by John Jeffreys
Tax & Super Australia (TSA) welcomes the JobKeeper extension rules released by the Treasurer and the ATO’s early guidance on the rules. However there will still be challenges for businesses and their accountants when trying to determine if their employees are eligible for the extension, and for which level of payment.
In particular, businesses may seek more clarity on how to determine those employees who are eligible for the higher of the two payment tiers.
We also have some concerns about the requirement for Melbourne-based businesses impacted by stage 4 lockdowns to show they have business owners who are “actively engaged” with those businesses that have effectively been forced to hibernate.
Businesses and their accountants had been waiting for clarification on the alternative decline in turnover tests if a business fails the basic test, and will be relieved that this information is now available.
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Eligibility to receive the higher payment tier
There are certain scenarios where a business and their accountant will find it difficult to determine if employees, or a partner, are eligible for the higher payment tier.
Under the JobKeeper extension rules, a business owner must have been “actively engaged” for 80 hours or more in the business during the reference period (February 2020) to receive the higher tiered JobKeeper rate of $1,200 (which drops to $1,000 on 4 January 2021).
While the ATO has detailed some guidance about the definition of “actively engaged” on its website, the term remains open to broad interpretation and could be a ripe source of dispute between the ATO and businesses.
Challenges for partnerships
Determining the hours that a person has been “actively engaged” to receive the higher payment tier will be particularly important for entities that are operated as partnerships. Note that partnership arrangements, including between two spouses, have only ever been eligible to receive JobKeeper for one partner.
Typically, one of the spouses will spend a good deal more time in the business than the other. Yet it may be that the partner who was first selected to receive JobKeeper was the spouse who was working fewer hours because it was felt the spouse with the lower hours should be entitled to the JobKeeper payment.
As it stands, once a partner has been selected as the JobKeeper recipient, this selection cannot be changed to the other partner, even in the event of a partner’s death.
TSA believes that it would be more in line with the policy of the law to amend the rules to allow for an eligible business participant within partnerships to be changed.
Record keeping requirements
The ATO has outlined on its website some points relating to the types of information a business can use to show the amount of time a person works in a business. However, by and large, these records don’t exist within many businesses, including small businesses, family businesses and partnerships.
Will business owners need to go back though their email, phone calls, invoicing and accounting activity and cobble together a story that shows they have worked more than 80 hours?
We anticipate a lot of queries from accountants and business owners over this issue. The key question will be what quality of records will the ATO require to prove that a person has worked more than the 80 hours needed in order to claim the higher tiered amount?
TSA hopes the ATO’s auditors adopt a position that the word of the eligible business participant is, prima facie, correct unless there is information that would strongly suggest the eligible business participant is lying.
Determining “active engagement” amid Melbourne lockdowns
Determining active engagement is an ongoing issue from when the first JobKeeper rules came out earlier in the year. TSA understands that when those rules were developed, it could not have been predicted that Melbourne would be in a stage 4 lockdown into October.
Paragraph 12(2)(a) of the rules requires that an individual is actively engaged in a business to be eligible for the JobKeeper payment in a particular fortnight.
However, due to the Melbourne stage 4 lockdown, there are many businesses that cannot operate at all. On the face of it, it would seem very difficult for an eligible business participant who is involved with that business to argue that they are “actively engaged” by the business during the particular JobKeeper fortnight.
If JobKeeper was originally aimed at businesses that were forced to go into hibernation, how does that reconcile with the idea of active engagement?
Tax & Super Australia encourages the ATO to adopt a generous interpretation of what constitutes “active engagement” in line with the government’s policy of delivering the JobKeeper subsidy to the population.
Revenue from assets sold to produce cash flow included in GST turnover
The new rules show that there will be no change to the idea that sales of capital assets are included in calculating current GST turnover.
When businesses first started accessing JobKeeper and used their projected GST turnover to assess eligibility, they did not have to include revenue from selling capital assets in this turnover prediction.
However the JobKeeper extension rules require that a business use its actual GST turnover. This means the revenue from the sale of capital assets (including where the business has sold them to stay afloat) will now factor into GST turnover eligibility.
This is a very unfortunate outcome and is something that TSA believes should be contrary to the JobKeeper policy.
For example, Big Trucks Pty Ltd is “forced” to sell a prime mover for $250,000 plus GST in August so that it can pay its employees and make debt repayments. This will be included in the calculation of the current GST turnover for the September 2020 quarter and, due to the sale, its decline in turnover is now 28% compared to the September 2019 quarter. Without the sale of the prime mover, the company would have been able to meet the decline in turnover test, but as it is this will cause the company to lose the JobKeeper subsidy.
Warning on September 2019 BAS amendments
It is probable that some businesses will review in detail their BASs lodged for the September 2019 quarter and December 2019 quarter and possibly seek to amend one or both of those BASs. This will be with the view of finding “an error” that would, for example, have led to an increase in turnover in the September 2019 quarter.
While TSA would hope that many of these investigations and any amendments made are legitimate, there may be some entities that make adjustments that are not in accordance with the law. Presumably, the ATO will have compliance procedures that will be alert to these issues.
7-day notice period too short
Businesses should be aware of the requirement to notify employees and eligible business participants of the particular rate (higher or lower tier) that applies to them from 27 September 2020. The business must notify the relevant individual within seven days of notifying the ATO of the tier that has been selected for that employee. TSA believes the 7-day time period is too short and that it should be at least 14 days.