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businessquery(Newbie)Newbie
10 Dec 2024

Hello!


we have recently purchased a successful business and the staff have a significant amount of annual and long service leave that we have agreed to carry the service across but also realise we have an ethical responsibility to ensure we have the cash to pay our employees out should they leave or something goes wrong with the business god forbid!


i know we have a provision line in our balance sheet for this but how does the government treat this for tax purposes?


is there a way to do this to safeguard our staff leave


thank you

4,401 views
3 replies
4,401 views
3 replies

Most helpful response

Most helpful reply

YellowPotato(Taxicorn)Taxicorn
10 Dec 2024

For accounting purposes, you can do these provision accounts. I think you are talking about the expense for providing the provision on the profit and loss statement, you 'undo' the expense in the 'reconciliation' section of the income tax return as it's not a deductible expense for tax purposes. When you do pay it, remember to add the expense in the 'reconciliation'.


Journal entries for accounting purpose for adding leave entitlements would be

Dr Leave entitlements (expense)

Cr Provision for leave entitements (liability)


Then when you pay it out.

Dr Provision for leave entitlements (liability)

Cr Cash at bank (asset)

All replies

Most helpful reply

YellowPotato(Taxicorn)Taxicorn
10 Dec 2024

For accounting purposes, you can do these provision accounts. I think you are talking about the expense for providing the provision on the profit and loss statement, you 'undo' the expense in the 'reconciliation' section of the income tax return as it's not a deductible expense for tax purposes. When you do pay it, remember to add the expense in the 'reconciliation'.


Journal entries for accounting purpose for adding leave entitlements would be

Dr Leave entitlements (expense)

Cr Provision for leave entitements (liability)


Then when you pay it out.

Dr Provision for leave entitlements (liability)

Cr Cash at bank (asset)

businessquery(Newbie)Newbie
10 Dec 2024

@YellowPotato thank you for your time and response!


the accounting process when it’s utilised I didn’t even think of so thank you! That’s another gem I’ve learnt on the way ;)

I was thinking how can we set aside this money in the case that tomorrow we need to pay out the long service and annual leave entitlement of one of the longer serving staff members- a liability of around 50k. I don’t want to draw a wage or start expanding before we have made sure this is available. Am I just being naive in business? Do employers safeguard like this with the physical money stashed away?


apologies it’s just my nature to do so lol


BrookeATO(Community Support)Community Support
7 Jan 2025

Hi @businessquery


We can't provide financial or business advice here on this forum. If you wish to gain insight on how to prepare financially for paying out annual or long service leave, we'd suggest reaching out to a Registered Tax Agent.


Good luck!

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