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April 9, 2020
Australia enacts JobKeeper Payments wage subsidy law
On 8 April 2020, the Federal Government passed two Bills as part of a package to enact the AU$130 billion1 JobKeeper Payments wages subsidy. The legislation received Royal Assent on 9 April 2020.
The Coronavirus Economic Response Package (Payments and Benefits) Bill 2020 (Payments Bill – link) establishes a framework to deliver the JobKeeper Payments measures through rules made by the Treasurer in a legislative instrument. The legislative instrument was signed by the Treasurer on 9 April 2020 (on Treasury website here).
The Coronavirus Economic Response Package Omnibus (Measures No. 2) Bill 2020 (Omnibus Bill – link) includes changes to the Fair Work Act to support the JobKeeper Payments and a series of other stimulus related provisions and amendments.
The JobKeeper Payments wage subsidy scheme is designed to assist businesses, not-for profit entities and charities impacted by the Coronavirus (COVID-19) to continue to operate and pay their employees. It is expected to apply to six million workers. The payment is also available to the self-employed and some other businesses without direct employees.
Affected employers will be able to claim a fortnightly payment of $1,500 per eligible employee from 30 March 2020, for a maximum period of six months. The first payment will be received from the Australian Taxation Office (ATO) in the first week of May.
The JobKeeper Payments law is targeted broadly. There will be benefits and challenges for both employers and employees and the prospect that technical and practical issues will be identified over time. The law requires detailed analysis by businesses to confirm eligibility.
Employers can register interest in JobKeeper on the ATO’s website here and a detailed application form is expected to follow. Reporting to the ATO will be required monthly.
EY will analyze the law and a detailed EY Tax Alert will follow.
Businesses must also consider how the JobKeeper Payments scheme interacts with other business issues including their employment law obligations.
The JobKeeper eligibility rules also affect the National Cabinet mandatory code of conduct and commercial leasing principles applying to landlords leasing to tenants which are small to medium enterprises with turnovers under $50 million.
The key provisions of the Jobkeeper Payments scheme are summarized below.
Businesses and non-profit employers are eligible for JobKeeper Payments to compensate them for wages and salaries paid to an individual for a fortnight if they:
Certain charities are eligible if they estimate their turnover has declined by 15% or more relative to a comparable period.
An entity will determine if it applies a 30% or 50% test based on its aggregated turnover as defined in the income tax law. This definition includes the worldwide turnover of the entity and that of its connected entities and affiliates.
Key condition – decline in GST turnover
Turnover for the test is defined according to the GST concepts of “current” and “projected” turnover, which includes taxable supplies and GST free supplies but not input taxed supplies. The test is done on an entity by entity basis so disaggregation will be required for entities that are members of a GST group. Under the GST law only Australian-based turnover is relevant.
The business or not-for-profit must establish that their projected turnover falls short in the relevant month or quarter by the relevant percentage relative to their turnover in a corresponding period in 2019.
The Commissioner has the discretion to set out alternative decline in turnover tests that would establish eligibility where there is not an appropriate relevant comparison period for the purpose of an entity in the class of entities satisfying the decline in turnover test.
The employer must have been in an employment relationship with eligible employees as at 1 March 2020.
Employers must pay their eligible employees a minimum of $1,500 in respect of each 14-day period covered by the scheme.
Employees are eligible if they:
Individuals must confirm to employers that they meet these conditions.
Employers must notify employees that they have notified the ATO that they are entitled to JobKeeper payments.
An employee is ineligible if they are supported by a workers’ compensation scheme or are in receipt of government Paid Parental Leave or Dad and Partner Pay through Services Australia.
Employees ordinarily receiving $1,500 or more per fortnight before tax will continue to receive their regular income according to prevailing workplace arrangements.
Employees ordinarily receiving less than $1,500 income per fortnight before tax will be paid a top-up so they receive a minimum of $1,500 per fortnight, before tax.
Employers’ employee-related obligations continue, including tax withholding on all payments.
The receipt of wages funded by the JobKeeper payment may affect an individual’s eligibility for payments from Services Australia as it is included in their reportable income.
Self-employed and other businesses
This Alert does not address the rules for self-employed persons and for a non-employee business participant (payments through a partnership or trust or to a shareholder in a company) to access JobKeeper payments.
Integrity rules and ATO compliance
There are integrity rules designed to prevent employers from entering into artificial schemes in order to get inappropriate access to payments.
The JobKeeper Payments measures will be subject to ATO compliance and audit activities.
The Omnibus Bill includes these following government stimulus related measures:
Changes to the Fair Work Act
The Omnibus Bill also amends the Fair Work Act to support the practical operation of the JobKeeper scheme and to facilitate a range of flexible arrangements intended to support continuing business operation and the ongoing employment of employees.
The amendments include the insertion of a new Part 6-4C into the Fair Work Act, which:
An employee’s terms and conditions of employment continue to apply, except to the limited extent modified by a JobKeeper enabling direction or agreement.
The Fair Work Commission will be able to resolve disputes about the operation of Part 6-4C, including by arbitration.
The new Part 6-4C JobKeeper provisions are to be repealed at the start of 28 September 2020, consistent with the temporary nature of the changes.
Mandatory code of conduct for commercial leasing principles applying to Small and Medium Enterprise tenants
The JobKeeper eligibility rules also affect the National Cabinet mandatory code of conduct for commercial leasing principles applying to tenants which are small to medium businesses with turnovers under $50 million. The code was released on 7 April (link).
The key elements of the code include:
1. Currency references in this Alert are to the AU$.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Australia), Sydney
Ernst & Young (Australia), Perth
Ernst & Young (Australia), Melbourne
Ernst & Young LLP (United States), Australian Tax Desk, New York
Ernst & Young LLP (United Kingdom), Australian Tax Desk, London