If there’s one term that any Tax Agent cringes at, it’d have to be “Commissioners discretion.” This is because we don’t like uncertainty, that’s why we play with numbers all day. Numbers are certain. Much to many Tax Agents angst, the Jobkeeper allowance is riddled with several critical “Commissioners discretion” that brings to light the need for some urgent guidance from the ATO in specific areas. With the Jobkeeper containing so many tight eligibility criteria and reporting deadlines, it’s essential that the ATO release this guidance immediately so ensure that small business owners can make informed decisions about their own applications into the Jobkeeper allowance, their businesses, and their future.
I’ve said to many of my clients and colleagues recently, it seems like there are 3 categories of businesses that are looking at the Jobkeeper allowance.
One is businesses where nothing has changed, in fact, they may very well be making more money during this time. They know they won’t qualify so they are just getting on with business as usual.
Then there are businesses that have been shut down in full or in part as a direct result of restrictions that the Government has imposed during this period. They know they are going to qualify for the 30% downturn because they are seeing it in real-time. These are businesses like Gyms, Cafes, Beauty Salons, etc. Their questions tend to revolve around the administration of the Jobkeeper, many of which have been answered by now. Their biggest concern is how on earth do they actually pay these wages for a month when their cash flow has been significantly impacted until the ATO reimburses them monthly in arrears. Especially since it’s these types of businesses that tend to not carry a great deal of surplus cash around. So far the “official answer” has been that the responsible lending regulations that were imposed upon banks after the Banking Royal Commission have been relaxed, combined with the $90Billion released by the RBA specifically for this purpose, so these businesses should talk to their banks about support to finance these measures. While in theory that’s fantastic, the truth of the matter is that some banks still haven’t developed what their product in this area is yet. Add to this then the processing time to actually get the loan processed through the bank. It’s now the middle of April. It’s too late now.
Finally, there are businesses in the middle… Businesses that might make a 30% decline in turnover, but it’s going to be close. It’s likely that they don’t know what their downturn is actually going to be. These are the Businesses that are getting caught up in the finer details of this Jobkeeper program and have many questions about some of the smaller “what ifs?” Overwhelming, two questions are significantly more prevalent.
What is the process of proving your decline in turnover to the ATO?
Having our office in Townsville and therefore the large majority of clients being from the Townsville region also, this is the biggest concern of clients. Understandably so they are concerned about being asked to compare against a period that was experiencing its own significant downturn in the aftermath of the 2019 floods. So far the response to this from the Government has been that the ATO will have the discretion to agree with you on a more appropriate comparative period.
Don’t get me wrong, this is definitely a very reasonable response from the Government on this issue. To recognise that there are inconsistencies to activity levels in small business when comparing year on year and to allow for a change is incredibly sensible. And while I’m sure that the process for this will present itself over time, at present it’s the lack of advice from the ATO in this space in particular that’s causing stress in the business community. Especially considering that you need to prove the decline in turnover before being eligible to receive the Jobkeeper allowance. Any Tax Agent will tell you that the average turn around time for the ATO to consider anything is at least 2 weeks but more like 4-6 weeks.
Ideally, we’d love to see the ATO provide some firm guidance on exactly the following:
- What are they going to consider when agreeing on a more appropriate comparative period?
- What is the process for proving decline in turnover?
- Are supporting documents required? if so, which ones?
- If the decline in turnover goes off reported sales on BAS statements (which would be by far the most streamlined method), and lodges BAS statements quarterly, what happens if they’ve had a great January and February and haven’t seen the decline until March?
- If the decline in turnover doesn’t go off BAS statements, how does the ATO prove the reported figures?
- What about those businesses that aren’t registered for GST, how do they prove their decline?
- Will a service entity be eligible for JobKeeper payments if it doesn’t meet the decline in turnover test, but the business entity does?
- Will an increase in bad-debts be taken into account in determining whether the decline in turnover test is met?
What happens if I overestimate my downturn?
Again this has been an interesting one to put into the category of “Commissioners discretion.” So far we’ve been told that overpayments of the JobKeeper allowance to Businesses will need to be repaid, unless the Commissioner makes a written determination that an entity is not liable for the repayment (for example, if an entity made an honest mistake and has not retained any personal benefit from a payment).
Firstly this means that it appears, based on this wording, that there is no sliding scale. Therefore if a business estimates to have a 30% reduction in turnover but only experiences a 20% reduction, they don’t need to repay 1/3 of the JobKeeper, they need to repay all of it. Depending on the business, a 20% reduction in turnover can be crippling to a business, and I understand they had to draw the line somewhere, but this is an incredibly blunt way of saying to a business to make sure they are absolutely eligible for this prior to obtaining it.
Secondly, would it be great to see some guidance around what exactly “honest mistake” means. Trying hard not to sound cynical but anyone who has been through an ATO audit before knows that trying to convince them of this is easier said than done.
Obviously there are many other questions that the JobKeeper allowance raises in addition to the two outlined above. We’ve just found that these are the two most common. Some of the other questions we’ve encountered are:
- Will the receipt of JobKeeper payment be included in an entity’s projected and current GST turnover and therefore directly affect the 30% decline test?
- South Australia has announced that JobKeeper payments will be exempt from paying any payroll tax, will this concession be made in the other States and Territories?
- Will a JobKeeper payment to an employee be included in calculations of Workcover premiums?
- What about businesses owned by two unrelated parties where owners are compensated through drawings rather than a wage. Will a relaxation of the “one nominated business participating” be forthcoming?
Obviously all of the answers to these questions will eventually make their way to the surface. However, that’s not the point here. The point is that business owners are hanging on to the answers to these questions so they can make an informed business decision in a timely manner about how to move forward with their business. The ATO needs to recognise these blind spots in the legislation and provide some guidance to the Accounting community in particular so we can inform our clients on the best way forward.
With or without that, it’s very clear that what we have here is densely complex piece of legislation in what is the ever-growing, ever-thickening web of tax law in Australia. The need to the complexity in the JobKeeper payment should a blunt reminder of the need for significant tax reform in this Country.