activity statement you may receive both initial and additional cash flow boosts as credits.
The cash flow boost will be applied to reduce liabilities arising from the same activity statement – if there is credit remaining after this occurs, you will generally receive a refund of that amount.
You must be eligible for the initial cash flow boost, in order to be eligible for the additional cash flow boosts. These will be delivered in either two or four instalments, depending on your reporting period.
Please refer to the following link for the eligibility criteria;
INITIAL CASH FLOW BOOST = 100% of PAYG withheld from 1 January 2020 to 30 June 2020 ($10,000 - $50,000 max)
[if monthly lodgement then April to June PAYG plus three times May PAYG]
ADDITIONAL CASH FLOW BOOST = INITIAL CASH FLOW BOOST
Timing of the Additional Cash Flow Boost
The amounts will be equal to the total amount of initial cash flow boosts received and split evenly over the lodgements for the periods June 2020 to September 2020.
If you lodge:
Quarterly – you will receive 50% of your total initial cash flow boosts for each activity statement
Monthly – you will receive 25% of your total initial cash flow boosts for each activity statement.
Both the initial and the additional cash flow boosts will be credited when you lodge your June 2020 activity statement unless you already received the maximum $50,000 of initial cash flow boosts from earlier periods.
ACCOUNTING TREATMENT
Businesses and organisations need to ensure they will be recording the entries correctly in their accounts. An example has been provided below.
It is imperative that the eligible entities realise the additional cash flow boost is recognised in the financial year ended 30 June 2020.
EXAMPLE OF QUARTERLY LODGEMENTS
Period PAYG Withheld
1 Jan 2020 to 31 March 2020 40,000
1 April 2020 to 30 June 2020 60,000
The Journal entries in the example above would be as follows:
Initial cash flow entries
31 March 2020
Dr PAYG liability $40,000
Cr Government grant income $40,000
(to record the first instalment of initial cash flow boost in March 2020)
30 June 2020
Dr PAYG liability $10,000
Cr Government grant income $10,000
(to record the second instalment of initial cash flow boost)
Please note that the maximum is $50,000 therefore in the example above they have already claimed $40,000 in the March Activity statement leaving $10,000 to still be claimed in the 30 June Activity Statement.
Additional Cash Flow entries
30 June 2020
Dr PAYG liability $50,000
Cr Government grant income $50,000
(to record the additional cash flow boost – which equals the amount of the initial cash flow boost)
As they lodge quarterly in the example above, the $50,000 will be claimed in two instalments - $25,000 to be received in the 30 June 2020 Activity Statement and $25,000 to be received in the 30 September 2020 Activity Statement.
JobKeeper
The JobKeeper program has some significant complexities, so we have separately addressed those details here:
https://australianaudit.com.au/blog/2020/7/accounting-for-jobkeeper
In most cases the outcome will be that JobKeeper receipts from the ATO need to be recorded as income in the period the staff are paid, which will be the month prior to when funds are received from the ATO.
Payroll Tax
The Western Australian Government has released multiple measures to assist those businesses that have to pay payroll tax. Some not for profit employers and small employers are already exempt from payroll tax. For those that have to pay, it is a state tax that is based on a percentage of wages paid by the entity.
Threshold increase
The threshold increase to $1 million scheduled for 1 January 2021 has been brought forward to 1 July 2020.
Payroll tax waiver
Payroll tax can be waived from March to June 2020 for employers, or groups of employers, whose Australian taxable wages are less than $7.5 million at 30 June 2020.
This will be calculated as part of the annual lodgement and reconciliation process. For accounting purposes you should ensure that the payroll tax expense reflected in the year to 30 June 2020 matches the total that will be payable after the waiver has been applied (if eligible).
Grant payment
You do not need to apply for the grant. A one-off grant of $17,500 will be given to employers, or groups of employers, whose annual Australian taxable wages for 2018-19 were more than $1 million and less than $4 million. Grants will automatically be paid by cheque from July.
If you are eligible for this grant you should record it as income in the year ending 30 June 2020.
JobKeeper payments
Wages that are subsidised by the Australian Government’s JobKeeper scheme are exempt from payroll tax and should not be included in your payroll tax returns. However, any amounts you pay above the $1,500 per fortnight subsidy are taxable and must be declared in your returns.
For more details please see the WA Government Website.
Synergy Credits
Some businesses with a Synergy account will be entitled to a credit of $2,500 on their synergy account. This will appear as an item marked ‘WA Small Business and Charity Tariff Offset’.
It should be noted that the tariff is GST Free, while it is used to offset electricity costs that will include a GST portion. This means that each invoice needs to be recorded into your accounting system to ensure that the GST is correctly accounted for. You can’t just assume that because there is no payment required that the invoice shouldn’t be entered to your system.
The credit cannot be received as a cash refund, but can only be accessed by using electricity at a future point in time. As such, in accordance with AASB120, this credit should not be recorded to income until the point that the electricity is used.
More details on the Synergy Website.
MORE INFORMATION NEEDED?
If you have any questions not addressed above, please get in touch with our office to discuss further.