Voluntary JobKeeper repayments – deductible? The ATO response

By Manuel Makas and Julian Pinson, Partners, Greenwoods and Herbert Smith Freehills

Media reports in the last 2 months have indicated that some prominent Australian businesses have decided to return the JobKeeper payments for which they were qualified. In his evidence to the Senate Estimates Committee in February, Second Commissioner Jeremy Hirschhorn said the ATO was in discussions with, “in the order of 10 companies” and the amount in question at that time was “about $50 million”. 

The ATO has released a statement about its views on the tax treatment of such a voluntary repayment. The ATO warns that a voluntary repayment of JobKeeper will be deductible, “only in limited circumstances …” and maybe businesses should make, “a voluntary repayment equal to the JobKeeper received less the tax paid on that amount …” – in other words, repay only 70 cents in the dollar. 

With respect to deductibility, the ATO’s position is that, “a deduction may be available if the payment is made to prevent reduction in business [ie, avoid a consumer boycott], or publicise and promote your business in the short-term”. And no doubt the ATO will say, if pressed, that this position reflects current law.

There would be solid grounds for many businesses under that test of deductibility, especially given some of the unfavourable media reporting and critical statements from politicians about companies that claimed JobKeeper but have had unexpectedly good years, or wish to pay executive bonuses or dividends. 

The ATO’s statement does say that “we will generally not apply compliance resources to confirm if the payment is deductible …” , but there are conditions: the business must “act in good faith” and have “used [its] best endeavours to determine whether you are entitled to a deduction for the voluntary repayment”.

The formula, “we will not apply compliance resources” offers only limited reassurance in the midst of a document which warns against claiming the deduction.

There is no compelling reason why the ATO could not be clear, and say something that is both definitive and reliable: a brief Tax Determination in which the ATO accepts that the refund of an amount of JobKeeper to which the business was entitled is an outgoing which meets the existing tests for deductibility under s 8-1.

This article was first published in Thomson Reuters’ Weekly Tax Bulletin.

Editor’s note from ATO statement: Monthly business declarations for JobKeeper Fortnights in March need to be completed by 14 April 2021 to receive final JobKeeper payments. The JobKeeper Payment scheme finished on 28 March 2021.

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