Posts Tagged ‘Tax News’

The Tax Office certainly makes a rod for it’s own back when creating new tax laws, but then it is not the ATO that makes the law, it only interprets it and then the Courts decide as to whether the ATO interpretation is correct or not. This is what makes tax law so interesting and challenging.

Two interesting cases have been heard in recent months. One concerns GST and the definition of bread. As the law stands, GST does not apply to bread, but it does apply to crackers, biscuits, wafers and pretzels. This case concerns the Mini Ciabatte, this is not a car but an Italian bread, or so claim the importers and Italian food experts. The ATO say it is a cracker. The difference, about $85,000 in GST

In a landmark case in the Federal Court in Melbourne, expert witnesses from Italy and Australia have lined up to say the Tax Office is wrong. During three days of evidence, they broke the Mini Ciabatte – to consider the cracking sound it made – and discussed the subtle differences in cell structure between crackers and flat breads, the flakiness versus the crunch when put to the bite test, and the amount of yeast, oil and protein found in bread and crackers.

The importer if the Mini Ciabatte also imports Grissini Breadsticks, which are a bread,  The makers of the Mini Ciabatte say that the fermentation process for making the product is exactly the same as in bread making. The ATO claimed that Coles sold the product under its biscuits and cookies category but the defence also noted that it was sold alongside other savoury products, including the Mini Toast, sold GST free as a bread..

An Australian cereal chemist who vouched for the product as a bread, Dr Ken Quail, came under intense questioning. As,Dr Quail held the the product, Mr Jeremy Geale, the barrister for the Deputy Commissioner of Taxation , suggested Dr Quail crack it. “and what was the sound you heard when it cracked? Mr Geale asked.

“A crack” Dr Quail replied.

“A crack. A crisp crack?”

“Yes”

But the defence countered by suggesting the same exercise be conducted with other exhibits that the Tax Office had agreed were breads, including Lazat flat bread, Panne Croccante, Vita Vigor Grissini Breadsticks and Mini Toasts.

“Because all of those items are GST free and they crack” the defence argued.

Mr Geale conceded this point and the court was spared a prolonged crack test. Final submissions will be considered during February.

Another case involving the taxpayers money concerns the glasses you wear. GST applies to the frames but not the lens. This is known as a mixed supply and if the frames are sold at a discount then the GST component is reduced so the price is even cheaper. This case was important because it meant that if a product was sold that combined GST free goods with GST applicable goods then the amount of GST charged has to be pro-rated.  In this case the supplier claimed a GST refund of $132,670 after finding that customers should only be charged GST on the price of the frames, not for the price of the frames and lens together. The Administrative Appeals Tribunal agreed and also found that the supplier did not have to pass on the GST refund to consumers.  Another win for small business?

All this because the Greens made sure GST did not apply to everything.

Amazing isn’t it, whenever the Government gets itself into a bind it looks to taxing the rich, whoever they are. We are now looking at the aging population, of which we are all a part and what a drain on the economy they will be in 20, 30 or 40 years time, or so the experts tell us. Should we believe them? They did miss the financial crises after all.

I think the main problem here is not so much the aging population but the welfare society that prospers under certain conditions. Rather than address this problem, the solution is to tax the so called wealthy. Well with the average house price now over $600,000 every householder can now be deemed wealthy.

In 1998-99 there were only 810,468 taxpayers with an income of $57,857 or more.

In 2004-05 there were 1,100,266 taxpayers earning more than $70,000 and 7,796,359 earning less than this. Almost 2m taxpayers earned less than $21.600.

In 2005-06 there were 571,367 taxpayers earning more than $95,000 and1,153,914 tax payers earning between $63,000 and $95,000.

As at November 2007, the average wages in Australia was $57,324, with males averaging $60,954 and females averaging $50,996.

For 2006 -07 there were 234,495 earning more than $150,000  and 1,065,080 earning between $75,000 and $150,000. Now you may fit into one of these categories and I am sure you do not feel wealthy.

The following has been reprinted dozens of times and apparently originated in Canada.

The article uses an example of 10 men who get together on a regular basis for dinner. If the bill was $100, and it was split the way British Columbian’s pay their taxes (broadly the way we do in Australia) the bill would be split this way:

The first four men would pay nothing, the fifth would pay $1, the sixth $3, the seventh $7, the eight $12, the ninth $18 ant the tenth, the richest, would pay $59.

Some may view this as perfectly fair, the rich paying by far the most because they can “afford it”. Consider what happens with a tax cut.

In the article, the restaurant owner opts to reduce their bill since they are such good customers. The bill is reduced by $20. The first four are unaffected and still eat free, but how do we divvy up the $20 amongst the other six.

The owner suggests it would be fair to reduce each person’s bill by roughly the same percentage and comes up with this: the fifth man now pays nothing; the sixth has to pay $2; the seventh $5; the eight $9; the ninth $12 and the tenth $52.

After the meal, they begin to compare their savings.” I only got a dollar out of the $20”’ says the sixth man, pointing to the 10th man, “and he got $7”.

“Yeah,” says the fifth man . “I also only got a dollar. It’s unfair that he got seven times more.

“Wait as minute!’ yell the first four men in unison. “We didn’t get anything at all. The system exploits the poor”.

The nine men surround the tenth and beat him up. The next night he didn’t show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. The bill was $72 yet the contributions added to only $28. They were $44 short .

There are two important points to be learned here, Yes, the people who pay the highest taxes get the most benefit from a reduction, but tax them too much and they might not show up and then the lower income earners would have to make up the shortfall.

The 2010 tax return is already growing with the addition of 11 new questions to be answered. By way of background, the 1985 tax return only had 39 questions, by 1996 this had grown to 62 and in 2009 we had over 100 boxes into which information was supplied to determine our tax liability.

It is fair to say that not all the questions had to be answered but the fact that the questions were asked in the first place meant that the ATO was looking under every rock to determine if you derived any income from which they could take their share.

The additional questions asked in 2010 will be looking at items such as salary sacrifice to superannuation and other income currently not reported on your tax return. At present, if you sacrifice part or all of your salary to super it does not appear on your group certificate, sorry, it is no longer a Group Certificate. With the simplified tax system we now call this a “PAYG Payment Summary –Individual non-business”, any way I digress. You salary sacrificed super will now appear on your “PAYG Payment Summary – Individual non-business” and be used to determine your total income.

This amount will not be taxed but if the lower income reported on your tax return allowed you to receive a Government benefit, such as a spouse rebate, child care rebate or Family Tax Benefit then the new system will ensure you no longer qualify for this. The side effect to this may be that you have been overpaid by Centrelink or some other Government department and have to repay the payment received.

This is another case of cracking a walnut with a sledge hammer. The objective was to stop the few at the top end of the salary scale from deriving benefits to which they were not entitled but the changes affect everyone and, as with most Government decisions, who cares about the collateral damage.

An example of the new way income is determined is as follows. John and Jane both work, They have two children at school. They have an investment property which in negatively geared. John earns $95,000 per annum and Jane $25,000, a total income of $120,000. The investment property generates a loss of $20,000 which is split 50/50. Jane salary sacrifices $10,000 to her superannuation fund.

This means that Jane’s reported income is $25,000 less the $10,000 share of the property loss less the $10,000 salary sacrifice to superannuation, giving her an income of $5,000.
With an income this low, Jane can claim additional Family Tax Benefits.

The new rules mean that the salary sacrificed super is added back on the tax return, as is the property loss, so, although the amount of tax payable does not change, the family loses the benefit of the additional Family Tax Benefits.

In this example, no Kids means a Spouse rebate of over $2,100. This rebate has now been stopped.

This will also affect individuals and families who do not have private hospital cover and stay under the limit because of negative geared properties or salary sacrifice to super . It will also affect individuals with a HECS debt who stay under the repayment limit by sacrificing to super.

As mentioned in last weeks article, only a registered tax agent can charge a fee to prepare and lodge your tax return. Remember you are ultimately responsible for your own tax return — if you use an unregistered agent you could find yourself with a large tax bill, penalties, or even worse, the potential for your identity to be used for unauthorised purposes.

A list of registered tax agents can be found at the Tax Agents’ Board website www.tabd.gov.au or you can check with the Board on 1300 362 829.

The total number of returns attracting upfront scrutiny or under investigation represent a tiny fraction of the total returns already lodged with us. This work does not impact on our normal service standards for processing other refunds.

Where we find a return to be suspect, we will contact the taxpayer directly. If contacted, I encourage you to make a full disclosure.

We owe it to the vast majority of taxpayers who wilfully do the right thing to use the full force of the law against those who do the wrong thing and to deter others.

We have and will continue to work with partner agencies in conducting investigations that lead to successful prosecutions.

As I said before, while it is important that we bring people who commit tax fraud to account, the best way to protect Australia’s revenue is through prevention.

Preventative measures – a reminder for all of us

Unfortunately scams are a fact of life, particularly in the internet age, and take many other forms apart from attempts at refund fraud.

While the work we do to deter, detect and deal with fraud helps protect the community, it is very important that individuals take steps to protect themselves from scammers and fraudsters.

You can help us protect you and others in the community by referring any information you have about these matters to us on 13 28 61.

Apart from blatant and increasingly sophisticated attempts to cheat the system and therefore the community, scammers and fraudsters cause havoc for the people they’ve stolen from or cheated.

Identity theft is a particular problem. If your identity is stolen it can take years to put things right. Your tax file number (TFN) is a unique identifier and should be kept safe. Only certain people can ask for your TFN including the Tax Office, Centrelink, your super fund, bank or financial institution, and your employer (who can do so only once you have started working for them).

There are a few things people can do to protect themselves.

First of all, scams can take many different forms from bogus emails to people door—knocking claiming to be from the Tax Office. Most are designed to trick you into giving away your money, passwords and/or personal details.

Be alert to cold calling by email, phone or suspicious door knockers. If an email, phone call or suspicious door knocker does not look or sound right don’t offer any information and call the Tax Office on 13 28 61.

Just as a final and general reminder, even if someone, including a tax agent, helps prepare and lodge your return, the information in the return remains your individual responsibility. You still need to make sure the information is accurate before you sign off on it and that you can prove any claims for deductions if required.

Michael D’Ascenzo
Commissioner of Taxation

Over the next two weeks I will publish the words of the Commissioner of taxation Mr Michael D’Ascenzo, commenting on the actions to be taken to ensure that honest taxpayers are not penalized by the actions of a dishonest few.

Strengthening our systems to better detect and prevent refund fraud

With tax time well underway, millions of tax returns are flowing in to the Tax Office and many more millions of people are expected to lodge in the coming months.

Unfortunately, some people will attempt to take advantage of this busy lodgement period and make claims for tax refunds they are not entitled to. This sort of behaviour defrauds the community’s revenue, which is effectively stealing from each and every honest taxpayer in Australia — and that’s the vast majority of Australians.

Protecting the integrity of the tax and superannuation systems on behalf of the community is something I take very seriously. In this regard I’d like to put fraudsters on notice — you will not receive refunds you are not entitled to.

When it comes to protecting the integrity of Australia’s tax and superannuation systems I am a firm believer that prevention is better than cure.

Identifying suspicious activity and stopping fraudulent claims before they issue is far more effective than trying to re-coup refunds once they have issued.

This year we have invested in new technology designed specifically to help us identify sophisticated, organised activities through to the most basic of scams. These tools are proving to be extremely efficient at identifying suspect claims for refunds and ensuring that Australia’s revenue is protected.

Importantly, this technology is not only helping protect the revenue, but people’s identities from being stolen and used to commit tax fraud.

Of the 3.6 million tax returns already lodged up to last week, this new technology has identified more than 25,000 high risk returns worth approximately $260 million, which we are currently investigating.

We are not suggesting all of these returns are fraudulent, however they are worthy of a closer look — following investigation, we expect that a minority will be found to be legitimate and will be processed accordingly.

We strive to achieve the right balance between protecting the community’s revenue while providing legitimate refunds to people as quickly as possible.

Our use of new technology is in addition to our normal processes for checking tax returns. Every year we take a close look at returns involving claims that appear to be outside normal ranges – for example where people appear to have overstated deductions, understated income or made large one-off claims. Our significant data-matching activities also help us to identify potentially fraudulent claims.

Each year we detect fraudulent returns prepared by people acting as tax agents who are not actually registered. These people often prey on vulnerable members of the community and charge a significant fee on the promise of a hefty refund which the taxpayer is not entitled to.

Only a registered tax agent can charge a fee to prepare and lodge your tax return. Remember you are ultimately responsible for your own tax return — if you use an unregistered agent you could find yourself with a large tax bill, penalties, or even worse, the potential for your identity to be used for unauthorised purposes.