Tax & ATO News Australia

Searching for posts in the month of: November 2017

VPRX and Commissioner of Taxation (Taxation) [2017] AATA 2156

The Applicant sold a website to a US buyer and received payment in instalments throughout the 2010 financial year, and further payments in the 2012 financial year. As the Applicant did not lodge a tax return for either year, the Commissioner issued default assessments with a 75% shortfall penalty based on amounts documented by AUSTRAC. The tax payable and penalties were reduced after the Applicant objected to the decision, and one payment was treated as capital.

The Applicant submitted that all of the documentation relating to the sale had been lost except for some emails. For the 2010 financial year payments, he contended that it was difficult to secure a fixed price during the GFC so the amounts received were ‘revenue payments’, consideration from the buyer based on their calculated profit, and were not income. He claims he was entitled to deductions for expenses in earning his ordinary income. With regard to the 2012 financial year payments, he contended that the penalty was unjust in circumstances where he was unable to locate the sale agreement. Indeed, the applicant was inefficient in producing evidence and failed to do so on several occasions.

The tribunal accepted the emails as evidence of a sale agreement but in the absence of its details, particularly the basis on which payments were calculated, treated the payments as income rather than capital. Regarding the penalty, the tribunal found that the Applicant’s inability to produce documents was no justification for concession and that, although he was not grossly careless, there was no justification for reducing the penalty in the circumstances. The tribunal reiterated that the onus is on the Applicant to establish that the assessments are excessive, and concluded that the Applicant was unable to discharge this burden. There were no submissions on the matter of capital gains tax.


 

Posted in: Tax & ATO News Australia at 28 November 17

Deputy Commissioner of Taxation v Ma [2017] FCA 1317

In the recent decision of Deputy Commissioner of Taxation v Ma, the Federal Court has examined an application by the Deputy Commissioner seeking interlocutory relief by way of freezing order against three respondents.

The relief sought by the Deputy Commissioner, is followed by separate proceedings by the Deputy Commissioner to recover accrued tax liabilities owed by the respondents to the New Zealand Commissioner for Inland Revenue as provided by Article 27 of the Australia New Zealand Double Taxation Agreement.

Pursuant to s 263-30 of the Taxation Administration Act 1953, upon registration of a foreign revenue claim, the amounts owed to a foreign revenue authority become pecuniary liability to the Commonwealth of Australia. In the present case, the tax debt were correctly registered and the required notice was given to the respondents.

Mortimer J in granting the interim relief sought by the Deputy Commissioner discussed the necessary elements for the Court to exercise its discretion. Each element and the relevant findings were as follows:

1. The Applicant must have a reasonably arguable case, both on the law and facts.

Mortimer J was satisfied that the evidence clearly showed that the Deputy Commissioner had a reasonably arguable case as the debt owed to the New Zealand Commissioner of Inland Revenue was duly registered. Thus, the Deputy Commissioner was entitled to the debt. 

2. A danger that a prospective judgement will be wholly or partially unsatisfied because the assets of the prospective judgement debtor will be removed from Australia or disposed, dealt with or diminished in value.

Each debt registered against the three respondents were of significant value. Although there was no evidence of a positive intention on the part of any of the respondents to frustrate the judgement of the Court, Mortimer J was satisfied that from the evidence an inference can be drawn that there is a real risk or danger that the respondent might attempt.

In drawing such an inference, Mortimer J examined several categories of evidence that demonstrated a real risk of deliberate dissipation existed, which are discussed below:

  • (a) On the evidence, the first respondent conducted serious transactions as an authorised person to an account owned by a Chinese national. On these facts, Mortimer J found “the first respondent appears to be concealing his financial activities behind the façade of another person through the use of this bank account.”
  • (b) After the first and second respondent were notified of their tax debt they proceeded to put their Australian properties, either owned personally or through a corporation (under their control) on the market for sale.
  • (c) Following the Deputy Commissioner notifying the first and second respondent of the foreign revenue claim and subsequent garnishee notices, they transferred substantial funds from Australia to China.
  • (d) Other dishonest behaviour exhibited by the first and third respondents as directors of companies that have claimed and been paid large amounts of Goods and Services Tax credits, which they were not entitled to.

Accordingly, on the basis of the evidence discussed Mortimer J recognised that their behaviour gave rise to an inference that there is a real and not fanciful risk that each of the respondents may seek to dissipate or dispose assets should the orders not be made.

3. The balance of convenience favours granting of the freezing order

Mortimer J was satisfied the balance of convenience favours making the freezing order, accounting for the undertakings proffered by the Deputy Commissioner.

In granting the freezing order sought by the Deputy Commissioner, Mortimer J found that providing an exception for the respondents to deal with or dispose of assets in the ordinary court of business was not appropriate in the present context. In light of the risks demonstrated on the evidence, the respondents may use the exception improperly and inappropriately. 

Posted in: Tax & ATO News Australia at 22 November 17

Ham and Tax Practitioners Board (Taxation) [2017] AATA 1642

An appeal has been lodged by the applicant tax agent against the decision of Ham and Tax Practitioners Board, whereby the AAT affirmed the decision of the Tax Practitioners Board (TPB) to reject Mr Ham’s application for renewal of registration, on the basis he is not a ‘fit and proper person’ within the meaning of the Tax Agent Services Act 2009 (TAS Act). 

The TPB’s refusal to renew Mr Ham’s registration arose following the decision of Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC and the subsequent appeal. In summary, Philippides J found Mr Ham, as the sole director of Canhire Pty Ltd, knowingly breached his fiduciary duties and acted dishonestly in paying away proceeds of a sale, which lawfully belonged to beneficiaries of a trust.

Accordingly, on the basis of Mr Ham’s conduct following the Supreme Court decision, the TPD rejected Mr Ham’s application to renewal on the grounds he was not a ‘fit and proper person’.

Subsequently, Mr Ham sought to have the TPD’s decision reviewed by the AAT.

In determining whether Mr Ham satisfied the definition of a ‘fit and proper person’ for the purposes of the TAS Act, the Tribunal held that it was entitled to rely on the findings of the Philippides J in the Supreme Court judgement as evidence for its own findings.

The Tribunal in concluding it was entitled to rely on the findings of the Supreme Court referred to s33(1)(c) of the Administrative Appeals Tribunal Act 1975 (AAT Act), which provides ‘the Tribunal may inform itself on any matter in such a manner as it thinks it appropriate’.

Accordingly, in conjunction with the Tribunal’s objectives in section 2A of the AAT Act, and present case it concluded that:

  • the most expeditors and efficient means by which the Tribunal can inform itself is by reference to the Supreme Court findings;
  • it would be too costly and time consuming to effectively conduct a re-hearing; and
  • the potential unfairness to Mr Ham was reduced as he was represented in both proceedings and had the opportunity to lead further evidence.


With regard to the question of whether Mr Ham is a fit and proper person, the Tribunal considered Mr Ham’s conduct ‘inconsistent, not only with the qualities of strong moral principle, uprightness and honestly, but also with the atmosphere of mutual trust, that underpins a tax agent’s relationship with his or her clients, the ATO and the Tax Practitioners Board’.

The Tribunal further recognised that Mr Ham failed to take steps to redress his actions, despite having ample opportunity to do so.

Mr Ham sought to argue that he is a ‘fit and proper person’ as he has expressed insight and contrition. However, the Tribunal was not persuaded for the following reasons:

  • Mr Ham’s contrition was late, his letter to the Tax Practitioners Board contained no expression of contrition or remorse;
  • It was inconsistent for Mr Ham to state he “unreservedly” accepts the Supreme Court’s decision, yet he continues to maintain his own version of event;
  • It was inconsistent for Mr Ham to realise the unethical nature of his conduct yet contest it at future disciplinary proceedings; and
  • Mr Ham’s proposed systems to prevent future misconduct demonstrated an oversimplified of the conduct found by the Supreme Court

At the hearing, Mr Ham indicated he would be prepared to abide by two conditions should his registration be renewed:

  • furnish a written report to the TPB at the end of each month for 12 months identifying any transactions he or his associated entities entered into; and
  • undertaking a Professional Development Business Ethics Training Course.

The Tribunal in response to the restrictions proposed by Mr Ham, found that ‘the imposition of conditions is not intended to be an alternative avenue for an applicant who fails to satisfy the standard of fitness and proprietary’.

Posted in: Tax & ATO News Australia at 16 November 17

Tomaras & Tomaras And Anor And Commissioner Of Taxation [2017] FAMCAFC 216

 
Tomaras & Tomaras And Anor And Commissioner Of Taxation [2017] FAMCAFC 216

 

Quick Summary:

 

  • The Applicant and the Respondent were married from 1992 to 2009.
  • During the marriage the Commissioner issued an assessment against the Mrs Tomaras with respect to income tax and Medicare levies.
  • In November 2009, the Commissioner obtained a default judgement against the Ms Tomaras.
  • In November 2013 Mr Tomaras became bankrupt.
  • In December 2013, the Ms Tomaras commenced proceedings in the Federal Circuit Court seeking an order for alteration of property interests pursuant to s79 of the Family Law Act 1975.
  • In February 2016, the Commissioner was granted leave to intervene in those proceedings.
  • Ms Tomaras sought an order pursuant to s90AE(1)(b) of the Family Law Act 1975 to substitute the Mr Tomaras for herself as the debtor, thus making Mr Tomaras solely liable to the Commissioner of Taxation for his ex-wife’s tax debt.
  • Purdon-Sully J referred the question to the Full Court of the Family Court for a determination on the question of law.
  • The Full Court found that the Court has the power to make an Order binding on the Commissioner, but:

 

  1. any such Order needs to direct the Commissioner to substitute, so that the original debtor doesn’t lose rights of objection; and
  2. the recovery prospects of the debt must be considered whenever it makes such an Order.


Article Summary:

 

This recent decision of the Full Court of the Family Court has confirmed that a substitution order made by the court on a third party will be binding even on the Commissioner of Taxation. Further, the decision suggests where such a substitution order is made against the Commissioner of Taxation, the substituted spouse would inherit the same rights of object and appeal.

The Applicant and the Respondent were married from 1992, until they separated in 2009. During this period the Commissioner issued an assessment against the Applicant wife for income tax and the Medicare levy.

In November 2009, the Commissioner successfully obtained default judgement against the Applicant wife. Four years later, in November 2013 the Respondent husband became a bankrupt. Subsequently, the Applicant wife commenced proceedings in the Federal Circuit Court seeking an order for alteration of property interests pursuant to s79 of the Family Law Act 1975.

In February 2016, the Commissioner was granted leave to intervene in those proceedings, in which the Applicant wife sought an order pursuant to s90AE(1)(b) of the Family Law Act 1975 to substitute the Respondent husband for the Applicant wife as the debtor, thus making the Respondent husband solely liable to the Commissioner of Taxation for her tax debt.

Purdon-Sally J pursuant to s94A(3) of the Family Law Act 1975 referred the question of law to the Full Court of the Family Court.

The Commissioner sought argue that s90AE was expressed in general terms, thus according to the presumption in Bropho v State of Western Australia the Commonwealth is not bound. However, Thackeray and Strickland JJ found that s90AE did not impose an obligation or a restraint on the Commissioner, thus the presumption did not apply.

In reaching such a conclusion, the majority found that s90AE can only impose a benefit on the Commissioner since:

  • a more wealthy spouse may become solely liable, thereby increasing the prospects of recovery;
  • both spouses may become liable, thus providing remedies for recovery which would be unavailable;
  • an order could not be made if it was foreseeable the order would result in the debt not being paid; and
  • the court may make an order as it considers just for the payment of the reasonable expenses of the creditor.

The Commissioner sought to advance arguments on the basis the presumption did apply. However, the majority having reached a contrary conclusion, only discussed the Commissioner arguments which supported the proposition that s90AE does not evince a legislative intention to bind the Crown.

One of the arguments raised by the Commissioner was that construing s90AE to permit tax debts to be transferred between spouses could not operate to transfer the objection, review and appeal rights associated with the tax debt. Thackeray and Strickland JJ, in rejecting this argument recognised that s14ZL of the Taxation Administration Act 1953 expressly confers the rights of objection upon “a person who is dissatisfied with an assessment, determination, notice or decision”. Accordingly, as this recognises a wider class of individuals, there should be no practical restriction upon allowing a substituted party to receive all rights of the person in whose place they have been obliged to stand.

Aldridge J as the minority agreed with the orders proposed by Thackeray and Strickland JJ, but made additional comments. Aldridge J considered that s90AE hindered the Commissioner as it changed its rights at law.

Furthermore, Aldridge J recognised that s175A of the Income Tax Assessment Act 1936 confers the rights of objection and appeal to a ‘taxpayer’, which pursuant to s6 of the Income Tax Assessment Act 1936 is “a person deriving income or deriving profits or gains of a capital nature”. Accordingly, ‘as these phases identify the person entitled to object as the earner of the income, profits or gain’ they do not accommodate the substitution of one spouse for the other as the “taxpayer”.  

Posted in: Tax & ATO News Australia at 06 November 17

Shord v Commissioner of Taxation

 The case is reasonably unremarkable for any legal or factual analysis, but it does provide a good insight into the attitude of the ATO towards acting as a uncompromising litigant, which makes the most of every possible procedural point, as opposed to a model litigant as they are required.

Justice Logan from Qld made some fantastic comments (with respect);

 

The standard of fair play expected of the Crown and its officers in litigation is a standard in keeping both with the avoidance of behaviours that, in an extreme form, led to the civil war and with the later constitutional settlement. Once this heritage is understood, the requirement for its observance is, or should be, as Griffith CJ stated, “elementary”.

 

I note that Robert Gottleibsen also discussed this case and raised these comments in yesterday’s Australian.

 

Shord v Commissioner of Taxation [2017] FCAFC 167


Between 2006 and 2011, Mr Shord worked on various overseas assignments as a supervisor for foreign companies in the oil and gas industry. He did not lodge tax returns for that period, believing he was a non-resident. The Commissioner believed otherwise and issued amended assessments including all Mr Shord’s foreign income. The Commissioner disallowed Mr Shord’s objection.

The Tribunal found in favour of the Commissioner. The Tribunal found Mr Shord was a resident and, in particular, that his income was not exempt pursuant to s 23AG of the ITAA36. This provision exempts income of residents engaged in foreign services for a continuous period of not less than 91 days.

At the onset of the hearing, counsel for the Commissioner withdrew a contention that Mr Shord’s circumstances failed to meet the legislation’s definition of ‘foreign services’. The Tribunal nonetheless found that Mr Shord did not meet this definition. Fletcher v FCT is authority that a taxpayer is denied procedural fairness when a Tribunal makes a decision on the basis not argued by any party.

Procedural fairness was not raised on appeal to the Federal Court. Instead, the first two questions of law related to the proper application of s 23AG. These hinged on the third question which was whether the Tribunal had jurisdiction to decide whether Mr Shord was engaged in ‘foreign services’. The fourth question was whether Mr Shord was entitled to offsets for foreign taxes paid. The primary judge found against Mr Shord on the third and fourth question and did not therefore consider the first two.

On appeal to the Full Federal Court, procedural fairness was finally raised by Mr Shord as the first ground in an amended notice of appeal. The Commissioner initially objected to the amendment but eventually conceded the ground to Mr Shord. The Full Court thus remitted the matter to the Federal Court to decide the two questions about s 23AG. Unlike the majority, Justice Logan reprimanded the Commissioner, as a representative of the Commonwealth, for its failure to act as a model litigant and raise the crucial issue earlier.

The second ground related to Mr Shord’s entitlement to tax offsets. The Full Court found that Mr Shord did not produce any evidence as to what, when and how much foreign tax he paid, and that neither the Tribunal nor the Commissioner had an obligation to help him adduce evidence to the contrary.
 

Posted in: Tax & ATO News Australia at 01 November 17

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Author: David Hughes

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