JobKeeper – The Alternative Test Revealed

The ATO’s long-awaited guidance on the alternative test for JobKeeper was just released.

If a business meets the basic test – meaning it can substantiate a 30% decline in actual or projected revenues against a “relevant comparison period” (March 2019, April 2019 or June 2019 quarter), then there is no need to consider the alternative test.

The alternative test is designed to support cases where there may not be an appropriate relevant comparison period and makes reference to seven specific circumstances.

We have summarised each scenario below and how to calculate the comparison period to visualise how it might work for various businesses.

Scenarios

There are seven scenarios considered with the JobKeeper alternative tests that address common situations businesses may find themselves in:

1. Start-ups
2. Business acquisition or disposal
3. Business restructure
4. Increase in turnover
5. Affected by drought or natural disaster
6. Irregular turnover
7. Sole trader or small partnership with sickness, injury or leave

Again these tests are designed to support cases where there is no appropriate comparison period, as defined above. If the basic test can be used this will always be a more straight forward option.

Once the revised comparison period is calculated, then the decline in turnover test (30%+) is applied as normal to the turnover test period i.e. March 2020, April 2020 or any future month/quarter from which JobKeeper claims can commence.

Each scenario is defined (generally) below and any terms in bold can be found at the Definitions section at the bottom of the blog. 

🚀 1. Start-ups

If you started your business before 1 March 2020, and don’t have financials to compare against for the same period in 2019.

You can use your (1) average monthly current GST turnover, or your (2) 3 months current GST turnover if you started before 1 December 2019. Compare this with your test period (e.g. March 2020, April 2020 or June 2020 quarter), to substantiate the 30%+ decline.

Things to consider:

• if you apply the first test, there’s a special consideration if you haven’t been trading for a month before 1 March. You take your February turnover, divide it by the number of days you traded, then multiply it by 29
• the test does not apply to an entity that was operating one or more businesses and commenced a new additional business

✔️ 2/3. Business restructure or changes because of an acquisition or disposal

If your business restructured or had an acquisition or disposal that took place between this time last year and now which affected your turnover.

You can use your current GST turnover for a month.

Things to consider:

• if there have been multiple changes, it considers the most recent one only
• if the most recent change had no full month between then and the comparison period, use the month before

📈 4. Increased Turnover

If your business grew significantly by 50% over the last 12 months, or 25% over the last 6 months, or 12.5% over the last 3 months.

You can use your 3 months current GST turnover.

❗ 5. Affected by drought or natural disaster

If you conducted business in a declared drought or natural disaster zone, which affected your turnover.

You can use your turnover for the same period or a year earlier.

🙃 6. Irregular turnover

If your turnover in your lowest quarter in the last 12 months is 50% or less of your best quarter in the last 12 months, and your business isn’t cyclical in nature.

You can use your average monthly current GST turnover.

Things to consider:

• Qualification for the test looks at what happened in the 12 months immediately before the period test period e.g. if using April 2020, then it would be from April 2019 to March 2020. Or quarter ended 30 June 2020 would be average of 4 quarters ended 31 March 2020.
• This test does not apply if the business is naturally cyclical. For example, entities with regular seasonal variance in their turnover have an appropriate comparison period same time last year, so can use the basic test.

🤒 7. Sole trader or small partnership affected by sickness, injury or leave

A sole trader or partnership with no employees, and the sole trader or at least one of the partners couldn’t work during a relevant period and this affected turnover.

You can use your current GST turnover for a month.

Things to consider:

• the test only applies to small partnerships as they would have more difficulty in compensating for the absence from work of one of the partners; larger partnerships can expect absence.

❔ Definitions ❔

In total there are 4 methods/terms for calculating a comparison period amount that is used by one or more of the tests outlined above. Please see below.

Average monthly current GST turnover

used in – start-ups, businesses with irregular turnover

• the average of each whole month’s turnover from the last 12 months (or for startups, since you began)
• multiplied by 3 if comparing against a quarter
• with months impacted by bushfires or affected by drought excluded
  

3 months current GST turnover

used in – start-ups, businesses increasing in turnover

• the sum of the turnover in the 3 months immediately before the turnover test period (1 March for start-ups)
• divided by 3 if comparing against a month
• moved earlier to the 3 months before concessions commenced if the business was affected by bush fires or drought
  

Current GST turnover for a month

used in – business restructure, acquisition or disposal & sole trader or small partnership with sickness, injury or leave

• the turnover of the month immediately after (or in some cases before) a significant change took place in the business
• multiplied by 3 if comparing against a quarter
  

Same period a year before your declaration

used in – drought or natural disaster

Conclusion

The new legislation and explanatory memorandum clear up the application of the alternative test for businesses not fitting the mould of the basic test. If any of the above scenarios seem applicable to you, please don’t hesitate to get in touch with us.

It is very pleasing to see our state and country’s progress on (completely) flattening the curve, and comforting to start seeing some light at the end of the tunnel. We definitely are the lucky country!

All the best,

The CharterNet Team