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COVID-19 and KeyLink #6 Accounting

I have had some questions from my customers about the accounting treatment of the COVID-19 Wages Subsidy (and for that matter any further subsidies).

Many of you know that I consider myself an accounting cripple, so I asked my accountant, Sarah of Dcipher Accounts to provide some advice that I could pass on to you.

The IRD have advised that the Wage Subsidy is:

  • Not subject to GST
  • Not taxable income to the employing company
  • Not a tax deductible expense when paid by the company to employees
  • Taxable income for the employee

All of this means you need to be careful when you record the transactions in your accounting system.

Here is a simple approach you could take.

Setup 3 new accounts in your accounting system:

  1. Liability account – COVID-19 Wage Subsidy
  2. Revenue account – COVID-19 Wage Subsidy. This account will be non-taxable and zero GST
  3. Expense account – COVID-19 Wage Subsidy. This account will be non-deductible

When the Wages Subsidy comes in to your bank account:

  1. Record the payment in your Liability account (A)
  2. Consider opening a new bank account and transferring the funds there so that you don’t accidentally use it for something else.

Each pay period when you pay your employees:

  1. Debit the liability account (A) and credit the revenue account (B) for the proportion of the Wage Subsidy used.
    1/12 for weekly
    2/12 for fortnightly
    12/52 for monthly
    6/52 for bi-monthly
    Remember that there will be awkward amounts for monthly and bi-monthly payrolls.
  2. Debit the expense account (C) and credit your wage expense account(s) for the proportion of the Wage Subsidy used.
  3. If you set up a separate Wage Subsidy bank account, transfer the amount in 1 from your Wage Subsidy bank account to your working bank account.

I hope this guide will help you either do the accounting for the Wage Subsidy yourself, or understand how your accountant handled it.

Keep Safe
Be Kind

Topics: Operations

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