JobKeeper Payment "Alternative Decline in Turnover Tests" Guidance Released

The JobKeeper scheme aims to assist entities that have a significant decline in turnover due to the economic impacts of the COVID-19 pandemic.   The JobKeeper rules establish a decline in turnover test that must be satisfied at the end of a fortnight for an employer to qualify. Once an entity satisfies this test it does not need to retest its turnover in later months.

The JobKeeper rules specify two ways in which a business can satisfy the decline in turnover test:

• the basic test; and
• the alternative test.

The Government has now released further guidance which sets out the "alternative decline in turnover tests" ( the Alternative Tests ) where there is not an appropriate relevant comparison period in 2019 for the purpose of an entity in the class of entities satisfying the decline in turnover test.

When can the Alternative Tests be used?

The Alternative Tests can be used when the basic test can not be satisfied, and it will only apply in certain circumstances, which include the following seven situations:

1. the entity commenced business after the relevant comparison period (ie. the business did not exist in corresponding period in the prior year);
2. the entity acquired, or disposed of, part of the business after the relevant comparison period (ie. the business is not the same business it was in corresponding period in the prior year);
3. the entity undertook a restructure after the relevant comparison period (ie. the business is not the same business it was in corresponding period in the prior year);
4. the entity's turnover substantially increased by:

• 50% or more in the 12 months, immediately before the applicable turnover test period;
• 25% or more in the 6 months immediately before the applicable turnover test period; or
• 12.5% or more in the 3 months immediately before the applicable turnover test period;

     5. the entity was affected by drought, or other declared natural disaster, during the

          relevant comparison period in the prior year;

   6. t he entity has a large irregular variance in their turnover for the quarters ending in            the 12 months before the applicable turnover test period, excluding entities that                    have ' cyclical or regular seasonal variance ' in their turnover; or

   7.  the entity is a sole trader or small partnership where sickness, injury or leave have              impacted an individual's ability to work, which has affected turnover.

We will explain each of the seven Alternative Tests below, and how the comparative decline in GST turnover calculations should be performed.

It is important to note that where the circumstances of more than one (of the seven) Alternative Tests could be applied; an entity only needs to satisfy one test.

Test 1:  The Business is less than 12 months old

This test applies if a business was established less than a year ago, and you cannot show a decline in turnover using figures from the corresponding month in 2019.   It is available to businesses that commenced before March 1, 2020, but after the one (or three) month relevant comparison period.

The alternative test – Option one

• If that business is using a one-month period, it should calculate its average monthly GST turnover, based on each whole month it has been in business.
• If the business is reporting quarterly, it should take that monthly average GST turnover, and multiple it by three, to get the comparable quarterly figure.
• If the business launched after 1 February 2020, and so had not been in business for a full month as of 1 March 2020 the average monthly turnover should be calculated by dividing total February turnover by the number of days the entity was in business, and multiplying that number by 29.

The alternative test -Option two

• If the business has been around for three months or more, as of 1 March 2020, the business owner can choose to use the GST turnover for the three months leading up to that date as the comparison period.
• If they are comparing month-on-month, they can divide that turnover figure by three, and use that as the comparison.

Additional guidance

There is an additional note for any businesses that qualified for the ATO's 2019-20 bushfire lodgement and payment deferrals, or received any drought help concessions.   If you qualified for either of these benefits, then you should exclude the months covered by those from your calculations.   However, if the months in which you received those concessions are the only months you have been in business, you can disregard that, and include them.

Test 2:  Disposal, Acquisition or Restructure has Changed Turnover Significantly

This test applies if a business has undergone certain large changes in their business which has significantly changed its turnover, which means a comparison of the corresponding period in the previous year would not be a suitable comparison.

The alternative test

• Businesses in this situation should use the month directly following the acquisition, disposal or restructure event as the comparison period.
• If the business is using a quarterly comparison, then the turnover of that month should be multiplied by three. The comparison period should not be the three months following the event.
• If a business has been through more than one acquisition or disposal, they should use the month following the most recent event.

Additional guidance

Again, if a business received a bushfire payment lodgement and payment deferral or drought help concessions, they should exclude any month that was covered by these concessions.  Instead, the business should use the nearest alternative month as a substitute, unless there are no other months available to them.

Test 3:  Business Restructure has Changed Turnover Significantly

This test applies if your business (or part of it) has undergone a restructure in the last 12 months, which means a comparison of the corresponding period in the previous year would not be a suitable comparison.

The alternative test

• If the business is making a monthly comparison, it should use the GST turnover for the month immediately following that in which the restructure occurred.
• If the business reports quarterly, it should take the GST turnover for the month following the restructure, and multiple it by three.
• If there is more than one restructure, the business should use the month following the second event as the comparison period. Again, if the business is making a three-month comparison, that figure should be multiplied by three.

Additional guidance

Again, if a business received the bushfire payment lodgement deferral, or drought help concessions, these must be taken into account.   Business owners should not use any month covered by these (bushfire) concessions as the comparison, unless there is no alternative month available to use.

Test 4:  Business has seen Substantial Growth in Turnover

This test makes allowances for high-growth businesses, including start-ups, that may have experienced significant growth in GST turnover in the past 12 months, but has also been impacted by the COVID-19 pandemic.

A business can use this test if the entity's turnover has substantially increased by:

• 50% or more in the 12 months, immediately before the applicable turnover test period;
• 25% or more in the 6 months immediately before the applicable turnover test period; or
• 12.5% or more in the 3 months immediately before the applicable turnover test period.

The alternative test

• If the business reports quarterly, it can use the three months directly preceding the test period as its comparison period.
• If the business reports monthly, it should take the GST turnover from those three months, divide it by three, to provide a more accurate monthly figure.

Additional guidance

Again, there are rules for businesses that received bushfire lodgement and payment deferrals or drought help concessions.  In these circumstances, a business should not use the months in which it received these concessions as the comparison period, instead it should use the three months immediately before the (bushfire) concessions kicked in.

Test 5:  Business has been Impacted by Drought or Natural Disaster

This test applies to entities that conducted some (or all) of their business in a declared drought or natural disaster zone during the relevant comparison period, and considers those extraordinary circumstances had a negative effect on turnover.

The alternative test

Businesses in this situation can simply use a comparison period from 2018, instead of 2019.   For example, instead of comparing the turnover of March 2020 to March 2019, the impacted business can compare March 2020 to March 2018 turnover, which would provide a more accurate comparison.

Test 6:  Business has had Irregular Turnover

A business can apply this test if their turnover is not considered cyclical, and will need to prove a significant difference in quarterly turnover.   A business will be eligible if, over the 12 months leading up to the test period, the quarter with the highest GST turnover saw more than twice the revenue of the lowest-performing quarter.

The alternative test

• Businesses in this situation can calculate an average monthly GST turnover for the 12 months leading up to the test period.
• If the business reports monthly, that monthly figure will act as the comparison turnover figure.
• If the business reports quarterly, that monthly figures should be multiplied by three.

Additional guidance

Again, if the business has received the bushfire lodgement and payment deferrals, or drought help relief, it should exclude the months in which those concessions were received from the calculation of the average.

Test 7:  A Sole Trader or Small Partnership with Sickness, Injury or Leave

This test can be applied by sole traders or partnerships with no employees, where an individual did not work for all (or part) of the comparison period in 2019, because of illness, injury or other leave, and these circumstances caused a negative impact on turnover at the time.

The alternative test

• In these circumstances, the business owners should take the month immediately following the individual's return to work, and use this as the comparison period.
• If the business is using a three-month test period, multiply the turnover for that month by three, rather than using an actual three-month period.

Additional guidance

If the business qualified for the ATO's bushfire lodgement and payment deferrals, or received drought relief concessions, the treatment is different under this test.

If these (bushfire or drought) concessions applied in the month after the individual returned to work, instead of using that month as the comparison, the business should instead use the month immediately after those concessions stopped.

As noted above, if an entity is eligible under the basic test it does not need to consider the application of one of the Alternative Tests, and if more than one (of the seven) alternative tests applies to an entity it only has to satisfy one of the alternative decline in turnover tests.

 

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