The following provides a simple overview of the Decline in Turnover test that is required to be met in order to be eligible for the JobKeeper Program. Please note, this page is not intended to be comprehensive instructions. There are also other eligibility criteria need to be met which can be found on the ATO website.
'Basic' Decline in Turnover Test
The Basic Decline in Turnover Test works by comparing the projected GST turnover (see below) of the entity for a period (the turnover test period) with its GST turnover as calculated for a relevant comparison period (the comparison turnover). In effect, this compares a month or quarter in the period the JobKeeper scheme applies with the corresponding period in 2019. For most businesses, this will be an appropriate comparison to identify if turnover has declined significantly. An alternative test applies in certain circumstances where it is not possible to assess a comparable period (i.e. you weren't in business in April 2019).
A business will generally satisfy the test where the GST turnover in the turnover test period falls short of the comparison turnover and the shortfall is 30 per cent or more.
The periods for the turnover test period being compared by can be periods of one month or three months, where:
- if a one month turnover test period is being used, it must be one of the following months:
- March 2020;
- April 2020;
- May 2020;
- June 2020;
- July 2020;
- August 2020;
- September 2020; or
- if a three month period is being used it must be one of the following periods:
- the quarter that starts on 1 April 2020;
- the quarter that starts on 1 July 2020.
What is GST Turnover?
Your GST turnover is your total business income for the period, minus any:
- GST included in sales to your customers
- sales that aren't for payment and aren't taxable
- sales not connected with an enterprise you run
- input-taxed sales you make
- sales not connected with Australia.
Your GST Turnover will be on a cash or accrual basis depending on how you are registered for GST. If you are registered for GST on an accruals basis, then you must use accruals as the basis for the calculation. If you are registered on a cash basis (which you most likely would be if you have less than $10m in annual revenue) then you can choose cash or accruals.
It is important that you use the correct reporting to obtain this information and compare the information on a like for like basis.
Please note, GST Turnover should not be confused with the revenue that appears on your profit and loss in Xero. Depending on your circumstances, GST Turnover could be substantially different. Therefore, using relevant GST reports in Xero such as the Activity Statement Report may make it easier to identify relevant turnover for the period.
What is Projected GST Turnover?
For the purposes of the JobKeeper Program, Projected GST turnover includes the value of all the supplies (sales) that an entity has made or is likely to make in the period (i.e. the month or quarter). A supply is likely to be made where, on the balance of probabilities, it can be predicted that the supply is more likely than not to be made. The likelihood of a supply being made must be based on a reasonable expectation and considered in the context of the facts and circumstances of a particular business, such as by reference to the terms of a particular contract which requires supplies to be made in a certain period.
Keep in mind that if at the end of the assessment period, your GST turnover ends up not to have fallen by 30%, it makes it harder to argue that your projection was reasonable and therefore may expose you to a later assessment by the ATO that you were not eligible.
Documentation and Compliance
It is critical that you prepare a detailed workpaper outlining how you came to your calculation of Projected GST Turnover at the time you assessed it to support your eligibility.
From the Treasury guidance:
Businesses, individuals and entities that deliberately enter into contrived arrangements with the sole or dominant purpose of reducing their turnover in order to gain access to JobKeeper payments or increase the amount of JobKeeper payments they receive will not be entitled to the payment or the increased payment and the general interest charge will apply on the overpayment under section 19 of the Act. In addition, significant administrative as well as criminal penalties are also likely to apply to the parties involved in such schemes.
In other words, if you take deliberate actions to reduce your turnover for a period you could be liable for significant penalties.
When dealing with the ATO you are 'guilty until proven innocent'. So your best defence is good documentation that can be quickly and easily presented to the ATO on request.