The Commissioner has released details of the alternative tests that will apply for the purposes of JobKeeper 2.0. These alternative tests will apply where the actual decline in turnover test is not otherwise satisfied in relation to the September or December 2020 quarters.
The tests largely replicate those that were available under the original scheme (applying to the same subset of circumstances), with minor modifications to ensure that the tests apply appropriately given the change from months to quarters, and for the extended periods of COVID-19 affected trading.
Background to the modifications
At the heart of JobKeeper 2.0 (“JK2.0”) is a requirement that, in order to be eligible to participate, an entity must satisfy an actual decline in turnover test for either (or both of) the September 2020 or December 2020 quarters. Refer to our bulletin (here) for details on the actual decline in turnover test.
In August 2020, Pitcher Partners wrote to the ATO to outline some of the anomalies that would occur under the alternative test for JK2.0. Consultation on the issues identified by Pitcher Partners resulted in most issues being addressed such that the alternative decline in turnover tests that applied for JobKeeper 1.0 (“JK1.0”) have been revised for purposes of JobKeeper 2.0 and are now set out in the Coronavirus Economic Response Package (Payments and Benefits) Alternative Decline in Turnover Test Rules (No. 2) 2020 (“the Amended Rules”), registered on 23 September 2020 (click here for a copy).
Changes from the previous version of the alternative tests
The alternative tests under the Amended Rules have largely retained their existing form, subject to certain modifications that seek to ensure the rules operate appropriately for businesses.
There are three main amendments:
- The tests have been extended to cover cases where certain events (such as acquisitions, disposals or restructures) occur during the relevant comparison period in 2019, rather than only applying to events occurring after the comparison period. This change recognises that as the actual decline in turnover requires the test period be a quarter, businesses would otherwise have been inappropriately excluded from applying the tests where the event occurs during that period
- The acquisition, disposal and restructure rules now allow an entity to choose any of those transactions where multiple transaction occur during the period. Previously, the rules mandated choosing the last in the sequence. This overcomes many difficulties, including the problem that occurs if a transaction happens during a COVID period
- The rules also seek to provide additional comparison periods by allowing entities to consider comparison turnover periods both prior to and during months affected by COVID-19. For example, under the substantial increase in turnover test and the irregular turnover test, entities can consider the turnover of the business either immediately prior to the relevant test period (i.e. immediately before 1 July 2020 or 1 September 2020), or immediately prior to 1 March 2020. A similar 1 March 2020 date has also been introduced for the business commenced test
Although Pitcher Partner advocated for additional tests, we highlight that no additional circumstances were included under the Amended Rules. However, we believe that the amendments made to the legislative instrument go a long way in making sure that the tests work appropriately under the JK2.0 provisions.
What do the alternative tests allow?
The alternative tests (if they apply) allow entities to compare their actual GST turnover for the September 2020 quarter (for the First Extension Period) or the December 2020 quarter (for the Second Extension) to the actual GST turnover of a period other than the corresponding quarter in 2019. The alternative tests can also apply to service entities accessing the statutory modified test such that the turnover of alternative months of group operating entities may be used to establish the relevant decline in turnover (of 15%, 30% or 50%) for the September or December 2020 quarters. Accordingly, if an employer fails the basic test, they can determine whether an alternative test applies that may allow them access to JobKeeper payments.
Circumstances when an alternative test is appropriate
The Amended Rules largely replicate the alternative tests that applied under the original JobKeeper scheme, broadly applying to the same classes of entities, but with a few important modifications (discussed below). The Amended Rules identify the following scenarios that allow an alternative comparison period.
|Case||Where alternative case may be applied|
The entity commenced its business (i.e. commenced its first business not an additional business) after the first day of the relevant comparison period in 2019 and before 1 March 2020.
|2||Acquisition or disposal of part of a business
The entity acquired or disposed of part of its business at or after the start of the relevant comparison period and before the applicable turnover test period. The acquisition or disposal must have changed the entity’s turnover.
|3||Restructure of business
The entity restructured its business (or part thereof) at or after the start of the relevant comparison period and before the applicable turnover test period. The restructure must have changed the entity’s turnover.
|4||Substantial increase in turnover
The entity’s current turnover has substantially increased before the applicable turnover test period or 1 March 2020. This will occur where current turnover has increased by: (a) 50% or more in the 12-month period ending immediately before either of those times; (b) 25% or more in the 6-month period ending immediately before either of those times or (c) 12.5% or more in the relevant 3-month period ending immediately before either of those times.
|6||Irregular turnover test
The entity has an irregular turnover (see further below). This will occur if the lowest current turnover for the 3-month period ending in the 12-months immediately before the applicable turnover test period or 1 March 2020 is no more than 50% of the highest current turnover for any of those 3-months periods. This alternative test is not available to an entity that has cyclical turnover (for example, entities with regular seasonal variance in their turnover).
Additional tests apply where:
(1) an entity conducted its business (or part thereof) in a declared drought or natural disaster zone, and (2) where there is sickness, injury or leave of a sole trader or a partner of a small partnership (with no employees) where that sickness, injury or leave affected the GST turnover of the business.
The tables in Appendix A and Appendix B provide a guide to the application of the Commissioner’s alternative tests that may be used in the scenarios identified above (access the appendices via the download button)
What happens if you can access an alternative test?
Where the entity meets the requirements to apply an alternative test, the entity is provided with an alternative period or amount that may be used to compare against the current GST turnover for the relevant “test period”. To demonstrate, an employer may be testing the actual GST turnover in the September 2020 quarter. The basic decline in turnover test requires a comparison with the September 2019 quarter. However, if the business commenced in August 2019, the September 2019 quarter will unlikely have sufficient sales to be a relevant comparison. Accordingly, the alternative test will allow a different period to be tested.
Can I apply the alternative tests in relation to a month?
To satisfy the actual decline in turnover using the alternative tests, an entity can only utilise the tests as they apply to a test period that is a quarter (being the September or December 2020 quarter, as appropriate). While the alternative tests continue to apply for a test period that is a month, this is not intended to extend the application of the tests, but instead allows the legislative instrument to continue to have application for those earlier JobKeeper fortnights (ending on or before 27 September 2020). This does not apply for the purposes of JK1.0 (as the amendments only apply to fortnights after 27 September 2020). Instead, as the JK2.0 provisions require a dual test (i.e. satisfaction of JK1.0 and JK2.0) the monthly test allows the application of the alternative tests by new entrants that are required to test their satisfaction of the JK1.0 decline in turnover. From a practical perspective, it is expected that most entities will satisfy this test if they satisfy the actual decline in turnover test under JobKeeper 2.0 (as they are testing the same quarters).
What are the next steps?
The application of the Amended Rules is highly fact specific and requires a number of GST turnover calculations to be made for the various alternative periods. Given JobKeeper 2.0 commences from 28 September 2020, consider reviewing your existing arrangements and contact a Pitcher Partners representative.