Alternative Turnover Test Rules Released

The eagerly anticipated alternative decline in turnover test rules for the JobKeeper payment scheme was registered yesterday on Thursday 23 April 2020.

As you know, in order to be eligible for the JobKeeper Payment, businesses must have suffered a substantial decline in their turnover. The JobKeeper Rules require a basic test for assessing this decline as well as provision for the Commissioner to provide an alternative test. The Rules and legislative instrument for these alternative tests were released yesterday and have effect from today.

By way of background, the basic test requires an entity to measure its projected GST turnover and compare this to its actual GST turnover in a relevant comparison period in 2019. The Alternative Test Rules provide an alternative avenue for those businesses that are not able to apply the basic test because of their circumstances, or who fail the basic test, due to certain unusual events that impact turnover.

For those entities currently unable to satisfy the decline in turnover test under the basic test, here’s what you need to know.

SPECIFIC APPLICATION

The Rules set out the specific circumstances to which the alternative tests may be applied.

Broadly, the alternative tests will exclusively apply to those businesses in which there was either no relevant comparison period or where the relevant comparison period is not appropriate in light of their business’ circumstances.

WHO WILL THE ALTERNATIVE TESTS APPLY TO?

The class of entities to which the alternative tests may apply are:

1. Those entities that commenced business after the relevant comparison period from March 2019 onwards or whose business did not exist in the relevant comparison period. This is to cater for start-up businesses where there isn’t a 12-month comparison available.
    
2. Those entities that carried out business acquisitions and disposals after the relevant comparison period in 2019. This is to compensate distorted turnover due to different businesses being operated between periods.
    
3. Those entities that carried out business restructuring after the relevant comparison period in 2019.
    
4. Those entities that experienced significant growth in the periods prior to the applicable turnover test period. This is in recognition to where of a business may have been in a growth phase in the lead up to the impact of COVID-19 disruption and as a consequence the future turnover will be heavily impacted as to where they were tracking.
    
5. Those entities affected by drought or natural disasters.
    
6. Those entities with irregular turnover. This typically applies to the construction industry where turnover is based on the stage of completion of the projects.
    
7. Sole traders and partners affected by sickness or injury.

For each of the above class of entities, the Rules set out the alternative tests that an entity may apply in order to assess whether a decline in turnover has occurred.

WHAT ENTITIES CAN’T APPLY THE ALTERNATIVE TESTS?

• Those entities in which a relevant and appropriate comparison period exists.That is to say, the alternative tests do not provide an additional option for assessing eligibility, where say a business fails to meet the requisite decline in turnover using relevant and appropriate comparison period as part of the basic test, and none of the specific business circumstances of the alternative tests apply.
   
• Those entities that have zero turnover* (ie. junior explorers and miners).
   
• Those entities that ordinarily make input tax supplies* (i.e. those businesses selling or renting existing residential premises).

* These entities will not be able to access the alternative tests on the basis that the circumstances in which they cannot demonstrate a decline in turnover are not outside the usual business setting for these types of businesses.

We note that certain industries affected by these exclusions continue to lobby the Commissioner and additional guidance may be released.

HOW ARE THE ALTERNATIVE TESTS APPLIED?

If a business satisfies the alternative test, there is no requirement that they make any submission to the ATO to request discretion to apply the alternative test in favour of the basic test.

The instrument does not allow any ability to apply for discretion on an individual entity basis, and the ATO website has been updated to state that the Commissioner cannot make discretionary decisions for individual entities.

It has also been made clear that an entity need only satisfy either the basic test, or any of the alternative tests, in order to demonstrate the relevant decline in turnover and be eligible to qualify for the JobKeeper payment. If an entity has satisfied the basic test, an alternative test would not make them ineligible if it could otherwise have applied to the business and they may have failed that alternative test. If more than one alternative test could apply to a business, they can choose which test to apply.

For each of the circumstances outlined in the Rules, there are accompanying alternative tests that must be applied.

The tests are effectively self-assessed using the methodology outlined under each test.

EXAMPLES

Business commenced after relevant comparison period.

ABC Pty Ltd commenced trading on 1 October 2019. As a result of the COVID-19 shut down laws, sales declined substantially from March 2020.

ABC Pty Ltd would like to assess its eligibility for JobKeeper payments in April 2020 based on a projected GST turnover for April 2020, however as ABC Pty Ltd did not begin to carry on a business until 1 October 2019, there is no corresponding period in 2019 that applies.

Application of the Alternative test

ABC Pty Ltd has the choice of applying two alternative tests:

• The first test compares ABC Pty Ltd’s projected turnover in April 2020 with its average turnover since 1 October 2019.
• The second test compares ABC Pty Ltd’s projected turnover in April 2020 with the average turnover of the 3 months immediately before April 2020 (i.e. January, February and March 2020).

ABC Pty Ltd is only required to satisfy one of the above tests.

Business acquisition

As a result of the COVID-9 pandemic, XYZ Pty Ltd would like to consider its eligibility for the JobKeeper payments, however as a result of acquiring a business in November 2019, the company has undergone a substantial change in its usual business operations and as such, the relevant comparison period is not considered to be appropriate when assessing its current decline in turnover.

Application of the Alternative test

The alternative test allows XYZ Pty Ltd to compare its projected turnover for the applicable test period with its turnover for the month after the month in which the acquisition occurred.

Therefore, when assessing its decline in turnover, XYZ Pty Ltd compares its projected turnover in April 2020 to its turnover in in December 2019 (being the month after the business acquisition occurred).

THOSE INDUSTRIES OVERLOOKED

The Commissioner does make mention that he undertook targeted consultation with industry groups and business representatives. Although suggested amendments were taken on board, not all recommendations were adopted, or otherwise addressed.

We anticipate the following entities will still struggle to satisfy eligibility.

• Centralised employer entities that are separate to operational entities within the same group commonly implemented within large corporates in construction, retail property management services and hospitality service provider industries.
   
• Input tax supplied businesses such as residential leasing businesses, residential living and retirement care facilities.
   
• Junior exploration companies that typically do not have taxable GST turnover.

MORE TO COME

We will continue to monitor the ATO and treasury sites for additional guidance and provide you with updates as this information comes to hand.

WHERE WE CAN ASSIST YOU

• We can assist in determining which alternative test best applies to your circumstance.
  
• We can assist with assessing eligibility for the JobKeeper Payment, including cashflow forecasting and preparation of the entire program application.
  
• We can conduct independent reviews on the first round of reporting and claims to ensure accurate and within the Rules of eligibility.

This newsletter is current as of 24 April 2020, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.  Please contact us to discuss.

Please contact us to discuss. Cooper Partners is committed to providing general advice to our clients at no charge as part of our commitment to assist you through this period.