On 16 September 2020, the Commissioner issued the Coronavirus Economic Response Package (Payments and Benefits) (Timing of Supplies Made and Decline in Turnover Test) Rules 2020 (No.1) (“Legislative Instrument”). The Legislative Instrument sets out the time a supply is made for the purposes of calculating an entity’s GST turnover.
For JobKeeper fortnights commencing on or after 28 September 2020, an employer will need to satisfy the actual decline in turnover test in the amended JobKeeper rules in order to continue receiving JobKeeper payments.
WHAT HAS CHANGED?
- An entity is required to test their decline in turnover based on actual rather than projected GST turnover
- The new actual decline in turnover test must be satisfied for two key turnover periods, being from 28 September 2020 to 3 January 2021 (Extension 1) and from 4 January 2021 to 28 March 2021 (Extension 2) to be eligible for JobKeeper payments for both extension periods
- An entity must allocate supplies to the relevant quarter in the same way the entity would report the supplies in their Business Activity Statement
Actual decline in turnover test
Under the new rules an entity must have experienced an actual decline in turnover during the turnover test period when comparing that period to the relevant comparison period. As with the original JobKeeper scheme, the decline must be equal to or greater than the requisite percentage (15%, 30% or 50%) and entities can use either the basic test or one of the alternative tests (subject to meeting the eligibility criteria) for determining their actual decline in turnover.
The turnover test period that applies in respect of JobKeeper fortnights commencing on or after 28 September 2020 and ending prior to 4 January 2021 is the quarter ended 30 September 2020. The turnover test period that applies in respect of JobKeeper fortnights commencing on or after 4 January 2021 is the quarter ended 31 December 2020. The relevant comparison period in each case is the corresponding quarter in 2019.
For new participants in the JobKeeper scheme, the new actual decline in turnover test applies in conjunction with the original decline in turnover test and the employer is required to demonstrate that they satisfy both turnover tests. However, as the same periods can be used for either test, new participants who satisfy the new decline in turnover test should automatically satisfy the original decline in turnover test.
Where an entity does not satisfy the actual decline in turnover test for the September 2020 quarter, they may still be eligible for JobKeeper payments for the second extension period if they satisfy the actual decline in turnover test for the December 2020 quarter.
Current GST turnover
The actual decline in turnover test requires the employer to determine their current GST turnover for the relevant periods, subject to the modifications in the JobKeeper rules. Current GST turnover is the sum of the value of all taxable and GST-free supplies made during the period, including any supplies made to other members of the same GST group. The main difference between the new decline turnover test and the original decline in turnover test is that disposals of capital assets and supplies made in reducing the size and/or scale of a business must be included as part of current GST turnover for the purposes of the new decline in turnover test. This may make it difficult for some businesses to satisfy the actual decline in turnover test where they have disposed of capital assets in the turnover test period.
WHEN ARE SUPPLIES MADE?
The original JobKeeper scheme allocated supplies to a relevant period based on when the supply was made, determined with reference to the terms of a particular contract and the nature of the supply. In a significant departure from the original decline in turnover test, the Commissioner will now allow only one method to determine when a supply is made. Supplies must be allocated to a period in the same way taxable supplies are allocated for GST attribution purposes. This applies whether the entity is registered for GST or not.
What if I am registered for GST?
If an entity is registered for GST and has always used the same GST accounting basis, the entity needs to use that basis for the actual decline in turnover test. This means most medium and large businesses must use the non-cash (accruals) GST accounting method for calculating their decline in turnover. On the other hand, businesses with a turnover of less than $10 million that are registered for GST on a cash accounting basis are required to calculate their turnover using a cash basis.
What if I am not registered for GST?
If an entity is not registered for GST purposes, they continue to have the option to use either a cash or non-cash basis to allocate supplies to the relevant period, but they must use the same method for both the turnover test period and the relevant comparison period.
The Legislative Instrument confirms that GST adjustments do not change the time in which a supply is made for the purposes of calculating current GST turnover and expressly states that adjustments should not be taken into account when calculating an actual decline in turnover. Any adjustments reported in the turnover test period or relevant comparison period, which relate to supplies made in another period, must be excluded from the GST turnover calculation.
However, if a supply has been made in the turnover test period or relevant comparison period and the value of that supply changes during that same period, that change in value can be taken into account as part of GST turnover. This is because such changes are not adjustments for GST purposes.
For example: If an employer made a supply in August 2019 and then issued a credit note in respect of that supply in October 2019, the credit note will constitute a GST adjustment that must be ignored for the purposes of calculating the employer’s GST turnover for the quarter ended 30 September 2019.
EFFECT OF THE NEW RULES
The Commissioner notes that the intention of these changes is to make the decline in turnover calculation simpler and to reduce compliance costs for many participants. However, while using GST attribution and current GST turnover may make ATO compliance easier, it could also make it more difficult for some employers to remain eligible for JobKeeper extension payments.
WHAT ARE THE NEXT STEPS?
It is important to consider how the changes to the decline in turnover test could impact your business and its eligibility under the JobKeeper extension scheme. We have produced a GST turnover checklist which is designed to assist you with your review of the figures reported in your BAS and the calculation of your actual decline in turnover. A link to the checklist is here.
Contact your Pitcher Partners’ representative for assistance with your GST turnover calculations.