JobKeeper schemes – ATO review activity starts02 June 2020 Authored by: Caitlin McKenna | Topics: Professional advisers, Tax and revenue, Tax disputes, COVID-19
The ATO reportedly received 2,609 tip-offs about businesses accessing JobKeeper payments by 20 May 2020, and is investigating some of those cases.
It is crucial for businesses to keep evidence of their eligibility for the JobKeeper scheme now, to be ready for any review activity.
What is the ATO targeting?
The Commissioner can determine that a business is not entitled to a JobKeeper payment if it results from a ‘scheme’ being entered into for the sole or dominant purpose of obtaining JobKeeper payments, or greater amounts of JobKeeper payments.
Where the Commissioner makes this determination, the business will be required to repay the JobKeeper payments, together with interest and penalties. Please see our article on JobKeeper schemes for further information.
The ATO will target businesses it suspects of manipulating their turnover to meet the decline in turnover test for the relevant month or quarter. This will include businesses that have deferred issuing invoices or processing customer orders, or have extended their credit terms and reinvoiced customers in a later month.
While there will be cases in these examples that clearly fall within the anti-avoidance provisions in the JobKeeper legislation, other businesses may be caught in the audit activity despite making genuine commercial decisions.
Take, for example, a business that received a customer order on 24 April 2020 but wasn’t sure when it would be able to fill the order because government restrictions meant that it had fewer employees in its warehouse. The business heard that the government restrictions were changing on 1 May 2020 so that it could have more employees in the warehouse. The business checked with its customer to make sure that it was okay for the order to be filled by 15 May 2020 and the customer agreed. The business decided to defer processing the customer’s order until 1 May 2020. If the decision to defer processing the order resulted in a decline in turnover of 30% comparing April 2020 to April 2019, this would not, in the absence of other reasons, indicate that the sole or dominant purpose of the decision was to obtain JobKeeper payments; however, this business may be the subject of review activity.
How can businesses prepare for ATO review activity?
It is critical for businesses to keep detailed, contemporaneous (and preferably, documentary) evidence of:
- the basis on which they have calculated their decline in turnover for the relevant period, and
- the commercial purpose for any decisions that may have led to the business qualifying for JobKeeper payments.
The relevant evidence will depend on the business’s circumstances, but may include:
- correspondence with customers relating to their ability to pay on normal terms
- details of any relevant government restrictions at the specific time
- records showing a decline in customer orders or enquiries
- documents showing changes in the business’s supply chain or other external factors that have required the business to defer or bring forward the making of supplies
- financial analysis of the commercial benefits of adapting the business’s practices to address changes in the market of other external circumstances (for example, offering discounts, extended payment terms or other concessions to customers)
- directions to or correspondence with employees explaining the reasons why a business has changed its ordinary practices or has made a particular decision.
The ATO has sophisticated data matching processes and receives tip-offs from anyone concerned that a business is incorrectly claiming JobKeeper payments. Businesses should ensure that they assess their risk and keep sufficient evidence now.
Please contact a team member if you would like assistance with assessing any risks or collecting relevant evidence.