12 Nov 2020 This week in tax
JobMaker Hiring Credit: The younger sibling
This week, our Senior Advocate, Robyn Jacobson, CTA, discusses the new JobMaker program announced in the Federal Budget 2020–21.
Concept and context
The new JobMaker Hiring Credit (JobMaker) was announced on 6 October 2020 as part of the Federal Budget 2020–21. Under the program, which is designed to accelerate employment growth, the Government will provide $4 billion to encourage businesses to take on additional employees they may otherwise not have engaged, by providing a hiring credit to eligible employers. The program aims to provide young people with access to new employment opportunities as the economy recovers from the effects of the COVID-19 pandemic.
Australia has officially entered its first recession in 29 years, but lessons were learnt from the 1990s’ recession. Significant economic downturns disproportionately affect young people, particularly given their high participation rates in the hospitality, tourism and arts industries. They are often among the lowest income earners and are the slowest age group to recover and become re-engaged in the workforce when compared with older workers.
The Coronavirus Economic Response Package (Payments and Benefits) Act 2020 establishes a framework for the Treasurer to make rules (in the form of legislative instruments) about the kinds of payments the Government can make in order to provide financial support to entities to assist with the impact of the COVID-19 pandemic.
The Economic Recovery Package (JobMaker Hiring Credit) Amendment Bill 2020 (the Bill) proposes to amend the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 to enable the Treasurer to make rules to provide for another kind of coronavirus economic response payment. The new JobMaker program follows in the footsteps of its older sibling, the JobKeeper program. The JobSeeker program completes the trifecta in the series of the Government’s job-related stimulus initiatives. As well as enabling the implementation of the JobMaker program, the Bill extends the date by which the Government can make such stimulus payments in relation to a prescribed period (currently no later than 28 March 2021) to 6 October 2022. At the time of writing this preamble, two Senate amendments on 10 November 2020 were not agreed to by the House of Representatives on 11 November 2020. The Senate did not insist on its amendments so the Bill has passed both Houses and awaits Royal Assent.
A draft legislative instrument, the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 9) 2020 (draft Rules), together with a draft explanatory statement, was released for comment on 30 October 2020. It proposes to amend the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 to establish, and specify details about, the JobMaker program.
The rules explained
An entity (an employer) is entitled to JobMaker for a period if it satisfies all of the following conditions:
- The period is a JobMaker period: JobMaker periods are three-monthly periods starting on 7 October 2020 and ending on 6 October 2022. Accordingly, there are eight JobMaker periods as follows:
- JM1 — 7 October 2020 to 6 January 2021;
- JM2 — 7 January 2021 to 6 April 2021;
- JM3 — 7 April 2021 to 6 July 2021;
- JM4 — 7 July 2021 to 6 October 2021;
- JM5 — 7 October 2021 to 6 January 2022;
- JM6 — 7 January 2022 to 6 April 2022;
- JM7 — 7 April 2022 to 6 July 2022; and
- JM8 — 7 July 2022 to 6 October 2022.
- The quarterly dates are awkward but stem from the date of announcement, rather than aligning with existing activity statement/quarterly tax period or similar dates.
JobMaker periods run until 6 October 2022, however the maximum period that an employer can claim JobMaker for an eligible employee is up to 12 months. This allows an employer to claim JobMaker for a full 12 months where a new job is created, for example, on 6 October 2021.
- Employer qualifies for the JobMaker period: The employer must:
- Elect to participate in JobMaker;
- Carry on a business in Australia (or be a deductible gift recipient or a non-profit body that pursues its objectives principally in Australia);
- Have an ABN;
- Be registered for PAYG withholding;
- Have lodged all of its income tax returns and activity statements that were due in the two years immediately preceding the time of the JobMaker claim;
- Not be subject to the major bank levy (or be a member of a consolidated group that is), a Commonwealth, state or local government agency (or an entity wholly owned by such an agency), a sovereign entity, in liquidation or have entered bankruptcy; and
- Not be entitled to receive a JobKeeper payment in respect of an individual for a JobKeeper fortnight that begins during the JobMaker period. However, an overlap rule permits an entity to end its participation in JobKeeper where the JobKeeper fortnight ends during a JobMaker period.
- Additional employees: The employer must take on one or more additional employees who:
- Commenced employment with the employer between 7 October 2020 and 6 October 2021 (inclusive), and no more than 12 months before the start of a JobMaker period;
- Received Parenting Payment, Youth Allowance (Other) or JobSeeker for at least 28 consecutive days during the 84 days (i.e. 4 out of 12 weeks) before they commenced employment with the employer;
- Are aged 16 to 35 years at the time they commenced employment with the employer;
- Work an average of at least 20 hours per week in each week that they are employed by the employer during a JobMaker period. Employers will need to keep adequate records to show the hours worked;
- Give the employer a notice that they satisfy the age and pre-employment requirements;
- Confirm they have not given another entity a notice that they wish to participate in the JobMaker program (a notice ceases to have effect if the employee ceases employment with an employer, and they can re-nominate with their new employer); and
- Are not ‘excluded employees’. Excluded employees include:
- Broadly, relatives of sole traders and partners, shareholders in or directors of companies (other than widely-held companies), trustees or beneficiaries of trusts, and the relatives of such shareholders, directors, trustees or beneficiaries. The specific exclusion depends on the entity making the JobMaker claim;
- An individual who, in the six months from 6 April 2020 to 6 October 2020, was engaged by the entity as a contractor or subcontractor where they worked in a substantially similar role or performed substantially similar functions or duties.
- Headcount increase: The entity’s total employee headcount must increase by reference to the number of employees employed by the entity on 30 September 2020 (the baseline headcount). This ensures that employers do not simply replace existing employees with new employees who are eligible for JobMaker. For the first four JobMaker periods (JM1 to JM4), the headcount is taken as at the end of the period. A more complex modification for the last four JobMaker periods (JM5 to JM8) also references the corresponding period a year earlier to ensure there is no incentive to replace a new eligible employee after 12 months with another new eligible employee.
- Payroll increase: The entity is required to increase its total payroll amount to prevent employers from manipulating the payroll (for example, reducing the hours of an existing older employee) to satisfy the requirements to be eligible for JobMaker. The total payroll in a JobMaker period is compared with the baseline payroll amount, based on a reference period ending on or immediately before 6 October 2020. The number of pay cycles that end within the JobMaker period (this may vary from one JobMaker period to the next) determines the number of equivalent pay cycles in the reference period. Amounts included in payroll for this purpose mirror the types of payments that qualify for the JobKeeper ‘wage condition’.
- Headcount amount: Employers are also required to determine the ‘headcount amount’, which is designed to ensure that the maximum amount is payable to employers where there are periods of partial employment, thus saving the employer from having to determine the most efficient combination of eligible employees within their headcount for a period. The amount of JobMaker is the lesser of the headcount amount and the payroll amount for a period.
- Makes a choice to participate: The employer notifies the Commissioner by the end of the JobMaker period of their choice to participate in JobMaker.
- The employer provides the necessary information: The employer is required to give to the Commissioner certain information (as determined by the Commissioner by way of legislative instrument).
Some further issues
The amount of JobMaker depends on the age of the eligible new employee at the time they commenced employment with the employer:
- If the employee is aged 16 to 29 years — the higher rate of up to $200 per week applies;
- If the employee is aged 30 to 35 years — the lower rate of up to $100 per week applies.
Employers must elect to participate for the first JobMaker period by 6 January 2021. If an employer does not wish to register until a later JobMaker period, then they will be required to elect to participate in JobMaker by the end of that later period. Employers do not need to be registered at the time that they hire an employee in order to be eligible for JobMaker. Registration can occur at any time before a claim is made. It is expected that employers will be able to register later this year.
Employers will be able to claim JobMaker quarterly in arrears from the ATO. A Treasury fact sheet indicates that JobMaker claims can be submitted from 1 February 2021, although the Rules do not seem to specify a particular date.
Existing s 19 of the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 may be applied to arrangements entered into for the sole or dominant purpose of obtaining, or increasing the amount of, a JobMaker payment. This rule exists as the meaning of ‘tax benefit’ in s 177C of Part IVA of the ITAA 1936 is not broad enough to include a JobMaker benefit.
Employers will be required to repay any overpayments of JobMaker, which could arise where the entity was not entitled to any of the payment or received a greater amount than they were entitled to.
The Commissioner will issue a legislative instrument setting out the types of information that employers need to provide, the timing of that reporting, and how this information should be provided. The Commissioner will also specify that certain information must be provided through Single Touch Payroll reporting. The Commissioner’s legislative instrument, and practical ATO guidance, will be issued once the Treasurer’s Rules are registered.
Many of the key features of the JobMaker program mirror that of JobKeeper, such as the requirement to meet a range of eligibility conditions, having to register for the scheme with the ATO, regular (quarterly) reporting, and receiving payments in arrears.
While the key element of JobKeeper — satisfying a decline in turnover test — does not feature in the JobMaker program, the concepts of headcount increase, headcount amount, payroll increase and payroll amount are complex and may be challenging for some employers and practitioners to comprehend. Depending on how the program is administered, JobMaker may not have as wide an appeal or application as JobKeeper. Separately, small- and medium-sized employers can still access the apprentice/trainee wage subsidy equal to 50% of an eligible apprentice or trainee’s wages paid until 31 March 2021.
ATO guidance is needed to clarify the tax treatment of JobMaker payments, that is, whether they:
- Are subject to GST;
- Constitute ordinary income that is included in the entity’s assessable income; and
- Form part of the entity’s aggregated turnover.
Our members may find it beneficial to refer to the detailed worked examples set out in the draft Explanatory Statement. In the interest of space, these have not been reproduced within this preamble.
As always, we welcome your views and thoughts, which you can provide here.
Robyn Jacobson CTA