Thinking | 26 November 2017
Talking Tax – Issue 104
Don’t try to skip town!
On 3 November 2017, the Federal Court in DCT v Ma  FCA 1317 granted asset freezing orders in relation to recovery proceedings for accrued taxation liabilities owed by three taxpayers to the New Zealand Commissioner of Inland Revenue.
This case highlights the increased level of cooperation between the revenue authorities of different jurisdictions, as well as the practical cross-border measures that can be applied to ensure compliance and enforcement. Further, it shows that the courts are willing to initially grant the ATO ex parte freezing orders in circumstances where there is no direct evidence of an intention to frustrate judgment.
The freezing orders were sought by the Deputy Commissioner of Taxation (DCT) in relation to debts that totalled over $16 million for three individual taxpayers. The Federal Court granted freezing orders over the individuals, as well as four related corporate entities which were not party to the proceedings.
The freezing orders sought for the first and second taxpayer (husband and wife) related to accrued tax liabilities which were owed pursuant to arrangements under Article 27 of the Australia and N.Z Double Tax Agreement (DTA).
Relief was also sought in relation to a third taxpayer (son), on the basis that under the DTA, a liability existed which was not yet payable. For this reason, the Court distinguished the relief sought in relation to the third taxpayer and granted the (amended) order sought by the DCT for judgment once the time for payment had passed.
The Court was satisfied that based on the evidence presented by the DCT, there was a danger that the taxpayers may seek to dissipate the assets they control or remove assets from Australia so that prospective judgments may remain unsatisfied.
The Court found that there was no direct evidence of a positive intention on the part of the taxpayers to frustrate a judgment, but that there was evidence from which inferences could be drawn of a real risk or danger that each of them might attempt to do so. The Court considered the following evidence:
- first, the Court accepted evidence that the father and son had been directors of companies that had claimed and been paid large amounts of GST credits to which they were not entitled
- second, the use by the father of a bank account in Australia which is in the name of a Chinese national who arrived in Australia in May 2006, established the bank account and then left in August 2006 and has not returned. Based on this, the Court was satisfied that the father appeared to be concealing his financial activities behind the facade of another person through the use of this bank account
- third, only a few weeks after notification of the taxation debts by the New Zealand Commissioner of Inland Revenue Service, the husband and wife placed their Australian properties, either owned personally by them or through a corporation they controlled, on the market for sale (some of which had settled by the time of the proceedings) and
- finally, after the DCT notified the husband and wife of the foreign revenue claims and consequent garnishee notices, each of them transferred substantial funds from Australia to China, or otherwise removed from the bank account used by the first respondent (but in someone else’s name) almost all funds.
On this basis, the Court found that there were sufficient grounds to grant the orders sought by the DTC.
No more deductions for your Noosa trips!
On 15 November 2017, the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 (Bill) passed both Houses without amendment.
As discussed in Talking Tax- Issue 94, the Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to implement the following two measures announced in the 2017-18 Federal Budget:
- denying deductions for travel expenses concerning premises. The amendments will, for example, prevent mum and dad investors from deducting airfares and travel expenses associated with inspecting rental properties and
- restricting depreciation deductions for assets used in rental properties. These amendments will apply to limit depreciation deductions by mum and dad investors (who are not carrying on a business) for ‘second-hand’ residential plant and equipment.
These new rules apply for the income years commencing on or after 1 July 2017, and taxpayers submitting returns after this period are reminded to ensure they do not habitually claim deductions to which they have previously been entitled.
The Bill also implements an annual vacancy fee for foreign owners of a residential property that is not occupied or available for rent for at least 6 months in a 12 month period. Broadly, the vacancy fee is the same fee that was payable at the time the foreign owner submitted their Foreign Investment Review Board application. The fee applies on a sliding scale starting at $5,500.
The annual vacancy fee applies from 9 May 2017, and foreign residents will be required to furnish the Commissioner with a vacancy fee return 30 days after the end of a ‘vacancy year’. The vacancy year is unique to each foreign person and will begin on the first day the foreign person has the right to occupy the relevant dwelling.
The passing of the Bill further cements the Federal Government’s plan to tackle housing affordability. Given the new laws, residential property investors and their advisers should seek to update their practices and procedures sooner rather than later in order to ensure compliance.
For more information about this Bill and the accompanying measures announced in the 2017-18 Federal Budget, see Hall & Wilcox’s 2017 Federal Budget Insight.
Transparency of tax debt measure (TOTD Measure)
On 22 November 2017, the ATO conducted a webinar on proposed legislation to allow the ATO to disclose overdue tax debt information to credit reporting agencies. The ATO is currently unable to report this information under the confidentiality of taxpayer information provision.
The TOTD Measure is intended to apply to businesses with an ABN (unless they are specifically excluded) with a tax debt, of which at least $10,000 is overdue by more than 90 days.
The TOTD will require new legislation to be passed to allow the ATO to report tax debt information of business to credit reporting agencies. Among other things, during its webinar the ATO noted the following:
- similar laws were introduced in New Zealand in April this year
- the aim is to allow other businesses to make more informed decisions in relation to the businesses that they trade with
- tax debt information will be reported to Credit Reporting Bureaus - ie credit rating agencies or bodies
- business will be giving a warning letter no notify them that their tax debt will be reported unless they act soon and
- where debts are paid, tax debt information will be removed and it cannot be used in a business’s credit report or credit history. This is different to standard practice where debts remain on file for 5 to 7 years.
E-Audits - a new way for the ATO to acquire information
On 13 November 2017, the ATO released a statement on how e-Audits are used to verify that taxpayers are paying the correct amount of tax. Essentially, an e-Audit involves the compilation, verification and analysis of taxpayer provided electronic records and accounting information by the ATO.
The ATO will consider using an e-Audit for taxpayers who maintain electronic records and are subject to an audit or review. In such circumstances, taxpayers will be required to hand-over their electronic records for analysis by the ATO.
Practically, an e-Audit would involve the review by the ATO electronic data stored in:
- accounting and point-of-sale systems
- electronically stored work papers, financial accounts and reports and
- applications and systems used to record and track receipts or payments.
As business becomes more digitised, it is important that electronic records are well maintained to ensure that audits and reviews are completed with as little stress, cost and wasted time as possible.
Extension of time to lodge Country-by-Country reporting (CbC Reporting) Statements
An update in relation to the implementation of domestic legal frameworks for CbC Reporting can be found here.
Given that this is the first reporting year, and as the due date (31 December 2017) falls within the Christmas closedown period, the ATO have made a decision to grant an extension of time to lodge CbC statements.
For this first reporting year, December balancers will have until 15 February 2018 to lodge their CbC statements (ie the Local File, Master File and CbC report as applicable under the law).
The ATO is currently working to ensure this deferred due date is reflected in their systems. If you do receive a letter from the ATO regarding lodgement of CbC statements, failure to lodge penalties will not apply to statements that are lodged by 15 February 2018.
Blockchain and Cryptocurrencies - a starter pack to understand the new language
Our Hall & Wilcox tax team has been very active in this space.
Thomson Reuters and Hall & Wilcox both published an article by Joni Pirovich, ‘Tax, blockchain and cryptocurrency - what’s all the fuss about!’
- do not assume that the profit on your Bitcoin transactions is not taxable or is subject to CGT and
- keep clear records of your transactions, activities and the intentions behind them, particularly if you are purchasing Bitcoin both for personal use and for speculative gain.
Given the rise in popularity and value of cryptocurrencies, tax lawyers, accountants, investors and members of the public should consider the tax consequences sooner rather than later.
If you would like to know more about cryptocurrencies, please contact Anthony Bradica, Joni Pirovich or Adam Dimac.
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