- JobKeeper legislation passed
- Legislation confers power to the Treasurer to set practical guidelines via JobKeeper “Rules” (now finalised)
- ATO guidelines still pending
- Decline in turnover eligibility requirement to be confirmed by basic test or alternative test
- Once an employer satisfies the conditions they don’t need to reassess eligibility in later months – they will remain eligible for the remaining period of the scheme;
- Potentially eligible employees need to be paid at least $1,500 per fortnight, otherwise the employer will not be entitled to JobKeeper – an extension has been given for the first two fortnights to 30 April 2020;
- Our recommendation is still to register for JobKeeper – even if in doubt re eligibility. This should be done prior to 26 April 2020;
- Regime will be reinforced by a clawback provision in the event of overpayments, and an integrity provision to deal with contrived schemes; and
- Our most frequently asked questions – answered!
As you may be aware, JobKeeper legislation was passed last week, and together with the Treasurer’s “Rules” is now law.
In this blog, we aim to address the main findings from the legislation and answer the questions most frequently asked by clients since our last update.
Please note this post is long – but we trust the content is of interest. Furthermore, the comments above and below are general in nature and may not be relied upon as such. We recommend that the measures be considered in conjunction with your professional advisers.
The JobKeeper wage subsidy will be made to eligible businesses and not-for-profits affected by COVID-19, in order to support them in retaining their employees.
Employers will be eligible for the JobKeeper payment if their turnover has fallen or will likely fall by 30% or more (15% or more for not-for-profits) relative to a comparable period.
A payment of $1,500 per fortnight will be made for all current employees and any employees stood down since 1 March 2020. JobKeeper will commence from 30 March and the first payment will be made in May i.e. payments for April and May will be made in May. The JobKeeper program has been announced for an initial period of six months, and will conclude on 27 September 2020.
The subsidy will assist businesses in respect of permanent employees (full-time, part-time), long-term casuals and contractors.
A more detailed introduction to JobKeeper can be found here.
JobKeeper legislation – update
On 30 March 2020, the Australian government announced the JobKeeper scheme as a third round of stimulus to support the economy. The Government introduced and passed the legislation on Thursday 8 April 2020.
An unusual feature of the scheme is that the above legislation provides merely a broad framework, and then delegates all powers regarding the practical operation of JobKeeper to the Treasurer. It instructs the Treasurer to develop a series of “rules” in order to do so, which were drafted and finalised by Treasury on Friday 9 April. The Rules are critical to the operation of the scheme and establish employer eligibility for the JobKeeper payment.
Additionally, the Rules prescribe that the JobKeeper scheme is to be administered by the ATO. Communication from the ATO regarding guidelines as to how the scheme will be administered are still forthcoming.
Our comments and guidance in this email are based on the legislation, Treasurer’s Rules and the Treasury’s JobKeeper Fact Sheet, which is updated frequently.
Eligibility! The big question.
In order for an entity to be entitled to JobKeeper payments, the employer must meet various conditions as set out in the Rules:
Of the conditions, we have been inundated with queries as to how the Decline in turnover test will be calculated, and what constitutes an Eligible employee. The Rules also announced some other important conditions detailed below.
Decline in turnover test
A critical test for an employer in determining eligibility for JobKeeper payments is whether there has been a sufficient decline in revenues, by applying either the basic test or the alternative test.
The basic test was widely publicised before the legislation was enacted. Broadly, the basic test will be met where the entity’s “projected GST turnover”** has dropped by more than 30% (15% for NFPs) relative to an appropriate comparison period (either the same month or quarter) in 2019.
For example, where an employer seeks to qualify for the JobKeeper scheme from the first fortnight ending 12 April 2020 (i.e. from Monday, 30 March 2020), the turnover test period will occur in April 2020. The employer will then apply the basic test by reference to either the month of April 2019, or the quarter ending 30 June 2019.
Please see below section entitled Turnover Test Period for important commentary on application of the scheme to future periods.
**Projected GST turnover = in very general terms, an entity’s GST turnover is its revenues from normal trading during a period (ex GST) – as reported on the entity’s BAS. Projected GST turnover takes into account sales that have been made as well as those the entity is “likely to make” during the balance of the month or quarter in question, based on purchase orders, a business plan, budget forecast or some other reasonable support.
Special rules have been introduced in respect of charities and NFPs. Deductible gift recipients may also include donations (other than from associates) received or are likely to receive in their turnover for the purpose of determining if they have been adversely affected in their calculations.
The alternative test
Of course, it is expected that there will be a variety of affected employers who will not satisfy the basic test.
The Rules provide for this by introducing an alternative test. The Explanatory Statement indicates that the alternative test “is necessary to maximise flexibility and responsiveness to ensure that all entities that are intended to be assisted by the JobKeeper payments do in fact obtain the benefit of the payment”.
An alternative test can be established where “the Commissioner is satisfied that there is not an appropriate relevant comparison period” for the application of the basic test. A relevant comparison period is defined to mean “a period in 2019 that corresponds to the turnover test period” i.e. the basic test.
The Explanatory Statement includes several examples:
- The revenue of a business was adversely affected in 2018 and 2019 by the drought, such that 2019 was not an appropriate relevant comparison period. In the example, it is assumed that the appropriate relevant comparison period is the equivalent month or quarter in 2017.
- A start-up company commences business in late 2019. As a result, the company was not carrying on business in the equivalent month or quarter in 2019. In this example, it is assumed that the relevant comparison is undertaken by reference to the average of the actual GST turnover in all of the months in which the business was being carried on prior to the turnover test period.
At this stage there is no sign that the Commissioner’s discretion in granting relief will extend to particular facts and circumstances of each case. It will be important to monitor any advice or guidance issued by the ATO as to how the Commissioner will seek to administer the alternative test.
Important: Turnover Test Period
For the purposes of the decline in turnover test, at this stage it appears that the Turnover Test Period (the month/quarter you elect to assess the decline in turnover vs prior year) can be:
- Any month from March 2020 to September 2020 inclusive; or
- The quarter ended 30 June 2020; or
- The quarter ended 30 September 2020.
The Rules do not seem to require an alignment of your selection of the Turnover Test Period with the reporting period used in your BAS (i.e. monthly or quarterly). Therefore, a quarterly BAS reporter could use a single month as the Turnover Test Period and vice versa.
Very importantly, the Rules appear to operate such that if, for example, April 2020 was selected as Turnover Test Period, and the reduction as compared to April 2019 satisfies the 30% threshold then this can be used to satisfy the decline in turnover test for all months from April to September 2020 inclusive and claim an entitlement for the entire six months of the scheme. There is no requirement to “re-test” or reassess eligibility in subsequent months.
The Explanatory Statement also makes clear that once the decline in turnover test is satisfied, there is no requirement to re-test in later months.
On this basis you will not fall into and out of the JobKeeper scheme over the six month period i.e. once the conditions are met you will remain eligible for the remaining period of the scheme.
Alternatively if JobKeeper eligibility can’t be immediately sought because turnover has not been sufficiently affected, a business can reassess its decline in turnover in a later month. This allows employers that become impacted later in the six-month period to still participate. In this case, the entitlement is not backdated to the commencement of the scheme – and the entitlement will still cease on 27 September 2020.
The second subject with some uncertainty to date is what constitutes an eligible employee. As per the legislation and Rules, an employee is an “eligible employee” if the individual:
- Is currently employed by the eligible employer (including stood down or re-hired staff);
- Was at least 16 years of age as at 1 March 2020;
- Was employed by the employer at 1 March 2020 as a full-time employee, a part-time employee, or a “long-term” casual i.e. employed as a regular casual for longer than 12 months on 1 March 2020;
- Was an Australian citizen, holder of a permanent Visa or a 444 Visa holder, and are a resident of Australia for tax purposes; and
- Was not in receipt of a JobKeeper payment from another employer.
The JobKeeper scheme will apply only to employees. Thus, genuine contractors (sole traders, self-employed persons) will be excluded. However, such contractors may be eligible for the JobKeeper Payment in their own right if their revenues have declined sufficiently.
In order to receive the first fortnightly JobKeeper payment (ending 12 April), eligible employers will need to ensure all employees stood down were paid a minimum gross amount of $1,500 per fortnight from 30 March 2020.
Other important conditions of eligibility for JobKeeper are as follows.
An employer will satisfy this test for an individual in a fortnight if the employer has paid specified amounts to the individual in the relevant fortnight, and those amounts exceed $1,500. In the absence of this condition being met in respect of an employee for a particular fortnight, the employer is not entitled to a JobKeeper payment for that individual for that fortnight.
In respect of the first JobKeeper fortnight, beginning on Monday 30 March and ending on Sunday 12 April 2020, this ordinarily requires that all potentially eligible employees have been paid at least $1,500 before 12 April 2020. Given timing of the legislation and Rules being finalised, as a transitional arrangement we understand the Commissioner will allow the total amounts applicable to both the first and second fortnight to be paid on or before 30 April 2020.
An eligible employer needs to notify the Commissioner in the approved form (TBA) that the employer elects to participate in the JobKeeper scheme. Such notification is generally required prior to the end of a fortnight in order to be entitled to a payment for that fortnight. However, with respect to notification for the first two fortnights, the employer is required to elect in and notify the Commissioner prior to the end of the second JobKeeper fortnight, being 26 April 2020.
Once an employer has validly elected in, which presumably will be via the ATO registration process, the employer will have provided an election before the end of all future JobKeeper fortnights. As a result, notification to elect in should be a once only requirement.
Accordingly, our recommendation remains to register for JobKeeper, even if in doubt.
Payment process and timeline
As mentioned, in order to be eligible with respect to the first and second “JobKeeper fortnights” (30 March to 12 April and 13 April to 26 April), it is required that employers register prior to 26 April 2020.
The first payment will generally be made to eligible employers by 14 May 2020. The amount will be paid monthly in arrears i.e. May will be paid in June, June in July etc.
Eligible businesses will be able to claim a fortnightly payment of $1,500 per eligible employee for a maximum period of 30 March 2020 to 27 September 2020 (13 fortnights).
In cases where paying employees in advance may present cash flow difficulties, Treasury has indicated that those businesses may want to speak to their bank to discuss options regarding funding specifically for JobKeeper payments.
JobKeeper FAQ – quick answers
Finally, since the announcement of JobKeeper on 30 March we have had countless discussions with clients of different industries, backgrounds and circumstances – and thought it would be interesting to share some of the most frequently asked questions and our (very short) responses.
Q – I operate my business from a partnership/trust/company but don’t pay myself a salary – am I eligible for a JobKeeper payment?
A – For eligible employers that remunerate the owners via dividends or distributions, the entity can nominate one (1) person to receive JobKeeper benefits.
Q – I report my BAS revenues on an accruals (invoice) basis. I have not had a drop in invoicing but am already having many customers tell me they can’t pay. How do I justify that I am affected if I don’t pass the decline in income test?
A – This is something we are hoping will be addressed by the “alternative test” above, which will essentially ask for the Commissioner’s discretion given the comparison period is not appropriate. We will know more about the Commissioner’s discretion when the ATO releases its guidelines.
Q – If I decide to hire a new employee during the period can I claim JobKeeper payments for them?
A – Yes, so long as the entity is an eligible employer.
Q – Are the JobKeeper payments taxable to the employer entity? When paid to the employee do I need to withhold PAYG, pay payroll tax and super?
A – 1. Yes, the $1,500 per fortnight/employee is taxable in the employer entity (this is fully offset as a tax-deductible expense if it is paid out to the employee).
2. Yes, PAYG should be withheld when the JobKeeper amounts are on-paid to employees.
3. There has been no communication as yet regarding payroll tax although it would be safe to assume that if the amounts are on-paid to employees as wages, then the payments would attract payroll tax (post waivers on 1 July).
4. Super is only paid on Ordinary Time Earnings – so if an employee has been stood down and is receiving $1,500 then there is no super payable. However, if the employee has been working on reduced hours for the $1,500 then super would need to be paid.
Q – I got divorced last year and wasn’t working / My business partner and I parted company / We are a start-up and weren’t operational – how can we assess our decline in income?
A – Again these are circumstances we hope are addressed by the Commissioner exercising his discretion under the “alternative test”. We understand as per the explanatory guides given with the Rules, that approaches such as using a comparative period from two years ago, or using monthly averages leading up to the crisis are all reasonable ways of approaching these issues. Again, these will become clearer following the ATO releasing their guidelines.
Q – Is it only companies eligible or other entities can apply for JobKeeper?
A – All eligible employers per the Rules can apply, irrespective of entity structure.
Conclusion / next steps
We hope this blog is of ongoing assistance to your affairs during this difficult time.
If you haven’t already, the best advice remains to register for JobKeeper – there is no downside even if you are deemed ineligible and otherwise will secure the first two fortnight’s registration if eligible.
Get in touch with us to discuss eligibility and collection of information on forecast turnover for the coming six months and actual turnover for equivalent periods last year – or start discussing the use of the alternative test.
As always we are keeping you abreast of JobKeeper information as it comes to light – if there are any specific questions you want to be clarified regarding this blog or JobKeeper generally, please contact us.
All the best,
The CharterNet Team