JobKeeper 2.0 GST turnover ruling may leave some businesses ineligible, expert warns

There is new concern some businesses may be unable to access JobKeeper 2.0 because the tax office has limited how employers can calculate GST turnover when determining their eligibility.

The second phase of the Morrison government’s wage subsidy program will kick off in less than two weeks, but under a legislative instrument issued by the Australian Taxation Office (ATO) on Wednesday, businesses must calculate their GST turnover based on when they record invoices, rather than when they deliver services.

This is a departure from arrangements during the first phase, where employers could calculate their GST turnover based on an accrual or cash basis, depending on their typical Business Activity Statements (BAS), as well as on when the supplies were actually made, or when their accounting records recognised their income.

As BDO tax partner Mark Molesworth explains, this could see businesses rendered ineligible for the program based on their accounting practices, rather than their business conditions.

“The extreme example for one of my clients is that they invoice annually in advance on June 30,” Molesworth tells SmartCompany.

“Therefore, they have to account for all of the GST on that supply in the month of June … essentially when they come to look at September-to-September, using the GST accounting methodology, they’re going to say ‘that’s zero versus zero, therefore I don’t have a 30% decline’.”

“JobKeeper 2.0 is going to apply to a much more restricted class of employers,” Molesworth says.

First of all, because you’ve got to retest based on actual GST turnover in the September quarter, but secondly, [because] you no longer have that ability to make a choice about how you calculate GST turnover.”

The change in tack was contained within a raft of JobKeeper 2.0 legislative instruments issued by the tax office and Treasurer Josh Frydenberg this week, outlining the nitty-gritty rules surrounding the next phase of the program.

Molesworth says the ATO has probably made the change as an integrity measure, having earlier updated its guidance about GST turnover calculations in May to require businesses to justify why they were using a particular calculation method.

But the consequence is that some businesses may be unable to qualify for JobKeeper 2.0, even though they have experienced a requisite fall in turnover, forcing some to rely on existing alternative tests.

“It’s going to hurt some people who legitimately have a reduction in turnover but their GST accounting methodology doesn’t line up,” Molesworth says.

“There was a feeling that some people were taking advantage of that flexibility in circumstances when they shouldn’t have been, or when it was outside the spirit of the ruling.”

Employers are being advised to consult with their accountants and financial advisers about the best way forward if they’re interested in accessing JobKeeper 2.0.

Molesworth says businesses that are confident they are eligible should be analysing their payroll from February to determine which workers will qualify for the higher tier of payments, and which will be entitled to the lower tier.

As previously explained, under JobKeeper 2.0, employees will be entitled to different payment amounts based on whether they worked more than or less than 80 hours in the month leading into March 1.

“Employers really need to be going back to their employment records right now and working out which employees qualify as a higher tier employee,” Molesworth advises.

“The timing on this is going to get tight very quickly.”

The first fortnight for JobKeeper 2.0 will start on September 28 and run to October 11, meaning employers will need to satisfy the wage condition for these workers (i.e. pay them) on or before October 11.

However, under new rules published by the tax office this week, businesses will be eligible for alternative consideration if February is, for whatever reason, not a comparable reference period.

This means businesses will be able to identify which period within their reference month was non-comparable, and calculate the reference period based on the four weeks before that period.

Correction, September 21: A previous version of this article stated businesses must calculate GST turnover based on when they deliver services, rather than when they record invoices. It’s actually the other way around.

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