The ATO on COVID-19 fraud warpath
As Jobkeeper changes are unveiled for Australian businesses enrolled in the program, there's a timely reminder that the ATO has started two initiatives designed to rout out fraud and schemes that take advantage of its stimulus payments.
A Government scheme swiftly distributing cash during a crisis was always going to come with equally swift compliance and review measures, particularly when eligibility was self-assessed.
Two major Australian Taxation Office (ATO) initiatives are searching out fraud and schemes designed to take advantage of the Government's Coronavirus Economic Response Package.
So what does this mean in practice?
It's about the data: Tip lines, tax returns and STP
The tip line, tax returns, and single touch payroll are just a few of the data sources the ATO is using to identify "inappropriate behaviour."
The tip line has already delivered its first target with the very public outing in the Australian Financial Review of The Australian Comfort Group, which owns SleepMaker and Dunlop Foams for an alleged scheme to deliberately depress monthly revenue to qualify for up to $11 million in wage subsidies. Internal emails allegedly from an employee who has also lodged a claim under the Fair Work Act against the manufacturer, appear to demonstrate an internal effort to push invoicing to other periods. The Australian Comfort Group has vehemently denied any wrong-doing.
Tips from employees about their employer's efforts to manipulate revenue to meet the JobKeeper eligibility criteria is not hard to find.
In a massive data matching program, the ATO and Services Australia will share the records of approximately 3 million individuals to ensure that those accessing benefits are eligible to receive them.
For those who access their superannuation early under the COVID-19 measures, Services Australia will verify their eligibility where they have indicated that they are eligible for the JobSeeker payment, parenting payment, special benefit, youth allowance or the farm household allowance.
The program will review the records of those applying for early access between 19 April 2020 to 24 September 2020.
Schemes targeting early super release and Jobkeeper
The ATO has noted that it has received intelligence on a number of schemes circulating, one of which is the withdrawal of money from superannuation and re-contributing it to get a tax deduction.
ATO Deputy Commissioner Will Day said that, "Not only is this not in the spirit of the measure (which is designed to assist those experiencing hardship), severe penalties can be applied to tax avoidance schemes or those found to be breaking the law. If someone recommends something like this that seems too good to be true, well, it probably is."
The ATO has made its targets clear. For JobKeeper, these include ensuring that:
- Entities meet the eligibility requirements in relation to business income
- Entities are claiming for eligible employees
- Eligible business participants are correctly making claims
- Entities are not manipulating their turnover in order to satisfy the decline in turnover test
For the early release of superannuation measure, behaviours attracting ATO attention include:
- Applying when there is no change to your regular salary, wage, or employment information
- Artificially arranging your affairs to meet the eligibility criteria
- Making false statements or fraudulent attempts to meet the eligibility criteria
- Withdrawing and re-contributing super for a tax advantage – this could not only trigger anti-avoidance rules but also result in additional taxes and impact your eligibility for a super co-contribution.
Where individuals have not met the early access measure's hardship eligibility criteria, the ATO has stated that fines of up to $12,000 will apply for each false and misleading statement made. In addition, where a scheme has been entered into to obtain a tax benefit, such as claiming a tax deduction for recontributing super withdrawn under the early release measures, Part IVA may apply. That is, the ATO is actively looking for individuals who have utilised the early release measures when they didn't need it, then recontributing all or part of the super for the purpose of claiming a tax deduction.
For the Cash Flow Boost, the ATO is looking for schemes designed to:
- Artificially restructure businesses to gain access to the cash flow boost
- Artificially changing the character of payments to salary or wages to maximise the cash flow boost
- Inflating reported withholding amounts to maximise the cash flow boost
- Resurrecting dormant entities or phoenixing
- Making false statements or fraudulent attempts to create an entitlement.
JobKeeper and termination payments
An employment termination payments (ETP) is a lump sum payment made to an employee when their job is terminated. ETP's are generally made up of unused sick leave or unused rostered days off, payment in lieu of leave, genuine redundancy payments, etc.
For some employers, JobKeeper will not be enough to keep the employee employed. If you do need to let staff go, the ATO has stated that from JobKeeper fortnights from 8 June onwards until the end of the scheme, ETPs cannot be included as part of the $1,500 an employer needs to pay to eligible employees to access JobKeeper payments.
If any JobKeeper payments include an ETP to a terminated employee between 30 March to 7 June, the ATO has stated that it will not recover an overpayment.
Recognising JobKeeper payments for income tax purposes
The ATO has previously confirmed that JobKeeper payments are assessable income of the entity that is eligible to receive the payments and that the normal rules for deductibility will apply in respect of any amounts paid to employees. Also, the JobKeeper payment is not subject to GST as it does not represent consideration for a supply made by the entity.
More recently, the ATO has provided guidance on when JobKeeper payments should be recognised by employers for income tax purposes.
For entities accounting for income tax purposes using an accruals basis, the ATO indicates that JobKeeper payments are to be considered to be derived when the entity provides a valid completed business monthly declaration to the ATO. For example, payments relating to JobKeeper fortnights that end in June 2020 would normally be treated as having been derived for income tax purposes in the 2021 income year (assuming a 30 June accounting period).
When it comes to entities using a cash basis the approach is to simply look at the income year in which the JobKeeper payments are actually received. Most JobKeeper payments for fortnights ending in June will be received in July 2020 and should be recognised in the 2021 tax return.
Genuinely made a mistake?
The ATO has stated that if businesses work with them, and the mistake is genuine, they will give businesses owners the support they need, without the worry of accruing a debt, repaying money or getting penalised.
For guidance on Jobkeeper or any of the Government's stimulus package, please contact us on 02 9957 4033.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.