On Wednesday 23 September 2020 the ATO registered the Coronavirus Economic Response Package (Payments and Benefits) Alternative Decline in Turnover Test Rules (No 2) 2020. These Rules set out the alternative tests that can be used to determine if the decline in turnover test is satisfied for the purposes of JobKeeper payments from 28 September 2020.
The new tests starting from 28 September 2020 require an entity to show an actual decline in turnover in the applicable quarter (September 2020 & December 2020), relative to the comparable quarter in 2019. The alternative tests have been established for entities to utilise where the relevant comparison period in 2019 would not be appropriate to use as a comparison period.
The ATO have set 7 alternative turnover categories which mirror the alternative tests that were released back in April.
The categories include:
· Category 1: entity is new to business
· Category 2 and 3: disposals, acquisitions and restructures
· Category 4: entity had substantial increase in turnover
· Category 5: entity affected by drought or other natural disaster
· Category 6: business has an irregular turnover
· Category 7: sole trader or small partnership with sickness, injury or leave
Examples of the tests and how they work are listed below:
Category 1: entity is new to business
If an entity started a business after 1 July 2019 they would not have a full quarter of GST turnover for the September 2019 quarter therefore comparing the September 2020 quarter GST turnover against the September 2019 quarter would not be appropriate.
Using the alternative test rules, let’s say the business was established on 1 September 2019, the entity compares the current GST turnover (September 2020 or December 2020 quarters) with the average monthly current GST turnover from 1 September 2019 to 30 June 2020 or 30 September 2020 depending on the current GST turnover period. The average monthly amount is then multiplied by 3.
The second alternative test compares the entity's current GST turnover (September 2020 or December 2020 quarters) with the current GST turnover of the 3 months immediately before 1 March 2020 (December 2019 – 29 February 2020).
Category 2 and 3: disposals, acquisitions and restructures
An entity has acquired, disposed, or has restructured part of their business after 1 July 2019 (in this example the change has occurred on 15 July 2019), which has caused a change to its current GST turnover. This means the entities current GST turnover is no longer comparable to the September 2019 quarter GST turnover.
The alternative tests will allow the entity to compare the current GST turnover for the applicable turnover test period with the current GST turnover for the month of August 2019, being the month after the disposal, acquisition or restructure occurred. If there is no whole month after the last acquisition, disposal or restructure, and before the applicable turnover test period, then the month immediately before the applicable turnover test period is used.
Category 4: entity had substantial increase in turnover
If an entity has experienced an increase in current GST turnover by any of the following:
- 50% or more in the 12 months immediately before either the applicable turnover test period or 1 March 2020 (1 July 2019 – 30 June 2020 if the test period is September 2020 quarter, 1 October 2019 – 30 September 2020 if the test period is December 2020, or 1 March 2019 – 29 February 2020 if using prior to 1 March 2020);
- 25% or more in the 6 months immediately before either the applicable turnover test period or 1 March 2020 (1 January 2020 – 30 June 2020 if the test period is September 2020 quarter, 1 April 2020 – 30 September 2020 if the test period is December 2020, or 1 September 2019 – 29 February 2020 if using prior to 1 March 2020); or
- 12.5% or more in the 3 months immediately before either the applicable turnover test period or 1 March 2020 (1 April 2020 – 30 June 2020 if the test period is September 2020 quarter, 1 July 2020 – 30 September 2020 if the test period is December 2020, or 1 December 2019 – 29 February 2020 if using prior to 1 March 2020)..
The entity will be able to compare the September or December 2020 quarter GST turnover with the average current GST turnover from the 3 months immediately before the test period (June 2020 or September 2020 quarter) or the 3 months prior to 1 March 2020.
Category 5: entity affected by drought or other natural disaster
If an entity was affected by drought in September 2019 making the comparison with September 2020 turnover inappropriate to use, the entity can utilise this alternative test by comparing the September 2018 turnover against the September 2020 quarter turnover.
Category 6: business has an irregular turnover
If for example the entity operates in an industry that experiences irregular turnover each month/quarter, like the building and construction industry, the entity will be able to compare the current GST turnover (September 2020 quarter) against the average of the 12 months GST turnover immediately before the test period (i.e. 1 July 2019 to 30 June 2020 divided by 12 and multiplied by 3). The entity can also use the 12 months prior to 1 March 2020.
Category 7: sole trader or small partnership with sickness, injury or leave
If a sole trader or a partner in a small partnership was unable to work due to sickness, injury or leave during some or all of the comparison period, causing the turnover to be reduced, then the sole trader or small partnership can use the GST turnover in the month immediately prior to the period of sickness, injury or leave and multiply by 3 to compare against the relevant test quarter GST turnover. The test is only available to those sole traders and small partnerships which do not have employees.
Eg. a sole trader was ill and didn’t work during August 2019. The sole trader can use July 2019 GST turnover multiplied by 3 as a comparison to test against the September 2020 quarter GST turnover.
For more detail about the alternate tests, please click here.
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Author: Michael Glasper
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