Understanding the JobKeeper scheme

The Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth) (the Act) and the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) (the Rules) enacts the JobKeeper scheme, one of key economic initiatives of the Commonwealth to address the broader economic effects of COVID-19.

In broad terms, businesses and not-for-profit organisations affected by COVID-19 will be able to access a subsidy from the Commonwealth to continue paying their employees. Affected employers will be able to claim a payment of A$1,500 per fortnight per eligible employee from 30 March 2020 until 27 September 2020.  This article aims to provide a summary of the rules relating to the JobKeeper scheme.

Employers and Employees

What is the subsidy?

An entity will be entitled to the JobKeeper subsidy of A$1,500 for an eligible employee for a fortnight commencing on 30 March 2020 and each subsequent fortnight, ending with the fortnight ending on 27 September 2020 (each fortnight being a “JobKeeper fortnight”).

Entitlement to a JobKeeper payment

An employer is entitled to the JobKeeper payment for an individual for a fortnight if:

• the fortnight is a JobKeeper fortnight;
• the employer qualifies for the JobKeeper scheme at or before the end of the fortnight.  An employer will qualify for the JobKeeper scheme if:

• on 1 March 2020, the employer carried on a business in Australia or was a not-for-profit organisation that pursued their objectives principally in Australia;
• the employer at least one eligible employee on 1 March 2020;
• the eligible employees are currently employed by the employer for the fortnights the employer makes a claim for (including those employees who are stood down or re-hired);
• the employer has faced either a:
  • 30% decline in turnover (for an aggregated turnover of $1 billion or less);
  • 50% decline in turnover (for an aggregated turnover of more than $1 billion); or
  • 15% decline in turnover (for ACNC-registered charities other than universitiesand schools).

• the individual is an eligible employee of the employer for the fortnight;
• the employer has satisfied the wage condition in respect of the individual for the fortnight; and
• the employer has notified the Commissioner of Taxation (Commissioner) in the approved form at or before the relevant that the employer elects to participate in the JobKeeper scheme;
• the employer has given information about the entitlement for the fortnight, including details of the individual, to the Commissioner in the approved form; and
• the employer has not notified the Commissioner in the approved form that the employer no longer wishes to participate in the JobKeeper scheme.

Who is not eligible?

An employer is not eligible for the JobKeeper payment if:

• the Major Bank Levy was imposed on the entity or a member of its consolidated group for any quarter before 1 March 2020;
• the entity is an Australian government agency (within the meaning of the Income Tax Assessment Act 1997 (Cth));
• the entity is a local governing body;
• the entity is wholly owned by an Australian government agency or local governing body;
• the entity is a sovereign entity;
• the entity is a company in liquidation; and
• the entity is an individual who has entered bankruptcy.

Concept of “eligible employee”

Employees will be assessed for eligibility for each relevant fortnight. An eligible employee is an individual who:

• is employed by the entity at any time in the fortnight;
• was 16 years or older as at 1 March 2020;
• was an employee (other than a casual employee) of the employer or a long term casual employee; and
• was an Australian resident within the meaning of section 7 of the Social Security Act 1991 (Cth) or was a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (Cth) and holder of a Subclass 444 (Special  Category) visa (in general terms, this category of individuals will be New Zealand citizens residing in Australia who are residents of Australia for income tax purposes);
• agrees to be nominated by the employer; and
• was not in receipt of any of these payments during the JobKeeper fortnight:
  • government parental leave or Dad and partner pay; or
  • a payment in accordance with Australian workers’ compensation law, where an individual is totally incapacitated for work throughout the fortnight and amount is payable to the individual overlaps with or includes the fortnight.

An employer cannot make a claim for employees who were not employees as at 1 March 2020 or who have been, or have agreed to be, nominated by another employer.

Long term casual employees are only eligible if they were employed on a regular and systematic basis for at least 12 months at 1 March 2020 and not a permanent employee of another employer.

The eligible employee must give to the employer a nomination notice in approved form outlining satisfaction of the above requirements and that they agree to be nominated by the employer for the purposes of the JobKeeper Scheme. An employee who is a long term casual must at the time of notice not also be a permanent employee of another employer.

Payment

The entity must have notified the Commissioner at or before the relevant time that the entity elects to participate in the JobKeeper scheme. The relevant time is, for:

• first or second JobKeeper fortnight (30 March 2020 or 13 April 2020) – by the end of the second JobKeeper fortnight (26 April 2020);
• any other fortnight – the end of the fortnight.

The entity must have also given information about the entitlement for the fortnight, including details of the individual, to the Commissioner in the approved form. This is based on the employer receiving a nomination notice from the employee. Once doing so, the employer must notify an individual in writing within 7 days of having given the information to the Commissioner. 

The Commissioner must make the JobKeeper payment for a fortnight no later than the later of:

• 14 days after the end of the calendar month in which the fortnight ends; and
• 14 days after the Commissioner is satisfied that the employer or business is entitled to the payment for the fortnight.

Subsection 14(3) of the Rules provides a transitional rule that allows the Commissioner to make an advance payment for the JobKeeper fortnights ending in the month of April without being satisfied that the entity is entitled to that payment under either section 6 or section 11 of the Rules.

This is necessary to ensure that payments in respect of the first and second JobKeeper fortnights (being the fortnights commencing on 30 March 2020 and 13 April 2020 respectively) can be made quickly to assist entities affected by the Coronavirus.

However, before the Commissioner can make such an advance payment:

• the entity must have notified the Commissioner in the approved form of its election to participate in the scheme; and
• the Commissioner is satisfied, on the basis of the information provided by the entity in the approved form, that it is reasonable in the circumstances make the payment.

Decline in turnover

The employer must, in addition to carrying business in Australia on 1 March 2020, or being a non-profit body that pursued its objectives principally in Australia, have a decline in turnover. 

An employer will satisfy the decline in turnover test if the employing entity has suffered a:

• 30% fall in turnover (for an aggregated turnover of $1 billion or less);
• 50% fall in turnover (for an aggregated turnover of more than $1 billion); or
• 15% fall in turnover (for ACNC-registered charities other than universities and schools).

The decline in turnover test relies upon tests set out in Division 188 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act).  To determine if an entity has suffered a decline in turnover for JobKeeper purposes, the entity can compare:

• GST turnover for March 2020 with GST turnover for March 2019;
• projected GST turnover for a calendar month startingfrom April 2020 with GST turnover for the corresponding month in 2019; or
• projected GST turnover for the quarter starting April 2020 with GST turnover for the corresponding quarter in 2019.

An entity is free to choose whether it will calculate its projected decline in turnover on a monthly or quarterly basis – it is not limited by whether it files a monthly or quarterly Business Activity Statement. Note the turnover calculation is based on GST turnover, irrespective of whether the entity is registered for GST or not.

Once an entity determines that it can qualify for JobKeeper payments for a fortnight because its turnover has declined by the relevant amount, the entity remains eligible for JobKeeper payment and there is no need for that entity to keep testing turnover in the following months.  That said, an entity which qualifies for JobKeeper will be required to report to the Commissioner, within 7 days of the end of the month, its GST turnover for the month and its projected GST turnover for the following month.

The decline in turnover thresholds is measured on an entity by entity basis and the GST group, if one exists, is disregarded for this purposes.  However, the determination of which turnover threshold applies has regard to the “aggregated turnover”.  This term includes annual turnover of the relevant entity, in addition to all the entities that are connected or affiliated with the entity being tested, subject to specific adjustments (for example, for transactions between the entity being tested and those other entities). These connected entities or affiliates may be based in Australia or overseas.  Accordingly, many subsidiaries of foreign owned corporate groups will be required to demonstrate a 50% decline in its turnover.

The Commissioner also has the discretion to set out alternative tests that can establish an entity’s eligibility when turnover periods are not appropriately comparable. These alternative tests only need to be considered if an entity cannot establish it has satisfied the decline in turnover test described above. An entity which has demonstrated the necessary decline in turnover under the above test will not be rendered ineligible simply because it happens to fall outside of one or more of the alternative tests. .

As at the date of writing this article, the Commissioner has published alternative turnover tests covering 7 classes of businesses. It is only necessary to satisfy one of these tests. Broadly, the classes covered are entities which have:

• only commenced carrying on any business after the relevant comparison period;
• acquired or disposed of parts of their business, changing the entity’s turnover;
• restructured their business, changing their turnover;
• had a substantial increase in turnover (assessed by reference to increases in turnover measured over the preceding 3, 6 or 12 month period);
• carried on a part or all of its business in an area affected by drought or natural disaster which has changed the entity’s turnover; or
• had an irregular turnover (but not in the sense that it is cyclical) over the last 12 months.

The final class of business covered by these rules are sole traders or small partnerships with no employees that have had their turnover affected as a result of the sole trader or partner not working due to sickness, injury or leave.

Wage condition

In order to receive the JobKeeper payment for an individual for the relevant fortnight, the entity must satisfy the wage condition. The wage condition is satisfied in respect of an individual if that individual is paid an amount which equals or exceeds A$1,500. This amount may be calculated for the relevant fortnight inclusive of salary, wages, commission, bonus or allowances, certain amounts withheld by way of tax, contributions to super funds or amounts forming part of salary sacrifice arrangements.

It should be noted that employers who usually compensate their employers on basis which is longer than a fortnight will need to apply the wage condition allocated to a fortnight or fortnights in a reasonable manner.

Sole traders, Partnerships, Trusts and Companies

Sole traders, a partner in a partnership, an adult beneficiary of a trust or and a director or shareholder of a company may be entitled to the JobKeeper Payment scheme under the business participation entitlement.

What is the subsidy?

The subsidy is A$1,500 for an individual who is an eligible business participant for a fortnight commencing on 30 March 2020 and each subsequent fortnight, ending with the fortnight ending on 27 September 2020.  With the exception of sole traders, it is the entity, and not the individual, that receives the payment.

Importantly, an entity is only entitled to claim JobKeeper in respect of one eligible business participant.

Entitlement to JobKeeper payment

An entity is entitled to a JobKeeper payment for an individual, and only one individual, for a fortnight if:

• the fortnight is a JobKeeper fortnight;
• the entity is not a non-profit body;
• the entity not be an entity referred to in section 1.3, above;
• the entity qualifies for the JobKeeper scheme at or before the end of the fortnight.  An entity will be eligible if it carried on business in Australia, it satisfied the decline in turnover test for the relevant period and it satisfied certain conditions as at 12 March 2020, being:
  • that the entity have an Australian Business Number;
  • it had lodged, on or before 12 March 2020, at least one of  
    • a 2018–19 income tax return showing that it had an amount included in its assessable income in relation to it carrying on a business, or
    • an activity statement or GST return for any tax period that started after 1 July 2018 and ended before 12 March 2020 showing that it made a taxable, GST-free or input-taxed sale.
• the individual is the eligible business participant for the end for the fortnight (see section 3.3. below);
• the entity has informed the Commissioner before the end of the second JobKeeper fortnight (for an entitlement arising in the first or second JobKeeper fortnight) or the end of the fortnight (for an entitlement arising in another fortnight that it wishes to participant in the JobKeeper scheme;
• the employer has given information about the entitlement for the fortnight, including details of the individual, to the Commissioner in the approved form; and
• the entity has not notified the Commissioner in the approved form that the entity no longer wishes to participate in the JobKeeper scheme.

​Concept of eligible business participant

The non-employee individual is an eligible business participant of an entity for the fortnight if the individual meets all of the following criteria:

• the individual is not employed by the entity;
• the individual is actively engaged in the business carried on by the entity (as at 1 March 2020 and for the fortnight the entity is claiming the JobKeeper payment);
• the individual is any one of the following (at 1 March 2020 and for the fortnight you are claiming):  
  • a sole trader;
  • a partner in the partnership;
  • an adult beneficiary of the trust; or
  • a shareholder or director in the company.
•  as at 1 March 2020, the individual is both:
  • aged at least 16; and
  • an Australian resident (within the meaning of section 7 of the Social Security Act 1991), or a resident for income tax purposes and the holder of a special category (Subclass 444) visa;
• the individual is not currently receiving government parental leave or dad and partner pay; and
• the individual is not currently totally incapacitated for work and receiving payments under an Australian workers’ compensation law in respect of their total incapacity to work.

Interesting Points to Note

As noted above, the measurement of turnover by reference to Division 188 of the GST Act results in some quirks as the definition of “current GST turnover” and “project GST turnover” as modified by the Rules exclude, among other things, input tax supplies under GST law.  This will no doubt affect many employers in the financial services sector.  In any event, use of term turnover does not taken into account the margin that particular products or services derive.  For instance, a company could have two product lines – one with a very high margin, but comparatively lower sales and one with a lower margin, but higher sales.  The loss of sales from the higher margin product may reduce profit by a greater extent that the decline in overall sales.

An additional point to note for corporate group that use an employing entity that on charges other members of the group is that the employing entity may not suffer a decline in turnover even though the corporate group as a whole has suffered a decline in turnover.  The precise arrangements between members of a corporate group may need to be examined closely.

Tax Treatment of JobKeeper payment

The JobKeeper payment is assessable income for a recipient of the JobKeeper payment.  Nor is the JobKeeper payment consideration for supplies made by the recipient and as such GST is not payable in respect of the JobKeeper payment.

Record keeping

The Act requires that records be kept and maintained by entities who receive JobKeeper payments.  This covers pre-payment and post-payment records.  An entity can lose its entitlement to the JobKeeper payments if adequate records are not maintained.

JobKeeper and superannuation guarantee obligations

Where an employee earns salary or wages of A$1,500 or more per fortnight, the JobKeeper payment will in substance be a reimbursement of part of the usual salary or wages paid to an employee. In this case, as the employee is receiving their normal salary or wages, superannuation guarantee obligations also continue to apply in the usual way.

However, where an employee has been stood down or otherwise earns less than A$1,500 per fortnight, the employer will be required to pay the employee an additional amount (i.e. top up) the salary or wages it pays to ensure the wage condition is satisfied; that is, the employer pays to the employee at least A$1,500 (gross) per fortnight. The Commonwealth Government has stated that it intends to make changes to the superannuation guarantee law to ensure that superannuation guarantee obligations do not apply to any additional amounts (which where an employee has been stood down could be the entire A$1,500) that an employer makes in order to satisfy the wage condition. For example, the changes will ensure that if an employee is paid A$1,000 per fortnight for the work they perform, superannuation guarantee will apply to this amount, but not the additional A$500 per fortnight required to be paid to the employee by JobKeeper. Of course, employers can voluntarily choose to make superannuation contributions in respect of these additional amounts.

Anti-avoidance

The Act also contains a general anti-avoidance rule that is not dissimilar to Part IVA of the Income Tax Assessment Act 1936 (Cth).  In particular, the sole or dominant purpose test is used to deal with “contrived” schemes.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).