On 21 October 2020, the ATO issued an addendum to Law Companion Ruling LCR 2020/1 on the JobKeeper decline in turnover test. The ruling has been updated to make it clear that it covers the original test (introduced by the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020) and does not include guidance on applying the "actual decline in turnover" test (which is an additional requirement for JobKeeper fortnights from 28 September 2020). The ruling has also been amended to reflect legislative changes made to the original test by the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No 8) 2020.

The addendum confirms that if an entity satisfied the original decline in turnover test for JobKeeper fortnights before 28 September 2020, it does not need to satisfy the original test again for the JobKeeper extension (but does need to consider whether the actual decline in turnover test is satisfied).

Where an entity is seeking to enrol in the JobKeeper scheme for the first time for fortnights from 28 September 2020, it will need to satisfy both tests. However, for entities other than universities that are Table A providers, the ATO will treat the original decline in turnover test as satisfied if the actual decline in turnover test is satisfied for one turnover test period.

The addendum applies from 21 October 2020.

Temporary trading cessation rules

The ATO also registered the Coronavirus Economic Response Package (Payments and Benefits) Alternative Decline in Turnover Test Amendment Rules 2020 (the latest alternative rules) on 9 October 2020, for the purposes of the revised JobKeeper payment system which commenced on 28 September 2020. These latest rules add an alternative "decline in turnover" test which is available for entities that temporarily ceased trading for some or all of the relevant comparative period.

Under the revised tests for JobKeeper eligibility, the entity must have had an actual decline in its turnover for the applicable quarter relative to the same quarter in 2019. This will generally involve a one-to-one comparison of the 2020 numbers to those in the corresponding period in 2019, to see if it exceeds the 15%, 30% or 50% threshold(s) (depending the type of entity).

Alternative tests can be used (and in fact can only be used) if there is not an "appropriate relevant comparison period" in 2019. The ATO registered the Coronavirus Economic Response Package (Payments and Benefits) Alternative Decline in Turnover Test Rules (No 2) 2020 on 23 September 2020 (the No 2 alternative rules), which set out the alternative tests that can be used to determine if the decline in turnover test is satisfied.

Note that if an entity qualifies under what may be termed the "standard" turnover tests, it does not need to consider the application of alternative tests. Similarly, if more than one "alternative" decline in turnover test applies to an entity, it only has to satisfy one of them.

Requirements

As already stated, the latest alternative rules add an additional alternative decline in turnover category. There were seven categories in the No 2 alternative rules, so there are now eight categories available to employers.

Four requirements must be satisfied before an entity can use the "temporary cessation of business" alternative tests:

  • the entity's business had temporarily ceased trading due to an event or circumstance outside the ordinary course of the entity's business;
  • trading temporarily ceased for a week or more;
  • some or all of the relevant comparison period occurred during the time in which the entity's business had temporarily ceased trading; and
  • the entity's business resumed trading before 28 September 2020.

If these four requirements are satisfied, the entity can apply either of the alternative tests.

The explanatory statement (ES) states that "temporarily ceasing to trade" includes where a business ceases to make supplies or cannot otherwise offer its goods and services to customers. It does not require that the entity stopped carrying on business, but does require "a suspension of the ordinary activities of the business while it is still carrying on business due to some event or circumstance outside the ordinary course of business".

The ES says that an example of a circumstances being outside the ordinary course of business would be where an entity that runs from a purpose-built premises ceased trading for an extended period of time to move into new premises.

The rules impose a minimum of one week; that is, the entity must have temporarily ceased trading for a period of not less than a week. The week's minimum is necessary, according to the ES, as "short events" such as blackouts and taking several days to move premises are not outside the "ordinary business setting". This highlights the potential "greyness" of this alternative test – for example, that a move into purpose-built premises taking more than a week would enable an entity to qualify, but a move into premises taking close to a week would not.

The ES lists a number of other events that would not qualify an entity to use the alternative tests:

  • blackouts;
  • moves taking several days;
  • ceasing trade at the end of a business day, on weekends and public holidays;
  • ceasing trade during the off-season of a seasonal business; or
  • ceasing trade because a sole trader (or partner in a small partnership) goes on planned leave for all or part of the relevant comparison period.

It is important to remember that other categories may be available if the requirements for temporary cessation are not met. For example, businesses with seasonal turnover may qualify under the alternative category that applies to businesses with irregular turnover. Similarly, there is an alternative category available for sole traders or small partnerships that covers annual leave (and sickness, injury, etc).

Alternative tests

If an entity satisfies the temporary cessation requirements, it may apply either of the following tests:

  • First alternative test: compare its current GST turnover (or projected GST turnover) for the applicable turnover test period with the current GST turnover for the same period in the year immediately before the business temporarily ceased trading. The earlier period will be a more appropriate period to use than the relevant comparison period in 2019 due to the temporary cessation of trade. For example, this could involve going back to 2018 instead.
  • Second alternative test: compare its current GST turnover (or projected GST turnover) for the applicable turnover test period with the current GST turnover of the three whole months immediately before the month that the business temporarily ceased trading (or the whole month where the relevant comparison period is a month rather than a quarter). So, assuming the cessation was in September 2019, the entity could look at turnover in June, July and August 2019 for that quarter.

An eligible entity can use either test, entirely at its own discretion.

Special provision is made for entities that qualified for the ATO's bushfires 2019–2020 lodgment and payment deferrals, or who received Drought Help concessions. Entities may use the nearest month before or after the relevant period(s), as appropriate.

Source: www.ato.gov.au/law/view/document?docid=COG/LCR20201A3/NAT/ATO/00001;  www.legislation.gov.au/Details/F2020L01295;  www.legislation.gov.au/Details/F2020L01200.