On 31 July 2020, the ATO released guidance in a fact sheet titled ‘JobKeeper overpayments’ (QC 63309) in relation to how it intends to administer overpayments of JobKeeper payments.
An entity has received an overpayment if it had incorrectly self-assessed that it was eligible for the JobKeeper Payment scheme when it was not, or alternatively, if it had self-assessed that a particular individual (employee, business participant or religious practitioner) was eligible when they were not.
If the ATO identifies an overpayment, the ATO will decide one of the following:
- that the overpayment does not have to be repaid;
- that the overpayment needs to be repaid by the entity; or
- that another entity (e.g. the individual) that directly or indirectly benefited from the overpayment is also liable to repay the overpayment. In these circumstances the ATO may pursue:
- the entire repayment from the entity;
- the entire repayment from the other entity; or
- payments from both the entity and the other entity until the overpayment is repaid in full.
The legislative background
The Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (the Act) established the legislative framework, under which the Commissioner has general administration of the JobKeeper Payment scheme. Sections 9 to 11 of the Act set out the consequences of an overpayment and underlie the ATO’s compliance approach.
The ATO’s compliance approach
When won’t repayments be required?
Under the Act, the Commissioner has discretion to determine in writing that an entity is not liable to repay an overpaid amount.
The ATO acknowledges that businesses may have incorrectly self-assessed eligibility for JobKeeper in the early stages of the scheme due to the need to move quickly.
The ATO may decide that an overpayment does not have to be repaid — particularly if there was an honest mistake.
The ATO will make this decision on the facts and circumstances of each case. Relevant factors may include whether:
- the entity had relied in good faith on a statement made by an employee in their nomination notice;
- the entity fully passed on the benefit of the JobKeeper payment to the employee;
- the mistake was made earlier in the JobKeeper scheme when there was less public guidance.
An example of relying in good faith on a statement made by an employee in their nomination notice may include where:
- the employee had falsely declared that they had not been nominated by another entity, when they had in fact been nominated by another entity; or
- an employee who was 16 or 17 years of age on 1 March 2020 had falsely declared that they were ‘independent’ and/or was not a ‘full time student’ on that date.
However, where the employer and employee had colluded to falsify records about the employee’s employment status, this will not be an example of relying in good faith on a statement made by the employee.
What will the ATO consider to be an ‘honest mistake’?
The ATO states that it will consider a mistake to be honest if ‘it is reasonable to have made the mistake in your circumstance’.
A mistake will not be considered ‘honest’ if any of the following applies:
- fraud was perpetrated by either the JobKeeper recipient or another entity;
- there has been intentional disregard of the law, recklessness in its application;
- the entity nominated employees, business participants, or religious practitioners that it should have known would not satisfy eligibility requirements;
- the employer has deliberately not met the wage condition; or
- the entity has been contacted by the ATO about its claim potentially being ineligible and has not taken reasonable steps to check the eligibility before making subsequent claims.
This is not an exhaustive list and there may be other circumstances where a mistake is not considered honest.
When will repayments be required?
If the ATO identifies that an entity has received an overpayment of JobKeeper that needs to be repaid, it will write to the entity to inform:
- why there has been an overpayment;
- how much needs to be repaid; and
- how to make the repayment.
The entity may object to the ATO’s decision to require a repayment.
Generally, an entity may object to JobKeeper-related decisions under Part IVC. The ATO has not released any procedural instructions specific to JobKeeper decisions. Its forms and procedures that generally apply to other Part IVC objections are available on its webpage ‘How to object to a decision’.
Generally, the ATO will not impose administrative penalties for JobKeeper overpayments that were the result of a mistake.
However, administrative penalties will apply if there is evidence of deliberate actions to access JobKeeper payments that the entity would not have otherwise been entitled to.
General interest charge (GIC)
Under the Act, the repayment is due on the same day that the Commissioner makes the overpayment. GIC accrues on the amount that remains unpaid after its due date, until the amount is paid. The Commissioner’s powers to remit GIC in certain circumstances will apply.
Joint and several liability
Under the Act, where the overpayment occurred:
- because the entity reasonably relied on a statement that was made by another entity, where the statement was false or misleading in a material way; or
- due to the fraud of another entity,
the entity and the other entity will be jointly and severally liable to repay the overpayment and the GIC.
Joint and several liability will only arise where the Commissioner is satisfied that the necessary circumstances exist, and that it is reasonable for the two entities to be jointly and severally liable.
The ATO has provided the following examples of when it may or may not require a repayment in its fact sheet.
Example 1 — New to business sole trader that does not meet integrity rules
Jack started a new business selling toys at the start of December 2019. He completed the necessary registrations for his new business as a sole trader, including getting an ABN and registering for quarterly GST reporting. Jack also paid other costs in establishing his business. Due to delays in setting up the business, he didn’t make any sales until late January 2020.
As Jack’s business didn’t make any taxable supplies in the December quarter reporting period, the business is not eligible for JobKeeper. This is because it did not make a taxable supply in the tax period that ended before 12 March 2020.
Jack made relevant inquiries, including discussing his potential application with his tax agent, to determine eligibility before he applied for JobKeeper as a business participant. He received a JobKeeper payment in respect of fortnights 1 and 2. Before payments for fortnights 3 and 4, he received notice from the ATO that he was ineligible under the integrity rules.
While this is considered an overpayment, Jack will not have to repay the JobKeeper payments made to him for fortnights 1 and 2. Even though Jack didn’t satisfy the integrity rules, for fortnights 1 and 2, he satisfied all other eligibility requirements. It’s reasonable for Jack not to know that he didn’t satisfy the integrity rules when he claimed for fortnights 1 and 2 and it is considered that Jack made an honest mistake.
Example 2 — Employer makes honest mistake regarding employee’s eligibility
Jo is an Australian tax resident, has one job and is on a partner visa which makes her ineligible for JobKeeper payments. Jo is still working and earning $2,800 per fortnight from MedCo, a company with many employees. After registering for JobKeeper, MedCo gives each of its employees, including Jo an employee nomination notice.
Jo returns it to them on 1 May 2020. Jo continues to receive her salary of $2,800 gross from MedCo, who are then reimbursed $1,500 for JobKeeper fortnights 1 to 4 for wages paid to Jo. The ATO identifies the mistake and bring it to MedCo’s attention after the payment for fortnights 3 and 4.
As MedCo relied on Jo’s nomination notice, it will have made an honest mistake in claiming JobKeeper for Jo. The ATO will not require repayment of the overpayment in respect of fortnights 1 to 4.
MedCo will not receive any future JobKeeper payments for Jo.
Even if the error was identified after fortnight 4, unless there were other factors weighing against the exercise of the discretion, the ATO would not pursue recovery from MedCo This is because MedCo reasonably relied on Jo’s employee nomination notice and made an honest mistake about whether her visa made her ineligible to receive JobKeeper.
Example 3 — Employer makes honest mistake regarding employee’s eligibility
Big Business Co (BB Co) has an aggregated turnover well in excess of $1 billion. It had a projected decline in turnover of 35 per cent at the test time, and incorrectly applied the 50 per cent decline in turnover test instead of the 30 per cent test as required in the turnover rules.
BB Co has applied for JobKeeper on behalf of 1,000 employees and has received payments for JobKeeper fortnights 1 and 2. BB Co met the wage condition for all 1,000 employees of paying a minimum of $1,500 per fortnight (before tax).
As BB Co did not satisfy the 50 per cent decline in turnover test, it was ineligible for JobKeeper and is liable for the overpayments.
The ATO will not waive the requirement to repay these JobKeeper overpayments as BB Co did not make an honest mistake; its mistake was not reasonable in all the circumstances. BB Co was reckless in not thoroughly considering the decline in turnover test provisions and the substantial support material published by the ATO outlining eligibility requirements.
Example 4 — Information within the knowledge or control of the employer
Tony began employment with XYZ Pty Ltd after 1 March 2020, making him ineligible for JobKeeper payments. Tony is still working and earning $2,800 per fortnight. XYZ Pty Ltd gives Tony a nomination notice as they have given them to all staff despite him not meeting employee eligibility requirements.
Tony returns the nomination notice to XYZ Pty Ltd on 1 May 2020. Tony receives a $2,800 gross from XYZ Pty Ltd and the employer receives $1,500 for Tony.
The ATO will not waive the requirement to repay as information pertaining to Tony’s ineligibility was within the knowledge or control of XYZ Pty Ltd.
It was not reasonable for XYZ Pty Ltd to not know that Tony was not an eligible employee as they held information about his employment status as at 1 March 2020.
COVID-19 data matching program
The ATO has implemented a data matching program in respect of the Government’s COVID-19 economic response support payments — including JobKeeper Payments — for the 2019–20 and 2020–21 income years. The ATO will obtain Services Australia and state and territory correctional facility data to identify risks such as identity theft, or incorrect or misleading information included in applications to falsely obtain JobKeeper payments.
More generally, the ATO’s access to Single Touch Payroll data may assist in revealing situations where an employee is ineligible.