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ATO payment plans come with strings attached

The Australian Taxation Office is likely to be sympathetic to struggling businesses and those that wrongly expected to qualify for JobKeeper. However, it will need convincing documentation to justify its decision-making.

Mark Story | November 2020

The “soft” restart to debt collection flagged by the Australian Taxation Office (ATO) in July 2020 was a wake-up call for taxpayers owing money.

Those claiming an inability to pay primarily as a result of the COVID-19 crisis can expect a more sympathetic hearing from the ATO. However, while the regulator may be open to payment extensions, they now come with strings attached.

According to newly appointed tax controversy partner at Holding Redlich, Sue Williamson FCPA, the ATO now wants greater clarity and understanding of why companies can’t pay, and a future business plan showing how and when they expect to get out of debt.

Williamson, who is also a member of CPA Australia’s Taxation Centre of Excellence, also urges practitioners to prepare clients for forthcoming action on new compliance measures.

Debt repayment aside, it’s also incumbent on accountants’to help clients face the potentially onerous job of justifying to the ATO their legitimate entitlement to JobKeeper.

To substantiate that they received the right amount under JobKeeper, companies must have records on how it was estimated and proof that the money was passed on to employees.

“The issues we’re starting to see come through around JobKeeper claims typically relate to calculations around turnover,” Williamson explains.

Provide substantive proof

It’s the “workings” on which a company expected to qualify for JobKeeper that she suspects will be of most interest to the ATO, even if in hindsight they turn out to be wrong.

She believes the ATO may show compassion to companies that perhaps applied for JobKeeper back in April on the premise that turnover had dropped 50 per cent.

It may have been reasonable at the time to expect the same decline to occur in the following months. However, it is also conceivable that due to an increase in online sales – something few predicted – there was a strong uptick in June.

Given the sophistication of data matching and analytics these days, the ATO will already have a strong inkling of the questions it is preparing to ask.

Rather than allowing clients to fudge their explanations, Williamson says the onus is on accountants to ensure their clients have the necessary evidence for the JobKeeper decisions they’ve taken.

The last thing clients want right now is the cost associated with increased compliance, but it’s worth reminding them, adds Williamson, that penalties and interest could be far greater.

In all likelihood, she expects penalties to be reduced to 10 per cent or less if a client has been (or still is) in a reasonably arguable position.

Understand the risks of non-compliance

While it is unlikely to be this year, at some not too distant point Williamson expects the ATO to become far less patient with repayments unless there are good grounds to have them delayed.

Rather than simply requesting a delay, she reminds accountants to advise clients of the need to provide proof of why they need extra time to start paying and where the money will be coming from.

“The ability to have these frank discussions will depend on the robustness of the accountant-client relationship, and that starts with highlighting the dangers of not knowing the risks of non-compliance,” she warns. “The ATO can interrogate its systems to identify when things happened (e.g. through the last Business Activity Statement [BAS]), so it’s better to fill in the gaps before being asked the question.”

It is understood the ATO has no intention of clawing back money where honest mistakes have been made. 

However, ATO assistant commissioner for the individuals and intermediaries engagement and support branch, recently reminded companies that serious penalties – including criminal prosecution – will be applied to deliberately fraudulent behaviour.

This includes falsifying records, revisiting activity statements to meet the fall in turnover test, not passing on the full payment to eligible employees, and falsely claiming cash flow boosts of between A$20,000 and A$100,000.

New tests and other compliance

With the ATO recently redeploying 3000 staff, the recommencement of audit activities is expected to rapidly accelerate. 

While revenue recovery and the turnover test are the primary focus, the redeployment is also expected to put a greater refocus on research and development (R&D) claims, capital losses, and transfer pricing.

Williamson anticipates the impact of COVID-19 on a company’s transfer pricing arrangements – the price at which related parties transact with each other – are also likely to come under closer scrutiny in the months ahead.

“In light of that extra scrutiny, accountants should warn clients against making drastic changes to their transfer pricing policies that may compromise the characterisation of the entities in the post-pandemic period,” she says.

Beyond existing compliance criteria, the ATO has also introduced two new tests. 

From 28 September 2020, businesses have been required to meet the requisite decline in turnover using actual GST turnover for the September quarter to access the two-tiered payment of A$1200 for full-time workers and A$750 for those working less than 20 hours a week.

From 4 January 2021, businesses will also need to reassess their turnover to demonstrate that they have met the decline in turnover test for the December 2020 quarter.