WHO BECOMES LIABLE AND WHEN?
It's probably fair to say that never in Australian history have we seen so much Federal and State Government financial support being given to business to help avoid massive job loss and in turn maintain a stable social order-than during 2020. It is probably also fair to say that the current government in its wisdom has taken on unprecedented levels of debt to support this process, which in turn will have to be paid back at some point in time. While this article doesn't focus on where all of the funds will come from, we can already see little veins of recovery processes starting to appear in the Australian Taxation Office's (ATO) media updates, no doubt being pushed along by Treasury.
For example, the government is now looking to the ATO to consider whether any JobKeeper payments have in fact been overpaid and whether these amounts may be clawed back from their recipients which would obviously help to minimise the amount of government debt that will need to be paid back in the future. With this in mind, the ATO has recently released a JobKeeper overpayment article dated 30 November 2020 that gives some guidance as to how the ATO views the recovery process. Without wishing to re-hash the contents of the article, the salient points are as follows.
If an overpayment is identified, one of the following can occur:
- The ATO can decide that the overpayment does not have to be repaid (typically if your client may, for example, have made an honest mistake).
- The ATO can decide that the overpayment must be repaid by your client.
- The ATO can decide that another entity that directly or indirectly benefited from the overpayment is also liable to repay the overpayment. If so, the ATO may pursue the entire repayment from the client, the other entity, or both until the overpayment is repaid in full.
The ATO does go on to explain several examples where overpayments do not need to be repaid. They are:
- Where, in good faith, reliance is placed on an employee's statement made in their nomination notice.
- The payments were fully passed-on to the benefit of the employee.
- The mistake was made early in the JobKeeper process when there was less public guidance on the process itself.
In contrast, the ATO considers the following not to be considered honest:
- Where a fraud was perpetrated by either the JobKeeper recipient or another entity.
- There has been an intentional disregard on the law or recklessness in the application.
- The entity nominated employees, business participants or religious practitioners that should have known it would not satisfy the eligibility requirements.
- The employer has typically not met the wage conditions.
- The entity has been contacted by the ATO about its claim potentially being ineligible and has not taken reasonable steps to check the eligibility before making a claim in the future.
The ATO also points out that this is not an exhaustive list and there may be other circumstances where a mistake is not considered to be honest.
Perhaps this is a fair point in time to suggest that those entities that were clearly insolvent prior to the Omnibus legislation being introduced that took advantage of the JobKeeper payments (and other government incentives) could potentially fall into this category. While there is nothing to suggest that the ATO is focusing their attention on payments made to zombie companies, the ATO's definition certainly appear broad enough to invite this type of claim.
So where to from here?
Well there is no real guidance on whether the ATO will seek to claim a refund of any JobKeeper payments made to a zombie company, nor whether the ATO has the capacity to determine whether the entity was insolvent when receiving the payments, it is fair to say that something must be done to stop the rot. Particularly given the fact that it has the potential to destroy other solvent entities in the process.
As to how the JobKeeper repayments are required to be returned, the ATO has indicated its intention to receive payment over time and with a certain degree of flexibility. As for any administrative penalties, the ATO states that:
"administrative penalties will apply if there is evidence of deliberate actions to get JobKeeper payments that an entity would not have otherwise been entitled to."
Given we're talking about $130 billion in JobKeeper payments made by the Federal government to date, don't be surprised if some of your clients get a tap on the shoulder inquiring as to their eligibility as time goes on. Also, what that actually means in terms of how the ATO will deal with JobKeeper payments made to zombie companies (if anything) will be interesting to watch.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.