Buckle up for the latest installment of the pandemic tax blog and I will learn you something you didn’t know previously.
Apologies, I will stop using bad grammar and hyperbole to garner your attention and turn my mind to a critical evaluation of a specific eligibility criteria for Job Keeper. I have become aware of a non-binding Australian Taxation Office position published on their website. Greatest respect to them, but the position is incorrect in my view. I reason this is because the lost art of statutory interpretation has given way to technology. Furthermore, I cannot help but observe a concerning tendency to shift law making power to the same body that administers that law because of the urgent and unprecedented times. I must insist that this erosion is not acceptable to me as it damages our democracy and the rule of law.
This potentially erroneous interpretation of the Tax Office is the perfect example of why a tax specialist cannot accept, without critical thought other bodies interpretations, especially those of the regulator. This is not to say that criticism should be leveled at the regulator. The measures enacted were done with blistering speed and under immense pressure. I commend them for their efforts. In this instance however my view is that their interpretation is incorrect.
The ATO Guidance – How to Determine a Fall in Turnover
The Tax Office guidance from their website appearing on 1 May 2020 in relation to the fall in turnover eligibility criteria is quoted as follows:
“You only need to satisfy this requirement once – you don't need to retest your turnover each month. However, you will be asked each month to tell us your current and projected turnover.”
Thomas Palmieri having read the legislative instrument was very skeptical of this Tax Office guidance. He reviewed the relevant provisions and formed a contrary view. Based on this, he asked me to independently review the provisions as well and express a considered view. I am happy to say he was right.
At first instance, I noted the manner of interpreting this law appeared to stray into being so strained and tortured an interpretation of the rules laid out in the legislative instrument published by the Treasurer, being Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) (the “Rules”) that it would not reasonably be open on the face of the Rules to a skilled practitioner.
ATO Power – Can They Make The Law Anyway?
A convenient starting point is to concede and acknowledge that the Commissioner may be delegated power by the legislative instrument to make his own rules. This power is provided to the Commissioner pursuant to sub-section 20(4) of Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth) as follows:
The rules may make provision in relation to a matter by conferring a power on the Commissioner to make:
- an instrument of a legislative or administrative character; or
- a decision of an administrative character.
I will also leave aside the constitutional and separation of power issues associated with this delegation as they have been well ventilated in previous articles. The relevant scope of the delegated authority of the Commissioner in this regard is outlined pursuant to sub-rule 8(6) Rules as follows:
“The Commissioner may, by legislative instrument, determine that an alternative decline in turnover test applies to a class of entities, if the Commissioner is satisfied that 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 under subsection (1).”
In other words, an alternative turnover test can only be determined directly by the Commissioner where a comparison period for a class of entities cannot be found. To be very clear, the Commissioner does not have the delegated power to change the turnover test itself or how eligibility is to be interpreted under the law. This power does and always will rest with the courts.
The Law – A Lost Art is Found through close reading
The best place to start with any interpretative exercise is both the rules in the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth), Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) and the explanatory memorandum accompanying them.
To cut through the noise, the key eligibility criteria we are evaluating to determine whether the Tax Office has reached a correct interpretation of the law is sub-paragraph 6(1)(b) the Rules which reads:
An entity (the employer) is entitled to a jobkeeper payment for an individual for a fortnight if:
“the employer qualifies for the jobkeeper scheme at or before the end of the fortnight (see section 7); and” [My emphasis throughout]
The reference to section 7 the Rules then reads as follows:
For the purposes of paragraphs 6(1)(b) and 11(1)(c), an entity qualifies for the jobkeeper scheme at a time if:
- on 1 March 2020, the entity carried on a business in Australia, or was a non-profit body that pursued its objectives principally in Australia; and
- the entity has satisfied the decline in turnover test at or before the time (see section 8).
Note: Qualifying entities must report monthly turnover information to the Commissioner for the duration of the scheme: see section 16.”
The decline in turnover test in section 8 of the Rules reads:
An entity satisfies the decline in turnover test at a time (the test time) if:
- the entity’s projected GST turnover for a turnover test period in which the test time occurs falls short of the entity’s current GST turnover for a relevant comparison period (the comparison turnover); and
- the shortfall, expressed as a percentage of the comparison turnover, equals or exceeds the specified percentage for the entity (see subsection (2)).
Finally, the turnover test period is then defined in subsection 8(7) Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth) as follows:
For the purposes of this section:
- the turnover test period must be:
- a calendar month that ends after 30 March 2020 and before 1 October 2020; or
- a quarter that starts on 1 April 2020 or 1 July 2020; and
- the relevant comparison period must be the period in 2019 that corresponds to the turnover test period.
Analysis – VT Critical Thinking
Pursuant to the eligibility criteria at subparagraph 6(1)(b) the Rules, the relevant ‘test time’ is a time at or before the end of a fortnight. On a literal reading, the instrument makes it very clear that this item of the Job Keeper eligibility is required to be tested for every payment of every fortnight. Where this subparagraph is put together in the way it should be read it can be reproduced as follows:
“An entity (the employer) is entitled to a jobkeeper payment for an individual for a fortnight if the employer qualifies for the jobkeeper scheme at or before the end of the fortnight (see section 7);”
To suggest that the time before the end of the fortnight was in an entirely different Jobkeeper fortnight is not a construction of the provisions that can reasonably be supported by a logical reading. This is especially the case where one considers the monthly testing of turnover required under differing provisions of the instrument under section 16 of the Rules. This is because it would leave those reporting provisions with no work to do.
At this point it should be recalled that the Tax Office website is not binding guidance, it is incumbent on tax specialists to therefore interpret these provisions for themselves. The next step in this exercise is to review the explanatory memorandum to Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth) and the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) (“EM”). The Treasurer’s comments in relation to this eligibility test in the EM is as follows:
“Entitlement to a JobKeeper payment is assessed in relation to a fortnightly period known as a JobKeeper fortnight." [My emphasis]
The Treasurer in the EM then goes on to say:
The JobKeeper payment is only available to an employer who qualifies for the scheme. An employer will qualify for the scheme for a particular fortnight if:
it satisfies the following requirements:
– on 1 March 2020, it carried on a business in Australia or was a non-profit body pursuing its objectives principally in Australia;
– before the end of the fortnight, it met the decline in turnover test; and [My emphasis]
Finally, a tax specialist’s common-sense should be employed. The turnover test period in which modified projected GST turnover is tested must be within the relevant calendar month or quarter relative to the fortnight of the claim.
In other words, if you are claiming for a fortnight in June 2020 it makes no sense if you were to use turnover from a prior period to test eligibility as it would not meet the modified definition of projected GST turnover (i.e. the June month or quarter’s turnover). The test must therefore be performed at some time during the relevant fortnight.
Relying on non-binding guidance from the Tax Office is not advisable. The potential for them to issue a liability to taxpayers through reassessment of Job Keeper payments as overpayments is unacceptable to any reasonable tax practitioner, all due respect to the regulator. I also note that BAS agents have been empowered to assist clients in relation to these provisions by the Tax Practitioners Board (“TPB”). I mean no disrespect to either BAS agents or the TPB, however this fact does not in my mind shift the duty of care tax practitioners owe to their clients in relation to these measures.
The need to have a sustained turnover reduction over the relevant months or quarters to be eligible for any one fortnight is critical to claim these concessions. When advising clients ensure it is done based on binding interpretive decisions or in accordance with your own construction of the relevant laws. Also ensure you have the experience and expertise to advise the client and independently assess the provisions.
Remember the emperor with no clothes never had clothes. This was regardless of what everyone else said and the people who said he did have clothes on? They were always wrong even before the emperor realised this.