ATO unveils alternative turnover tests for JobKeeper payments

Overview:

In recent days, the Australian Taxation Office (ATO) has revealed details of its alternative turnover testing for businesses applying for the Federal Government’s JobKeeper program who may be eligible for these payments yet do not satisfy the criteria of the basic test.

In order to qualify for JobKeeper, businesses must be able to demonstrate a reduction in turnover has occurred in the required period. While for some businesses, this is a relatively simple equation to compare turnover for a comparable period in 2019, for many, this is not such a straight-forward exercise.

In order to address these scenarios, the ATO has recently unveiled details of the alternative turnover test for businesses that have seen significant variance in their turnover or operations but cannot satisfy the basic turnover test.

Seven circumstances are explicitly covered by the alternative turnover test, as follows:

Business recently started

This test relates to a business that only commenced operations recently, and therefore there is no relevant comparison period in 2019. It should be noted that it does not apply to an entity that was operating one or more businesses and commenced a new additional business.

There are two different alternative tests, depending on the relevant comparison period the entity uses and how long you have been in business.

The Test

The first alternative test compares the entity’s projected GST turnover for the relevant 2020 period with the average turnover since the entity commenced business.

The second alternative test compares the entity’s projected GST turnover for the relevant 2020 period with the average turnover of the 3 months immediately before the applicable turnover test period. This test will use the most recent 3 months, which give a more accurate reflection of the entity’s GST turnover where the business has grown throughout the course of the year and the turnover in the earlier months is not reflective of the current business.

Recent acquisition/disposal of business

For businesses that have acquired or disposed of part of their business after the relevant comparison period in 2019, the following tests apply.

The Test

These alternative tests will compare your predicted GST turnover against the month following the completion of the acquisition, disposal or restructure of the business to give an accurate picture of the state of the business after the completion of the acquisition, disposal or restructure.

Where there are multiple acquisitions, disposals or restructures, the entity’s projected GST turnover will be compared with the GST turnover for the whole month after the last acquisition, disposal or restructure has taken place. If there is no whole calendar month after the last acquisition, disposal or restructure, then the monthly period immediately before the applicable turnover test period is used.

Recent restructure

For an entity that has restructured part or all of their business after the relevant comparison period in 2019, the same test is applied as above for disposals or acquisitions.

Recently high performing business

This relates to a business that has seen a significant increase in its performance in the past 12 months, where the relevant period in 2019 would not be an accurate reflection of the current state of the business.

In order to be eligible for this test, a business must have seen its turnover by 50% or more in the 12 months immediately before the applicable turnover test period, 25% or more in the 6 months prior, or 12.5% or more in the 3 months prior.

The Test

This alternative test will apply to compare the entity’s projected GST turnover for the applicable turnover test period with the average turnover from the 3 months immediately before the test period. The calculation will depend on the relevant comparison period the entity uses and how long they have been in business.

Affected by drought or other natural disasters

This test applies to businesses that have been affected by drought or other natural disaster in the relevant comparison period in 2019.

The Test

This alternative test will compare the entity’s projected GST turnover for the applicable turnover test period with the relevant period in 2018 or the first year prior to the business being impacted by drought or other natural disaster. The earlier period will be a more appropriate period to use than the relevant comparison period in 2019 due to the drought or natural disaster being an event or circumstance being outside the usual business setting.

Irregular turnover

This test relates to an entity that has an irregular turnover that is not cyclical, such as can occur in the building and construction sector.

The Test

This alternative test will apply to compare the entity’s projected GST turnover for the applicable turnover test period with the average turnover from the 12 months immediately prior. This is intended to compensate for the irregularities in turnover the entity experiences.

Sickness/injury/leave in small business

This test applies to sole traders or small partnerships where the sole trader or one of the partners did not work for all or part of the relevant comparison period because they were sick, injured or on leave, impacting the turnover of the business.

The Test

To calculate this, the entity uses the current GST turnover for the month immediately after the month in which the sole trader or partner returned to work. If the relevant comparison period is a quarter, the entity multiplies this previous figure by three.

Service Entities

A further alternative test is provided where a service entity is the employing entity of a group and cannot satisfy the principal turnover test, notwithstanding the business of the group as a whole has been significantly affected by COVID-19.

The alternative test applies where:

• the employer entity is part of a consolidated group, a group that could be consolidated or a GST group.
• the employer entity principally services the other entities of the group.  It cannot engage in the operations/business of the group.
• the Commissioner has not determined that the test does not apply.

Further, the alternative test will also apply where:

• in a turnover test period, the employing entity:
• • supplies employee labour services to other members of the group and those other members make supplies to non-group entities (i.e. business activities);

• • only supplies employee labour services to member’s of the group other than supplies that are incidental to the provision of labour.
• The employer entity would satisfy the principal turnover test if modifications were made.

Once eligible to apply the test, the reduction in turnover is calculated 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.

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.

Importantly, note that the service entity turnover test can be applied in conjunction with one of the other alternative tests.  For example, a new business that uses a service (employing) entity will need to apply the “new service entity turnover test” in conjunction with the “new business turnover test”. In such a circumstance, you apply the “new business turnover test” but use the GST turnover of the Group instead of the employing entity.

Important Points

It is important to note that the alternative test applies only to the classes of businesses/circumstances detailed above. There are conditions that businesses must first satisfy before they can apply one of the alternative turnover tests discussed above.

The alternative test only needs to be applied where the basic test has been failed. There is no need to apply the alternative test even though the business has encountered circumstances that would enable it to use the alternative test.  This ensures that the alternative test cannot operate to disqualify a business that has already satisfied the basic test.

If you need any more information about the Federal Government’s JobKeeper program, or have any questions about your businesses’ eligibility, either under the basic or alternative test, contact the tax team at Perks.