JobKeeper Payment Scheme – Compliance and Surviving an ATO Audit
With the JobKeeper Payment Scheme now bedded down and JobKeeper payments being received by employers, attention should now turn to ensuring employers retain the JobKeeper payments received by having their record keeping in place.
The Australian government has made it clear that the Australian Taxation Office (ATO) will be conducting compliance and audit activities to ensure employers who receive the JobKeeper payment are entitled to it. In the event that the ATO conduct an audit and determine the employer did not satisfy the requirements, the employer will be required to return the JobKeeper payments to the Australian Government plus penalties and interest. This is the case even though the employer had only paid the employee/s because of the availability of the JobKeeper payment.
To survive an ATO audit, employers are required to keep records which substantiate all information provided to the ATO in their applications. These records need to not only exist but be available for any compliance review activity conducted by the ATO.
In monitoring compliance, the ATO has a vast range of data-matching tools to check that the JobKeeper payment will be made to eligible employers with the most powerful tool being the Single Touch Payroll (STP). This tool will enable the ATO to identify employers who are not correctly allocating the JobKeeper payment, have incorrectly declared how many employees they are applying for, or have not correctly nominated the employees. The ATO compliance activity will focus on the employer’s eligibility to the scheme and will ensure that the employees actually receive the payments.
In reviewing the employer’s eligibility, the ATO will focus on how the employer applied the decline in turnover test. In this regard employers need to keep evidence and sufficient records to demonstrate how they calculated the projected GST turnover during the 2020 turnover test period and show how they took reasonable steps where they were estimating the turnover for a period.
The employer’s projected GST turnover during the 2020 turnover test period is broadly the sum of the value (GST exclusive sale price) of all Australian domestic sales made or are likely to make during that period. For the purpose of determining sales likely to be made, the ATO will accept a calculation based on a bona fide business plan, accounting budget or some other reasonable estimate based on the evidence about the projected facts and circumstances for the remainder of the turnover test period.
Relevant evidence that would support a prediction of sales likely to be made may include:
- a decline in sales during the turnover test period or since 1 March 2020 as a result of government COVID-19 restrictions;
- customers cancelling or modifying existing contracts for sales on or from 1 March 2020;
- being required to close or pausing the business due to government COVID-19 restrictions;
- delays in being able to get access to trading stock sourced from overseas on or from 1 March 2020;
- evidence that the business is reliant on tourism;
- any consequential effect on the price of what is supplied, for example, the effect on the market value of new property being sold by a property developer;
- information known to the business, whether or not publicly available;
- economic forecasts undertaken by a reputable organisation that are relevant to the type of business; and,
- the likely timing of government COVID-19 restrictions being lifted for the type of business based on government announcements.
Employers should also keep records of any actual sales used in the calculations for the 2020 turnover test period.
With STP, the ATO will have the ability to identify over and under payments of JobKeeper payments. The identification of mismatches with JobKeeper payment employee enrolments and STP will be a big driver of ATO audit activity. This will also include mismatches that have occurred because of flaws in the algorithm of the data analysis.
The Commissioner has indicated that the ATO’s resources will be directed at contrived schemes undertaken by employers to become eligible for the JobKeeper payment. Examples of such schemes the ATO will be targeting include:
- deferring the making of supplies (e.g. deferring issuing invoices);
- bringing forward the making of supplies;
- transferring part of a business without any reduction in external turnover; and,
- accruals based taxpayers using cash basis to determine if they satisfy the turnover test – the ATO want to understand why the different approach is an appropriate reflection of turnover. The ATO would more likely target large businesses who use the cash basis.
It is important to understand that employers do not need to prove that COVID-19 was the cause of the decline in turnover. They just need to meet the decline in turnover test.
Furthermore, as long as the employer passes the decline in turnover test once, then the employer does not have to pass the test again for a later period and will be entitled to keep getting JobKeeper up until the JobKeeper Payment end date. This is the case even if the turnover increases in subsequent periods.
Although the JobKeeper payment runs for the 6 months to 30 September 2020 the audits and reviews will continue for a considerable period after the JobKeeper payment end date of 30 September 2020.
If you require any assistance with the JobKeeper payment scheme or you have questions in relation to auditing, please do not hesitate to contact a member of Coleman Greig’s Taxation Advice team, who would be more than happy to assist you today.