Tax Commissioner Michael D’Ascenzo today warned the ATO will take a close look at uncommercial arrangements designed to claim unintended GST benefits for a company’s float, merger or acquisition.

Under these arrangements, a company involved in a takeover uses a related associate to procure all the services required for that takeover – for example legal and accounting advice.

The associate then bundles those services and invoices the company for the one supply. The company then claims reduced input tax credits that they wouldn’t normally be entitled to if they had acquired these services directly from the service provider.

“We are seeing more of these types of arrangements and several are currently under review,” Mr D’Ascenzo said.

“People considering these arrangements should be aware we will take a close look at the tax affairs of anyone taking part.

“Those unsure about their situation should seek independent advice or contact us for a private ruling on their individual circumstances.”

People who contact the ATO before they are advised of an audit will be entitled to a reduction in any penalties that may apply.

More information

Taxpayer alert 2010/1 provides more information on these arrangements and is available from www.ato.gov.au/atp.

TAXPAYER ALERT

Taxpayer alerts are intended as an ‘early warning’ to taxpayers and their advisers of significant tax planning issues or arrangements that the Tax Office has under risk assessment or about which it has concerns.

Media release 2009/67

The Tax Office today issued a taxpayer alert warning people about sham arrangements promoted as ‘mortgage management plans’ which promise to help home owners repay their home loan sooner and claim tax deductions to which they are not entitled.

Tax Commissioner Michael D’Ascenzo said while these arrangements may appear attractive, people should be warned they will face close scrutiny by the Tax Office.

“These arrangements are essentially about people refinancing their home loan and establishing what appears to be an investment loan to fund the purchase of shares in a bogus company,” Mr D’Ascenzo said.

“We identified these arrangements through our regular refund checks which lead us to the promoter.

“We are currently contacting over 140 people involved in these asking them to review their circumstances and inviting them to make a voluntary disclosure where necessary.

“People who make a voluntary disclosure before we contact them for an audit will be entitled to a reduction in any penalties that may apply.

“Tax evasion schemes of this type may promise big financial returns, but those involved usually end up with a very large tax debt and substantial penalties or prosecution action when they do get caught.”

Taxpayers wishing to make a voluntary disclosure should call the Tax Office on 1800 177 006.

More information

Taxpayer Alert 2009/20 Interest deduction generators involving promoter controlled companies is available from the Tax Office website http://www.ato.gov.au/atp/

Taxpayers who are unsure about their own circumstances should seek independent advice or apply for a private ruling from the Tax Office.

TAXPAYER ALERT

Taxpayer alerts are intended as an ‘early warning’ to taxpayers and their advisers of significant tax planning issues or arrangements that the Tax Office has under risk assessment or about which it has concerns.

Media release 2009/68

The Tax Office this week released a taxpayer alert warning people to be cautious of investment schemes that abuse the research and development (R&D) tax offset.

These arrangements involve a company structuring contracts with a registered research agency to provide R&D services in order to access the R&D tax offset.

The agreement involves what appears to be a prepayment for services up to 13 months in advance, but the Tax Office is concerned the expenditure may not meet the requirements to be tax deductible.

Tax Commissioner Michael D’Ascenzo said while these arrangements may appear attractive, people should be warned the Tax Office will take strong action against these abusive schemes.

“These schemes have features similar to the mass-marketed schemes of the 1990’s,” Mr D’Ascenzo said.

“For example, in some cases funding arrangements are provided by a promoter-related entity creating a round robin cash flow which leaves little left for use in R&D activities.

“We are currently contacting around 70 entities involved in these arrangements asking them to review their circumstances and inviting them to make a voluntary disclosure where necessary.

“People who make a voluntary disclosure before we contact them for an audit will be entitled to a reduction in any penalties that may apply.

Companies wishing to make a voluntary disclosure should call the Tax Office on 1300 365 803.

More information

Taxpayer Alert 2009/21 R&D tax offset abuse through registered research agencies is available from the Tax Office website http://www.ato.gov.au/atp/

Taxpayers who are unsure about their own circumstances should seek independent advice or apply for a private ruling from the Tax Office.

TAXPAYER ALERT

Taxpayer alerts are intended as an ‘early warning’ to taxpayers and their advisers of significant tax planning issues or arrangements that the Tax Office has under risk assessment or about which it has concerns.

Media release 2009/62

The Tax Office today issued a taxpayer alert warning taxpayers to be cautious about investing in life insurance policies issued from insurance companies based in tax havens, such as Vanuatu.

Tax Commissioner Michael D’Ascenzo said he is concerned these arrangements may attempt to exploit the lack of transparency in tax havens.

“We know these arrangements are in the market, and we have seen a number being promoted from Vanuatu,” Mr D’Ascenzo said.

Under these arrangements, promoters market certain life insurance policies as qualifying for concessional tax treatment on proceeds from the policy or tax deductions on fees paid under the policy.

However these policies may not qualify for such benefits and self managed super funds may also breach the superannuation regulations for complying funds.

“People considering these arrangements should be aware their tax affairs will be closely examined by the Tax Office, in addition to potential action by other government agencies as part of Project Wickenby.”

People who are unsure about their situation should seek independent advice or contact the Tax Office for a private ruling on their individual circumstances.

Those who have participated in these arrangements and contact the Tax Office before they are contacted for an audit will be entitled to a reduction in any penalties that may apply.

Taxpayers who wish to make a voluntary disclosure or those who have information about promotion of these arrangements should call the Tax Office on 1800 060 062 or report information online at www.ato.gov.au/reportevasion

TAXPAYER ALERT

Taxpayer alerts are intended as an ‘early warning’ to taxpayers and their advisers of significant tax planning issues or arrangements that the Tax Office has under risk assessment or about which it has concerns.

Tax Commissioner Michael D’Ascenzo today warned trustees of self-managed super funds (SMSFs) about people offering to set up agreements between funds and related parties to purchase assets, particularly properties.

“We’re concerned about arrangements being offered to trustees that breach the in-house asset rules,” Mr D’Ascenzo said.

“These arrangements use a paid third party to set up an agreement, sometimes referred to as ‘a joint venture agreement’, between the fund and a related trust to purchase an asset that provides income for the trust and the fund.

“This is clearly an attempt to circumvent the in-house asset rules as the transaction is really an investment by the SMSF in the related trust.

“This alert serves as a timely reminder to trustees that we are looking closely at SMSFs to ensure they are meeting their obligations in relation to loans, in-house assets, borrowings and non-arms length transactions.”

More information

Taxpayer alert 2009/16 is available from the Tax Office website www.ato.gov.au/atp

The draft self managed super fund ruling SMSFR 2008/D5 clarifies what is considered an in-house investment and is available on the Tax Office website or by phoning 13 10 20.

More information on in-house asset rules is available on www.ato.gov.au.

TAXPAYER ALERT

Taxpayer alerts are intended as an ‘early warning’ to taxpayers and their advisers of significant tax planning issues or arrangements that the Tax Office has under risk assessment or about which it has concerns.

The Tax Office yesterday issued a taxpayer alert warning businesses to be wary of arrangements that attempt to claim inflated deductions for uncommercial insurance expenses.

Tax Commissioner Michael D’Ascenzo said the Tax Office has doubts about the legitimacy of these arrangements as they aim to inappropriately reduce taxable income by claiming excessive tax deductions.

“We know these arrangements are in the market and we are warning businesses to be cautious about entering into them as they may be ineffective under the law,” Mr D’Ascenzo said.

“People involved in or considering these arrangements should be aware they face close examination by the Tax Office”.

Under these arrangements, payments described as “insurance premiums” are excessive in relation to the coverage provided and feature no significant transfer of insurance risk.

The dominant purpose of the arrangement appears to be an artificial and contrived attempt to convert a financial investment in a related tax haven entity into the form of a tax deductible insurance premium.

Taxpayers who are unsure about their situation should seek independent advice or contact the Tax Office for a private ruling on their individual circumstances.

Taxpayers who have claimed deductions for these uncommercial insurance expenses who contact the Tax Office before they are contacted for an audit will be entitled to a reduction in any penalties that may apply.

More information

Taxpayer alert 2009/15 is available from the Tax Office website www.ato.gov.au/atp

Law Administration Practice Statement, PS LA 2007/8 contains the Tax Office’s approach to determining whether such insurance arrangements are effective.

Tax Commissioner Michael D’Ascenzo today released three taxpayer alerts warning people the Tax Office is closely reviewing three arrangements that attempt to falsely generate claims for inappropriate tax losses.

Mr D’Ascenzo said he has doubts about the legitimacy of these arrangements.

”In the current economic environment we’re expecting to see an increase in tax losses,” Mr D’Ascenzo said.

“However, this means that we will be carefully scrutinising claims to ensure taxpayers only claim losses to which they are entitled.

“These alerts are a timely reminder for people who may be tempted to artificially create losses or to transfer them inappropriately as tax time approaches.

“It also reminds people to take care in claiming genuine losses, for example capital losses can only be claimed against capital gains”.

Investors who are unsure about their situation should seek independent advice or contact the Tax Office for a private ruling on their individual circumstances.

People who approach the Tax Office before they are contacted for an audit will be entitled to a reduction in any penalties that might apply.

Re-characterising capital losses as revenue losses (taxpayer alert 2009/12)

The Tax Office warns it is paying close attention to people who attempt to claim losses as share traders on a revenue account where previously they claimed to be long-term investors eligible for the capital gains tax 50% discount.

Managed Investment Schemes: purported partnership participation (taxpayer alert 2009/13)

The Tax Office has seen attempts by promoters to sell interests in managed investment schemes (MIS) to groups of individual investors on the basis that they will be ‘partners’ in a partnership and will be able to claim upfront deductions for their interests in the MIS.

This taxpayer alert reminds taxpayers they can only rely on a product ruling if it is implemented in accordance with the arrangement in that product ruling and warns that partnerships of the type in this alert are not covered by Tax Office product rulings or other tax clearances.

“Please take care,” Mr D’Ascenzo said.

CGT consequences of assignment of default beneficiary’s capital interest (taxpayer alert 2009/14)

Under this arrangement a taxpayer attempts to create or claim a capital loss arising from the artificial receipt and surrender of an interest in a discretionary trust as a default beneficiary.

More information

Taxpayer alerts 2009/12, 2009/13 and 2009/14 are available from the Tax Office website www.ato.gov.au/atp.

Tax agents with information about people or companies who may be promoting arrangements covered by these alerts should call the tax practitioner integrity service on 1800 639 745.

Taxpayers who have information about these arrangements should call the Tax Office on 1800 177 006. People can also use this number if they want more information about the taxpayer alerts.

TAXPAYER ALERT

Taxpayer alerts are intended as an ‘early warning’ to taxpayers and their advisers of significant tax planning issues or arrangements that the Tax Office has under risk assessment or about which it has concerns.

The Tax Office today issued a taxpayer alert designed to help shareholders make informed decisions whether to take up entitlements to a share offer based on the tax treatment of retail premium payments.

Tax Commissioner Michael D’Ascenzo said he is concerned some companies issuing share entitlements may be providing incorrect advice that retail premiums will be treated as capital for tax purposes.

“We are currently working with some companies who have made retail premium payments to help their shareholders understand and comply with their tax obligations,” Mr D’Ascenzo said.

“The Tax Office will be reviewing tax returns of shareholders who receive these payments, so I encourage people to check they have correctly accounted for any retail premium payments in their tax returns.

“People who find they have incorrectly declared these payments who come to us before we contact them for an audit will be entitled to a reduction in any penalties that might apply.”

People who are unsure about their obligations can request a private ruling from the Tax Office by calling 13 28 61.

More information

Taxpayer alert 2009/11 is available from www.ato.gov.au/atp

Please also refer to the revised Decision Impact Statement for the McNeil decision, which clarifies the distinction between the tax treatment of compensation for surrender of rights in respect of shares in companies and the legislative change in the treatment of the acquisition of such rights that followed the McNeil decision.

A fact sheet on how retail premiums should be treated for tax purposes is also available on the Tax Office website.

People who want information about these alerts should contact 1800 177 006.

Media release 2009/34

TAXPAYER ALERT

Taxpayer alerts are intended as an ‘early warning’ to taxpayers and their advisers of significant tax planning issues or arrangements that the Tax Office has under risk assessment or about which it has concerns.

Media release 2009/33

The Tax Office today issued a taxpayer alert warning trustees of self-managed super funds (SMSF) to be cautious of arrangements involving the non-commercial use of negotiable instruments, such as promissory notes, in an attempt to gain income tax and super benefits.

The arrangements involve a trustee or member issuing a promissory note, cheque or other negotiable instrument which is passed between trustees and members with no exchange of money or assets ever taking place, or the exchange may be delayed intentionally.

Tax Commissioner Michael D’Ascenzo said the Tax Office is concerned trustees may be lured into these arrangements without understanding the potential super and income tax implications.

“We are concerned with the non-commercial use of promissory notes to avoid the need to liquidate assets in order to change the timing of transactions, or to obtain tax advantages that are not available in the circumstances,” Mr D’Ascenzo said.

“In particular we are concerned taxpayers may be lead into these non-commercial transactions hoping to take advantage of the existing super concessional contributions caps in view of the government’s Budget announcement to halve the existing concessional contributions caps from 1 July 2009.”

The alert doesn’t apply to the use of negotiable instruments involving real movements of funds or assets through genuine withdrawal and re-contribution strategies. However, it does cover artificial and contrived arrangements including ‘round robin’ transactions.

People wanting information about this taxpayer alert can call the Tax Office on 13 10 20.

Tax agents with information about anyone who may be promoting arrangements covered by this alert should call the tax practitioner integrity service on 1800 639 745.

More information

Taxpayer alert 2009/10 is available from the Tax Office website www.ato.gov.au/atp.

More information on the Government’s Budget announcement on changes to the super concessional contribution caps is available in the media release Improving Equity in Retirement issued by the Minister for Superannuation and Corporate Law.

TAXPAYER ALERT

Taxpayer alerts are intended as an ‘early warning’ to taxpayers and their advisers of significant tax planning issues or arrangements that the Tax Office has under risk assessment or about which it has concerns.

Tax Commissioner Michael D’Ascenzo today issued two taxpayer alerts warning the community that the Tax Office is closely examining uncommercial property arrangements that try to obtain unintended GST benefits.

The alerts cover arrangements where a land owner and its associate delay invoicing and payment for construction services in an attempt to claim input tax credits and/or avoid GST.

Using an associate in this way is often a feature of aggressive tax planning arrangements. People who enter into these arrangements run the risk that their tax benefit may be cancelled in which case substantial penalties will apply.

Taxpayer alerts 2009/4 and 2009/5 are available from the Tax Office website http://www.ato.gov.au/atp/

Tax Commissioner Michael D’Ascenzo today issued two taxpayer alerts warning foreign residents selling indirect holdings in Australian real property about arrangements that attempt to avoid Australian capital gains tax.

The alerts cover arrangements that attempt to circumvent indirect holding rules through staggered sell down arrangements and manipulation of the value of assets.

Tax Commissioner Michael D’Ascenzo said in the current economic environment he is concerned foreign resident vendors may be tempted to try to avoid their Australian capital gains tax obligations.

“The Tax Office closely monitors disposals of real property by foreign residents using information from Australia and overseas agencies and has identified several suspect arrangements that attempt to avoid capital gains tax,” Mr D’Ascenzo said.

“Anyone thinking about entering into such arrangements should carefully consider whether a capital gain arises, as we will be actively looking at such arrangements if they prove to be ineffective.

“Taxpayers who are unsure of their tax obligations should seek independent advice from a person not trying to market such a scheme or contact us so that we can help them understand and comply.

“If they are genuinely uncertain they can ask for a free private ruling from us.

“If taxpayers who have entered into such an arrangement come to us before we contact them for an audit, they will be entitled to a reduction in any penalties that may apply.”

The Tax Office today issued four taxpayer alerts warning people of its concerns about abusive tax schemes.

These alerts cover employee savings plans, salary deferral arrangements, a profit washing scheme and a liquidation scheme.

Tax Commissioner Michael D’Ascenzo said people involved in or considering these schemes should be warned they face close examination by the Tax Office.

“These schemes are variations on ones that have concerned us before and we are considering whether the promoter penalty laws should be applied to people promoting them,” Mr D’Ascenzo said.

“We are concerned people may be tempted by such schemes as a way to avoid their tax as 30 June approaches.

“I ask again today that anyone involved in any abusive tax scheme to come forward and tell us about it as soon as possible.

“If people contact us before we begin an audit they will be entitled to a reduction in any penalties that may apply.

“Also if you know of people peddling abusive tax schemes, please contact us so as to protect others who may otherwise be persuaded to enter into these schemes.

“Abusive tax schemes tend to have a flow on effect, meaning people caught up can have a large tax debt and substantial penalties when they are caught.

“Anyone who is uncertain about their tax obligations should seek independent financial advice or apply for a Tax Office ruling.”

The Tax Office today issued a taxpayer alert warning trustees and members to be cautious when moving assets other than cash into superannuation funds.

When assets other than cash are transferred to a superannuation fund trustees must make sure the fund accurately reports the market value of the assets and considers any other relevant superannuation regulatory issues.

Tax Commissioner Michael D’Ascenzo said the Tax Office is concerned about certain transactions designed to manipulate contribution limits to avoid paying the excess contributions tax.

“We are concerned about contributions of assets made to a fund where the market value of the asset is not properly accounted for in an attempt to avoid paying excess contributions tax,” Mr D’Ascenzo said.

“It is also of concern that people may try to avoid the excess contributions tax by paying expenses on behalf of their fund, or by making improvements to a fund asset without reimbursement for the work.

“We follow up on excess contributions to superannuation so people need to make sure they don’t exceed the cap or they will receive an excess contributions tax assessment.

“People also need to consider any income, capital gains and fringe benefits tax implications when transferring assets.”

Trustees of superannuation funds and auditors of self-managed superannuation funds concerned about issues raised in this taxpayer alert should obtain their own independent advice or seek guidance from the Tax Office.

ATO Media Release 2008/2

Acting Tax Commissioner Bruce Quigley today warned people to be cautious about claiming deductions for losses incurred under certain stapled security arrangements.

In these arrangements the company issuing the securities suggests that the investor may claim deductions for losses in certain circumstances.
These circumstances include the assignment, transfer or surrender of the note, or conversion or disposal of the stapled security.

Mr Quigley said the Tax Office is concerned that these losses may not be allowable and will be releasing a public ruling on the arrangement shortly.
“We are acting now to warn people who may be involved of our concerns as soon as possible.

“People should seek independent tax advice before claiming deductions for any losses that they incur under these arrangements,” Mr Quigley said.

A taxpayer alert TA 2008/1 was issued today and is available from the Tax Office website www.ato.gov.au

ATO Media Release