Understanding JobMaker Hiring Credits

Employer’s entitlement to receive JobMaker Hiring Credits

Employers are only entitled to receive JobMaker Hiring Credits if they meet all the conditions in sections 27 to 29 of the Final rules. In addition to various administrative-type criteria included in those sections, the following key conditions must be met in order to qualify:

• The eligible additional employees for the period must have worked a minimum of 20 hours per week on average
• There is a headcount increase, i.e. the total number of employees at the end of the last day of the claims period (quarter) exceeds the baseline headcount on reference date (30 September 2020¹), and
• There is a payroll increase for the claims period (quarter) as compared to the equivalent period (quarter) ending 6 October 2020 (baseline payroll amount)²

When do employers receive these credits?

Additional 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 will be claimed in February 2021
• Second quarter will be claimed in April 2021, and so forth

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 there a limit on the JobMaker Hiring Credit?

Yes.

If the JobMaker Hiring Credit works out to be greater than the payroll increase for the period, the refund will be limited to the amount of the increased payroll. In addition, there are further limits to the JobMaker claim if the ‘total counted days for the period’ used to calculate the claim (i.e. days worked by eligible additional employees) is greater than the maximum number of days allowed (i.e. total headcount increase X number of days in the claim period), then there is a complicated process which reduces the overall claim. This could occur when eligible employees leave before the end of the claim period. Please refer to section 34(2) the Final rules for more information.

Accounting for JobMaker hiring credits by FOR-PROFIT vs NOT-FOR-PROFIT ENTITIES

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 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.

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).

Because the three key conditions noted above relating to the employer’s entitlement can only be tested at the end of each JobMaker claim period, we expect that in many cases it would be unlikely for employers to have ‘reasonable assurance’ on a reporting date prior to the end of the claim period.

However, for entities reporting at 31 December 2020, employers may be able to assert that they have ‘reasonable assurance’ because the reporting date is so close to the end of the claim period. Judgement is required based on specific facts and circumstances.

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.

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:

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

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.

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, the relevant employee salaries have been paid, and the three key conditions noted above have been met at the end of the relevant JobMaker claim period. That is, NFPs will generally need to wait until the end of each JobMaker claims period to recognise the grant income.

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 Final Rules prescribes more precisely how these two amounts are calculated.

Article originally published by BDO Australia.