Tax & Super Australia (TSA) has welcomed the Treasurer’s release of the JobKeeper rules, but is concerned that the rules put some small businesses in the “blackhole” position of being ineligible for both the JobKeeper payments and the cash flow boost.
TSA senior tax counsel John Jeffreys said small businesses in the “blackhole” are there because of the particular structure they operate through. “A common structure is for a unit trust to operate a business and for the units to be owned by one or more discretionary trusts. This structure is often used for businesses where two different families are involved with a business,” Mr Jeffreys said.
“For example, discretionary trust A (one family) owns 50% of the units in the unit trust and discretionary trust B (the other family) owns the other 50% of the units.”
“In this structure, it is often the case that none of the family members are paid salaries. Instead, the unit trust distributes its profits to the two family trusts, and those trusts in turn distribute to family members.”
“If such a business structure has no employees because the two families are the labour in the business, neither the unit trust nor the two family trusts are entitled to the cash flow boost.”
“Also, we now know that to benefit from the JobKeeper payment, there must be an adult individual beneficiary of the trust. In the structure described, the only beneficiaries of the unit trust are the two family trusts. This means that the unit trust cannot claim JobKeeper.”
“Further, the two family trusts can’t claim either JobKeeper or the cash flow boost because those trusts don’t run a business. This puts this business “in the blackhole” when it comes to eligibility for both the cash flow boost and JobKeeper.”
“If it is the intention of the Federal Government that all small businesses have access to either the cash flow boost or JobKeeper, there needs to be an urgent amendment to the JobKeeper rules so that that, in the above scenario, each family can, at least, access one JobKeeper payment.”
“Without this, it will require a very generous interpretation of the JobKeeper rules by the ATO for these families to benefit from the stimulus packages provided to small business.”
TSA also noted that while it was pleased the JobKeeper payment extended to businesses that operate through trusts and partnerships, as well as those run by directors (who receive director fees), and shareholders (who are paid for their labour through dividends), there were also potential issues among these businesses.
Mr Jeffreys said this is because the JobKeeper payment can only be paid to one partner in a partnership, one beneficiary of a trust, and one director or one shareholder in a business.
“Take the case of three people in a partnership conducting a business with two employees. The two employees could get the JobKeeper payment, but only one of the partners could. The other two miss out,” he said. “Perhaps the thinking around this is that these types of businesses are only run in families, but this is not always the situation.”
However, TSA acknowledges the significance of securing legislation for the JobKeeper payment and the broader stimulus packages. “TSA appreciates the enormity of the task that the Federal Government is facing to help Australians and businesses as much as possible through this unprecedented crisis,” Mr Jeffreys said.
For a PDF of the above media release, click here.
Notes to editors:
Tax agents and accountants are central to helping businesses access and navigate COVID-19 relief measures
TSA has been holding webinars to help members (and non-members) and their business clients through the crisis.
- Tuesday, TSA held a webinar on the JobKeeper legislation and rules. Almost 1800 tax agents and accountants attended.
- On 2 April 2020, TSA held a webinar that
explained the first stimulus package.
- More than 400 tax agents and accountants attended.
- Members submitted more than 200 questions before the webinar about how the stimulus package would work in practice.
- A total of 680 practitioners have now accessed the webinar recording.
TSA has created a COVID-19 Essentials page that provides crucial information and practical updates to help members, businesses and the broader tax community to navigate their way through the stimulus packages. https://www.taxandsuperaustralia.com.au/TSA/Resources/COVID-19_Essentials/TSA/Resources/COVID-19_Essentials.aspx
For further comment, please contact TSA senior
tax counsel John Jeffreys:
Mobile: 0416 250 461
Tax & Super Australia (TSA) is a not-for-profit organisation that educates and empowers more than 4,000 members who are tax and superannuation practitioners and a broader community of 15,000 across Australia. TSA advocates for and supports professionals through targeted education and resources that meet the challenges of Australia’s modern tax regime.