COVID Cash in a Wind-Up: What Happens in 2025?

When an Australian company winds up, “COVID cash” (such as JobKeeper, Cash Flow Boost, COVID-19 disaster payments, business support grants, and other pandemic-era incentives) does not get “returned” simply because the company is closing; instead, it is dealt with under ordinary insolvency, taxation, and corporations law—meaning it either remains as company property available to meet creditor claims, or it becomes a recoverable debt if the payment was overpaid, incorrectly claimed, or later reviewed by the Australian Taxation Office (ATO) or the relevant grant authority.

What is meant by “COVID cash” for Australian tax purposes?

“COVID cash” is not one legal category; it describes multiple payment types with different tax and compliance outcomes. In practice, accountants should classify COVID cash by program and legal source, because this drives whether an amount is assessable, whether it creates a repayable debt, and how it is treated during liquidation.

Common examples include:

• JobKeeper payments (administered by the ATO)
• Cash Flow Boost (the Boosting Cash Flow for Employers measure, delivered through the activity statement system)
• State and territory business grants (various agencies; many were made assessable by specific legislation or treated as ordinary income depending on design)
• Disaster recovery / support payments (program-dependent)
• Payroll tax relief (state-based; usually reduction/waiver rather than “cash”)

ATO guidance on these measures was issued progressively during 2020–2022 and remains relevant for amendment, review, and debt recovery. For JobKeeper and Cash Flow Boost, the ATO remains the key compliance body.

What happens to validly received COVID cash when a company winds up?

Validly received COVID cash becomes part of the company’s assets (cash at bank or equivalent) and is dealt with under the same rules as any other company funds.

In practical terms, on a wind-up:

• It is company property: The liquidator (or directors, in a members’ voluntary liquidation or deregistration pathway) deals with it as part of the company’s pool of assets.
• It is applied to company debts first: The funds are used to pay costs of the winding up and creditor claims in the statutory order.
• It may indirectly fund employee entitlements: If the company is insolvent, employee claims have statutory priority to the extent the asset pool permits (subject to the Corporations Act priority rules).
• Any surplus can only be distributed after all liabilities are satisfied: If solvent, remaining funds can be distributed to shareholders after meeting tax and other obligations.

Key legal framework accountants must have in mind:

• Corporations Act 2001 (Cth): Governs liquidation priorities, distributions, and liquidator powers.
• Income Tax Assessment Act 1997 (Cth) and Income Tax Assessment Act 1936 (Cth): Determine assessability, deductions, amendments, and integrity outcomes.
• Taxation Administration Act 1953 (Cth): Administration, debts due to the Commonwealth, penalties, interest, and collection powers.

Can the ATO “claw back” COVID cash after a wind-up starts?

Yes. The ATO can raise or pursue a debt during a wind-up if it determines the company was not entitled to the payment, overclaimed, failed to meet ongoing eligibility conditions, or needs to repay due to later adjustments.

From an accounting practice perspective, the critical point is that a wind-up does not prevent:

• ATO review and amendment activity
• Issuing of assessments and amended assessments
• Raising of overpayment debts (where the law allows)
• Lodgment of proofs of debt by the ATO in a liquidation

If the company has already been deregistered, recovery becomes more complex, but does not automatically disappear. Depending on circumstances, it may involve:

• Reinstatement of the company (via ASIC processes and court orders in appropriate cases)
• Recovery action against remaining assets or recipients (where legally available)
• Director-related actions where specific regimes apply (noting that not all COVID program debts automatically transfer to directors)

It should be noted that eligibility-based programs like JobKeeper were heavily compliance-audited, and the ATO has published extensive guidance and undertaken integrity programs.

Is COVID cash taxable when a company winds up?

Often yes, but it depends on the payment type. The tax treatment must be confirmed per program and legislation.

Broadly:

• JobKeeper: Generally assessable income to the employer entity, with corresponding wage payments deductible where incurred (subject to ordinary rules). ATO guidance confirms JobKeeper amounts are assessable and should be reported appropriately.
• Cash Flow Boost: Designed as a credit delivered via activity statements; the detailed tax character is program-specific and may not mirror ordinary income in the same way as grants. The accounting treatment is often presented as other income or government assistance, but tax outcomes follow the law and ATO guidance for the measure.
• State/territory grants: Many were made assessable by specific legislation or fall into assessable income under ordinary concepts depending on design; others may have specific exemptions.

In a wind-up, the practical tax issue is rarely “does winding up change taxability?” (it usually does not). The issue is:

• Have all lodgments been finalised correctly (BAS/IAS, income tax returns)?
• Are there amendments likely due to COVID measures (or errors) that could create ATO debts?
• Has the company correctly accounted for GST on related transactions (where relevant)?

Accountants should always cross-check the specific program rules and ATO guidance applicable to the year(s) involved.

Does COVID cash change the priority of payments in liquidation?

No. COVID cash does not create a special “bucket” with separate distribution rules unless the payment terms impose enforceable restrictions (rare for most broad business support payments once received, but some grants had acquittal conditions).

In insolvency, distribution is governed by the Corporations Act framework and secured creditor rights. COVID cash typically:

• Increases the asset pool available to meet claims, or
• Becomes irrelevant if it was already spent pre-liquidation, except to the extent it affects insolvent trading, voidable transactions, or recoveries.

What if the company used COVID cash to pay wages, GST, or other liabilities before winding up?

That is usually the intended commercial outcome: the cash supported ongoing trading and payment of liabilities. However, in a later liquidation, liquidators and the ATO may still scrutinise:

• Whether the company was eligible at the time it claimed the payment
• Whether amounts were correctly calculated
• Whether there were misstatements (including turnover tests or employee eligibility issues for JobKeeper)
• Whether repayments were required but not made

If a payment is later found to have been overclaimed, the resulting ATO debt becomes part of the insolvent estate’s liabilities (and may materially change solvency assessments).

What are the main risk areas accountants must test before finalising a wind-up?

Before a members’ voluntary liquidation (MVL), creditors’ voluntary liquidation (CVL), or deregistration, it is established best practice to run a structured “COVID cash” check because amendments can arise years later.

Key risk areas include:

• JobKeeper eligibility evidence: Turnover decline tests, alternative tests, employee nomination/eligibility, and ongoing conditions.
• Cash Flow Boost integrity checks: ABN/withholding requirements and correct BAS reporting.
• Grant compliance and acquittals: Whether the client complied with use-of-funds conditions and recordkeeping.
• Amendment windows and audit activity: Whether any ATO review is underway or likely based on risk flags.
• Director exposure: Consider director penalty notice (DPN) regimes for PAYGW and superannuation guarantee (SG), noting these are separate from “COVID cash” but often coexist in the same distressed clients.

Authoritative sources to anchor this work include:

• ATO published guidance on JobKeeper and Cash Flow Boost (eligibility, reporting, integrity rules, repayments)
• Taxation Administration Act 1953 (Cth) for ATO recovery and administration
• Corporations Act 2001 (Cth) for liquidation duties and priorities

How should COVID cash be presented in the final accounts and tax work for a wind-up?

It should be presented consistently with both accounting standards (or special purpose framework where applicable) and the tax law outcomes for the relevant program.

In practice, your wind-up pack should include:

• A reconciliation of COVID receipts by program and period to bank deposits and ATO integrated account (where applicable)
• Evidence file for eligibility (especially for JobKeeper)
• A check of BAS and payroll reporting alignment (e.g., wage condition periods, STP data consistency where relevant)
• A final tax position review including carry-forward losses, Division 7A (if relevant), and any amendments expected

If there is uncertainty, prudent provisioning may be warranted (subject to the applicable accounting framework), but the legal obligation to repay depends on the statute and administrative decisions.

What are real-world scenarios accountants see when “COVID cash” meets a wind-up?

Scenario 1: MVL after a profitable 2020–2021 period

Likely outcome:

• JobKeeper was assessable in the year received and already returned.
• Remaining cash (including any retained benefit) forms part of assets available to distribute after tax clearances and liabilities are satisfied.
• Main risk is documentation: if the ATO reviews the turnover test years later, eligibility evidence must exist.

Scenario 2: CVL where JobKeeper eligibility was borderline

Likely outcome:

• The ATO may raise an amended position creating an unsecured creditor debt (plus penalties and interest depending on behaviour and disclosure).
• The liquidator will treat the ATO as a creditor and adjudicate the proof of debt.
• If asset realisations are low, the ATO may receive cents in the dollar, but directors may still face separate liabilities (PAYGW/SG) under DPN regimes if those were not addressed.

Scenario 3: Grant with acquittal conditions not met

Likely outcome:

• The grant agency can pursue repayment under the grant agreement.
• That claim ranks in the liquidation like other unsecured claims unless security exists.
• Recordkeeping and acquittal evidence becomes critical to avoid a repayable debt.

How does MyLedger help identify and reconcile “COVID cash” before a wind-up?

MyLedger is not a legal substitute for eligibility analysis, but it materially improves the accounting evidence trail and speeds up the reconciliation work that typically delays wind-ups—particularly when multiple COVID-era payment streams hit the bank across multiple entities.

From an Australian accounting practice perspective, the operational advantage is that MyLedger automates what competitors often leave manual:

• Automated bank reconciliation: MyLedger = 10–15 minutes per client, Xero/MYOB/QuickBooks = commonly 3–4 hours in messy COVID-era files (around 90% faster).
• AI-powered reconciliation and coding: MyLedger = around 90% auto-categorisation after learning patterns, many alternatives = heavier manual matching and rule maintenance.
• ATO integration accounting software capability: MyLedger = direct ATO portal integration (client data, statements, transactions, due dates), many competitors = limited ATO connectivity requiring separate portal work.
• Working papers automation: MyLedger = automated working papers (including BAS reconciliation workflows), others = more reliance on Excel-based workpapers.

This matters in wind-ups because COVID cash analysis is evidence-heavy: you need clean, explainable reconciliations and a defensible audit trail if eligibility is reviewed.

Is MyLedger better than Xero for COVID-era reconciliations and wind-up clean-ups?

For Australian practices doing high-volume compliance and wind-up clean-ups, MyLedger is typically the stronger option because it is purpose-built for automation and ATO-integrated workflows rather than general small-business bookkeeping.

Practice-impact differences that affect wind-ups:

• Reconciliation speed: MyLedger = 10–15 minutes, Xero = often 3–4 hours where data is fragmented across COVID periods.
• ATO evidence gathering: MyLedger = ATO statements and transactions imported into the same workflow, Xero = portal checks and exports are usually separate steps.
• Working paper generation: MyLedger = automated working papers, Xero = manual or spreadsheet-centric workpaper processes in many firms.
• Cost model for firms: MyLedger (expected) = $99–199/month unlimited clients, Xero = typically per-client subscription pricing, which scales cost as the client base grows.

For firms seeking an Xero alternative focused on accounting automation software and automated bank reconciliation, MyLedger’s design is aligned to the wind-up use case: rapid cleanup, documented evidence, and repeatable workflows.

What should accountants do step-by-step before lodging final forms for a wind-up?

The most defensible approach is to treat COVID cash as a specific workstream in the wind-up checklist.

1. Identify all COVID cash streams

1. Tie COVID receipts to source records

1. Re-test eligibility and calculation logic

1. Confirm tax and BAS reporting was correct

1. Assess amendment and audit risk

1. Document everything for the file

Next Steps: How Fedix can help

Fedix helps Australian accounting practices complete wind-up reconciliations faster and with stronger evidentiary support by automating the heaviest manual work in COVID-era files. Learn more about how MyLedger can help automate bank reconciliation, BAS reconciliation software workflows, and ATO integration accounting software tasks so your team can finalise wind-ups with less rework and fewer late surprises.

If you are planning multiple wind-ups or cleaning up 2020–2022 ledgers, you might also review:

• Automated working papers for year-end finalisation
• Division 7A automation (where shareholder loan accounts exist)
• ATO statement import and reconciliation processes

Conclusion

COVID cash in a company wind-up is treated under ordinary Australian insolvency and tax rules: validly received payments remain company property applied to debts and distributions, while ineligible or overclaimed amounts can crystallise into repayable debts pursued by the ATO or grant agencies during liquidation. The practical accounting challenge in 2025 is not conceptual—it is evidentiary: reconciling receipts, proving eligibility, and preventing post-wind-up amendments that create unexpected creditor claims.

Frequently Asked Questions

Q: Does a company have to repay JobKeeper if it winds up?

Q: Can the ATO audit COVID cash after liquidation starts?

Q: If the company already spent the COVID cash, can it still become a problem?

Q: How should COVID grants be treated in the final tax return?

Q: What is the fastest way to reconcile COVID-era deposits before a wind-up?

Disclaimer: This material is general information only and does not constitute legal or tax advice. Tax laws and ATO administrative positions can change, and outcomes depend on specific program rules and entity circumstances. Advice should be obtained from a qualified Australian tax professional or insolvency practitioner for your client’s facts.