On 1 May 2020, Treasury registered the legislative instrument ‘Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 2) 2020’ (Amending Rules No. 2) which gives effect to previously announced amendments to the JobKeeper payments scheme.
- provide a modified decline in turnover test for certain group structures;
- adjust the way in which Commonwealth payments are treated when calculating a university’s turnover;
- extend the JobKeeper scheme to certain charities that undertake overseas aid and disaster relief;
- adjust the way in which payments made by the government and the United Nations are treated when calculating a charity’s turnover;
- include a notification requirement to confirm that all employees of a participating entity must be given the opportunity to agree to be nominated;
- impose additional requirements that must be met for children to be eligible nominees;
- extend the JobKeeper scheme to include religious practitioners that are not employees; and
- make various consequential and minor technical amendments.
Modified turnover test for certain group employers
The Amending Rules No. 2 provide a modified decline in turnover test for an employer entity (the modified test) which applies in addition to the basic test in section 8 of the Original Rules and alternative tests determined by the ATO. The modified test in subsection 8A(1) applies if all of the following are satisfied:
- the employer entity is a member of a consolidated group, consolidatable group (corporate groups that are eligible to consolidate but have not done so) or a GST group;
- the employer entity’s principal activity is supplying other members of the group with services (employee labour services) consisting of the performance of work by individuals the employer entity employs. The employer entity may provide other services to the group, but that employer entity must not be an operating entity of the group and must provide no more than incidental services to third parties; and
- the Commissioner has not determined that the modified decline in turnover test does not apply to the employer entity.
The amendments remain problematic for many group employers for a number of reasons including:
- Limiting the concept of group entities to consolidated, consolidatable or existing GST groups means that many common employment service entities will not qualify despite there being a close economic or family connection between the group employer and their related business entities. This is particularly so for many professional services firms with service entities employing the firms staff members.
- Some employees working in adversely affected businesses may not qualify due to the measurement of combined GST turnover with other less impacted group entities.
- Imposing a principal activity test on group employers also limits access to JobKeeper payments for employer entities that are carrying on an operating business but some of their employees are working for another adversely affected operating entity, but legally employed by the employer entity. For example, a situation that will not qualify for the group employer alternative turnover test is where the employer entity is an operating entity but it does not meet the 30% turnover reduction test on its own but if it was able to group with the other operating entity, it could have passed the 30% reduction of turnover test.
Modified turnover test for ACNC Charities
ACNC-registered charities will be provided with the ability to elect to apply the new modified test, which will disregard many grants and make it easier for charities to establish they have satisfied the 15% decline in turnover test where non-grant funding such as gifts and donations has declined. Modifications may apply to employee eligibility where charities have employees whose salary and wages are fully funded by government grants. Charities which have already enrolled have until 8 May to notify the ATO of the election to apply the modified approach.
New turnover test for Universities
Universities will now be subject to a new decline in turnover test period being six months commencing 1 January 2020, whereas other entities may choose any month or quarter from April to September 2020. They will also need to include income from Commonwealth-supported places, research grants and fees from full fee-paying students (including international students) in their income when applying decline in turnover tests.
Restrictions for some students
Full time students who are 16 or 17 years old and who are not financially independent will also no longer be eligible for JobKeeper payments. This change applies prospectively to Jobkeeper fortnights commencing 11 May 2020 onwards. The ATO has updated its JobKeeper employee nomination form with additional questions for employers with employees aged 16 or 17 years.
Requirement to notify employees (one in, all in)
A new process has also been introduced in the administration of the JobKeeper payment scheme where employers must now notify all potentially eligible employees in writing that their consent to be nominated is sought. This ensures that the JobKeeper payment scheme is consistent with changes to the Fair Work legislation that require employers to pay individuals who would otherwise be eligible and further demonstrate the ‘one in, all in’ principle. A failure to notify employees will constitute a breach of the tax law as well as the payment conditions in the Fair Work legislation.
Such notification will not be required however where an entity reasonably believes that the individual does not satisfy the 1 March 2020 requirements to be an eligible employee because they were not an employee of the entity; were a short-term casual employee; or because they did not meet the minimum age, study, independence test or residency requirements.
ATO Guidance on schemes
On 1 May 2020, the ATO released Practical Compliance Guideline PCG 2020/4, which contains eight examples of schemes to obtain access to obtain the JobKeeper payment that may or may not attract the ATO’s attention. High risk examples include deferring / bringing forward the making of supplies or making supplies solely to obtain the JobKeeper payment; transfers of assets to recently incorporated subsidiary without any decline in external revenue; or where a parent company of corporate group manipulates timing of management fees.
The ATO has also included low risk examples where an employer entity reduces a service fee or stands down employees; where a parent company of a corporate group reduces management fees; or where an employer entity is unable to pay. In effect, the ATO says, while these arrangements may involve a ‘scheme’ there is a low risk the ATO will commit compliance resources where the changes in intra-group charges is because of the significant impact the external operating environment.
ATO guidance on the basic decline in turnover test
On 4 May 2020, the ATO published Law Companion Ruling LCR 2020/1, which contains the ATO’s legal view of the basic decline in turnover test including:
- what supplies are relevant when calculating projected GST turnover and current GST turnover (including supplies that are input taxed, not connected with Australia and where the taxpayer is not the supplier);
- how to allocate supplies to relevant periods (including supplies made/not made on a progressive or periodic basis); and
- how to determine the value of each supply that has been allocated to a relevant period (including GST adjustment events).
The ATO acknowledges that it is necessary to allocate supplies which have been made, or are likely to be made, to a turnover test period or relevant comparison period based on when the supply is made or is likely to be made and determine the value of those supplies. The ATO will accept that there may be practical compliance difficulties in linking amounts that have been received or invoiced based strictly on the time a supply is made or likely to be made. The ruling therefore outlines alternative methods which, if applied in good faith, the ATO will accept can be used as a proxy for determining the value of supplies that were made or are likely to be made in a relevant period. These are:
- accrual accounting;
- GST attribution rules; and
- income tax accounting if not registered for GST.
LCR 2020/1 also contains a number of practical compliance approaches relevant to calculating turnover with four examples on predicting supplies (i) for those impacted by COVID-19 restrictions, (ii) for those not impacted by COVID-19 restrictions, (iii) where there is a sale of accommodation and application of the GST attribution rules and (iv) when actual supplies are higher than predicted.
All employers need to determine if their business is eligible, identify and notify eligible employees in writing that they are entitled to JobKeeper payments, make payments and commence making monthly declarations. Group Employers further need to identify if they have provided services provided to affiliates that are not consolidated, consolidatable or GST group members; determine if supplying employee labour services to affiliated entities is their principal activity; and review if intragroup charges are adjusted so income declines proportionately. Employers have until 31 May 2020 to enrol, but still need to pay their employees for the first two Jobkeeper fortnights (30 March – 12 April, 13 April – 26 April) by 8 May 2020.
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