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Last updated 24 April 2020
The below answers are subject to change where additional guidance from the ATO is released.
Question 1: Can entities that are bankrupt or under liquidation qualify for JobKeeper payments?
An employer will be ineligible for the JobKeeper payments for a particular fortnight if it is a company in liquidation or an individual in bankruptcy.
Question 2: When does an entity carry on a business?
This a question depending on the particular facts and circumstances applicable to the entity taking various factors into account such as the prospect of profits from certain activities, their commercial purpose or character, whether they are carried out in a businesslike manner and the size, scale, permanency and regularity of the activities. The ATO has provided guidance on when a company may be considered to carry on a business in TR 2019/1. For individuals, and trusts, please refer to taxation ruling TR 97/11. For general law partnerships, please refer to TR 94/8.
Satisfying the turnover test
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Question 3: My business will not have a decline in turnover until June, what do I do?
An entity must satisfy the decline in turnover test for a test period for a fortnight. The entity therefore will not be eligible to receive JobKeeper payments for the fortnights ending in April and May, unless it can satisfy the basic test for the June 2020 quarter. While it may be possible to enrol for the JobKeeper scheme now, there is no need to do so until the first fortnight for which the decline in turnover test will be satisfied.
Question 4: Can a service entity that pays employees satisfy the turnover test?
Whether a service entity itself can satisfy the turnover test will largely depend on the nature of the contractual arrangement between it and the business entity. For example, where employees are stood down, a service entity that charges cost plus mark-up may have a drop in turnover due to a reduction in employee costs for the period. On the other hand, if employees are retained during the downturn, there may be no corresponding reduction in income at the level of the service entity. Additionally, the service entity would need to actually carry on a business in its own right. The turnover test is considered on an entity-by-entity basis. The Commissioner has not made an alternative test specifically for service entities. On 24 April, the Treasurer announced (here) that a new alternative rule is being developed that may be applied by certain service entities.
Question 5: What happens if an employer receives the JobKeeper payments based on a forecast that turns out to be incorrect?
If an entity receives the JobKeeper payments based on a forecast that turns out to be incorrect, this may not disqualify them if the projection was bona fide and made on an appropriate basis at the relevant time. This highlights the need to appropriately document and substantiate projected GST turnover calculations. The ATO may still question and challenge such calculations and projections.
Question 6: What if I don’t satisfy the basic test?
If your business cannot satisfy the decline in turnover under the basic test, the Commissioner has released a number of alternate tests that apply in certain circumstances. The tests are outlined in our Bulletin (see here).
Question 7: What happened to the Commissioner’s discretion?
The Treasury fact sheets that were released in advance of the legislative instrument indicated that the Commissioner would have the discretion to consider additional information to establish that a business has been adversely impacted by COVID-19. Unfortunately, in the final version of the Rules, the Commissioner was only given the power to determine alternate tests that would apply to certain classes of entities where there was no relevant comparable period. The tests are outlined in our Bulletin (see here).
Question 8: Do eligible employees include company directors?
A director receiving a salary or wage that has entered into a service contract with the entity (and who satisfies the other eligibility criteria) may be eligible to receive JobKeeper payments if they are considered an employee. However, an eligible business operated through a company that pays director fees to non executive directors who are not employees may nominate only one such individual to receive JobKeeper payments in respect of.
Question 9: Would the owner of a business operated through a company be eligible for the JobKeeper payment?
Where an eligible business is operated through a company, a shareholder who is actively involved in the business may be nominated to receive the JobKeeper payments. However, only one such shareholder can be nominated.
Question 10: Are employees that are on leave (paid or unpaid) eligible for the JobKeeper payment?
Employees on paid or unpaid leave will remain eligible for the JobKeeper payment, assuming they meet the other eligibility criteria. However, employees that are in receipt of Government paid Parental Leave or Dad and Partner Pay will not be eligible.
Question 11: Are employees in receipt of workers compensation eligible for the JobKeeper payment?
Employees that are still working (or on reduced hours) will be eligible for the JobKeeper payment. However, workers that are in receipt of workers compensation, that are fully incapacitated such that their employer is not contributing any salary or wages, will not be eligible for the JobKeeper payment.
Question 12: Can I choose which of my employees I claim JobKeeper for?
The JobKeeper scheme operates on a ‘one-in all-in’ basis, meaning that employers do not have a choice as to which employees they nominate for the payment. The employer must pay each eligible employee $1,500 (before tax) for each fortnight for which they are seeking to claim the JobKeeper payment. The Treasurers announcement (here) on 24 April 2020 stated it will clarify that there is a “one-in-all-in” principle.
Question 13: If an individual has a full-time job and also a permanent part-time job, are they able to claim the JobKeeper from their part-time job, if their full-time wage has not been affected?
Individuals can only receive a JobKeeper payment from one employer, and so will need to nominate their preferred employer (there are no directives on which employer they choose, but they will only be able to make a single nomination for the duration of the scheme). Only where an individual is a long-term casual employee and a permanent employee of two different entities will they be precluded from nominating their casual employer to receive JobKeeper payments for them.
Question 14: Can I receive both the JobKeeper payment and the ‘supporting apprentices and trainees’ subsidy?
No. Employers are only eligible for one of these subsidies. Where an employer would qualify for both payments, the fact sheet clarifies that they may receive the apprentice subsidy for the period 1 January 2020 to 31 March 2020. The employer could then receive payments under JobKeeper for the period from 1 April 2020 to 27 September 2020.
Receiving the payment
Question 15: When do the payments start and how long do they go for?
Affected employers will be able to claim a fortnightly payment of $1,500 per eligible employee from 30 March 2020, for a maximum period of 6 months ending 27 September 2020. However, employers will not receive their first payments until the first week of May, with future payments made in arrears. There are 13 relevant periods. The first is the fortnight from 30 March 2020 to 12 April 2020. The last is the fortnight from 14 September 2020 and 27 September 2020.
Question 16: Will the ATO use the JobKeeper payments to offset liabilities in my BAS?
Treasury have stated in their latest FAQ (updated 11 April 2020) that the payments will generally be paid directly to the employer and not used to offset tax liabilities. It is currently unclear whether there will be any exceptions to this rule, and the ATO has provided no further guidance.
Question 17: My employee has an existing salary sacrifice arrangement in place, can I continue with the arrangement?
If your employee wishes to continue with their salary sacrifice arrangement, the JobKeeper payment can be paid in cash, as a fringe benefit or as a superannuation contribution. However, care should be taken to document these arrangements, particularly where the cash payment made to the employee will be less than $1,500 per fortnight (before tax).
Question 18: Will PAYG be required to be withheld from payments to employees?
The JobKeeper payment is not a tax-free payment to employees. The fact sheets make clear that the $1,500 payment is before tax. Accordingly, PAYG withholding should occur on the ordinary salary of the employee. To the extent that the fortnightly gross wages of the employee is less than $1,500, we expect that an amount will need to be withheld for PAYG purposes on the “excess” top-up payment, in line with the normal withholding schedules.
Question 19: Would the amount by which a JobKeeper payment to an employee exceeds the employee’s normal salary be included for purposes of Workcover and Payroll tax?
Treasury fact sheets contain no guidance on these issues, as these payroll on-costs are imposed under the laws of the States and Territories. The Treasury fact sheets do, however, state that employers will have the option to pay superannuation contributions on any the excess (if any) between an employee’s normal fortnightly salary and $1,500. We note that a number of states (SA and Qld) have already confirmed that they will support exemptions from payroll tax.
Question 20: What do I do if I do not pay my employees fortnightly, or if I pay them in arrears?
Employers are required to pay their eligible employees a minimum of $1,500 per fortnight in the scheme payment periods. Where an employer pays their staff monthly, the ATO will be able to reallocate payments between periods. However, overall an employee must have received the equivalent of $1,500 per fortnight before the employer is eligible to receive the JobKeeper Payment. The ATO has yet to release any guidance on how it might allocate payments between fortnights in other circumstances, however its guidance suggests that employers should continue to pay their staff in line with their normal payroll cycles. The ATO have provided a deferral for catchup payments for the first two fortnights (until the end of April).
Question 21: How is the JobKeeper paid to an eligible business participant?
There is no requirement for an entity that is eligible for the JobKeeper payment in respect of an eligible business participant (i.e. a company director or shareholder) to have paid a fortnightly amount to such an individual. If the benefit of the JobKeeper payment is to be provided to the eligible business participant, care does need to be taken in how that is done. Payment as a salary may render the individual ineligible for subsequent fortnights. Alternatively, Division 7A implications may be triggered if the amount is lent to the individual.
Funding the JobKeeper payment
Question 22: What can I do if this will cause a funding issue for my business?
An employer will need to pay employees the $1,500 per fortnight minimum before the end of the payment period. Treasury fact sheets suggest that the business should seek short-term finance from a bank to fund the payments until receipt of the payment and the Treasurer has asked the major banks to assist businesses in obtaining bridging finance to fund these payments. The ATO has confirmed that for the first two fortnights (30 March – 12 April, 13 April – 26 April), it will accept the minimum $1,500 payment for each fortnight has been paid even if it has been paid late, provided it is paid by the end of April.
Question 23: What happens if I can’t get funding and need to let employees go during April. Will I still get access to the payment?
To qualify for a JobKeeper payment, the employee still needs to be employed. Accordingly, the employer will need to re-engage the employee (and meet the minimum wage condition) in order to receive JobKeeper payments. We are aware of schemes being considered to enable funding (e.g. employee loan back arrangements etc). We would highly recommend that businesses do not enter into schemes to circumvent the payment requirement, as this could potentially give rise to the application of the integrity provisions and may deny an entity entitlement to the JobKeeper payment.
Question 24: Can I earn other income while I receive JobKeeper payments?
The JobKeeper payment is not income tested, and so individuals will be able to earn other income while they receive JobKeeper payments in certain circumstances. However, it is a condition of eligibility for the JobKeeper payment that a long term casual employee cannot be a permanent employee of another entity. Likewise, to be an eligible business participant, an individual cannot be a permanent employee of another entity.
Individuals can only receive a JobKeeper payment from one employer, and so will need to nominate their preferred employer (there are no directives on which employer they choose, but they will only be able to make a single nomination for the duration of the scheme).
Question 25: Would topping up employee wages to $1,500 per fortnight trigger cash flow boost integrity rule?
The cash flow boost integrity rule applies where an entity (or an associate or agent of the entity) enters into or carries out a scheme for the “sole or dominant purpose” of qualifying for or increasing the amount of the entity’s cash flow boost amount. Topping up the wages of an eligible employee to $1,500 per fortnight is a condition of entitlement to receiving the JobKeeper payments and failure to do so exposes the employer to significant penalties under the Fair Work Act. In the simple case of an employer topping up the wages of an employee it is unlikely that the sole or dominant purpose requirement would be satisfied and thus we do not believe that the integrity rule should apply in this case.
Question 26: Is there an integrity rule to ensure people do not exploit the JobKeeper provisions?
The JobKeeper provisions contain a specific integrity rule that applies to prevent employers entering into artificial arrangements to gain inappropriate access to JobKeeper payments. Where an entity entered into a scheme for the sole or dominant purpose of obtaining the JobKeeper payment, or increasing their entitlement to it, the Commissioner can determine that the recipient was never eligible for the payment, or that they were entitled to a lower amount. Existing laws, that provide for large penalties and imprisonment, could apply to those trying to illegally benefit under the JobKeeper program.
In addition, the amounts will be reported through STP which will allow the ATO an ability to track payments.
No – employers are only eligible for one of these subsidies. Where an employer would qualify for both payments, the fact sheet clarifies that they may receive the apprentice subsidy for the period 1 January 2020 to 31 March 2020. The employer could then receive payments under JobKeeper for the period from 1 April 2020 to 27 September 2020.
For more information about JobKeeper payments and how it applies to you, contact you Pitcher Partners expert.