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.