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  • Modified basic test for group employer entities

    You may be eligible to apply this modified test if you:

    • do not satisfy the basic test, and
    • supply employee labour services to members of your consolidated, consolidatable or GST group.

    When using the modified basic test for group employer entities to work out your actual decline in turnover it applies in a similar way as the original decline in turnover test. The five-step method still applies. The differences for the actual decline in turnover test are:

    • Step 1: the turnover test periods are the relevant quarters (September 2020 or December 2020)
    • Step 2: the relevant comparison periods are the corresponding quarters in 2019 or alternative comparison period
    • Step 3: current GST turnover is used for the turnover test period instead of projected GST turnover. Current GST turnover for each test member must be worked out based on the GST accounting method that applies to that entity as outlined in Step 3 of the actual decline in turnover basic test.
    • Step 4: If you are a large group, depending when you applied the original decline in turnover test, you may need to determine your aggregated turnover for the 2019–20 and 2020–21 income years. Then, you can determine which percentage your modified turnover needs to decline by to satisfy the actual decline in turnover test. For example, if your aggregated turnover now exceeds $1 billion. Otherwise your shortfall percentage should be the same.

    More details of how to calculate your aggregated turnover are in step 4 of the actual turnover test.

    • Step 5: remains unchanged from the original decline in turnover test.

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    Conditions you must meet

    You must satisfy all the following conditions in order to apply this modified test.

    • You are a member of a consolidated group, consolidatable group or GST group (your group).
    • You supply employee labour services to one or more members of your group – each of these other members of your group is a test member.
    • Your principal activity is supplying the test members of your group with services (employee labour services) consisting of the performance of work by individuals that you employ. See Your principal activity.
    • You do not supply employee labour services to entities that are not members of your group in the turnover test period (disregarding supplies that are merely incidental to your principal activity).
    • In the turnover test period in which the test time occurs, both of the following apply  
      • There are one or more test members of your group that receive employee labour services from you.
      • The principal activity of the test members is making supplies to entities that are not members of your group.
       
    • You would meet the decline in turnover test under the basic rules if you use your group turnover test.
    • The Commissioner has not made a determination that the modified decline in turnover test for group employer entities does not apply to you. See Commissioner’s determination.

    The modified basic test for group employers covers:

    • members of a consolidated group
    • members of a consolidatable group
    • members of a GST group.

    Multiple entry consolidated (MEC) groups do not fall within the definition of a consolidated group or consolidatable group. However, members of an MEC group that have formed a GST group may be eligible where the other conditions are satisfied. That is, an employer entity in an MEC group that supplies employee labour services to one or more of members of its GST group can apply the modified basic test for group employer entities.

    Your principal activity

    Your principal activity must be supplying other members of your group with employee labour services consisting of the performance of work by the individuals you employ. In other words, the supply of employee labour services to test members must be the main or predominant activity that you carry out in your business operations.

    Further, you cannot supply employee labour services to entities that are not members of your group in the turnover test period (disregarding supplies that are merely incidental to your principal activity).

    If you supply other services to your group (such as leasing property) these services must not be your principal activity.

    If you provide other services outside your group these other services must not be your principal activity. That is, you must not be an operating entity of the group and you must provide no more than incidental or insubstantial services outside your group. Your principal activity must therefore be providing employee labour services to your group members.

    GST turnovers for test members of the group you supply employee labour services to

    Your modified GST turnover test is still based on GST turnover, but there are some changes to the definition of current GST turnover. For example, intra- group supplies are included.

    In this calculation, you also use the GST turnover of the test members instead of your GST turnover as the employee labour services entity. The requirements to qualify as a test member are set out above. That is one of the conditions being the test member's principal activity must be making supplies to unrelated external parties. This is important in determining which members of your group can be used to work out the relevant GST turnover under this test.

    Your GST turnover under this modified test will be the sum of the GST turnovers of the test members. This means you need to determine, for the:

    • turnover test period, what the current GST turnover will be for each of the test members in that turnover test period and add them together
    • comparison period, what the current GST turnover in 2019 will be for each of the test members in that comparison period and add them together.

    If you are part of a consolidated group, consolidatable group or GST group, you can choose which group you want to apply this modified test to.

    You should only apply this test to the test members who are in the group you choose. You must keep record of which group you chose and details of their GST turnovers.

    Example 1 – working out current GST Turnover

    FitnessCo operates a gym and a home meal delivery service through two separate entities and is working out its current GST turnover for the relevant comparison period.

    The meal delivery service is operated by Fitmeal Co and the gym is operated by Fitgym Co. The employees who work for both subsidiaries are employed by Fitstaff Co (the employer entity). Both subsidiaries are 100% owned by Fitness Co who has formed a GST group consisting of its subsidiaries. As Fitstaff Co supplies employee labour services to both Fitmeal Co and Fitgym Co, the test members will be Fitmeal Co and Fitgym Co.

    FitnessCo recorded the following transactions in the September 2019 quarter:

    • Fitgym Co has gym membership fees excluding GST $10 million
    • Fitmeal Co has sales of home delivered meals excluding GST $5 million
    • Bank interest $3 million

    The current GST turnover for Fitstaff Co for the relevant comparison period would be $15 million. The bank interest is excluded. The total gym membership fees and home delivered meal sales are included and are exclusive of GST.

    The current GST turnover for Fitstaff Co for the September 2020 quarter would similarly be the sum of the current GST turnover for both Fitgym Co and Fitmeal Co in that quarter.

    End of example

    Alternative turnover test

    If a test member does not have an appropriate comparison period and the alternative turnover test applies to them, then you can use the alternative turnover test to work out that test member’s current GST turnover for the relevant comparison period.

    For instance, if a member of the group was established during the last 12 months, you would use the comparison period for that test member under the alternative test rules.

    Determining if GST turnover has declined by the specified shortfall percentage

    When you are using the modified test for groups, you work out the percentage that your turnover has declined based on the shortfall of the sum of the current GST turnovers for the test members in the turnover test period, as compared to the sum of the current GST turnovers for the test members for the prior comparable period.

    You don’t include your current GST turnover in this calculation. If the shortfall percentage is greater than or equal to the specified percentage, you satisfy the decline in turnover test.

    Example 2 – Large business fails the basic test and opts to use the modified test for group employer entities

    Gentle Co operates a clothing retail business. Gentle Co expanded its business in 2014 by purchasing another company called Linen Co, which manufactured and sold electronic items through its online store. Both of these companies use a service entity that solely supplies labour (Employee Co).

    All three of the companies are subsidiaries of Johnny Co who has formed a tax consolidated and GST group. Johnny Co does not make supplies external to the group. Employee Co tests if it satisfies the actual decline in turnover test for the September 2020 quarter.

    The relevant turnovers of the two entities are:

    • Gentle Co    
      • Annual turnover (2019–20 year) $750 million
      • Current GST turnover (September 2019 quarter) $300 million
      • Current GST turnover (September 2020 quarter) $30 million
       
    • Linen Co  
      • Annual turnover (2019–20 year) $500 million
      • Current GST turnover (September 2019 quarter) $150 million
      • Current GST turnover (September 2020 quarter) $120 million
       

    Step 1: Identify the turnover test period

    For the actual decline in turnover test Employee Co must consider the September 2020 quarter.

    Step 2: identify the relevant comparison period

    The September 2019 quarter is Employee Co's comparison period.

    Step 3: work out the relevant GST turnover

    For the purposes of this step, Gentle Co and Linen Co are both test members, as Employee Co supplies both with employee labour services.

    When calculating current GST turnover, both Gentle Co and Linen Co calculate their turnover separately. Once that is done both of their current GST turnovers are added together. In doing so you don’t include the turnover of Employee Co.

    Step 4: determine which shortfall percentage applies

    In calculating the aggregated turnover, they must include all entities that are connected. In this case, this would include Gentle Co, Linen Co, Johnny Co and Employee Co.

    The annual aggregated turnover for Gentle Co, Linen Co, Johnny Co and Employee Co for the 2019–20 income year exceeds $1 billion. Therefore, the higher shortfall percentage rate of 50% applies.

    Step 5: determine whether the GST turnover has declined by the specified shortfall percentage

    They compare the sum of the current GST turnovers for the September 2020 quarter to the sum of the current GST turnovers for the September 2019 quarter for Gentle Co and Linen Co (the test members).

    The sum of the current GST turnovers for the September 2020 quarter is $150 million. The sum of the current GST turnover for the comparison period being the September 2019 quarter is $450 million. The September 2020 quarter turnover falls short of the September 2019 quarter turnover by $300 million, which is 67% of the September 2019 quarter turnover. This is greater than the specified percentage of 50%. Therefore, Employee Co satisfies the actual decline in turnover test and is eligible for the JobKeeper scheme for extension 1.

    End of example

    Commissioner’s determination

    The modified decline in turnover test for group structures cannot be used where we have made a determination that it does not apply to you.

    We only expect to make a determination in rare circumstances. At this time, we have not identified (and are not considering any particular scenario or circumstance) where we would be likely to make a determination.

    You can apply for JobKeeper payments without asking us whether we will make a determination.

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    See also:

      Last modified: 11 Nov 2020QC 63698