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Federal financial support to NFPs for COVID-19 and accounting considerations

7 May 2020 at 7:59 am
Nick Walker
What do you need to know about the government’s JobKeeper Payment and Cash Flow Boost for Employers? Nick Walker from HLB Mann Judd Melbourne breaks it down.

Nick Walker | 7 May 2020 at 7:59 am


Federal financial support to NFPs for COVID-19 and accounting considerations
7 May 2020 at 7:59 am

What do you need to know about the government’s JobKeeper Payment and Cash Flow Boost for Employers? Nick Walker from HLB Mann Judd Melbourne breaks it down.

Like the private sector, not-for-profit entities have been rightly focused on the challenges of maintaining operations and retaining staff. It is appropriate then that some of the financial support measures being offered by the federal government to reduce the financial impacts of COVID-19 on businesses are also available to the not-for-profit sector. 

The key measures implemented by the federal government are the JobKeeper Payment and the Cash Flow Boost for Employers. Many organisations have either already applied or are in the process of applying for this financial support.

JobKeeper Payment

What is it? The JobKeeper payment is a payment of $1,500 per fortnight for each employee of the organisation over a maximum six-month period. The payment is made to employers in arrears after employees have been paid.
Which employers are eligible?
  • Not-for-profit entities, including international aid organisations endorsed under the
    Overseas Aid Gift Deductibility Scheme or for developed country relief, must have
    pursued their objectives principally in Australia on 1 March 2020.
  • At least one person must have been employed at 1 March 2020.
  • Employees must have been employed for the fortnight claimed.
  • For charities registered with the ACNC, other than schools and universities, there must have been a reduction in revenue of 15 per cent (private business with a turnover of less than $1 billion must have had a decrease of 30 per cent).
  • Note that the above turnover test may be completed either inclusive or exclusive of government revenue at the discretion of the eligible applicant.
Which employees are eligible?
  • Employees must be employed by the organisation, including those stood down or rehired:
    • on either a full-time or part-time basis on 1 March 2020
    • as long-term casual employees (employed on a regular and systematic basis for at least 12 months) as at 1 March 2020 and not permanent employees of any other employer.
  • They must be at least 16 years of age on 1 March 2020.
  • They must be Australian residents as at 1 March 2020 within the meaning of the Social Security Act 1991.
  • Employees must not be in receipt of any of these payments during the JobKeeper fortnight:
    • government parental leave or Dad and partner pay; or
    • a payment in accordance with Australian worker compensation law for an individual’s total incapacity for work.
  • Employees must have agreed to be nominated by the organisation.
How do organisations apply?
  • Organisations can apply by logging onto the Business Portal using their myGovID.
  • Organisations have up until 31 May 2020 to apply.
How is it accounted for in statutory financial statements? The JobKeeper Payment will be paid to the employer in arrears for salaries and wages paid to employees. 

The following is worth noting:

  • For those employees that would have ordinarily received more than $1,500 before tax a fortnight, they will continue to receive their usual amount.
  • For those employees that would have ordinarily received a salary of less than $1,500 before tax per fortnight, they will now receive $1,500 before tax per fortnight. These employees effectively receive an increase during the period.

There is presently some debate as to how the payment should be accounted for under AASB 1058 Income of Not-for-Profit Entities. Some of the arguments might be as follows:

  • that the payment received should be treated as revenue (a contribution) and the payment to the employee as salaries and wages expensed as usual;
  • that the employer is acting as an agent whereby the $1,500 paid to each employee is treated as an asset which is later offset against the subsequent JobKeeper Payment; or
  • the first treatment is applied except in instances when employees are paid more than their fortnightly salary or wage, the second treatment is then applied for the excess amount.

The AASB has indicated that it will provide some guidance on this topic to ensure consistency. As always, it will be important to keep detailed records.

Cash Flow Boost for Employers

What is it? The Cash Flow Boost to Employers is a payment to employers ranging from a minimum of $20,000 to a maximum of $100,000.

The Cash Flow Boost is effectively paid when entities lodge their Activity Statements in the form of a credit against the employee withholding tax paid.

Who is eligible? To be eligible:

  • employers must have a turnover under $50 million
  • an ABN must be held at 12 March 2020
  • the entity must have made payments to employees subject to withholding tax, even if no withholding tax was actually paid
  • the organisation must have lodged before 12 March 2020, at least one of the following:
    • 2018-19 tax return with an amount of assessable income (unlikely for not-for-profit entities); or
    • an Activity Statement for any tax period that started after 1 July 2018 and ended before 12 March 2020 (it may be acceptable for charities registered with the ACNC to lodge an Activity Statement after this date).
How do organisations apply? No application process is necessary.

Employers effectively apply on the lodgement of their Activity Statement.

How is it accounted for in statutory financial statements? The reference to a “Cash Flow Boost” may mislead some into thinking that they will receive cash. In fact, the boost is actually a credit against the Activity Statement. A cash payment will only be paid if the credit results in a refund receivable.

As with JobKeeper, there is some debate as to the correct accounting treatment. A couple of the possible options include the following:

  • The credit (regardless of whether a refund is received or not) is recognised as revenue (a contribution). Salaries and wages would therefore continue to be recognised as they were prior to the Cash Flow Boost being received, rather than the credit being offset against the expense.
  • The Cash Flow Boost Payment is offset against the tax paid (since this is a refund of tax withheld). In the financial report, this would effectively be an offset against salaries and wages.

Again, the IAASB will likely provide guidance in the future.

Other considerations

It’s worth noting that the respective statutes for the above measures were rapidly passed through the legislative process. This means they may be subject to amendment or re-interpretation as issues are identified and assessed. A recent example of this is the clarification that government revenue does not need to be considered as part of an entity’s turnover when applying for JobKeeper. On this basis, it is worth checking for updates regularly.

Nick Walker  |  @ProBonoNews

Nick Walker is partner of audit and assurance at HLB Mann Judd Melbourne.

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