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ATO urged to clarify JobKeeper repayments tax treatment

With large corporate firms now beginning to return JobKeeper payments, the Tax Office has been urged to confirm if such voluntary repayments are tax-deductible.

Tax&Compliance Jotham Lian 21 January 2021
— 1 minute read

Last week, Toyota Australia announced it had approached the ATO to return more than $18 million in wage subsidy payments after posting a record fourth-quarter result.

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Super Retail Group has also followed suit, voluntarily returning $1.7 million in JobKeeper claimed for staff at Macpac.

Tax & Super Australia tax counsel John Jeffreys said the ATO should clarify if such voluntary repayments are fully tax-deductible, noting that such confirmation would potentially sway other companies into repaying JobKeeper, which has already cost the government $77 billion.

“It would be grossly unfair for companies that have been assessed on JobKeeper receipts to not be allowed a tax deduction for voluntarily refunding these amounts to the ATO,” Mr Jeffreys said.

“The ATO or the Treasurer should urgently clarify that such amounts are fully tax-deductible — this would be in keeping with the good spirit in which the repayments have been made.”

Mr Jeffreys said that while JobKeeper payments received by a company were considered to be ordinary income and therefore assessable income, the law was less specific about voluntary repayments.

Pointing to general deduction provisions in Section 8-1 of the Income Tax Assessment Act, Mr Jeffreys noted that the first limb test would not likely apply because a voluntary repayment would not produce any assessable income for the business.

He believes, however, that there is potential around the second limb test which allows for deductions for amounts necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

“The debate will concern whether the JobKeeper amounts refunded to the ATO are ‘necessarily incurred’ and, if so, whether the amounts are ‘in carrying on a business’,” Mr Jeffreys said.

“Will the ATO adopt the view that voluntary payments to the ATO are not ‘necessarily incurred’ and thereby be not tax-deductible?

“Also, if the JobKeeper funds held by the company are in excess of needs (which it is assumed they are), the payment by the company to the ATO of the excess JobKeeper amounts may be a ‘loss or outgoing of capital’. If that is the case, one of the ‘negative limbs’ of the general deduction provision will deny the tax deduction.

“Another view the ATO could adopt is that the repayments are a reduction of an amount that was previously assessable to the company. However, there are technical difficulties with that approach.”

ATO urged to clarify JobKeeper repayments tax treatment
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Jotham Lian

Jotham Lian

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.

You can email Jotham at: This email address is being protected from spambots. You need JavaScript enabled to view it. 

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