Judge not lest ye be judged: the trials of a model litigant

Under the "Legal Practice Guidelines on Values, Ethics and Conduct", the Australian Taxation Office ("ATO" as a Commonwealth agency is required to operate as a "Model Litigant", and to act "with complete propriety, fairly and in accordance with the highest professional standards" in litigation in which the ATO is involved. The Guidelines play an important role in promoting support for the rule of law and respect for the Australian Taxation Office and the tax system as a whole – key elements in promoting voluntary compliance with the self-assessment tax system. Appropriately, the Guidelines set "an extremely high bar to jump over", and the ATO has not always succeeded in satisfying these requirements. Two recent decisions of the Full Federal Court provide stark illustrations of ATO failures to comply with the Guideline requirements. In FC of T v Indooroopilly Childcare Services (Qld) Pty Ltd, the Court was extremely critical of the ATO's failure to follow a series of single judge Federal Court decisions, while in LVR (WA) v Administrative Appeals Tribunal, a differently constituted Court was critical of the failure by counsel for the ATO to advise the judge at first instance that the AAT’s reasons for its decision were almost wholly copied verbatim and without attribution from the Commissioner's submissions to the AAT. While no doubt lapses such as these do not reflect well on the ATO, they offer rich opportunities for analysis of multi-dimensional legal, policy and related issues. How tax teachers "frame" the analysis of such issues may influence the perception and values which students take with them into the real world. Accordingly, as intellectual gatekeepers and moral exemplars, legal academics owe a duty to their students and their profession to approach the analysis of these issues in a critical but balanced way

Tax Evasion, Tax Avoidance and Tax Planning in Australia: The participation in mass-marketed tax avoidance schemes in the Pilbara region of Western Australia in the 1990s

This paper will examine the development of mass-marketed tax avoidance schemes in Australia. It will consider changes in approach to tax avoidance from the ‘bottom of the harbour’ schemes of the 1960s and 1970s to the mass-marketed tax avoidance schemes of the 1990s. It will examine the changing structure of tax avoidance from individually crafted tax avoidance structures designed by accountants and lawyers used by high wealth individuals to mass produced structures targeted at highly paid, and therefore highly taxed, blue collar workers in Australia’s mining industry in the 1990s. In the latter half of the twentieth century ‘unacceptable’ tax planning went from highly expensive, individually ‘tailor made’ structures afforded and used only by the very wealthy, to inexpensive replicated structures marketed to skilled and unskilled tradespeople and labourers. By 1998 over 42 000 Australian taxpayers were engaged in tax avoidance schemes with the highest proportion focussed in the mining regions of Western Australia. In the remote and inhospitable mining community of Pannawonica, which has one of the highest paid workforces in Australia, the Australian Taxation Office identified that as many as one in five taxpayers were engaged in a mass-marketed tax avoidance scheme. The paper will identify the causes of these changes, including the advent of the computerised information technology which permitted ‘mass production’ of business structures designed to exploit business incentives in the Australian taxation system in the 1990s. It will also set these developments within the broader context of the tax compliance culture prevailing in Australia and overseas during this period

The enigma of 'reasonably arguable positions': 21 years old but still teething

[Extract] When the Uniform Administrative Penalty regime as introduced in 1991, among the most interesting – and puzzling - provisions in the Taxation Laws Amendment (Assessment) Act 1992 were sections 222C and 226K, which introduced the "Reasonably Arguable Position" ("RAP") shortfall penalties, and with it a number of areas of uncertainty and inconsistency.. The RAP provisions are celebrating their 21st birthday in 2013, but show few signs of settling down as they reach adulthood

ATO access powers: another lost opportunity

Analysis of recent amendments to the Australian Taxation Office's power to access documents and other records for the purpose of assessing a taxpayer

Wherever you hang your hat may be home, but is it 'residential premises' for GST purposes?

[Introduction] The concept of 'residential premises' is important in relation to Goods and Services Tax ('GST') liability because it plays a key role in determining whether property usage and transfers — the \ud latter being a particularly significant element of modern capitalist economies — will be GSTfree, input taxed or fully taxable.\ud \ud Recent cases have raised a number of interesting issues in relation to 'residential premises' under the GST legislation. Some of these issues have been resolved satisfactorily by court decisions, others have been 'resolved' in rather puzzling ways, while some remain \ud unresolved.\ud \ud It is useful to begin the discussion of GST treatment of residential premises with an overview of the relevant provisions.\ud \ud Underpinning the GST treatment of residential premises is the principle that persons selling or leasing real property should be treated in a comparable way to owner-occupiers.\ud To achieve this outcome, where other requirements are satisfied:\ud * in general, supplies of residential premises by lease, hiring, licence or sale are input taxed under Subdivisions 40-B and 40-C5 (which are generally in similar terms); that is, the supply of the items is not taxed, but the supplier cannot claim input tax credits incurred in the supply;\ud * however, the supply of residential premises is only input taxed to the extent that the premises are to be used predominantly for residential accommodation — regardless of the length of occupation;\ud * the supply of new residential premises or commercial residential premises is an exception to the above rules and is not input taxed, but is subject to full GST taxation.\ud \ud The interplay of these factors creates an interesting but complex picture — particularly as the Courts have consistently indicated that the GST is a practical, business tax; that it is to be interpreted in a way that gives it a real-world effect; and that Division 165 gives the Commissioner wide powers to attack over-zealous tax planning arrangements.\ud \ud The effect of these GST provisions can be represented diagrammatically by a flowchart, as shown in Figure 1.\ud \ud The impact of the provisions affecting residential property was outlined by Perram J in Sunchen Pty Ltd v Federal Commissioner of Taxation, who referred to the GST Act’s 'confusing terminology' before noting that it relieves certain supplies from the GST in two ways.\ud Firstly, certain supplies are made 'GST-free', and no GST is collected by the revenue. While the suppliers are not obliged to collect GST from the consumer, they are still entitled to claim input tax credits on supplies leading to that supply. As Perram J noted:\ud The practical consequence of the tax not being collected from the consumer and the supplier being entitled to claim an input tax credit is that none of the inputs into the ultimate supply are taxed — GST is not collected from the ultimate consumer and each intermediate supplier obtains input tax credits which neutralise their own liability to \ud GST.\ud \ud Secondly, certain supplies are 'input taxed'. In these cases, the supply is not subject to GST, \ud but the supplier cannot claim an input tax credit for supplies made to it which were inputs into \ud the supply to the consumer:\ud \ud The practical effect of this is to cast the ultimate economic burden of the tax not on the end user but on the immediately preceding supplier.\ud \ud The practical effect of denying an input tax credit to the supplier [such as the owner of land who sells it, or a landlord who grants a residential lease to a tenant] on supplies which are inputs into the premises is to render those supplies subject to GST in the hands of the supplier. Put another way, the inputs into the supply of the premises are taxed which gives rise, no doubt, to the otherwise rather obscure expression 'input taxed'

Section 263 powers of access - why settle for second-best?

Sec 263 ITAA has been an important part of the federal income tax legislation for more than 60 years, and is the main investigative provision on which the ATO regularly relies, providing a statutory power of access to (broadly) records and buildings. It is therefore surprising to find that sec 263 has a number of well-known deficiencies that have not been addressed by the few amendments made to the section.\ud \ud As a result, sec 263 is currently a “second-best” provision, often relying on common law principles whose content and application to the section are disputed or unclear, and which sometimes after decades of case-law still do not provide definitive “rules”. The doctrine of legal professional privilege is a classic illustration of this aspect of Eisenstien’s “hazards of litigation”.\ud \ud This article suggests that fundamental reform to sec 263 is long overdue, and that it would be comparatively simple to draw upon existing precedents from other legislation within Australia or overseas jurisdictions to remedy defects in sec 263, and thus provide clear rules and guidelines in a crucial area. A variety of possible approaches which might be taken are set out or referred to in the article, any of which would – in different ways – improve the current section.\ud \ud It is sometimes suggested that there is no need to amend sec 263 because issues arise relatively infrequently. Perhaps – but when disputes do arise, the ensuing litigation can tie up years of taxpayers’, government’s and legal advisers’ time and expertise, and may cost millions of dollars in money and lost opportunities – often to resolve an issue which could easily have been avoided by clear legislative drafting

Problems in paradise: conscious maladministration in the ATO

Analysis of the decision in Donoghue v FC of T (2015) and its implications for the doctrine of conscious maladministration in Australia.\ud \ud [Extract] Du Pont and Lubesky observed in 2013 in relation to the Canada Revenue Authority that:\ud \ud "Even though the majority of tax officials are conscientious and play a vital role in the administration of the tax system, abusive audits can and do occur for a variety of reasons. Some cases have involved personally motivated malevolence toward a taxpayer, some ... [involved] administrative blunders within the tax department (such as lost records or inaccurate record keeping), while others simply result from inadequate training or supervision of the auditor."\ud \ud So it is with the Australian Taxation Office (ATO) — and most large bureaucracies. The ATO has a proud record of service to the Australian community. Nevertheless, over the years, a number of taxpayers have felt that they have been unfairly treated by the ATO, and have taken action to attack the ATO's alleged lack of bona fides (good faith) in making assessments, or otherwise dealing with taxpayer's affairs. As noted above and discussed later in this article, similar concerns have been raised in other jurisdictions. \ud \ud Despite some extreme situations, until 2015 taxpayers had invariably failed in such actions. For example, in Marijancevic v DCF of T, the court found that the ATO had acted 'too hastily in issuing a garnishee notice, too carelessly in addressing the garnishee notice letter, and too slowly subsequently in issuing default assessments'. Nevertheless, the court held that the taxpayer had failed to establish that the ATO had acted in bad faith

"Plutarch's Paradox" - or the case of the interminable trust

This article examines the decision in FCT v Clark and its implications. On appeal, the Full Federal Court held that dramatic and sudden changes to the various elements of a dormant private unit trust did not break the continuity of the trust estate required to enable the new controllers to utilise the carry-forward tax losses created under the former regime. The High Court refused special leave. The question that arises is, was the decision consistent with the policy underlying the loss carry-forward deduction, and with the courts' role as "pragmatic tax analysts"? Are the courts asking the wrong question: not whether "a" trust estate continued after the changes, but whether the "same" trust estate continued

Is the ATO a law unto itself?

Over recent years, tax advisers and others have complained that the Australian Taxation\ud Office on occasions issues rulings, determinations, media releases and, indeed,\ud assessments inconsistent with single judge decisions in the Federal Court with which the\ud ATO does not agree

Avoiding a bum RAP

Taxpayers intending to take a contentious approach to their tax need to ensure at least a 50 per cent chance of success if the matter went to the AAT or Federal Court. Where that taxpayer's interpretation is not based on a 'reasonably arguable position', ("RAP"),the taxpayer becomes liable to shortfall penalties.\u