Tax & ATO News Australia

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The Simple Solution to Solve the Budget

I have had an epiphany.

I can solve the budget shortfall for the Federal Government by showing the Treasurer how to raise unlimited revenue. My plan is simple. The legislation is already in place and the Courts and the AAT have shown us that it is possible.

We are going to tax dead people.

I am not talking about an estate tax, or death duty. That would be politically unpopular.

No, what I am proposing is that the ATO issue default assessments under s167 of the ITAA 36 to every single person who has died in Australia since 1936. How can the Government do this, you wonder? That’s the beautiful part of my plan – all the ATO has to do is to make a determination under s170 that every deceased tax payer avoided tax due to fraud or evasion. Then the ATO can go as far back as it likes and raise new assessments.

The Courts have said time and again in cases like Rigoli and Futuris that the ATO does not even need to try very hard to come up with a figure. They just need to have a bit of an educated guess and then it’s up to the taxpayer to prove that this figure is wrong.

So each deceased taxpayer can get a tax assessment for, say, $10m. Section 177 means that’s proof they owe the tax. And the proof of tax evasion? Well, the ATO doesn’t need to prove that either. That’s up to the taxpayer too. If a figleaf of justification was required (and it’s not, according to the Courts) the ATO will say what it always does in such cases – any taxpayer who owed such a large amount of money must have known they had more tax to pay. Ergo they deliberately understated their taxable income, ergo tax evasion.

Cheating non-taxpaying bastards. We’d lock them up if they weren’t already dead. On the otherhand, fortunately for the Government, being dead makes it hard for the taxpayer to prove their case. If there is a material witness to a question of fact, Jones v Dunkel says you have to produce them to give that evidence or risk an adverse factual finding. And no-one is more material to a question of tax evasion by a taxpayer than the taxpayer him or herself.

The plan is foolproof. Naturally it’s extremely unlikely any money will be collected from estates that have already been distributed and finalised, but quite alot of people will probably cough up a couple of million each to save the cost and expense of having to fight a losing battle against the ATO, with their unlimited litigation budgets.

This was right in front of our eyes the whole time. The Courts and the AAT have already sanctioned it, as recently as last week. Check out this if you don’t believe me.

Well, that’s that problem solved. I’m off to the middle east next to solve that little pickle by introducing effective Workplace Health and Safety Laws.
  

Posted in: Tax & ATO News Australia at 09 July 15

High Court Case helps determine questions of facts vs. questions of law in AAT hearings

The ATO has recently released a decision impact statement on a High Court tax case that SMH Tax Lawyers won last year, Commissioner of Taxation v Crown Insurance Limited.

 

The ATO concluded that this case has no precedential value and is confined to its facts (which begs the question as to why they wasted tax payers money and that of our client pursuing the matter through to the High Court and losing), but we respectfully disagree.
 
Quite aside from clarifying issues regarding the source of overseas income, this case was very important in helping to determine what matters are questions of facts (and therefore not able to be appealed to the Federal Court after an Administrative Appeals Tribunal decision) and what are questions of law (and therefore can be appealed).
 
This question is at the heart of very many appeals from the AAT.
 
It also emphasises how important it is to present the facts in a clear, concise and compelling matter in AAT hearings.  If you do not get the facts right in AAT hearings (which the vast majority of taxpayers do not), then your chances of losing are very high and your chances of successfully appealing are negligible.
 
At SMH Tax Lawyers one of our most critical specialist roles is helping our clients present the facts properly.  This is something we are uniquely placed to assist with as lawyers with specialist litigation and tax experience and the resources to work with our clients in forensically examining complicated facts which can cover many years, and often many countries.
 
With this assistance, our clients have achieved highly successful results in tax litigation matters against the ATO.
 

Posted in: Tax & ATO News Australia at 24 January 14

Crown Insurance Services Limited wins in High Court against ATO

A long running fight between one of my clients and the ATO has had its final battle in the High Court on 6 June 2013.

 

Crown Insurance Services Limited, an offshore insurance company, succeeded in the High Court on 6 June 2013 in an application brought by the ATO to appeal against a Full Federal Court decision regarding the source of Crown Insurance's income. The ATO had lost in the Full Federal Court following an appeal from its loss in the Administrative Appeals Tribunal. A significant amount of tax was at stake in a case which could have had major ramifications for overseas companies which have dealings with Australian companies.
 
The ATO's case was that because Crown Insurance dealt with related Australian companies, which made their income from Australia, Crown Insurance's income was indirectly derived from Australian sources.
 
In running their appeals, the ATO ignored several High Court and other authorities over many years.
 
The ATO also argued that there should be a change of law on the determination of appeals from lower courts and tribunals.  Appeals from the AAT must be on a question of law and the ATO argued for a significant extension in the jurisdiction of the Federal Court to hear appeals.  The ATO was attempting to overturn long standing decisions including Pozzolanic Enterprises Pty Ltd v Collector of Customs and Collector of Customs v Agfa Gevaert. The effect of such a change of law would be to complicate appeals from the AAT and potentially turn all such appeals into a virtual re-hearing of the original decision.  This would add greatly to the already considerable cost of litigation in Australia.
 
Our client is immensely relieved at the win, but frustrated that the ATO has taken such a long time and wasted so much money fighting appeals that seemed doomed to failure from the outset.
 

Posted in: Tax & ATO News Australia at 07 June 13

Get your affairs in order before you leave Australia

Are you thinking about leaving Australia to take up a new job? Do you realise that you might be taxed in Australia on the income which you earn overseas? Seeking professional advice from a tax lawyer is imperative as they can provide you with the advice which you need to get your affairs in order so that you do not get surprised by an alarming tax bill.

 

If you are an Australian resident, you are taxed on income that you earn overseas. For example, if you accept a job in Dubai, you will be taxed in Australia on the income which you earn there. On the other hand, if you are a non-resident, you are only taxed on income which is sourced in Australia.
 
The residency tests used by the ATO to determine your residency status for tax purposes are not the same as those used by other Australian agencies, such as the Department of Immigration.

The main test that the ATO uses is the “resides test”. Basically, the ATO will look at whether you reside in Australia according to the ordinary meaning of “reside”.

If you do not satisfy this test, then the ATO may also look at any of the following tests:

• Have you been in Australia for more than 183 days in any year? (183 day test);
• Is your domicile in Australia? If it is, have you established a permanent place of abode outside of Australia (Domicile test); and
• Are you a current Commonwealth government employee? (Superannuation test).

The most contentious of these tests is the domicile test. Two recent AAT decisions found in favour of the ATO because although the taxpayers did not reside in Australia, the taxpayers were considered Australian residents for tax purposes because they failed to establish permanent places of abode outside Australia. In both cases, the taxpayers accepted employment overseas - one as a marine engineer in Dubai, the other as an operations technician in southern Oman. As the taxpayers were required to travel as part of their employment, both taxpayers lived in shared accommodation, but only spent a limited amount of time there. On this basis, the AAT held that the taxpayers had failed to establish permanent places of abode outside Australia.  In one case, the AAT described the taxpayer as a “citizen of the world”.

These cases clearly demonstrate that you need to carefully organise your affairs before you leave Australia.
 

Posted in: Tax & ATO News Australia at 05 June 13

ATO not allowed to amend an assessment outside the two year period

For most individuals, the ATO has two years to amend an assessment after the individual has received the notice of assessment. Recently in Elliott, the AAT held that the ATO was not entitled to amend the taxpayer’s assessment outside of the two year period.

 

The taxpayer was employed as a pilot by a wholly owned subsidiary of Cathay Pacific. The taxpayer was in receipt of foreign earnings which he treated in his 2006 and 2007 returns as exempt. However, in Overseas Aircrew Basing Ltd, the Federal Court held that such income was not exempt and on this basis, the ATO tried to amend the taxpayer’s assessment outside the two year period.
 
The ATO argued that it was entitled to amend outside the two year period because the two year rule is qualified by the Income Tax Regulations 1936 (Cth). In particular, the ATO tried to rely on Regulation 20 Item 5 of the regulations which provides that the taxpayer has not identified income from one or more foreign transactions for the purposes of, or in the course of, the assessment. The ATO contended that the taxpayer had not 'identified' the relevant income because he had not 'identified' the income under the correct label in his returns.
 
The Tribunal found that, in the context of Regulation 20, the applicant only needed to identify in his returns an amount of income from a foreign transaction, as he had, and that he did not have to go the further step and make a correct assessment about whether that income was exempt or assessable.
 
I am pleased by the outcome of this decision as it prevents the ATO from pushing the boundaries on these time limits. It is also interesting that the ATO supports this decision. On 5 October 2012, the ATO released a Decision Impact Statement stating that, “[it] accepts that the Tribunal's view of the interpretation of Item 5 of Regulation 20, and its application of that view to the facts in this case, were properly open to it”.

Posted in: Tax & ATO News Australia at 08 May 13

ATO affirms Bornstein decision

In an earlier blog I discussed the ATO’s reluctance to exercise its discretion to disregard excess superannuation contributions. You may recall that the Administrative Appeals Tribunal has found in favour of the ATO in all cases except two: Bornstein and Longcake. The ATO has now released a Decision Impact Statement in support of the AAT’s decision in Bornstein.

 

Bornstein concerned a taxpayer who was a sole director, shareholder and employee of a small company. At the end of each financial year Mr Bornstein, as ‘employer’, would make a superannuation contribution into his own superannuation fund. While overseas between 21 June and 8 July 2007, Mr Bornstein emailed his accountant to ask whether a superannuation contribution needed to be made prior to 30 June. Mr Bornstein received no response from his accountant, and decided to check the ATO website to see when the contribution could be made.
 
Mr Bornstein found on the website that an employer has up until 28 July to make a compulsory contribution for the previous quarter in accordance with the Superannuation Guarantee Administration Act 1992 (Cth). However, the site did not identify the consequences of such late payment on the employee under the excess contributions regime. Mr Bornstein was not aware of this parallel regime.
 
In reliance on the belief that a payment on 10 July 2007 would relate to the 2007 income year, Mr Bornstein proceeded to make a contribution. In June 2008 Mr Bornstein made a further contribution to his superannuation fund after confirming with his accountant that this was correct.  The ATO later assessed him for excess contributions tax because of the June 2008 payment.
 
Based on the circumstances, Mr Bornstein applied to the Commissioner to exercise his discretion to disregard the resulting excess contributions. However, the Commissioner did not exercise his discretion to do so.
 
On appeal of the decision, the Tribunal held that the Commissioner’s decision should be set aside and that discretion should be exercised in favour of Mr Bornstein. Senior Member McCabe held that special circumstances existed because there was a “‘perfect storm’ of events, miscommunications and misunderstandings”.
 
The Decision Impact Statement released by the ATO affirms this decision, and states that the decision is consistent with its stated view in PS LA 2008/1. In particular, paragraph 37 of PS LA 2008/1 provides that “each individual case will present a unique set of circumstances that need to be considered and weighed up in forming an opinion. It may not be helpful to focus too closely on each particular circumstance and ask whether it is special. Of itself, one particular matter is unlikely to be special for there would be many other individuals in a similar situation. The question is whether, when the relevant circumstances of the individual and the making of the relevant contribution are looked at in their entirety, they may be fairly described as unusual, uncommon or exceptional so as to warrant the exercise of the discretion”
 
It is not surprising that the ATO has affirmed this decision, as the decision establishes a very high threshold for exercising the discretion. 
 

Posted in: Tax & ATO News Australia at 20 March 13

New Commissioner of Taxation flags changes to the appeal process

Chris Jordan has only been in the top job at the ATO since 1 January 2013 and he has already identified that the current tax appeal process is not independent and needs to be fixed.
 
Tax appeals are currently heard in first instance by ATO officers and this process must be exhausted before an independent body (such as the Administrative Appeals Tribunal or the Federal Court) can hear a tax appeal.  This can take months (even years) and cost the taxpayer enormous amounts of money. There has been significant criticism of this process as it is not independent. There are examples of ATO officers who hear the tax appeal simply rubber stamping the work of the auditor. Worse, there have been allegations that the ATO has benchmarks for this process that require ATO officers to knock back 80% of appeals, rather than judge them on their merits.
 
The current system is clearly broken and needs to be fixed. The new Commissioner has taken a step in the right direction by moving towards an independent division, although it appears that this division will still be within the ATO.  It will be interesting to see whether this new appeals division really will be independent.
 
Small business taxpayers, many of whom I have acted for against the ATO, will rightly point out that this is all very interesting from an administrative law perspective, but how will things change for those taxpayers who have been subjected to the delays, cost and institutional biases of the current system?  Now that the new Commissioner has acknowledged that the current tax appeal process is broken, will there be meaningful compensation paid to those taxpayers whose lives have been financially devastated by it?
 
I am calling on the new Commissioner to relook at all such taxpayers and make it a key priority of his tenure. The only way that confidence in Australia’s tax system can be restored is by ensuring accountability for ATO officers and that means that the ATO must pay adequate compensation to those taxpayers who have unfairly suffered at the hands of the ATO.
 

Posted in: Tax & ATO News Australia at 13 March 13

ATO's tough stance on excess contributions

Closely monitoring your superannuation contributions is critical because the ATO makes no exceptions if you exceed the superannuation contributions caps. A contributions cap sets a limit on the amount of contributions you can make in any financial year. In the 2012-2013 financial year, the limit is $25,000 for concessional (before tax) contributions and $150,000 for non-concessional (after tax) contributions. If you exceed these caps, your excess contributions are likely to be subject to the penalty tax.

 

The ATO has the discretion to disregard excess contributions if special circumstances exist, yet this discretion is not exercised lightly. A number of taxpayers have therefore challenged the ATO’s decision in the Administrative Appeals Tribunal (AAT). Unfortunately, the Tribunal has often sided with the ATO and these taxpayers have been forced to pay the penalty tax. In fact the Tribunal has only found in favour of the taxpayer in two cases. In both cases, the Tribunal held that special circumstances existed because there was a “perfect storm” of events, miscommunications and misunderstandings. With the spike in excess contributions tax (ECT) assessments again expected for the 2012-13 financial year, monitoring your superannuation contributions is critical.
 

Posted in: Tax & ATO News Australia at 21 January 13

A great result for Crown Insurance Services Limited

On Friday 2 November 2012, the Full Federal Court delivered a judgment in favour of our client, Crown Insurance Services Limited and found for our client in a 2:1 decision.

 

In a rather technical decision, the Full Federal Court found that the ATO’s appeal was incompetent – that is, that the ATO should not have attempted to appeal the factual findings of the Administrative Appeals Tribunal which found, as a matter of fact, that the source of our client’s income was not in Australia.
 
Lander and Foster JJ dismissed the Commissioner's appeal, deciding the appeal was incompetent as the Commissioner did not raise a question of law for s44(1) purposes.  Their Honours analysed the authorities on this issue in great detail but did not address the substantive question once they concluded the appeal should be dismissed for want of jurisdiction.
 
Jessup J decided there was a question of law, as the facts found by the Tribunal must necessarily lead to the conclusion that Crown Insurance indirectly derived its income from Australian sources.  His Honour placed great weight on the adverb "indirectly" to distinguish this case from the authorities
 
This is a great result for this client who has been fighting with the ATO for over ten years.
 

Posted in: Tax & ATO News Australia at 05 November 12

A lesson on evidence for the taxpayer

In a fight against the ATO, you are guilty until you prove yourself innocent. You not only need to demonstrate that the assessment made by the ATO is wrong, but also what the correct assessment should be. A fight against the ATO can be lost, even if the ATO is wrong. Getting the right evidence is critical. A recent AAT decision was found in favour of the ATO because:
 
It is undoubtedly the case that the [ATO’s] assessments are not correct but the [taxpayer] has not shown the taxable income on which tax ought to have been levied.  It follows that he has not shown that the assessments are excessive.
 
This case was inherently complex with links and ties to an offshore bank in Liechtenstein, In October 2006, an employee of the bank handed over three compact discs to the ATO with details of 20 Australians holding $110 million in the bank. Among one of those Australians was 70 year old retiree, Dr Harold Murray. In June 2008, the ATO used this information to amend assessments of Dr Murray’s income right back from 1999 to 2007 which led to an alarming tax bill of $36 million for Dr Murray.
 
Dr Murray disputed the assessments on a number of grounds. However, he ultimately lost because he not only failed to produce any documents in support of his contentions, but also failed to appear in the AAT to give evidence. He said that he was concerned about receiving a Departure Prohibition Order like Paul Hogan if he returned to Australia to give evidence.
 
This case reinforces the importance of presenting the evidence correctly in a fight against the ATO. I have successfully run a number of AAT cases against the ATO and can help you gather and prepare the evidence to put you in good stead in your fight against the ATO.

Posted in: Tax & ATO News Australia at 12 September 12

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Tax & ATO News Australia

Author: David Hughes

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