On 8 April 2020, Parliament passed two Bills to give effect to the JobKeeper Payment scheme. The broad details of this scheme were first announced by the Prime Minister on 30 March 2020. The measures are expected to benefit six million Australian workers and are budgeted to cost $130 billion across 2019-20 and 2020-21.
A significant feature of the scheme is that the scheme is not mandated by legislation per se. Rather the legislation merely provides a broad framework of the scheme and then delegates all powers as to the operation of the scheme to the Treasurer. It is the responsibility of the Treasurer to develop a series of ‘rules’. A draft version of the ‘rules’ (the “Rules”). On 9 April 2020, the Rules were finalised and ‘passed’ by Treasury. However, the Rules prescribe that the JobKeeper scheme is to be administered by the Commissioner of Taxation (the “ATO”).
Thus, the implementation of the JobKeeper Payment scheme can be said to involve three stages namely:
- Passing of legislation by Parliament – this occurred on 8 April 2020;
- Finalisation of the Rules by Treasury – this occurred on 9 April 2020; and
- Publication by the ATO of details as to how the scheme will be administered (the “ATO Guidelines”).On 14 April 2020, the ATO issued the first tranche of the ATO Guidelines. Additional (i.e. post 14 April 2020) ATO Guidelines are to be issued.
Information last updated 16 April 2020.
What should I, as an employer, do ‘today’?
We recommend that you do five things:
- If commercially possible, defer deciding as to whether you stand down employees or make employees redundant (see comments below), while we wait for the complete version of the ATO Guidelines which are expected to be released in the coming days. At this stage it seems clear that employees who are made redundant (as opposed to stood down) will not be eligible for the JobKeeper Payment;
- If you are not registered on the Single Touch Payroll (STP) system now, then consider registering as the primary means to determine entitlement will be via the STP system. If you do not report through STP, you can still claim the JobKeeper Payment; however, there will be a manual claim process, which will be slower;
- Start collecting information on your employees to determine if they are eligible (see below for detail on eligibility criteria for employees), e.g. whether they are Australian citizens, the type of working visa they hold, whether you are the primary employer, length of service for casuals and which employees were engaged as at 1 March 2020. In this regard, you should consider sending the ATO approved form to your employees – download a copy of the form here;
- Ensure the ATO have your current bank account details so that you can receive the JobKeeper Payment. Your details may be out of date if you do not typically receive tax refunds; and
- Start working with your William Buck advisor to collect information on your actual turnover for March 2020, your forecasted turnover for the coming months and your actual turnover for the equivalent periods last year (see comments below in relation to the relevant turnover data).
Who receives the JobKeeper Payment?
The JobKeeper Payment is made to ‘eligible employers’ (see comments below) rather than directly to the employees.
The JobKeeper Payment is described by the Government as a subsidy for employers. However, as discussed below, we consider that the scheme should more properly be described as a ‘reimbursement scheme’ as the employer is required to make the payments to the employees before the ATO will make a payment to the employer (see below for comments in relation to this ‘wage condition’). We consider that this has the potential to create a serious cash flow issue for many employers and may even cause many employers to decide that it is not commercially feasible to participate.
Am I an 'eligible employer' entitled to receive the JobKeeper Payment?
Employers (including not-for-profit entities, but excluding those employers subject to the Major Bank Levy) will be eligible for the subsidy if:
- Their business has an ‘aggregated turnover’ (as defined in the income tax law – see below) of less than $1 billion and their forecasted GST turnover (as defined in the GST law – see below) for a ‘forecast period’ period (see below) has fallen, or will likely fall, by more than 30% as compared to the same period last year; or
- Their business has an ‘aggregated turnover’ of $1 billion or more and their forecasted GST turnover for a forecast period has fallen, or will likely fall, by more than 50% as compared to the same period last year;
- They are an ACNC-registered charity (with some exceptions including schools) and their ‘GST turnover’ has fallen, or will likely fall, by 15% or more as compared to the same period last year. In this regard, donations are deemed to form part of the entity’s GST turnover.
Most Australian, state and local government agencies will not be eligible for the subsidy.
Additionally, a company that is in liquidation (or entities in bankruptcy) will not be eligible for the subsidy.
Importantly, the 50% reduction precondition will apply where the employer has an ‘aggregated turnover’ of $1 billion or more for either the income year in which the JobKeeper Payment is sought or in the immediately preceding income year. In this regard, the ‘income year’ is the Australian tax year of the employer. Thus, for example, a company with a 31 December year end may have an aggregated turnover of $1.2 billion for the year ended 31 December 2019 and is forecasted to have an aggregated turnover of $0.7 billion in 2020. In this case, the ‘GST turnover’ of the Australian company must fall by 50% for the employer to eligible for the scheme as one of the two ‘test years’ has an aggregated turnover of at least $1 billion.
Thus, ‘30 June year end’ groups may have a different position over a ‘31 December year end’ groups, as the 30 June group will have some months impacted by COVID-19 in both ‘income years’ relevant for the scheme. In contrast, a 31 December group will have the entire year ended 31 December 2019 that has not been impacted. This could be a positive or negative in terms of access to the JobKeeper payment depending on the circumstances of the business.
How do I determine if my business has a turnover of less than $1 billion?
The ‘aggregated turnover’ of the employer (other than charities) determines whether reduction in ‘GST turnover’ needs to be 30% or 50%.
The Rules prescribe that ‘aggregated turnover’ will include the worldwide turnover of the entity plus the worldwide turnover of its connected entities and affiliates – including non-Australian entities. This means, for example, that a small Australian subsidiary of a large multinational group may need to have a reduction in ‘GST turnover’ of at least 50% in order to participate in the scheme.
How do I determine my ‘GST turnover’?
‘GST turnover’ will be defined by reference to ‘turnover’ for GST purposes as reported on the Business Activity Statements. It includes all taxable supplies and all GST free supplies but not input taxed supplies (e.g. interest income).
Importantly, and in contrast to the calculation of ‘aggregated turnover’, only Australian based turnover will be relevant and only the turnover of the entity on a ‘stand-alone’ basis will be relevant.
For businesses that are part of a GST group, their ‘GST turnover’ will need to be disaggregated from the GST turnover reported in the group’s BAS, including the re-instatement of intra-group transactions. Care needs to be taken where transactions are undertaken between members of the same GST group for no consideration.
How do I work out the extent of my reduction in ‘GST turnover’?
To establish that a business has faced either a 30% (or 50% or 15%) reduction in their projected ‘GST turnover’, most businesses would be expected to establish that their turnover has fallen, or will likely fall, for a ’Turnover Test Period’ (see below) relative to their turnover for the same period a year earlier (referred to as the ‘current GST turnover’).
The term ‘projected GST turnover’ is defined in the GST legislation and refers to income from ‘supplies’ that you are ‘likely’ to have for a period. Treasury have stated that a supply is ‘likely’ to be made where, on the balance of probabilities, it can be predicted that the supply is more likely than not to be made. The likelihood of a supply being made must be considered in the context of the facts and circumstances of a particular business. This test will be important in relation to the ‘integrity measures’ associated with the JobKeeper scheme (see below).
Where a business was not in operation a year earlier, or where their turnover a year earlier was not representative of their ‘present day’ usual or average turnover (e.g. because there was a material acquisition over the last year, they were scaling up or their turnover is typically highly variable), the ATO will have the discretion to consider ‘additional information’ that the business can provide to establish that the business has been significantly adversely affected by the impacts of COVID-19.
A pronouncement made by Treasury indicates that the ATO will also have a discretion to set out alternative tests that would establish eligibility in specific circumstances (e.g. eligibility may be established as soon as a business has ceased or significantly curtailed its operations). There will be some tolerance where employers, in good faith, estimate a greater than 30% (or 50% or 15%) reduction in turnover but actually experience a slightly smaller fall. However, employers need to be aware that this discretion was not codified in the Rules and is expected to one of the items addressed via the additional (i.e. post 14 April 2020) ATO Guidelines.
As indicated, the reduction in ‘GST turnover’ is determined on a stand-alone basis. Thus, some businesses in the economic group may be eligible for the JobKeeper Payment while others may not. It also seems that if, for example, a single company has two divisions, then the reduction test will be applied to both divisions on a combined basis. This may mean that a single company with two divisions will have a different outcome compared to two companies each with a single division.
The position remains unclear in respect of ‘service entities’ – i.e. where the employees are employed by a different entity to the one that conducts the business. In elaboration, the issue is that the prescribed reduction in turnover may need to be measured at the ‘service entity’ level rather than by reference to the turnover of the operational business per se. That is to say, the relevant turnover may be the ‘management/service’ fee charged by the service entity to the business. This issue may become especially problematic where the service entity provides services to multiple related employers.
What is the ‘Turnover Test Period’ and what happens if my projected GST turnover ends up being incorrect?
You can choose the Turnover Test Period to be:
- Any month that you choose from March 2020 to September 2020 inclusive – i.e. a choice of seven months; or
- The quarter ended 30 June 2020; or
- The quarter ended 30 September 2020
Importantly, the Rules do not require an alignment of your selection of the Turnover Test Period with the reporting period used in your BAS (i.e. monthly or quarterly). Thus a ‘quarterly BAS reporter’ could use a single month as the Turnover Test Period and vice versa.
The only restrictions on the choice of Turnover Test Period are that:
- You cannot use projected GST turnover for the quarter ended 30 September 2020 to determine an entitlement to the JobKeeper Payment for the period 30 March 2020 to 30 June 2020; and
- You cannot use a projected GST turnover for a month in advance of a particular month for which you are seeking to claim an entitlement to the JobKeeper Payment. Thus, for example, you could not use a projected reduction of turnover in May 2020 to claim an entitlement to the JobKeeper payment in April 2020.
The Rules operate such that if, for example, you selected April 2020 as your Turnover Test Period, and the reduction as compared to April 2019 satisfies the required threshold (i.e. 15%, 30% or 50%), then you can use this ‘reduction’ to satisfy the ‘reduction test’ for all months of April to September 2020 inclusive and there is no requirement to ‘retest’ this ‘reduction test’ for future months.
As a further example on this point, you can also use a decline in turnover during March 2020 (as compared to March 2019) to claim an entitlement for the entire six months of the scheme.
Applying the above principles, it can be said that for the first JobKeeper Payment for the fortnight 30 March 2020 to 12 April 2020 you can use the turnover for any of the following periods:
- The month of March 2020; or
- The month of April 2020; or
- The quarter of 1 April 2020 to 30 June 2020.
You then compare this actual/projected turnover with the turnover for the same period in 2019.
Thus, you will not ‘drop in and drop out’ of the scheme over the six-month period – i.e. once you are ‘in’ you should remain eligible for the remaining period of the scheme. Treasury have also indicated that they will not use the monthly turnover data, that you will be required to provide, to test the accuracy of your ‘projected GST turnover’ made in previous periods.
If, as another example, you do not qualify for the JobKeeper payment scheme for the month of April 2020, because your turnover has not been sufficiently affected, you can reconsider your turnover in a latter month to determine if the test has been met. This allows employers that only become affected part way through the six-month period of operation to participate. In this case, however, the entitlement is not backdated to the commencement of the scheme. Your entitlement will still cease on 27 September 2020 – i.e., you will not receive six months of entitlement from when you first qualify.
The important point to highlight is that the entitlement for, say, May 2020, does not need to be tested by reference to the projected turnover for May 2020 or the quarter ended 30 June 2020. Once you satisfy the reduction test, you do not need to satisfy (or retest) this condition in later months.
Which employees are eligible for the subsidy?
An employee is an ‘eligible employee’ at a particular time if the individual:
- Is currently employed by the eligible employer (including those stood down or re-hired);
- Was at least 16 years of age as at 1 March 2020;
- Was employed by the employer at 1 March 2020 as a full-time employee, a part time employee, or a ‘long-term casual’. The term ‘long-term casual’ is defined as being an individual who was a casual employee as at 1 March 2020 and had been employed by the employer seeking the JobKeeper Payment on a regular and systematic basis during the period of 12 months ended on 1 March 2020. The rules provide measures to accommodate continuity of service where a change of employers occurs in relation to the sale of a business;
- Was an Australian resident (within the meaning of section 7 of the Social Security Act, 1991), or was a resident of Australia Australian tax purposes and was the holder of a Subclass 444 (Special Category) visa; and
- Was not in receipt of a JobKeeper Payment from another employer.
Employees receiving Parental Leave Pay or Dad and Partner Pay from Services Australia are not eligible. However, employees on parental leave from their employer will be eligible. Employees receiving workers compensation will be eligible if they are working, for example on reduced hours, but will generally not be eligible if they are not working.
If I am an eligible employer and I have more than one eligible employee, must I include all eligible employees in the JobKeeper payment scheme’?
Treasury have stated that employers must ensure that all of their eligible employees are covered by their participation in the scheme. The employer cannot select which eligible employees will participate in the scheme. Treasury have stated “this one in, all in rule is a key feature of the scheme”.
However, it appears the Rules may not reflect this ‘one in, all in’ principle. It is also unclear, for example, what would be the consequence of the employer failing to make the required payment of $1,500 per fortnight to a single employee – i.e. whether this would taint the claim in respect of all employees. This should be clarified via the additional (i.e. post 14 April 2020) ATO Guidelines.
Does the JobKeeper Payment apply to contractors?
The JobKeeper Payment scheme will apply only to employees. Thus, genuine contractors will be excluded. However, such contractors may be eligible for the JobKeeper Payment in their own right.
Is the JobKeeper Payment available to self-employed persons or entities subject to the ‘personal service income’ rules?
Yes – the JobKeeper Payments will be available to self-employed businesses. No details are available at this stage in relation to the interaction with the personal services income rules.
What is the ‘wage condition’ requirement that applies to employers in relation to payments to employees?
Employers will need to satisfy the ‘wage condition’ requirement for their eligible employees in respect of each 14-day period covered by the scheme.
The ‘wage condition’ requirement is that employers have already paid their eligible employees a minimum of $1,500 per fortnight in the scheme payment period. Where an employer pays their employees on a monthly basis, the ATO will be able to reallocate payments between periods, However, overall an employee must have already received the equivalent of $1,500 per fortnight before the employer becomes entitled to the JobKeeper Payment.
We consider this requirement may jeopardise the success of the scheme as it means:
- The employer faces the cash flow issue of having to fund the payment to the employee (of at least $1,500 per fortnight, even if this exceeds the usual payment that would have been made) and then wait to receive the JobKeeper Payment from the ATO. This ‘waiting period’ may be more then 30 days (see below). This issue may mean that employers will need to obtain temporary cash flow support from their banks to cover the timing difference between payment to employees and receipt of the JobKeeper Payment from the ATO; and
- The employer faces the commercial risk of, having paid the employee, being exposed to the possibility that they are not eligible, for any reason, to receive the JobKeeper Payment from the ATO. Thus, the employer will be exposed to the risk of funding a ‘non-subsidised’ cost. This commercial risk may also impact the willingness of banks to fund the timing difference.
In our view these risks (cash flow and commercial) have the potential to discourage employers from nominating all or some of their employees as being ‘eligible employees’.
The ATO have stated that in terms of satisfying the ‘wage condition’ for the first two fortnights (30 March – 12 April, 13 April – 26 April), the ATO will accept the minimum $1,500 payment for each fortnight has been paid by you even if it has been paid late, provided it is paid by you by the end of April 2020. This means that you can make two fortnightly payments of at least $1,500 per fortnight before the end of April, or a combined payment of at least $3,000 before the end of April.
When will I receive the first JobKeeper Payment, how regular will the payments be and how long does the subsidy last?
The scheme operates on a fortnight to fortnight basis. The first fortnight period will be 30 March 2020 to 12 April 2020. The last fortnight period for which the entitlement may accrue will be the period 14 September 2020 to 27 September 2020.
The first payments to be employers will be made from the first week of May 2020 with entitlements backdated to the fortnight ended 12 April 2020.
Thereafter, the ATO will make payments to employers, 14 days after the end of the calendar month in which the fortnight ends. Thus, for example, for the fortnight ending on 10 May 2020, the employer will need to wait until 14 June 2020 for ‘reimbursement’.
The rules state that the ATO cannot offset an entitlement to a JobKeeper Payment against other debts that the employer may have with the ATO.
I am a new business – will I receive the JobKeeper Payment?
Refer to comments under the heading ‘How do I work out the extent of my reduction in turnover?’
I run my business as a sole trader or via a company, trust or partnership and do not pay myself a salary – can my business receive the JobKeeper Payment in respect of myself?
In these cases, it appears that you may be able to nominate one additional ‘principal’ as an eligible employee. The relevant entity must carry on a business in Australia. The one principal that can be nominated must be the sole trader per se, a director or shareholder of the company, a beneficiary of the trust or a partner in the partnership.
Importantly, there is no requirement for the business to have paid the principal $1,500 per fortnight in advance of seeking to claim the JobKeeper Payment. That is to say, there is no need to satisfy the ‘wage condition’ for the principal.
Finally, in order for the business to be eligible to claim the JobKeeper Payment in respect of the principal, the business must as at 12 March 2020 (unless the ATO exercises its discretion and allows you further time) have (i) an ABN and (ii) lodged a 2018-19 income tax return or a ‘GST return’ which demonstrates that the business had made a taxable, GST-fee of input taxed supply during the period 1 July 2018 to 12 March 2020.
What is the difference between ‘stood down’ and ‘redundant’?
The scheme applies to, inter alia, employees who have been’ stood down’. This is a legal term applied for the purposes of, inter alia, section 524 of the Fair Work Act, 2009. This term has a very different meaning to the term ‘redundant’. It is critical that you discuss the difference with your legal advisor and be clear as to the status of your employees.
If I have made an employee redundant (whether before or after 30 March 2020) can I receive the JobKeeper Payment for that employee?
If you made an employee reductant before 1 March 2020, then you will not be entitled to receive any amount of JobKeeper Payment in respect of that employee. This will also be the case if you have made an employee redundant on or after 1 March 2020 and have not re-hired that employee.
If the employee was employed on 1 March 2020 (and is otherwise an ’eligible employee’) and that employee has been made redundant after that date and you re-hire that employee, then you will be entitled to receive any amount of JobKeeper Payment in respect of that employee for the period commencing from the date the employee was re-hired.
If I have stood down an eligible employee before 30 March 2020, or plan to do so after 30 March 2020, can I receive the JobKeeper Payment in respect of that employee?
Yes. Of course, the other conditions must be satisfied, including the ‘wage condition’ referred to above.
Can I change the employee's hours of work, work duties or other employment conditions and still qualify for the JobKeeper Payment?
The legislation enabling the JobKeeper Payment also makes significant amendments to the Fair Work Act, 2009. The amendments include measures allowing for variation in hours or work, work duties and other employment conditions. It is critical that you discuss with your legal advisor any proposed changes to employment conditions.
I am an eligible employer and have some employees that receive more than $1,500 and others that receive less than $1,500 per fortnight – what happens?
If you have an employee who otherwise earns, say, $2,500 per fortnight (before tax) and you continue to pay this employee, then the employer will receive a subsidy of $1,500 for that fortnight.
If the employee would otherwise receive less than $1,500 per fortnight (before tax) or has been stood down (and is not receiving any salary), then the employer will be entitled to a JobKeeper Payment of $1,500 per fortnight provided they have paid this to the employee. Thus, some employees may receive a ‘pay rise’ under these measures.
If an employee has two jobs (and I am the primary employer), do I need to adjust the gross payments I make to the employee to account for the salary they receive from the second job?
No. However only one employer can receive JobKeeper Payment amount in respect of an individual.
Do I deduct PAYG Withholding from the payments made to employees where I have received the JobKeeper Payment?
Yes. In this regard, it is noted that for most employees a payment of $1,500 per fortnight before tax will be subject to $192 of PAYG withholding – i.e. the employee will receive net payment of $1,308 per fortnight.
Is the payment made to employees subject to superannuation?
This issue is best explained by way of two examples:
- If an employer pays an employee $4,000 per fortnight (before tax) and receives a JobKeeper Payment of $1,500 per fortnight, then superannuation is payable on the entire $4,000.
- If an employee continues to work for an employer and receives $1,000 per fortnight (before tax), then the employee will receive the ‘usual’ $1,000 plus an additional top-up payment of $500. The employer will receive a JobKeeper Payment of $1,500. The employer must pay superannuation on the $1,000 and has an option to pay superannuation on the additional $500.
As an extension of (2), if an employee has been stood down and is receiving no salary, they will receive a ‘top-up’ payment of the full $1,500 per month from their employer. The employer has an option of paying no superannuation of the entire $1,500.
Are the payments made to employees subject to payroll tax?
South Australia and Western Australia have indicated that the amounts paid to employees will not be subject to payroll tax. We expect this exemption will apply only to any ‘top-up’ amount paid by employers (which could be the entire $1,500 where the employee has been stood down on leave without pay). The other States and Territories have not made any announcements on this issue.
We need to wait for details on this issue from the relevant States and Territories.
Is the JobKeeper Payment assessable to the employer and/or the employee?
The JobKeeper Payment received by an employer will be assessable income of the employer. The usual rules for deductibility apply in respect of the amounts you pay to your employees.
The payments made to the employee would be assessable income of the employee.
If an employee received the $750 Economic Support Payment from Centrelink and is then transferred to the JobKeeper Payment, will the employee have to pay back the $750?
No, the employee will not have to pay back the Economic Support Payment.
Are there anti avoidance and integrity rules that I need to be aware of?
Yes – there are comprehensive and severe penalties for anti-avoidance and contrived schemes. The anti-avoidance rules are based on Part IVA of the Income Tax Assessment Act 1936 and would capture any arrangements that could objectively be considered to have been entered into with intention of accessing the JobKeeper Payment when in ordinary circumstances the employer (or employee) would not have qualified. An example would be manipulating turnover to meeting the 30% (or 15% or 50%) reduction test.
How can William Buck help me?
A critical aspect of the scheme is the forecasting of your GST turnover and comparing this to a prior period. William Buck can assist you in collating the relevant historical date, disaggregating GST groups and preparing reasonable forecasts of turnover for coming months.
William Buck can also assist you in developing a supportable position as to why ‘last year’ may not be the relevant comparison period and managing how this is presented to the ATO.
The ‘wage condition’ will give rise to cash flow issues for employers. William Buck can assist you to manage these issues and, where required, discussion this matter with your banks to seek temporary cash flow support.
William Buck can assist with reviewing the eligibility of employees.
The scheme also has a myriad of reporting requirements. Failure to adhere to any one of these requirements will jeopardise your entitlement to the JobKeeper Payment. William Buck can ensure you satisfy these requirements.