When all this Covid-19 stimulus started, many thought that one of the really tricky pieces will be around defining and applying the JobKeeper decline in turnover test.
(PCG 2020/4), a Practice Statement Law Administration (PSLA 2020/1) and most importantly, this week, a Law Companion Ruling (LCR 2020/1 – the LCR).
So just after clarifying the alternative tests for decline in turnover, we had to go back to the basic test and, among other things, consider how to calculate current and projected GST turnover, thanks to the LCR!
Our life is made a little easier as it is quite clear – the value of the supplies made in the chosen period is what you look at and the ATO sets out 4 possible alternatives that could be used to undertake the calculations.
For more information refer to the detailed guidance provided by the Ruling:
LCR 2020/1 provides detailed guidance on calculating GST turnover for JobKeeper purposes. The ATO sets out 4 possible alternatives that could be used to undertake the calculations, including using the GST attribution rules. The ATO now confirms that if an entity reports for GST purposes using a cash basis it can calculate GST turnover using either a cash or accruals basis. If the entity reports for GST using an accruals basis then it can calculate GST turnover using an accruals basis. A cash basis could potentially be used but the entity might be asked to explain why this is an appropriate reflection of turnover.
A simple example might help to illustrate the issues involved.
Rosstan Pty Limited (Rosstan) has run a small business employing 4 people supplying fruit and vegetables to the airline and related industries since 2001. It is registered for GST, lodges a business activity statement quarterly and calculates GST for attribution purposes essentially on an accrual’s basis.
Even though it lodges quarterly, it can demonstrate that in the month of March 2019, it made supplies worth $40,000, invoiced $15,000 and collected $20,000.
In the month of March 2020, it can demonstrate that it made $10,000 worth of supplies, invoiced $12,000 and collected $25,000.
Thus, for the month of March, year on year the results are:
- Using value of supplies made – Down 75%
- Using accruals – Down 20%
- Using cash – Up 25%
Therefore, it has the requisite minimum 30% decline in turnover on the basis of the supplies made but not on the other 2 bases.
There are a number of important points that can be made about this fairly simple example:
- The LCR has more alternatives than those suggested in the above example
- GST free supplies (e.g. such as those made by Rosstan in the example) are included in turnover for JobKeeper purposes.
- The fact that Rosstan lodges quarterly is NOT an impediment to it selecting a single month as a comparison basis. The law is clear – you are not bound to the period basis of your BAS lodgement cycle.
- The primary test is the value of supplies made – if you satisfy that test for March you are entitled to JobKeeper for the full current period which is up to 30 September 2020. The fact that you fail both accruals and cash is of no consequence.
- Rosstan does not need to retest each month to ensure its turnover is still down the required amount. It only has to satisfy once and it is then eligible going forward. The requirement to lodge further statements is for information tracking only, NOT for the purpose of enabling the ATO to deny future JobKeeper payments
- The fact that you are allowed to use cash or accruals at all is an administrative concession made by the ATO – it is designed to help employers meet the turnover test by allowing them to use their historical BAS statements to establish their eligibility.
- There are important integrity measures in s 19 of the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (the Act). One assumes that there has been no deliberate manipulation to massage the numbers for the sole reason that Rosstan should be eligible for JobKeeper. For example, deliberately delaying invoicing to reduce accrued income for the current month or telling customers not to pay to reduce cash for the current month, are both likely to attract the application of section 19 of the Act.
- If in the Rosstan example, one of the four employees, for whatever reason, decided not to consent to the employer seeking JobKeeper payments in respect of him or her, the employer can nonetheless apply as an eligible employer. The fact that one employee is not included does not offend the so-called “one-in-all-in principle”. That would only be the case if the employer sought to exclude an employee who was otherwise eligible. It does not offend if the employee takes him or herself out – in fact there may be a very good reason for an employee not consenting such as that he or she has already been nominated by another employer.
- An employer can get both JobKeeper and the cash flow boost. Indeed, a JobKeeper payment made to an employee is itself a salary or wage and as such is taxable – to the extent it gives rise to PAYG withholding in the months from March to September 2020, the payment of the PAYG withholding amount will itself have the potential to increase the size of the cash flow boost – effectively a reimbursement to the employer of tax paid on behalf of the employee which in turn was funded by the Federal government.
Service entities – Did you Get It Right?
If you have a service entity and still wondering if you have correctly assessed your JobKeeper eligbility, or haven’t enrolled yet, refer to the new PCG 2020/4 which was released to explain how the ATO will apply compliance resources to service entities schemes to access JobKeeper.
As announced last week, the new rules dealing specifically with service entities have been released but unfortunately won’t apply to all groups that utilise a service entity. However, the ATO released PCG 2020/4 which explains how the ATO will apply compliance resources to schemes to access JobKeeper and this provides a number of specific examples relating to service entity arrangement which demonstrate that adjustments to service fees might be acceptable in some instances. If client service entities don’t fall within the scope of the modified tests released last Friday, then it is worth taking a look at examples 4, 5 and 6 in the PCG to see whether these entities could potentially access JobKeeper under the normal turnover reduction tests.
Seeking ATO discretion – Business Participants
In order to access the JobKeeper rules for an eligible business participant (e.g., sole trader, director of a company etc) there are a number of additional conditions that need to be met. For example, the entity must have had an ABN on 12 March 2020. Also, it must have had some business income in the 2018-19 income year and lodged a 2019 tax return by 12 March 2020 or made some supplies connected with Australia in a tax period that started on or after 1 July 2018 and ended before 12 March 2020 and the ATO was notified of this by 12 March 2020 (e.g., on an activity statement).
The ATO can potentially exercise discretion to extend the deadline for meeting these conditions and guidance on seeking this discretion was released late yesterday, including a specific application form that should be used for this purpose. The ATO confirms that you cannot enrol to receive JobKeeper payments until you have been notified that the Commissioner has granted an extension. See Application form for Commissioner’s discretion.
There have been a number of key developments with JobKeeper over the last couple of weeks. Don’t make an inadvertent error, book a meeting with the HCG Team here and let us help you step through the process.