JobKeeper has been a significant financial benefit for many organisations, while at the same time creating uncertainty regarding eligibility and application of the rules.
JobKeeper is an Australian Federal Government wage subsidy program, which initially provided $1,500 per fortnight per eligible employee as a reimbursement of wages paid. This program was announced to assist organisations suffering financial difficulty as a result of COVID-19.
Eligibility for JobKeeper
There has been significant discussion over the past months about how to correctly assess employer and employee eligibility for the program. We don’t intend to recap all of the details as they have already been clearly summarised by the ATO here.
A brief summary is that an eligible employer has to demonstrate a sufficient decline in GST turnover compared to a relevant test period. Once the decline is demonstrated then eligible employees can nominate to participate in the JobKeeper program, after which the employer is able to claim a $1,500 per fortnight per employee reimbursement of wages paid. Reimbursements are paid in arrears.
There can be significant complexity in making the eligibility assessment for various reasons, including:
Ensuring ‘GST Turnover’ is accurately calculated
Applying the alternative tests
Demonstrating projected GST turnover was reasonable if it subsequently differs from actual GST turnover
Applying ‘regular and systematic’ test to casual staff
Recording JobKeeper Transactions
Wages paid to staff continue to be recorded as normal. Where staff are paid a JobKeeper TopUp, this also should be recorded as wages expense.
At the start of each month, the employer then completes a declaration in relation to wages paid in the month just completed, and then receives a reimbursement from the ATO. Those reimbursements received do not form part of GST Turnover (i.e. they are BAS excluded) however will form part of the taxable income for entities that pay income tax (this is offset by the wages paid, so shouldn’t result in income tax payable in most instances).
Assessing the accounting treatment, however, is slightly more complex:
Principal or Agent
In determining the accounting treatment, the first question to consider is whether JobKeeper is a principal or agent arrangement. If the employer is acting as a principal, payments would be recognised on a gross basis, compared to a net basis if the employer were seen as an agent for the government.
There are many reasons to determine that the employer is not an agent for the government; including that the employer has discretion to register or not, that employers have to meet various criteria to be eligible and employees have no control over whether employers claim JobKeeper payments.
As such, we would consider the correct treatment is to see JobKeeper recipients as a principal and not an agent.
For-profit Entities
The relevant accounting standard for For-profit entities is AASB120 Accounting for Government Grants and Disclosure of Government Assistance. The JobKeeper funds are provided to the employer in return for complying with certain conditions; for example payment of the funds to staff in a particular way.
Government grants, including non-monetary grants at fair value, shall not be recognised until there is reasonable assurance that: (a) the entity will comply with the conditions attaching to them; and (b) the grants will be received.
AASB120, paragraph 7
In most cases the criteria of AASB 120(7) are met at the time that the payment of wages to staff is made. The employer’s eligibility for JobKeeper would have been assessed prior to registration, and in most cases this will not be in doubt. If there is any doubt about eligibility, specific advice from a tax professional should be received to ensure that a liability for refund of payments is not incurred.
Once wages are paid the only remaining condition to receive funds is for the employer to complete the monthly declaration; which they should have reasonable assurance they will comply with.
Income for wages not paid yet (i.e. JobKeeper that will be received August through to September) should not be taken to income in June. AASB120 (12) states that:
Government grants shall be recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate.
On each payroll date the following journal would be recorded:
Debit ($) Credit ($)
Receivable for ‘job keeper’ payments $1,500
Government grant income $1,500
For presentation in the profit and loss statement AASB120 (29) provides a choice:
Grants related to income are presented as part of profit or loss, either separately or under a general heading such as ‘Other income’; alternatively, they are deducted in reporting the related expense.
Our view is that the gross basis provides more meaningful and useful information.
Gross basis 2020
Other income - Government grants $1,500
Salaries expense $1,500
Net profit Nil
Net basis 2020
Salaries expense Nil
Net profit Nil
Not-for-profit Entities
In most cases Not-for-profit (NFP) entities only need to demonstrate a 15% decline in revenue.
There is also the additional option of excluding some government grants from the calculation of GST turnover, however, this also comes with the expectation of not claiming JobKeeper for staff 100% funded by that government program. Further information is available by contacting our office or in the amendments to the rules: Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 2) 2020.
AASB120 Accounting for Government Grants and Disclosure of Government Assistance does not apply to NFPs, so the correct accounting treatment has to be assessed differently. Revenue for NFP organisations is initially considered under AASB15 Revenue from Contracts with Customers, however this requires a sufficiently specific performance obligation (which JobKeeper doesn’t have). Next is to consider AASB1058 Income of Not-for-Profit Entities, however there is no transfer of goods or services to a customer so again this isn’t applicable, other than by its reference to other accounting standards. As there is no specific standard relevant for JobKeeper receipts for NFPs we are brought to AASB108 (11a)
the requirements in Australian Accounting Standards dealing with similar and related issues;
And hence, by analogy, the requirements of AASB120 (for-profit government grant receipts) or AASB9 (right to receive cash) could be applied to record on each payroll day:
Debit ($) Credit ($)
Receivable for ‘job keeper’ payments $1,500
Government grant income $1,500
In accordance with the requirements of AASB1058; NFP organisations don’t have the option to use a net presentation, so the appearance in the financial statements should be on a gross basis:
Gross basis 2020
Other income - Government grants $1,500
Salaries expense $1,500
Net profit Nil
More information needed?
If you have any questions not addressed above, please get in touch with our office to discuss further.