The ATO has warned businesses not to use coronavirus subsidies to fund executive bonuses.

The Australian Taxation Office (ATO) says companies that pay executive bonuses or increase dividends while receiving COVID-19 support payments such as JobKeeper could damage their reputations.

“There was nothing explicit in the rules for the stimulus measures that required companies to stop paying executive bonuses or from increasing dividends to shareholders, but there was a quick backlash for those companies seen to be exploiting the spirit of the measures,” ATO second commissioner Jeremy Hirschhorn said.

He urged big firms to “follow the tax law, but also follow the spirit of the law”.

“The quid pro quo in the community's mind is that large corporates, in particular but not limited to those who accessed these schemes, will pay their share and improve their approach to tax,” Mr Hirschhorn said.

Business Council of Australia chief Jennifer Westacott and shareholder activist group Ownership Matters have shared similar views.

Mr Hirschhorn says the ATO has clawed back about $120 million out of $69 billion in JobKeeker payments from businesses it deemed ineligible.