RSM Australia

COVID-19 Financial Reporting: Accounting for government assistance

Tax Insights

As the COVID-19 pandemic continues to have a serious impact on the economic environment, governments continue to provide different forms of assistance to affected entities.

While AASB staff have issued a comprehensive FAQ document on accounting for government assistance generally, this article sets out the accounting treatment of two of the most common types of COVID-19 assistance issued by the federal government in Australia.

Please refer to our previous article, for the accounting for lease concessions arising from COVID-19.


JobKeeper (1.0)

The JobKeeper scheme is payable to qualifying employers as an incentive to retain employees during the COVID-19 period of uncertainty.The JobKeeper scheme is payable to qualifying employers as an incentive to retain employees during the COVID-19 period of uncertainty.

Under the first instance of the scheme, effective to September 2020, qualifying employers receive $1,500 per fortnight, which they must use to pay their employees.

The assistance is receivable only after the employees’ wages have been paid.


JobKeeper: For-profit entities during COVID-19

Government assistance is accounted for under AASB 120 Government Grants and Disclosure of Government Assistance, which requires that income be recognised only when an entity has “reasonable assurance” that they will meet the eligibility criteria for receiving the grant.

AASB 120 further gives entities the option from recording the income either as a separate line of income or offset against the related expense (in this instance, against wages and salaries).

The principles of AASB 9 Financial Instruments and the definition of an asset under the Conceptual Framework, apply to any related asset.

That is, an asset is...

“A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.”

This means that an asset can only be recognised when the “past events” which triggers the entitlement to the funds has occurred. Therefore:

  • JobKeeper receipts can only be accrued (i.e. recognised as a receivable) when the related wages have been paid.
  • The income can be recognised immediately when the asset is raised.

JobKeeper: Not-for-profit entities during COVID-19

JobKeeper must be accounted for under AASB 1058 Income of not-for-profit entities, as it does not arise from an enforceable contract containing sufficiently specific performance obligations.Accounting for not-for-profit entities during COVID-19 and the JobKeeper scheme

Therefore, income will be recognised immediately when the related asset is recognised. There is no option to recognise this by netting off against wages.

For the asset, the same principles apply in the not-for-profit sector as in the for-profit sector; which means that:

  • JobKeeper receipts can only be accrued (i.e. recognised as a receivable) when the related wages have been paid.
  • The income is recognised immediately when the asset is raised.

‘Boosting Cash Flow for Employers’ (“Cashboost”)

The ‘Boosting Cash Flow for Employers’ incentives gives eligible entitles with an aggregated annual turnover of less than $50 million, an additional payment to use at their discretion, if they employ people between 1 January 2020 and 30 June 2020.

There are two components, payable in three instalments:

  • The initial cash flow boost,
  • The additional cash flow boost, receivable in 2 instalments:
     
    • As part of the June 2020 BAS
    • As part of the September 2020 BAS.

The value of the cash entities will receive for each the initial and the additional cashflow boost is equal, as a maximum, to the lower of 100% of PAYG withheld between January and June 2020, and $50,000. The minimum payable is $10,000.The value of the cash entities will receive for each the initial and the additional cashflow boost is equal, as a maximum, to the lower of 100% of PAYG withheld between the COVID-19 period of January and June 2020, and $50,000.


The payment is received through the ATO portal, after lodgement of the BAS. This means that it will most often appear as a benefit to qualifying entities by waiving their PAYG liability.

However, the uses of the receipt are not limited to paying the PAYG, and if the PAYG liability is less than the value of the incentive receivable, then a cash contribution is received by the entity.

Once an entity is deemed to qualify for the initial cashboost, and the value of the initial cashboost is determined, the entity automatically qualifies for the additional cashflow boost.

To illustrate the accounting, consider the scenario where the value of the initial cashflow boost was determined to be $50,000, received before 30 June 2020.

This means the additional cashflow boost will also be $50,000, payable in 2 instalments of $25,000. The total cash flow boost receivable by this entity is $100,000.


Cash Flow Boost: For-profit entities during COVID-19

Once entities have qualified for the initial cash flow boost, they have also qualified for the additional one. On this basis, an entity would be entitled to the entire $100,000 by 30 June 2020:

  • A receivable will be raised for the full amount receivable upon lodgement of the first BAS in March 2020,
  • Income will be recognised under AASB 120, either as a separate component of income or against the related expense.
  • Entities will therefore have to recognise the CashBoost amount in full as income within the year ended 30 June 2020. Any amount not yet received will be a receivable on 30 June 2020.

Cash Flow Boost: Not-for-profit entities during COVID-19

The same principles apply to not-for-profit entities, under the requirements of AASB 1058 Income of not-for-profit entities.

  • A receivable will be raised for the full amount receivable upon lodgement of the first BAS in March 2020,
  • Income will be recognised under AASB 1058, as a separate component of income.

How can RSM help?

If you require any COVID-19 assistance or additional advice on the above, please do not hesitate to contact Ralph Martin or your local RSM office.


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Federal Government’s third stimulus

THE JOBKEEPER PACKAGE

An analysis of COVID-19 measures announced 30 March 2020

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Federal Government’s second stimulus package

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An analysis of COVID-19 measures announced 22 March 2020

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Authors

Ralph Martin
National Technical Director - Perth
Ana

Ana Espinal-Rae
National Technical, Manager

E: [email protected]
T: +61 03 9286 8131