Tax implications of receiving COVID-19 financial support

THIS MONTH WE will turn our attention to Government grants, payments and stimulus programs that have delivered desperately needed financial support for individuals and businesses impacted upon by the COVID-19 lockdowns.

There has been such a complex array of support measures and reliefs that we have never experienced before and therefore have no prior experience or knowledge of how or whether these benefits are taxed.

JobKeeper (from March 30, 2020 to March 28, 2021)

JobKeeper payments are assessable as ordinary income to businesses that were eligible to receive the payments.

As the JobKeeper payments must be on-paid to all eligible employees, the payments, even if in excess of an employee’s normal wage will be a deductible expense to the employer.

In the hands of employees, the JobKeeper payments received will be assessable income and will appear as salary or wages, or an allowance or top up on the employee’s income statement or payment summary.

If you are a sole trader who has received JobKeeper payments the receipts will be reported as business income at the label “Assessable government industry payments” in your personal tax return at item P8 Label G or H.

If your business is a partnership, trust, or company, you need to report JobKeeper receipts in your business tax return at item 6 Label Q.

Cash Flow Boost (from March 12, 2020 to September 30, 2020)

Irrespective of whether your business operates as a sole trader, partnership, trust, or company, if your business received cash flow boost credits they are treated as non-assessable non-exempt income (NANE) and do not need to be included in your business tax return and neither is GST applicable.

Commonwealth COVID-19 Disaster Payments to individuals

This payment was announced on June 3, 2021 in response to the May/ June 2021 Victorian lockdown and was designed to provide weekly assistance to eligible individuals be they full time, part time, or casual workers who have lost hours of paid work due to state imposed health restrictions.

How much of the Disaster Payment an individual receives will depend upon factors such as the location of the applicable health order, the period the individual is claiming for and the hours of work they lost.

On August 9, 2021, the Government passed legislation retrospectively making these payments NANE income, tax free in the hands of the recipient.

TIP: If you received such payments in June 2021 and have already lodged your 2021 income tax return, make sure the ATO makes an appropriate adjustment to your tax return if you included this income as part of your assessable income.

Victoria COVID-19 Economic Support Measures (BCAP)

The Victorian Government’s Business Costs Assistance Program provides grants to small and medium business impacted by public health restrictions.

Top-up payments announced since July 28, 2021 are jointly funded by the Commonwealth and Victorian governments.

The first round of the Business Costs Assistance Program provided targeted support of $2,000 to businesses that were most likely to have incurred direct costs as a result of the Circuit Breaker action during February and March 2021, and is no longer available.

The Business Costs Assistance Program Round Two was launched in June 2021 with an expanded list of eligible sectors compared to the initial program, offering payments of $2,500.

In July 2021, the Business Costs Assistance Program Round 2 July Extension was launched to give businesses that that had not previously applied for the program, or had since become eligible, the opportunity to apply for an initial payment of $4,800.

Both the Business Costs Assistance Program Round 2 and the Business Costs Assistance Program Round 2 July Extension are now closed, but recipients are eligible for a series of subsequent automatic top-up payments.

Note: Businesses must be registered for GST and Business must operate in an eligible sector listed in the list of eligible ANZSIC classes in order to be eligible.

These payments are income tax free and GST free.

Victoria Small Business COVID Hardship Fund

On July 28 it was announced that a new fund would be set up to pay grants of $20,000 to small businesses that:

  • had an ABN and was registered for GST on and from July 28, 2021,
  • suffered a reduction in turnover of at least 70 per cent for a two-week period since May 27, 2021,
  • have been ineligible for other Victorian Government COVID-19 support packages launched on or after May 27, 2021,
  • have an annual Victorian payroll of up to $10 million in 2019–20.
  • It has been confirmed that this grant payment is tax free.

Business Cost Assistance Program Round 4 — Construction

This program will remain open until 11:59pm on November 9, 2021 or when funds are exhausted, whichever is sooner.

One-off grants of $2,000 are for eligible non-employing construction industry businesses, and one-off grants of $2,800, $5,600 or $8,400 are for eligible employing construction industry businesses, based on payroll size and to qualify:

  • Must have a worksite located in metropolitan Melbourne, the City of Greater Geelong, Mitchell Shire or Surf Coast Shire.
  • Must have incurred direct costs because of restrictions in place between September 21 and October 4, which have not been partially or fully recovered.
  • Must not have been able to operate remotely between September 21 and October 4.
  • Must not have received a Business Costs Assistance Program Round 2 or Business Costs Assistance Program Round 2 July Extension payment or Small Business COVID Hardship Fund payment
  • Must be in the list of 26 eligible ANZSIC classes.
  • Must be registered for GST on and from September 24 2021.

It is also assumed these grant payments will be declared to be tax free.

Please refer to the Business Victoria Grants and Programs for further details on all available Victorian Government COVID-19 business assistance, particularly if you are seeking commercial tenancy relief or are a sole trader or microbusiness working for yourself or have one to two employees with an annual turnover of less than $75,000 and are not eligible for Victorian Government COVID-19 business support grants.

The content of this article is not intended to be relied upon as professional advice and should not be used as such. If you have any questions you should consult a registered tax agent.

Brian Spurrell B A, B Com, Dip Ed, FCPA, CTA, Registered Tax Agent. Director, Personalised Taxation & Accounting Services Pty Ltd

PO Box 143 Warrandyte 3113 0412 011 946