On 14th March 2019, Commissioner Chris Jordan AO addressed the Tax Institute’s 34th National Convention and highlighted several key points for professionals to learn from. These will be outlined in this article.
Investment Rental Income and Deductions
Having completed over 300 audits on rental property claims, the Commissioner said, “the audits found errors in almost 9 out of 10 of the returns reviewed.” The errors were categorised as:
- Incorrect interest claims for the entire investment loan where it has been refinanced for private purposes
- Incorrect classification of capital works as repairs and maintenance
- Tax payers not apportioning deductions for holiday homes when they are not genuinely available for rent
The Commissioner noted that, “when you consider that rentals include over 2.1 million taxpayers claiming $47.4 billion in deductions, against $44.1 billion in reported income, you can get a sense of the potential revenue at risk.”
Lesson
This highlights the need for a paper trail to support the claim for deductions. If appeals are to be conducted alleging that the ATO has wrongly disallowed deductions, then it is essential that the tax payer keep detailed records in support of each of the deductions.
Large Market and Legal Professional Privilege
The Commissioner reported that the ATO is working very hard to hold the Large Market Tax Payers to account. Australia’s largest 10 companies paid 29% of all corporate tax, and the top 100 companies paid the next 42% of corporate tax. Approximately 1,500 large corporate groups (with a turnover of $250,000,000+) are responsible for over $44 billion in tax revenue.
The Commissioner highlighted the need to focus on this group, “If people think large corporates are not paying the right amount of tax, this can have a large negative impact on areas such as small businesses, and individuals with work-related expenses or rental properties.”
The Commissioner reported that, “One of the Government’s key initiatives in tax administration has been the establishment of our Tax Avoidance Taskforce.
He also stated that they are “cracking down on the misuse of legal professional privilege.”
He went on to say, “we are not opposed to legal professional privilege as a concept. We want tax payers to be able to get the right and proper legal advice. But when lawyers a claiming privilege on thousands or tens of thousands of documents – and we have seen this – we start to wonder if it is a genuine claim or an effort to conceal a contrived tax arrangement.”
He questioned if lawyers are using legal professional privilege because they have a genuine need, or as a way to cheat the system.
Lesson
The use of legal professional privilege in genuine circumstances is appropriate and should be encouraged. Accordingly, obtaining timely legal advice in the appropriate circumstance can be useful in assisting companies in their dealings with the ATO.
The Response to Public Concerns Raised with Respect to the ATO and its Use of Garnishee Notices
Four Corners recently reported that the ATO powers have been inappropriately issuing garnishee notices. The Commissioner referred to this report, and said that The Inspector General of Taxational “found no evidence that management had given directions to staff to use standard garnishee notices as a cash grab.” In fact, he said it was “very clear that that staff issuing garnishee notices applied due process in a manner that had regard to the tax payer and acted entirely within the objectives of the overall ATO administrative policy in issuing garnishee notices.”
Lesson
It is important for tax payers to understand that the Garnishee process used by the ATO can access bank accounts related to the tax payer to recover tax debts.
New Business Division of the Administrative Appeals Tribunal
The Commissioner reported that from 1st March 2019 there will be a new small business division of the Administrative Appeals Tribunal “offering a low-cost avenue for small businesses who dispute our (ATO) assessment of their tax position… but if lawyers are required, the ATO will cover the cost of equivalent legal representation for the small business.”
It was also reported that “Applicants will have a case manager to support them, pay a reduced application fee, and after hearing the process is concluded, decisions will be finalised within 28 days.”
Lesson
It is hoped that these new initiatives will go towards improving the outcomes for tax payers when assessments are disputed.
Good Advice Means Better Outcomes Supporting Small Business to Thrive
The Commissioner, when referring to examples of tax payers being helped by various ATO assistance initiatives, commented that “getting the right advice at the right time can make all the difference.”
Lesson
These comments are a reminder that tax payers are greatly assisted when they obtain timely accounting and legal advice in conducting their business. The law is complex when considering the rights and obligations of business owners and their clients, customers, employees, suppliers and statutory authorities, and so it is important to seek advice early.
