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

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