Tag: Tax Law

Poor Mr Ghali. He seemed to be trying to do the right thing.  He separated from his wife of 20 years and let her stay in the former matrimonial home, which they jointly owned (house 1).  He even let her in on the deal to buy himself a new house by making her a joint owner (house 2).  Mrs Ghali then wanted an upgrade to house 1.  (She liked what he had “done with the place” at house 2 and why shouldn’t she be allowed to have the same standard of home?)

So being the nice guy he is, Mr Ghali agreed not only to renovate house 1 but to also move out of house 2 and into house 1 while the renovations were happening, and for Mrs Ghali to move into house 2 with all of her furniture.  For 6 long years Mr Ghali toiled to fix up house 1!  And then they swapped back.

But no good deed goes unpunished.  The Office of State Revenue came a knockin’. They claimed Land Tax on house 2 for 3 of the 6 years Mr Ghali was busy with the renovations.

Mr Ghali objected, saying that house 2 was his principal place of residence and so exempt from Land Tax (Land Tax Management Act 1956 (NSW) s10(1)(r) and Sch. 1A).  The Chief Commissioner rejected the objection.

So off to the Administrative Decisions Tribunal they went where in Ghali v Chief Commissioner of State Revenue [2011] NSWADT 261 Judicial Member Perrignon agreed with Mr Ghali.  You see!  Good guys don’t always finish last.

“No ways!” said the Commissioner, and on appeal they went to the ADT Appeal Panel where in Chief Commissioner of State Revenue v Ghali (RD) [2012] NSWADTAP 20 a 3 person panel granted the appeal and found Mr Ghali liable.

”Can’t be!” said Mr Ghali.  “Good guys don’t finish last” he said.  And so he appealed to the NSW Court of Appeal.

The NSWCA decision was handed down on 17 October 2013 in Ghali v Chief Commissioner of State Revenue [2013] NSWCA 340 (judgment by Judge of Appeal Basten, with Acting Judge of Appeal Tobias and Judge McDougall agreeing).

Mr Ghali’s argument all along was, in essence, that house 2 was his principal place of residence. He had only moved out temporarily so that his wife could have a place to stay while he was busy with the renovations at house 1.

Mr Ghali’s problem is the way in which the section granting the exemption for Land Tax for a primary residence is worded.  It states:

“Principal place of residence exemption

(1) Land used and occupied by the owner as the principal place of residence of the owner of the land, and for no other purpose, is exempt from taxation under this Act …

(2) Land is not used and occupied as the principal place of residence of a person unless: 

(a) the land, and no other land, has been continuously used and occupied by the person for residential purposes and for no other purposes since 1 July in the year preceding the tax year in which land tax is levied, …”

The problem for Mr Ghali is the underlined wording.  Due to his moving out of house 2, he could not be said to be in continuous use and occupation of that property.  The Court of Appeal found that, although he may have intended to return to house 2 one day and so was only temporarily not in use and occupation, subsection (2) shot down this argument as it, in specific terms, required continuous use and occupation.  It was simply a matter of fact as to whether Mr Ghali was in use and occupation during the period in question. Issues of future intention did not enter the question.

So that was that for Mr Ghali.  Appeal dismissed, and with Mr Ghali to pay the Office of State Revenue’s costs, just to rub salt into the wounds.

So what is the moral of the story (other than that nice guys always finish last)?  Tax laws can be confusing and can have a sting in the tail.  One should obtain proper tax advice each year and should tell their advisors everything to do with their dealings.  Even if the detail may seem irrelevant.  Mr Ghali probably wishes he had done so.

So this is news?  And it’s on the top of page 5.  (Surely this should be on the bottom of page 8 or 9.)

If you haven’t heard of Project Wickenby, you either haven’t been listening or you have decided to not want to hear. If you are one of those people, Project Wickenby is the seemingly innocuous name for the ATO’s biggest ever investigation into offshore bank accounts held by Australians and offshore tax structures set up by Australians for the purpose of evading tax.  It’s been on the go for many years and if you ask the ATO they will proudly tell you hope many cheats they have nailed and that they have, thus far, recovered many millions in unpaid taxes (the article in the Australian puts it at $428 million, but we’ve heard the ATO claim more than that).

The article says that the ATO have now obtained details of the offshore bank accounts of 7000 wealthy Aussies and are going through these to see whether the people have been paying their fair share of tax.  But there’s more to come because there is a meeting of the Global Forum to be held in Indonesia this week dealing with transparency and exchange of information for tax purposes where there will be discussions about implementing a program for regular exchange of information between countries, including bank balances.  The ATO already has relationships in place with various tax havens for the exchange of information, such as Bermuda, Jersey, Singapore and the British Virgin Islands.  So the net is closing!

In case you are uncertain, here is the simple story as far as taxes go: You must pay every cent (yes, every cent) of tax you are liable for to the Australian government.  You cannot avoid tax with cute offshore schemes and you are not allowed to lie to them about what you owe.  If you don’t believe that paying your taxes is the right thing to do, let me assure you that you in all likelihood be found out anyway and if you are you will be in trouble.  This is especially so in light of the new developments with regards to exchanges of information, as set out in the article.  What kind of trouble? Penalties, interest, the unpaid tax and if you can’t pay this the ATO will bankrupt you and get their taxes that way.  Now that’s if you are lucky.  If you aren’t lucky you may even have to do some hard time.

So that’s the bad news.  The good news is that there is a way to fix your tax affairs and make things right with the ATO.  The ATO encourages voluntary disclosures of undisclosed offshore funds.  You’re not going to get off Scott-free but you may be able to avoid criminal liability and may have a chance for reduced penalties.  But you have to come forward before the ATO finds you.  If the ATO finds you first they are highly unlikely to offer you a deal.

Our staff have successfully handled such applications for clients and, dare we say, avoided the ATO throwing the book at them.  Give us a call, we can assist with the process before things get ugly.

Is the ATO legally bound to apply its Practice Statements? Macquarie Bank chances it hand and comes up short

I suppose it was worth a shot, although after you read this article some of you might say “What were they thinking?”

In essence what happened in Macquarie Bank v Commissioner of Taxation (decided by the Full Federal Court of Australia sitting in Melbourne on 24 October 2013) was that the Bank tried to tie the ATO to act in terms of a Practice Statement issued by it.  The Bank contended that it had relied on the ATO’s Practice Statement which “outlines procedures to be followed and the factors to be considered by tax officers in relation to any circumstance in which the ATO is considering applying its view of the law”. The practice statement also states that it “must be followed in any circumstance where a tax officer applies the ATO view of the law”.

The Bank contended that the Commissioner proposed to assess Macquarie by applying the ATO view of the law both prospectively and retrospectively but without following the procedures or acting in accordance with the practice statement.  The Bank sought to argue that the Commissioner had acted contrary to his earlier statement, conduct and position, and seeks, in substance, to have the process of determining its tax liability proceed on the basis of those statements, conduct and position.

What is most interesting, or bizarre, about this argument is that it was not the Bank’s case that it was not liable for the tax due.  It was rather that the Commissioner was not permitted to proceed to assess the Bank in a way that is contrary to a view he may previously have held unless, and until, the practice statement has first been applied.

A novel argument indeed!

The primary Judge concluded that the practice statement did not, and could not, operate to prevent the application of the ATO’s view of the law if it be correct. The correctness of the ATO’s view in raising an assessment, and its legal effect upon the making of an assessment (or re-assessment), could be challenged.  However, the practice statement itself could not prevent, or authorise, the Commissioner from acting upon a view of the law when raising an assessment or re-assessment.

As you might have expected, this argument did not even get out of the starter blocks.  The Commissioner challenged it on the basis of a rule of the Federal Court allowing a defendant to have a claim dismissed on the basis that the plaintiff has no reasonable prospect of success in prosecuting the claim.  The Full Court agreed that this was the case.

As the learned primary judge correctly observed, said the Full Court, the practice statement could not fetter the Commissioner’s duty of assessment or re-assessment where the law operated to impose liability nor could it fetter the lawful process of making an assessment to that end.  So what were they thinking?  Maybe that when it comes to paying tax, any challenge is worthwhile!