Businesses & Jobkeeper: What Will be Assessable Income?
For many businesses, Jobkeeper has provided the financial support needed to navigate the turbulent world during Covid. As the Jobkeeper scheme comes to an end it is important to consider the assessability of the payments and how they may affect or impact your tax planning measures heading towards 30th June.
Under the Jobkeeper regime, there were 2 methods that a business could receive a payment:
Support for the payment of wages to eligible employees
As a Business owner and identified eligible business participant
In both circumstances, Jobkeeper is considered to be assessable income. How it is disclosed though depends on the type of payment.
Jobkeeper and Employees
The monthly payment of Jobkeeper relevant to eligible employees was a pre-determined amount that had a direct connection to a minimum wage payment to employees. In this instance both the amount received for Jobkeeper and the amount paid to employees will be included as income and deductions.
For most businesses, this will not cause a significant impact on their bottom line as they were receiving the payment due to a significant downturn in takings. The offsetting or reduction in deductible wages is more than offset by the reduction in the top line.
For other business though that may have experienced significant growth or material increase in turnover during the financial year as a result of economy boost measures of re-emergence of industries, it is important to consider what impact an increase in income and a reduction in deduction may arise. Where turnover and growth have increased substantially, the offsetting of wages in the earlier part of the year by the Jobkeeper payment, may increase the profit position in the later part of the year.
In this instance, it is recommended that a business consider their Tax position prior to 30th June 2021, to consider any measures they may be able to put into place to minimise their tax position.
Jobkeeper and Eligible Business Participants
Where a business has claimed the jobkeeper payment as an Eligible Business Participant, the payment will be assessable to the entity to which it has been claimed. For example, if the payment was claimed for a director of the company it will be assessable income to the Company. If the payment was paid for a partner in a partnership, it will be assessable income to the partnership not the individual.
In this instance, there was no requirement for the monies to be paid to a deductible recipient as the business is being assessed. Therefore it is imperative that a business consider the impact of the additional income to their taxable position. For most the downturn in revenue will be simply offset by the economic support and the deductions will remain the same or increased. This will then not create a material change in their taxable position.
However for those business that may have experienced significant increase in revenue following the payment period or ones who fell out of the scheme where they no longer meet the requirements, the could be a need to consider what impact the additional income could make to the bottom line.
Businesses that have positively grown following Covid should consider their taxable position prior to 30th June 2021 to determine any tax planning measured that can be utilised to minimise their liability.
A third element – What if a business owner was paid as an employee?
A final factor to consider is the material effect of payments being made under the jobkeeper regime to related individuals who are also employees of the entity. This is particular relevant for Directors who are paid employees of the business.
Where a director has received a Jobkeeper subsidy for their wage payments, there may have been an increase in the monies being paid to them to ensure they adhered to the minimum payment requirements. As such a director or employed business owner may already have substantial wage income paid to them.
This position may therefore limit the ability to pay bonuses and lump sum wage payments as we move towards 30th June 2021 to assist in reducing tax liabilities of the business entity. In this instance thought should be given to the position prior to 30th June of both the affected individual and business entity to consider other methods that may mitigate the income tax position rather than additional wage payments.
If you would like to review your Income Tax Position prior to 30th June 2021, please contact our office and discuss further with our experienced accountants your individual circumstances. We are here to help achieve the best outcome for your business.