As part of its response to COVID-19, the Australian Government, in March 2020, announced various stimulus measures to ease the burden experienced by businesses as a result of the economic fallout from the coronavirus lockdown and social distancing measures.
The ‘Boosting Cash Flow for Employers’ measure will provide a tax-free ‘payment’ to eligible SMEs with aggregated annual turnover of less than $50 million if they employ people between 1 January 2020 and 30 June 2020. The scheme works as follows:
| Initial cash flow boost | Additional cash flow boost | |
| 100% of PAYG withheld for January to June 2020 (maximum $50,000, minimum of $10,000) | Equals the initial cash flow boost |
Once the amount of the initial cash flow boost has been determined (i.e. by 30 June 2020), the amount of the additional cash flow boost is set. If on a quarterly BAS cycle, the additional cash flow boost will be received over two instalments as part of the June 2020 Business Activity Statement (BAS) and the September 2020 BAS (i.e. 50% in each BAS). If on a monthly cycle, the additional cash flow boost will be received in four monthly instalments in the June, July, August and September 2020 BAS (i.e. 25% in each BAS).
The benefit of both types of cash flow boosts is derived by either the employer reducing its PAYG liability to the ATO in a particular BAS period for this ‘payment’, or if there is insufficient liability, the employer will receive a refund cash payment.
Not-for-profit entities are also eligible for these benefits.
The workings of the scheme are fairly complicated so are best illustrated using a simple example:
ABC Pty Limited employs ten staff members and is on a quarterly BAS cycle. For the period 1 January 2020 to 30 June 2020, the monthly PAYG amounts withheld are as follows:
| Month | Monthly PAYG withheld |
| January | $10,000 |
| February | $10,000 |
| March | $10,000 |
| April | $15,000 |
| May | $15,000 |
| June | $15,000 |
| Total | $75,000 |
Initial cash flow boost
In its March BAS, ABC Pty Limited reports a PAYG liability of $30,000. The initial cash flow boost will be $30,000. This ‘payment’ will be processed for the March BAS in April 2020.
As the maximum payment is $50,000, ABC Pty Limited can only receive an additional $20,000 in initial cash flow boost for the June 2020 quarter (i.e. $50,000 - $30,000), which is less than its PAYG withheld for the June 2020 quarter of $45,000.
Additional cash flow boost
The additional cash flow boost is equal to the initial cash flow boost of $50,000. As ABC Pty Limited is on a quarterly cycle, this will be received in two instalments of $25,000 each in the June 2020 BAS and the September 2020 BAS.
Accounting treatment
As both the ‘initial cash flow boost’ and ‘additional cash flow boost’ are effectively a waiver of the whole, or part, of the PAYG liability, the amount of the ‘payment’ is recognised as a reduction in the PAYG liability and grant income under IAS 20 Accounting for Government Grants and Disclosure of Government Assistance because these cash flow boosts are being provided by the Government in return for compliance with conditions relating to the operating activities of the entity. That is, the receipt of the cash flow boosts is conditional upon the employer incurring salary expense, and therefore a withholding tax liability for PAYG. Also, IAS 20, paragraph 10 notes that forgivable loans from government are treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan.
The government grant income, and reduction in PAYG liability, is technically only tallied up and processed when claimed in the relevant period BAS. However, given that the condition for receiving the grant is that PAYG has been withheld, the reduction in PAYG liability and corresponding grant income should be recognised when salaries are paid.
Journal entries
Journal entries in the Example above would be as follows:
31 March 2020
Dr PAYG liability $30,000
Cr Government grant income $30,000
Recognition of first instalment of initial cash flow boost in March 2020 when government announced stimulus measure – to be deducted in March BAS
30 April 2020
Dr PAYG liability $15,000
Cr Government grant income $15,000
Recognition of first part of second instalment of initial cash flow boost – to be deducted in June BAS
31 May 2020
Dr PAYG liability $5,000
Cr Government grant income $5,000
Recognition of second part of second instalment of initial cash flow boost – to be deducted in June BAS (Maximum initial cash flow boost is $50,000 - $45,000 already claimed)
31 May 2020
Dr PAYG liability $50,000
Cr Government grant income $50,000
Recognition of the additional cash flow boost (to be claimed in the June 2020 and September 2020 quarterly BAS)
No further journal entries are recognised in June 2020 because the maximum threshold for the initial cash flow boost of $50,000 was reached during May 2020.