The Detail Arrives…
The Federal Government has now released detailed regulations governing the new JobKeeper Payment measures. The regulations, known as the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (“Regulations”) constitute the latest, and perhaps the most significant, COVID-19 stimulus measure introduced by the Federal Government to date.
It now becomes critical for business owners, managers and their advisers to properly understand the requirements for obtaining relief and to ensure that eligible entities take full advantage of the scheme.
Key Features
The key features of the JobKeeper measures, which will be administered by the Commissioner of Taxation (“Commissioner”), may be summarised as follows:
A $1,500 per fortnight subsidy paid to eligible employers in respect of each eligible employee. The subsidy can be claimed in respect of fortnights commencing 30 March 2020 up to the fortnight ending 27 September 2020.
Employers must pay their eligible employees at least $1,500 gross per fortnight (subject to PAYG withholding) in order to qualify, even in circumstances where the employee ordinarily earns less than this amount.
Entities will need to satisfy a decline in turnover test. For entities with an aggregated turnover of $1 billion or less, this broadly requires that the entity’s GST turnover for a month or quarter has fallen by at least 30% as against the same month or quarter in 2019. For entities with an aggregated turnover of more than $1 billion, their GST turnover must fall by at least 50%.
Business owners operating through company, trust or partnership structures that are not necessarily “employees” may still qualify for the JobKeeper payment under the business participation criteria.
There are numerous administrative and timing requirements imposed on taxpayers participating in the scheme.
How Does the Decline in Turnover Test Work?
The Regulations require that the entity satisfies the “decline in turnover test” at or before the end of the fortnight for which a JobKeeper payment is sought.
Two tests are provided, namely, the “basic test” and the “alternative test”.
An entity will satisfy the basic test at a time if the entity’s projected GST turnover for a month (i.e. March to September 2020 inclusive) or a quarter (i.e. the June or September 2020 quarter) in which the time occurs falls short of the entity’s current GST turnover for that same month or quarter in 2019 by at least 30% (or 50% for entities with an aggregated turnover in excess of $1 billion).
The following observations can be made regarding the basic test:
The test needs to be satisfied before the entity becomes eligible for the JobKeeper payment, and once this occurs, there is no requirement to re-test in later months (even if the turnover of the entity subsequently increases or fully recovers).
A choice is available to the entity as to the test period upon which it wishes to rely. For example, an entity could compare the month of March 2020 with March 2019, or the June 2020 quarter with the June 2019 quarter. Where the test is satisfied for a period, the entity will be eligible for all fortnights in that period and subsequent periods until the conclusion of the scheme.
The test relies on the concepts of projected and current GST turnover as defined in the GST legislation, subject to certain modifications.
Care must be taken in assessing projected GST turnover, which relies on whether supplies are likely to be made in a period. This turns on whether, on the balance of probabilities, the supply is more likely than not to be made in the period, and must be based on a reasonable expectation in light of the facts and circumstances of the particular business in question.
The projected turnover test may still be satisfied even where the entity’s actual turnover does not fall below the 30% (or 50%) threshold. Of course, in such a situation the taxpayer should take extreme care in ensuring that it has sufficient evidence to substantiate the basis for determining the projected GST turnover at the time of registering for the JobKeeper payment.
The GST grouping provisions are disregarded for the purposes of the Regulations and hence the turnover test applies on an entity by entity basis.
The Regulations allow the Commissioner to, by legislative instrument, prescribe an “alternative test” which applies to classes of entities provided the Commissioner is satisfied that there is not an appropriate relevant comparison period for the purposes of the basic test.
The Explanatory Statement to the Regulations suggests that the Commissioner might be expected to provide an alternative test where, for example, the turnovers of businesses in particular industries have been depressed in prior years (such as farming enterprises affected by drought) or for businesses that only commenced after 1 October 2019 (and therefore no comparison period exists). Another relevant situation might be where business acquisitions or other abnormal events have resulted in an inorganic increase in turnover for the entity in the relevant periods in 2020, however, no detail is yet available from the Commissioner on these issues.
Who is an Eligible Employee?
Eligible employers are able to receive the JobKeeper payment for a fortnight in respect of an employee who:
is employed by the entity at any time in the fortnight (this includes stood-down employees, employees on leave or employees made redundant and subsequently rehired in the fortnight);
was employed (other than as a casual employee) by the employer at 1 March 2020;
if the employee was employed on a casual basis at that time, the employee must have been a long term casual employee of the entity, which broadly requires that the employee was employed on a regular and systematic basis for at least 12 months as at 1 March 2020;
was aged 16 years or over at 1 March 2020;
was an Australian resident (for tax or social security purposes) or a holder of an eligible visa at 1 March 2020;
is not in receipt of parent pay, dad and partner pay or workers’ compensation benefits (where the employee is totally incapacitated for work);
if the employee is a casual employee, the employee is not an employee (other than a casual employee) of another entity; and
has given their employer a nomination notice in the approved form confirming the they satisfy the above requirements and agree to be nominated as an eligible employee.
How do Business Owners Qualify?
The Regulations allow business owners who are not employed by an entity on 1 March 2020 to qualify in certain circumstances.
This is particularly relevant to sole traders as well as persons that carry on a business via a partnership, company or trust where remuneration is taken in the form of partnership distributions, dividends or trust distributions (respectively).
In broad terms, the Regulations address this issue by providing that, subject to the above turnover and notification requirements:
partnerships may qualify by nominating one natural person partner in the partnership;
trusts may qualify by nominating one natural person adult beneficiary of the trust; and
companies may qualify by nominating one shareholder or one director of the company.
The individual nominated (known as the “eligible business participant”) must:
be actively engaged in the business carried on by the entity;
not be employed by the entity or another entity (unless they are a casual employee of another entity);
be an Australian resident aged 16 years or older on 1 March 2020; and
give a nomination notice in the approved form to the entity.
Importantly, there can be only one eligible business participant per entity. Further, an entity is not entitled to a JobKeeper payment for an eligible business participant if another entity is entitled for a JobKeeper payment in respect of that individual.
In the authors’ view, the Regulations do not provide a basis for partnerships of entities (such as partnerships of trusts) or trusts that do not have natural person beneficiaries (such as unit trusts owned by discretionary trusts) to qualify under the eligible business participant rules.
Also of note is that the wage condition (i.e. the requirement for the entity to make a payment of $1,500 per fortnight) does not apply in respect of an eligible business participant and hence the entity is able to apply the subsidy received in any manner it determines.
Practical Observations and Issues
There are a number of other important observations and issues arising for advisers and business owners under the JobKeeper measures, namely:
The Commissioner will usually make JobKeeper Payments within 14 days after the end of the calendar month in which the relevant fortnight ends. Therefore, employers may incur a cash flow deficit in participating in the scheme.
The decline in turnover test does not operate on a “group” basis. This raises issues in terms of the ability for an entity that employs people to qualify where its particular activities have not experienced the necessary turnover decline but perhaps a related trading entity (with no or fewer employees) has had a decline in turnover. This may be particularly relevant to service or administration entity arrangements where employees are “on-hired” to a main operating entity.
It is important that employers carefully consider whether they satisfy the decline in turnover requirement and retain sufficient evidence to support the view reached. The consequences of an incorrect assessment in this regard are significant, including the requirement to repay any JobKeeper payments received plus general interest charge and potentially penalties in the event of a subsequent review or audit.
Particularly significant risk management issues arise in applying the alternative decline in turnover test given the authors’ expectation that this will require self-assessment against the Commissioner’s rulings and, moreover, will not be satisfied without careful analysis of the surrounding circumstances and supporting evidence.
Similarly, in “line-ball” cases, application of the prospective turnover test will require careful assessment of the circumstances and the marshalling of evidence to support the entity’s contention that its turnover was likely to decline below the threshold for the comparative period.
In the authors’ view, the JobKeeper regime is unlikely to be accommodated by the existing Private Binding Ruling system. This gives rise to a real issue as to how taxpayers should best manage risk going forward, particularly where the margin for passing the decline in turnover test is small and there is no basis for satisfying the alternative test.
Particular care must be taken with casual employees in terms of satisfying the long term casual employee requirement, as well as employees that have multiple employers.
There are a number of compliance and disclosure obligations imposed on taxpayers under the Regulations. For instance, there are positive substantiation and record keeping requirements, where failure to comply results in ineligibility to qualify altogether. Further, taxpayers participating in the scheme must report to the Commissioner on a monthly basis its current GST turnover for the reporting month and its projected GST turnover for the following month.
Employers will of course need to bear in mind the interface between the JobKeeper payments and their rights and obligations under the employment law. This will necessarily include taking advice on matters such as whether an employee who ordinarily earns less than $1,500 per fortnight can be requested to perform additional hours in the business (if practicable).
Unlike the Cash Flow Boost measures, JobKeeper payments are unlikely to constitute non-assessable and non-exempt income and are instead likely to be assessable receipts to the employer (although such receipts will generally be offset by a deduction for salary and wages incurred by the employer).
An employer may still satisfy the wage condition where their payroll is usually completed on a monthly cycle provided that the wages are reasonably apportioned across the fortnights to which the pay period relates (and would otherwise satisfy the wage condition on that basis).
What Immediate Steps Should be Taken?
Employers and business owners should now be carefully assessing the eligibility requirements for the JobKeeper scheme and, where eligible:
commence the process for obtaining nomination notices from employees or eligible business participants (as relevant);
notify the Commissioner in the approved form that the entity intends to participate in the scheme;
provide the Commissioner with the details of each eligible employee;
formally notify eligible employees of the employer’s participation in the scheme; and
put in place processes for ensuring compliance with the above evidentiary and disclosure requirements on an ongoing basis.
Further Support and Assistance
As businesses continue to batten down the hatches, it is imperative that advisers provide their support and ensure their clients are best equipped to weather the COVID-19 storm.
Cowell Clarke is well resourced to assist in advising you of your clients’ entitlements under the Federal Government’s stimulus packages.
In conjunction with our Employment & Workplace Relations team, Cowell Clarke’s Tax & Revenue group will be presenting a series of our online interactive Table Talk workshops aimed at assisting accountants and advisers with these measures.
If you would like more information for the Table Talk workshops or require our assistance or advice, please contact us.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.