Covid-19 has moved through the economy with the destruction of a hurricane. Both State and Federal Governments stepped in with tax offsets, grants and stimulus measures – but these payments have tax and GST implications.
Covid-19 Disaster Payments
Covid-19 payments are made to eligible businesses who are unable to earn an income due to State or Territory health orders stopping them trading under their normal circumstances.
The Covid-19 Disaster Payments have been classified as non-assessable, non-exempt (NANE) income. The payments are non-taxable and do not have to be included in your businesses tax return.
Payments applied for and received from Services Australia on or after 1 July 2021 will not need to be declared as assessable income in your 2021-22 tax return. Payments received by businesses due to the Greater Melbourne lockdowns in the 2020-21 income year who have yet to lodge their tax return will not need to include the payment as assessable income. If your business has already lodged their 2020-21 tax return and have included the payment as assessable income, tax returns should be amended as these payments are no longer taxable. You may be also entitled to a refund. An ITP Tax Agent can amend your tax return on your behalf.
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JobKeeper
JobKeeper payments are ordinary assessable income, and should be declared when the business who received the payment lodges their tax return. Normal deductible rules apply on the subsidised amounts the business pays its employees.
If your employees were paid wages to create assets, the normal tax deductibility rules apply for the cost of depreciating assets and capitals works, and the cost of CGT assets. These payments can be included in the tax cost of an asset.
JobKeeper in not subject to GST and can’t be claimed as GST credits in Business Activity Statements (BAS), however it needs to be reported if you are registered for PAYG instalments. Differences based on cash or accrual accounting methods should be reflected in BAS lodgements.
If you are a sole trader or employee who has received any JobKeeper payments in replacement for your normal wage or salary, you will need to include these amounts in your tax return as assessable income. If you are an employee, the amount should be classified as either salary or wages, or as an allowance. Sole traders should declare JobKeeper payments as business income in their tax returns. Tax agents will have access to this information.
Pandemic Leave Disaster Payments
If you have had to self-isolate or quarantine at home, or have cared for someone with Covid-19 and received support payments because you were unable to earn an income, you will need to declare the payments as assessable income. These payments need to be reported in your tax return in the year they are received. Services Australia will confirm the amount.
Child Care Transition Payment
In 2020, childcare payments were made to individuals to help with early childhood education, which included a Transition Payment and made available to approved early childhood education providers. The Transition Payments were made to workers instead of JobKeeper payments, and paid between 13 July 2020 to 27 September 2020. These payments were classified as a grant and childhood centres needed to meet selection criteria.
Transition payments are classified as assessable income and should be declared when the childhood centre lodges its tax return. Adjustments should be made if operating on a cash or accruals basis. There are no GST implications if funding is not deemed as a supply.
Payroll Tax
Business that have received increased thresholds, waivers and interest-free deferrals or payroll tax will have tax implications that are dependent if the business has no payroll tax payable, or a refund to be paid on payroll tax. There are no GST consequences on payroll relief.
Payments to Support Businesses
Some payments made to businesses are classified as NANE income, and include:
- Alpine Business Fund
- Alpine Support Program
- Business Costs Assistance Programs Round 2
- Business Support Fund 3
- Impacted Public Events Support Program
- Independent Cinema Support Program
- Licensed Hospitality Venue Fund
- Licensed Hospitality Venue Fund 2021
- Live Performance Support Program
- Melbourne City Recovery Fund (Small Business Reactivation Grants)
- Outdoor Eating and Entertainment Package
- Sole Trader Support Fund
- Sustainable Event Business Program
Businesses were required to meet selection criteria for these programs. NANE income does not need to be included in your businesses tax return.
Tax Treatment Of Government Payments To Business
Government payments used to provide assistance to continue operating should be included as assessable income for both one-off lump sum payments or received as a series of payments. Adjustments should be made if operating on a cash or accruals basis. There are no GST implications unless your business has provided something of value, which includes the supply of good, services or a binding legal obligation.
ITP Accounting Professionals have helped Australian individuals and small business with their tax affairs, bookkeeping and financial advice for 50 years. Our tax agents are well versed with the various government payments and tax consequences for your business. Phone 1800 367 487 and chat with a friendly professional today for help and advice.