Since my August column which focused on the announced changes to the JobKeeper program, the extension of the JobKeeper program to 28 March 2021 has been legislated. This month, I take a close look at the legislative instrument issued by the Treasurer on 15 September which sets out the new JobKeeper payment rates and the eligibility criteria for JobKeeper 2 which apply from 28 September 2020. I also consider the three legislative instruments issued by the Commissioner on 16 September.
The latest JobKeeper changes are summarised in this handy infographic.
Changes to JobKeeper payment rates
Reduced two-tiered payment rates
Under the new two-tiered system, an entity’s entitlement to a higher or lower fortnightly rate of JobKeeper will be based on whether the eligible individual worked for 80 hours or more in the ‘reference period’.
The standard fortnightly rate of $1,500 will be reduced in two stages:
• From 28 September 2020 to 3 January 2021, the higher rate is $1,200 and the lower rate is $750.
• From 4 January 2021 to 28 March 2021, the higher fortnightly rate is $1,000 and the lower rate is $650.
Entities will need to nominate which payment rate they are claiming for each individual and notify each individual of that rate within 7 days of advising the Commissioner (sole traders only have to notify the Commissioner).
The reference period, which determines whether the entity is entitled to the higher or lower rate of JobKeeper, varies depending on the type of eligible individual. Once the hours in the reference period for an individual are determined, the rate is set and no further testing is required.
If the individual is an eligible employee — there are two standard reference periods:
• the 28-day period ending at the end of the most recent pay cycle that ended before 1 March 2020; and
• the 28-day period ending at the end of the most recent pay cycle that ended before 1 July 2020.
Employers can choose the most favourable of these two periods for each employee, but they cannot choose another reference period. The reference period is based on when the pay cycle ends, not the actual payment date. Actual hours worked, plus hours for paid leave and absence on public holidays count towards the 80-hour threshold.
The employer’s fortnightly pay cycle ends every second Thursday. The pay cycles that ended before 1 March 2020 and 1 July 2020 are 20 February and 19 June, respectively. So, the two 28-day reference periods are 24 January 2020 to 20 February 2020, and 23 May 2020 to 19 June 2020.
The hours worked by the employee in each reference period are 75 hours and 50 hours. The employer can choose the most beneficial reference period, which is the period before 1 March, but the hours still fall short of the 80-hour threshold for the higher rate. Accordingly, the employer will be entitled to JobKeeper for the employee at the lower rate from 28 September, regardless of the actual working hours of the employee in the JobKeeper fortnight.
The employer’s monthly pay cycle ends on the 20th day of each month. The pay cycles that ended before 1 March 2020 and 1 July 2020 are 20 February and 20 June, respectively. The hours worked by the employee in each monthly pay cycle are 140 hours and 84 hours. A pro-rated calculation is required for monthly payroll cycles to attribute the working hours to a 28-day period.
The hours attributable to each 28-day reference period are 126.5 hours and 75.9 hours. The employer can choose the most beneficial reference period, which, in this case, is the period before 1 March. As the hours meet the 80-hour threshold, the higher rate applies.
The Commissioner has determined three circumstances in which the higher rate applies where the hours are not readily ascertainable. This includes where, under an industrial award, enterprise agreement, individual contract or similar instrument, the eligible employee was required to work 80 hours or more.
The Commissioner has also determined when an alternative reference period is available because the standard reference period might not be suitable, including where an employee’s working hours in the standard reference period were not representative of a typical 28-day period.
Eligible business participants
If the individual is an eligible business participant, only one standard reference period applies. If the individual was actively engaged in the business carried on by the entity for 80 hours or more in February 2020, the higher rate applies, otherwise the lower rate applies. The individual must give a notice to that effect to the entity (or directly to the Commissioner if they are a sole trader).
The Commissioner has determined that an alternative reference period is also available for eligible business participants.
Entities claiming on the basis of eligible business participants won’t have payroll records to evidence the individual was actively engaged in the business for at least 80 hours during the 29-day reference period, but records should be kept to support the claim for the higher rate. These could include business diaries, appointment books, log books, hours billed, invoices issued, time sheets or attendance records, or records prepared for other business or statutory purposes.
While the JobKeeper rules are not explicit on this point, it seems that an entity cannot change who it has previously nominated as its eligible business participant.
Eligible religious practitioners
Similar rules apply to eligible religious practitioners. Only one standard reference period applies, based on the eligible religious practitioner undertaking prescribed activities in February 2020. The Commissioner has determined that an alternative reference period is also available for eligible religious practitioners.
Changes to decline in turnover test
Businesses will still need to demonstrate that their GST turnover has declined by the requisite percentage which is unchanged. However, from 28 September 2020, entities will need to satisfy the original decline in turnover (DIT) test based on projected GST turnover, as well as an additional actual DIT test based on actual GST turnover, relative to the corresponding quarter in 2019.
To be eligible from 28 September 2020 to 3 January 2021, the entity needs to suffer the requisite decline in both:
• a month from March to December 2020, or the June, September, or December 2020 quarter; and
• the September 2020 quarter.
To be eligible from 4 January 2021 to 28 March 2021, the entity needs to suffer the requisite decline in both:
• a month from March to December 2020, or the June, September, or December 2020 quarter; and
• the December 2020 quarter.
This sensible modification to the original DIT test (which extends the turnover test period to December 2020) means that, practically, an entity that satisfies the actual DIT test in the September or December 2020 quarter would be expected to also satisfy the original DIT test. Only one calculation will generally be required.
It will also allow those businesses that had not previously suffered the requisite decline in their turnover but are now suffering a significant deterioration in their turnover to qualify for JobKeeper for the first time. Many Victorian businesses are likely to be in this position as a result of the Stage 4 restrictions.
Significantly, the proceeds from the sale of capital assets which were excluded from projected GST turnover are required to be included in GST turnover under the actual DIT test. This may make it harder to qualify, especially if an entity is selling down assets to generate some much-needed cash flow.
The Commissioner’s discretion to set out alternative tests where it is not appropriate to compare actual turnover in the September or December 2020 quarters with actual turnover in the comparable quarter in 2019 will be set out in future guidance.
Calculation of GST turnover
A Treasury fact sheet originally issued on 21 July 2020 explained:
Businesses and not-for-profits will generally be able to assess eligibility based on details reported in the Business Activity Statement (BAS).
Under the new rules, entities will no longer have a choice as to which method they use to calculate their GST turnover (other than unregistered entities who will be able to use either the cash or accruals basis). The Commissioner has determined that an entity must use one of two prescribed methods to calculate their GST turnover based on their circumstance.
Broadly, an entity must use the cash or accruals GST attribution method that they use to prepare their BAS. For many entities registered for GST, the actual GST turnover calculation will match the ‘total sales’ reported at G1 on the BAS minus GST payable (at 1A), where applicable. However, where an entity has changed its reporting method since the relevant comparison period in 2019, it must use the method that applied in the first tax period of the relevant comparison period in the latter period; that is, they must compare like for like.
Special rules apply to entities that have registered for GST, or cancelled their GST registration, during or after the relevant comparison period. While the rules are more prescriptive and arguably more certain, they remove the element of choice that allowed businesses to select the method that best suited their circumstances.
The ATO’s Law Companion Ruling LCR 2020/1 sets out various options, or proxies, that currently enable entities to practically determine their GST turnover. Two of these proxies — the cash and accruals GST attribution methods — have effectively been legislated. Accordingly, this ruling will have no practical application under JobKeeper 2.
The Commissioner is allowing employers until 31 October 2020 to meet the wage condition for JobKeeper fortnights 14 and 15 (ending 11 and 25 October), given that the wage condition would otherwise need to be satisfied before the employers may have determined their actual GST turnover for the September quarter and whether they are eligible for JobKeeper from 28 September.
The wage condition for fortnights 16 to 20 (26 October to 31 January) must be met by the end of each fortnight. Further guidance will be issued by the Commissioner setting out the wage condition deadlines for fortnights 23 to 26 (1 February to 28 March).
Robyn Jacobson, senior advocate, The Tax Institute