Accounting for Federal Budget economic recovery stimulus measures – JobMaker Hiring Credit

The 6 October 2020 Federal Budget plots out the Government’s road to economic recovery and includes several new or amended stimulus measures including:

  • JobMaker Hiring Credits
  • Apprenticeship wage subsidy
  • Full write-off of capital assets
  • Loss carry-back for companies
  • Research and development tax incentives
  • Export market development grants (EMDG Scheme)

Please refer to BDO’s 2020 Federal Budget Report for more information on these measures.

Given that legislation giving effect to JobMaker Hiring Credits was passed on 11 November 2020, this month we look at the accounting impacts for entities receiving JobMaker Hiring Credits. The information contained in this article is based on information at 11 November 2020 contained in the Government’s Fact Sheet and Exposure Draft of legislation to support this scheme, as well as in the Explanatory material (comments due by 27 November 2020).

What is the JobMaker Hiring Credits?

The Government has committed $4 billion over the next few years in the form of JobMaker Hiring Credits to be paid to eligible employers for each new job created over the next 12 months (7 October 2020 to 6 October 2021) for eligible employees aged 16-35 years. The program is designed to encourage employers to hire young workers and move people from JobSeeker, Youth Allowance or Parenting Payment programs into stable employment. It is not available to the major banks and those businesses currently claiming JobKeeper.

How does it work?

Eligible employers will be paid the following amounts from government for each new job created:

  • $200 for employees aged 16-29, and
  • $100 for employees aged 30-35.

To be eligible for these payments, employees will be required to have worked, on average, at least 20 hours per week each quarter. They must also have received the JobSeeker Payment, Youth Allowance or Parenting Payment in at least one of the three months prior to their new employment.

The payments will be available for the first 12 months of a worker’s employment and will be capped at $10,400 for each additional position created (i.e. 52 weeks X $200 per week).  Because the scheme applies to new employees hired until 6 October 2021, employers could be receiving JobMaker credits up to 6 October 2022.

How to determine if new jobs have been created?

The government’s Fact Sheet on JobMaker Hiring Credits notes that in order to demonstrate that a new job has been created, there must be an:

  • Increase in employee headcount compared to the baseline amount on reference date (30 September 20201), and
  • Increase in the total payroll amount for the reporting period (quarter) as compared to the equivalent period (quarter) ending 30 September 2020 (baseline payroll amount)2.

Notes:

  1. This baseline amount increases during the second year of the program for the number of new jobs created in the first year of the program. This is to ensure that credits are received for only 12 months for each employee.
  2. The Exposure Draft prescribes more precisely how these two amounts are calculated.

Simple Example 1 – Employee headcount increase

Company A had five employees on their payroll on 30 September 2020.

As a result of government’s announcement of the JobMaker Hiring Credits, Company A employs two additional employees (aged 18) on 7 October 2020 who each work more than 20 hours per week. These new employees were previously claiming JobSeeker.
Company A therefore meets the criteria for having increased employee headcount because in total it now has seven employees as compared to five on 30 September 2020.

Simple Example 2 – Increase in payroll

Company A’s payroll for the three months ended 30 September 2020 was $100,000 and the baseline headcount was five employees.

The two additional employees each earned $6,000 for the period from 7 October 2020 to 6 January 2021. Total payroll therefore increased to $112,000 from $100,000 for the September 2020 quarter.

As there is an increase in payroll cost of $12,000 compared to the September 2020 quarter, as well as the total employee headcount, Company A is eligible to receive the JobMaker Hiring Credits of $200 per week for each new employee.

It should be noted that determining whether there has been an increase in employee headcount and payroll can be complicated. For further information and examples, please contact your BDO tax advisor or refer to the Exposure Draft of legislation to support this scheme, as well as in the Explanatory material. Comments on the Exposure Draft close on 27 November 2020.

When do employers receive these credits?

New jobs created from 7 October 2020 will be eligible for the program, however employers will be required to make claims for the JobMaker Hiring Credits from the Australian Tax Office (ATO), in arrears, from February 2021 as follows:

  • First quarter (for new jobs created from 7 October 2020 to 6 January 2021) will be claimed in February 2021,
  • Second quarter (for new jobs created from 7 January 2021 to 6 April 2021) will be claimed in April 2021,
  • Etc.

Employers will therefore be required to pay employees before they receive payment from the ATO. Employers will need to notify the Commissioner of Taxation of their intention to participate in the JobMaker scheme before the end of each quarter (JobMaker period) in order to be eligible for the scheme.

Is the $200 per week apportioned if the quarter does not include full weeks?

Yes. The $200 per week for each employee equates to $28.57 per day, which is used to work out the JobMaker Hiring Credit for each quarter.

In Simple Examples 1 and 2 above, Company A can claim $200 per week for each of the two additional employees for the period 7 October 2020 to 6 January 2021. During this period, the two employees worked for 92 days (whereas 13 weeks X 7 days = 91 days).

Company A is therefore due the following JobMaker Hiring Credits:

$200 per week/7 days = $28.57 per day X 2 employees X 92 days = $5,257

Company A’s second quarter claim (from 7 January 2021 until 6 April 2021) equates to 90 days which is less than 13 full weeks. As such, the claim received will be also be apportioned as illustrated above.

Is there a limit on the JobMaker Hiring Credit?

Yes. If the JobMaker Hiring Credit works out to be greater than the increase in the September 2020 quarterly payroll amount, the refund will be limited to the amount of the increased payroll.

In Simple Example 2 above, the increased payroll was $12,000 for the first quarter and the JobMaker Hiring Credit was calculated as $5,257, so the whole $5,257 would be received.

However, had the increase in payroll only been $4,000 for the quarter, the JobMaker Hiring Credit would be limited to $4,000, even though the calculated amount is $5,257.

Accounting for JobMaker hiring credits by FOR-PROFIT ENTITIES

JobMaker Hiring Credits are accounted for in a similar manner to JobKeeper payments (refer May 2020 Accounting News).

For-profit entities will account for JobMaker Hiring Credits as government grants under AASB 120 Accounting for Government Grants and Disclosure of Government Assistance because:

  1. It transfers resources to the entity in the form of a cash rebate
  2. In order to receive the rebate, the entity must comply with certain conditions, including that it is an eligible employer creating jobs for eligible employees working on average 20 hours per week for each quarter (claim period), and
  3. The conditions in 2. above relate directly to the operating activities of the entity, i.e. the employees must be employed in the entity’s business for each quarter.

Features of a government grant

Income for the JobMaker government grant is only recognised when there is reasonable assurance that the entity will comply with the conditions relating to the grant, and that the grant will be received (AASB 120, paragraph 7).

Government grants, including non-monetary grants at fair value, shall not be recognised until there is reasonable assurance that: 

(a) the entity will comply with the conditions attaching to them; and
(b) the grants will be received.

AASB 120, paragraph 7

If the employer is satisfied that they have ‘reasonable assurance’ (for example because Tax advisors have confirmed eligibility for the scheme, the salaries for the relevant quarter have been paid and the entity has notified the Commissioner for Taxation of its intention to participate in the scheme), the government grant is accrued in the same period that salary payments are made.

Using the fact pattern in Simple Example 2 above, if the first payroll period is for 25 days (7 October through to 31 October 2020), Company A could recognise a receivable for the grant on 31 October 2020 as follows:

Dr    Receivable for JobMaker Hiring Credits                    $1,429
Cr    Government grant income                                                   $1,429 

Calculated as $200 per week/7 days X 25 days in payroll period X 2 employees

It is important to note that at reporting date (e.g. 31 December 2020), Company A cannot accrue remaining JobMaker grant income for the rest of the 12-month period for each new employee. This is because there is only reasonable assurance of Company A receiving the grant income once the employee has worked more than 20 hours per week on average.

Presentation in the financial statements of JobMaker hiring credit income

Employers need to consider their existing accounting policies for presentation of government grant income in the financial statements because the presentation of JobMaker grant income should be consistent with that policy.

If the employer does not have an accounting policy because they receive no grant income, AASB 120, paragraph 29 provides a choice of presenting the receipt of the government grant income in the financial statements either on a ‘gross’ or ‘net’ basis.  Therefore, either of the following presentation formats are acceptable, although in our view, the ‘gross’ presentation format provides more useful and relevant information for users:

Gross basis 2020
Other income - Government grants 1,429
Salaries expense
$6,000 /92 days X 25 days X 2 employees
3,260
Net profit -

OR

Net basis 2020
Salaries expense ($3,260 – $1,429) 1,831
Net profit -

Grants related to income are presented as part of profit or loss, either separately or under a general heading such as ‘Other income’; alternatively, they are deducted in reporting the related expense.

AASB 120, paragraph 29

Accounting for JobMaker hiring credits by NOT-FOR-PROFIT ENTITIES (NFPS)

AASB 120 does not apply to NFPs. JobMaker government grants are therefore accounted for under the not-for-profit Accounting Standard AASB 1058 Income of Not-for-Profit Entities. As the JobMaker scheme does not contain sufficiently specific performance obligations, AASB 15 Revenue from Contracts with Customers does not apply, and income would be recognised in profit or loss (AASB 1058, paragraph 10). The continued employment of additional staff is an internal activity and does not represent the transfer of goods or services to a customer, i.e. no sufficiently specific performance obligations.

When should JobMaker grant income be recognised?

While AASB 120, paragraph 7 requires ‘reasonable assurance’ in order for the grant income to be recognised as a receivable, AASB 1058 does not specify when the receivable would be recognised. AASB 1058, paragraph 8 merely cross-references to various Accounting Standards to deal with the ‘asset’ side of the transaction, including timing of recognition.

The ‘receivable’ for JobMaker does not meet the definition of a financial instrument in AASB 132 Financial Instruments: Presentation, paragraph AG12 because it arises from statute rather than a contract. However, AASB 9 Financial Instruments, paragraph Aus2.1.1 states that NFPs would nevertheless apply the recognition and measurement requirements of AASB 9 to non-contractual receivables arising from statutory requirements as if those receivables are financial instruments.

Notwithstanding paragraph 2.1, in respect of not-for-profit entities, the initial recognition and measurement requirements of this Standard apply to non-contractual receivables arising from statutory requirements as if those receivables are financial instruments.

AASB 9, Aus2.1.1

AASB 9, Appendix C (applying to NFPs) further notes that:

  • The nature of statutory receivables is in substance similar to a contractual receivable because the statutory requirements also provide an entity with the right to receive cash or another financial asset (Paragraph C4), and
  • An entity recognises and measures a statutory receivable as if it were a financial asset when statutory requirements establish a right for the entity to receive cash or another financial asset.  Such a right arises on the occurrence of a past event (paragraph C5).

In the case of JobMaker, NFPs have a right to receive the JobMaker payments on the occurrence of a past event, being that their eligibility for the scheme has been confirmed and the relevant employee salaries have been paid. That is, NFPs do not need to wait for JobMaker payments to be received in order to recognise the grant income. Accounting entries would be the same as shown for for-profit entities above.

Financial assets include contractual rights to receive cash or another financial asset from another entity. However, in a not-for-profit context, a receivable may arise from statutory requirements rather than through a contract (for example, rates, taxes and fines). The nature of such a receivable arising from statutory requirements is, in substance, similar to a contractual receivable, as the statutory requirements also provide an entity with a right to receive cash or another financial asset from another entity.

AASB 9, Appendix C4

Accordingly, an entity recognises and measures a statutory receivable as if it were a financial asset when statutory requirements establish a right for the entity to receive cash or another financial asset.  Such a right arises on the occurrence of a past event.

AASB 9, Appendix C5

Again, it is important to note that at reporting date (e.g. 31 December 2020), Company A cannot accrue remaining JobMaker grant income for the rest of the 12-month period for each new employee. This is because the NFP only has a statutory right to be paid the grant income if the employee has worked more than 20 hours per week on average.

Presentation in the financial statements

AASB 1058 does not provide a choice to offset the government grant against the salary expense. The payment is therefore presented as Other Income.

This publication has been carefully prepared, but is general commentary only. This publication is not legal or financial advice and should not be relied upon as such. The information in this publication is subject to change at any time and therefore we give no assurance or warranty that the information is current when read. The publication cannot be relied upon to cover any specific situation and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances.

BDO Australia Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not give any warranty as to the accuracy, reliability or completeness of information contained in this article nor do they accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it, except in so far as any liability under statute cannot be excluded. Read full Disclaimer.