The Australian Government is spending billions to support employers and workers dealing with the economic fallout from COVID-19. For some this is well-needed relief, but others may slip between the cracks.
By Elinor Kasapidis
The Australian Parliament passed the JobKeeper Bill earlier this month, committing a further A$130 billion to support Australian businesses and not-for-profits, and their employees. Six million Australian workers are expected to benefit with employers reimbursed A$1500 per fortnight for wages paid to their workers between 30 March and 27 September 2020. Payments will begin from the first week of May and will be paid monthly in arrears.
The earlier cash flow boost gives businesses and not-for-profits with turnover of less than A$50 million access to A$31 billion in government support. Eligible businesses will receive between A$20,000 and A$100,000 in refundable credits through their Business Activity Statements in two separate payments. The first credits will be applied on 28 April.
Both packages will be delivered through existing mechanisms administered by the Australian Taxation Office (ATO).
A range of additional stimulus measures and supports are also being offered by federal and state governments, with businesses, not-for-profits, workers and the newly unemployed unclear about their options.
In contrast to the crippled sectors of the Australian economy like tourism and hospitality, business advisory and tax professionals are seeing a significant increase in the demand for their services. On top of their regular tax, accounting and lodgement services, they are now playing a key role in supporting the delivery of the largest series of government support packages in Australian history.
Who gets what?
The biggest JobKeeper issues centre around calculating turnover declines, closely held business structures that don’t pay wages to the owners, and cash flow problems from having to pay staff wages until JobKeeper reimbursements are paid.
The declines in turnover are calculated using GST concepts and include all taxable and GST-free supplies, with special rules for groups. Importantly, the Tax Commissioner has also been given the discretion to consider additional information and set alternative tests. You may still be eligible if, for example, you’re a business that has just started, you’ve bought an existing business from someone else, or your fall in turnover is heading towards but just misses the threshold requirement.
Smaller businesses often operate through trusts, partnerships and company structures with the owners rewarded via a share of profits rather than paying themselves wages. While these operating structures resulted in many businesses missing out on the cash flow boost, JobKeeper payments are more inclusive.
For eligible entities, JobKeeper payments can be made to a single nominated beneficiary, partner, director or shareholder, and will also be paid to sole traders. However, for many, access to JobKeeper will create certain imbalances, for example mum and dad operations where both actively participate in the business but only one is eligible to receive the JobKeeper payments.
CPA Australia’s External Affairs General Manager, Paul Drum, says: “Members have been quick to express their concern and disappointment that small business owners who haven’t paid themselves a salary during the year in an effort to keep their businesses afloat will miss out on the JobKeeper payment.
“They argue that when it doesn’t make a tax difference whether you pay yourself a wage or distribute profits at the end of the year, then it shouldn’t become a threshold issue when it comes to supporting businesses suffering from the impacts of COVID-19.”
Others who miss out include casual employees who have been hired for less than 12 months or if they don’t work on a regular and systematic basis, those employed after 1 March and non-residents for tax purposes.
Businesses will also need to survive through April to benefit from the cash flow boost and JobKeeper packages. With JobKeeper payments being paid by the ATO monthly in arrears from the first week of May and cash flow boost credits first appearing on taxpayer accounts on 28 April, careful planning and cash flow management is required to access the government packages while maintaining the longer-term viability of the business.
Other things to watch out for include:
- Ensuring nominated employees satisfy the eligibility criteria.
- Paying superannuation guarantee (SG) on the regular wage amount, noting that SG on top-up payments is optional.
- Notifying the employees receiving JobKeeper payments.
- Withholding the appropriate amount of tax.
For eligible businesses receiving JobKeeper payments, there is the added benefit of the interaction with the cash flow boost. Not only does the business receive the JobKeeper wage subsidy for its employees, but the PAYG withholding amounts are used to calculate cash flow boost payment amounts. This provides an added incentive to keep the connection with employees and maintain payments throughout difficult times.
Make sure to follow the rules
Drum noted that “even before the ink has dried on the stimulus package legislation there have been articles published on how people may be able to ‘game’ the system.
Appropriately, the ATO and Tax Practitioners Board have issued a warning reiterating that it is not acceptable to backdate or artificially change a business structure or employment arrangements, including changing the characterisation of payments, in order to obtain a benefit or payment that would not otherwise have been paid”.
This reinforces the importance of tax professionals exercising due care in their advice to clients, considering not only the legislated integrity measures, but also the potential consequences for SG and fringe benefits tax (FBT).
The work is just starting
The unprecedented speed of the government’s economic response to COVID-19 means that the Parliament, Treasury, the ATO, businesses, the not-for-profit and charities sector, accounting software houses, and the accounting and tax professions are facing a daunting task in designing, legislating and implementing policies that maximise the impact of the taxpayer-funded packages.
CPA Australia has been working with government departments to identify and escalate concerns. We have joined forces with fellow professional associations through the ATO National Tax Liaison Group to present a unified voice on critical issues. Our submissions and regular government engagement supports policy development, legislative interpretation and administrative guidance.
“The implementation of these measures will really push the ATO, and it is seen as one of the most effective tax administrators in the world,” Drum says.
“The scale of the payments is beyond most people’s comprehension, and Australians are counting on support to come when they need it most. CPA Australia and the broader tax and accounting professions will be working closely with the ATO to ensure that the stimulus initiatives are rolled out as smoothly and seamlessly as possible.”