The JobKeeper Payment scheme, introduced by the Federal Government in response to the COVID-19 economic downturn, has distinctly moved from the eligibility stage to a compliance phase. As at 20 May, the ATO had begun investigations into some of the 2,609 cases of businesses reportedly receiving ineligible JobKeeper payments.
The ATO has released details of its compliance approach towards businesses claiming the JobKeeper payment, in particular when it will assign resources to investigate possible breaches of the law. The ATO has stated that it will only apply resources to what it terms “schemes” (the determination of which would depend on individual circumstances) – for example, if an entity’s business has not been significantly affected by external environmental factors beyond its control and/or the JobKeeper payments are in excess of those that would maintain pre-existing employment relationships.
The integrity measure contained in the JobKeeper payment legislation ensures entities that enter into contrived schemes do not obtain a payment they would otherwise not be entitled to. It is aimed at contrived and artificial arrangements that technically satisfy the eligibility requirements, but have been implemented for the sole or dominant purpose of accessing the JobKeeper payment.
Where that is the case, the ATO has the power to determine these entities were never entitled to the payment. It will also be able to recover any over-payments and impose significant penalties and interest.
To determine whether or not a certain arrangement is a “scheme”, the ATO will largely consider the substance of the outcome achieved rather than the type of arrangement entered into. However, it may also consider a range of factors including:
- the manner which the scheme was entered into or carried out;
- the form and substance of the scheme;
- the time at which the scheme was entered into and the length of the period during which the scheme was carried out;
- the result that would have been achieved by the scheme;
- changes in financial position of the entity or connected persons as a result of the payment;
- other consequences for the entity or connected persons of the scheme having been entered into;
- nature of connection between the entity and any connected persons.
According to the ATO, some examples of schemes to obtain the JobKeeper payment which may draw its interest include:
- company deferring the making of supplies/payments of cash/issuing of invoices to third parties to lower the projected GST turnover in order to meet the decline in turnover threshold;
- company bringing forward the making of supplies to artificially lower the GST turnover in a particular quarter to obtain the JobKeeper payment;
- company transferring assets that are leased to third parties to a related party to reduce GST turnover;
- a group of entities in which the service company reduces the service fee charged to the operating company to meet the decline in turnover test (depending on the circumstances of the reduction);
- a group of entities in which the service company stands down employees/reduces their work hours to the operating company resulting in reduced service fees to meet the decline in turnover test;
- parent company of a corporate group that reduces management fees or manipulates the timing of the management fee.
Whilst this is not an exhaustive list, it does provide a useful guide in what the ATO considers to be a scheme. In particular, there are two examples which points out that a reduced service fee within a group of companies does not necessarily mean that there has been a scheme.
From the ATO’s point of view where an entity has been significantly affected by the external operating environment that is beyond their control and applies for the JobKeeper payment in response to the impact (satisfying the criteria), it is unlikely to devote compliance resources to those cases.
Being ATO review-ready
It is crucial for businesses to keep evidence of their eligibility for the JobKeeper scheme, in case of any potential ATO review. This includes detailed and (preferably) documentary evidence of:
- the basis on which they have calculated their decline in turnover for the relevant period, and
- the commercial purpose for any decisions that may have led to the business qualifying for JobKeeper payments.
The relevant evidence will depend on the business’s circumstances, but may include:
- correspondence with customers relating to their ability to pay on normal terms.
- details of any relevant government restrictions at the specific time.
- records showing a decline in customer orders or enquiries.
- documents showing changes in the business’s supply chain or other external factors that have required the business to defer or bring forward the making of supplies.
- financial analysis of the commercial benefits of adapting the business’s practices to address changes in the market of other external circumstances (eg. offering discounts, extended payment terms or other concessions to customers).
- directions to or correspondence with employees explaining the reasons why a business has changed its ordinary practices or has made a particular decision.
Managing your compliance
If you're receiving JobKeeper payments for your staff, but you're not sure whether the compliance action could be inadvertently directed towards your business, we can help with your record-keeping to be review-ready.
We can also discuss the prospect of Audit Insurance to cover the cost of any ATO review of JobKeeper payments received by your business.
Just contact one of our Accounting Advisers at The Peak Partnership for more information.