With the JobKeeper payment rules determining that a payment will only be made to an adult beneficiary of a trust and the cash-flow boost measure effectively excluding those who are structured to receive a trust distribution or a dividend paid by a company, Tax & Super Australia senior tax counsel John Jeffreys believes some businesses will be left in what he terms as a “black hole”.
“A common structure is for a unit trust to operate a business and for the units to be owned by one or more discretionary trusts. This structure is often used for businesses where two different families are involved with a business,” Mr Jeffreys said.
“In this structure, it is often the case that none of the family members are paid salaries. Instead, the unit trust distributes its profits to the two family trusts, and those trusts in turn distribute to family members.
“If such a business structure has no employees because the two families are the labour in the business, neither the unit trust nor the two family trusts are entitled to the cash-flow boost.
“Also, we now know that to benefit from the JobKeeper payment, there must be an adult individual beneficiary of the trust. In the structure described, the only beneficiaries of the unit trust are the two family trusts. This means that the unit trust cannot claim JobKeeper.”
Without amendment from the government, Mr Jeffreys believes the ATO will need to apply a “very generous interpretation” of the rules for such businesses caught in the “black hole” to benefit from the wage subsidy.
Business owners actively engaged in their business
While the ATO has provided its first round of guidance on the JobKeeper payment, the profession is still currently waiting on further information regarding eligibility for sole traders and other businesses in the form of a company, trust or partnership.
Mr Jeffreys said the current rules dictating how only one partner in a partnership, one beneficiary of a trust, and one director or one shareholder in a business can receive the payment will likely throw up further issues.
“Take the case of three people in a partnership conducting a business with two employees. The two employees could get the JobKeeper payment, but only one of the partners could. The other two miss out,” he said.
“Perhaps, the thinking around this is that these types of businesses are only run in families, but this is not always the situation.”