The ATO has recently outlined its expectations for businesses post-COVID. Overall, it warns companies against using loopholes to obtain benefits from the various government stimulus packages and urged them to follow not only the letter of the law, but also the spirit of the law. Specifically, it reminds taxpayers that measures such as the expanded instant asset write-off and the loss carry-back scheme should not be used in artificial arrangements for businesses to obtain an advantage.
In a recent speech, ATO Second Commissioner of Client Engagement Jeremy Hirschhorn outlined the expectations for businesses, noting that while companies are largely compliant – with 92.5% voluntary compliance at lodgment and 96.3% after compliance activity – the ATO is seeking to increase the percentages to 96% and 98% respectively.
According to the ATO, businesses accessing government stimulus packages should follow not only the letter of the tax law, but also the spirit of the law. It notes, for example, that although there was nothing explicit in the stimulus measure rules that prevented companies from paying executive bonuses or paying shareholders while accessing these benefits, companies are urged to "consider the optics" of such a move. In addition, the other measures encouraging businesses to invest, including the immediate deduction for assets and carry-back losses, should only be used by businesses for the purposes which they were introduced.
Businesses are discouraged from entering into artificial mechanisms to take advantage of the measures – for example, structured transactions where the plant and equipment are not actually used in the business, intellectual property migration with no change in real activity, asset swaps with related parties, and so on. Similarly, loss carry-back should not be used to artificially shift profits (and losses) around company groups.
Further, the ATO encourages companies with complicated tax situations that find themselves under audit to "open communication, engagement and transparency [which] creates space for the parties to work better together to resolve differences and even in circumstances where resolution is not achieved, refine and narrow the issue in dispute".
Corporate taxpayers can use information published by the ATO to compare their performance against those of their peers in relation to income tax. The ATO also urges those taxpayers to use its GST analytics tool, which allows businesses to reconcile financial statements to business activity statements (BASs) – thus identifying and testing appropriateness of variations or differences – and to follow its GST best practice governance guide.
For businesses unsure of the certainty of their material tax positions, the ATO encourages obtaining assurance commensurate with importance. For example, if the tax position the business has taken is a key piece of the corporate infrastructure, then a private binding ruling should be sought. Mr Hirschhorn noted that it is "an unambiguously bad idea to rely on non-detection by the ATO".
Businesses have been entrusted with leading economic recovery with access to a range of government stimulus measures, and with this trust comes increased expectations around corporate behaviour – including tax. Ultimately, Mr Hirschhorn said, a tax system is about underpinning a country's social contract by collecting the revenue that funds its program and services.