The JobKeeper Payment was rolled out today with all our clients Payroll set-up and waiting for the next stage, which is, to determine if they satisfy eligibility based on "fall in turnover". We have been given guidelines by the Australian Tax Office with two ways to check whether a business qualifies; and that is, by applying the basic test or the alternative test .
I am yet to hear from QuickBooks with a simple reporting tool to seamlessly connect with the ATO and I am confident their back-end is working overnight to ensure they provide us procedures and training, as they did for the TPAR, STP and JobKeeper Payroll requirements. Only this time, it literally needs to happen overnight.
Further requirement will be such as:
- Whether the shortfall percentage is met for each entity (excluding the turnover of connected entities.
- Generally businesses will use the basic test, which is based on GST turnover comparisons from last year. Where appropriate turnover comparison periods are not available, for example, where a business has been operating for less than a year, the ATO is still considering an alternative test.
- Businesses will only need to satisfy the fall in turnover test once, even though there will be ongoing monthly turnover reporting requirements which are yet to be disclosed.
The Basic Test
This test is satisfied when your projected GST turnover for the turnover test period falls short of your current GST turnover for the relevant comparison period, by the specified percentage.
To apply the basic test, you need to:
Step 1: identify the turnover test period
- Choose whether you are comparing your monthly or quarterly turnover.
- Monthly: For qualification from the start of the scheme - March 2020 or April 2020. To qualify at a later time, the turnover month can also be May, June, July, August or September 2020, same as when you started claiming on your payroll.
- Quarterly:
1 April 2020 to 30 June 2020
1 July 2020 to 30 September 2020, but only if first seeking to qualify for fortnights ending in July 2020 or later.
Step 2: identify the relevant comparison period
- This must be the same period in 2019 that corresponds to the turnover test period.
- If the business circumstances were different in 2019, you will need to use the alternative test.
Step 3: work out the relevant GST turnover
- You need to determine: For the turnover test period – what your projected GST turnover will be. For the comparison period – what your current GST turnover was in 2019.
Worth noting before moving on to Step 4; is that the ATO has modified, for JobKeeper purposes, projected and current GST turnover calculations as explained below (whether or not you are currently GST registered). So when calculating GST turnover for an entity that operates two or more businesses, the turnover from each business is combined.
There are four main modifications to the GST turnover calculation:
1. projected GST turnover and current GST turnover are calculated for the relevant month or quarter being tested (rather than for 12 months)
2. where an entity is part of a GST group, the entity calculates its GST turnover as if it wasn’t part of the group. This means that supplies made by one group member to another will be included in GST turnover for the purposes of the fall in turnover test
3. the calculation includes, the receipt of tax deductible donations by a deductible gift recipient - including gifts of money, property (with a market value of more than $5000) and listed Australian shares.
4. Projected GST turnover and current GST turnover excludes the following: - GST you included in sales to your customers (if any) - sales that are input taxed sales (e.g. bank interest, sale of shares, residential rental income) - sales not connected with an enterprise that you carry on (e.g. sale of private car) - sales that are not made for payment (unless a taxable supply to an associate) - payments for no supply (e.g. JobKeeper payments) - gifts and donations with some exceptions - sales not connected with Australia, for example: sales of services made through a business you carry on outside Australia, sales of goods purchased and sold from a place outside Australia, sale of real property outside Australia
Also worth noting, is that as Bookkeepers the above calculations require GST registrations and unless QuickBooks simplify those calculations based on our postings with simple reporting tools, a registered BAS Agent will be needed making this little exercise a little more costly. Fingers crossed, costing to carry out these new reporting requirements will vary based on accounting software coming to the party pretty much overnight.
The next consideration is:
Cash or Accruals Basis of Accounting
Accruals basis - calculate both the current GST turnover and projected GST turnover as both calculations require you to include sales that you have made or are likely to make without any reference to when you are paid.
Cash basis - calculate both the current and projected GST turnovers on a cash basis.
Current turnover = GST exclusive sales - input taxed supplies
Estimating your projected GST turnover
You need to identify the sales you made, or are likely to make, during the turnover test period.
Given that you can test eligibility part way through a period, when applying the fall in turnover test, you need to consider what you expect to happen for the remainder of that period. Relevant considerations include:
the period during which the business is not expected to trade because it has been closed due to the coronavirus, or its ability to trade has been restricted
recent patterns in trading that are expected to continue
revised business plans.
The reasons for a fall or expected fall in turnover are not prescribed and are not limited only to the direct impacts of the coronavirus.
A business may intend on making substantial changes to their structure and operations, as part of responding to the coronavirus. However, projected GST turnover excludes:
- supplies that are made by transfer of capital assets
- supplies that are made as a consequence of substantially and permanently reducing in size or scale the enterprise.
According to the ATO, a 10% reduction is generally accepted as a substantial reduction in size and scale (a smaller reduction may be substantial depending on the particular circumstances of the enterprise). The reduction will be permanent if it is enduring but not if it is reasonable to expect the reduction will end, for example in one or two years. This means that, for example, where an entity decides to close 1 out of its 10 stores in its business, the income from selling the store or the assets used in the store would be excluded when calculating projected GST turnover.
This means that the turnover from structural changes may need to be excluded when calculating projected GST turnover.
Step 4: determine which shortfall percentage applies
- Generally, the shortfall percentage will need to be 30% or more.
- However: ACNC registered charity - 15% or more excluding universities and non-government schools that are registered charities. Government schools do not qualify for the JobKeeper scheme.
- Aggregated turnover tests for entities over $1 billion - 50% or more.
Step 5: determine if GST turnover has fallen by the specified shortfall percentage
- Work out the percentage that your projected turnover has fallen, based on the shortfall in your projected GST turnover as compared to the current GST turnover for the prior comparable period.
- If the shortfall percentage is greater than or equal to the specified percentage, you satisfy the basic fall in turnover test.
The Alternative Test
An alternative test businesses where there is not an appropriate relevant comparison period is not yet available. At the moment it is only the Commissioner that can make decisions where there is not an appropriate relevant comparison period.
Situations such as the 2018-2019 drought or where the entity recently commenced a new business or undergone major structural business changes after the relevant comparison period. In these examples, the basic test would not accurately reflect the downturn in activity that the business has suffered and hence, we are awaiting a legislative instrument which is to be available soon. We will keep you posted!
Recap on Assistance for small businesses impacted by COVID-19
- Application for Business Support Fund are underway through Business Victoria.
- JobKeeper Payments 1. STP reporting set-up with proper account line to indicate the start of JobKeeper Payments
2. Eligibility Test to determine eligibility.
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