On 8 April 2020, legislation was introduced into and passed both Houses of Australian Federal Parliament, containing measures to implement the Government’s ‘JobKeeper payments’ wage subsidy scheme in response to the coronavirus (COVID-19), which is intended to encourage employers who might make staff redundant due to the pandemic, retain or rehire their employees. Please refer to this BDO Tax Technical Update for detail on alternative turnover tests and this BDO Tax Technical Update for detail on modified turnover tests for certain group structures.
JobKeeper wage subsidy
On 8 April 2020, a package of four Bills were introduced into Australian Federal Parliament, containing measures to implement the Government’s ‘JobKeeper payments’ wage subsidy scheme, first announced on 30 March 2020. The Bills – forming the single largest piece of government spending in Australian history - passed both Houses of Parliament without any amendments. The legislation was accompanied by draft rules released by Treasury containing important detail on the measures.
Employers will receive a $1,500 per fortnight ‘job keeper payment’ before tax for each employee they keep on over the next six months. It will be available to full and part time workers, sole traders and long-term casuals (a casual employed on a regular basis for longer than 12 months as at 1 March 2020). Employers can only claim $1,500 JobKeeper payment for eligible employees if they pay the $1,500 per fortnight (before tax) to each eligible employee, even if their regular wage per fortnight is less than $1,500.
Eligibility of employers
Employers (including not-for-profits) will be eligible for the subsidy if:
- their business has ‘aggregated turnover’ in both the current and previous years is less than $1 billion and estimate their ‘GST turnover’ has fallen or will likely fall by 30 per cent or more; or
- their business has ‘aggregated turnover’ in either the current or previous years is $1 billion or more and estimate their ‘GST turnover’ has fallen or will likely fall by 50 per cent or more; or
For charities registered with the Australian Charities and Not-for-profits Commission (ACNC), they will be eligible for the subsidy if they estimate their turnover has fallen or will likely fall by 15 per cent or more relative to a comparable period. Companies that are in liquidation, or a partnership, trust or sole trader in bankruptcy, will not be eligible.
The employer must pay the employees at least $1,500 during each fortnight (or month if this is the regular payment cycle). However, the Commissioner of Taxation has a discretion to treat payments made in other periods to be made in the relevant fortnight if it is reasonable to do so (there are no guidelines yet on what situations would be reasonable).
According to the exposure draft rules, if a business changes ownership since 1 March 2020 and the new owner continues to run the same business, the new employer will be eligible in relation to the employees that were employed by the old employer as at 1 March 2020. Where there is a transfer of employees between members of the same wholly owned group after 1 March 2020 (whether or not there was a transfer of the business), the new employer will be treated as being the employer at 1 March 2020 in relation to the JobKeeper payments for the employees after the transfer.
Where employees are employed by a labour hire company but actually work in other businesses it is the labour hire company that is treated as the employer. It appears this would also apply to group employers where one company in a group of related entities employees all the employees who work in the businesses of the related entities. If some of the businesses in these groups have a reduction of turnover of more than 30% but there is not a 30% reduction in the group employer’s it appears none of the businesses in the group would be entitled to the JobKeeper payments. The group employer could however receive the JobKeeper payments if the Commissioner of Taxation agrees to exercise discretion to consider additional information that the business can provide to establish that they have been adversely affected by the impacts of COVID-19. The Group employer would have to apply for this discretion.
The legislation contains appropriate integrity rules to prevent employers from entering into contrived schemes in order to get inappropriate access to payments. If employers enter into or carry out a scheme for the sole or dominant purpose of obtaining a JobKeeper payment, the ATO may make a determination that they are no longer entitled to it. The term scheme is given the meaning used in the GST legislation, which includes a broad range of arrangements. The scheme includes deliberate alterations to business arrangements to reduce turnover in order to allow an entity to meet the turnover requirements to receive the payment.
While the GST definition of turnover is used for determining the reduction in turnover, this is not the case when determining whether the employer has a $1 billion turnover. The exposure draft rules indicate this turnover is based on ‘aggregated turnover’, which is not defined in the exposure draft rules but it is assumed it is based on the definition of ‘aggregated turnover’ in the income tax law. Some of the important differences between GST turnover and aggregated turnover is that, whereas GST turnover is based on the stand alone turnover of the entity not including foreign turnover, the aggregated turnover includes all the turnovers of the entity and all its connected entities and affiliates it also includes foreign turnover of any of these entities.
The reduction in turnover is to be determine according to the current calculation for GST purposes and is reported on Business Activity Statements. It includes all taxable supplies and all GST free supplies but not input taxed supplies. You must also include intra-group transactions that are excluded for GST purposes. Under the GST law, only Australian based sales are included and therefore, only Australian based turnover is relevant. A decline in overseas operations will not be counted in the turnover test.
The legislation also contains modifications for businesses that are part of a GST group. Whilst intra-group transactions in GST groups are generally disregarded for the purposes of GST, for the purposes of the JobKeeper payment they are taken into account for the turnover reduction test.
The decline in turnover test is based on projected GST turnover with a relevant comparative period e.g. projected turnover for April 2020 compared with April 2019 (monthly) or projected turnover for quarter 4 for 2020 compared with quarter in 2019 (quarterly). The Commissioner of Taxation has the discretion to uses alternative test to determine the reduction in turnover, however these rules have not yet been announced.
If a business does not meet the turnover test at the start of the JobKeeper scheme on 30 March 2020, the business can start receiving the JobKeeper payment at a later time once the turnover test has been met. In this case, the JobKeeper payment is not backdated to the commencement of the scheme, however businesses can only receive JobKeeper payments up to 27 September 2020.
Eligibility of employees
Employers will only be able to claim the JobKeeper payment for eligible employees that were in their employment on 1 March 2020, and continue to be employed while they are claiming the JobKeeper payment.
An eligible employee is an employee who:
- is currently employed by the eligible employer (including those stood down or re-hired);
- is a full-time or part-time employee, or a casual employed on a regular and systematic basis for longer than 12 months as at 1 March 2020;
- was aged 16 years or older at 1 March 2020;
- was an Australian citizen, the holder of a permanent visa, or a Special Category (Subclass 444) Visa Holder at 1 March 2020;
- was a resident for Australian tax purposes on 1 March 2020; and
- is not in receipt of a JobKeeper payment from another employer.
Eligible employees include:
- employees who are retained,
- employees stood down without pay after 1 March 2020 but remain employed, and
- employees let go after 1 March 2020 and re-hired will all be eligible.
Employers that receive payments on behalf of employees that resign must notify and in some instances repay the ATO. Those that are self-employed will only receive the payments if their self-made income is in addition to that received from an employer eligible for the payments.
The JobKeeper payment is not income-tested, so employees may earn additional income without their payments being affected provided they maintain their employment (including being stood down) with their JobKeeper-eligible employer. However, they can only receive the JobKeeper payment from one employer, their primary employer.
Eligible small businesses that receive the JobKeeper payment will not be eligible for the 50 per cent wage subsidy for apprentices and trainees currently being made available as part of the Government’s COVID-19 relief from 1 April 2020 onwards.
The JobKeeper payment will be administered by the ATO. Eligible employers need to determine if they want to participate in this program by electing into it. BAS and Tax agents do not need to register each client separately, unless they are registering each client to receive the information directly.
JobKeeper payments should be made using an employer’s payroll system and reported to the ATO via Single Touch Payroll. This will support the online claim process when it is available. If employers do not report through Single Touch Payroll, they can still claim the JobKeeper payment; however there will be a manual claim process. They will be required to advise their employees whether you have nominated them as an eligible employee for the purposes of the payment.
The JobKeeper payment is a reimbursement scheme that will be paid by the ATO monthly in arrears. Employers will need to satisfy payment requirements for their eligible employees in respect of each 14 day period covered by the scheme. The first period starts on Monday 30 March 2020 and ends on Sunday 12 April 2020. The final period will start on Monday 14 September 2020 and end on Sunday 27 September 2020.
The payment requirement is that they pay their eligible employees a minimum of $1,500 per fortnight in the scheme payment periods. Where an employer pays their staff monthly, the ATO will be able to reallocate payments between periods. However, overall an employee must have received the equivalent of $1,500 per fortnight.
PAYG withholding and Superannuation
Employers must pay a minimum of $1,500 per fortnight to eligible employees, withholding income tax as appropriate. The $1,500 per fortnight per employee is a before tax amount. Where an employee is paid more than $1,500 per fortnight, the employer’s superannuation obligations will not change.
No superannuation guarantee payments are required to be paid on any additional payment made because of the JobKeeper Payment. Where an employee is having their wages topped up to $1,500 per fortnight by the JobKeeper Payment, it will be up to the employer if they want to pay superannuation on any additional wages paid by the JobKeeper payment.
The legislation contains amendments to the Fair Work Act. There will be a civil remedy provision under that Act if an employer receives a JobKeeper payment and does not pass it on (either as wages, or top up payments) to the eligible employee in the relevant fortnight. In such an instance, employees will have a right to sue for compensation.
This package is welcomed by BDO as an important measure to help businesses get through the unpresented challenges caused by COVID-19. However the rules are complex and there appear to be a number of situations where business will not be entitled to JobKeeper payments in situations where logically it appears they should.
Please contact BDO for assistance with determining eligibility, engaging with the ATO where the ATO’s discretions must be relied upon to be eligible and satisfying governance procedures.
BDO can also help you with the development of your whole of business approach to respond to current and emerging issues arising in the current environment as well as with implementation tasks.
As certain incentives in the various economic packages will only be available for a short period of time, businesses should consider taking action as soon as practicable.
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