BOOKKEEPING FOR COVID-19 CREDITS, DEFERRALS, REFUNDS AND JOBKEEPER
A simple guide to bookkeeping principles for the different aspects of the economic stimulus. We understand there can be different ways of entering transactions in your accounting software to achieve the same result in the general ledger.
We offer some thoughts on the bookkeeping for the various credits, deferrals, refunds and JobKeeper payment.
We encourage you our members to use the AAT Facebook page to discuss the pros and cons of different systems and share your thoughts on the best ways to account for these payments.
PAYGW Credit (or Cash Flow Bonus)
Use a journal entry at end of period or an ATO bill dated the first of the following period. Either way use a liability account to track the ATO Integrated Client Account running balance.
- Use the d1g1t.business online calculator to assess the amount but remember the ATO has the final word!
- Enter the full amount of the PAYGW as it should be reported at W2 and finalise your journal or bill.
- Create an ‘other income’ account called PAYGW Credit or COVID-19 Cash Flow Bonus or similar. This GL account is BAS excluded.
- Receive the ATO PAYGW credit into the ATO ICA liability account, allocated to the ‘other income’ account above.
- If the payment results in the ICA being in credit and a refund is due, receive the funds into the bank account allocated to the ATO ICA.
Payroll Tax Refund
Payroll tax is entered against an expense account. We advise leaving the full amounts already paid against this account so that businesses can use the figures for future planning and forecasting.
We are unsure yet whether the payroll tax refunds will be treated as a rebate and is assessable income for the business, or if it will be treated as a reduction in liability.
- Create a new expense account called Payroll Tax Refund or similar and enter as a negative against this GL account. This way business owners can see the full amount and the credit separately.
- For future months, even though no payroll tax is payable, enter the amount as if it would be due then apply a credit against the payroll tax refund account.
- Some states are offering deferral of payroll tax payments. In this case, create a liability account called Payroll Tax Deferred or similar, and enter the monthly amount against this liability account to track amounts owed to the State Revenue Office. When payment is made, journal the amount from the liability account to the expense account to show the expense correctly in the P&L, or simply use a bill as usual.
PAYG Instalment Variations and Refunds
Instalments can be varied to a lower amount or to nil, (without incurring the usual penalties for incorrectly varied instalments), however it’s important to remember if a business makes any profit, or if sole traders earn above the taxable threshold, income tax will be payable. There will of course be an option to enter into a low interest deferred ATO payment plan for income tax debt if needed.
- Check with the tax agent before varying an activity statement.
- In many cases, the best advice will be to leave instalments already paid with the ATO and to vary the March and/or June quarter.
- For those who apply for and receive a refund of PAYGI, the activity statement entry will show nil if it has been adjusted to nil, and if a refund for prior periods has been claimed, the amount will be entered in the journal or bill as a credit to the PAYGI account instead of a debit.
- Some bookkeepers prefer to use a different GL account for each financial year to track instalments and final amount of income tax payable. This may make it easier to track PAYGI refunds received for FY2020, in case all or some of this amount becomes due at a later date.
Activity Statement Payment Deferral
The ATO is allowing deferral of activity statements by up to six months. The usual rules apply – if a business cannot make payment by the due date, either the business owner or a registered agent must apply for a payment plan. However, the COVID-19 economic response allows for a six-month deferral of payments without incurring interest or penalties.
- For those who use a GL account for the ATO Integrated Client Account to track payments made, it will be easy to see the liability for each activity statement and any payments made to the ATO, or the running balance if no payments are made.
- For those who use a bill to the ATO, simply leave the bill unpaid or apply part payments made.
- For payments that have been deferred until after 30 June, some tax agents have already advised they want to see the deferred amount in a new GL liability account called ATO Deferred Payments or similar. If this is the case, you will need to journal any unpaid amounts to this account at 30 June. This way the amount of current GST and other BAS liabilities is shown in the usual GL accounts, while unpaid amounts that have been deferred for later payment will show as a separate liability on the balance sheet. If a deferred liability account is not required, the outstanding balance will simply sit in the ATO ICA.
JobKeeper Payment for Employees
JobKeeper needs to be tracked correctly in your payroll software and reported on the payment summary or Single Touch Payroll (STP) income statement.
- The ATO will reimburse participating employers for eligible employees monthly in arrears.
- Create a wage category called JobKeeper if your software has not already automatically updated their payroll with the category.
- YES, it is taxable.
- NO superannuation guarantee is payable.
- NO leave accrual.
- Check with your software provider regarding their recommended setup for JobKeeper.
o Xero JobKeeper
o QBO (KeyPay) JobKeeper
o MYOB JobKeeper
o Reckon JobKeeper
- Top-up payments made to employees who earn below $1,500 per fortnight must be reported in STP as an ‘Other’ allowance type, with the exact description “JOBKEEPER TOPUP”.
- Notify the ATO of all eligible employees via STP after the last day of the last full fortnight in the calendar month. Your software will manage the reporting process in accordance with the ATO JobKeeper fortnightly calendar.
- See AAT JobKeeper Process webpage for details, links and ATO defined JobKeeper fortnight dates.
JobKeeper Payment for Sole Traders
- Tax will be payable on this income if the sole trader earns over the taxable threshold, so advise them to discuss with their tax agent whether they should put aside (if they can) a percentage for a future tax bill.
- Create an income account called JobKeeper Payment and receive ATO payments against this account to track separately from ordinary business income. This GL account is BAS excluded.