On 30 March 2020, the Australian Government announced the JobKeeper payment wage subsidy for entities that have been significantly affected by the economic impacts of the coronavirus.
On 9 April 2020, the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (the JobKeeper Rules) were made to establish the JobKeeper scheme and specify details about the scheme, including when an employer or business is entitled to the JobKeeper payment.
The JobKeeper payment is only available to an employer who qualifies for the scheme. One of the exceptions to the qualifying employer provision as stipulated by the JobKeeper Rules is ‘a sovereign entity’. The term ‘sovereign entity’ takes its meaning from the Income Tax Assessment Act 1997 (ITAA 1997) as follows:
Section 880-15 Meaning of sovereign entity
A sovereign entity is any of the following:
- a body politic of a foreign country, or a part of a foreign country;
- a foreign government agency;
- an entity:
- in which an entity covered by paragraph (a) or (b) holds a participation interest of 100%; and
- that is not an Australian resident; and
- that is not a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936.
A careful reading of the meaning of a ‘sovereign entity’ under the ITAA 1997 suggests that where a wholly-owned entity of a body politic of a foreign country or foreign government agency carries on business in Australia and is a resident of Australia for tax purposes, it would fall outside the definition of a ‘sovereign entity’ and therefore potentially be excluded from the exception list of the qualifying employer provision under the JobKeeper Rules.
On 1 May 2020, the Treasurer further modified the JobKeeper Rules by issuing the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 2) 2020 (the Amending Rules No. 2). The purpose of the Amending Rules No. 2 is to refine and clarify elements of the JobKeeper scheme to ensure that it most appropriately supports businesses and employees affected by the significant economic impact caused by the Coronavirus.
The Amending Rules No. 2 make a number of targeted refinements and clarifications to the JobKeeper Rules.
In particular, a technical amendment which clarifies that the exclusion of sovereign entities from qualifying for the JobKeeper scheme applies as if subparagraphs 880-15(c)(ii) and (iii) of the ITAA 1997 were disregarded.
Effectively, this amendment broadens the definition of a ‘sovereign entity’ for the purposes of the JobKeeper scheme so that the ‘sovereign entity’ under the JobKeeper Rules would include all wholly-owned entities of a body politic of a foreign country or foreign government agency regardless of their Australian tax residency. As stated in the explanatory memorandum to the Amending Rules No. 2, this amendment corrects an unintended outcome in the drafting of the JobKeeper Rules which was inconsistent with the intended policy outcome of the JobKeeper scheme.
Note the changes under the Amending Rules No. 2 apply retrospectively from the time of commencement of the JobKeeper Rules when they were registered on 9 April 2020. Australian resident entities of foreign governments that have registered for the JobKeeper scheme prior to the Amending Rules No. 2 may need to consider canceling their registration.
However, where the ownership interest in an Australian entity by a foreign government is not 100%, these entities may still qualify for the JobKeeper scheme, provided all the other eligibility criteria are met.
This would include foreign government ownership in an Australian entity is via an intermediate holding company which is listed on a stock exchange in a foreign jurisdiction, as commonly seen in the ownership structure of Chinese State-owned Enterprises operating in Australia,
For more information
If you are an employer with a foreign government ownership interest and you require assistance in determining your eligibility for the JobKeeper payment, including assistance in determining the reduction in revenue and eligibility for other COVID-19 and ATO administrative measures, please contact your local RSM adviser.