The ATO is looking carefully at businesses who have made adjustments to their circumstances in an attempt to track down businesses trying to abuse the system.
The ATO will primarily be looking into any enterprises that have made adjustments to their circumstances in order to meet the JobKeeper eligibility requirements, in cases where not having these adjustments would result in the entity being ineligible for JobKeeper or receive lower JobKeeper payments. Or in cases where the adjustments have enabled another entity or subcontractor to meet the decline in turnover test.
The ATO admits that enterprises who have increased staff members or not experienced adverse trading conditions are likely to attract their attention.
Who will the ATO look at?
The ATO has set out a series of examples of actions that are likely to attract their attention.
- Increase in staff – where the number of staff the business reports have increased beyond levels that were previously required to run the business prior to 1 March 2020.
- Deferring supplies – in industries unlikely to be adversely impacted by the pandemic, the business agrees with its customers to defer making supplies, resulting in the company’s projected GST turnover declining to the level required to meet the turnover test.
- Bringing forward supplies – in industries unlikely to be adversely impacted by the pandemic, the business brought forward supplies to be able to meet the decline in turnover test in a following month or quarter.
- Management fee manipulation – where inter-entity management fees are charged, the timing of the fee is changed to meet the decline in turnover test.
- Reduction in payments to subcontractors – where a business has reduced or deferred payments to subcontractors to enable them to meet the decline in turnover test. The ATO has stated that they will review the business and the subcontractors.
- Restructures – the example given by the ATO is a company that leases assets to third parties. The leasing business is generally unaffected by the pandemic. However, the business restructures and transfers the assets of the business to a new company. It then withholds the payment of dividends from the new company to the business resulting in a decline in the turnover of the business.
- JobKeeper used to reduce cost of supplies to customers – in this scenario, the business and its customers agree to reduce, waive or defer payments to enable the business to meet the decline in turnover test. JobKeeper is then used to fund the reduction in payments. In effect, JobKeeper is paying for the payment reduction.
If your business, venue, or industry has been adversely impacted by the pandemic, it is unlikely that ATO will review you unless there have been obvious attempts to increase JobKeeper Payments.
What happens if you got it wrong?
If the way you have accessed JobKeeper is on the ATO target list, this doesn’t necessarily mean that there is a problem. After all, eligibility for JobKeeper is generally based on the estimated negative impact of the pandemic on your projected turnover.
Some business will experience a greater decline than estimated, while others will fall short of the required 30%, 50%, or 15%. There is no clawback if you got it wrong as long as you can prove the basis for your eligibility going into the scheme. You will however, need to prove that this estimation was genuine.
Some businesses will, in hindsight, simply not meet the decline lodged in the turnover test. If this is the case for you, you must ensure that you have the paperwork prepared to prove your stance should the ATO request it. You will need to show how you calculated the decline and how you came to the final assessment of your predicted outcome.
It is important to keep all these things in mind as you declare your current and projected GST turnover within 14 days of the end of each relevant month.
If you have any questions about JobKeeper or need advice on your business, you can contact the small business tax champions here.