Covid-19 Financial Update #16 – ATO releases JobKeeper Alternative Tests

The government has released legislation outlining alternative eligibility tests for its JobKeeper wage subsidy payments. These new rules outline the scenarios in which a business might be able to apply alternative turnover tests, and what those tests will be. We note, this detail and tests apply only to those who have not yet met the basic 30% decline in revenue JobKeeper test.

The alternative tests are only for use in those circumstances, which result in the relevant comparison period in 2019 not being appropriate.

Classes of entities that can apply an alternative test

Test 1: Entity commenced business after the relevant comparison period and as a result the default test cannot be used

Test 2: Entity acquired or disposed of part of their business after the relevant comparison period and those actions changed their turnover. As a result, the business today is not the same business as it was in the relevant comparison period and so an alternative is needed

Test 3: Entity has restructured part, or all of the business and the restructure changed the turnover. As a result, the current business is not the same business as it was in the comparison period and so an alternative is needed

Test 4: Entity has had a substantial increase in turnover – by 50% or more on a 12 months basis. The rapid growth indicates a change in the business and so an alternative test is required

Test 5: Entity has been affected by drought or natural disaster in the comparison period. The event or circumstances is outside the usual business setting and as a result an alternative test is required

Test 6: The entity has an irregular turnover that is not cyclical, such as can occur in building and construction. A business with such irregular but non-cyclical turnover means that the relevant 2019 period if not appropriate.

Note: This does not apply to a business with a cyclical or seasonal turnover fluctuation because the relevant comparison period is regarded as appropriate.

Test 7: Entity is a sole trader or partnership (individuals), and no employees, and the sole trader or one of the partners has been sick, injured or on leave during the comparison period. In this case the default comparison period is not appropriate and so an alternative test is required

Use of the alternative tests

  • For all but Test 1 (those not in business last year), the alternative test merely provides an option IF they do not qualify under the basic decline in turnover test
  • If you satisfy the original test, you do not need to satisfy the alternative test even if you are in the class of entity to which an alternative test applies
  • So, an entity which satisfies the basic test, but does not satisfy an applicable alternative test, still qualifies for JobKeeper – these are either/or tests
  • If you do not satisfy the basic test, and happen to be in two or more classes of entities which can use an alternative test, if you satisfy just one of them you are ok

Test 1: Business commenced after comparison period 

Test 1 available to an entity which commenced business before 1 March 2020 but after the relevant comparison period it is wishing to use.

It has two sub-alternative tests

First alternative test:

  • If you are using a month as your test period, use as your comparison the average monthly current GST turnover

Average monthly current GST turnover is:

If you commenced business before 1 February 2020, it is the monthly average of your actual GST turnover for each whole month after you started business and before 1 March 2020

Example: If started business on 15 November 2019, you calculate average turnover for months of December, January and February

You then compare this to turnover for either March 2020 or April 2020 to see if you have the required 30% decline

Average monthly current GST turnover is

If you started business before 1 March 2020, but on or after 1 February 2020, it is your actual turnover before 1 March divided by the number of days you were in business, multiplied by 29

So, if started business on 2 February and turnover from 2 February to 28 February was $200,000, your average turnover is $200,000/27 x 29 = $214,815

You will therefore need to show that your turnover in March or April will be 30% down – less than $150,370

  • If you wish to use a quarter as a comparison, multiply the average monthly current turnover (worked out as above) by 3
  • So, if want to compare to the projected turnover for the qtr. ended June, the taxpayer above would use $644,445 as the comparison base

Test 2: Business acquisition or disposal that changed turnover

This alternative is available to an entity if:

  1. There was an acquisition or disposal of part of their business after the relevant comparison period and before; and
  2. The acquisition or disposal changed the entity’s turnover [not defined – so hard to see how it would not have regardless]

The alternative test is:

  • If using a month as your test period, use the GST turnover from the month immediately after the acquisition or disposal occurred as your comparison period
  • If using a quarterly comparison, multiply by 3 the turnover from the month immediately after the month of the change
  • If there is more than one acquisition or disposal use the month after the last one
  • If there is no whole month after the last one use. the month immediately before the applicable turnover test period i.e. before the month you are using as your current test period
  • This test could be used, for example, when a distribution business has acquired a new agency, or a financial planning business has bought a new book since the relevant comparison period last year

Bushfire and Drought changes:

  • If the entity qualified for the Bushfire lodgement and payment deferrals, exclude months covered by those and use the nearest month before or after the acquisition or disposal as appropriate, unless the months covered by the concessions are the only months available
  • If the entity qualified for the Drought Help concessions, exclude months covered by those and use the nearest month before or after the acquisition or disposal as appropriate, unless the months covered by the concessions are the only months available

Test 3: Business restructure that changed the entity’s turnover

This alternative is available to an entity if:

  • There was a restructure of their business, or part thereof, after the relevant comparison period and before the applicable current turnover test period; and
  • The restructure changed the entity’s turnover

Restructure is not defined – but it is referring to a restructure of businesses within a single entity – e.g. merging of divisions. It does not apply to an entity that has restructured e.g. a partnership which has moved to a company. In that case, the company needs to use Test 1

The alternative test is:

  • If using a month as your test period, use the month immediately after the month in which the restructure occurred as your comparison
  • If using quarterly, use above x 3

Same rules if more than one restructure (use the last one) and for Bushfire/Natural disaster relief

Test 4: Business had substantial increase in turnover

This alternative is available to an entity if they had an increase in turnover of:

  1. 50% or more in the 12 months immediately before the applicable turnover test period; or
  2. 25% or more in the 6 months immediately before the applicable turnover test period; or
  3. 12.5% or more in the 3 months immediately before the applicable turnover test period

The alternative test is:

  • If using a month as your test period, use as your comparison the average turnover for the 3 months before your current month
  • If using quarterly, use the 3 months before your current month

Same exclusions regarding drought/natural disaster.

Test 5: Business affected by drought or natural disaster

This alternative it available to an entity if:

  • The entity conducted business or some of the business in a declared drought zone, or a declared natural disaster area, during the relevant comparison period; and
  • The drought or natural disaster changed the entity’s turnover [this brings in a type of subjective or causation test which it not required in the default test – but probably not hard to prove?]

The alternative test for a comparison period is: Use the actual turnover for the same period in the year immediately before the declaration of drought or natural disaster

Test 6: Business has an irregular turnover

This alternative is available to an entity if

  1. For the quarters ending in the 12 months before the applicable turnover test period, the entity’s lowest turnover quarter is no more than 50% of the highest turnover quarter; and
  2. The entity’s turnover is not cyclical [e.g. if your turnover fluctuates only because you are seasonal e.g. farmer or ski shop, you do not qualify under this test]

The alternative test is

  • If using a month as the test period, use as your comparison the average monthly turnover for each whole month in the 12 months immediately before the current test month
  • If using a quarter as the test period, multiply the average monthly turnover calculated above by 3

Same exclusions regarding Bushfires and Natural Disaster.

Test 7: Sole trader or partnership with sickness injury or leave

This alternative is available to an entity if

  1. The entity is a sole trader with no employees or a small partnership [not defined] that has no employees; and
  2. The sole trader or at least one of the partners did not work for all or part of the comparison period due to sickness, injury or leave [which should include maternity leave]; and
  3. The turnover of the sole trader or partnership was affected by the sole trader or partner not working for all or part of that period

The alternative test is:

  1. If using a single month as your test period, use as your comparison the month immediately after the sole trader returned to work
  2. If using a quarter as your test period, use 3 times the turnover of the month immediately after the individual returned to work

Same issues if in receipt of Bushfire help or Natural Disaster relief

If you believe you have not yet met the basic decline in turnover test for the JobKeeper payments and would like to discuss any of the alternative tests and how they may apply to your situation, please get in touch with our office.

Connect with us and request an appointment today.