ATO says NO SMOKING..!!

The ATO has won a Federal Court case against British American Tobacco and is looking to reap a tax bill of $89m.

The $89m comprises of $42m capital gains tax liability plus $11m of penalties and $36m of interest.

The Federal Court case relates to the sale of nine cigarette brands in 1999 as part of the worldwide merger of British American Tobacco plc and Rothmans International BV.

Justice Arthur Emmett confirmed that the asset sale fell foul of Part IVA (Anti-tax avoidance provision) because the arrangement was predominatly designed to gain a tax benefit.

In summary, the arrangement allowed the capital gains on the sale to be rolled over to the parent company which at the time had accumulated capital losses.

The capital losses was then offset against the profits on sale resulting in no capital tax payable.

This case is related to a transaction in 1999. So, it is evident that the ATO is becoming more willing to use Part IVA to keep corporate Australia on their toes.

Regards,

Taxabull Team

Source:

Article by Elisabeth Sexton for SMH BusinessDay on 23 Dec 2009

Income tax can't be treated like a game - photo by Alan Cleaver

 http://www.flickr.com/photos/alancleaver/ / CC BY 2.0

 Don’t want to rush you…………..

But, if you want to take advantage of the ATO’s 50% business tax break, you only have SEVEN WORKING DAYS left..!!

If you buy a new eligible asset for your business by the 31 December 2009, you will be entitled to an immediate 50% tax deduction of the cost PLUS the normal depreciation deductions.

We covered this in detail as part of our Federal Budget 2009 review in our previous reincarnation as Austax.

If you won’t actually receive the car, computer, etc that you bought until AFTER 31 December 2009, don’t panic..!

The rules are that the PURCHASE needs to happen before 31 Dec 2009. You have until 31 Dec 2010 to receive, install and use the actual asset.

You may find that this is the case with motor vehicles purchases where the vehicle gets shipped to you months later.

So, the key is to have a legal contract / purchase agreement signed and paid for BEFORE 31 December 2009.

That way, you will still be entitled to the 50% tax break even if the asset is only installed or ready for use after the year-end.

So, don’t be a scrooge and buy your business a new set of wheels or a fan-dangled computer today…!

Go on… Your accountant will love you for it….

Cheers!

Taxabull Team

Justice will be served..!!

This is our continued coverage of this tax case regarding the deductibility of self-education expenses against Youth Allowance income……

The full Federal Court found in favour of Symone Anstis on 4 November 2009.

However, the ATO has once again lodged an application on 2 December 2009 for special leave to appeal against this decision to the High Court.

This should be final rung in the ongoing dispute, so until then, the ATO’s existing non-deductible view stands.

Keep those tax receipts though as we think that Symone has a very strong case to argue.

TIMELINE OF EVENTS (UPDATED) 

FINAL CONCLUSION

The Symone Antis v. FC of T case confirms that education expenses should be allowaed as deductions against Youth Allowance income.

This is a massive win for tertiary students around Australia earning Youth Allowance income!!

From a revenue perspective, the court ruled that Youth Allowance is assessable income as per s 6.5. It doesn’t fall under educational scholarships which is exempt income as per s 6-20.

In fact, it is specifically mentioned in s 51-35 that,

“‘The following payments made to or on behalf of a full time student at a school, college or university are not exempt from income tax under item 2.1A of the table in section 51 10:”

The court also ruled that “the expenditure in question was incurred in the course of gaining or producing the respondent’s assessable income within the first limb of s 8-1″.

It is amazing that the Commissioner was pursuing the case so vigourously considering the facts of the case. Perhaps it is indicative of the overall aggressive tact taken recently by the ATO.

Here’s a quick recap for those who are new to this case…

SUMMARY FOR THOSE WHO MISSED THE CASE RULING

Symone (the taxpayer) is claiming that her education expenses should be tax deductible because being enrolled in a tertiary education is one of the prerequisites for her entitlement to Youth Allowance.

So, she claimed various expenses such as textbooks, depreciation on the computer, travel, etc.

The ATO claimed that this was bogus because she incurred these education expenses to finish her teaching degree and eventually qualify as a teacher.

They are arguing that the expenses are not deductible because it wasn’t incurred to derive an income. That is, she was not earning money as a teacher yet at this point in time.

They also rejected the argument that the education expenses was a valid deduction to get Youth Allowance income.

 TIMELINE OF EVENTS

Cheers!
Taxabull Team

“The  Tax Sub-committee discusses recent tax developments, reviews proposed amendments to tax law and will make submissions where appropriate and organises social and networking events.

Joining the Tax Subcommittee is an excellent opportunity to keep up to date and meet other lawyers who are share an interest in tax law and work in the area.  The Tax Law Subcommittee has members from a diverse range of professional backgrounds – law firms, accounting firms, corporate and the ATO.

The Tax Law Subcommittee meets on the last Wednesday of every month at 6.30pm at the NSW Law Society Building  at 170 Phillip St. If you are interested in being a part of the Tax Law Sub-committee, please email the Subcommittee Chair, Gulfam Ahmed.”

It looks like a good opportunity for lawyers practising in the area of tax law to meet other industry members and to  discuss new and emerging tax issues.

Cheers,

Taxabull team.

Fight Night..!

We thought that this was a very weird and compelling look into the expatriate community in Hong Kong…!

This story appeared in Bloomberg about a growing trend amongst the hedge fund community in Hong Kong to learn martial arts. The bankers / fund managers are drawing parallels between fighting in the markets and fighting in the ring.

This culminates into a yearly event called the “Hedge Fund Fight Night” where a motley crew of inexperienced finance professionals fight for glory and charity..! The fight night raises money for Operation Smile & Operation Breakthrough.

A South African trust-and-tax lawyer is taking part without any other fighting experience except for “a few street fights”. Funnily enough, his mother noted that despite the training, he is yet to have a six-pack….

Cheers!

Taxabull Team

You can view all our CPA Congress photos on Flickr. Take a look here. There’s are 23 photos – all highlights over the 3 days! We’ll be uploading some more shortly.

Cheers,

Taxabull team

Whilst it was a suspicious offshore transaction that drew the ATO‘s attention to this individual, it did not form part of Project Wickenby. This is despite the money trail flowing thru an offshore tax haven.

Instead, it falls under the jurisdiction of the taskforce investigating “high networth individuals”. That is, individuals whose net wealth is over $30 million.

We can’t help but notice the competition within the ATO to get the high-profile cases. Fair enough since the budgets of government programs live and die by their results.

ROUND 2

Whilst the identity of this person is still a mystery, we do know that the assessment is in the process of being appealed.

All we know so far is that this person sold some substantial overseas assets and tried to hide the money in a tax haven. Presumably, this was done to avoid paying tax on the capital proceeds of the sale.

We can also extrapolate that this person has somehow managed to repatriate some of monies to Australia as this was what that attracted the ATO’s attention to begin with.

This person was incurring substantial business purchases without an explanation for the source of the funds.

Why the secrecy?

First and foremost, our legal system is based on the presumption of innocence and the burden of proof on the prosecution.

Secondly, the person involved is not a public listed company which would otherwise have been subject to public ASX disclosure rules.

Playing devil’s advocate….

Imagine if this offshore financial arrangement was found to be legitimate from an Australian tax law perspective. Moot point, I know…

But, if this person’s identity had been disclosed and he/she was innocent, it would have unfairly impacted on his/her reputation and business relationships.

The stigma of being a “tax dodge” will be with this person forever and may unfairly taint his personal and professional reputation.

Also, on a more immediate impact, an organisation facing a potential $242m tax bill will find it very hard to do business……

• Creditors will not provide the business with credit on purchases and will request only cash-up front payments;
• Customers will not engage in long-term contracts or may delay payment (hoping the biz will go bankrupt & not recover the debt);
• Staff may start leaving for a more stable position in other companies;
• Landlords may terminate lease agreements (if deemed credit risk) or ask for more collateral;
• Banks will tighten their credit requirements or even withdraw their funding; and
• Investors will take flight and request redemptions of their investments.

If the identity of the person is disclosed, the above may well happen to cause the business’s failure BEFORE the conclusion of the trial. In which case, it would have been a form of mob justice which is against our legal principles.

We will keep you updated on the developments of this case. And, it would be interesting to see whether this will ever be made public…!

Cheers!

Taxabull Team

If you use a registered tax agent, you may have be entitled to a longer lodgement deadline. Speak to your accountant for more information.

But, for the rest of us….

Paper Lodgement

If you are using the paper version of the “Tax Pack”, we recommend that you send it on Thursday to ensure that it gets to the ATO in time. Alternatively, you can drop it off in any ATO office lodgement box.

Here are the locations of the ATO shopfronts by state: -

• ACT
• NSW
• QLD
• VIC
• TAS
• SA
• WA
• NT

Electronic Lodgement

If you are lodging online via e-tax, you can download the software here.

The e-tax lodgement software is quite straight-forward and easy to use. And, you will be given a summary of your expected tax payable or refundable before lodgement.

Unfortunately, the e-tax software is currently NOT compatible with MAC computers. You will have to either run emulation software or run e-tax on a friend’s PC.

Happy returns..! And until next year..!

Remember, the best way to minimise your tax is to plan ahead..!

See our guest post for Savings Guide for more info.

Cheers!

Taxabull Team

It was a tale of two cities…… err… I mean, two parties.

On one hand, you have the Moscow Tax Authority (“MTA”) and on the other, you have the Russian Mafia.

In most jurisdictions around the world, the Tax Authorities are an essential part of the war against organised crime. When there is not sufficient evidence to convict criminals based on their illicit activities, they may be caught out by infringements of tax law.

We have covered our recent Australian programs in a previous blog post.

In this case, the Russian Mafia conspired with senior tax officials within the MTA to secure a tax refund worth US$230m via Hermitage Capital, a British hedge-fund manager.

It started with a raid by the MTA to confiscate all the company seals and documentation. The ownership of the company was then illegally changed over to a known criminal.

A bogus lawsuit for US$1billion was filed against the company upon which it was found liable. This in itself is rather disturbing as it suggests that there are elements within the Russian legal system that were also conspirators.

This allowed the criminals to claim the lawsuit as a tax deduction which gave them the nice hefty tax refund of US$230m.

This must be the world record for the quickest refund ever (shame on you, ATO)… but, it only took them 2 DAYS to process AND transfer US$230 MILLION DOLLARS into a nominated bank account.

The Russian government started an anti-corruption investigation into the matter which resulted in the criminals being convicted for the crime. However, no MTA officials were implicated in the crime.

Our view

Russia is a fascinating place with a rich history…..  But, like all things, there are two sides to the coin….

Hermitage Capital hints that it has evidence that fraud against the Russian government is widespread and common.

Some have dismissed this as just one of those things you have to deal with in Russia…. Which is fair enough to a certain extent…. The same attitude have been adopted for China, India, Africa and other countries in South East Asia….

The thing is….

China has changed..! The Chinese government have realised that to grow the economy, you need a strong accounting & legal system in place to attract and retain foreign investment.

To that end, there has been considerable work done in China to educate itself in global accounting standards and taxation law via its many students abroad.

For more about the changing scales of the Chinese Dragon, please read our blog post “China Business Review” from the CPA Congress 2009.

In a future economic world, with China & India as major players with strong legislative systems, where will Russia be?

The question is…

How can you trust a government that defrauds itself?

Cheers,

Taxabull Team

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