SOLVING INHERITED PROBLEMS

Transcription

1 SOLVING INHERITED PROBLEMS Ken Schurgott CTA Schurgott & Co Lawyers Introduction You become the new adviser to a client and you discover there are issues that pre-date your appointment These are inherited issues The 30 second round up of the way to deal with the issues Issue Taxpayer Year Out of time Not out of time, evasion or fraud Decision 1

2 Introduction Examples of inherited issues Part IVA PSI Non-deductibility of expenses Division 7A Issue(s) and Taxpayer(s) Issue(s) The initial issue that attracts your eye may not be the only problem Examples: PSI and Part IVA Division 7A and interest deductibility Interest deductibility for trusts and distribution minutes Small business CGT concessions Taxpayer(s) Usually clear Issues with trusts and who is impacted 2

3 Identify the year Usually errors relate to a particular year or period Isolating the year is necessary to determine how to approach the issue Examples of why the year can be important: Division 7A, time of deemed dividend and distributable surplus CGT event A1 and time of contract CGT event A1 as compared to E1 or E2 and contract Healey and ATO ID 2003/559 Time limits Limits for income tax, GST, FBT Income tax and individuals 2 years and exceptions Business but not SBE Partner in partnership in business but not SBE Trustee of trust Beneficiary of trust that is not a SBE or full self assessment taxpayer Scheme with dominant purpose of obtaining tax benefit Yazbek and Commissioner s DIS Kocharyan and scheme and Part IVA Regulation 20 3

4 Time limits Income tax and companies and trusts GST Payable amounts and refund amounts Giving notice for refunds and North Sydney Developments FBT 3 years and 6 years Lodging returns for FBT No time limits No assessment Trustee assessments and PS LA 2015/2 Statutory provisions 100A CGT and Metlife Rulings, objections and appeals 4

5 No time limits Fraud and evasion Meaning of fraud A false representation made knowingly, without believing it to be true, or recklessly, without care as to whether it is true or false Fraud may be easy to identify Meaning of evasion Unwise to define Denver Chemicals Simple test Meares If parties to a scheme believe that its possibility of success is entirely dependent upon the revenue authorities never finding out the trust facts, it is likely to be a scheme of tax evasion, not tax avoidance. No time limits Fraud and evasion Meaning of evasion Barrip income from sale of property not reported The appellant intentionally omitted the income from the return and there is no credible explanation before the court why he did so. Denver Chemicals taxed on basis other than profits evasion means more than avoid and also more than a mere withholding of information or the mere furnishing of misleading information. It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible is contemplated. Denver Chemicals no credible explanation as to why income omitted Denver Chemicals ATO analysis 5

6 No time limits Fraud and evasion Meaning of evasion Australasian Jam the Commissioner considered there was evasion, the Court did not say whether this was right or wrong, just that the view was not based on a misconception of law Is a failure to correct for an issue evasion? Reading the case law no There should be no evasion by the agent Is failure to correct a blameworthy act? No other legal obligation to amend Commissioner s determinations Instances where tax liability based on a determination Division 7A and interposed entities Section 45B and 45BA Part IVA Residency and unless Commissioner is satisfied What are your obligations when faced with a provision where the Commissioner must make a determination? Legally no obligation Is it enough to be a blameworthy act not to ask? Can you self assess? Determinations do not fit well with self assessment where no obligation to ask the Commissioner outside of the penalty regime different under a full assessment regime 6

7 Penalties Levels of penalties Increase in penalties by 20% Prevent or obstruct Become aware of issue and do not tell Commissioner Errors across multiple years Why no link in uplift to evasion if failure to tell is evasion? Voluntary disclosures Voluntarily tell Approved form Before examination of tax affairs Safe harbour provisions and agents Recklessness and intentional disregard All relevant information given What to do Balance Client s desire for certainty Client s desire to pay least tax possible Desire to mitigate penalties Risk that the Commissioner may consider doing nothing evasion 109RB discretion How to approach the ATO 7

8 You gave the bad advice Conflict of interest Lawyers have a clear duty admit conflict and send client for independent advice Agents and accountants have obligations and may be subject to same conflict issues Conclusion Issues that are out of time are the ones you want to find Issues within time require a careful, considered approach 8

9 Andrew Noolan, Brown Wright Stein 2015 Disclaimer: The material and opinions in this paper are those of the author and not those of The Tax Institute. The Tax Institute did not review the contents of this presentation and does not have any view as to its accuracy. The material and opinions in the paper should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests. 9