ATO sounds warning on companies misusing asset write-off and loss carry-back schemes

The Australian Taxation Office (ATO) has issued a clear warning to businesses and their tax advisors about deliberately misusing the federal government’s expanded asset write-off scheme and the new loss carry-back provisions.

The tax concessions formed a key part of the federal budget earlier this month, with Treasurer Josh Frydenberg billing them as critical support measures to help businesses through the coronavirus recession. 

Legislation for both schemes quickly passed parliament within days of the budget, which means Australian businesses with up to $5 billion in annual revenue can now immediately write-off the full value of all new assets, while incorporated businesses can use the loss carry-back provisions to recover taxes paid on profits last year. 

However, the ATO is concerned some businesses may be tempted to deliberately exploit the tax concessions. 

Speaking at an Australian Financial Review event for chief financial officers on Thursday, ATO second commissioner Jeremy Hirschhorn warned against the use of “artificial mechanisms to take advantage of these measures”. 

Such mechanisms could include “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”. 

“These measures should be embraced, but for the purpose for which they were introduced,” Hirschhorn said. “Invest in new plant, upgrade your facilities, claim a tax offset and reinvest the money in your business and jobs!”

Hirschhorn also advised businesses and financial officers 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,” he said. 

Urging businesses to “follow the tax law, but also follow the spirit of the law”, Hirschhorn also addressed public companies that have paid out dividends after claiming JobKeeper wage subsidies.

Businesses should consider the “optics” of claiming the COVID-19 pandemic “has not substantially impacted the operations of your business while at the same time collecting hundreds of millions of dollars in stimulus”, he said. 

While Hirschhorn acknowledged that 92.5% of Australian companies meet their tax obligations, and 96.3% do so after tax office compliance activity, he said there is still “lingering concern” about large companies continuing to avoid paying tax. 

These companies have been “entrusted” with leading the country’s economic recovery by virtue of the government stimulus measures, he said, but this comes with “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,” he said.