These genuine new businesses have found themselves ineligible for the stimulus measures because of a restrictive integrity rule, which requires entities to have notified the ATO of taxable supplies made before 12 March.
This leaves new businesses that have made taxable supplies on or after 1 January unable to qualify if they lodge their BAS on a quarterly basis, but eligible if they report on a monthly basis.
Following an investigation, the Inspector-General of Taxation, Karen Payne, said that because the definition of taxable supply has been modified for JobKeeper and cash flow boost purposes to include both GST-free supplies and input-taxed financial supplies, these entities may find that they satisfy the integrity rule in the course of setting their new business up.
This is because financial supplies include the acquisition of financial supplies, including opening a bank account, borrowing money, entering a mortgage over real property, and buying or selling shares or other securities — including incorporation of a shelf company or acquiring an interest in a managed investment scheme.
“For GST purposes, taxable supplies expressly exclude input-taxed supplies because they get dealt with through a different mechanism in the GST Act,” Ms Payne told Accountants Daily.
“But for these purposes, they are expressly included in the definition of what is a taxable supply, as well as GST-free supplies.
“An input-taxed financial supply can be made when you acquire a financial supply, so it is a little counterintuitive when you think about opening a bank account is making a financial supply.
“Where a new business has ‘acquired’ one or more of these financial supplies as part of the steps undertaken to commence an enterprise and did so in tax periods that ended on or before 12 March 2020, then a business may be eligible.”
Ms Payne also noted that lodging a BAS is not a mandated requirement and not the only way to provide notice to the Tax Commissioner, and that the taxable supply must be made for consideration but there is no requirement for that consideration to be received in the same tax period in which the taxable supply was made.
“Accordingly, a new small-business entity does not need to have reported sales in their BAS to be eligible. Provided the business entity was carrying on an enterprise when making a taxable supply (as modified for JK and BCF purposes), and provided notice of that supply to the commissioner (in any form) before 12 March 2020 or further time allowed by the commissioner, they may be eligible,” the IGT said.
“All of those steps have to be worked through, but we’re flagging that it’s not a locked gate; we really wanted people to understand that this is a possible way for a new business to satisfy the eligibility criteria.”
Waiting on the ATO
The ATO has been cagey in their initial reaction, with an official response to the IGT’s findings and recommendations expected to be made after the tax watchdog’s report is finalised.
“We note the comments made by the Inspector-General of Taxation (IGT), and we will continue to work co-operatively with them to resolve these and other matters they raise with us,” an ATO spokesperson told Accountants Daily.
“The cases referenced by the IGT represent a very small fraction of applicants but, of course, are important matters to consider.
“The eligibility criterion of notifying the commissioner of a taxable supply before 12 March 2020 is an important integrity design feature of both cash flow boost and JobKeeper, so where this is not clear, we consider the eligibility of such applications carefully.”
The IGT has since put forward 33 of such cases to the ATO, with the Tax Office agreeing to review other similar cases.
“From my perspective, I understand that they’ve undertaken to revisit all of the cases that we’ve commenced an investigation on and that they will be revisiting anything that involves a Part IVC challenge, so any objection cases and any appeals to the AAT,” Ms Payne said.
‘Doors could be open’
The Institute of Public Accountants general manager of technical policy Tony Greco said the IGT’s findings could open up a “plethora of opportunities” for businesses that had been knocked back from accessing the pandemic stimulus measures, but it remains to be seen if the ATO would accept the IGT’s views.
“The ATO’s narrow interpretation may come back to haunt them because of the Inspector-General of Taxation’s analysis,” Mr Greco said.
“If [the ATO] has accepted the rationale, then it opens up the doors, but we have to wait and see what the ATO says.
“With cash flow boost, it is probably not too hard to retrospectively deal with, but with JobKeeper that could be a nightmare.”
The tax notice requirement has been a constant issue for accountants and their clients since the stimulus measures’ inception in March.
The top nine accounting and bookkeeping professional associations wrote to the Treasury specifically on the issue in June, but the Treasury’s much-publicised midway review of the JobKeeper program failed to address it.
The Treasury was confronted on the issue at a Senate inquiry in September but responded by noting that the design of the program was a matter for the government.
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Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.