Tax Bulletin – JobKeeper Update – May 2020

The JobKeeper Payment scheme is constantly evolving. The Treasurer has introduced the changes to the JobKeeper Rules. Further, the ATO has issued Practical Compliance Guidelines on schemes to obtain JobKeeper Payments, a Law Companion Ruling on the decline in turnover test and a Practice Statement on the notification requirements.

Schemes to obtain JobKeeper Payments – ATO Compliance Approach

The ATO has issued PCG 2020/4 to provide guidance on how it will apply its compliance resources to schemes for the purpose of obtaining access to the JobKeeper payment. In particular, the Commissioner will be concerned where payments are accessed:
– where the entity’s business is not significantly affected by external environmental factors beyond its control, and/or
– in excess of those that would maintain pre-existing employment relationships.

The ATO will generally not apply compliance resources:
– if an entity is significantly affected by factors beyond their control, and enters into a scheme in response to satisfy the decline in turnover test; and
– the payment is received for employees serving in the significantly impacted business prior to that time and who remain employed as a result of the payment.

Examples of high-risk scheme that ATO will apply compliance resources to include:
– Industry is not affected but the entity agrees with third party customers to defer or bring forward making supplies.
– There is no decline in revenue, and the entity transfers income producing assets to a newly incorporated subsidiary.

Service Entities – Decline in Turnover Test

The Treasurer has implemented changes to provide a modified decline in turnover test for service entities where the principal activities is to supply employee labour services to other members of the group.

In order for these tests to apply, the service entity and the operating entity (or entities) must be members of either an income tax consolidated group, an income tax consolidatable group or a GST group.

Where the rules apply, the total GST turnover of the operating entity (or entities) that uses the services of the employing entity is used to test the decline in turnover. This can occur under either the basic test or alternative tests.

Due to the limitations on the structures that this applies to, many groups may not be eligible under these rules. However, the ATO have also addressed service entities in PCG 2020/4.

In PCG 2020/4, the ATO provide examples where an employment service entity reduces its service fee in proportion to the operating entity’s fall in turnover or by standing down employees. The ATO state that there is a low risk that the Commissioner would review this under the integrity provision. This is regardless of whether or not the service agreement allows for such a negotiation.

Accordingly, this PCG may assist service entities that do not fall within the amendments to the Rules by allowing them to reduce their turnover.

Amendments to Rules by Treasurer

In addition to the change for service entities, the Treasurer has also implemented the following changes:

16 and 17 Year Old Employees: 

Employees that were 16 or 17 years old on 1 March 2020 will now only be eligible employees if they are independent or not undertaking full-time study (within the meaning of the Social Security Act 1991).

Clarification of One-In All-In Rule:

An entity that elects to participate in the scheme must give written notice to each individual who is a ‘relevant employee’ of the entity, thereby allowing each employee to agree to be nominated. A ‘relevant employee’ does not include individuals that the employer reasonably believes is ineligible for the scheme. The written notice much state that the employee nomination form must be completed and given to the employer, and include information on steps the employee is to take to give the employer the nomination notice.

Other Changes include:
– Allowing eligible religious practitioners to participate in scheme (as may not have otherwise have been an eligible employee)
– Extending the JobKeeper scheme to certain charities that undertake overseas aid and disaster relief.
– Adjusting the way certain payments are treated for universities’ and charities’ GST turnover.

Decline in Turnover Test – ATO Guidance

The ATO have issued Law Companion Ruling LCR 2020/1 in regard to the decline in turnover test.

Projected and current turnover are based on the time when a supply is made rather than when an entity accounts for the supply in reporting its GST liability. LCR 2020/1 provides guidance on how to allocate supplies to a period. However, the ATO also provides three acceptable alternative methods that it will allow to be used to allocate supplies to a period. The same basis must be used for calculating projected and current GST turnover.

Accrual accounting:

Use the revenue from making supplies that would be recognised in financial accounts as a proxy for the value of supplies made or likely to be made in a turnover test period.

GST attribution basis (cash or accruals):

Use the value of supplies that would be allocated to the period under the GST attribution rules as a proxy for the value of supplies made or likely to be made in a turnover test period. Entities reporting on a cash basis can elect to use the cash or accruals basis for calculating GST turnover.

Income tax accounting (if not registered for GST):

Treat the income or gains that derived or likely to be derived in a relevant period for income tax purposes as being the value of the supplies made or likely to be made in that relevant period.

The LCR also addresses the ATO’s view where an entity has elected into the JobKeeper scheme based on the projected GST turnover and the actual turnover is greater than estimated. The ATO state that an  entity will not lose access to the JobKeeper scheme on this basis, however if there are significant differences, the ATO may make further enquiries to determine whether the assessment of projected GST turnover was reasonable.

Accordingly, entities should take care in assessing projected GST turnover, and have appropriate evidence to support the prediction. 

Discretion for Commissioner to provide notice – ATO guidance

The JobKeeper business participant conditions require an entity to have:
– had an ABN on 12 March 2020 and
– reported to the ATO that they have business income or made taxable supplies before 12 March 2020.

However, the Commissioner can allow extra time for this information to be provided. The ATO have     issued PSLA 2020/1 regarding when additional time will be allowed. The provisions and PSLA are also applicable to the cashflow boost.

Allowing extra time to obtain ABN requires evidence that the entity was conducting an active business on 12 March 2020, and was entitled to hold an ABN but did not obtain one because the adverse requirements of not holding an ABN (such as no-ABN withholding) would not apply to the entity. Discretion would not be issued if they were not holding an ABN when required to.

The Commissioner will likely grant extra time to provide notice of assessable income / taxable supplies where an entity has not lodged by the relevant due date because either:
– they have a pre-existing lodgment deferral in place, such as through the tax agent lodgment program or the deferrals for taxpayers affected by the recent bushfires
– they are a new business established from 1 July 2019 that is not registered or required to be registered for GST, but have made supplies during a period ending between the 1 July 2019 to 12 March 2020 period, or
– there were exceptional and unforeseen circumstances; such as the loss of a significant amount of records due to the recent bushfire.

The taxpayer may be asked for supporting documents (such as tax invoices, merchant payment records, bank statements, council permits, leases, business financing agreements, business contracts, advertising for services).

The discretion cannot be exercised where a business is registered for GST but does not make supplies in a tax period ending before 12 March 2020 (e.g. their first BAS lodged is for the March 2020 quarter) as the Commissioner does not have the authority to exercise in this instance. 

Alternative decline in turnover tests

Since our last update, the ATO has also provided further website guidance on the alternative decline in turnover tests, including examples.

We note that the ATO has also clarified the application of the ‘significant increase in turnover’ test, which applies if an entity has experienced specified increases in turnover in the 3, 6 or 12 months immediately before the projected GST turnover period. This requires a comparison of turnover in the month prior to the beginning of the relevant period with the turnover in the last month of that period to see if the requisite increase occurred.

Contact Us

For further information on any of these updates, or for general assistance, please contact our Directors, Jacci Mandersloot or Natalie Claughton.

The information contained in this bulletin is intended to  provide  general information only and is not intended to serve as tax advice. Specific advice should always be sought regarding a taxpayers’ particular circumstances. Please contact MC Tax Advisors if you would like assistance with the issues identified in this bulletin.