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!