Important notice - COVID-19 update

The new alternative decline in turnover test — what’s changed?

Sep 24, 2020 | JobKeeper, COVID-19 updates, News

On 23 September 2020, the Commissioner registered the Instrument titled the Coronavirus Economic Response Package (Payments and Benefits) Alternative Decline in Turnover Test Rules (No. 2) 2020 (the Instrument), accompanied by an Explanatory Statement, which sets out the Commissioner’s alternative decline in turnover tests where there is not an appropriate comparison period in 2019 for the purpose of an entity satisfying both the new ‘actual decline in turnover test’ and the original decline in turnover test for fortnights starting on or after 28 September 2020. Under the extended JobKeeper scheme, entities must satisfy the new actual decline in turnover test that uses the current GST turnover, and also still satisfy the original decline in turnover test that uses projected GST turnover. Entities already enrolled in the JobKeeper scheme before the extension have already satisfied the original decline in turnover test, and only need to satisfy the new actual decline in turnover test.

Editor’s note

On 9 October 2020, the Commissioner registered a Legislative Instrument titled the Coronavirus Economic Response Package (Payments and Benefits) Alternative Decline in Turnover Test Amendment Rules 2020 which amends the Instrument to add an additional alternative decline in turnover test where the business temporarily ceased trading during the relevant comparison period. See the end of this article.

Background

On 15 September 2020, the Treasurer registered a Legislative Instrument titled the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 8) 2020 (the Amendment Rules No. 8), which amends the Legislative Instrument titled the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020. The latter instrument, as amended, is referred to as ‘the JobKeeper Rules’ in this article. (Note that, at time of writing, this hyperlinked version of the JobKeeper Rules has not been updated to incorporate the changes made by the Amendment Rules No. 8.)

The Amendment Rules No. 8, in giving effect to a number of changes to the JobKeeper Scheme, relevantly introduced:

  • two extensions to the JobKeeper scheme — Extension 1 from 28 September 2020 to 3 January 2021, and Extension 2 from 4 January 2021 to 28 March 2021 (collectively referred to as the ‘extended scheme’); and
  • a requirement to re-test a business’s eligibility each quarter based on a new ‘actual decline in turnover test’, in addition to having to satisfy the original decline in turnover test.

More information about the legislated extended scheme is available in our previous Banter Blog articles JobKeeper 2.0 is now law, JobKeeper employee eligibility date changed to 1 July 2020 and JobKeeper changes: What’s new in JobKeeper 2.1?.

About the Instrument

Under the JobKeeper Rules, the Commissioner has a discretion to determine an alternative decline in turnover test in circumstances where there is no appropriate comparison period in 2019. This discretion applies in relation to both the original decline in turnover eligibility test and the new actual decline in turnover test.

On 23 April 2020, the Commissioner registered a Legislative Instrument titled the Coronavirus Economic Response Package (Payments and Benefits) Alternative Decline in Turnover Test Rules 2020 which set out the alternative tests for the original decline in turnover test in respect of seven categories of entities. This instrument will be repealed on 27 September 2020 and replaced by the Instrument.

The ATO has released website guidance on the alternative actual decline in turnover test.

NoteNote
The new actual decline in turnover test has not replaced the original decline in turnover test. An entity that becomes eligible for JobKeeper for the first time on or after 28 September 2020 must pass the original test as well as the new test (in practice, if the entity satisfies the new test, it should also satisfy the original test). An entity that was enrolled in JobKeeper prior to 28 September 2020 does not need to satisfy the original test again.

The new actual decline in turnover test is applied separately to each of the extension periods.

Categories of entities to which an alternative test applies

The seven categories which may use an alternative test in respect of the extended scheme are:

  1. Business commenced after the first day of the relevant comparison period but before 1 March 2020
  2. Business acquisition or disposal that changed the entity’s turnover
  3. Business restructure that changed the entity’s turnover
  4. Business that has had a substantial increase in turnover
  5. Business affected by drought or natural disaster
  6. Business that has an irregular turnover
  7. Sole trader or small partnership with sickness, injury or leave.

Key changes from the original alternative test

ATO guidance on the operation of the original alternative test for each of the seven categories is available here.

The Instrument retains the seven categories and modifies the alternative tests for the extended scheme. The main modifications are outlined as follows.

Alternative actual decline in turnover test will apply for a quarter

The alternative test for the actual decline in turnover test will only apply for a test quarter and comparison quarter, and not for a comparison month. This is because the turnover test period (and relevant comparison period) for the basic actual decline in turnover test can only be a quarter and not for a calendar month.

The Instrument contains modifications where the relevant comparison period is a calendar month, which will only be relevant for the original decline in turnover test.  Practically, if an entity satisfies the new actual decline in turnover test (using a quarter as the test period) they will generally also satisfy the original decline in turnover test (the only exception being certain Universities).

References to current GST turnover

The Instrument amends a number of references to ‘turnover’ to ‘current GST turnover’. The actual decline in turnover test only compares the current GST turnover of the turnover test period to the current GST turnover of the comparison test period. The original decline in turnover test allows projected GST turnover of the turnover test period to be compared to the current GST turnover of the comparison period.

Further adjustments for bushfire or drought affected entities

For each category, further adjustments are made where the entity qualified for the ATO’s bushfire or drought lodgment concessions.

For Categories 6 and 7, these additional adjustments have been amended so that, under the new alternative test, the months covered by the ATO’s bushfire or drought concessions are excluded from the test unless they are the only months available. The exception (italicised) was already available in the alternative tests for most other categories.

Changes specific to Category 1 — new businesses

The former alternative test applied to entities that commenced business after the relevant comparison period and before 1 March 2020. The new alternative test applies to entities that commenced business after the first day of the relevant comparison period and before 1 March 2020.

Changes specific to Category 2 and 3 — business acquisitions, disposals and restructures

The former alternative test applied where the relevant restructure happened after the relevant comparison period and before the turnover test period. The new alternative test applies where there was a relevant restructure at, or after, the start of the relevant comparison period and before the turnover test period.

The former alternative test required that entities with multiple acquisitions, disposals and restructures use the period after the last of the sequential transactions. This requirement has been removed.

Changes specific to Category 4 — substantial increase in current GST turnover

The former alternative test applied where the entity’s turnover increased by the relevant percentage in the 12, six or three months immediately before the applicable turnover test period. The new alternative test retains this rule but introduces a new alternative option to test the increase in current GST turnover in the 12, six or three months immediately before 1 March 2020.

Changes specific to Category 6 — irregular turnover

The former alternative test applied for the quarters ending in the 12 months immediately before the applicable turnover test period. The new alternative test applies to the consecutive three-month periods — instead of the quarters — ending in the 12 months immediately before the applicable turnover test period, or 1 March 2020.

Changes specific to Category 7 — sole traders and small partnerships

Under the former alternative test, where the comparison period was a quarter, the entity was to multiple by three the current GST turnover from the month immediately after the month in which the sole trader or partner returned to work. Under the new alternative test, the entity is to multiple by three the current GST turnover from the month immediately before the month in which the sole trader or partner did not work.

Practical examples

Refer to the Explanatory Statement to the Instrument for nine practical examples of how the new alternative decline in turnover tests apply.

Business temporarily ceased trading — 8th alternative test added

The amendment to the Instrument on 9 October 2020 introduces two alternative tests to entities that temporarily ceased trading and were not trading for some or all of the relevant comparison period. Trading must cease due to events or circumstances outside of the ordinary course of business for a period of not less than one week. The business must have resumed trading before 28 September 2020.

The first alternative test compares the entity’s current GST turnover (or projected GST turnover) for the applicable turnover test period with the current GST turnover for the same period in the year immediately before the business temporarily ceased trading.

The second alternative test compares the entity’s current GST turnover (or projected GST turnover) for the applicable turnover test period with the current GST turnover of the three whole months immediately before the month that the business temporarily ceased trading (or the whole month where the relevant comparison period is a month rather than a quarter).

The entity can use either test. Adjustments for bushfire or drought affected entities apply.

The Explanatory Statement contains a practical example.

Further info

Looking for further information on the JobKeeper extensions? Check out our recent webinar, JobKeeper Extended, where we walk through the implications and provide guidance on the recent changes. You can also check out our monthly Tax Updates, where we cover the legislation changes that will affect you and your clients the most.

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