Jobkeeper Alternative Tests
Dear Valued Clients and Friends of Yield.
We hope everyone is going well and enjoyed the ANZAC Day long weekend. The plight of our diggers in war and the sacrifices made by them and their families can certainly put some perspective on our current circumstances. That is not to play down the financial stress that Covid 19 has placed upon many of our local business and employee clients.
With this in mind, at Yield, helping our business clients to obtain the assistance the Government is offering by way of the various stimulus packages has been our absolute priority. We want everyone to get their rightful entitlements so that they can stay viable, retain staff and come out of the other side of this crisis with the least amount of financial damage done.
We at Yield have to admit that some other client engagements have had to be put aside whilst we have done the work of reading, understanding, sharing and then administering the complex rules that the Government is issuing, on the run, around these stimulus packages. It has been tiring, taxing (pardon the pun) and quite emotionally draining for Yield’s management and staff. We ask that if you have had your work delayed that you please be patient with us as we navigate all of these packages for our clients that desperately need it. The ATO is offering lodgement deadline extensions, however we will be endeavouring to have everyone’s work done in a timely fashion once these packages are bedded down.
Jobkeeper Update to Existing Rules
Extension to lodgement deadlines
- Extension of initial lodgement deadline for Jobkeeper enrolments to 31 May 2020 (from 30 April)
- Extension of time to pay the minimum $1,500 payment for the first two fortnights to 8th May 2020 (from 30 April)
Eligible Employee Test Update Employees who are 16/17 years old at 1 March 2020
- These employees are only eligible if they are financially independent
- This rule applies prospectively so if an employee has already been paid the Jobkeeper for a fortnight for such an employee they would be entitled to the Jobkeeper payment in arrears for that period
“One in, all in” Principle Reminder
- We remind employers that once the decision to engage in Jobkeeper has been made the employer must give the opportunity to participate to all its employees.
- This includes current employees and those that have been stood down
- An employer cannot select which employees will participate in the scheme
Assessment of Turnover – Cash or Accruals
- The issue of whether to use the cash or accruals basis in working out the relevant GST turnover is one where the ATO has changed its stance on a number of occasions, the ATO’s latest JobKeeper factsheet (as at 29 April 2020) states the following:
- As a practical matter, we expect that you will use the GST accounting you normally use. In other words, you may use a cash or accruals approach to determining the value of your sales in the relevant quarter or month.
- If you normally account for GST on an accruals basis, but seek to calculate on a cash basis (or vice versa), we may seek to understand your circumstances to ensure that the calculation achieves an appropriate reflection of your turnover.
- If you aren’t registered for GST, we would expect you to use the same accounting method you use for income tax purposes.
- Importantly, whichever basis you use must be used consistently in comparing the month or quarter in 2020 with the comparison month or quarter in 2019
See ATO guidelines here
Alternative Decline in Turnover Test Rules 2020
We would like to provide you with a further summary update on the administration and rules associated with the Australian Governments Jobkeeper rollout. In particular, the rules associated with business that don’t pass the “Basic Test” – but may be eligible under the other 7 “Alternative Tests”.
Reasons among others that business may be eligible under these tests are that they are a new start up business and don’t have the historical data to establish their eligibility. The rules were issued by the ATO on 23rd April 2020 by way of a legislative instrument, shown here.
The ATO and Treasury have provided very little practical guidance on the application of the Seven Alternative Tests released last Friday. The ATO is also changing it’s dialogue on how turnover is recognised for the basic tests. This leaves us in a difficult situation in terms of providing accurate advice in terms of determining eligibility to the Jobkeeper scheme. Note that we expect guidance to follow from the ATO to confirm our position on the interpretation. As your advisors we felt that it is vitally important to provide you with our interpretation of the rules so you can begin assessing and planning as to whether you are eligible. Per the extension updates – to be eligible for the April payments you will need to be enrolled by 31 May 2020 and if you have employees have your April payroll in order before the 8th of May 2020 so time is of the essence.
We hope you recognise that this has put Yield (and all other accountants) in a difficult position and that we are genuinely attempting to provide accurate and timely advice on this complex set of stimulus packages.
Some business who were ineligible under the basic rules may be eligible under the Alternative rules. It is important to point out that if you are eligible under the basic rules you do not need to consider the alternative rules.
Also only one of the alternative tests needs to be passed for the entity to be eligible for the JobKeeper payments.
The Seven Alternative Tests:
- New Business
- Business acquisition or disposal that changed the entity’s turnover
- Business restructure that changed the entity’s turnover
- Business with substantial increase in turnover
- Business with irregular turnover
- Sole traders or small partnerships with sickness, injury or leave
- Business effected by drought or natural disaster
1. Business commenced
- This section applies if the business commenced business before 1 March 2020 but after the relevant comparison period – thereby not being eligible under the “basic tests
- There are two tests
- The first test can be applied using either monthly or quarterly figures since commencement and up to the end of February.
- If the monthly comparison period is applied and the business commenced prior to 1 February 2020 the business uses the average of the whole months turnover since it commenced business to establish the monthly current GST turnover.
- Eg if a business commenced in September it would add the turnover for the five months October to February and then divide by 5 – this would give the monthly turnover. If the test period turnover is less than 70% of that amount then the business would be eligible for Jobkeeper
- If the quarterly comparison period is being used then the average monthly GST turnover is multiplied by three.
- If the business commenced before 1 March but after 1 February 2020 the entities turnover to 1 March divided by the number of days since business commenced and then multiplying by 29 will give the current GST turnover to be applied against the test month (Comparison period).
- Note that there is presently uncertainty about the definition of when a business commences (When ABN is registered, when activity starts or when income is first derived)
- The second alternative test considers the current GST turnover of the three months prior to 1 March 2020 (December, January and February).
- If the comparison period is one month then the average of these three months is used
- If the comparison period is one quarter then the total of those three months is used
- This test is not available if the business commenced within the three months prior to 1 March 2020
2. Business acquisition or disposal that changed the entities turnover
- Applies when a business acquires or disposes of part of their business after the comparison period but before the turnover test period
- The acquisition or sale changes the entity’s turnover thereby resulting in the entity being ineligible under the ‘basic test”
- In the case of more than one acquisition or disposal, calculations begin in the month after the last transaction.
- For calculation purposes the relevant comparison periods is the first whole month immediately after the acquisition or sale. For quarterly calculation it is the first whole immediately after the sale x 3
3. Business Restructure that changed the entities turnover
- Applies when there is a business restructure.
- The restructure changed the entities turnover.
- The restructure results in the entity being ineligible for the “basic test”
- Rules similar to acquisition or disposals above.
- Note that these tests apply to a new business entity that has effectively taken over from an existing entity
4. Business had a substantial increase in turnover
- Applies to business that had recent large increases in turnover who would otherwise be ineligible under the “basic rules”
- There is a two step process to establish eligibility
- To be eligible the business needs to show an increase in turnover of;
50% in the 12 months
25% in the 6 months
12.5% in the 3 months
Immediately before the applicable turnover test period
Test can apply in any of the periods from April to September
- The entity needs to show a 50, 25 or 12.5% increase in GST turnover over the month period immediately prior to the 12, 6 or 3 month period mentioned above.
- If applying the 12 month period and the test month is April 20 then the entity needs to compare March 20 to March 19 and show a 50% increase in turnover
- If applying the 6 month period and the test month is April 20 then the entity needs to compare March 20 to September 19 and show a 25% increase in turnover
- If applying the 3 month period and the test month is April 20 then the entity needs to compare March 20 to December 19 and show a 12.5% increase in turnover
- Once the required increase is established
- If using a monthly test period
- The average of the three months immediately before the test period
- If the test month turnover is 70% below the average then the entity is eligible
- Quarterly calculation is the total of the three months immediately prior to the test period
5. Business has irregular turnover
- Applies to give an alternative test to business that have large irregular variance in their turnover over the past 12 month period to be eligible if they are ineligible under the “basic rules”
- There is a two step process to establish eligibility
- For the quarters ending in the 12 months immediately before the test period the entities lowest turnover quarter is no more than 50% of the highest turnover quarter
- The entities turnover isn’t cyclical
- Once the above has been established
- Take the average monthly turnover for each whole month of business immediately before the test period up to 12 months
- If the test period is 70% or more below the calculated monthly average then the entity will be eligible
- This test is not intended for business with regular seasonal variances which have a relevant comparison period which could be used for the basic test.
6. Sole trader or small partnership with sickness, injury or leave
- As a result of the sickness injury or leave the entity does not pass the “basic test
- Applies if;
- Entity is a sole trade or small partnership that has no employees
- The sole trader or at least one of the partners did not work for all or part of the relevant comparison period due to sickness, injury or leave.
- Turnover of the business for the period was affected as a result
- Test is that if the entity is using a monthly comparison figure then the entity uses the GST turnover for the month immediately after the sole trader or partner returned to work rather than the standard comparison figure.
7. Bush fire and natural disaster affected entities
Note that there are special rules for bushfire and drought effected business – as very few, if any of our clients are effected we haven’t included the detail in this newsletter – the information is available in the NTAA publication attached below.
For further information and worked examples please see the attached for a publication by the National Tax Agents Association (NTAA) released today. Note the NTAA is our representative body to the ATO – this document is their interpretation – not to be confused with the official ATO position.
Click here to download the NTAA publication.
Please be in touch with the staff at Yield if you have any questions as to your eligibility as a result of any of these tests.