JobKeeper: Alternative Turnover Test, Group Entities and ATO reviews
Further rules regarding JobKeeper payments have been enacted in recent weeks affecting the Alternative Turnover Test and Group Entities. The Australian Taxation Office (ATO) has begun its review of JobKeeper claims to ensure the integrity of claims made. Gary Calford of PKF Brisbane, analyses the changes and review process.
Alternative Turnover Test
The Alternative Turnover Test applies under the JobKeeper rules where the basic decline in turnover test cannot be satisfied (e.g. where a business is new and doesn’t have a comparative period in 2019 or where an entity acquired or disposed of a business since 2019 making the comparison year on year inconsistent). Only one of the below tests needs to be satisfied but it may be possible that more than one of the tests may apply.
Where it had previously been thought that businesses that commenced after the 2019 comparison period may not be entitled to JobKeeper, the Alternative Turnover Test has created a loophole for those businesses to also get the financial help they need.
Looking at your business’s GST turnover for a qualifying period, can determine whether your 2020 revenue is 30% or more lower than that average month calculation.
Interestingly, the Alternative Turnover Test has been structured as seven separate tests that depend on the facts supporting the need to apply the Alternative Turnover Test. If more than one alternative decline in turnover test applies we only have to satisfy one of the alternative decline in turnover tests.
The Alternative Turnover Tests are:
Business commenced after the 2019 comparison period: where the business has commenced before 1 March 2020 but after the 2019 comparison period (i.e. March to September 2019).
Business acquisition or disposal that changed the entity’s turnover: where a part of the business was acquired or disposed of between the test periods in 2019 and 2020 and that changed the turnover of the entity.
Business restructure that changed the entity’s turnover: where a business was restructured (in whole or in part) between the test periods in 2019 and 2020 and that changed the turnover of the entity.
Business had substantial increase in turnover: where an entity’s turnover (note that the term ‘GST Turnover’ is not used here) has increased by either:
- 50% or more in the 12 months before the start of the 2020 turnover test period; or
- 25% or more in the 6 months before the start of the 2020 turnover test period; or
- 5% or more in the 3 months before the start of the 2020 turnover test period.
Business affected by drought or natural disaster: where an entity conducted business or some of the business in a declared drought or natural disaster zone between the test periods in 2019 and 2020 and that changed the turnover of the entity.
Business has an irregular turnover: where, for the quarters ending in the 12 months immediately before the relevant 2020 turnover test period, the entity’s lowest turnover quarter is no more than 50% of the highest turnover quarter and the entity’s turnover is not cyclical.
Sole trader or small partnership with sickness, injury or leave: the entity is a sole trader or a partnership (with no employees) and the sole trader or one of the partners did not work between the test periods in 2019 and 2020 due to sickness, injury or leave and the entity’s turnover was affected by that sickness, injury or leave.
Note that each test has an adjustment where the employer entity qualified for the ATO’s Bushfires 2019–2020 lodgement and payment deferrals or received Drought Help concessions. If this applies to you, we suggest seeking specific advice.
Group Employer Rule
When the original JobKeeper rules were released, a perceived deficiency was that the rules applied only to the entity that employs the eligible employees. In some structures, a special purpose entity is set up to be the employer for the group and, under this approach, the employees’ services are contracted out to the various related entities in the group and the employee cost is recharged accordingly. A group employer such as this does not carry on business in its own right and its turnover is limited to the recharge of employee costs such that it is based on the employer entity’s cost base as opposed to the group’s turnover.
Addressing this, modifications were made to the JobKeeper rules to introduce a group employer rule which can apply regardless of whether the basic turnover test is applied or one of the alternative tests discussed above is applied.
The group employer rule requires you to ignore the GST turnover of the employer entity and, rather, use the aggregated GST turnover of all entities to which the services of employees have been provided. As an example, if a group conducts an engineering services business out of one entity and a manufacturing business out of another entity and a third entity employs the people that are used across both other entities, the employer entity must aggregate the historical and projected GST turnover of the engineering and manufacturing entities in order to determine whether it satisfies the decline in turnover test.
Importantly, in order to apply the group employer rule, it is necessary for the group to either be able to consolidate for income tax purposes or grouped for GST purposes. This may exclude some ‘flatter’ privately owned structures that are not able to consolidate for income tax (which requires there to be a holding company) or have elected not to group for GST purposes.
As part of their administration of the JobKeeper program, the ATO have commenced their review activity of JobKeeper claimants. Experience to date suggests that the ATO is contacting employers directly about their JobKeeper claims, regardless of whether the employer engaged a Tax Agent to undertake the eligibility analysis and application process. To the extent that any of our clients receive direct calls from the ATO about JobKeeper, PKF recommend that such clients refer the ATO officer to their PKF adviser.
If you or your business needs help with determining JobKeeper eligibility, please contact your local PKF adviser.