The Australian Financial Complaints Authority (AFCA) has defined how JobKeeper payments should be treated in relation to calculation of policy benefits after a complainant insisted the money from the Federal Government to support covid-affected businesses is an expense, not income.

AFCA agrees amounts paid to employees are “genuine” business expenses, even when those money are received by businesses from the government such as JobKeeper.

But it does not change the fact that the funds are also genuine business income and should therefore be treated as such.

“The fact that the JobKeeper money was in turn passed on to employees does not change that,” AFCA says.

“Other business income – for example income from sales – will often be used in turn to pay employees, but the whole amount of income is still treated as income.”

AFCA says payments to employees should be treated as business expenses, whether funded with JobKeeper payments or otherwise; and JobKeeper payments should be treated as business income.

The dispute arose after the complainant’s insurer, AIA, realised it had overpaid benefits because of the way JobKeeper was accounted for in the business records provided by the complainant.

The complainant has been receiving income protection benefits for many years and his business received JobKeeper payments after the pandemic broke out.

He says his accountant advised that JobKeeper payments should not be treated as business income and submitted records to the insurer showing JobKeeper as an expense, but not as income. AIA therefore calculated and paid benefits on that basis.

But AFCA says in its ruling of the dispute that accounting only for the expenses, and not for the income, distorts the true financial performance of the business, making it appear worse than it in fact was.

“JobKeeper payments should be taken into account in both business income and expenses. Benefits should be recalculated, and any overpayment recovered, in accordance with this determination,” the AFCA ruling says.

Click here for more from the ruling.