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JobKeeper Payment and Service Entities Guidance has now been clarified.

On Monday we released a Tax Alert with the initial guidance released by the Treasurer, expanding the JobKeeper "decline in turnover" tests to now consider service entities which provide employment services to a group.  To see our previous Tax Alert – click here.


The Treasurer has now provided some more detailed guidance on how service entities can test whether it can satisfy the JobKeeper "decline in turnover" threshold (ie. 30% or 50%), and determine if they may be eligible for the JobKeeper Payments scheme.


How has the "decline in turnover" test been expanded?

In group structures where a service entity (the employer entity) is used to provide the employment services for the operating (or trading) entities of the group, these employer entities do not typically have significant dealings outside the group and their turnover may not reflect the overall performance of the group.  As a result, even where there has been a significant decline in the turnover of the entities in the group, the JobKeeper Payment may not be available to the employer entity.


To address this, a modified decline in turnover test for an employer entity (the modified test) has been released in addition to the basic decline in turnover test.  


The modified test applies if all of the following are satisfied:

  • The employer entity is a member of a consolidated group, consolidatable group or a GST group (see heading below);
  • The employer entity's principal activity is supplying other members of the group with services (ie. employee labour services) consisting of the performance of work by individuals the employer entity employs.  The principal activity is the main or predominant activity that the employer entity carries out; and
  • The Commissioner has not determined that the modified decline in turnover test does not apply to the employer entity.


How is GST turnover calculated under the Modified Test?

From the initial guidance released on 2 May 2020, we understood that the current or projected GST turnover figures to be tested by the employer entity would be expanded to include "combined GST turnovers of the related entities". 


This concept has now been clarified as part of the modified test, as follows:

  • Instead of using the employer entity's projected GST turnover for the turnover test period, the sum of the projected GST turnovers for that period of each "test member" is to be used; and
  • Instead of using the employer entity's current GST turnover for a relevant comparison period, the sum of the current GST turnovers for that period of each "test member" is to be used.

We note that the term "test member" includes the employer entity and any other group entity which the employer entity supplies employee labour services to. 


This ensures that the decline in turnover test is applied to group members that predominately undertake transactions with external entities on an arms-length basis, rather than measuring the decline in intergroup transactions (when only testing the service entity's turnover).



The Service Entity needs to be a member of certain type of group?

The first condition of the modified test (explained above) requires:  the employer entity is a member of a consolidated group, consolidatable group or a GST group. 

Here is an explanation of each group category:

  • A consolidated group consists of a head company entity, and this entity has wholly-owned subsidiary entities (which can be companies, trusts and partnerships), and all entities are resident in Australia;
  • A consolidatable group consists of a wholly owned group (with a head company entity) which is able to consolidate for income tax purposes, but has chosen not to; and
  • A GST group exists (broadly where there is 90% or more common ownership), one member of the group deals with all the GST liabilities and entitlements of the group and, in most cases, transactions within the group are excluded from GST.


Extension of JobKeeper application dates

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.


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