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ATO attacks mum and dad partnerships. We’re all at risk!

Thursday, October 20, 2016

If you are one of the 2 million self-employed people in Australia we suggest you read the following very carefully. This is a story of (frankly) how concerned you should be about your potential treatment by the Australian Taxation Office. It’s the story of Rod Douglass, a 55-year-old IT contractor, but it could just as easily be you.

We first explained the tax issues in March this year. Then three weeks ago we announced the legal action we have organised to defend Rod, who’s been accused of tax evasion and sent a bill for $550,000 backdated 10 years. (It will bankrupt him!) What he did was comply with tax information published on the ATO website. However, the ATO says that by acting on this ATO information Rod committed tax evasion. ICA and our legal team are organizing Rod’s defence at no cost to him. This an important issue of justice.

The court documents have been lodged in the Federal Court and the Administrative Appeals Tribunal and pre-court discussions are occurring with the ATO. Because of confidentiality issues we are constrained in what we can say at this stage.

However, yesterday Robert Gottliebsen from The Australian had an outstanding commentary based on the public domain court documents. Robert’s article is here. Robert made the following points:

Partnerships
  • “The result of (Rod’s) case will determine the fate of tens of thousand of husband and wife partnerships …”
  • In 2005 Tax Commissioner “Carmody ruled that husband and wife partnerships in which both parties were responsible for half the debts were a legitimate way to organize business…” and that “tax avoidance schemes did not apply (to such partnerships)…”
Fraud/evasion trigger
  • Normally the ATO can only go back 2 years on tax assessments. “This is a really important protection for small enterprises…”
  • However the Commissioner can go back over any period if he/she forms an “opinion that there has been fraud or evasion.” “…the normal essence of evasion is where some material facts have been omitted or misconstrued. In this case, according to Douglass’ statement of claim, there were no facts omitted or misconstrued.”
  • If Douglass loses the case it would become a chilling precedent for tens of thousands of enterprises.”
We have an excellent legal team and researchers preparing Rod’s defence. The case tests:
  • ATO fraud and evasion ‘opinion’ procedures.
  • Personal Services Income tax assessment processes.
  • Partnership income-sharing legitimacy.
  • Reliability of information/advice published by the ATO.
On the last point (ATO reliability) the issue puts at stake the faith Australians can have in the very integrity of the tax administration system.

There’s a lot hanging on this case. 

 

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