How COVID Concessions Affect Your Tax Position
As most real estate businesses would know, a number of stimulus measures have been provided by the Federal and Queensland Governments to help them stay afloat during this trying pandemic. As we are now in a new financial year, it’s important to understand how the financial assistance is treated for tax purposes.
Cash Flow Boost
It’s important to understand that the Cash Flow Boost comes in the form of a PAYG Withholding tax credit, rather than a direct cash payment.
From a GST perspective, the Cash Flow Boost isn’t paid by the Federal Government in return for any taxable supply made by a recipient business. Therefore, you aren’t liable to GST upon receipt of the PAYG Withholding credit.
The Cash Flow Boost is also not taxable for income tax purposes while the gross wages you incur associated with the Cash Flow Boost PAYG Withholding tax credits remain tax-deductible. Therefore, when the cash sheltered by the Cash Flow Boost is eventually distributed by a recipient company to its shareholders, it would be unfranked income.
Similar to the GST treatment of the Cash Flow Boost, if you receive a JobKeeper Payment, you are not liable to GST on the amount.
However, unlike the income tax treatment of the Cash Flow Boost, the JobKeeper Payment you receive is assessable income in your hands. Given that the JobKeeper Payment effectively covers the corresponding wages you pay your employees, this treatment makes logical sense. Effectively, you would only get a net deduction on any wages paid to the extent that those wages exceed the JobKeeper Payment. This is because the excess is the net amount you actually incur after the JobKeeper Payment is taken into account.
Payroll tax refund, holiday, and deferral
If you’ve received a payroll tax refund from the Queensland Government for the months of November 2019 and December 2019 or January 2020 and February 2020, those refunds are permanent savings on your payroll tax liability. Accordingly, you will not be able to claim a tax deduction on the amount refunded.
The same applies if you’ve been granted a payroll tax holiday for the months of January 2020, February 2020, and March 2020.
Further, if you are entitled to payroll tax deferrals until 14 January 2021, the amounts deferred would remain tax-deductible as soon as they were incurred.
For instance, if you have a payroll tax liability for the month of March 2020 and the liability was deferred to 14 January 2021, the liability would still be tax-deductible in the year ending 30 June 2020.
For completeness, none of the payroll tax refund, holiday, and deferred amounts attract GST.Further, when you calculate your payroll tax liability, you can exclude any wages you incur that are already covered by the JobKeeper Payment.
For example, if you pay wages of $2,000 to an employee but you receive $1,500 worth of JobKeeper Payment for the employee, you will only need to include the actual wages you incur after the JobKeeper payment ($2,000 – $1,500 = $500) to calculate your payroll tax liability.
If you are a commercial landlord, you may have been eligible for one or more of the following land tax COVID-19 concessions provided by the Queensland Government:
- Rebate to reduce your land tax liability by 25% for eligible properties;
- Waiver of the 2% land tax foreign surcharge for foreign landowners; and/or
- Deferral of land tax liability for the year ending 30 June 2021 for 3 months.
Similar to the treatment of payroll tax, any land tax that is covered by the rebate and waiver is no longer tax-deductible.
If you are entitled to a land tax deferral for the year ending 30 June 2021, your land tax liability for the year arose at midnight on 30 June 2020 “immediately preceding the financial year” under the law. Therefore, the land tax liability is tax deductible in the year ending 30 June 2020, even though you are not required to pay the land tax sometime after that date.
For completeness, none of the land tax concessions attract GST.
COVID-19 Job Support Loan
If you’ve received any proceeds from the Queensland Government’s COVID-19 Job Support Loan, the receipt of the loan itself does not give rise to any income tax consequences.
However, provided that you use the loan proceeds for income producing or business purposes, the interest on the loan will be tax deductible.
You will not be liable to GST in respect of the loan received as the granting of the debt interest to the Queensland Government in exchange for the loan proceeds constitutes a ‘financial supply’, which is input taxed.
Rent waiver and deferral on commercial properties
While it’s not a direct concession provided by the Queensland Government, if you’ve received a rent waiver or deferral from your landlord under the COVID-19 Emergency Response Act 2020 that was enacted in response to the mandatory Code of conduct for commercial leasing, the tax treatment is similar to that applicable to payroll tax and land tax above.
The rent waived will no longer be tax deductible while the rent deferred will remain tax deductible when it’s incurred, which is generally when you became contractually liable to pay the rent under the lease. However, every lease is different, so it’s important to check the provisions in your specific lease to determine the correct tax treatment.
The above has covered most if not all of the COVID-19 measures available if you are in Queensland. However, if you have operations outside Queensland, you will need to understand how the concessions provided by other states and territories would affect your tax position.
Important disclaimer: No person should rely on the contents of this article without first obtaining advice from a qualified professional person. This article is provided on the terms and understanding that the author and BDO Services Pty Ltd are not responsible for the results of any actions taken on the basis of information in this article, nor for any error in or omission from this article. The article is provided for general information only and the author and BDO Services Pty Ltd are not engaged to render professional advice or services through this article. The author and BDO Services Pty Ltd expressly disclaim all and any liability and responsibility to any person in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this article.