The ATO’s JobKeeper audit targets
“…while it is all very well to talk of 'turning points', one can surely only recognise such moments in retrospect.” Kazuo Ishiguro, The Remains of the Day
The JobKeeper subsidy has progressed beyond the rush for eligibility and entered its second phase: compliance. Late last month, the Australian Taxation Office (ATO) released guidance highlighting where the regulator will focus its compliance resources.
The ATO’s JobKeeper targets
The ATO is looking carefully at businesses that appear to have made adjustments to their circumstances to meet the JobKeeper eligibility requirements where, if those adjustments had not been made, the entity would have been ineligible or had lower JobKeeper payments. Or, where adjustments have been made to enable another entity or subcontractor to meet the decline in turnover test.
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 your industry or business has been adversely impacted by the pandemic, regardless of your structure or arrangements, it is unlikely the ATO will review your situation 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 your structure or the way you have accessed JobKeeper is on the ATO target list, this does not 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 you 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.
If you have any questions or would like assistance to ensure compliance, please contact us.
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