Appearing before the Administrative Appeals Tribunal, the chartered accountant and registered tax agent — whose identity has not been disclosed — had sought to overturn an earlier ATO decision which found that he had entered into a scheme with the sole or dominant purpose of obtaining the maximum $50,000 initial cash flow boost.
The AAT heard that the accountant had consistently received wages from the company of $100 each week for over five years, with the company distributing its profit by way of franked dividends to a trust, of which the accountant was a beneficiary.
Following the announcement of the cash flow boost stimulus measure in early March 2020, the company reported in its BAS wages of $108,700, comprising 12 weekly wage amounts of $100 and one week’s wage of $107,500.
This incurred a PAYG withholding liability of $50,009, qualifying the company for the maximum cash flow boost of $50,000.
The accountant told the AAT that the drastic increase in wages was not solely motivated by the cash flow boost, but to enhance his borrowing and refinancing capacity as banks looked upon wages more favourably compared to dividends.
He failed, however, to produce any specific evidence of conversations with his bank to increase his wages by over $100,000.
The tribunal was not convinced by his explanation, noting that it was not credible for a bank to look favourably upon a one-off payment of wages in excess of $100,000 for a single week, in substitution for an identical level of dividend income.
“The director is not an unsophisticated man. He is a practising chartered accountant of some years standing,” said AAT senior member Robert Olding in his judgment. “It would defy common sense to accept that he caused the applicant to make an extraordinary one-off payment of this order, as wages for a single week, mainly for the purpose of encouraging a bank to extend finance on the basis that the director was in receipt of significant wages.
“This impression is only confirmed when one considers that, if the increased wages had been spread over a longer period, the director would not have caused the applicant to incur a PAYGW obligation of $50,009.
“The long-established previous pattern of reported wages, the timing of the extraordinary payment said to have been made, and that it would give rise to a PAYGW obligation of a mere $9 over the amount required to qualify for the maximum CFB, point to the scheme being for the dominant purpose of obtaining the CFB. It was almost inevitable this would lead to ATO scrutiny.
“In those circumstances, even if refinancing considerations also played a part as the director asserts, I am not persuaded that the one-off large wage payment for a single week, if indeed it was made, was other than for the dominant — in the sense of the ‘most influential’ — purpose of the applicant becoming entitled to the CFB.”
Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.