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

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

As a result of this, businesses are cutting staff, reining in their accounts receivables and lengthening their creditor payment terms to ease the cashflow until things are back to normal.

The governments of the world are also experiencing the GFC in the same way. After all, a government is essentially a national not-for-profit business with tax income as its revenue and budget spending as its expenses.

So, as business profits fall and unemployment rises, the tax base that the government receives its income from decreases accordingly. On the flip side, its expenses will rise as unemployment benefit payments increase and greater government spending is needed to boost the economy.

The recent trend of governments cracking down on tax evasion and offshore tax havens is the government’s way of protecting its tax base from being eroded.

The ATO has been operating two very successful programs (Project Wickenby & Offshore Voluntary Disclosure Initiative) which have actually turned a profit for the government.

The Australian Labor Party recently released a media statement on its website from Assistant Treasurer, Nick Sherry boasting of the success of these programs.

These two programs are the carrot & the stick of the ATO against tax evasion and offshore tax havens.

PROJECT WICKENBY

Tax revenue generated:  $440m

Operating costs: $211m

NET PROFIT: $189m (as at Oct 2009)

Note:

With such a fantastic ROI for the government, it is not surprise that the program have been extended to 2012-13 with an increased budget of $430m.

Offshore Voluntary Disclosure Initiative

Tax revenue generated: $50m

Operating costs: Unknown but may be negligible due to the voluntary disclosure nature of the program. ie Tax amnesty

Perspective

When you take into account that $16 BILLION DOLLARS was sent offshore in 2008, these tax collections are only the tip of the iceberg.

Or from a business point-of-view, imagine having a potential market worth $16bn..! And, your company (ie. ATO) is the only one with the power to recoup it.

How much would YOU spend to get a piece of that pie? I bet plenty…!

Cheers,

Taxabull Team

You can follow us on twitter: twitter.com/austax

News stories relating to this topic

news.com.au – Business

news.com.au – PerthNOW

Yahoo!7 – Finance

According to CCH:

“A tax contribution by one unnamed company had a significant impact on the federal budget deficit which has come in $5 billion better than expected.

The final budget outcome for the 2008/09 year was a deficit of $27.1 billion instead of the $32.9 billion deficit forecast in the May budget.”

We wonder who this was? Telstra? Google? Oh to be a fly on the wall in the tax department and see this tax return. Let the rumours run rampant!

We love Swanny’s quote: “”Well, there was one very large one-off tax payment,”

Read the rest of it here at CCH.

Taxabull team.

The R&D tax concession allows companies to deduct qualifying expenditure at 125% (normal) or 175% (premium).

For more info about eligibility, check out the Ausindustry website.

Why?

Basically the government is trying to build up the intellectual capital of our country. This acts as a little booster for any companies who willing to do the hard yards.

How?

Since this is a government initiative and specifically the ATO is involved, there may be just a little bit of paperwork….

Its not that bad but the ATO R&D tax concession section has all you need to know.

They have even provided you with an Excel spreadsheet to calculate how much R&D expenditure you can claim in your company tax return.

From the Taxabull team.

#1 provider of Australian tax information on twitter

This all started last year when the ATO decided to abolish an excise exemption over BHP’s gas field in the North West shelf. This meant that BHP and its partners would be liable for up to $500m in excise duties..!

Rather than directly attacking the ATO about this unexpected development, BHP decided to adopt a more subtle tack…

They decided to wholeheartedly agreed with the new law and instead, are arguing that the North West shelf comprises of several gas fields NOT one giant gas field.

This would mean that each gas field would fall under a separate production threshold which would effectively reduce the excise tax liability for the companies involved.

Will it work?

Only time will tell but you have to appreciate the creativity and finesse that the BHP tax advisors had dealt with this issue. With the amount of money involved, it is definitely worth a try..!

From the Taxabull team.

#1 provider of Australian tax information on twitter

So, it is with interest that we see an increased level of interaction between the ATO and the mining industry.

Research & Development Tax Breaks

The Treasury is looking into redefining the types of expenditure that constitutes R&D for the mining industry. It is specifically looking at disallowing deductions for “indirect” R&D costs.

A significant part of the R&D cost for mining companies is something called “overburden” costs.

This is cost to the miners of removing waste whilst extracting the valuable raw ore. The costs may involve blasting to remove the waste material as well as returning the land to its natural state after extraction.

The mining industry is one of the major users of the R&D tax concession so it will be interesting to see how the government will weigh the tax savings generated vs. encouraging economic growth.

Its a typical short-term vs. long-term argument.

From the Taxabull team

#1 provider of Australian tax information on twitter

We have put together a list of simple tax tips for everyday Australians. Tips like considering salary packaging, consolidating your super and the timing of your tax return.

Please check out our guest post for Savings Guide.

If you have any tax questions, please leave a comment!

From the Taxabull team.

#1 provider of Australian tax information on twitter

In other words, until the ATO is defeated once again in court, it will not allow education expenses to be claimed against “Commonwealth education assistance schemes”.