Tax & ATO News Australia

Unpacking The ALP's Proposed Trust Distributions Tax

Whatever you think about the fairness of the ALP’s proposed trust distributions tax [see link here] there is no doubt it creates a whole range of questions.

For fear of giving too much away in a (reasonably) public forum, I am not going to give the ATO and the potential future government a free kick by outlining in detail all of the gaps, overlaps and plain mistakes that are inherent in the ALP’s policy document. After all, it is only an outline at this stage, subject to ATO consultation. Who knows, they might get it all right.

But I doubt it.

What is clear, from their track record [see mining tax] is that a tax policy driven out of a perceived sense of public fairness is riven with the law of unintended consequence. It will inevitably create extensive planning opportunities for those accountants (and tax lawyers) that the ALP seem to dislike, and it will also create situations that are manifestly unfair in operation.

Both parties would do a lot better to dust off the Ralph Review and approach the taxation of entities comprehensively, rather than trying to snatch some cheap headlines to be seen to be doing something that the other side is not. That is no way to make tax policy.
 

Posted in: Tax & ATO News Australia at 17 August 17

In Pursuit of a Fairer System

 The Federal opposition seems to be searching hard for the glib soundbites. The latest attack is on expensive accountants, who only the uber-rich can afford, who use their superior accounting skills at high cost, to manipulate their clients’ affairs to pay no tax.

I came across a recent article in Accountants Daily which reported:

Last week, Bill Shorten delivered the opposition’s federal budget reply speech in which he proposed a cap on the amount individuals can claim as a tax deduction for the management of their tax affairs.

“In 2014-15, 48 Australians earned more than $1 million and paid no tax at all. Not even the Medicare levy. Instead, using clever tax lawyers, they deducted their income down from an average of nearly $2.5 million … to below the tax-free threshold,” Mr Shorten said.

“One of the biggest deductions claimed was the money they paid to their accountants, averaging over $1 million. That’s why a Labor government will cap the amount individuals can deduct for the management of their tax affairs at $3,000.”

The article goes on to make a point about “individuals potentially getting penalised for simply having to deal with a complex tax system and ever increasing requirements of the Tax Office”. I agree with this, and think that this policy is one of the most stupid ideas I have ever heard. Who advises these people?

I strongly doubt that anyone is paying north of $1m for annual tax advice, no matter how complex their tax affairs, or brilliant their advisor's advice.
What is much more likely is that these people have been involved in complex and aggressive audits, and have had to fight to prove their case against a huge team comprising the Commissioner of Taxation's in-house lawyers, external lawyers, junior barristers and silk.

Defending yourself in the face of this is incredibly expensive, particularly when you as a taxpayer bear the onus of proof. What most people don't realise is that barristers charge taxpayers a much higher rate than they charge the ATO. In circumstances where the ATO's audits are often little more than guesswork, debt recovery proceedings commence immediately, and the courts have continually maintained that the onus is on the taxpayer to prove their case and their correct tax position, then of course the cost of fighting the ATO is going to be huge.

To make this not tax deductible is simply ridiculous.

I will give you an example of how ridiculous and expensive audits can be: a few years ago, one of my colleagues was selected for audit. He had been doing alot of driving in a particular year, and the resultant (high) deduction triggered an audit. Fair enough. But the audit quickly blew into a full investigation of every item of income and expenditure this taxpayer had incurred. It took months. The accountant was of great assistance, and because absolutely everything was done correctly, the auditor eventually signed off without a single disallowance.

The accountant had done a huge amount of work and did it very well and efficiently. The bill was, none-the-less, eyewatering. My colleague paid happily in consideration of a job well done.

Guess what happened the following year? My colleague was again selected for an audit. Why? Because he had claimed so much the year before as a deduction for managing his tax affairs.

You would laugh if it wasn’t so frustrating.

Here's a better idea - limit the tax deduction for managing tax affairs by all means, but if the ATO starts an audit, provide the taxpayer a voucher for use on the accountant or lawyer of their choice, equivalent to the ATO's cost of the audit and any appeals (including external lawyers as well as the ATO wages and oncosts). In reality it should be much higher to factor in overheads and the Commissioner's disproportionate purchasing power, but even at only 100% of the ATO’s costs that will be a significantly higher figure than the corresponding deduction.

Or better yet, why don’t we limit the ATO budget for each auditto no more than $3,000, including overheads and a share of fixed costs.

Posted in: Tax & ATO News Australia at 23 May 17

Proposal to allow trans-Tasman superannuation transfers finally underway

More than three years ago the Australian and New Zealand Governments agreed to develop legislation to facilitate the trans-Tasman transfer of retirement savings for a person emigrating permanently from one country to the other country.

Posted in: Tax & ATO News Australia at 28 November 12