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Under the JobKeeper subsidy, eligible employers will receive $1,500 (before tax) per employee for up to six months. Businesses will be eligible where their turnover has fallen by more than 30 per cent (or 50 per cent if their turnover is $1 billion or more). Revised fact sheets released by Treasury have expanded on this eligibility criteria. Parliament will resume on Wednesday 8 April 2020 to pass the measures into legislation. Below, we examine the three tests that may apply to establish a reduction in turnover with answers to frequently asked questions about the scheme.
What are the revised eligibility requirements contained in the fact sheet?
In addition to a basic test to determine eligibility, the fact sheet now contains two Commissioner discretions. There is also an ability to deal with small errors. Following are the rules contained in the revised fact sheet dated 1 April 2020.
The basic test – what are the basic principles?
The basic test aims to assess if a business’s turnover has fallen “in the relevant month or three months (depending on the natural activity statement reporting period of that business) relative to their turnover a year earlier.”
The starting, or default basis for an employer to satisfy the turnover test appears to be that the employer can show the relevant decline in turnover using the numbers that would be contained in the relevant business activity statement (BAS) for a relevant period on a like-for-like basis (i.e. by comparing a month or quarter commencing from March 2020 or later to the corresponding month or quarter from a year earlier).
One of the problems we see with this test is that it may not apply quickly enough. For example, if a substantial decline is suffered in the April 2020 month, the employer may not be able to satisfy this test until it lodges its activity statement for 30 June 2020. Accordingly, we believe that these scenarios are more likely to be dealt with by the Commissioner’s discretions below.
The first Commissioner’s discretion – demonstrating adverse impacts
If the business cannot satisfy the 30 per cent (or 50 per cent) turnover test, the Commissioner will be given the discretion, in certain circumstances, to consider additional information to establish that the business has been adversely affected by COVID-19.
The discretion will be available where:
- a business was not in operation a year earlier, or
- where the business’s turnover in the comparable period was not representative of its usual or average turnover (for example, because there was a large interim acquisition, the business was newly established, or the business turnover is typically highly variable).
The fact sheet refers to two important concepts. The first being “additional information” and the second being the ability to establish that the business has been “adversely affected”. We are therefore hopeful that this test will allow some deviation from the 30 (or 50) per cent rule and will allow a broader range of information to demonstrate those businesses that have been adversely affected.
That is, this test may allow the Commissioner to consider additional information such as:
a) budgeted information;
b) cash flow projections;
c) bad debt write-offs; and
d) redundancy costs.
At present the test appears limited to start-ups and cyclical businesses; however, we are hopeful those two types of businesses were referred to as examples only and not as conditions.
The second Commissioner’s discretion – applying alternative tests
The Commissioner will also have discretion to set out alternative tests that would establish eligibility in specific circumstances (e.g. eligibility may be established as soon as a business has ceased or significantly curtailed its operations). It is unclear how broad this discretion would be. For example, would it allow a business to obtain access to the JobKeeper payment where it is required to shut down a substantial part of one of its business operations (where, overall, it does not meet the 30 (or 50) per cent test).
Amongst other things, we believe that this test is intended to deal with the problem outlined earlier with the basic test, in terms of it being too slow to apply. Accordingly, the Commissioner may set out a different way in which a company can evidence a 30 (or 50) per cent decline (e.g. by reference to the previous month).
What if the employer incorrectly predicts their turnover?
Treasury fact sheets indicate that “some tolerance” will be allowed where employers, in good faith, estimate a greater than 30 (or 50) per cent fall in turnover but actually experience a slightly smaller fall. This is a likely area where the Commissioner will exercise his discretion to allow additional information to be used – e.g. budgets. We agree with the need for a “good faith” tolerance.
We note that errors may occur for various reasons outside the control of a business. For example, exchange rate fluctuations or the closure of a supplier or customer in response to COVID-19. While an entity may act in “good faith” in estimating future revenue, the difference caused by these things may not be regarded as a “slightly smaller fall”. In such a case, understanding the consequences will be critical (e.g. does the employer repay the JobKeeper amounts?).
What are the participation requirements for an employer?
Employers must elect to participate in the scheme. They will need to make an application to the Australian Taxation Office (ATO) and provide supporting information demonstrating a downturn in their business. In addition, employers must report the number of eligible employees employed by the business on a monthly basis.
Visit our JobKeeper frequently asked questions page here
For more information about JobKeeper payments and how it applies to you, contact your Pitcher Partners expert.