JobKeeper: modified decline in turnover test for certain group structures

The Coronavirus Economic Response Package (Payment and Benefits) Amendment Rules (No.2) of 2020 (the Amending Rules) refines and clarifies elements of the JobKeeper scheme to ensure that it most appropriately supports businesses and employees affected by the significant economic impact caused by the Coronavirus.

A modification made by the Amending Rules addresses circumstances where an entity is an employer entity that operates in a group structure. In such group structures, most or all of the employees are employed by one entity, ‘the employer entity’, whose principal activity is to provide the services of the employees and potentially other services to members of the group.

The Amending Rules provide for a modified decline in turnover test for an employer entity (the modified test). The modified test applies in addition to the basic test in section 8 of the JobKeeper Rules.

Related reading: JobKeeper: determining decline in turnover using cash or accruals

When the modified JobKeeper turnover test applies

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The modified test in subsection 8A(1) of the Amending Rules applies if all of the following are satisfied:

  • The employer entity is a member of a consolidated group, consolidatable group or a GST group;
  • The employer entity’s principal activity is supplying other members of the group with services (employee labour services) consisting of the performance of work by individuals the employer entity employs.
     It cannot be an operating entity and must provide no more than incidental services to third parties; and
  • The Commissioner has not determined that the modified turnover test does not apply to the employer entity.

The modified test will also be satisfied under subsection 8A(2) of the Amending Rules if the following are satisfied:

  • In a turnover test period in which the test time occurs, the employer entity supplies employee labour services to one or more members of the group for making supplies outside the group, and only supplies employee labour services to entities that are members of the group other than incidental supplies; and
  • The employer entity would satisfy the basic decline in turnover test in subsection 8(1) of the Rules at the test time if modifications were made.

What JobKeeper turnover test modifications are made for group structures?

The modifications to the basic test are that, in applying the basic test:

  • Instead of using the employer entity’s projected GST turnover for the turnover period, the sum of the projected GST turnovers for that period for each test member is used; and
  • Instead of using the employer entity’s current GST turnover for a relevant comparison period, the sum of the current GST turnovers for that period of each test member is used.

Related reading: JobKeeper key dates & payroll cycles

Example: Satisfying the modified decline in turnover test

The Cleanup Group is structured as a GST group and provides maintenance services to factories and commercial premises.

Clean Employment is a member of the Cleanup Group. Clean Employment’s principal activity is to supply employee labour services to other members of the Group and has an aggregated turnover of $500,000.

The Cleanup Group’s sales have suffered as a result of the economic effects of COVID-19 and Clean Employment seeks entitlement to the JobKeeper payment in respect of its employees. In May 2020, Clean Employment’s only activity was to supply employee labour services to four members of the Cleanup Group – North Pty Ltd, South Pty Ltd, East Pty Ltd and West Pty Ltd – all of which only supply maintenance services to companies outside the Cleanup Group.

The projected GST turnover for May 2020, the turnover test period, for each of the test members is: North Pty Ltd $150,000; South Pty Ltd $75,000; East Pty Ltd $100,000; West Pty Ltd $25,000. This gives a total projected GST turnover of $350,000.

For May 2019 (the relevant comparison period), the current GST turnover for each of the test members is: North Pty Ltd $350,000; South Pty Ltd $125,000; East Pty Ltd $250,000 and West Pty Ltd $100,000. This gives a total current GST turnover of $825,000.

As the May 2020 turnover falls short of the May 2019 turnover by more than 30%, Clean Employment satisfies the modified decline in turnover test.

Note that the modified test also deals with circumstances in which an alternative decline in turnover test applies to another member of the group because there is not an appropriate relevant comparison period in 2019, e.g. for a new business starting in January 2020.

While the modifications to the decline in turnover test for certain group structures are welcome, it may not be practical for many SME groups which may not qualify as, or may have chosen not to form, a consolidated/consolidatable group or a GST group.

Get more JobKeeper insights in our dedicated COVID-19 economic stimulus hub.

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