Talking Tax – Issue 43

Case law

DCT v Anglo American Investments Pty Ltd & Ors [2016] NSWSC 975

The NSW Supreme Court has granted the Deputy Commissioner’s application to strike out amended defences of various Taxpayers and enter judgment for the Commissioner for debt recovery action in relation to the issuing of amended assessments to them in connection with their tax affairs, which involved the Commissioner obtaining information from the Cayman Islands.

The Taxpayers argued that the assessments were invalid because ATO officers acted unlawfully and in bad faith to obtain information and that their conduct constituted ‘conscious maladministration’ and a contempt of court. The Taxpayers argued breaches of the APS Code of Conduct, and the Public Service Act, to say that the actions of ATO officers amounted to ‘conscious maladministration’ in the course of the process of the assessment. In issue were documents that were alleged to have been obtained confidentially and the transmission of written requests for information which breached the laws of the Cayman Islands. The Taxpayers argued that the officers were not authorised by law to make these requests and breached various provisions of the Public Service Act. Conversely, the Commissioner argued that pursuant to section 175 of the Income Tax Assessment Act 1936 (Cth), an assessment is conclusive evidence that the assessment is properly made and that the assessment is correct.

The Court found that the Taxpayers’ argument that there was ‘conscious maladministration’ was ‘doomed to failure’ in light of the decision in Denlay. In Denlay, information was provided to the Commissioner by a disgruntled employee of an overseas bank connected to the defendant in that proceeding. The Court also found that an alleged contempt of court would not assist the Taxpayers, given the statutory provisions.

This confirmation of Denlay by the Supreme Court in Anglo American has made it clear that the unlawful gathering of information by ATO officers in the process of making an assessment will not, of itself, constitute ‘conscious maladministration’. Rather, the relevant consideration is whether there was actual bad faith or illegality on the part of ATO officers in the making of the assessment, not in the gathering of information or investigation of material leading up to it. This case has once again highlighted the broad powers that ATO officers have and the high hurdle faced by taxpayers in overturning an assessment on investigatory grounds, particularly in an environment where revenue authorities are increasingly working together to encourage global tax transparency.

ATO updates

Voluntary Tax Transparency Code – first 10 companies sign up

The voluntary Tax Transparency Code sets out a number of minimum standards and guidelines that guide disclosure of tax information by companies. This Code was developed by the Board of Taxation on the request of the Treasurer to encourage businesses to allow for greater public disclosure of tax information in Australia, particularly for multinationals, improving transparency and therefore public confidence in Australia’s tax system.

Since the release of the Code on 3 May 2016, certain companies have signed up to the Code and include (among others) AMP, ANZ, BHP, Iluka Resources Limited, Rio Tinto, Stockland, South32, and Telstra. The signatories to the Code can be found here. Some companies will implement the Code on a progressive basis. Whilst the release of the Code should improve community confidence in the tax system, it remains to be seen how many companies sign up to the voluntary guidelines and what difference this will make to the high level of confusion that continues to exist with the distinction between tax and accounting treatments.

ATO provides some ‘Tax Time 2016’ tips and warnings

With ‘Tax Time 2016’ now well and truly underway, the ATO has released a series of messages for taxpayers and tax agents to consider, and among the messages are the following:

  • MyTax has now replaced e-tax. To simplify processing, Assistant Commissioner Graham Whyte suggests that taxpayers hold off until August to lodge returns via myTax as by then, the ATO will have received most the data it needs to pre-fill tax returns. Due to technological advancements and an increased focus by the ATO on electronic data analysis, the ATO are now able to check deductions in real time this year, for example, if claimed deductions are substantially higher than others in similar occupations, a warning message will appear.
  • With the rapid growth of the sharing economy and companies such as Uber and Airbnb, the ATO has warned individuals involved that they should declare income earned from these activities (e.g. ride-sourcing, room renting or task sharing) and pay tax accordingly. The exception to this general rule is when the goods or services are provided as a hobby or recreational activity. Typically employers in the sharing economy regard participating individuals to be contractors and do not pay income tax on their behalf.
  • The ATO has warned taxpayers of the increasing risk of identity theft and tax fraud. In many ways this has become easier with a move to online and paperless systems. The ATO has recommended a combination of shredding documents before throwing them away, strong passwords and updating antivirus, firewall and anti-spyware software.

While these tips may seem common sense, it is an important reminder of going back to basics, and being aware that the ATO has access to a wealth of information to perform cross checks over a number of data sources, so it is much easier to detect any errors or incorrect information, particularly with the increasing amount of data available online.

Legislation and government policy

Parliament to resume on 30 August 2016, Government budget to be put to the parliament

In a recent interview with Leigh Sales, Prime Minister Malcolm Turnbull indicated that the Government will be presenting its Budget legislation to parliament before the end of the year. He said that all of the Budget Bills will go through the normal Cabinet process. In Talking Tax 36, we indicated prior to the Federal Election that all Bills pending had lapsed and that those Bills would need to be introduced to the new Houses of Parliament

When asked whether there would be compromises to the proposed superannuation changes, the Prime Minister stated that there was always consultation and work on transitional and implementation issues and that these suggested changes would be no different. However, he rejected any suggestion that the backdating of the lifetime cap was a ‘retrospective’ tax. We disagree, and think that clearly the changes are a retrospective tax, as the cap takes into account all non-concessional contributions made on or after 1 July 2007. Where individuals who made non-concessional contributions after that date and now exceed the $500,000 lifetime cap, they will not be required to take that excess out of superannuation, and can leave those contributions in the fund. However, the penalty is that if these individuals make any further contributions to the fund, they will automatically cause the cap to be exceeded, and must be withdrawn. If the excess amounts are not withdrawn, the current excess contribution penalty arrangements will apply. If such legislation passes, any changes to the cap certainly will affect the way individuals manage and their advisors advise on superannuation into the future. It remains to be seen what is passed in final form, but we do not expect it to be the same as what was originally announced on Budget night.

This article was written with the assistance of Cameron Forsyth, Law Graduate.


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