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The Australian Federal and various State Governments are providing a number of stimulus packages to help businesses survive the shutdown period as a result of COVID-19 and to stimulate growth as businesses re-open. Businesses need to consider how they can take advantage of these packages and how to reflect these benefits in their financial reports.

For more detailed guidance of the terms and eligibility requirements for the different stimulus packages, please refer to our page on the Federal Government Economic Response Package. This page focuses only on the financial reporting considerations of those stimulus packages.

Accounting for government assistance will differ significantly depending on the nature of the assistance and whether the organisation is for-profit or not-for-profit. Understanding its nature will be important for reporting purposes.

Actions for management to take now

  • Understand the nature of the assistance and whether it is a government grant, income tax adjustment or other transaction.
  • Determine the financial reporting implication for each form of government assistance.
  • Consider the need for overarching disclosures about the organisation’s use of government assistance and the impact of government’s measures in its assessment of going concern.

How should for-profit organisations account for government assistance received as part of the Boosting cashflows for Employers program?

The Boosting cashflows for Employers program provides for Tax-free cash flow boosts of between $20,000 and $100,000 to eligible small and medium businesses (SMEs) based on PAYG withheld on employees’ salary and wages for the period from March to September 2020. The purpose of the program is to provide temporary cash flow support to small and medium businesses and not-for-profit organisations that employ staff that have been affected by the economic downturn associated with COVID-19.

Amounts received under the program by for-profit organisations are accounted for as government grants. In our view, once there is reasonable assurance that the organisation will comply with the conditions attaching to it, and that the grant will be received, the amounts are recognised and presented as government grant income immediately as it is for the purpose of providing immediate financial support to the entity.

How should for-profit organisations account for payroll tax waivers and refunds received from State government?

Various State revenue authorities have introduced payroll tax-related measures targeted at affected industries, small to medium enterprises, which include wavers for specific organisations.

For for-profit organisations, waivers of expenses, in our view, are accounted for as government grants because in substance there is a transfer of resources, although it is in the form of a waiver. Once there is reasonable assurance that the organisation will qualify for the waiver and the grant will be received, waivers of payroll taxes are recognised as income in the same period as the related tax / charge is recognised. Refunds for taxes and charges paid in previous periods are recognised immediately while waivers for future periods are recognised as grant income in the period in which the associated expense occurs.

For presentation purposes, the waiver income can be recognised separately or as a reduction in the payroll tax expense, with the approach applied required to be disclosed. The accounting policy adopted for presenting the payroll tax waiver/refund should be applied consistently to similar transactions and disclosed in the financial statements.

How should a 'for-profit' entity recognise JobKeeper payments received from the ATO and related amounts paid to employees?

JobKeeper payments receivable from the ATO are recognised by a ‘for profit’ entity as a government grant as the payment is a wage subsidy provided by the government with the objective of keeping the organisation connected with the economy and their workers during the COVID-19 crisis period. The related amounts paid to employees are recognised as employee benefit expenses.

The JobKeeper payment is recognised only when there is reasonable assurance that the organisation will comply with the conditions and that the grant will be received. The income is recognised in profit and loss matching the employee salary expense which is what the grant is intended to compensate.

As a government grant, there is an accounting policy choice whereby the organisation presents the grant income gross from the expense or net of the related expense. The accounting policy adopted for government grants (including the methods of presentation adopted) should be applied consistently to similar transactions and disclosed in the financial statements.

Should the employee costs to which the grant relates be capitalised, then the grant is either recognised as deferred income or a reduction in the capitalised asset.

How should a 'not-for-profit' (NFP) organisation recognise JobKeeper payments received from the ATO and related amounts paid to employees?

A not-for-profit organisation should account for the JobKeeper payments receivable from the ATO as income from the government as they are payments to enable the NFP to further its objectives by continuing to employ its existing staff during the COVID-19 crisis. The related amounts paid to employees are recognised as employee benefit expenses.

A condition to claim the fortnightly JobKeeper payment for an eligible employees include that a payment of $1,500 per fortnight (before tax) is made to each eligible employee. In our view the recognition of income for the fortnight should occur once the employees meet the criteria to be eligible employees for that fortnightly period, rather than at the point cash is paid to employees. Employees are considered eligible if they are an employee of a qualifying employer at any time during the fortnight.

Under accounting for income by NFPs, the JobKeeper payment is recognised as income separate from the employee expense and there is no accounting policy choice to net the JobKeeper payment with the related employee expense.

What are the accounting consequences of the instant asset write-off and accelerated depreciation COVID-19 tax incentives granted by the Australian Federal Government?

 

Increase instant asset write offs
Description of incentive Who does it apply to?

Accounting implications

A 100% accelerated depreciation deduction for new eligible depreciating assets that are acquired from 7.30pm AEST on 6 October 2020 and first used or installed by 30 June 2022.

On 10 December 2020 the Treasury Laws Amendment (2020 Measures No.6) Bill 2020 was passed adding the below key amendments:

  • Adding the alternative test (b) for corporate tax entities that do not meet the $5 billion aggregated turnover test (a).
  • Corporate tax entities utilising the alternative test (b) cannot apply the temporary full expensing to intangible assets. For clarity, entities utilising the aggregated turnover test (a) can apply the temporary full expensing to intangible assets.
  • The choice whether or not to apply the immediate deduction in an income year on an asset by asset basis (irrespective of whether test (a) or (b) are used).

a) (Aggregated Turnover Test) Entities with aggregated annual turnover of less than $5 billion.

OR

b) (Alternative Test) Corporate tax entities with total statutory and ordinary income (excluding non-assessable non-exempt income) of less than $5 billion for either 2018/19 or 2019/20 income years and have invested in more than $100 million in tangible assets in the period 2016/2017 to 2018/2019 inclusive.

Decrease in current tax payable/expense for the immediate deduction

Increase in deferred tax liability where asset continues to be recognised on balance sheet for accounting purposes (and not subject to the initial recognition exemption in AASB 112)

For small and medium sized businesses, full expensing also applies to eligible second-hand assets purchased from 6 October 2020 to 30 June 2022.

Businesses with aggregated annual turnover of less than $50 million

Where none of the other stimulus measures are applicable:

Immediate deduction on purchases of eligible assets costing less than $150,000 from 12 March 2020 until 31 December 2020 that are first used or installed by 30 June 2021.

The asset threshold is applied on a per asset basis, which enables businesses to write off multiple assets.

Applies to new and second-hand assets.

Businesses with aggregated annual turnover of less than $500 million.

 

Accelerated depreciation measures
Description of incentive Who does it apply to?

Accounting implications

Small businesses will be able to deduct the balance of their simplified depreciation pool at the end of the income year during the period 6 October 2020 to 30 June 2022.

Businesses with aggregated annual turnover of less than $10 million

Decrease in current tax payable/expense for the amount of the accelerated deduction

Increase in deferred tax liability where asset continues to be recognised on balance sheet for accounting purposes (and not subject to the initial recognition exemption in AASB 112)

Where none of the other stimulus measures are applicable:

A 50% accelerated depreciation deduction in addition to existing depreciation deductions for new depreciable assets purchased after 12 March 2020 and first used or installed by 30 June 2021.

Businesses with aggregated annual turnover of less than $500 million

 

We recommend you consult with your local KPMG tax specialist/advisor to ensure you organization meets the complex eligibility requirements associated with these measures.

What are the accounting consequences of the COVID-19 tax loss carry-back concessions granted by the Australian Federal Government?

 

Carry-back tax losses
Description of incentive Who does it apply to?

Accounting implications

Corporate tax entities have the option to carry-back tax losses generated in the 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in the 2018-19 or later income years, effectively allowing tax previously paid to be refunded.

The carry-back rules will be implemented by way of a refundable tax offset that is generated in the year the loss is made. However, the offset for the 2019-20 income year can only be claimed on lodgement of the 2020-21 tax return effectively delaying, by a year, access to the benefit/refund of the carry-back of 2019-20 losses.

The tax refund available is limited to the carried back amount not exceeding the income tax liabilities in the eligible income years and will be effectively capped at the balance of a company's franking account to avoid generating a franking account deficit.

Businesses with aggregated turnover of less than $5 billion (in the relevant loss year)

Where an organisation incurs tax losses in 2019-20, 2020-21 and/or 2021-22 that it intends to carry-back to its 2018-19 or later income years:

  • A tax receivable is recognised for the amount of existing eligible tax losses intended to be offset against prior period incomes tax paid; and
  • The recoverability of existing deductible temporary differences (deferred tax assets) that are expected to be realised between the 2019-20 and 2021-22 income years may be supported by the ability to carry these back when they are realised as tax losses.

Where an organisation has unrecognised tax losses related to 2019-20 or unrecognised deductible temporary differences that are expected to reverse by the end of 2021-22, and it intends to apply the carry back measures to obtain refunds of prior taxes paid, the recognition of these deferred tax assets/tax receivables will:

  • Reduce tax expense where they relate to tax losses or items that have previously been recognised through profit or loss; or
  • Be recognised through equity in other circumstances

If the benefit of the 2019-20 tax loss was already recognised as a deferred tax asset before substantive enactment of the legislative changes, application of the carry back measures results in a reclassification between deferred tax assets and a tax receivable (no impact on profit or loss).

The accounting impacts of the tax loss carry-back measures can only be recognised from 9 October 2020 which is the date of substantive enactment of the related legislation. This is a non-adjusting subsequent event for organisations with financial year ends prior to this date.

We recommend you consult with your local KPMG tax specialist/advisor to ensure you organization meets the complex eligibility requirements associated with these measures.

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