Tax & ATO News Australia

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

Moignard And Commissioner Of Taxation:

This is an interesting decision of the AAT in relation to trust distributions. Much of the analysis it unsurprising, but the trust disclaimer argument would have been of great interest had it had a better run.  With the greatest of respect to Mr Moignard this case also shows the difficultly of representing yourself in tax cases, even before the case gets to the more formal jurisdiction of the Federal Court (eg, on objections with the ATO, or at the AAT). Raising matters at the last minute never find favour with the courts and tribunals, and getting early advice about the potential arguments is critical.


Quick Summary:

  • Commissioner issued an amended assessment for $243,959.84 and imposing a penalty of $187,043.45 for 2007-8 FY.
  • Taxpayer sought to introduce a ‘capital argument’, which the tribunal disallowed.
  • Commissioner advanced alternative argument that the taxpayer was presently entitled to one third of the $480,476, which was the net profit from the sale of a property held by the trust. On the basis that the default provision of the RST Deed provided where there has been no exercise of trustee discretion to pay, apply or set aside the Deed had the effect of making the taxpayer and his two children entitled to the net profits in equal shares.
  • Bean DP found that the default clause of the trust deed operated, the amounts assessed by the Commissioner were excessive being “$51,671.10 versus $195,814.20”.
  • Bean DP found the written resolution and the “certificate” did not support a valid distribution to another trust as they were produced well after financial year in question.
  • Bean DP found the taxpayer’s true entitlement did not come to his knowledge before making the disclaimer, thus it was not effective.
  • Bean DP agreed with the Commissioners Moignard application of 50% penalties for the taxpayer’s recklessness as he had the capacity and resources which should have enabled him to arrive at a better and more accurate understanding of what his true taxation liability was. 


Article Summary:

This is an interesting decision of the Administrative Appeals Tribunal (‘AAT’) in relation to trust distributions. Much of the analysis is unsurprising, but the trust disclaimer argument would have been of great interest had it had a better run.
 

On 18 October the AAT released its decision in relation to the rehearing of Moignard and Commissioner of Taxation, following an appeal to the Federal Court.
 

Upon the rehearing of the matter, the Commissioner sought to advance his alternative argument that the trustee did not exercise their discretion to pay, apply or set aside the trust income. On this basis, the default provisions of the trust deed would apply to deem trust income be distributed equally between the taxpayer and his two children.
 

In light of the Commissioner’s abandonment of his primary argument, the taxpayer sought to include a new argument, which Bean DP dismissed given it was raised at a very late stage of the proceedings.
 

The taxpayer sought to argue that it had made a valid distribution during the 2007-8 financial years, which was supported by a written resolution and certificate made in April 2011. Bean DP agreeing with the Commissioner concluded that the resolution was not made until well after the end of the relevant accounting period, and therefore could not amount a determination to distribute.
 

Additionally, the taxpayer contended that the taxpayer disclaimed the purported distribution of funds” from the sale of the property. However, the Tribunal rejected this argument, finding that the disclaimer did not relate to the actual share of the taxpayer’s trust income and was clearly not made on the basis of an understanding of the operation of the deed or the share of the trust income to which he was entitled.
 

Bean DP found that in order for a disclaimer to be effective, the disclaimer would have to indicate or be made on the basis of an understanding of what the taxpayer’s entitle actually was.
 

One of the final issues the Tribunal addressed was the appropriate penalties. The Commissioner sought to apply a 50% administrative penalty for Mr Moignard’s recklessness in complying with tax laws. The Tribunal taking into account Mr Moignard’s extensive qualifications and commercial experiences found that he “had capacity and resources which should have enabled him to arrive at a better and more accurate understanding of what his true taxation liability was.” Accordingly, the Tribunal agreed with the Commissioners application of a 50% administrative penalty.

In conclusion, Moignard and Commissioner of Taxation shows the importance of understanding the terms of a trust deed and ensuring the appropriate documents for distributions are recorded in the same accounting period.



 

Posted in: Tax & ATO News Australia at 25 October 17

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

Uber BV v The Commissioner of Taxation

Last Friday, the Federal Court held that services supplied under the uberX service constitute “taxi travel” within the meaning of s 144-5 (1) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth).

 

To give context to this dispute, following the rise in popularity of the ride sharing platform the Australian Taxation Office (ATO) announced in 2015 that Uber drivers will have to register and pay GST, regardless of turnover. The general rule regarding registration is that an enterprise with a turnover of less than $75,000 is not required to register for GST. An exception to this rule is Section 144-5(1) which requires a person who is carrying on an enterprise of supplying ‘taxi travel’ to be registered for GST regardless of turnover. Section 195-1 of the GST Act goes on to define ‘taxi travel’ as ‘travel that involves transporting passenger, by taxi or limousine, for fares’.

 

The Australian Taxation Office (ATO) took the position that the Uber platform fell within this exception. However Uber disagreed with this position and sought a declaration from the Federal Court that the services provided by UberX drivers did not constitute taxi travel.

 

Applicant Submissions:


The applicant made submissions on the construction of ‘taxi travel’ claiming:

 

  • ‘Taxi Travel’ was intended to apply only to the taxi industry as the legislature did not seek to deal with this issue in any other industry.

  • The statutory context suggests that the words “taxi” and “limousine” bear a trade or non-legal meaning. Alternatively the ordinary meaning of the words “taxi” and “limousine” was heavily influenced by the underlying regulatory regime.
  • The disjunctive “taxi or limousine” in the definition of s195-1 provides that “taxi” and “limousine” have different meanings.

 

Using the above mentioned arguments on statutory construction, the applicant put forward factual arguments distinguishing Uber from Taxis. The applicant contended that Uber services did not display the essential operational features of a taxi, on the basis that Uber vehicles do not show markings, the access is limited to Uber licensees (App Users), payment systems and calculations differ and Uber drivers are not required to display a fare meter.

 

Respondent Submissions:


The respondent’s made submissions that:

 

  • “Taxi travel” is to be construed as a whole and connotes the transport, by a person driving a private vehicle, for a fare irrespective of whether the fare is calculated by reference to a taximeter.

  • The services supplied by Uber demonstrate the essential features of transport “by taxi” and “by limousine”.
  • The applicant incorrectly relied on the regulatory regimes applying to the taxi industry.

 

The Commissioner in support of its submission on the construction of ‘taxi travel’ used dictionary definitions to help identify the key features of a ‘taxi’ in ordinary understanding.

 

Furthermore the Commissioner made submissions that the difference between a limousine and a taxi was that a limousine is not calculated by reference to a taximeter and will need to be pre-booked. Therefore, “limousine” could apply to any hire car.

 

Decision:


Justice Griffiths “accepted the Commissioner’s submission that the word “taxi” is a vehicle available for hire by the public and which transports a passenger at his or her direction for the payment of a fare that will often, but not always, be calculated by reference to a taximeter”. In reaching this decision, consideration was placed on principles of statutory interpretation. Further to this the dictionary definitions the Commissioner relied upon provided the court with a supporting context of this interpretation.

 

However, Griffiths J rejected the Commissioner’s position that limousine was not confined to luxury cars. Instead the ordinary meaning of limousine “was a private luxurious motor vehicle which is made available for public hire and which transports a passenger at his or her direction for the payment of a fare”. Although the present matter involved a Honda Civic which did not meet this definition, Griffiths J recognised this position may be different in cases of other UberX drivers who do use luxury cars.


Ultimately this decision will impose huge compliance burdens on Uber and its drivers. Particularly Uber drivers will now have to register both an Australian Business Number and register for GST, charge an additional 10%, lodge Business Activity Statements and claim Input Tax Credits.

 

With this being another win for the Commissioner, it can be expected that there will be a crackdown in tax compliance within the ride sharing industry. 

Co-authored with Ben Caratti

Posted in: Tax & ATO News Australia at 09 March 17

Consultation paper September 2016: Proposed changes to penalties for small business and individuals.

The ATO has recently released a consultation paper titled ‘Proposed changes to penalties for small business and individuals.’ More information on the proposed changes can be found on the ATO website.
 

Essentially, under the proposed changes, the ATO will provide ‘one chance’ before applying a penalty in the following circumstances:

  • For certain small businesses and individual clients, the ATO will not apply penalties for false or misleading statements for failure to take reasonable care for errors made in income tax returns and activity statements, and
  • the ATO will not apply failure to lodge on time penalties for late lodgement of income tax returns and activity statements


The ATO is of the opinion that it is open to the Commissioner to exercise his general powers of administration to give effect to these changes, and therefore a law change is not required.

 

The following parameters would apply to this proposal:

  • The one chance policy would be available to small businesses (with turnovers under $2 million) and individuals, subject to some criteria, with eligible taxpayers being informed at the time that the ‘one chance’ opportunity is provided.
  • This policy would not extend to taxpayers who demonstrate reckless or dishonest behaviour, or those who disengage or cease communicating with the ATO during an audit or review
  • Those who receive their one chance will be given a clear explanation of their error, and what they need to do to get things right in the future.
  • After the one chance has been provided, failure to lodge on time penalties would automatically apply if lodgement was not received by the due date.


The ATO claims that this policy is designed to benefit the taxpayer, as the taxpayer will save time and money by, for example, avoiding the need to research penalty information, lodge objections, and of course, release from the penalties that would otherwise be imposed.

 

However, those with a more cynical eye, or those who have more experience in dealing with the ATO, will likely have a different idea about the ATO’s motives, as well as the possible effects of the proposed changes.
 

Firstly, it is possible that these new rules may encourage overzealous auditors to circumvent the one chance policy by pursuing taxpayers for the 50% penalty rate for reckless or dishonest behaviour where they would not have previously.
 

There are also areas of uncertainty which have not yet been addressed by the ATO. Say, for example, that a taxpayer has not lodged their returns for the 2012, 2013, and 2014 financial years. In light of an audit, would the one chance rule apply to all three years, or just to the first year, with penalties then being automatically assessed for the following years?
 

The ATO’s intentions surrounding future penalties after one chance has been given are also cause for concern, particularly in light of the ATO’s statement that,

‘After the one chance opportunity has been provided, failure to lodge on time would automatically apply if lodgement was not received by the due date.’

Whilst according to the legislation penalties do indeed automatically apply, the current opportunity to contact the ATO to explain the reasons for delay seeking an exercise of the Commissioner’s discretion to remit the penalty seems to be closed to a taxpayer who has been given ‘one chance’.
 

A taxpayer with good grounds to be treated leniently would have to pursue more formal legal avenues, which would likely mean greater costs and more time, a result that is antithetical to the ATO’s supposed intentions.
 

While these proposed changes may appear good natured and well-intentioned at first glance, it remains to be seen whether the likely results of the changes will result in a net positive for the taxpayers of Australia.
 

Posted in: Tax & ATO News Australia at 10 October 16

Taxpayer Alerts

 I have blogged before about the change in the ATOs audit and dispute resolution approaches.

While some of this is great (for example, the ATO’s desire to resolve more disputes without going to court), one area that is increasingly concerning me is how the ATO uses Taxpayer Alerts in the audit process.

The ATO says that ..

We issue taxpayer alerts to warn you of our concerns about new or emerging higher risk tax or superannuation arrangements or issues that we have under risk assessment. Our aim is to share our concerns early to help you make informed decisions about your tax affairs.

This is a great concept: getting ahead of the curve and preventing a taxpayer from diving into an aggressive tax avoidance scheme is precisely the sort of pro-active and effective use of scarce resources that taxpayers want to see.

But the reality is that the ATO increasingly is using Taxpayer Alerts as an aggressive audit tool, rather than pro-active engagement.

I have seen a number of recent cases where the ATO has changed its position from established tax rulings and departed from established court judgments and created a new high water mark in a Taxpayer Alert. The ATO then uses this new high water mark as the benchmark to determine whether the taxpayer should be audited, and if so, if an assessment should issue.

This is particularly of a concern where the Taxpayer Alert identifies something that was done years in the past.

I support the use of Taxpayer Alerts when looking at amnesties for those people who may have already engaged in aggressive tax avoidance.

It bothers me greatly when auditors point to a taxpayer alert (particularly one that stretches the application of tax law beyond what is the ATO’s existing position) as justification for commencing an aggressive audit against a taxpayer. When that happens the taxpayer is bewildered, feels victimised and cannot understand why their accountant said that the arrangement was legitimate.

If you have received an audit or notification with reference to a taxpayer alert, please contact me. I am keen to pursue this issue further so that the use of taxpayer alerts is confined to worthwhile, proactive tax administration, not aggressive and ultimately pointless audits.

Posted in: Tax & ATO News Australia at 26 July 16

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Author: David Hughes

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