Taxation and Client Risk Management What Accountants Need to Know - PowerPoint PPT Presentation

Taxation and Client Risk Management What Accountants Need to Know •

Taxation and client risk management Two separate and distinct areas of dispute with the ATO : 1. Objections and appeals (under Part IVC of the TAA ) 2. Debt collection 2

Taxation objections – Part IVC of TAA Process starts once Commissioner makes a taxation decision • (includes assessment, determination, notice or decision, or private ruling) Time limits exist – 4 years, 2 years or 60 days depending on • the type of taxation decision (section 14ZW) Commissioner says 56 days (hah!); statutory time frames much • longer “The Commissioner must decide [the objection]” (section 14ZY) • 3

Taxation objections – traps for young tax practitioners • Use the right form • Content must show basis( Lancey Shipping cf Szajntop ) • Object to everything ( Lighthouse Philatetics ) • Penalties are a separate assessment – object separately • False representations can lead to prosecution ( R v Saxby ) • Taxpayer always bears the onus of proof (many, many cases, but most recently see Rigoli and Gashi ) • Debt collection continues, notwithstanding the objection • 50/50 arrangements may be necessary • What is your appeal strategy? 4

Appeals Choice of AAT or Federal Court • 60 days to appeal • AAT – review of the decision, including re-exercise of • discretion Federal Court – appeal of the decision, not a re-exercise of • discretion (absent an error of law) Taxpayer can only appeal on different grounds with leave and • has the burden of proof (s14ZZO) Commissioner can change grounds ( Wade ) • But, Courts can get cranky (see eg Pacific Exchange Corp ) • 5

SMSF litigation trends Excess contribution tax reviews to AAT are, thankfully, coming • to an end. Non-complying fund cases under s42A(5) of the SIS Act • New weapon of choice: enforceable undertakings s262A • Pabian Park – example of a successful s42A(5) case • Interhealth Energies – spectacular example of an unsuccessful • s262A case. Good reminder on importance of corporate trustees – Shail • Superannuation Fund 6

Taxation and Client Risk Management My component of today’s discussion will focus on the following points of interest: • Traditional court processes used by the ATO • Director Penalty Notices – Past and Present • Risk Management 7

Traditional Court Recoveries Claims against Corporations Some options available to ATO: Claim and Statement of Claim – allows a 28 day period to • lodge a defence Judgment • Statutory Demand – allows a 21 day period of response – • company deemed to be insolvent on expiry of same Winding up Application • Garnishee Notices – sweep 30% of account balance • Tips – check compliance, consider payment plan, seek expert assistance 8

Traditional Court Recoveries Claims against Individuals Some options available to ATO: Claim and Statement of Claim – allows a 28 day period to • lodge a defence Judgment • Bankruptcy Notice – allows a 21 day period to respond – failure • to respond is an Act of Bankruptcy Creditors Petition – Sequestration Order – Bankruptcy • Garnishee Notices – sweep 30% of account balance • Tips – check compliance, consider payment plan, seek expert assistance 9

Specific Powers of ATO Claims against Directors Director Penalty Notices – Pre 30 June 2012 • Director Penalty Notices - Post 30 June 2012 • Insolvent Trading • The Director penalty notice provisions have the effect of lifting the Corporate Veil and making Directors personally liable for certain company taxation debts (PAYG and Superannuation) Compliance firstly to lodgement obligations, and secondly to any DPN received, is the only practical defence. The ATO does not have discretion / capacity to extend the 21 day period A Director becomes personally liable if the company fails to lodge BAS and/or Superannuation Guarantee Charge Statement within nominated periods 10

Specific Powers of ATO Director Penalty Notices – pre 30 June 2012 and ongoing Basic Facts Issued by the Australian Taxation Office (ATO) pursuant to Section 222AOE of the Income Tax • Assessment Act (1936) Non compliance allow the ATO to personally pursue the Company Director(s) for the amount • sought in the notice. (Note however that the ATO cannot issue a notice which includes GST) On receipt of a Notice, the Director(s) has 21 days to complete one of four options: • Discharge the liability in full Enter into a repayment program agreed within the 21 days pursuant to Section 222ALA of the Income Tax Assessment Act (1936) Place the company into Voluntary Administration Wind up the company via the court or by creditors resolution By completing one of these four options within the 21 days the Director(s) cannot be personally pursued by the ATO 11

Specific Powers of ATO Facts to be Aware Of Care must be taken to ensure when paying out the Notice that the funds paid are applied against it (being the • debt disclosed in the Notice) and not other tax debt An agreement pursuant to Section 222ALA must be in writing , describe the liability being discharged, set out • the instalment scheme, include special conditions (if appropriate) and be signed by both parties. Verbal agreements are not enforceable. By entering into a repayment program the Director(s) is jointly liable with the company and therefore is • deemed liable if the company defaults. Further, if the company is later wound up (Liquidated) and the payments made by the company to the ATO under the repayment program are found to be preferential and therefore voidable (and recovered by the Liquidator), the Director(s) can be held personally liable by the court, at the request of the ATO, for the amount recovered from the ATO by the Liquidator pursuant to Section 588FGB of the Corporations Act 2001 . The ATO has no discretion to extend the 21 day period. • ATO personnel are not always up to speed with the legislation and therefore may provide inaccurate • information e.g. advise that they can extend the 21 day period etc. The ATO may seek security over personal assets before accepting any repayment proposals. • Winding up the company via the court takes longer than 21 days and therefore unless the process is already • on foot is not a viable option. Winding up by Creditors Resolution can be achieved within 21 days as long as there is no friction between the • members (as a members meeting is required). 12

Specific Powers of ATO Director Penalty Notices – post 30 June 2012 and ongoing Basic Facts From 30 June 2012 a new regime was added to make Directors personally • liable if a company fails to report its PAYG and superannuation obligations to the ATO The regime is retrospective for PAYG i.e. applies pre 30 June 2012 • This regime works simultaneously with Director Penalty Notices • ATO is co applying both regimes and currently issuing Notification letters of • personal liability, and Director Penalty Notices (in an attempt to capture further personal liability) Numerous articles have appeared in the Australian Financial Review, • Australian Institute of Company Directors and other industry magazines. It appears the honeymoon is over and ATO is enforcing against Directors. 13

Specific Powers of ATO Timelines to be aware of: PAYG reported on a Monthly Basis Quarter ending 31 March 2013 (already liable for earlier months if not lodged) Due for lodgement 21 April 2013 If not lodged by 21 July 2013 then personally liable PAYG reported on a Quarterly Basis Quarter ending 31 March 2013 (already liable for earlier quarters if not lodged) Due for lodgement 28 April 2013 If not lodged by 28 July 2013 then personally liable 14

Specific Powers of ATO Timelines to be aware of: Superannuation Quarter ending 31 March 2013 (already liable for prior quarters if not lodged) Due for payment to funds 28 April 2013 Due for Super Guarantee Charge Statement 28 May 2013 If not lodged by 28 August 2013 then personally liable 15

Risk Management Checklist Prevention is best cure – so ensure clients lodge on time - provide - checklists to clients to ensure they are complying with lodgement deadlines Motivate clients to be proactive with ATO and call to make payment plans - before DPN issues – otherwise personal liability – hang up and start again if necessary Set up provision bank accounts for PAYG and Superannuation - Don’t be Trustee in Personal Capacity, Don’t be Trustee of Multiple Trusts - Grant Security Interest for Director Loans - Grant Second Mortgage over Real Property to Discretionary Family Trust - Ensure transactions are recorded to Accounting Standards – to enable - accurate financial reporting Use Cash flows and Budgets - 16

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