ATO warns businesses not to use loopholes to exploit $30bn Covid tax concessions

The Australian Tax Office has warned companies not to use loopholes to exploit more than $30bn of business tax concessions including instant expensing and loss carryback provisions.

In a speech on Thursday the ATO’s second commissioner for client engagement, Jeremy Hirschhorn, scolded companies for using jobkeeper wage subsidies to pay dividends and urged them not to use “artificial mechanisms” to exploit the measures contained in the 2020 budget.

Hirschhorn told a Chief Financial Officer Live event businesses should use concessions to invest rather than buy assets “not actually used in your business”, raising the alarm about practices like purchasing a company car in fact used as a personal vehicle.

Hirschhorn said that companies should “follow the tax law, but also follow the spirit of the law” to avoid bad “optics” such as stating Covid-19 “has not substantially impacted the operations of your business while at the same time collecting hundreds of millions of dollars in stimulus”.

Hirschhorn noted the 2020 budget contained two new stimulus measures allowing companies to immediately write off the full value of any assets they purchase and to claw back tax already paid against losses to June 2022.

“These measures should be embraced, but for the purpose for which they were introduced,” he said.

“Invest in new plant, upgrade your facilities, claim a tax offset and reinvest the money in your business and jobs!”

Hirschhorn warned companies to “think twice before entering into artificial mechanisms to take advantage of these measures”.

He cited examples such as “structured transactions where the plant and equipment is not actually used in your business, intellectual property migration with no change in real activity [and] asset swaps with related parties”.

The ATO has previously played down concerns that earlier versions of the instant asset write-off could be rorted, despite conceding in Senate estimates in 2015 that ping pong tables for a company’s employees would qualify.

Hirschhorn also warned CFOs not to “artificially shift profits (and losses) around your group to access the loss carry back”.

“Similarly, accessing the loss carry back to support executive bonuses, increased dividends or to repatriate cash to offshore related parties is likely to be viewed poorly by the community.”

Labor has raised the alarm about companies which claimed jobkeeper wage subsidies but later paid large dividends and executive bonuses. The head of the Business Council of Australia, Jennifer Westacott, has agreed companies claiming jobkeeper should not be paying bonuses.

Hirschhorn said the community expects that “large corporates, in particular but not limited to those who accessed [stimulus] schemes, will pay their share and improve their approach to tax”.

Although there was “nothing explicit in the rules” preventing payment of dividends and bonuses, Hirschhorn said there had been “quick backlash for those companies seen to be exploiting the spirit” of stimulus measures.

Hirschhorn said 92.5% of companies comply with their tax obligations while filing returns, rising to 96.3% after ATO compliance activity.

Despite the “globally high level of compliance” there is “lingering concern in the Australian community that large companies are still getting away with tax avoidance”, he said. “Much of this community concern is currently focused on large, mainly tech multinationals.”

Hirschhorn concluded by arguing businesses have “been entrusted by the government with leading the economic recovery with a range of stimulus measures”.

“With this comes increased expectations around corporate behaviour including tax. There is an opportunity to rise to these expectations and increase the community’s trust in large organisations.”