Tax agents could be ‘misled’ by JobKeeper turnover guidance

Instead, practitioners have now been urged to revisit the law as written in the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020, and the ATO’s Law Companion Ruling (LCR) 2020/1, which sets out that GST turnover is the value of supplies made in the relevant period including GST-free supplies but excluding input-taxed supplies.

“Practitioners need to go to the LCR and read what that has to say about the options that are available for determining what is turnover and the critical starting point, which is not what the website is suggesting is value of supplies made,” Professor Deutsch told sister title Accountants Daily.

“For example, if you use the cash or accruals basis, and if you pass that, that’s fine.

“But if you fail to show the requisite decline, what a lot of people are missing is that you can go back to what we call the value of supplies made.”

Professor Deutsch noted that the accruals and cash methods are merely alternative methods that have been allowed to calculate turnover as most businesses would have a BAS on hand to give them an instant idea if they satisfy the decline in turnover test.

However, he believes the ATO’s website guidance, tweaked multiple times in a matter of weeks, fails to make it clear that the cash and accruals methods are concessionary methods, and could lead practitioners to think that the method used to report GST needs to be the method used for determining decline in turnover.

“While the LCR makes it abundantly clear that the law requires the taxpayer to allocate supplies made to each relevant period and then work out the value of the supply, and that accruals, cash and other accounting methods are practical, concessionary, fallback alternatives only, the ATO website does not,” Professor Deutsch said.

“The website is not wrong, but it is misleading because to someone who reads that and nothing else, they would think if I am on a cash basis for GST, and I haven’t got the requisite decline in cash, I don’t get JobKeeper full stop.

“That conclusion, of course, is wrong as it overlooks the fact that even if you have failed on the basis of the cash or accruals method, if you can otherwise demonstrate that the requisite decline has occurred on the basis of value of supplies made, the case for JobKeeper will have been established.”

Professor Deutsch has provided some examples:

Example 1

An architect operating on his own has seen his work dwindle to zero in April 2020 such that he makes no supplies in that month. He does, however, have residual outstanding bills to send out in April for work completed in January 2020. He is also collecting cash in April 2020 for work completed towards the end of last year.

Even if his normal method for reporting GST is cash and his cash received for April 2020 is up on April 2019, he will have satisfied the decline in turnover requirement if, in April 2019, he had any positive amount in the value of supplies made that month.

Example 2

A business uses the accruals method for income tax purposes and the cash method for reporting GST.

The business offers 45 days of credit and issues its invoices each fortnight as it provides its services. The business is busy up to 15 March 2020 but experiences a drop of 45 per cent in turnover from then onwards due to the coronavirus lockdown.

The business customers continued to pay in accordance with the credit terms and so the actual receipts in March and April 2020 were comparable with the receipts in March and April 2019.

On the basis of the ATO’s administrative approach allowing the use in this case of the cash method, the decline in turnover test is not satisfied. However, the business does satisfy the decline in turnover test set out in the law and would be eligible for JobKeeper based on the April figures.     

Example 3

A farmer sells a number of sheep at auction on 26 March 2019. Buyer and seller are bound by the terms of the contract from the date of the auction irrespective of invoicing and payment. The invoicing does not happen until 3 April 2019 and payment is made on 5 April 2019.

In 2020, there are no auctions in March, but there is one on 4 April 2020 with invoicing occurring on 10 April and payment on 14 April 2020.

Based on the value of sales made in March 2019 and March 2020, there is a decline of 100 per cent as there are no sales in March 2020. The farmer satisfies the decline in turnover test for March and therefore is entitled to participate in the JobKeeper scheme until the end of September 2020

It doesn’t matter that:

• The decline may have had nothing to do with the COVID-19 pandemic.
• The decline might be reversed in April 2020 — the farmer is still entitled to JobKeeper throughout the time it is available.

The only word of caution: If there is evidence to suggest the 2020 auction was deliberately delayed from March to April 2020 so as to enable the farmer to gain access to JobKeeper, the ATO can seek to rely on the anti-avoidance provision (section 19 of the Coronavirus Act) to reverse the JobKeeper payments.     

What is perhaps not immediately apparent to many is that the value of supplies made can be, but is not necessarily, the same as invoiced supplies. It is quite conceivable, as in the farm example above, that a sale is complete by the end of March 2019 but is not invoiced until April 2019 and is not paid until May 2019. In that case, it counts as turnover for March and its GST exclusive value must be determined and allocated to March 2019 for the value of supplies made method, even though for the invoice method it counts for April 2019 and for the cash method it counts for May 2019.