The ATO's JobKeeper Audit Targets
As Jobkeeper moves past the eligibility requirements and into its compliance phase, the ATO has released its guidance on where it will focus its compliance resources.
Australian businesses in receipt of Jobkeeper would do well to look at what the Australian Tax Office will focus on as the stimulus payment moves from its eligibility phase and into compliance.
Whilst we could argue whether Treasury got its numbers wrong or that the impact of restrictions in Australia flattened the curve enough for health impacts to not be as severe as anticipated, many Australian businesses have been able to take up Jobkeeper payments to keep their staff employed.
However, as it moves into its compliance phase, the ATO will be looking closely at businesses that appear to have made adjustments to their circumstances to meet the Jobkeeper eligibility requirements-particularly if those businesses would have been ineligible otherwise. For example, had there been lower Jobkeeper payments needed or where adjustments have been made to enable another entity or subcontractor to meet the decline in turnover test.
What is in the ATO's crosshairs?
Industries or businesses that have not experienced adverse trading conditions and those that appear to have increased staff numbers are likely to be looked at closely.
In its guidance, the ATO sets out a series of examples that are likely to attract their attention:
· Increase in staff – where the number of staff the business reports have increased beyond levels that were previously required to run the business prior to 1 March 2020.
· Deferring supplies – in industries unlikely to be adversely impacted by the pandemic, the business agrees with its customers to defer making supplies, resulting in the company's projected GST turnover declining to the level required to meet the turnover test.
· Bringing forward supplies - in industries unlikely to be adversely impacted by the pandemic, the business brought forward supplies to be able to meet the decline in turnover test in a following month or quarter.
· Restructures – the example given by the ATO is a company that leases assets to third parties. The leasing business is generally unaffected by the pandemic. However, the business restructures and transfers the assets of the business to a new company. It then withholds the payment of dividends from the new company to the business resulting in a decline in the turnover of the business.
· Management fee manipulation – where inter-entity management fees are charged, the timing of the fee is changed to meet the decline in turnover test.
· Reduction in payments to subcontractors – where a business has reduced or deferred payments to subcontractors to enable them to meet the decline in turnover test. The ATO has stated that they will review the business and the subcontractors.
· JobKeeper used to reduce cost of supplies to customers – in this scenario, the business and its customers agree to reduce, waive or defer payments to enable the business to meet the decline in turnover test. JobKeeper is then used to fund the reduction in payments. In effect, JobKeeper is paying for the payment reduction.
Low risk scenarios
If an industry or business has been adversely impacted by the pandemic, regardless of its structure or arrangements, it is unlikely the ATO will review those situations unless there has been an obvious attempt to increase JobKeeper payments.
To add certainty, the ATO notes that where a service entity that employs staff for a related entity has:
· reduced management fees, either because the service agreement has been changed to reduce the fee by an amount that is proportional to the reduction in the trading entity's external turnover,
· staff have been stood down, or
· where the related entities cannot afford to pay the fee, and the industry is adversely impacted by the pandemic
the ATO will not generally seek to apply compliance resources.
What happens if you got it wrong?
If the structure or the way a business has accessed JobKeeper is on the ATO target list, this does not necessarily mean that there is a problem.
Eligibility to JobKeeper is generally based on an estimate of the negative impact of the pandemic on an individual business's turnover. Some will experience a greater decline than estimated while others will fall short of the required 30%, 50% or 15%.
There is no clawback if the business got it wrong-as long as you can prove the basis for your eligibility going into the scheme.
For those that, in hindsight, did not meet the decline in turnover test, you need to ensure you have your paperwork ready to prove your position if the ATO requests it. You will need to show how you calculated the decline in turnover test and how you came to your assessment of your expected decline, for example, a trend of cancelled orders or trade conditions at that time.
Manage your JobKeeper compliance
Monthly declarations of your current and projected GST turnover are due within fourteen days of the end of each relevant month.
It's important to ensure that you have paid eligible JobKeeper staff at least $1,500 during each JobKeeper fortnight. If you pay employees less frequently than fortnightly, the payment can be allocated between fortnights in a reasonable manner. For example, if you pay your employees on a monthly pay cycle, your employees must have received the monthly equivalent of $1,500 per fortnight.
For the first two JobKeeper fortnights (30 March-12 April, 13 April-26 April), employers had an extension until 8 May to make the JobKeeper payments to eligible employees. For the remaining JobKeeper fortnights, employees will need to receive at least $1,500 by the end of each JobKeeper fortnight or the monthly equivalent of $1,500 per fortnight. Depending on your pay cycle, this may require some adjustments each month.
Jobkeeper is under review however the best place to seek advice is from your accountant. Please contact us on 02 9957 4033 or via our website here.
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.