Practical applications of the JobKeeper stimulus measures
The JobKeeper scheme is not only unprecedented in its size and application, but also unique in the speed in which it was rolled out. Treasury and the ATO must be praised for the incredible amount of work they undertook in such a short time to release this material. There is no doubt that a great many jobs were saved as a direct result.
Many employers have now had the opportunity to consider their eligibility and have either applied for JobKeeper, or will apply shortly. No doubt, as the JobKeeper scheme becomes more familiar, unintended consequences and outcomes will become more apparent. It is also inevitable that ATO scrutiny of applicants will increase as economic conditions begin to improve.
On 30 March 2020, the Federal Government announced the JobKeeper scheme, with the stated intention of helping to curb enormous job losses as a result of COVID-19. In short, the scheme entitles eligible entities who have suffered (or more accurately, anticipate that they will suffer) a specified substantial decline in turnover to a payment of $1,500 per fortnight (before tax) for salary or wages paid to eligible employees.
The wage subsidy is available to eligible entities for 13 fortnights, from the fortnight commencing 30 March 2020 to the fortnight ending 27 September 2020.
The scheme is unusual in that there is a main act, which provides the necessary framework and then rules, made by Legislative Instruments produced by the Treasurer which are then to be administered by the Commissioner of Taxation. There are also further Legislative Instruments produced by the Commissioner. We have set out links to each of these publications below:
- Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth)
- Explanatory Memorandum to the Coronavirus Economic Response Package (Payments and Benefits) Bill 2020 (Cth)
- Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth)
- Explanatory Statement to the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020
- Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 1) 2020 (Cth)
- Explanatory Statement to the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 1) 2020 (Cth)
- Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 2) 2020 (Cth)
- Explanatory Statement to the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 2) 2020 (Cth)
- Coronavirus Economic Response Package (Payments and Benefits) Alternative Decline in Turnover Test Rules 2020 (Cth)
- Explanatory Statement to the Coronavirus Economic Response Package (Payments and Benefits) Alternative Decline in Turnover Test Rules 2020 (Cth)
- LCR 2020/1 – JobKeeper Payment – decline in turnover test
- PCG 2020/4 – Schemes in relation to the JobKeeper payment
- The ATO website also contains a great deal of information, which is grouped according to who you are – an employer, employee, sole trader or Tax and BAS Agent
These rules will be administered by the Commissioner of Taxation. There is a virtual forest of information on these rules, but the Commissioner has identified two main concerns:
- Employers who manipulate turnover projections (remembering that eligibility is based on a current period’s projected GST turnover and thus requires employers to make a reasonable estimation of likely turnover); and
- Schemes to restructure an employer’s affairs in order to become eligible for JobKeeper.
Under section 19 of the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth), if the Commissioner is satisfied that a participant of the JobKeeper scheme entered into a ‘contrived scheme’ (scheme is defined under section 165 of A New Tax System (Goods and Services Tax) Act 1999) (Cth)), then he may determine that the recipient was never entitled to the payment and thus will have to pay it back.
Similarly, where an employer has made an unreasonable estimate of their projected GST turnover, the Commissioner may form the view that the employer was never entitled to claim in the first place, and may require repayment.
This will have significant consequences as the Commissioner may charge interest at higher rates from the date of any overpayment.
In addition, any overpayment will be treated as a tax-related liability under the Taxation Administration Act, which allows the ATO to use its extensive debt recovery powers to recoup the amount, including (for example) issuing a garnishee notice to recoup the amount from a third party.
The Commissioner has advised its main concerns will be circumstances where an entity has claimed the JobKeeper payment where that entity has not been significantly affected by external environmental factors beyond its control and/or claimed the payment in excess of those that would maintain pre-existing employment relationships. We consider below some examples of situations that have already arisen in the short period since JobKeeper was announced:
Example 1 – An employer employs an employee who commenced work on Friday 28 February 2020 (and had not been previously employed). The employer paid the employee for the first time on 13 March 2020 which covers the period commencing 28 February 2020. The new employee does not have a physical contract of employment with the employer, only an email from Monday 2 March 2020 showing what the employment arrangements are.
Based on the above facts, this employee meets all the requirements to qualify for the JobKeeper program, unless the employee is a casual worker (casual workers with less than 12 months service are not eligible for the JobKeeper scheme).
The absence of a written contract of employment is not an impediment to eligibility for JobKeeper, however, in the absence of a written contract, evidence of the employee’s start date will be critical in the event of an ATO audit.
While the facts show there was only an email on 2 March regarding the employment arrangements. It would be expected there was prior communication and thus evidence that the employee engaged in employment from 28 February 2020 (despite the absence of an agreement).
For application purposes, all the employer needs to do is identify the employee and nominate them to participate in the scheme under their employment, however, the employer would be wise to collect any records requesting the employee to work from 28 February 2020 – in fact, there is an obligation to retain records for five years in all cases.
In the absence of adequate evidence, there is a real risk that the Commissioner would determine there is a scheme to which section 19 of the Act will apply.
Example 2 – an employee is stood down (due to COVID-19) for a specified period. The employer advises the employee they intend to participate and provides a nomination form to the employee, who signs it. In the meantime, the employee gains employment with another employer. That employer agrees to pay the employee as per normal and not claim JobKeeper for the employee. The employee intends to give notice to resign from the original employer but will only do so once the JobKeeper scheme comes to an end.
Under rule 6(3) of the Rules, an employee is permitted to be employed by two employers, but cannot be a nominated JobKeeper employee for two different employers.
As long as the second employer does not claim JobKeeper on behalf of the employee, the first employer can do so while the employee remains employed (but stood down).
The original employer must pay at least $1500 per fortnight to the stood down employee, while it continues to employ the employee.
Example 3 – prior to 1 March 2020, an employer receives advice that contractors working in the business should have been designated as employees. In the last week of February the employer issues contracts of employment to those workers, to properly engage them as employees.
Based on these facts, it is unlikely that the Commissioner would ultimate view this arrangement as a contrived scheme to access JobKeeper:
1. The JobKeeper scheme was only announced on 30 March. Thus, the employer could not have changed the status of the contractors/employees employment in late February to claim a then non-existent scheme; and
2. Contractors can potentially claim the JobKeeper scheme on their own accord, as an eligible business participant, which means there would be no reason to change their employment status for JobKeeper purposes.
The ATO would likely require significant evidence that the facts and dates are consistent with an arrangement that was not contrived for the purpose of JobKeeper. As with all ATO reviews and audits, keeping good records and presenting cogent evidence will be crucial in establishing the true position.
Of course, there are other issues in incorrectly designating employees as contractors, including payroll tax, superannuation, PAYG(W) and employment law issues. It is critical to get this issue correct, and JobKeeper is a secondary consideration.
When the ATO looks at whether a scheme has been entered into, the test is whether a change has been made for the sole or dominant purpose of claiming the payment. If there is obvious evidence that the contractors have always been employees (routine work for employer, performs work under the direction of the employer, employer provides equipment to perform work etc.), then the ATO will likely conclude there are clear reasons for the change, JobKeeper aside.
Example 4 – an employer projects that it is close to the 30% decline in turnover so begins to turn down work to claim JobKeeper
A commonly raised concern with the JobKeeper program is that there is potential to slow down the recovery.
This may explain why the Federal Government has ensured that once businesses qualify for the JobKeeper scheme they will remain in the JobKeeper scheme.
Further, businesses simply have to show their projected turnover is below 30%, and both Treasury and the ATO have made clear that the projection will not be compared with the actual turnover for a period to automatically disqualify an employer. That said, employers will need to report on their actual turnover to the ATO each month (ostensibly so Treasury can gain macro-economic data), and this information may lead to a future enquiry as to the reasonableness of the original projections.
Again, records will be critical. Projections that are made carefully, and objectively more likely to be correct than not at the time, will have the best chance of surviving ATO scrutiny, even if they are ultimately prove too pessimistic. There is no legislative tolerance of, say plus or minus 1% (despite some commentary to the contrary – including from high ranking ATO officers).
If, however, it becomes clear a business intentionally turns down work, or delays invoices, in order to bolster a projected 30% downturn, then it highly likely that the Commissioner will view this as a scheme to which section 19 will apply.
Example 5 – an employer offered a contract of employment to a worker prior to 1 March 2020, but the start date was not until after 1 March 2020
The employer can not nominate the employee for the JobKeeper scheme as it is a requirement under rule 9 of the Rules that the individual was an employee of the entity on 1 March 2020. This is despite the fact the offer was made before 1 March 2020.
Example 6 – a business is operated through a trust and drawings are distributed to the beneficiaries. The trust takes steps to put an individual controlling the trust on as an employee as at 1 March 2020.
Fortunately, a business operating through a trust will be able to claim the payment for one individual involved in the trust – as long as that individual is actively engaged in the business. Only one beneficiary, however, may claim the payment.
Attempting to backdate employment to enable a second beneficiary to access JobKeeper will result in the ATO viewing the employer as entering into a contrived scheme under section 19 and require repayment.
The above represents only a handful of examples we have seen or discussed over the last few weeks.
It is very clear that employers, and their accountants, have been put under a great deal of pressure to try to interpret the JobKeeper rules, and to navigate the online processing arrangements.
We emphasise again the importance of defensible projections. It is likely that this will become the future battleground of ATO audit activity. If you have any doubt at all (or if you are an accountant, if your client employers have any doubt) we strongly recommend that you engage your accountant to test your projections. In this way, you will avoid the nightmare scenario of having to repay JobKeeper just as the economy (hopefully) starts to improve.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.