Tax & ATO News Australia

ATO calls for more power!

The ATO has extensive investigative powers including, entering premises, demanding the provision of information in writing or by interview, demanding the provision of documents and issuing an offshore information exchange demand for documents, yet the ATO still wants more power. The ATO has called for the wire tapping laws to be changed so that it can access real time communications such as live phone calls. Under current law, only criminal law-enforcement agencies like the State Police and the Australian Federal Police can access prospective or real time data.  The ATO can only apply for warrants to gain access to “stored communications” such as emails, voice mails and SMS messages.

 

In its submission to the Parliamentary Joint Committee on Intelligence, the ATO stated that, "allowing the ATO's criminal investigators access to real-time telecommunications data will enable the ATO to become far more responsive to attempts to defraud the commonwealth through credit and refund fraud”.  In addition to this, the ATO submitted that communication data should be stored for up to two years which is consistent with the European Union Data Retention Directive.
 
It will be interesting to see how this one plays out, particularly because it raises issues about privacy.
 

Posted in: Tax & ATO News Australia at 17 December 12

New transfer pricing rules broaden the ATO’S power

Transfer pricing rules address arrangements under which profits are shifted out of Australia. On 8 September 2012, the first tranche of the new transfer pricing rules received Royal Assent. The new transfer pricing rules (Division 815) replace the former transfer pricing rules found in Division 13 of the ITAA 36.

 

There was a lot of uncertainty surrounding the interpretation of the former transfer pricing rules. By enacting the amendments, the Australian government has agreed with the ATO’S interpretation of the operation of Australia's transfer pricing rules, rather than the interpretation of the Full Federal Court in Federal Commissioner of Taxation v SNF. In SNF, the Court held that the correct way under Division 13 to consider a transfer pricing adjustment on a transaction between two related entities was to examine the arm’s length price for the actual transaction based on the available evidence. The ATO disputed the availability of the comparable transaction method relied on by SNF. Instead the ATO priced the transaction by applying the transactional net margin method discussed in the OECD guidelines. The Court also held that the OECD guidelines could not be used as an aid in interpreting and applying Division 13.
 
The new transfer pricing rules applies to dealings which are subject to an Associated Enterprises or Business Profits Article of a relevant Double Tax Agreement. That is, the new transfer pricing rules only applies where there is a relevant tax treaty. The new transfer pricing rules allows the ATO to make a determination to increase the taxable income or reduce the capital losses of an Australian taxpayer or a non-resident with a permanent establishment in Australia where the taxpayer receives a transfer pricing benefit.  A “transfer pricing benefit” will arise where the taxpayer’s actual profits are less than that which would have been accrued if the parties had been dealing on an arm’s length basis. The new rules are required to be interpreted to best achieve consistency with the OECD guidelines.
 
There are many concerns surrounding the new transfer pricing rules. One of the biggest being that the new transfer pricing rules broadens the ATO’s power to make a transfer pricing adjustment and further creates a power for the ATO to choose alternative pricing mechanisms. This in turn creates uncertainty for the taxpayer. Another major concern is the retrospective application of the new transfer pricing rules as the rules are to be applied retrospectively from 1 July 2004.
 

Posted in: Tax & ATO News Australia at 10 December 12

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.

 

New Zealand quickly implemented the trans-Tasman agreement by enacting legislation. However, the implementation of the trans-Tasman agreement has been impeded by the slow progress of the Australian Government as Australia is yet to enact the legislation.
 
Despite this setback, Australia has finally made a step towards implementing the trans-Tasman agreement. Recently, Superannuation Minister, Bill Shorten, released the draft legislation to facilitate the trans-Tasman superannuation transfers between Australian APRA regulated superannuation funds and New Zealand KiwiSaver funds.
 
Mr Shorten said that, “The scheme is intended to enhance labour mobility between Australia and New Zealand”.
 
“The new scheme will help Australians and New Zealanders make the most of their retirement savings, as they will be able to take their retirement savings with them across the Tasman when they move,” he said.
 
The proposal is relatively restricted in its current draft form, yet the changes will give many Australians and New Zealanders the freedom to take their retirement savings with them.
 
The proposed legislation is expected to be introduced into Federal Parliament shortly and if all goes well, the Government hopes it will take effect from 1 July 2013.
 

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

ATO jumps queue

The Full Federal Court of Australia recently handed down a decision that condoned the ATO’s actions of jumping the queue in a property settlement to recover a tax debt of $75,508.64. Without having any specific rights to the property, the ATO was able to take priority over a second registered mortgagee.

 

The case concerned a taxpayer who entered into a $1.675 million contract for the sale of a property which had two registered mortgages over it: the first in favour of NAB and the second in favour of Instyle. While the sale price was insufficient to satisfy the taxpayer’s debts to the two mortgagees, the parties agreed that the transaction-specific costs and the NAB’s first mortgage would be paid, with the balance to be paid to Instyle even though this was insufficient to discharge the debt.
 
Before settlement occurred, the ATO issued a notice under s260-5 of Schedule 1 of the Taxation Administration Act 1953 (Cth) – a notice compelling a third party to pay an amount owing to a taxpayer directly to the ATO - to the purchaser demanding payment of $75,508.64 to the ATO immediately upon the purchase amount becoming payable to the taxpayer.
 
The notice initially frustrated settlement because it meant that Instyle would not receive the full balance of the proceeds as originally agreed. After extensive discussions, the Commissioner agreed to allow the full balance of the sale proceeds to be paid to Instyle on the condition that the $75,508.64 in dispute be paid into a trust account pending resolution of the matter. As a result Instyle provided a release of the second mortgage over the property at the time of settlement.
 
In a 2:1 decision, the Court held that the sale proceeds were payable to the taxpayer, and therefore payable to the Commissioner as soon as the taxpayer offered unencumbered title to the purchaser, and that Instyle had therefore compromised its position when it released its mortgage over the property. On this basis, the Court ordered that the $75,508.64 be paid to the ATO.
 
While it appears that Instyle took all reasonable precautions to secure receipt of the proceeds of sale, they proved insufficient. This case emphasises the need for mortgagees to carefully consider their rights prior to providing any release of a mortgage where an applicable s260-5 notice has been issued. It will also be interesting to observe how this judgement impacts other security holders in light of the recently introduced PPSR.
 
You can read the full decision here.
 

Posted in: Tax & ATO News Australia at 21 November 12

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

Bullying by the ATO

And so the battle continues ...  ordinary Australians having to self fund their fight with the ATO losing almost everything they have worked hard for on the way, not to mention the breakdown of their relationships and the toll on their health.  Last night's 7.30 Report covered the story of more victims of bullying by the ATO - http://www.abc.net.au/news/2012-11-01/draconian-ato-accused-of-bullying-taxpayers/4344720

Posted in: Tax & ATO News Australia at 02 November 12

Inspector-General of Taxation releases report into ATO's use of benchmarking to target the cash economy

On 4 October 2012, the Assistant Treasurer, David Bradbury, released the Inspector-General of Taxation's report on its review into the ATO’s use of benchmarking to target the cash economy.


This report was made following consultation with stakeholders. Whilst the stakeholders were generally supportive of the ATO using benchmarks to exclude large numbers of likely compliant taxpayers from compliance activities, they were concerned that that the ATO’s benchmark-based compliance activities captured many compliant taxpayers resulting in unnecessary stress, extra compliance costs and time away from their businesses. The report found that the ATO had made adjustments in only 24% of the 7670 benchmark audit cases, meaning that 5830 taxpayers had been wrongly accused.


Overall the report made 11 recommendations to improve the use of benchmarks by the ATO. Although the ATO agreed with nine recommendations, I am concerned that the ATO only partially agreed with two. One of these recommendations was that the ATO agree to publish more information about how it develops and uses its benchmarks. However, the ATO has refused to publish geographical comparisons of benchmarks. The other recommendation was better record-keeping and the accurate reporting of income so that the overall costs for small business are minimised.
 

Posted in: Tax & ATO News Australia at 26 October 12

Qantas loses GST battle with ATO

On 2 October 2012, a landmark decision was handed down by the High Court of Australia in favour of the Commissioner of the Taxation.

 

The majority held that that Qantas must pay GST to the Commissioner of Taxation on tickets sold for flights that were never taken, and where customers never sought a refund.
 
Qantas argued that it was entitled to keep $34 million in GST on non-refundable and refundable but unclaimed tickets as it had not made a supply.
 
On the other hand, the Commissioner of Taxation argued that Qantas had made a supply by keeping its fares for its customers.
 
However, after examining the terms and conditions of Qantas’ contracts with its passengers, the majority held that Qantas does not provide an unconditional promise to carry passengers or their baggage on a particular flight. 
 
Instead the majority held that, “[Qantas] supplied something less than that. This was at least a promise to use the best endeavours to carry the passenger and baggage having regard to the circumstances of the business operations on the airline. This was a ‘taxable supply’ for which the consideration, being the fare was received.”
 
This case makes it clear that taxable supply is made incurring GST liability even if a passenger does not show up for their flight. This decision could therefore implicate other businesses that charge GST on non-refundable tickets, such as tour companies, ticket operators and other transport operators.
 

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

Federal Government amends Part IVA restrospectively

In the last two years, the ATO has lost nine out of the fifteen Part IVA cases. In a number of cases including Futuris, RCI and AXA, the Court held that Part IVA did not apply because the taxpayer had demonstrated that if the scheme has not been entered into or carried out, it was a reasonable assumption that the taxpayer would not have proceeded with the transaction and therefore did not obtain a “tax benefit”.

 

In response, the ATO has pressured the Federal Government to amend Part IVA. On 1 March 2012, the Federal Government announced that Part IVA will be amended retrospective from 1 March 2012. In making the announcement, Senator Arbib stated that, “The Government amendments will confirm that Part IVA always intended to apply to commercial arrangements which have been implemented in a particular way to avoid tax. This also includes steps within broader commercial arrangements.”
 
Given that the details of the amendments are yet to be determined, it seems outrageous that the amendments will be enacted retrospectively. Taxpayers will just have to wait until the Federal Government introduces the amendments in Parliament. The Federal Government has indicated that it intends to introduce the amendments in Parliament in Spring 2012, yet it will be interesting to see whether the Federal Government meets this deadline. 
 

Posted in: Tax & ATO News Australia at 17 September 12

Tom Tate shuns carbon tax

See Channel 9’s news story http://www.nbnnews.com.au/index.php/2012/09/12/tom-tate-shuns-carbon-tax-supporters/

 

Should Tom Tate be budgeting for the Federal Government’s carbon tax?  I believe he should certainly be obtaining some specialist legal advice and quickly!
 
For anyone who might like to make their own decision or just get their head around the whole carbon tax issue, here are some handy links to carbon tax related pages:-
 
 
 

Posted in: Tax & ATO News Australia at 13 September 12

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Tax & ATO News Australia

Author: David Hughes

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