The impact of the COVID-19 pandemic continues and I know many of you have been forced to shut down, lost your employment or continue to operate in a difficult business environment. So I want to try and make the position clearer on the assistance that’s been provided by the government to the Australian community. This is not intended to infer any criticism of the way our Governments are working to protect the health of the population or the economy. It’s trying to make some sense of an increasingly confusing situation.
The Stimulus Sack?
I want to take you back to when you were a child and each year you looked forward to Christmas. Santa arrived on his sleigh with his sack of presents for you (I hope!).
Like me, you couldn’t wait to open the sack and discover the gifts inside. I always got something I asked for, there were other gifts that Santa thought I needed, and there was always something that I had no idea what Santa was thinking when he gave it to me. Over the coming month or so, I played with all these gifts, I had my favourites and grew into appreciating them all. And some got broken as well!
The Stimulus sack from our Government’s is a bit like Santa’s sack. Not everything appears useful right now, but it could become your favourite in the coming months. The issue we are seeing in advising clients is that the roll out of the stimulus announcements over the last three weeks is causing confusion and everyone is struggling to decipher the intricacies of the announcements and what it means for them. As with many announcements the concepts are worthy and designed to address the current predicament. The way we see things: there are three levels of engagement happening in an effort to get the announcements legislated.
- The Government has the announcement and gets the media grab.
- Then Treasury draft the legislation to go to Parliament.
- Then its left to the ATO to pick up the pieces and implement…. And that’s when the fun starts. We all know the ATO is a regulator not a service delivery provider, so there are genuine concerns around how the ATO will apply the law.
What everyone heard is the $1,500 a fortnight payment by the employer to the workers. But once again the devil is in the detail. In order to qualify the employer must meet the eligibility criteria. And that’s where the interesting bit begins. So let’s look at three different client discussions we have been having across our diverse client base in the last few days.
To background you all: the first issue is whether your business meets the eligibility criteria.
To be eligible for the JobKeeper package an Employer (including not for profits) need to meet the eligibility criteria. These are:
- their business has a turnover of less than $1 billion and their turnover has fallen by more than 30 per cent; or
- their business has a turnover of $1 billion or more and their turnover has fallen by more than 50 per cent; and
- the business is not subject to the Major Bank Levy.
In the tax law, it means turnover means “the total ordinary income derived in the year from the course of running your business”. Ordinary income is also a term used in our tax law. It means income from providing personal services, income from property or carrying on trading activities.
Based on this definition it may be logical to assume that income from sale of assets, capital gains, investments are probably not included. We are working with a client that has multiple streams of income from trading and investments. If investment income is excluded they may meet the eligibility criteria: if not they won’t.
However until this issue is clarified it is not possible to be certain about the base against which a business will measure its decline in turnover.
The second issue is how to measure the 30% or more decline in turnover. How will it work in the following scenario, taken from one of our clients:
Client started the business in January 2019. By March 2019 the business was still in its infancy and the owner was injecting cash to support the operating costs. Twelve months on turnover has increased and is higher than the comparable period in 2019. The business has closed as a result of the Government requirements on social distancing. On the definition of turnover you would conclude this client is not eligible for the Job Keeper package, however it’s exactly the type of business that needs the package as its closed its doors.
Following representations by our client to the Government, an announcement was made by Treasury on Wednesday that the package will give the Commissioner of Taxation some discretion to interpret the eligibility criteria based on additional information that the employer provides to the ATO. At this stage we don’t know how the Commissioner will use this discretion, so this business is unable to advise its employees on whether they will receive the $1,500 per fortnight. We have heard on the grapevine that some leniency will enter this assessment, so please talk to us if this relates to your business.
The third example is a not for profit client with multiple divisions. It has had to close some of its divisions, however the decline in turnover isn’t greater than 30% since last year. Employees have been stood down or retained on reduced hours. Will the business be entitled to access the Job Keeper package? The issue is whether a business can identify divisions as being separate “businesses” for the purposes of the package. At this stage it’s unclear and our view is that the client will need to see the legislation to identify if there is any scope to be eligible.
We understand the legislation will be debated in Parliament when its reconvened next Wednesday, so for many clients it will be a wait and watch exercise.
The point I’m trying to make is that businesses need to be able to forecast out their cashflow, incorporating those incentive payments from the Government that the business qualifies for. Please call us to check your eligibility for any Government stimulus you think you are eligible for, to help you make informed decisions and also for assistance with preparing a robust cash flow forecast that you can present to your bank.
So this ‘toy’ from the stimulus sack looks shiny and bright, but could fade quickly when you really get to look at it close up.
I thank you for your ongoing support and all of us are ready to help you in whatever way we can throughout this crisis and into the recovery phase which will inevitably arrive.
And if you have read this far through, your head is probably swimming with the detail. So as a small reward here’s a joke for you all:
What do you call an Instagram celebrity with COVID-19? An influenzer.