JobKeeper: determining decline in turnover using cash or accruals

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There has been some confusion around the correct basis for determining the decline in turnover when applying the basic turnover test for the JobKeeper Scheme due, in part, to the reference to ‘cash and accruals’ in the guidance document on the ATO website.

I’ve collaborated with my colleague Bruce Quigley, Senior Adviser at The Tax Institute, to try to make sense of this issue, and provide a useful example for tax practitioners. This may not be easy for some businesses.

Under the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (the Rules) a business satisfies the decline in turnover test if it’s projected GST turnover for a turnover test period (month or quarter) in which the test time occurs, falls short (generally by 30%) of the business’ current GST turnover for a relevant comparison period.

Both terms contain the concept of the ‘values of supplies made or likely to be made’ in a particular period. The turnover calculation under the Rules requires a business to include sales that have been made, or likely to be made, in the relevant month or quarter without any reference to when payments are made. That is, the calculations are based on the time a business makes the sales.  

Related reading: Service entities, charities, all ‘eligible employees’ in: further clarity on the JobKeeper Scheme

In the guidance document referred to above and Law Companion Ruling 2020/1, the ATO appears to be offering an administrative approach (not totally consistent with the Rules) to make it easier for some businesses to satisfy the decline in turnover basic calculation, by stating that, ‘you may use a cash or accruals approach to determining the value of your sales in the relevant month or quarter’.

The guide emphasises that whichever basis is used must be used consistently in comparing the month or quarter in 2020, with the comparison month or quarter in 2019.

This approach may not be beneficial for all businesses as the following example illustrates.


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Example: Decline in turnover for JobKeeper basic test

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 substantial drop (more than 30%) from then onwards due to the coronavirus lock-down rules.

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

If the business accepts the ATO’s administrative approach to use the cash method in determining the projected and current turnover for March and April then it will not be eligible to receive the JobKeeper support for the month of April and will have to wait until May (when receipts had dried up).

However, the business satisfies the decline in turnover test based on the projected turnover test in the Rules and would be eligible for JobKeeper for April.

For more information on COVID-19 stimulus measures and how they affect your tax practice, visit our dedicated Economic Response hub.

Professor Bob Deutsch, CTA, is the Senior Tax Counsel at The Tax Institute and taught tax over two decades at the UNSW as Professor in Taxation. A former Deputy President of the AAT, Bob is an ongoing contributor to the Thomson Reuters Australian Tax Handbook and a sought-after voice in the industry.

 Bruce Quigley, CTA, is the Senior Advisor of The Tax Institute and a member of the Panel of Expert Advisors at the International Monetary Fund. Bruce previously served for seven years as Second Commissioner with the Australian Taxation Office.

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