Today, the JobKeeper program legislation, the Coronavirus Economic Response Package (Payments and Benefits) Bill 2020, was introduced into the Australian Federal Parliament.
Treasury also released (for a short window) the supporting Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (the 'Rules'). It is a substantial body of work.
The 'JobKeeper package' is the most significant part of the Federal and State Government's economic stimulus response to the COVID-19 pandemic. The key benefits have been explained in Treasury's guidance, and include substantial payments to businesses to support the retention of employees.
The key question that is being asked is "am I eligible?", noting that this is a threshold issue for the survival of many businesses.
Unfortunately, the basis for determining eligibility remains unclear for many. This is particularly the case for larger corporate groups, and those with more complex business structures.
The position for corporate groups will need to be clarified either through amendments to the version of the Rules uploaded earlier today or through the exercise of discretion by the ATO. In either case it is important that clarity is provided as soon as possible for the package to be most effective.
We will continue to monitor the measures and make appropriate submissions. If you have particular concerns, we would be pleased to workshop them as we move through these challenging times.
The basics of eligibility
The draft legislation and Rules have helpfully confirmed many of the aspects of Treasury's initial guidance on eligibility. The key components are that:
- turnover has fallen or will likely fall by 50% or 30% (depending on the size of the turnover, and with a separate 15% threshold for certain not-for-profits); and
- there are 'eligible employees', which continue with the business and meet a range of criteria.
A key challenge is identifying the entity, business or group against which these turnover and employee tests are to be applied. Unfortunately, this is a critical matter which remains uncertain, and there are some inconsistencies between the Treasury guidance and the Rules made public today.
The issues include:
- should the annual turnover thresholds be calculated at a single 'business' level, a single 'entity' level or at the level of an income-tax consolidated group (as previously suggested by Treasury). In many cases businesses are conducted by a number of entities in aggregation, or an entity may conduct a number of different businesses;
- how should a corporate group manage the very common situation of having a group-employing entity that supports one or more other operating entities; and
- whether and how should businesses and entities that engage their labour through labour-hire companies best access the package.
The key eligibility question will be determined, in part, by the Rules. An exposure draft of the Rules was temporarily released on Treasury's website today, however has subsequently been removed. We are monitoring any updates which may clarify some of these issues. It has no doubt been very difficult to accommodate all the variations in the time that has been available.
It may be the case that the issues will need to be addressed directly with the Commissioner of Taxation, noting that the Commissioner is expected to have broad powers to accommodate different circumstances. In any case, certainty should be provided to industry as soon as possible.
Other important considerations
There are a range of other tax matters associated with the JobKeeper package to keep in mind. In particular:
- The critical turnover test is assessed by reference to an entity's "GST turnover" during the relevant test periods, with certain modifications. Importantly, GST turnover does not include supplies made in connection with foreign operations or input-tax supplies (such as financial supplies). The reliance on GST concepts means that eligibility may not reflect an entity's overall revenue and profit result, and will differ depending on the industry in which the entity operates.
- Tax reporting and analysis will continue to be critical to ensure ongoing compliance (and in quantifying liabilities for excessive claims). Risks in relation to these matters are to be assessed similarly to the general anti-avoidance rules in Part IVA of the Income Tax Assessment Act 1936 (Cth).
- The JobKeeper legislation provides that the payments might be exempt from income tax or treated as not assessable and not exempt income, if the supporting rules provide for this. The Rules initially released by Treasury did not make such a provision.
- Finally, the South Australian Government has announced that it will make an exemption to ensure that the JobKeeper payments received by South Australian employers will not be subject to payroll tax. We will continue to monitor any similar measures announced by other State and Territory Governments over the coming days.
We are continuing to monitor the updates to the JobKeeper package. The KWM Employment team has also considered the implications of the JobKeeper package from an employment law perspective, which is available here.
The JobKeeper package is part of a range of measures proposed in response to COVID-19. The full list of stimulus measures announced across the National Cabinet in response to the pandemic is available here.