Hi, I have received a non-refundable Covid support grant by Victorian Govt. for financial hardship. Can you please let me know how can I allocate this transaction as this is neither an income nor a loan. Thanks.
Government grant is income.
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Dont know about Aussie, but NZ the grant for self employed (7K) is income and is GST free, the wage subsidy grant is the same and the amount is gross so you take tax, kiwi saver, student, loan,court fines off the weekly amount of 585 for full time work. and it goes in expenses as wages etc.
If you have paid the emplyee in a lump sum (12 weeks) and they come back to work before then you dont pay them again you just top them up if you can. There are tax implications paying them lump sum instead of weekly.
Just thought that anybody in nz looking here might want to know
The Victorian Government Business Costs Assistance Program 2 is, as far as I can see, Non-Assessable, Non-Exempt (NANE) now and is neither subject to GST nor included as income for taxation purposes.
https://www.ato.gov.au/General/COVID-19/Government-grants-and-payments-during-COVID-19/#COVID19DisasterPaymentsforpeopleaffected
Where would be the appropriate place to record these payments so it does not appear in profit and loss?
Subsidies and grants are income to the organization as @lubos said. Specifically they should be classified as “Other income” so they aren’t confused with revenues.
In cases where the grant or subsidy is conditional, and where such condition will not be met in the same period you received the money; the grant or subsidy should be kept under liabilities until the conditions are met. Only then would the grant or subsidy be transferred to income.
The resource you have linked only instructs the beneficiaries not to include these subsidies in tax returns. To achieve that, you record it as income and either apply no tax code to it or apply an “out-of-scope” tax code just for namesake.
Remember that financial accounting and tax accounting are not necessarily the same thing. Different treatment of income and expenses is common. For example, in some jurisdictions, business meals are not deductible for tax purposes at their full cost. But you still record their full cost if they are legitimate expenses of the business. The same is true of non-taxable government assistance. In either case, your financial statements will reflect full amounts received or spent, but tax filings will report only the taxable or deductible portions.
The payment is classed as NANE and is under Eligible grants and support programs > Business Costs Assistance Program Round Two
It actually states in their example "As Fresh Brew received an eligible grant payment in the 2020–21 financial year and they are a small business, they do not need to include the grant in their business income. "
So how should it be entered into manager?
I already answered your question, @VACUUMDOG. You record the income. But when filing your tax return, you do not include it as taxable income. Or you add an offsetting deduction. Exact treatment will depend on your local tax regulations. This happens every day, all over the world.
No, you haven’t answered my question. I know it has to be recorded, doh, but HOW, in Manager?
It obviously needs to appear on the balance sheet, but not on the P&L nor the BAS statement.
It will appear on the P&L. You just won’t report it on your tax filing. Or if you do, you will report some form of offset, depending on local regulations. I don’t know how many ways I can say that.
As long as you and your accountant remember how to treat it in your annual tax return, it doesn’t matter.
A clean way Imo is
- create a total in your COA at the bottom of the profit & loss side labelled “Net taxable income”
- Below that create an income account “Tax free income” and a expense account “Not tax deductible”
- Put your Job keeper in the “Tax free income” account
You can deduct that from your expenses. Say you have received wage support so you can credit your payroll expense.
It’s not telling you to bypass record, they’re just implying that you don’t need any special accounting treatment.
Note they used “Do not need” as opposed to “Must not,” so it’s just a suggestion, that’s all.
It is not a wage support, it is a Grant to supposedly help businesses that are unable to trade due to lockdowns.
However, whether it is correct or not, I found a way to do what I wanted, that is it appears under Equity on the BS, does not appear in P&L and does not appear in BAS.
Set up the Account in CoA
Entered it as a Receipt
If no tax code is entered it does not appear on BAS.
So far it works for me, just hope it is correct, the Summary page looks right.
For purposes of accounting they’re the same thing. Also the wage support was just an example.
Also, classifying it in a balance sheet account is wrong, it has to be a profit and loss account. But if you really insist then just suit yourself. 
Actually they are different. Wage support is taxable income, the assistance grant is not.
But anyway, as I said, it works for me and all reports look correct without having to remember what was where when it comes to submitting reports and returns.
Mmmm, but your equity is incorrect this way. Also such grants are supposed to cover costs and expenses, how do you account for these if you do not register it as income? The answer provided was clear, you need to treat it as non-taxable income in P&L, Grant Income should be listed in P&L as income but you exclude it from taxation, you can then trace expenses and costs against such grant.
My accountant has advised me to record it as per posting from @Patch above. Hope this helps.
An update as to how it is to be recorded according to QB and ATO rep.
Which is what I did above. 