JobKeeper Payment and Expanded Test for Service Entities

On 2 May 2020, the Treasurer released some guidance in relation to a new rule introduced for the JobKeeper "decline in turnover" test.  The test has been expanded to allow service entities, which may not suffer the necessary decline in turnover in their own right, to test whether they may now become eligible for JobKeeper Payments.

What is a Service Entity?

A service entity is a separate entity (often a trust) which provides services to a related entity that carries on the operating (or trading) business.  Service entities allow for important assets of the business (ie. premises, plant and equipment and staff) to be kept separate from the commercial risks of the operating entity that is carrying on the business.


To comply with ATO income tax guidance, service entities often charge a service fee (based on the costs of the service) plus a mark-up.  For example, a service entity that supplies staff to an operating entity will often charge its service fee based on the cost of wages plus a mark-up, within the ATO's guideline percentage range.


For the purposes of the JobKeeper Payment scheme, the current problem for service entities not being eligible is as follows; while the operating entity's turnover may declined significantly due to impact of the COVID-19 pandemic, the service entity's revenue would not decrease unless its costs decrease.


For example, where employees are stood down, a service entity that charges cost plus mark-up may experience a decline in turnover due to a reduction in employee costs for the period.  Alternatively, if employees are retained during the COVID-19 downturn, there may be no corresponding reduction in income at the level of the service entity.  Also, the service entity would need to be actually carry on a business in its own right to be eligible for the JobKeeper Payment scheme.

What are the Details of the new Guidance?

The Treasurer has released new guidance on 2 May 2020 which states:

  • An alternate "decline in turnover test" will apply to special purpose employment entities (ie. service entities).
  • In circumstances where an employment entity is utilised within a group of companies, and that employment entity is unable to demonstrate a decline in its own turnover because, for example, it has had its full year of staffing fees paid in advance, the employment entity will be able to refer to the decline in turnover of the operating entities it services.
  • This will provide for eligibility of service entities that provide employee labour to group members and that have not met the basic test for decline in turnover.


If the service entity is not able to meet the basic test for decline in turnover, it may still be eligible for the JobKeeper Payment if it meets the alternate test.



The alternate decline in turnover test will be by reference to the "combined GST turnovers of the related entities" using the services of the employer entity.

There are Important Details to Consider

While this is good news for businesses using service entities, there are some important details to consider here, such as what is meant by "combined GST turnovers of the related entities"?


The expansion of the alternate test will be set out in amendments to the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020; however we are yet to see these details.


It will be important to see whether the alternative test rules are amended to introduce:

  • the aggregate of the turnovers of the operating entity and service entity; or
  • the aggregate of the turnovers of the operating entity and service entity (excluding the related party transaction).

This may result in a different decline in turnover percentage under each circumstances (above).


We will provide an update to the Alert when the final changes to the rules have been released.  In the interim, businesses using a service entity should consider whether they may now be eligible for JobKeeper Payments.


The ATO has allowed until 31 May 2020 for businesses to enrol for the JobKeeper Payment, and the ATO has also extended the time to 8 May 2020 which JobKeeper Payments have to be made to employees to meet the "wage condition".  This is an extension from the original deadline of 30 April 2020.

Be Aware of the JobKeeper Integrity Measures

To maintain the integrity of the JobKeeper Payment scheme and prevent misuse of the expansion of the alternative decline in turnover test, the Commissioner will have the power to prevent access to the alternate test where the Commissioner has material compliance or integrity concerns with an entity's use of the test.

Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.