A key requirement for a business to qualify for the JobKeeper payments is that it has suffered a 30%+ decline in turnover (50%+ for those with group turnover above $1 billion). The JobKeeper Rules contain the “basic test” for measuring a business’s decline in turnover. It generally operates by comparing your predicted turnover for a period (say, month of April 2020) to the equivalent period in 2019 (April 2019).
Of course, there will be circumstances where this basis of comparison isn’t going work, such as where a business commenced only recently, or turnover is “lumpy”. That’s why the Rules give the ATO the power to determine alternative tests where making a simple comparison to the same period last year is not suitable.
Presently, the periods available for comparing turnover to the equivalent period in 2019 are the month of March 2020, month of April 2020, and the June 2020 quarter (ie, April+May+June). You can choose any one. Last week, the ATO issued seven alternative tests for measuring decline in turnover. We briefly touch upon each one below.
To make it easier to understand the alternative tests, we set out how they operate, on the basis that your chosen period for measuring decline in turnover is the month of April 2020. (If your chosen period is March 2020 or the June 2020 quarter, they’ll operate in an equivalent way, but adjusted to reflect the different period chosen.)
Note that if you satisfy the original basic test in the JobKeeper Rules, there is no need to consider these alternatives.
Test 1: Recently commenced business
Applicable where you commenced your business after April 2019 in our example, but before 1 March 2020 in all cases. Obviously, there is no equivalent period in 2019 to compare April 2020’s turnover to. Let’s say your business commenced in July 2019. Work out the average monthly turnover for August 2019 to February 2020 inclusive. Compare April 2020’s turnover to that average. 30%+ decline? Test satisfied. A business commenced during February 2020 is accommodated.
An alternative is available, but only where your business commenced before 1 December 2019. Average the turnover for December 2019, January 2020 and March 2020. Compare April 2020 turnover to that average instead. 30%+ decline?
Test 2: Acquire/dispose part of a business
This can skew turnover comparisons, in particular where acquired revenue is bolted onto a business’s existing revenue. Let’s say you acquired a business in June 2019, and subsumed it into your existing business. Compare April 2020 turnover to the month after the acquisition – July 2020 – instead of April 2020.
Test 3: Business restructure
A restructure of your business can similarly skew the basic turnover comparison. This test operates in a similar way to Test 2.
Test 4: Substantial increase in turnover
This test is intended for businesses that have experienced significant growth in revenue over the last year (the reason for the growth does not matter). Such businesses of course may well have suffered in recent weeks, but due to coming off a much lower base, perhaps don’t show a 30%+ decline in turnover compared to a year ago. The test is available where turnover within the last year has grown beyond certain percentage thresholds. If any one of those thresholds has been met, you can apply this test.
The test applies by comparing April 2020’s turnover to the average of January, February and March 2020 (ie, the three prior months).
Test 5: Drought, natural disasters
This test is available where you operated your business in a declared drought or natural disaster zone during the comparison period in 2019 – April 2019 in our running example here. You compare April 2020’s turnover to the equivalent period in the year before – April 2018 – instead.
Test 6: Irregular turnover
This is intended for businesses with “lumpy” turnover. In our running example, you look at the year before the chosen April 2020 period (ie, April 2019 to March 2020), which contains four quarters (June 2019, September 2019, December 2019 and March 2020). The test is available if the turnover in the lowest quarter is 50% or less of the turnover in the highest quarter. However, this test is not available where a business’s turnover is cyclical. As most businesses’ turnover could be described as cyclical, this test is perhaps quite limited in its availability.
It applies by comparing April 2020’s turnover to the average monthly turnover in that prior year.
Test 7: Sole traders, small partnerships
This test is also likely to be limited in its availability. It’s available only for sole traders, and partnerships of four or fewer individual partners, where there are no employees. It can apply where the sole trader or a partner was absent from work due to sickness, injury or leave at any time in the comparison period in 2019 (April 2019, in our running example), and that affected turnover. April 2019’s turnover may well have been less than what it would otherwise have been, and thus is a low base to compare April 2020 to. Instead of April 2019, compare April 2020’s turnover to the month after the one in which the absent person returned to work.
Bushfire- and drought-affected businesses
Tests 1, 2, 3, 4, 6 and 7 all contain provisions taking account of bushfire/drought-affected businesses.
If your business has suffered “square-peg” circumstances that don’t fit into the “round-hole” basic decline in turnover test, talk to your trusted Nexia Edwards Marshall NT advisor about considering these alternative tests.