The ATO have published guidance regarding the alternative turnover tests that businesses can use to assess their shortfall in turnover in order to access the JobKeeper scheme.

These tests have been established to assist those businesses who cannot apply the basic fall in turnover test due to unusual circumstances leading to prior year data not being comparable to current year data.  Accordingly, these tests only need to be applied if the basic test can’t be satisfied.

The Commissioner has come up with seven circumstances which have been outlined in the legislative instrument Coronavirus Economic Response Package (Payments and Benefits) Alternative Decline in Turnover Test Rules 2020 that the alternative tests can be applied to.

These seven circumstances are:

  1. The entity commenced business after the relevant comparison period, meaning it didn’t exist in the prior period.
  2. The entity acquired or disposed of the business after the relevant comparison period that has had an affect on turnover, making it difficult to compare to the prior period given the change in business operations.
  3. The entity undertook a restructure after the relevant comparison period that had an affect on turnover, making it difficult to compare the prior period given the change in business operations.
  4. The entity has experienced rapid growth over the last 12 months resulting in an increase in turnover by:
  • 50% or more in the 12 months immediately before the applicable turnover test period; or
  • 25% or more in the 6 months immediately before the applicable turnover test period; or
  • 15% or more in the 3 months immediately before the applicable turnover test period.
  1. The entity was affected by drought or other declared natural disaster during the relevant comparison period.
  2. The entity has large irregular variances in turnover for the quarters ending in the 12 months before the applicable turnover test period making it difficult to compare to the current year periods and these irregularities are not due to cyclical or seasonal variances.
  3. The entity is a sole trader or small partnership and was absent from the business due to sickness, injury or leave and the absence has affected the turnover of the business for the comparable period.

The legislative instrument includes the tests that are to be used for each of the above circumstances.  The purpose of these tests is to provide the ability for businesses to determine an alternative comparison figure through using adjusted periods and average GST turnover figures to assess their eligibility to the JobKeeper scheme.

We have included below a detailed outline of each of these circumstances and the tests that can be applied for each scenario should you be interested understanding the detail behind each of them.

It is noted in the legislative instrument that the Commissioner cannot determine an alternative decline in turnover test in all circumstances and as such, it is likely that the above circumstances are what we are limited to working within.

For assistance in applying any of the above circumstances to your situation or for help regarding the JobKeeper scheme and other support measures, please contact us on 03 52216399 or at info@davidsons.com.au.

The seven circumstances in detail

  1. Business commenced after the relevant comparison period

This circumstance will apply where the business commenced before 1 Mar 2020 and after the relevant comparison period in 2019 meaning no comparison period exists; i.e. the business commenced in July 2019 and therefore does not have turnover in April 2019 to compare to April 2020.

This test can only be applied where the relevant taxpayer was not operating a business during the relevant comparison period.  This means that it cannot apply to an entity that was operating one or more businesses and commenced a new additional business.

There are two alternative tests that can be applied, however, the second alternative test is only applicable where the entity commenced business at least 3 months before 1 Mar 2020.

First alternative test:

(a)  If the relevant comparison period is a calendar month, the entity uses the average monthly current GST turnover instead of the entity’s current GST turnover, or

(b)  If the relevant comparison period is a quarter, the entity multiplies the average monthly current GST turnover by three and uses that figure instead of the entity’s current GST turnover.

The average monthly current GST turnover is:

(a)  If the entity commenced business before 1 Feb 2020, it is the entity’s current GST turnover for each whole month since commencement before 1 Mar 2020 are added together and divided by the number of whole months, or

(b)  If the entity commenced business before 1 Mar 2020 but on or after 1 Feb 2020 it is the entity’s current GST turnover before 1 Mar 2020 divided by the number of days the entity was in business and multiplied by 29.

Second alternative test (applicable if in business for more than three months before 1 Mar 2020):

(a)  If the relevant comparison period is a calendar month, the entity divides the 3 months’ current GST turnover by 3 and uses that figure instead of the entity’s current GST turnover, or

(b)  If the relevant comparison period is a quarter, the entity uses the 3 months’ current GST turnover instead of the entity’s current GST turnover.

The 3 months’ current GST turnover is the total current GST turnover in the 3 months immediately before 1 Mar 2020.

  1. Part of the business was acquired or disposed after the relevant comparison period

Where an entity acquired or disposed of part of their business after the relevant comparison period in 2019 and this transaction has changed the entity’s turnover then the business is not the same business and as a result the turnover data is not comparable.  In this circumstance the entity can apply the following alternative test.

(a)  Where the relevant comparison period is a calendar month, the entity uses the current GST turnover from the month immediately after the month in which the acquisition or disposal took place instead of its current GST turnover, or

(b)  Where the relevant comparison period is a quarter, the entity multiplies the current GST turnover from the month immediately after the month in which the acquisition or disposal took place by three and uses that figure instead of its current GST turnover.

This test can apply where multiple transactions have taken place throughout the year.  Where more than one acquisition or disposal has taken place, the month to use is the whole month immediately after the last acquisition or disposal.

  1. The business was restructured after the relevant comparison period

A business can apply this alternative test where there has been a restructure of the business after the relevant comparison period and the restructure has changed the entity’s turnover.  Under this scenario, the alternative test is:

(a)  Where the relevant period is a calendar month, the entity uses the current GST turnover from the month immediately after the month in which the restructure occurred instead of its current GST turnover; or

(b)  Where the relevant period is a quarter, the entity multiplies the current GST turnover from the month immediately after the month in which the restructure occurred by three and uses that figure instead of its current GST turnover.

Where more than one restructure has occurred, the whole month immediately after the last restructure is to be used.  If no whole month after the last restructure exists then it is the month immediately before the applicable turnover test period that is to be used.

  1. The business has seen a substantial increase in turnover

Where a business has seen a substantial increase in turnover of:

-50% or more in the 12 months immediately before the applicable turnover test period; or

-25% or more in the 6 months immediately before the applicable turnover test period; or

-12.5% or more in the 3 months immediately before the applicable turnover test period,

it can apply the following alternative test.

(a)  Where the relevant comparison period is a calendar month, the entity divides the 3 months’ current GST turnover by 3 and uses that figure instead of its current GST turnover, or

(b)  Where the relevant comparison period is a quarter, the entity uses the 3 months’ current GST turnover instead of its current GST turnover.

The 3 months’ current GST turnover is the total current GST turnover in the 3 months immediately before the applicable turnover test period.

This alternative test has been included to provide a comparable position for businesses that have seen rapid growth over last 12 months.

  1. The business has been affected by drought or any other declared natural disaster during the relevant comparison period

This circumstance will be applicable for any businesses that were being conducted in a declared drought zone or declared natural disaster zone during the relevant comparison period and the drought or natural disaster had an impact on the turnover of the business.

The test to be applied in this circumstance is for the entity to use the current GST turnover for the same period in the year immediately before the declaration and undertake the comparison in line with the basic test principles, being to compare the same month or quarter period.

  1. The business has an irregular turnover

Where a business has experienced an irregular variance in its turnover for the quarters ending in the 12 months before the applicable turnover test period it can apply the following alternative test.

(a)  If the relevant comparison period is a calendar month, the entity uses the average monthly current GST turnover instead of its current GST turnover, or

(b)  If the relevant comparison period is a quarter, the entity uses the average monthly current GST turnover by three and uses that figure instead of its current GST turnover.

The average monthly current GST turnover is the current GST turnover for each whole month in the 12 months immediately before the applicable turnover test period added together and divided by 12.

It is important to note that to apply this alternative test the irregularities in turnover cannot be due to cyclical or regular seasonal variances.

  1. The business has experienced sickness, injury or leave

This circumstance will apply to sole traders or small partnership with no employees and it can be shown that the sole trader or at least one of the partners did not work for part of the relevant comparison period due to sickness, injury or leave and the turnover of the business was impacted due to this period of absence.

The alternative test to apply in this scenario is:

(a)  If the relevant comparison period is a calendar month, the entity uses the current GST turnover from the month immediately after the month in which the individual returned to work instead of its current GST turnover, or

(b)  If the relevant comparison period is a quarter, the entity uses the current GST turnover from the month immediately after in which the individual returned to work by three and uses that figure instead of its current GST turnover.

 

Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.