JobKeeper 2.0 update:

The ATO have released a Legislative Instrument which contains alternative tests that apply under JobKeeper 2.0. These broadly mirror the original alternative tests. We discuss these in our JobKeeper 2.0 article and expect the ATO to issue more practical guidance on how they will administer these tests in the coming weeks.

ATO page - Basic test

ATO page - Alternative test

JobKeeper 1.0:

Why are the alternative tests relevant?

In order to qualify for the JobKeeper Payments, one of the key requirements is that the entity passes the reduced turnover test. The basic test requires a 30% drop in turnover for most businesses when comparing certain monthly or quarterly periods ("test periods") in 2020 with the same periods in 2019 ("comparison periods"). The earliest possible test period is the month of March 2020 with its corresponding comparison period being March 2019.

For some entities, the 2019 figures do not present an appropriate point of comparison - e.g. a new business with no 2019 comparison figures, or a business that had an unusually low turnover in 2019 due to bushfires or drought, or a business that had recently undergone a significant restructure. To accommodate a number of such scenarios where businesses were affected by factors "outside the usual business settings", the ATO released the alternative test, as foreshadowed in the JobKeeper Rules.

How the alternative test operates

• There are actually multiple alternative tests which apply to specific circumstances.

• If an entity satisfies the basic test it does not need to apply an alternative test
• An alternative decline in turnover test cannot make an entity ineligible if it satisfied the basic test
• The Commissioner can only determine an alternative turnover test if the Commissioner is satisfied that there is not an appropriate relevant comparison period for that entity. The Commissioner cannot determine an alternative turnover test in all circumstances. It is only in those circumstances where there is an event or circumstance, internal or external to an entity, that is outside the usual business setting for entities of that class which results in the relevant comparison period in 2019 not being appropriate for measuring the decline in turnover. Practically, this means that entities will only have access to the alternative tests if they fall within specific listed categories as detailed below.
• If more than one alternative turnover tests apply to an entity it only has to satisfy one. It does not matter if there are other tests that apply that the entity has not satisfied.
• The Commissioner can only determine a test for a class of entities, and cannot make discretionary decisions for individual entities. There is no broad, general exemption or discretion, only the specific tests applicable in particular circumstances.

Alternative tests

The adjusted specific turnover tests apply to entities in the following situations:

(Note: "test period" refers to the relevant period in 2020, while "comparison period" refers to the equivalent period in 2019, unless modified by an alternative test as described below).

1. An entity commenced business after the relevant comparison period in 2019 (but before 1 March 2020). This applies to entities that were not operating any business, it does not apply to an entity that was operating one or more businesses and commenced a new additional business. A new business cannot use a comparison period in 2019 as they do not have one. While an entity can exist before it commenced business, it is when it commenced business that is relevant for this test.

In these circumstances, two alternative tests are available (only one needs to be satisfied):

Alternative Test 1: compare the entity’s projected GST turnover for the relevant 2020 test period with the average turnover since the entity commenced business.

OR

Alternative Test 2: compare the entity’s projected GST turnover for the relevant 2020 test period with the average turnover of the 3 months immediately before the applicable turnover test period.

2. An entity acquired or disposed of part of their business, or it has restructured part or all of their business after the relevant comparison period in 2019 which changed the entity's turnover.

Alternative Test: compare the entity’s projected GST turnover for the applicable turnover test period with the actual GST turnover for the month following the month in which the disposal, acquisition or restructure occurred. If there is no whole month after the last acquisition, disposal or restructure, then the month immediately before the applicable turnover test period is used.

3. An entity experienced a period of rapid business growth leading up to the test period, such that it has had:

• an increase in turnover by 50% or more in the 12 months immediately before the applicable turnover test period, or
• 25% or more in the 6 months immediately before the applicable turnover test period, or
• 12.5% or more in the 3 months immediately before the applicable turnover test period.

Alternative Test: compare the entity’s projected GST turnover for the applicable turnover test period with the average turnover from the 3 months immediately before the test period.

4. An entity has been affected by a drought or other natural disaster in the relevant comparison period in 2019.

Alternative test: compare the entity’s projected GST turnover for the applicable turnover test period with the current GST turnover for the same period in the year immediately preceding the year when the drought or natural disaster was declared rather than 2019. Practically, this means the 2018 year is used for comparison instead of 2019.

5. An entity has an irregular turnover that is not cyclical, such as can occur in the building and construction sector. This does not include entities with regular seasonal variation in their turnover.

Alternative test: compare the entity’s projected GST turnover for the applicable turnover test period with the average turnover from the 12 months immediately before the applicable turnover test period.

6. An entity is a sole trader or a small partnership (4 partners max) and the sole trader or one of the partners did not work for all or part of the relevant comparison period because they were sick, injured or on leave during the relevant comparison period and those circumstances affected the turnover of the sole trader or partnership.

Alternative test: if the relevant comparison period is one calendar month, the entity uses the actual GST turnover for the month immediately after the month in which sole trader or partner returned to work instead of the actual GST turnover of the relevant comparison period. If the relevant comparison period is a quarter, the entity multiplies the actual GST turnover for the month immediately after the month in which the sole trader or partner returned to work by three and uses that figure instead of the actual GST turnover of the relevant comparison period.

Additional information

Alternative Decline in Turnover Test legislation

Alternative Test - ATO page

If you are unable to meet the basic turnover test and believe that you may be eligible to use one or more of the alternative tests, please contact us to discuss and we would be happy to guide you through the application of these tests to your circumstances.

DISCLAIMER:

Liability limited by a scheme approved under Professional Standards Legislation.

The content of this newsletter is general in nature. It does not constitute specific advice and readers are encouraged to consult their Ruddicks adviser on any matters of interest. Ruddicks accepts no liability for errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice. This information is current as at 23 April 2020, and was published around that time. Ruddicks particularly accepts no obligation or responsibility for updating this publication for events, including changes to the law, the Australian Taxation Office’s interpretation of the law, or Government announcements arising after that time.

Any advice provided is not ‘financial product advice’ as defined by the Corporations Act. Ruddicks is not licensed to provide financial product advice and taxation is only one of the matters that you need to consider when making a decision on a financial product. You should consider seeking advice from an Australian Financial Services licensee before making any decisions in relation to a financial product. © Ruddicks 2020