Legislation to implement a framework for the JobKeeper Payment measures has received Royal Assent. Broadly, a business that has suffered a requisite decline in turnover may be entitled to a JobKeeper payment of $1,500 per fortnight for each eligible employee.
However, the devil is in the detail; or in this case, Treasurer’s rules which will be administered by the Commissioner of Taxation. An Exposure Draft of the Treasurer’s rules has been released, which will be subject to the full process of Parliamentary scrutiny.
The efforts to date by the Government have been monumental, and are worthy of praise, but as expected there are many outstanding questions. Some of the burden is now on the tax profession and industry bodies to take up the call to arms to assist the Government in filling in the gaps. It’s also expected that some of the gaps will be filled by ATO guidance, which we understand will be released shortly.
Importantly, entities must consider their eligibility for JobKeeper payments together with their employment law obligations. These obligations are paramount, and may impact the viability and availability of JobKeeper payments.
From an administrative and practical point of view, there are a number of reporting obligations which entities need to keep in mind, and meet, on an ongoing basis.
What we don’t know
While the draft Treasurer’s rules provide some much needed clarity on the eligibility requirements, there remain a number of questions to be considered, some of which are set out below.
- Will the receipt of JobKeeper payment be included in an entity’s projected and current GST turnover, on the basis they have made a supply?
- What if an entity believes it meets the decline in turnover test because its projected turnover for a period has declined by the requisite amount, but it turns out that its actual GST turnover for that period is higher?
- Will entities established during the 2020 income year be entitled to the JobKeeper payment and, if so, how will their eligibility be determined?
- Is it possible that changes to the rules will be retrospective?
- The Treasury fact sheet for employers states that ‘It will be up to the employer if they want to pay superannuation on any additional wage paid because of the
- JobKeeper Payment.’ However, there are no proposed legislative changes to the superannuation laws. What part of the wage condition payment of $1,500 will be considered part of ordinary time earnings for superannuation guarantee purposes?
- Does an employer have to fund this superannuation guarantee payment from its own pocket?
- South Australia has announced that legislation will be introduced to ensure that entities that qualify for JobKeeper payments will be exempt from paying any payroll tax on the JobKeeper payment to employee's'. If similar changes aren’t implemented in the other States and Territories, will payroll be levied on the wage subsidy?
- Will a Jobkeeper payment to an employee be included in calculations of Workcover premiums and, if so, how much of the payment?
- Will a services entity be eligible for JobKeeper payments if it doesn’t meet the decline in turnover test, but the business entity does?
- Similarly, in multiple entity groups will one entity be eligible for JobKeeper payments if it doesn’t meet the decline in turnover test, but another entity in the group does?
- Will an increase in bad-debts and non-collection be taken into account in determining whether the decline in turnover tests is met?
- Employers can register their interest in applying for the JobKeeper Payment online with the ATO.
- The JobKeeper payment will be $1,500 per fortnight per eligible employee. Sole-traders may be entitled to one $1,500 payment per fortnight, and trusts, partnerships and companies may be entitled to one $1,500 payment per fortnight for a ‘related’ individual.
- The first fortnight for which a payment can be made is the fortnight beginning on 30 March 2020, and the last is the fortnight ending 27 September 2020.
- An entitlement to a JobKeeper payment may be cancelled, revoked, terminated, varied or made subject to conditions by or under later legislation.
- Payments will generally be made by the Commissioner directly to an entity’s bank account, or the Commissioner may direct that the amount is paid by way of a credit to a running balance account.
- Overpayments will need to be repaid, unless the Commissioner makes a written determination that an entity is not liable for the repayment (for example, if an entity made an honest mistake and has not retained any personal benefit from a payment).
- Overpayments will be subject to general interest charges, and entities will be subject to the existing taxation administrative and criminal penalty regime.
- Where a payment is made based on information provided by a third party, including an employee, that party and the recipient of the payment will be jointly and severally liable for overpayments.
- The ordinary objection process under Part IVC will apply to the review of decisions made by the Commissioner under the legislative framework.
- Eligibility will be subject to pre and post payment record keeping obligations, which the Commissioner will specify.
- The legislation contains an in-built anti avoidance measure to tackle schemes entered into for the sole or dominant purpose of obtaining a payment, or an increased amount of payment. In this regard, as duly stated by the Tax Practitioners Board in a joint statement with the ATO made on 6 April 2020:
We ask that tax agents and businesses be mindful that it is not acceptable to backdate or artificially change a business structure or employment arrangements, including changing the characterisation of payments, in order to obtain a benefit or payment that would not otherwise have been paid. The TPB and ATO will take firm and swift action should this be the case.
- The Treasurer’s rules may specify whether a payment is exempt from income tax, or non-assessable non-exempt income (but at this stage they do not).
What you need to do
1. Register interest in the JobKeeper payment with the ATO.
2. Notify the ATO that it will participate in the scheme by the prescribed time.
3. Obtain a notification of consent from each employee to be included in the JobKeeper application.
4. Prepare details of eligible employees to be sent to the ATO each fortnight, which will be assisted by the use of Single Touch Payroll data.
5. Notify eligible employees within 7 days of each fortnightly claim for the payment.
6. Report monthly to the ATO (by the 7th of each month) on the GST turnover for the previous month, and projected GST turnover for the next month.
Basic conditions for employers, including not-for profits
As at 1 March 2020, the entity must have carried on a business in Australia or, in respect of a non-profit body, pursued its objectives principally in Australia.
The entity must also satisfy the ‘decline in turnover test’, meet various reporting obligations and have eligible employees.
A company will be ineligible if a liquidator has been appointed to the company, and an individual will be ineligible if a trustee in bankruptcy has been appointed to the individual’s property.
Decline in turnover test
An entity with an aggregated turnover of under $1 billion will satisfy the test if its projected GST turnover for:
- a calendar month that ends after 30 March 2020 and before 1 October 2020; or
- a quarter that starts on 1 April 2020 or 1 July 2020,
at least 30% less than its current GST turnover for a period in 2019 that corresponds to the turnover test period (ie a month or quarter, as the case may be).
Entities with an aggregated turnover of more than $1 billion in the 2019 income year, or which is likely to exceed $1 billion in the current income year, must show a comparative decline in turnover of at least 50%.
For the purpose of calculating an entities aggregated turnover, its turnover will be combined with the turnover of all connected entities and affiliates (including Australian and non-Australian resident entities).
ACNC-registered charities (other than schools and Type A and Type B providers under the Higher Education Support Act 2003) must show a comparative decline in turnover of at least 15%.
Importantly, the turnover test needs to be met before an entity becomes eligible for the JobKeeper payment. Once this occurs there is no requirement to retest in later months, and the monthly reporting requirement (discussed below) will not impact eligibility.
The Commissioner can also determine that an alternative decline in turnover test applies to a class of entities where there is no appropriate relevant comparison period.
Modifications to the meaning of projected and current GST turnover
There are a number of modifications to the ordinary meaning of projected and current GST turnover, as defined in the GST Act.
Importantly, the projected and current turnover of a member of a GST group will not include supplies made by other members of the group. So, for the purpose of the decline in turnover test, an entity is tested on a stand-alone basis (unlike the aggregated turnover test).
For an entity that is a deductible gift recipient (DGR), each gift that is received or likely to be received is treated as a supply for the purpose of calculating projected and current GST turnover. This is intended to provide a practical means for a DGR entity to meet the decline in turnover test.
An individual is an eligible employee for a fortnight if:
- they have given notice (discussed below) to their employer;
- they are employed at any time in the fortnight;
- they were 16 years of age or over on 1 March 2020;
- they were a full time or part-time employee, or a long-term casual employee that was employed for more than 12 months by the entity on a systematic and regular basis as at 1 March 2020;
- they were (broadly) an Australian resident at 1 March 2020;
- they were not paid parental leave in relation to a PPL period (as defined in the Paid Parental Leave Act 2010) that overlaps with or includes the fortnight;
- they did not receive dad or partner pay during the fortnight; and
- they are not totally incapacitated for the fortnight, and receiving a payment under Australian workers compensation law for a period that overlaps with, or includes, the fortnight.
Reporting from employers
Employers must meet the following reporting obligations:
- notify the Commissioner by the end of each fortnight that they elect to participate in the scheme. For the first two fortnights (ie 30 march 2020 to 27 April 2020) the Commissioner must be notified by 27 April 2020;
- give the Commissioner information about the entitlement for the fortnight, including details of all eligible employees;
- notify an employee within 7 days or notifying the Commissioner; and
- notify the Commissioner, within 7 days of the end of a calendar month in which the entity has qualified for a payment, about the entities current GST turnover for a month and the entities projected GST turnover for the following month.
Reporting for employees
Employees must give a notice to their employer stating that:
- they satisfy the above employee requirements;
- they have not given a similar notice to another entity; and
- if they are a casual employee, they are not a full or part-time employee of another entity.
Wage condition obligation
For an entity to be eligible for a payment in respect of an employee, it must satisfy a wage condition which broadly requires that the amount paid to the employee (or at their direction) is $1,500 less ordinary PAYG withholding and salary sacrificed super contributions.
The case is not so clear for superannuation guarantee obligations. Specifically:
- What part of the wage condition payment of $1,500 will be considered part of ordinary time earnings for superannuation guarantee purposes?
- Does an employer have to fund this superannuation guarantee payment from its own pocket?
The Treasurer’s rules contain provisions which will allow a:
- sole-trader to receive the payment;
- trust to nominate a single beneficiary to receive a payment;
- partnership to nominate a single partner to receive a payment; and
- company to nominate a single director or shareholder in the company to receive a payment.
This includes a non-profit body.
To qualify, an entity must have held an ABN on 12 March 2020 (or a later time allowed by the Commissioner) and:
- derived business income in the 2019 income year, and lodged its 2019 tax return on or before 12 March 2020; or
- made a supply for consideration since 1 July 2018, and lodged the relevant activity statement on or before 12 March 2020.
Entities will still also need to meet the decline in turnover test.
Assessability and deductibility
Unless changes are made to the Treasurer’s rules, payments received by an entity will be assessable income and payments made to employees will be deductible. There are no modifications proposed to the existing tax legislation which will impact this.
Businesses that change hands
The Treasurer’s rules contain provisions that will allow an entity to treat a current employee as having also been employed at an earlier point in time where the individual was employed:
- at an earlier point in time by an entity in the same wholly owned group; or
- the individual is employed in the same business, but it is now carried on by a different entity.
As an example, this may assist entities who have begun contemplating, or entered into, a restructure. However, taxpayers should be mindful that the anti-avoidance provision may apply to schemes entered into for the sole or dominant purpose of obtaining a payment, or an increased amount of payment. This could apply to restructures designed in ensure access to JobKeeper payments, or to increased payments.
ATO discretion in key areas
Some important areas have been left to the discretion of the ATO, which is understandable given the speed at which the draft legislation and rules have had to be released, the scope of which includes determining:
- an alternative measurement for the decline in turnover test, where there is no appropriate comparison;
- there is a contrived scheme for the sole and dominant purpose of receiving or increasing the JobKeeper payments (the integrity measure);
- certain non-employee workers (such as sole traders) be allowed to obtain an ABN after 12 March 2020 and be eligible to receive the payment; or
- a modification of certain timing aspects with regard to eligibility for the payment.
Peter Murray is a partner at Hall & Wilcox www.hallandwilcox.com.au, and currently a member of the ATO’s general anti-avoidance rules panel. He was previously president of the Tax Institute.
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