Full expensing of plant and equipment and the ability to carry back losses are two measures introduced in the budget with the aim of encouraging businesses to invest and accelerate economic growth after the COVID-19 crisis.
But speaking at an event hosted by the Australian Financial Review, ATO second commissioner Jeremy Hirschhorn expressed his concern over businesses turning to “artificial mechanisms” to take advantage of these measures.
“These measures should be embraced, but for the purpose for which they were introduced. Invest in new plant, upgrade your facilities, claim a tax offset and reinvest the money in your business and jobs!” Mr Hirschhorn said.
He also advised financial officers to do the right thing and refrain from artificially shifting profits and losses around their group to access the loss carry-back.
“At a more granular level as CFOs, make sure your business analysts are including these tax cash flow advantages in your DCF models, in conjunction with your heads of tax making appropriate variations to your tax instalments to bring home that cash flow advantage,” Mr Hirschhorn said.
“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.”
Speaking about the “weighty” responsibility entrusted on the business community to recover the post-COVID economy, Mr Hirschhorn urged businesses to “follow the tax law, but also follow the spirit of the law”.
“I suspect the community will have even less sympathy for companies seen to be exploiting loopholes.”
Mr Hirschhorn further urged entities to consider the optics of “making a statement in your annual report noting that the pandemic has not substantially impacted the operations of your business while at the same time collecting hundreds of millions of dollars in stimulus”.
“You have been entrusted by the government with leading the economic recovery with a range of stimulus measures,” he said.
“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.”