11 April 2020
by David Prichard
- Related topics
- Corporate Tax & Regulatory
The legislative instrument governing the JobKeeper package has been released providing some clarifications on its operation but still leaving many questions to be answered about how the rules will be applied in practice and how they interact with common structures. The ATO have announced that more information will follow which will hopefully fill some of these questions. We will continue to keep you updated as further information is released.
The JobKeeper stimulus package works on a period of a fortnight and this extends to continuing employment relationships and timing of employer registrations. It is vital to ensure that testing to meet the turnover threshold is completed and registration is performed on a timely basis as the JobKeeper payments are prospective only.
Accessing the JobKeeper stimulus package requires a taxpayer to meet all three criteria as follows:
- Be an eligible Employer;
- Have eligible Employees fortnightly; and
- Meet the Wage Condition fortnightly.
If one of the above are not met for a fortnight the employer will not be eligible for the payment for that fortnight.
Eligibility at the employer level
- Whilst employers may have registered interest, they must still apply to participate in the scheme in the approved form (which is not yet currently available).
- Employers with Aggregated annual turnover1 of:
- < $1 billion are eligible where they have had a reduction in GST Turnover of 30%;
- > $1 billion are eligible where they have had a reduction in GST Turnover of 50%; and
- ACNC registered charities where they have had a reduction in GST Turnover of 15%.
- Once the turnover threshold percentage is identified, the turnover test then compares Projected GST Turnover2 (taxable supplies and GST free supplies) to the current GST Turnover (ie actual) for the same period in the year before. As such, only decreases in the Australian turnover of the employer is examined.
- A fall in turnover is tested over a period, the minimum being a calendar month, but it can be a quarter. The first available test period is the month ended 31 March 2020 (comparison period the month ended 31 March 2019) and the first quarter is the quarter 1 April 2020 to 30 June 2020 (comparison period the quarter ended 30 June 2019).
Click for examples of how the JobKeeper Turnover Testing works.
- Where the turnover test is met, the turnover does not need to be retested for ongoing eligibility. If the test is not met initially, it can be retested to determine eligibility at a later point in time. You do not and should not need to wait to the end of a period to test.
- Each business within a group is examined separately with special rules applying for members of GST groups.
- An alternate test is available if the comparison period is not “appropriate” (eg major acquisitions, drought issues in prior years, business start-ups etc). In these circumstances the Commissioner can issue another instrument to determine an appropriate test for a “class of entities”. Further clarification of the alternate tests is anticipated.
- Eligible employers will receive the $1,500 per fortnight payment for each eligible employee (see below) that was on their books on 1 March 2020 and continues to be engaged by that employer.
- Employers must meet the “Wage condition” which requires them to pay at least $1,500 per fortnight before tax (see below) to eligible employees.
- Employers cannot pick and choose which employees they put forward for the JobKeeper payments. All eligible employees must participate.
- All employer types are eligible, except where the employer is the Australian Government and its agencies, State and Territory governments and their agencies, foreign governments and their agencies, local governments and wholly owned corporations of these bodies. These entities are not eligible for the JobKeeper payment.
Eligibility at the Employee level
- An eligible employee is one that is:
- Permanent full or part time, or a long-term casual (regular and systematic for 12 months); and
- An Australian citizen, the holder of a permanent visa, or a Special Category (Subclass 444) Visa Holder as at 1 March 2020;
- An Australian resident on 1 March 2020 under the Social Security Act 1991 or Income Tax Assessment Act 1936 and at least 16 years old;
- Not be excluded by virtue of other employment nominations, government paid parental leave or fully incapacitated and receiving workers compensation.
- The Wage Condition requires all eligible employees to receive:
- At least $1,500 per fortnight if they receive less than this normally. PAYG and superannuation is required on the regular component of the pay. PAYG is required on any top up but it is up to the employer whether they want to pay superannuation on any additional payment to the employee;
- $1,500 per fortnight before tax if they have been stood down. PAYG is required to be deducted but there is no superannuation required in this case. This is also the case if former employees (on the books at 1 March) are re-hired and then stood down;
- Their regular income according to their prevailing workplace arrangements where the employee receives $1,500 or more in income per fortnight before tax. PAYG and superannuation requirements continue as normal.
- Non eligible employees are those receiving:
- Parental Leave Pay from Services Australia; or
- Workers Compensation, in cases where the employee is not working.
- Employees on unpaid leave, annual leave or parental leave paid by the employer will be eligible.
- The $1,500 minimum includes PAYG withheld, superannuation payments made and amounts dealt with at the direction of the employee.
Click for – JobKeeper Employee Payment Examples
The concessions regarding superannuation have not, at the time of writing, been enacted as they require separate legislative instruments and / or regulations to be issued.
The Payment in Practice
- The JobKeeper payments will be administered by the ATO and will start to be issued in the first week of May, backdated to 30 March 2020. Whilst an entitlement to a payment arises every fortnight, reimbursement occurs on a monthly basis in arrears (within 14 days of the end of the relevant month).
- The timing of registration is vital for taxpayers to ensure they access the JobKeeper payments they are entitled to. Registrations required as follows:
- By 26 April 2020 to receive payments in respect of eligible employees for the first two fortnights of the scheme; and
- For all other fortnights an employer will only be eligible for the fortnight in which they register.
Failure to register on time will mean that the employer misses out on that fortnight’s payment.
- As part of the integrity processes, employers are required to obtain confirmations from employees about eligibility and an agreement to be nominated. Employers will need to give fortnightly confirmations to employees. Internal Human Resources teams will need to play a strong role in the communication process and collation of data on a timely basis.
Employers are required to provide details of all eligible employees to the ATO as part of the application process. The ATO will seek to populate this from STP information as far as possible. Once the employee data is supplied only changes need to be advised to the ATO.
- Employers not using STP will be catered for, however, are to expect delays in receiving payments.
- Monthly reporting to the ATO will be required in respect of the number of eligible employees together with the current months and next months projected turnover. This is time sensitive and must be provided to the Commissioner within 7 days of the month end.
- The ATO is working with STP software suppliers to ensure functionality to deal with the JobKeeper payments, however, there may need to be workarounds.
- Unless exceptional circumstances exist, the ATO cannot offset the payments against outstanding tax liabilities of the entity.
- There is a significant amount of data to be collected and analysed and provided to the ATO as part of the application process. As such, commencing this data collection and analysis as early as possible is vital in ensuring a business is best placed to make an informed decision about eligibility.
- Ensuring relevant documents and records are kept is an important part of the process. The ATO have advised that they will be examining applications and conducting reviews of claims. Failure to have the appropriate records will mean that an employer will be deemed to never had an entitlement to receive the payment and therefore be liable to repay the amount, together with interest and potential penalties.
- The ATO have already issued integrity guidance concerning the potential accessing of the JobKeeper package by artificial means and are therefore expected to be highly vigilant in such circumstances.
- From a practical perspective, employers may wish to engage with their legal advisers to understand the implications of reducing staff salaries (eg number of hours verses reducing hourly rates) and standing down employees (and what this exactly means) amongst other permutations.
- Ensuring that the Fair Work Act is complied with including the changes generated by the JobKeeper stimulus package will assist in determining the correct tax treatment of the payments made to employees, as well as protecting the employer from potential action.
Eligibility for the Sole Traders and other entity structures
- These taxpayers need to meet the same turnover declines as other types of taxpayers (ie 30% or 50%).
- For sole traders, partners, beneficiaries of trusts and shareholders to be able to benefit there are additional requirements that need to be met in addition to the turnover decline.
- The business must have had an ABN on 12 March 2020 and:
- An amount was included in the entity’s assessable income for the 2018-19 income year in relation to it carrying on a business and the Commissioner had notification that the amount should be so included before 12 March 2020; or
- The entity made a taxable supply on or after 1 July 2018 in a tax period that ended before 12 March 2020 and the Commissioner had notice on or before 12 March 2020 that the entity had made the taxable supply.
- The nominated individual must be an eligible business participant, where they are:
- Not employed by the business at any time in the fortnight;
- Are actively engaged in the business and have a particular role in the business (sole trader, partner, beneficiary, director or shareholder) on 1 March 2020;
- Been a resident and over 16 years old on 1 March 2020; and
- Satisfies the nomination the requirements (the relevant details of the nominated person must be supplied).
- The entity must notify the individual within seven days of giving the Commissioner the details of the individual as the nominated individual for that entity (except sole traders).
- Importantly, for these entities only one payment per entity can be made.
- For example, if there are five shareholders in a company only one can be nominated, and the payment is paid into that shareholders bank account.
Whilst the headlines in the media make it appear that every business can access the JobKeeper package, it is not as simple as that. Accessing the concessions requires understanding differing concepts across both income tax law and GST law. The collation and analysis of data across multiple periods as well as employee information means that there are a lot of moving parts to ensure that when a claim is made it is properly based.
If you have any questions regarding the way to assess your eligibility and access, please contact your ESV Engagement Partner.
We will continue to keep you updated on the finer details of the JobKeeper initiative as details are released – we are here to help our clients through this challenging Covid-19 era.
1Aggregated annual turnover means the turnover of the entity, connected entities and affiliates. It therefore includes overseas related parties such as parent entities and sister subsidiaries.
2 Projected GST Turnover looks at the value of all supplies than an entity has made or is likely to make in a particular period. Likeliness of a supply being made is based on a balance of probabilities using a reasonable expectation taking into consideration the facts and circumstances of the business.