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JOBKEEPER PAYMENT LEGISLATION PASSED, BUT FULL GUIDANCE NOT RELEASED YET

On 31 March, the Federal Government announced Stage 3 of its stimulus package, to help businesses and workers affected by COVID-19, by announcing the JobKeeper Payment scheme. 

Last Wednesday (8 April 2020) the legislation enacting the JobKeeper Payment scheme was passed through Federal Parliament, however more clarification on certain key issues still needs to be released.

 While we await the Government's full guidance, these are the issues which we consider need some urgent clarification.

 


This Tax Alert will outline the eligibility requirements (again), and also focus on three key topics which were given further clarification today, including:

  • How is "turnover" measured to determine if your business meets the 30% (or 50%) reduction threshold?
  • Are partnerships, trusts and companies eligible if the entity makes distributions or pays dividend (in lieu of wages) to the business owners?
  • What are the integrity measures which can be enforced by the ATO?

Eligibility requirements for Employers

Employers will be eligible for the subsidy if:

  • on 1 March 2020, it carried on a business in Australia, has a turnover of less than $1 billion and has experienced (or has projected) their turnover has fallen by 30% or more, relative to a comparable period a year ago (of at least one month),  

          or 

  • on 1 March 2020, it carried on a business in Australia, has a turnover of more than $1 billion and has experienced (or has projected) their turnover has fallen by 50% or more, relative to a comparable period a year ago (of at least one month), and
  • their business is not subject to the Major Bank Levy, 

          or

  • on 1 March 2020, it is a registered charity with the ACNC pursuing its objectives principally in Australia, has experienced (or has projected) their turnover has fallen by 15% or more, relative to a comparable period a year ago (of at least one month).

 

In relation to charitable entities, the lower turnover decline test (ie. 15%) does not apply to universities and non-government schools that are registered charities, who will remain subject to the turnover decline tests set out above for other not-for-profits and businesses (ie. 30% or 50%). 

Eligibility requirements for Employees

You will only be able to claim the JobKeeper payment for eligible employees that were in your employment on 1 March 2020, and continue to be employed (including those who are stood down or re-hired) while you are claiming the JobKeeper payment. 

Eligible employees are employees who: 

  • were employed by the Employer at 1 March 2020;
  • are currently employed by the eligible Employer (including those stood down or re-hired);
  • are full-time, part-time, or long-term casuals (ie. casual employed on a regular 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 444 Visa Holder at 1 March 2020;
  • was a resident for Australian tax purposes on 1 March 2020; and
  • are not in receipt of a JobKeeper Payment from another employer.

To be eligible, employers need to continue to pay staff then seek reimbursement via the JobKeeper Payment of $1,500 per fortnight (before tax) to each eligible employee.  This includes the first payment period from 30 March to 12 April 2020, even if staff are stood down, the employer has to keep paying the salary or wage in the meantime.

If cash flow is an issue, the Government suggests employers should speak to their bank to seek credit until early May.

Employers must continue to comply with their obligations in the Fair Work Act, as the JobKeeper Payment scheme does not remove any workplace protections for employees.


How is 'turnover' measured to determine if your business meets the 30% (or 50%) reduction threshold?

For the purposes of the JobKeeper Payment eligibility requirements, the term "turnover" will be defined according to the current calculation for GST purposes and should be reported on your Business Activity Statements.  It includes the GST-exclusive value of all taxable supplies (ie. gross business income, not the profit made by the entity) and all GST free supplies, but not input taxed supplies (ie. passive rental income). 

Under the GST law, only Australian based sales are included and therefore, only Australian based turnover is relevant.  Therefore, a decline in turnover from overseas operations will not be counted in the turnover test.

The "decline in turnover test" that must be satisfied at the end of a fortnight for an employer to qualify needs to be met only once.  The employer is not required to re-apply the test in the subsequent months (or quarters) to remain eligible, but they will be required to report monthly turnover information.

An eligible business can satisfy the decline in turnover test in two ways, including: 

  • The basic test works by comparing the projected GST turnover of the entity for a period (which can be a month or a quarter) with its current GST turnover compared to the corresponding period in 2019.

           or

  • The alternative test applies if there is not an appropriate relevant comparison period in 2019.  This may be the case for a new business, started after May 2019 or a business has made an acquisition (distorting normal turnover).  The Australian Taxation Office (ATO) will have the discretion to consider additional information that a business can provide to establish that the business turnover has been adversely affected by COVID-19.

The testing periods for the GST turnover test being compared by can be periods of one month or quarterly, where:

  • If a one month turnover test period is being used, it must be a month between March 2020 to September 2020; or
  • If a quarterly period is being used it must be one either the quarters starting on 1 April 2020 or 1 July 2020.

Where a business does not meet the turnover test at 30 March 2020, at the start of the JobKeeper Payment scheme (because turnover has not fallen by 30% or more at that time), the business can start receiving the JobKeeper Payment at a later time once the turnover test has been met (ie. turnover falls by 30% or more at a date later than 30 March 2020).  

In these circumstances, the JobKeeper Payment is not backdated to the commencement of the scheme, and businesses can receive JobKeeper Payments up to 27 September 2020.


Are partnerships, trusts and companies eligible if the entity makes distribution or pays dividend (in lieu of wages) to the business principals?

While the preliminary commentary confirmed that sole traders that have seen the revenue from their business affected by COVID-19 are eligible to receive the JobKeeper Payment, we have now received some further details to confirm the position for businesses that use entities such as a partnership, trust or company, and do not pay the business owners a normal salary or wage.

Partnerships

  • We must note that for tax purposes, a partner can not be considered an employee.  Under the JobKeeper Payment scheme, in addition to any eligible employees (ie. staff, workers) only one partner from the partnership can be nominated to receive a JobKeeper Payment. 
  • In other words, a two member partnership can not register both partners for a JobKeeper Payment. 

Trusts (paying distributions to business owners)

  • Trusts can receive the JobKeeper Payment for any eligible employees.  However, where beneficiaries of a trust only receive distributions, rather than being paid normal salary and wages for work performed, only one adult beneficiary (ie. not a corporate beneficiary) can be nominated to receive the JobKeeper Payment.

Companies (paying director fees)

  • Companies can receive the JobKeeper Payment for any eligible employees.  However, an eligible business which pays Director's fees can nominate only one Director of the company to receive a JobKeeper Payment. 
  • To clarify, only one person in a Director capacity may receive the payment if that person is actively involved in the running of the business. 

Companies (paying dividends to business owners)

  • Companies can receive the JobKeeper Payment for any eligible employees.  However, an eligible business which has Shareholders actively involved in the business can nominate only one Shareholder of the company to receive the JobKeeper Payment.  
  • To clarify, only one person in a Shareholder capacity may receive the payment if that person is actively involved in the running of the business.

We must note that entities receiving passive income such as rent, which includes Landlords, would not qualify as businesses and therefore would not be eligible for the JobKeeper Payment. 


What are the integrity measures which can be enforced by the ATO?

The JobKeeper Payment scheme will be subject to ATO compliance and audit review activities.  There will be a positive obligation on employers to self-asses their eligibility and that of their employees.  In addition, the ATO will data-match payments with Services Australia data (ie. Centrelink), and data from other government agencies, and undertake activities designed to identify multiple or ineligible payments to individuals.

 

The legislation passed to enact the JobKeeper Payment scheme includes integrity rules to prevent employers from entering into artificial schemes in order to get inappropriate access to payments.  We must note that there are serious consequences (including large penalties and possible imprisonment) for those trying to illegally get benefits under the scheme.

If you are an eligible business, and have not yet registered your interest to apply, you can apply for the JobKeeper Payment scheme online via the ATO website (www.ato.gov.au). 

After you have registered your interest with the ATO to participate, if you require any assistance to complete the registration application, please contact your Lowe Lippmann advisor.

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