The JobKeeper subsidy has progressed beyond the rush for eligibility into the second round. Along with the new eligibility thresholds that will carry through until March next year, the ATO is beginning to focus attention on compliance. Late last month, the Australian Taxation Office (ATO) released guidance highlighting where the regulator will focus its compliance resources.
The JobKeeper estimates error
Hindsight is a dangerous lens as Treasury discovered last month announcing that the number of employees expected to be covered by the JobKeeper scheme was overstated in the original announcement by approximately 3 million. The overstatement reflects “the level and impact of health restrictions not having been as severe as expected and their imposition not having been maintained for as long as expected at the time,” the Treasury statement says.
At the time of the Treasury estimates, not long after the country went into lockdown, we simply did not know what to expect. The first stimulus measures had been announced and long queues formed in front of Centrelink offices. Supermarket shelves were being stripped of essentials. Alarming daily global updates showed the virus spreading unimpeded in many parts of the world. China demonstrated the need for fast, severe and extended lockdowns to remove the possibility of community transmission. For Australia, there was no appetite to wait and see what might happen as other countries with devastating death rates did. We acted swiftly, and we have reaped the benefits of that action with a low death rate, albeit at an economical cost. For many businesses, estimating the potential impact of the pandemic, the expectations were the same – fast, severe and extended.
The ATO’s JobKeeper targets
The ATO is looking carefully at businesses that appear to have made adjustments to their circumstances to meet the JobKeeper eligibility requirements where, if those adjustments had not been made, the entity would have been ineligible or had lower JobKeeper payments. Or, where adjustments have been made to enable another entity or subcontractor to meet the decline in the turnover test.
Industries or businesses that have not experienced adverse trading conditions and those that appear to have increased staff numbers are likely to be looked at closely. In its guidance, the ATO sets out a series of examples that are likely to attract their attention:
Increase in staff
Where the number of staff the business reports have increased beyond levels that were previously required to run the business prior to 1 March 2020.
Deferring supplies
In industries unlikely to be adversely impacted by the pandemic, the business agrees with its customers to defer making supplies, resulting in the company’s projected GST turnover declining to the level required to meet the turnover test.
Bringing forward supplies
In industries unlikely to be adversely impacted by the pandemic, the business brought forward supplies to be able to meet the decline in turnover test in the following month or quarter.
Management fee manipulation
Where inter-entity management fees are charged, the timing of the fee is changed to meet the decline in the turnover test.
Reduction in payments to subcontractors
Where a business has reduced or deferred payments to subcontractors to enable them to meet the decline in the turnover test. The ATO has stated that they will review the business and the subcontractors.
JobKeeper used to reduce the cost of supplies to customers
In this scenario, the business and its customers agree to reduce, waive or defer payments to enable the business to meet the decline in the turnover test. JobKeeper is then used to fund the reduction in payments. In effect, JobKeeper is paying for payment reduction.
Low-risk scenarios
Suppose your industry or business has been adversely impacted by the pandemic, regardless of your structure or arrangements. In that case, it is unlikely the ATO will review your situation unless there has been an apparent attempt to increase JobKeeper payments.
To provide some certainty, the ATO notes that where a service entity that employs staff for a related entity has reduced management fees due to COVID-19 related factors, e.g. reduced turnover, staff have been stood down, or where the related entities cannot afford to pay the fee, the ATO will not generally seek to apply compliance resources.
What happens if you got it wrong?
If your JobKeeper circumstances put you on the ATO target list, this does not mean that there is a problem.
Eligibility to JobKeeper is generally based on an estimate of the negative impact of the pandemic on an individual business’s turnover. Some will experience a more significant decline than estimated while others will fall short of the required 30%, 50% or 15%. There would be no clawback if you got it wrong as long as you can prove the basis for your eligibility going into the scheme.
For those that, in hindsight, did not meet the decline in the turnover test, you need to ensure you have your paperwork ready to prove your position if the ATO requests it. You will need to show how you calculated the decline in turnover test and how you came to your assessment of your expected decline, for example, a trend of cancelled orders or trade conditions at that time.
Further, if you would like to discuss any of the above measures or the financial impact you are currently facing, in general, please feel free to email your AHJ contact or enquiries@ahjackson.com or call (07) 3253 1500.