New ATO rules see ECEC services eligible for JobKeeper

Jason Roberts

Apr 22, 2020

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The Australian Tax Office (ATO) has confirmed a new ruling that will enable nearly all early childhood education and care (ECEC) services that received the ECEC Relief Package to now be automatically eligible for the JobKeeper package.

This breakthrough will be particularly important to the many services that were struggling to meet the percentage “decline in revenue” test and were subsequently deemed ineligible for JobKeeper.

Elizabeth Death ELACCA CEO, along with representatives of the Australian Childcare Alliance (ACA) have been working with the Government to address JobKeeper ineligibility challenges experienced by ECEC services which ran contrary to the original intentions of the ECEC Relief Package announced in March.

Commenting Ms Death said “Whilst the ECEC Relief Package was developed in lock step with the JobKeeper payment package, due to the diversity of business models some providers were unable to gain access to Jobkeeper” and that “the response from the ATO should now enable more than 95 per cent of providers across Australia” to be eligible.

Paul Mondo President of the ACA said “The decision by the ATO provides a sense of relief for the sector and ensures that the ECEC relief package and JobKeeper can work together as intended.”

That being said, there will still be a number of service types such as those operated by Local Government and Independent Schools and a number of providers who are parts of larger organisations such as Uniting who even after this ruling will still not be eligible for JobKeepers and as a result will continue to require ongoing advocacy and support to help resolve their circumstances.

Tax classification of ECEC Relief and Supplementary Payments underpins breakthrough As part of the JobKeeper eligibility requirements a decline in turnover test required for profit and not for profit entities to demonstrate a fall in “GST turnover” even if an entity was not registered for GST.

This requirement therefore meant that any declaration of revenue, regardless of its source, would be classified as GST turnover, including for example revenues received under the ECEC Relief Package and Exceptional Circumstances Supplementary Payment programs.

This classification methodology meant that some services when comparing their April 2020 revenues, which consisted of ECEC Relief Package or Exceptional Circumstances Supplementary Payment, to April 2019 revenues failed the “decline in turnover” tests and were therefore ineligible for JobKeeper.

It was the large cohort of services across the for profit and not for profit divide faced with this challenge that prompted the submissions to Government by the peak bodies.

As a result of their efforts the ATO has now issued a new ruling which determines that any ECEC Relief Package payments or Exceptional Circumstances Supplementary Payment made by the Department of Education, Skills & Employment (DESE) to a ECEC provider will not be classified as consideration for the provision of a taxable supply, which means that the payments themselves are formally exempted from GST.

As a result of this they fall outside the JobKeeper definition of GST Turnover which in turn means that for the purposes of the “decline in revenue” test ECEC services have zero revenue.

The consequences of this means that eligibility to JobKeeper is now automatic for any service that participated in the ECEC Relief Package program.

Peak bodies applaud Government commitment to ECEC during COVID-19 pandemicAlthough the ruling has not yet been made public by the ATO it is understood that they will issue further public guidance on the matter in due course.

Commenting on the Government’s response to the ECEC sector in the face of the consequences of COVID-19 Ms Death said “The Australian Government has made some remarkable decisions in the interests of keeping early learning and care services open to ensure children of essential services workers have confidence their children are in a safe and familiar educational environment during COVID-19.”

Mr Mondo said “We thank the Government for ensuring the passage of this ruling and decisions to provide a package for the sector intended to ensure survival through this crisis.”

“We know that this has been a challenging six weeks for our stakeholders, and these decisions impact each provider differently, but we hope that as the range of policy mechanisms available become a reality that the sector can navigate their way through this difficult period” he added.

Detailed guidance will be provided at the ATO JobKeeper website.

*Please note this article has been amended post initial publication to update for new information received since.

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