Key Points:

• Alternative Tests has passed to support businesses with the potential to be adversely affected by the economic effects of COVID-19
• Explanatory statement notes that the alternative tests will only apply to seven circumstances
• Each of the seven circumstances has its own alternative test

Legislation relating to Alternative Tests has passed to support businesses with the potential to be adversely affected by the economic effects of the COVID-19 coronavirus disease pandemic. The option to use the alternative tests will only kick in if a business cannot satisfy the ‘basic tests’ relating to its decline in turnover.

The explanatory statement notes that the alternative tests will only apply to seven circumstances. These include where an entity commenced business after the relevant comparison period in 2019 or the business did not exist in the relevant comparison period therefore there is no relevant comparison period in 2019.

It will also cover a circumstance where an entity acquired or disposed of part of their business after the relevant comparison period in 2019, and where an entity has restructured part or all of their business after the relevant comparison period in 2019.

Entities who had an increase in turnover by 50% or more in the 12 months immediately before the applicable turnover test period, or 25% or more in the six months immediately before the applicable turnover test period, or 12.5% or more in the three months immediately before the applicable turnover test period, are also be covered.

The alternative test will also cover entities affected by a drought or other natural disasters in the relevant comparison period in 2019, and entities who have an irregular turnover that is not cyclical, such as what can occur in the building and construction sector.

A sole trader or a small partnership, where the sole trader or one of the partners did not work for all or part of the relevant comparison period because they were sick, injured or on leave during the relevant comparison period, and those circumstances affects the turnover of the sole trader or partnership, will also be covered.

Each of the seven circumstances has its own alternative test, detailed in the legislative instrument therefore business owners will need to engage the help of your tax agent to review your position.

“It is only in those circumstances where there is an event or circumstance, be it internal or external to an entity, that is outside the usual business setting for entities of that class which results in the relevant comparison period in 2019 not being appropriate for the purpose of an entity in the class of entities satisfying the decline in turnover test.”

If you have any questions or need advice and clarity specific to your situation, feel free to contact Semmens & Co on 03 8320 0320 for a free consultation.