Seven scenarios: JobKeeper’s alternative eligibility tests explained

The government has released legislation outlining alternative eligibility tests for its JobKeeper wage subsidy payments.

When the JobKeeper package was announced at the end of March, the government said businesses would be eligible if they have seen a 30% drop in turnover because of COVID-19. Businesses with annual turnover of $1 billion or more would have to show a 50% drop.

Over the following days, it became clear that this revenue drop would be calculated based on a ‘comparative period’ 12 months ago.

The ATO has now said a business can nominate either a monthly or quarterly turnover period, and compare that period in 2019 (dubbed the ‘relevant comparison period’) to the same period in 2020 (the ‘turnover test period’).

But, for many businesses, including startups, a year-on-year comparison just didn’t make sense.

If a business is less than 12 months old, for example, it just won’t have revenue figures from a year ago. And, high-growth businesses could very likely have seen turnover tank, but still be reporting figures higher than they were this time last year.

At the same time, many businesses were affected by drought this time last year, skewing their figures. Others could have made big changes to the businesses, making comparing March 2019 to March 2020 a meaningless exercise.

Treasury did promise alternative tests for businesses in situations like these, or those that had ‘highly variable’ revenues. But, even as the JobKeeper applications opened earlier this week, there was no clarification as to what these tests would be, or how they would work.

Now, finally, we have an idea.

These new rules outline the scenarios in which a business might be able to apply alternative turnover tests, and what those tests will be.

They cover new businesses, high-growth businesses, sole traders who have taken leave, and more.

Interestingly, the one group that is still not catered for is those businesses that are pre-revenue (and therefore cannot prove a drop in turnover).

A Treasury fact sheet had previously suggested a business may be eligible if it “significantly curtails” its operations, regardless of turnover.

This was taken by many to represent a lifeline for pre-revenue startups — many of which have staff to pay but no actual income to report yet.

But, there’s no mention of that in the legislation yet.

Another point worth noting is that the rules for the new tests apply a little differently if the business in question was eligible for the ATO’s 2019-20 bushfire lodgement and payment deferrals, or if it received drought help concessions.

As a rule, business owners should exclude any months in which they received these concessions, but of course, it’s not a clean-cut as that. We’ve tried to lay out those specific requirements as we go.

So, in what circumstances can you use an alternative turnover test? And what do those tests involve?

1. If the business is less than 12 months old

This alternative test applies if a business was established less than a year ago, and so cannot show a decline in turnover year-on-year.

It is available to businesses that commenced before March 1, 2020, but after the one- or three-month relevant comparison period.

The alternative test

If that business is using a one-month period, it should calculate its average monthly GST turnover, based on each whole month it has been in business.

If the business is reporting quarterly, it should take that monthly average GST turnover, and multiple it by three, to get the comparable quarterly figure.

If the business launched after February 1, 2020, and so had not been in business for a full month as of March 1, the average monthly turnover should be calculated by dividing total February turnover by the number of days the entity was in business, and multiplying that number by 29.

A second alternative test

If the business has been around for three months or more, as of March 1, 2020, the business owner can choose to use the GST turnover for the three months leading up to that date as the comparison period.

If they are comparing month-on-month, they can divide that turnover figure by three, and use that as the comparison.

Concessions to consider

There is an additional note for any businesses that qualified for the ATO’s 2019-20 bushfire lodgement and payment deferrals, or received any drought help concessions.

If you qualified for either of these benefits, then you should exclude the months covered by those from your calculations.

But, if the months in which you received those concessions are the only months you have been in business, you can disregard that, and include them all the same.

2. If an acquisition or disposal has changed turnover significantly

This applies if a business went through an acquisition or disposal process that changed its turnover, meaning a year-on-year comparison no longer makes sense.

The alternative test

Business owners in this situation should use the month directly following the acquisition or disposal event as the comparison period.

If the business is using a quarterly comparison, then the turnover of that month should be multiplied by three. The comparison period should not be the three months following the event.

If a business has been through more than one acquisition or disposal, they should use the month following the most recent event.

And, if the most recent event was less than a month before the start of the testing period (whether that’s the month of March or a three-month period), the business should use the month immediately before the testing period begins.

Concessions to consider

Again, if a business received a bushfire payment lodgement and payment deferral or drought help concessions, they should exclude any month that was covered by these concessions.

They should instead use the nearest alternative month instead. That is, unless there are no other months available to them.

3. If a business restructure has changed turnover significantly

This alternative test applies if your business, or part of it, has undergone a restructure in the past 12 months, meaning year-on-year turnover is not a suitable comparison.

The alternative test

If the business is making a monthly comparison, it should use the GST turnover for the month immediately following that in which the restructure occurred.

If the business reports quarterly, it should take the GST turnover for the month following the restructure, and times it by three.

If there is more than one restructure, the business should use the month following the second event as the comparison period. Again, if the business is making a three-month comparison, that figure should be multiplied by three.

And if the most recent restructure happened less than a month before the turnover test period, the business should use the GST turnover for the month immediately preceding that test period

Concessions to consider

Once again, if a business received the bushfire payment lodgement deferral, or drought help concessions, these must be taken into account.

Business owners should not use any month covered by these concessions as the comparison, unless there is no alternative month available to use.

4. If the business has seen substantial growth in turnover

This provision makes allowances for high-growth businesses, including startups, that may have seen a significant increase in GST turnover in the past 12 months, but still suffered a decrease caused by the COVID-19 outbreak.

A business can use this test if it has seen more than 50% growth in GST turnover in the 12 months leading up to the test period.

The alternative test also applies if the business has seen 25% growth in turnover in six months, or 12.5% growth over three months, leading up to the test period.

The alternative test

If the business reports quarterly, it can use the three months directly preceding the test period as its comparison period.

If the business reports monthly, it should take the GST turnover from those three months, and divide it by three, to get a more accurate monthly figure.

Concessions to consider

There are, again, rules for businesses that received bushfire lodgement and payment deferrals or drought help concessions.

In this case, a business should not use the months in which it received these concessions as the comparison period. Instead, it should use the three months immediately before the concessions kicked in.

5. If the business has been affected by drought or natural disaster

This test applies to entities that conducted some or all of their business in a declared drought or natural disaster zone during the relevant comparison period, and who believe that had a negative effect on their turnover.

The alternative test

Businesses in this situation can simply use a comparison period from 2018, instead of 2019.

So, instead of comparing March 2020’s revenue, for example, to March 2019, they can compare March 2020 to March 2018, to get a more accurate idea of the effect the virus has had.

6. If a business has irregular turnover

A business can apply this test if their turnover is not considered cyclical.

Businesses will also have to prove a significant difference in quarterly turnover.

A business will be eligible if, over the 12 months leading up to the test period, the quarter with the highest GST turnover saw more than twice the revenue of the lowest-performing quarter.

The alternative test

In this case, a business can calculate an average monthly GST turnover for the 12 months leading up to the test period. That monthly figure will act as the comparison turnover figure.

If the business reports quarterly, that monthly figures should be multiplied by three.

Concessions to consider

If the business has received the bushfire lodgement and payment deferrals, or drought help relief, it should exclude the months in which those concessions were received from the calculation of the average.

7. If a sole trader or partner has taken leave

This allowance is for sole traders or partnerships with no employees, where an individual did not work for all or part of the comparison period in 2019, because of illness, injury or other leave. The alternative test applies if that leave caused a negative impact on revenue at the time.

The alternative test

In this case, business owners should take the month immediately following the individual’s return to work, and use this as the comparison period.

If the business is using a three-month test period, they should multiply the turnover for that month by three, rather than using an actual three-month period.

Concessions to consider

Again, if the business qualified for the ATO’s bushfire lodgement and payment deferrals, or received drought relief concessions, things are a little bit different.

If these concessions applied in the month after the individual returned to work, then instead of using that month as the comparison point, the business should use the month immediately after those concessions stopped, instead.

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