UPDATE 23/07/21: The following links will also be of assistance should you be looking for more up to date info…
- https://www.charteredaccountantsanz.com/news-and-analysis/news/summary-of-vic-covid-19-business-support goes over all of the Government support available for Victorian businesses and employees (there are similar pages for other states)
- https://www.ato.gov.au/General/COVID-19/Government-grants-and-payments-during-COVID-19/#Paymentstosupportbusiness details which state Government grants are not taxable.
As the heading suggests, we were rapt to see an announcement by the Federal Government that some of the Victorian grants to assist businesses would be deemed non-taxable.
The grants that fall under the heading “Business Resilience Package” are tax-free, and are essentially the grants announced mid-September by the Victorian Government. The list of grants in this package can be found at https://www.business.vic.gov.au/support-for-your-business/grants-and-assistance/business-resilience-package.
The major grant in this package is Round 3 of the Business Support Fund. We note that rounds 1 and 2 are taxable.
Recording these Grants
It is vital that these grants are recorded in your accounting systems correctly or else you risk them being “lost” amongst your normal taxable income at year end. If you use accounting software (such as Xero, QuickBooks Online, MYOB, etc), then we suggest you should have the following accounts in your chart of accounts:
- Your usual sales account(s)
- A separate income account for JobKeeper: Call this JobKeeper Received
- A third income account for all previous grants: Call this Vic Govt Grants (Taxable)
- A forth income account for just grants received in the business resilience package: Call this Vic Govt Grants (Tax-Free)
In general, the more you can split and differentiate the different types of income you receive, the better.
Potential Issues for Companies
Tax-free income is great, but it poses difficulties in companies due to their unique nature.
Essentially, for an owner to get money out of a company, they needs to pay either a wage or dividend and the issue lies in both of these are taxable to the owner. There is no scope to forward tax-free income through a company, so essentially all tax-free income is converted to taxable when paid out.
Many businesses that receive the grant will be using that money to pay bills and not give owners a bonus – so it’s not an immediate issue, but one day when the business has recovered and owners wish to get that “tax-free” money out, they will be disappointed to learn that it’s tax-free status won’t carry forward to that wage or dividend.
It’s not a “problem” as such (free money, whether taxed or not is still free money), but is just a little quirk that people with companies need to be aware of.