Talking Tax – Issue 10
This week we’re talking tax about…
ATO updates
Review of ATO ‘private advice’
The ATO has issued a discussion paper requesting feedback and comments about the way private advice is provided by the ATO to taxpayers.
The types of private advice currently provided by the ATO include private binding rulings, product rulings, written guidance and early engagement discussions for complex matters.
The review of the private advice system is being undertaken in an attempt to provide clients with a more tailored experience, including delivery of the most effective and efficient advice which is fair and respectful.
The consultation questions are:
- Under what circumstances would you seek advice from the ATO?
- What private advice product(s) do you/would you request and why?
- What opportunities are there to improve the existing private advice system?
The ATO’s private advice program is a valuable tool that helps taxpayers obtain clarity in relation to their tax affairs. If you have any thoughts on the consultation questions, we would be pleased to discuss them with you.
The closing date for comments is 20 November 2015.
Case law
MNWA Pty Ltd & Anor v DCT (No 2)
Two taxpayers have been unsuccessful in their application to have statutory demands set aside by the Federal Court.
The two taxpayers were property developers, undertaking their development activities through a number of different entities. The ATO became aware of the taxpayers’ activities and questioned them about debt recovery disputes and security arrangements, while separate objections and appeals were already underway.
The taxpayers argued that the statutory demands should be set aside under section 459J(1)(b) of the Corporations Act 2001, which gives the Court power to set aside a statutory demand if it is satisfied there is a defect in the demand which will cause substantial injustice or for some other reason.
The plaintiff said the statutory demands should be set aside under that section because:
- The ATO had promised in an interview in April 2014 that no demands would be issued until the objection and review proceedings which challenged the tax liabilities to which the demands related had finished, so long as the taxpayers complied with their obligations as agreed in that interview (known as the ‘Global Deal’).
- The ATO had acted unconscionably by issuing the statutory demands, using them to coerce the taxpayers into implementing the Global Deal and to obtain other benefits, which was not the statutory purpose of the demands.
The Federal Court dismissed the taxpayers’ application, saying that while the taxpayers held a genuine subjective belief that a legally binding agreement was entered into as part of the Global Deal, this was not in fact the case and, on the evidence, there was no agreement.
The statutory demands were also found to relate to further tax liabilities incurred after those discussed as part of the Global Deal. The Federal Court ultimately decided there was no proper basis to set aside the statutory demands, additionally ordering the taxpayers to pay the ATO’s costs.
Bai v FCT (No 2) [2015] FCA 1083
The ATO has appealed against a decision of the Federal Court to the Full Federal Court.
Following an audit into the taxpayer’s affairs, the ATO issued an amended assessment for the 2005 year, which substantially increased the taxpayer’s assessable income. The ATO also formed the opinion that the taxpayer had engaged in fraud or evasion and this was reflected in the amended assessment.
The taxpayer applied to the AAT to review the amended assessment, arguing it was excessive because firstly, it took into account transfers between the taxpayer’s bank accounts and secondly, it was made without power because there was no fraud or evasion.
The AAT decided in favour of the ATO, saying the taxpayer was unable to prove beyond reasonable doubt that there was no fraud or evasion.
The taxpayer then appealed to the Federal Court, arguing that the AAT had applied the wrong onus of proof. The taxpayer contended it was only required to prove there was no fraud or evasion on the balance of probabilities, not beyond reasonable doubt.
The Federal Court decided in the taxpayer’s favour, saying the AAT did apply the wrong onus of proof, because it required the taxpayer to “exclude the possibility” that fraud or evasion had occurred, which was not the correct onus. The balance of probabilities was the correct onus of proof. The Federal Court allowed the taxpayer’s appeal and remitted the matter to the AAT to be heard again by a reconstituted tribunal.
The ATO has now appealed the Federal Court’s decision to the Full Federal Court.
Legislation and government policy
China Free Trade Agreement Implementation Bills pass House of Representatives
The Customs Amendment (China-Australia Free Trade Agreement Implementation) Bill 2015 and the Customs Tariff Amendment (China-Australia Free Trade Agreement Implementation) Bill 2015 have both passed the House of Representatives with no amendments and will now move into the Senate.
The Bills give effect to the China-Australia free trade agreement. The Australian Government says it hopes the agreement will come into force before the end of the year to allow both Australia and China to take advantage of the business benefits which will be generated by the agreement.