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

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