Talking Tax – Issue 9

This week we’re talking tax about…

ATO updates

Tax agents– do you have an overdue tax obligation?

The ATO has issued a stern warning to tax agents with outstanding tax obligations.

In April this year, the ATO issued final notices to tax agents with outstanding obligations with a due date of 1 June 2015.

131 tax agents who had not complied with their obligations by 1 June 2015 were referred for prosecution and reported to the Tax Practitioners Board. Fines totalling over $100,000 were also issued.

The ATO has warned that if tax obligations are still not satisfied, further action will be taken, including prosecution, audits and penalties, which will affect reputation and ability to operate as a tax practitioner.

Addendum to MT 2012/3 on voluntary disclosures: ACAs and APAs

The ATO has issued an Addendum to MT 2012/3, which deals with administrative penalties and voluntary disclosures.

The amendment clarifies that the ATO will inform taxpayers if it intends to commence a risk review, audit or other examination while an annual compliance arrangement (ACA) or advance pricing agreement (APA) is active. The addendum specifies that ACAs and APAs are not of themselves examinations of a taxpayer’s affairs, though a clause in an APA might indicate to a taxpayer that its statements will be examined.

Voluntary disclosures made after the taxpayer is notified of an examination will be treated as having been made prior to notification, unless the disclosure relates to a significant issue the ATO was not adequately made aware of during review or audit discussions with the taxpayer. If the disclosure is made after the risk review commenced but prior to notification of a resulting audit or additional examination, such a disclosure will be treated as being made prior to notification of the examination.

Updated Division 7A calculator and decision tool

The ATO has updated their Division 7A calculator and decision tool. The tool can assist with the following:

• determining if a direct transaction by a private company to a shareholder (or an associate of the shareholder) will be deemed a dividend; and
• calculating the minimum yearly payment required on a loan to avoid a deemed dividend arising under Division 7A.

The tool also includes an amalgamated loan balance when calculating the minimum yearly repayment and closing loan balance for a given year.

The decision tool is not designed to provide guidance on indirect applications of Division 7A, such as loans, payments and forgiveness of debts by trusts.

SuperStream – ATO urges employers to notify them if they are unable to comply

The ATO has asked employers with more than 200 employees to advise them via an employer notification if they are unable to comply with their SuperStream obligations by 31 October 2015.

SuperStream is a suite of measures introduced by the Federal Government to help make superannuation funds more efficient, and to ensure employer contributions are paid to employees in a consistent, timely and efficient way.

Relevant employers must provide the following information:

• ABN and contact details of the employer;
• the number of employees;
• the SuperStream service partner nominated by the employer (this might be a payroll provider, a clearing house or a super fund);
• a summary of the issues preventing the employer from implementing SuperStream before the due date;
• the employer’s proposed implementation date for SuperStream; and
• any key milestones, for example the first SuperStream contribution or an update of the employer’s payroll system.

Legislation and government policy

Government’s multi-agency approach to fight serious financial crime

The Government has committed $127.6 million over 4 years towards a multiagency Serious Financial Crime Taskforce (Taskforce). During its first two years of operation, the Taskforce will primarily conduct investigation into international tax evasion and criminality related to trusts and phoenix activity.

More broadly, the Taskforce will be responsible for targeting emerging high-priority risks, such as the growing use of technology in professional money laundering and the increase in sophisticated organised crime in the Australian financial sector.

The Taskforce will utilise the specialist intelligence and capabilities of the AFP, ATO Australian Crime Commission, AUSTRAC and ASIC, as well as work with international partner agencies, governments and organisations, to target crimes including fraud, manipulation of the stock market and laundering of proceeds of crime.

Case law

Re Alderton and FCT [2015] AATA 807

The Administrative Appeals Tribunal (AAT) has decided to uphold a decision by the ATO to assess a taxpayer on income received in the form of distributions from a discretionary trust of which the taxpayer was a beneficiary.

The discretionary trust was established by the taxpayer’s partner some years ago (who acted as trustee) and the taxpayer regularly made withdrawals from the trust using a bank card or online banking. The taxpayer was entirely financially dependent on her partner, who was more than 22 years older than her. When the relationship between the taxpayer and her partner ended in 2009, the Trust lodged a trust return which showed a net income of almost $80,000 had been distributed to the taxpayer.

The taxpayer had not prepared a tax return for the 2009 year, and but for the trust distribution, she would have fallen below the taxable threshold. The ATO issued a default assessment to the taxpayer for the 2009 income year, and included an administrative penalty for failure to lodge a return, which was assessed at 75% of the assessed tax liability.

The default assessment included the trust distributions in the taxpayer’s assessable income on the basis that the taxpayer had a present entitlement to them by virtue of section 97(1) of the Income Tax Assessment Act 1936.

The taxpayer objected to the default assessment but not the penalty. The ATO disallowed the objection.

The taxpayer argued before the AAT that she was aware of the existence of the Trust, but was not involved in its financial affairs or its dealings. In 2014, the taxpayer, through her solicitors, disclaimed her entitlement to income from the Trust, saying the disclaimer took effect from the date of settlement of the Trust.

The AAT said, though it was an unfortunate result, the applicable legal principles were clear and the taxpayer’s lack of knowledge of the Trust’s financial affairs was of no consequence.

The AAT called the conduct of the taxpayer’s ex-partner ‘discreditable’, saying he took advantage of the taxpayer’s naivety. The AAT urged the taxpayer to seek remission of the penalty and an exercise of the discretion to release her from her tax debt from the ATO, saying her case presented with considerable merit.

Millar v FCT [2015] FCA 1104

The Federal Court has dismissed an appeal by married taxpayers against the decision of the AAT in Re Morrison and FCT [2015] AATA 114 (Morrison).

In Morrison, the AAT held that certain deposits made by a superannuation fund into a bank account, in conjunction with a loan agreement, were a sham. In the hearing, the AAT gave the taxpayers a pseudonym, explaining why the appeal to the Federal Court is under a different name to the AAT case.

The taxpayers had placed money on deposit with a Samoan bank, with the deposit being made by an Australian superannuation fund controlled by the taxpayers. There was also a contemporaneous loan agreement under which the bank agreed to lend money back to the taxpayers in their personal capacity. The ATO issued amended assessments and notices of assessment of shortfall penalties for the years 2001-2008, on the basis that the loan document was a sham designed to disguise the fact that the taxpayers had accessed their Australian superannuation fund to purchase an apartment, which they were not permitted to do. The sham was a contravention of the superannuation payment standards in Part 6 of the Superannuation Industry (Superannuation) Regulations. The AAT also said the provisions in section 26AFB of the 1936 Act applied, with the effect that an amount received in contravention of the SIS standards is included in the assessable income of the recipient.

The taxpayers objected to the amended assessments, but their objection was disallowed. They appealed to the AAT. The AAT decided the transaction was a sham and upheld the ATO’s stance. The taxpayers appealed again to the Federal Court, which upheld the AAT’s decision.