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To Hell and back: The untold stimulus journey, warts and all

Deservingly, health workers were appropriately singled out and acknowledged for their efforts during the height of the pandemic. The silent heroes working in the background were the army of accountants. Our profession can take a bow and I am proud of the way we responded helping clients during this difficult time. Members understandably find it difficult to switch off when clients are experiencing difficulties and as their trusted adviser, put their clients’ needs in front of their own

To Hell and back: The untold stimulus journey, warts and all
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  • Tony Greco
  • August 21, 2020
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The demand on accountants was confirmed by the ABS, which recently released data on businesses seeking COVID-19 related advice. It says: Three out of five (60 per cent) Australian businesses sought external advice in response to COVID-19. Businesses were most likely to seek advice about government support measures (86 per cent).

Accountants heavy lifters also providing emotional support

Accountants had to do the heavy lifting in helping clients navigate the government stimulus measures put in place to mitigate the adverse implications of COVID-19 restrictions. Most had to put aside their normal compliance work and direct all resources to helping clients access the cash flow boost and JobKeeper packages. Both of these initiatives accounted for the bulk of the federal government’s stimulus measures and were delivered through the tax system.

Accountants found themselves caring for anxious staff and clients, all while trying to keep their own businesses afloat. Accountants were inundated with clients seeking advice on how to deal with the impacts of COVID-19 on their businesses and assisting them to navigate the relief measures. The ripple effect of the coronavirus pandemic was huge, sending consumer and business confidence to record lows. The economic uncertainty had taken an emotional toll on both business owners and the accountants servicing them. At the height of the social distancing restrictions and business closures to curb the spread of coronavirus, client sentiment turned from feeling mildly nervous to deeply distressed.

Most businesses took a significant hit to revenue and cash flow. Accountants found themselves not only as business advisers but providing much needed emotional support.

Accountants were challenged trying to work out what advice they should be giving their clients not knowing what the future looked like. The restrictions put even the most resilient businesses in financial stress. Dentists, for example, who could not perform procedures unless they were considered an emergency, saw revenues fall off a cliff.

Non-billable hours skyrocketed

Accountants put the health of their practice on the backburner as non-billable hours suddenly skyrocketed and the focus turned to helping their clients get through the immediate impacts of the crisis. Most practitioners willingly provided advice not knowing whether the client would survive the lockdown. Obtaining a strong understanding of the stimulus measures in the short time available challenged all accountants, putting more pressure on billable hours. Practitioners had no choice but to immerse themselves in understanding JobKeeper.

This effort in understanding the eligibility criteria around the stimulus measures added to their existing workloads. Most accountants were spending up to half a day reading just to keep on top of potential tax impacts on clients. It was that fluid. They would wake up each day to something new as the guidance was being developed in real time. One upside is that accountants have a better understanding of their clients’ businesses, providing the opportunity to expand the services they can provide their clients in addition to compliance work going forward. In addition, clients will remember the assistance provided, which will hopefully make that client a very sticky one wetted to the firm which supported it when times turned sour.

Accounting bodies and the ATO

The accounting bodies were quick to recognise the added workload and requested blanket deferrals from the ATO for the 2019 lodgment program. The accounting bodies were appreciative of the ATO responding positively to our requests, understanding the heavy load placed on our profession. The ATO was thrusted into the stimulus arena becoming the Centrelink of the business world. No other agency could have coped with the demands placed on its shoulders. Full credit goes to the ATO in putting together the infrastructure required to pull off something of this size in such a short period. Its focus of being a tax collector turned to that of being a COVID-19 cash dispensing lifeline for distressed businesses. With only minor hiccups, it managed to provide the necessary service delivery standards expected under enormous pressure.

The cash flow boost was essentially an automatic process, however not so for JobKeeper. The cash flow boost applied automatically to businesses that lodged their business activity statement (BAS) or instalment activity statement (IAS). JobKeeper on the other hand was much more labour intensive as it required lots more advice, hand holding and assistance.

Government response – go hard, go early

The government responded quickly and decisively throughout the crisis. Go early and hard was the catch cry. The size of the stimulus measures namely cash flow boost and JobKeeper and the speed of implementation certainly lived up to the rhetoric.

Looking back at what unfolded, it is easy to unpick some of the less than ideal aspects of the cash flow boost and JobKeeper initiatives. Taking nothing away from the government, these initiatives did not have the luxury of a normal consultation process. JobKeeper, for example, was announced on 30 March and legislation followed in less than 10 days.

There was simply no time to waste to deal with the evolving consequences of the pandemic. The government had to act quickly, and we applauded the speed of delivery and fully understand the predicament it was facing. Particularly, just prior to the JobKeeper announcement where long queues were forming outside Centrelink offices. I will never forget that image. Once JobKeeper was announced it provided a welcome security blanket over the entire economy and more importantly slowed the number of employees being laid off in response to the pandemic.

JobKeeper managed to lower anxiety in the community and bought valuable time for the government to focus on dealing with the health issues and recovery measures. We should be proud as citizens that we live in a country that values human life and put in place the necessary measures to limit the number of deaths associated with the pandemic.

While the economic costs of the restrictions will be huge and something future generations will be paying back over an extended period; history tells us that it was right call.

Cash flow boost

The policy intent was to provide temporary cash flow assistance to entities who employed staff during the economic downturn associated with COVID-19. Eligible businesses and not-for-profits (NFP) could receive between $20,000 to $100,000 in cash flow boost amounts based on the amount of tax withheld from payments such as wages. Only genuine employment relationships were recognised with some odd exceptions (see below).

Some of the issues that caused concerns are:

  • The cash flow boost only recognised wages resulting from a genuine employment relationship. Only bona fide arrangements counted. If an employer paid wages there would be super obligations, workers compensation insurance, tax withheld and STP reporting. This is what a bona fide employment relationship looks like. An active participant in a business that was remunerated via dividends, partnership profits or trust distributions instead of wages, meant that the entity was not eligible for the cash flow boost. We received a lot of feedback from members on this issue and the consensus among our members was that it was unfair. We lobbied government to no avail, however this feedback did result in JobKeeper reach being extended to cover active participants in the business who were not remunerated via wages, so all was not lost. The IPA cautioned members to resist client pressure to backdate PAYG withholding arrangements to re-arrange remuneration practices. We hope our alerts have been heeded as the ATO has not processed cash flow boost to entities that attempted to backdate arrangements, sending please explain letters to clients’ tax agents.
  • Lack of access to cash flow boost for new businesses and start-ups. It is an inequitable outcome where the cash flow boost for identical businesses starting on the same day can differ simply due to the election of a particular BAS reporting cycle. The following scenarios illustrate losses due to this anomaly:
    • New businesses that have commenced from 1 January 2020, and who are registered for GST on a quarterly cycle;
    • New businesses that have commenced from 1 July 2019, and who are not registered for GST or are registered for GST on an annual cycle; and
    • R&D companies that employed staff also missed out as they did not make any sales.

Odd inclusions

While generally only available to employers who paid wages, if an entity employed contractors that had entered into voluntary withholding arrangements, then this also entitled the entity to receive cash flow boost. Similarly, if the entity earned personal services income (PSI) that was attributed to the individual due to failing the personal services income tests, it was originally not entitled to the cash flow boost. On 15 June 2020 (Treasury Laws Amendment (2020 Measures No.3) Bill 2020), the rules were changed so that entities that failed the PSI tests would now be eligible. The rationale for the inclusion is that entities that fail the PSI rules, are still carrying on a business.


The JobKeeper Payment scheme is also a temporary subsidy for businesses significantly affected by coronavirus (COVID-19). Eligible employers, sole traders and other entities can apply to receive $1,500 per eligible employee per fortnight. This stimulus measure recognised active participants in a business that were not remunerated via wages, addressing one of the major concerns with the cash flow boost. Some of the design features of JobKeeper were its design faults. The government had to strike the right balance between maintaining integrity and simplicity. Anything overly complex would not have been capable of implementation in the time frame required, so it is understandable that there were tradeoffs in the system design.

  • Fixed amount of wage subsidy - JobKeeper provided a flat $1,500 per fortnight per employee, which represented 70 per cent of median wage (100 per cent for tourism, hospitality and retail). It was designed to be simple and egalitarian (treating all employees the same whatever they earned). This means some employees will receive more money than what they were previously paid. Many small businesses encountered significant operational issues managing this aspect of the scheme. Most other countries around the world that introduced a wage subsidy based it on a percentage of the employee’s wage subject to an upper limit. It was estimated that one in five recipients received more money through the wage subsidy while 48 per cent received less and 33 per cent essentially roughly the same amount.
  • Cash flow issue – A key design feature of JobKeeper was that it was essentially a reimbursement scheme. For the employer to be eligible, it had to meet a wage condition, which essentially meant that eligible employees had to be paid at least $1,500 before the employer became entitled to reimbursement. This payment in arrears created huge cash flow issues for employers, causing the government to call in the banks to provide temporary funding. While this helped, it did not alleviate the cash flow issues particularly for smaller entities. Some employers did not sign up for JobKeeper or reduced the number of employees on their payroll due to cash flow concerns by not reinstating all retrenched or dismissed workers. Take the case of an employer who has a large, long-term casual workforce that earned less than $1,500 a fortnight. To go into JobKeeper, they would need to top up those workers to $1,500 a fortnight and have to fund it in the meantime until they were reimbursed by the ATO.
  • GST turnover debacle - The law sets out that GST turnover is the value of supplies made in the relevant period including GST-free supplies but excluding input-taxed supplies. Prior to the release of LCR 2020/1, the ATO’s website guidance, tweaked multiple times in a matter of weeks, failed to make it clear that the cash and accruals methods were concessionary methods, and did not make this clear until the release of the LCR. The LCR makes it abundantly clear that the law requires the taxpayer to allocate supplies made to each relevant period and then work out the value of the supply, and that accruals, cash and other accounting methods are practical, concessionary, fallback alternatives.
  • Active participants - While JobKeeper recognised active participants in a business who were not remunerated through wages, only one active participant qualified for JobKeeper. Only one partner, beneficiary, or director per business entity.
  • Certain structures are problematic – Small businesses established as unit trusts and where the units are owned by one or more discretionary trusts, these were unable to access either JobKeeper or the cash flow boost. The individual must be the direct beneficiary of the unit trust. In respect to partnerships, only one partner could qualify. If the partners provided the same services as independent sole traders, both would qualify for JobKeeper.
  • Students with part-time jobs - Students aged 16 and 17 with part-time jobs were originally included in JobKeeper and were eligible for up to $4,500 of JobKeeper money. As from 11 May, for 16 and 17-year-olds to remain eligible employees, they needed to be independent or not in full-time study. Their original inclusion was questioned from the outset.
  • Short-term casuals – The JobKeeper scheme did not cover short-term casuals (<12 months) and some visa holders.
  • ‘All in’ principle – The ‘one in, all in’ principle created confusion initially as there was nothing in the legislation that required an employer to include all eligible employees. The policy intent was clear; however, no cherry picking was to be allowed. Once an employer decides to participate in the JobKeeper scheme and their eligible employees have agreed to be nominated by the employer, the employer must ensure that all of these eligible employees are covered by their participation in the scheme. The JobKeeper rules had to be subsequently amended to make this mandatory.
  • Assisting businesses in decline - Decline in turnover did not have to be COVID-19 related. If a business entity was already in decline for structural or bad management reasons, the entity could still be eligible for JobKeeper. JobKeeper does discriminate between viable or non-viable businesses. Similarly, if an entity had divested parts of its business and its comparable turnover in the same period a year earlier included the larger business then no adjustment was required for a decline in turnover calculations as the entity meets the basic turnover test. The alternative turnover test cannot make an entity ineligible where an entity has met the basic test. Another example of a generous feature of JobKeeper.
  • Only test eligibility once – Once an entity satisfies the decline in turnover test, it does not need to retest its turnover for the remaining duration of the JobKeeper scheme. This was seen as a generous aspect of the scheme not to have to re-test eligibility. Those entities who had the requisite decline in turnover or projected turnover early in the scheme remain eligible despite turnover returning to pre-COVID-19 levels in later months.
  • Decline in turnover - For an entity to meet the eligibility criteria, it needed to show the requisite decline in turnover when compared with the same period in 2019. The periods for determining the decline in turnover can be periods of one month or three months irrespective of the entity’s BAS lodgment cycle. Unless you were relying on actual turnover results there was a lot of hesitation around using projected turnover calculations to gain access to JobKeeper. Both clients and practitioners were gun-shy fearing that if their projections were wrong, they would need to repay substantial monies back to the ATO. It was not until LCR 2020/1 and ATO assurances that guesstimates based on the best available information could be relied upon even if the projected turnover figures were wrong when compared with actuals later on. The marketplace needed these assurances, particularly advisers who felt exposed trying to help clients put guesstimates together to qualify for eligibility. The ATO is on record that it will adopt a “sympathetic” and “understanding” approach to businesses making a “reasonable estimate” of their turnover for the purposes of the JobKeeper turnover test. We will hold the ATO to account if their words do not match their actions.
  • Casuals – While it was appropriate to include long-term casuals, the definition was imported from the Fair Work Act. The Fair Work Act referred to casuals as someone employed by the employer on a “regular and systematic basis” during the period of 12 months that ended on 1 March 2020. All of a sudden, practitioners had to understand HR laws that they were very unfamiliar with, and the term regular and systematic created lots of issues trying to come to terms with its meaning.
  • Timelines – A lot of the timelines initially communicated were almost impossible to adhere to. Particularly for the first two fortnights where a lot of entities were trying to make sure they met eligibility criteria that was being developed in real time before enrolling and paying employees the required minimum amount. Hence there were a number of extensions of time to meet the wage condition and allowing tax agents more time to enroll their clients into JobKeeper. Another impossible timeline was the monthly declaration requirement (GST turnover for the reported month and projected GST turnover for the following month), which was required to be made by the seventh day after each month end. Fortunately, a lot of the deadlines were extended at the last minute as the commissioner had some discretion, but this created a lot of anxiety trying to adhere to the original timetable before it was revised.
  • Service entities – the government failed to recognise the role service entities played early in the implementation phase and it was only in early May that this was addressed. In a lot of industries, it is not uncommon to have one entity responsible for employing all the staff for an operating entity or group. The rules were modified by Treasury following intense lobbying by industry groups and professional bodies which sought to have common service entity structure recognised as eligible employers for the purposes of the JobKeeper payment. The rule change addressed the issue for the big end of town (consolidated and GST groups) but the smaller end of the spectrum was left out to dry as the changes were very restrictive.

Fortunately, the ATO came to the rescue with PCG 2020/4. In the PCG the ATO provided examples of service entity arrangements where the commissioner was not likely to commit compliance resources such as where the employer entity reduces a service fee in proportion to the decline in turnover of the main operating entity. If the rule change and ATO compliance guide were not forthcoming it would have left service entities no choice but to undertake major retrenchment of staff.

JobKeeper mid-point review

With any government initiative of this mammoth size, it is entirely appropriate that it remains targeted as we are using borrowed money to help businesses survive the downturn and continue to employ their staff. Businesses that are still in hibernation due to continuing restrictions are a different category and will need ongoing support when JobKeeper ends in September 2020.

The government has now had the opportunity to address some of the things it had no time to consider when JobKeeper was implemented. Too many changes will not be welcomed by the community but addressing some of the anomalies may be warranted.

By the time the review is announced we only have two months of JobKeeper left for the scheme, so the government could easily allow it to run its course warts and all. The Treasurer has the almighty power to tweak the rules as he sees fit and we have seen a number of changes where he has in fact done so.

There is speculation that the $1,500 fixed amount might be adjusted. Another possibility is having entities re-establish their turnover eligibility. When the decline in turnover thresholds were put in place it was in the darkest of times heading into the unknown. The question I ask myself is whether we should still be supporting businesses that have basically returned to normal, so I am a fan of re-establishing eligibility. This way support remains highly targeted to those in need. The other burning issue is how the government continues to support viable businesses that through no fault of their own require ongoing support until the new normal resumes. JobKeeper does not discriminate between a business worth saving and one already in decline and here lies one of the intriguing challenges for policy makers when life support is withdrawn. The number of business foreclosures interestingly has been below the normal rate indicating that the life support provided is prolonging the inevitable. Economists refer to these types of entities as “zombie firms”. ASIC data had revealed a 34 per cent year-on-year decrease in insolvencies since late March.

Not out of the woods – more challenging times ahead

As a final note to all our members, thanks to all the support you have provided to all the small businesses around the country. Your emotional and financial advice reaffirms why accountants are referred to as the “trusted adviser”. The sad reality will be that despite all the efforts our profession has provided during the pandemic, some businesses will not survive once support is withdrawn so some difficult conversations are ahead of us and we are by no means out of the woods.

The pandemic has accelerated certain trends such as the move to online shopping away from retail, the importance of having digital presence, remote working, migration to cloud software, and less need for interstate and overseas travel to name a few. The new normal may make some businesses not viable anymore unless they have already adapted to the new environment. JobKeeper has provided a wage subsidy but unfortunately does not cover many of the fixed costs the business incurs (i.e. rent, overheads etc) so in a lot of cases, debt has accumulated during this slow down period.

While all the banks have deferred repayments and landlords may have helped with rent relief, most businesses will have more debt to service and that’s not including tax debts. The ATO has been very accommodating allowing businesses to defer tax debts, which has only exacerbated the pre-COVID-19 small business tax debt scenario. Entities will be facing liquidity issues especially when government support ends, so it is important for accountants to pre-empt these conversations. 

In some cases, the best advice will be for the business owner to call it a day to prevent more debt being accumulated. An accountant should consider a referral to a turnaround specialist or liquidator may be an appropriate course of action for some clients.

Tony Greco FIPA, general manager of technical policy, IPA

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