Taxation FAQs

Q. My accountant has told me that directors’ loans from my business are subject to taxation.  Is this true?

A. Yes.  These types of loans must be properly documented by loan agreements otherwise the consequences of this are that these loans are treated as income to directors.  There are specific debt/equity rules about which you need independent legal advice.

Q. I am about to sell my business and I will be making a capital gain.  Can I do anything to reduce this?

A. Yes.  Your lawyer can advise you in the transaction about the best way to gain relief under the Act.

Q.  I have not paid my tax for the last 18 years and I was wondering whether or not the best way to deal with this is to go bankrupt.  What should I do?

A.  The whole tax environment has changed markedly during the course of 2006 and although it is relatively easy to declare yourself bankrupt the Australian Taxation Office may decide that your matter needs to be referred to the Commonwealth Director of Public Prosecutions and if so expect to be criminally prosecuted. 

Q.  I am in partnership and neither my partner nor myself have filed any returns.  What should we do?

A.  If you have come to the attention of the Australian Taxation Office then you may very well be prosecuted for taxation offences under the Taxation Administration Act.  If you have not been detected then you need to retain the services of an appropriately qualified accountant to prepare the necessary returns for lodgement with the ATO as soon as possible.  Once this has been done retain the services of a Tax Lawyer.

Q.  I have been served with a notice by the ATO asking me to answer a number of questions associated with my taxation and financial affairs over the last 10 years.  What should I do?

A.  The first thing you should do is find a tax lawyer so that you can be appropriately advised.  Remember, the worst thing that anyone can do is to provide information to somebody who has the power to prosecute you for non-compliance.  In all such cases you need to be properly advised otherwise you will end up making admissions which will probably mean that you'll end up being prosecuted. 

Q.  I have been with the same accountant for the last 15 years and recently he called me to tell me that I am being investigated by the Australian Taxation Office and that I should not worry as he has everything under control.  What should I do?

A.  If you have been with the same accountant for 15 years and you are being investigated obviously there appears to be something wrong with the returns which have been submitted and therefore you should seek independent legal advice from a tax lawyer who specialises in this area.

Q.  I am currently being audited by the Australian Taxation office and my accountant of many years has told me not to worry as he can obtain the accountant's concession which will protect me.  What should I do?

A.  The accountant's concession is not legal professional privilege and is not recognised by the courts and therefore you are always at risk and need to obtain the services of a tax lawyer to be properly protected.

Q.  We have been going to the same accountant for a number of years who is a family friend and he has restructured our financial affairs for the sole purpose of obtaining the maximum taxation benefits available and it seems to me that we may be sailing close to the wind.  What should we do?

A.  Unfortunately for you, you are already in trouble without knowing it.  Where a scheme has been entered into for the sole or dominant purpose of obtaining a tax benefit then you have committed a number of tax offences and may be subject to prosecution by the CDPP for criminal activity.  Once again accountants are not taxation lawyers and unfortunately a number of them give advice sometimes knowing it to be incorrect in the hope that it will please the client and they will retain their business.  Alternatively where this is not the case to give advice without fully appreciating the consequences leaving the client exposed to any number of initiatives which may be taken by the ATO or any number of other government-related bodies is negligence.  Retain a tax lawyer urgently.

Q.  I make a large income and over the years I have been to see my accountant and he has restructured my affairs to make sure that I am tax effective.  Some of this restructuring has meant that we have relied upon tax havens where money is sent overseas and finally returned to me in Australia tax-free.  Should I be worried about any of these arrangements as it just seems to be too good to be true.  What should I do?

A.  Normally where something seems too good to be true, it is, as no one can simply avoid paying all taxes.  Should the ATO become aware that you have been sending money overseas and not paying tax on it for years then you can expect to be a person of interest and be referred to their serious non-compliance unit which is now a separate business unit within the ATO.  Once they get onto you then you can expect the full force of the ATO to be levied at you to pay all back taxes, penalties and interests before the matter is referred for prosecution.  Make sure you retain a tax lawyer before things get out of control.

Q.  Although I am currently being investigated by the Australian Taxation Office fortunately I have the money to pay them and I am being advised by my accountant that if do so that this will be of great assistance to me.  Is this correct?

A.  It is always helpful to be able to pay your back tax.  That is not the issue.  The issue is whether or not you are involved in tax evasion or tax avoidance.  If you are involved in tax evasion the simply fact that you pay the penalties and interest does not prevent the ATO from referring you for criminal prosecution.  One of the best cases in point is the Ronan matter in which the Ronans paid the penalties and the court made the point that where penalties have been paid this is not to be taken in mitigation of sentence as both the tax and the penalties would have to have been paid in any event.  Anybody who is in this situation should seek proper legal advice from a tax lawyer. 

Q.  I have recently been summonsed by the ATO for a number of taxation offences for a failure to lodge a number of returns over a number of years and at this stage they are not aware that my company is not tax-compliant and both the company tax and the BAS have not been lodged for this period.  What should I do?

A.  Obviously you are already on the radar screen of the ATO and it won't be too long before they find out that your company is not tax compliant in a number of areas.  Even if you do not have a lot of money and you are relying upon this fact to obtain sympathy from the ATO then forget it as this does not fit within their code of settlement practice.  Consideration will only be extended by the ATO in cases of genuine hardship.  Your circumstances do not appear to fall within these parameters.  You need expert professional assistance as soon as possible. 

Q.  I have had a falling out with my co-director and have left the company trying to work out what I should do.  Unfortunately he has been left in control of the company's affairs including all tax monies put aside to pay the ATO and he is both a gambler and a spendthrift.  What should I do?

A.  Obviously you need to obtain independent legal advice as soon as possible and you need to re-engage with the company's affairs to ensure that no-one has breached their director's duties and may become the subject of a referral to ASIC.  Remember, taxes are an important part of a company's affairs but where you are referred to ASIC the penalties can be extreme and therefore ruinous.  Do not delay, take action now.

Q.  I have been told by my accountant that if I obtain a motor dealer's licence either for my company or myself and I buy vehicles are they totally tax deductible?

A.  No.  A motor vehicle dealer's licence is meant to be used by a motor vehicle dealer and is not for the use of a company or an individual to avoid paying, eg. luxury car tax.  If you have done then expect to be contacted by the ATO in the near future as they are targeting luxury car sales.

Q.  I am a professional person who has been picked up by the ATO and I am concerned whether I may lose my licence to practice?

A.  This is a very real possibility and without your ability to practise you will lose everything.  Whenever you come to the attention of the ATO you should seek independent legal taxation advice to ensure that you achieve the best possible outcome given the circumstances.

Q.  I am a highly successful individual and have recently found out from the ATO that certain items were included in my returns as expenses when they were really capital items.  Am I in trouble?

A.  Yes.  Capital items are treated differently to expenses and therefore to claim a deduction for a capital item, unless it is where you claim depreciation is a taxation offence and should never have been included in your return to reduce your assessable income.

Q.  Do you think that the ATO is likely to believe me when I say that I have had an arm's length relationship with my accountant who lives on the other side of town and I don't know his address although he has asked me to forward to him monies whenever my tax was due and has now disappeared with the lot?

A.  I think it is highly unlikely unless you can prove the money was drawn from your bank accounts and remitted to him in the ordinary course.  Even if this is in fact true and he has disappeared with the monies sent to him then as they have never been received by the ATO then they are entitled to call upon you to satisfy the outstanding debt as they have never been paid.

Q.  I am in serious trouble with the ATO because of the advice I have taken from my accountant.  How will this assist me in my negotiations with them over these unexpected tax liabilities?

A.  It won't.  The liability is yours and it is up to you to satisfy it.  The only remedy you have is to sue your accountant for breach of his professional duty of care and there may be some issues associated with this, after all, all you have done is underpaid your tax which was an existing liability which you should have paid up front.  The quality of the advice impacts on penalties and interest and this is the area where  in part you will be seeking recompense.

Q.  Has there been a change in the attitude of the ATO since the appointment of the new commissioner, Michael D'Ascenzo?

A.  The ATO has always wished to assist taxpayers wherever possible but under the current commissioner laxity will not be tolerated and where someone tries to gain an unfair advantage the ATO will come down very heavily on tax evasion.  Everyone understands honest and innocent mistakes but no-one tolerates a concerted attempt basically to defraud the revenue.

Q.  My company earns income both in Australia and overseas and I have been advised that with my foreign-sourced income if it is diverted through a tax haven then it is tax free.  Is this correct?

A.  No.  Although tax havens may assist some taxpayers to lower their overall tax liability the simple fact that money is directed to a tax haven and then distributed from there to you does not mean it is tax-free.  You need to see a tax lawyer to get proper advice.

Q.  Where I am an Australian-domiciled person am I entitled to a foreign-sourced tax credit for income earned overseas?

A.  Yes.  You are entitled to a foreign-sourced income tax credit at the rate you would have paid overseas provided there are treaties in place between Australia and that country which will allow this.

Q.  My tax advisers have advised me to destroy all documents relating to business affairs which may assist the ATO to take action against me in respect of my taxation affairs.  Should I do so?

A.  No.  The ATO and all taxing authorities take a very poor view of taxpayers who are unable to provide source documentation or at the very least a copy of source documentation which may assist them to determine the taxpayer's overall taxation liability.  In fact the destruction of tax records is an offence and can be prosecuted accordingly. 

Q.  Surely if the ATO were to attempt to prosecute me for tax non-compliance then I could rely upon the criminal law to escape being sent to gaol, couldn't I?

A.  No.  Although you are entitled to the best possible defence you can mount given the circumstances, and although you can rely upon the fact that the prosecution has to prove their case beyond reasonable doubt, circumstances are never quite that clear cut.  How do you think that you can avoid the criminal consequences of your actions when the ATO will be in fulsome possession of material(s) which they will be able to present to the court to demonstrate that you were involved in a scheme the sole or dominant purpose of which was tax evasion. 

Q.  I was referred to an international taxation specialist to advise me to quarantine my intellectual property by placing it in a vehicle so that the income here and overseas could be channelled through it including other companies and trusts located in tax havens as an effective way to escape all CGT and other tax consequences.  How effective is this likely to be?

A.  Any arrangement of this type is likely to be put under a microscope by the ATO should it be subsequently discovered by routine enquiry, investigation or audit.  Where a number of exotic structures are relied upon, either to diminish or to evade your overall taxation liability they almost have to be  perfection for this to be achieved.  In the ordinary course this just does not happen, as very few taxpayers can afford to do this as the costs are substantial and require constant revisiting to ensure that they continue to operate legitimately.  Unfortunately for lesser mortals all that has really been done has been to put a number of structures between you and the Tax Office hoping that they will never be able to unravel what the situation is and when they do you will bear the full consequences of this.

Q.  I owe the ATO a seven figure amount of unpaid tax and I believe the best way to avoid this is to  wind up my companies and declare myself bankrupt.  Is this the case?

A.  No. Where taxpayers owe the ATO a substantial amount of unpaid tax they will attempt wherever possible to recover it.  Just because you decide to wind up your companies and declare yourself bankrupt and even if you were to avoid paying the tax it does not mean that you will not be subject to criminal prosecution.  With bankruptcy it variously lasts for either three, five or seven years and for anyone contemplating that who is middle-aged it is ruinous in terms of their ability to regenerate a business, re-establish themselves as a director and trade in future.  It should not be forgotten that in most cases where a substantial amount of tax is owed to the ATO they will be your principal and sometimes only creditor. Although you may think you will be the moving party in a company winding up and a bankruptcy petition they may in fact do so themselves when they discover that you are unable to make e.g. partial reparation.  What you need to do is to retain a tax lawyer who has a complete understanding of what is required in this area to achieve the best possible result.

Q.  I have been advised by my accountant that although I have not been tax compliant for many years, where I transfer all my assets to my wife this will keep them out of reach of the ATO.  Is this correct?

A.  No. 

Q.  I am currently involved in family law proceedings and my wife is seeking the property settlement, spousal maintenance and whatever else she can get out of me.  She is aware that I have not paid most of my tax for many years and she is pretending that she has no knowledge of this although she has shared the benefits which have come from this.  Is she likely to achieve a substantial settlement which will interfere with my ability to pay my principal creditor, the ATO?

A.  No.  There are very limited circumstances in which a spouse will be given a substantial settlement by the court where they have been involved in the situation where they have enjoyed the fruits of your deception.  Her state of knowledge will cause her major problems.

Q.  I have been audited by the ATO and have been asked to provide them with a lot of information about my financial affairs.  I have always had my taxation affairs looked after by the same accountant who assures me that everything is OK. One thing that worries me is that over a number of years when I have been in to see them I have indicated that I wished to minimise my tax and was there anything that could be done.  I was told "…. Don't you worry about it … leave everything to me and all you have to do is sign off on the documentation that I give you and that will be the end of it because as long as the ATO doesn't understand it they will take no action against you …."   Is this correct?

A.  Obviously not because you are the subject of an ATO tax audit.  No one can avoid paying tax on this basis as it obviously involves at the very least fictitious figures and expenses.  Nowhere in the law is this type of creative accounting allowed and where discovered the ATO comes down on it harshly. 

Q.  What happens where I hide my true business activities which are of a criminal nature behind legitimate enterprises and the Tax Office finds that I am tax non-compliant?

A.  Apart from the question of determining what your overall taxation liability will be you can expect all of your assets to be seized and the only way any of them will ever be returned to you will be where funds from legitimate activities have only been used to purchase legitimate assets.  Of course in these cases the matter may come to the attention of the ATO, Australian Federal Police or the Australian Crime Commission and how the matter is handled by either of them will depend upon how they came into possession of this information.

Q.  I was a client of Phillip Egglishaw and have recently been contacted by the ATO seeking information.  What should I do?

A.  Immediately appoint a taxation lawyer to take over all of your taxation affairs from anybody who is dealing with them otherwise dire consequences will flow from any inaction on your behalf.

Q.  I am an extremely wealthy man and I have been advised to follow the Robert Gerard example which would be a good outcome for everybody, wouldn't it?

A.  No.  The taxation paradigm has changed forever.  Whatever used to be the case will now no longer be tolerated.  Tax is all about paying your primary tax on time all the time and if you don't not only will you have to pay this you will have to also pay penalties and interest.  Anybody who engages in any form of activity which is calculated to deceive the revenue authorities is on a collision course.  Put simply, if you are aware that you have been tax non-compliant for a number of years and you have not yet come to the attention of the ATO or any other taxation authority eg. OSR, then you immediately need to seek advice from a taxation lawyer.  One thing which can be but is not often done is to make a voluntary disclosure and where this occurs chances are that when the matter is referred you may be given a positive referral which means that there may be no criminal prosecution which follows.  This is a complicated area and one where a high level of expertise is required in order to achieve the best possible outcome in the circumstances.   There are very few taxation experts in this country who really understand what is required to be done in this area.  Although some understand the process they do not understand how to achieve the best for their clients as they have rarely represented them since the change in the taxation paradigm in late 2005. 

Q.  I have been sending money overseas to a tax haven for many years and I was just wondering, can I claim my holiday costs when I visit my advisers over there?

A.  If the arrangements are not legitimate and even if they were then at best all you could claim is part of the cost to travel overseas and nothing more.  There is nothing worse than to try and dress up holiday expenses as legitimate business expenses as eventually you will be caught out.

Q.  I have been told by a number of my friends that I should never tell my taxation advisers fully what is going on as it is the best protection for me should I be audited.  Is this right?

A.  Any number of clients may take this approach the major problem with this being that where a taxation lawyer is selectively informed by his client as to both the good and bad aspects of their financial and taxation affairs then how can you expect to be given the best possible representation to achieve the best possible outcome.  There is nothing worse than representing taxation clients where you only have a small part of the story and it is obvious that the ATO is far better briefed than you and all that is going to happen is a calamitous outcome for the client.  Whenever anybody retains a taxation expert to represent them they should be totally forthcoming so that the best possible strategy can be worked out to achieve the best possible outcome for the client(s). 

Q.  Nearly every day I read about some high-flying individual in the newspapers who has been  contacted by the ATO seeking clarification about certain matters.  Are some of these individuals likely to be prosecuted or are they likely, because of their public profile to be let off?

A.  Where there has been a serious deception practised on the Commonwealth in regard to their taxation affairs it is inevitable that they will be referred to the CDPP and that action will be taken against them.  Obviously there are any number of things which their advisers can do to assist them, but where they decide to run a covert strategy and run deep they are in for real trouble even if they are living overseas as they can be deported to Australia and end up serving a substantial prison term.  Where this does not occur they will have been of tremendous assistance to the authorities and may be granted an indemnity against criminal prosecution which rarely happens.

Q.  How important are accountants in assisting you with tax problems?

A.  The services of a competent, ethical accountant should always be retained as part of the team to properly represent any taxpayer who is tax non-compliant.  This accountant should be selected by your tax lawyer to avoid any further complications and any collateral damage which could occur if you were to select an accountant who is serving their own agenda and not working in your best interests.

Q. I recently received a letter from the ATO based on information from Austrac concerning money transfers from tax havens to my bank accounts in Australia. Is there anything you can do to help me?