Earlier this week I was asked if I thought the government stimulus packages to business were worth the money being committed. Has our government overstepped the mark and left our community with a bill that’s too high for future taxpayers to repay? I hadn’t given this a lot of thought but in this week’s article I want to start by being provocative to encourage your thinking.
This Saturday is Anzac Day. My mind is taken to the cost of war and the lasting effect on our country. My friend’s question on the cost of COVID-19 set me thinking about whether a comparison can be made between the cost of WW1 to Australia and the cost of our present situation.
The simplest information I found was the war cost Australia $2.033bn in which we lost 62,000 soldiers and a further 156,000 were maimed, injured or suffered in POW camps. That’s an average cost of $9,326 per soldier. For our current pandemic our Government has committed to date a total cost of $170.7 bn. Assuming all 26m of our population are impacted this is an average cost of $6,565 per citizen. If I calculated this cost based on the current low number of cases presenting with COVID-19 … well you don’t want to know that number.
And so some food for thought…
- Is it fair to reduce major traumatic events to a cost per person in this simplistic way?
- Can a life be reduced to a dollar amount?
- Is our stimulus package too high a cost for our country to bear?
We’ve written about this package and continue to be supportive of the intent of this support for business. As stated in the Explanatory Memorandum to the Law “payments under this package are intended to support entities that are directly or indirectly affected by Coronavirus.” The intent is clear.
Following the release of guides on the package by the ATO last Monday we have spent a lot of time with clients in assessing whether its applicable to their circumstances. So in this note I want to highlight several matters with the package.
Firstly the eligibility test. It’s important to assess your business against these three tests which are:
- Did you carry on a business in Australia at 1 March 2020? This is a simple yes or no test. No means that you fail to qualify. If Yes, go to 2.
- Is your entity excluded because it’s any one of the following:
- Subject to the Major bank levy any time before 1 March 2020; or
- The entity is a Commonwealth, State or Territory government body, or owned by the Government; or
- The company is insolvent or if an individual’s in bankruptcy.
- Did your turnover decline by more than 30% for the turnover test period if your turnover in the current or prior year <$ 1bn, or 15% if you are a charity(excl a school)
Failure to pass the eligibility tests means that you exclude yourself from participating in the package.
At issue for many businesses is the measurement of the decline in turnover. We now have the rules that have been issued by the ATO and for many businesses the basic test will apply. If the basic test cannot be applied then an alternative test will apply. At the time of writing the only advice on the application of this test is that it will be determined by the Commissioner of Taxation as he has been granted discretion to issue guidance on the application of this test. Per the ATO ”This guidance will be available soon.” We encourage you to speak with one of our team if you are in any doubt on the definition of turnover, as many of you have already done during this week.
Our second concern with the package relates to the powers provided to the Commissioner of Taxation to reverse the entitlement of a business participating in the Job Keeper package if it is believed that participation has occurred as a result of deliberately altering its business arrangements to reduce its turnover to meet the turnover test required by the package. This is referred to as the integrity measure and is in addition to the normal powers the Commissioner has with respect to tax matters in which evidence of fraud or other criminal behaviour is identified.
In the absence of any guidance from the Commissioner at the time of writing it is difficult to advise on this aspect of the law and what is meant by the word “deliberate”.
Let’s assume this scenario: an organisation continues to operate, receive revenue and employ people. Its turnover is normally lumpy as a nature of the industry in which it operates. If the turnover falls in April 2020 resulting in establishing entitlement to the package and costs are included in work in progress at the end of April because they are not able to be invoiced to a customer, does this represent a deliberate arrangement? Does the business fail the basic test for entitlement and therefore need to apply the alternative test, on which guidance is yet to issue?
We see tension arising with the stated aim of this package, the implementation of it and, looping back to our opening challenge, its fairness to our community? What is equitable? What is a fair amount for our country to invest per person to keep the economy safe?
I’d love to hear your thoughts on this conundrum.
Until next time, our best wishes and please keep using the sanitiser and distancing from each other as we all work to keep the curve pointing downwards.