Tax talk – issue 1

Key developments

Taxpayer bears onus of proving taxable income in Court – 11 August 2015

Rigoli v FC and T

Background

The Commissioner issued default assessments to the taxpayer in respect of the 1994 – 2001 income years, based on income estimates drawn from an expert report. The taxpayer initially objected on the basis that he had no assessable income.

At the Administrative Appeals Tribunal (AAT), the taxpayer accepted the Commissioner’s estimates, but claimed he was entitled to certain depreciation expenses. The AAT found that the Commissioner’s disallowance of the depreciation deductions was incorrect, and referred the matter to the Commissioner for reassessment.

The Commissioner appealed the matter to the Federal Court, which found that in order for a taxpayer to establish the assessment was excessive, the taxpayer had to show evidence of his taxable income, rather than simply pointing to a perceived error in the Commissioner’s estimates. The Federal Court held that the taxpayer had failed to prove his taxable income, and set aside the AAT decision.

The taxpayer appealed to the Full Federal Court, which unanimously held that the taxpayer failed to discharge the burden of proof evidencing his taxable income. The matter was remitted to the AAT.

The AAT held that the taxpayer could not rely on a report prepared by the Commissioner for different purpose to prove his taxable income. The taxpayer appealed to the Federal Court.

Decision

In the Federal Court, Pagone J affirmed the AAT’s finding that the taxpayer had failed to discharge onus of proving the Commissioner’s default assessments were excessive. His Honour held that the report was an estimation of the taxpayer’s income based on incomplete business records, and so could not be used as evidence to determine actual taxable income.

Transfer pricing documentation – 6 August 2015

Draft legislation introducing new OECD standards on transfer pricing documentation and County-by-Country reporting has been released.

The legislation requires Australian residents and foreign residents who have an Australian permanent establishment and annual revenue of $1 billion or more to provide a statement to the Commissioner to help undertake transfer-pricing risk assessments. The legislation applies to multinational enterprises headquartered in Australia, and Australian subsidiaries of multinational enterprises which are headquartered outside Australia, with annual revenue above $1 billion.

Entities who fail to provide a statement on time or in the required form face administrative penalties under s286-80(2) of Sch 1 to the TAA (1953) and potentially criminal penalties under subdivision 815-E of Part III Div 2. The legislation will have application for income years commencing either on or after 1 January 2016.

ATO updates

ATO updates website – 14 August 2015

The ATO has launched its new website. It has a much cleaner look, and contains drop-down menus for Individuals, Business, Non-profit, Super, Tax professionals.

Draft of revised ATO practice on Pt IVA and other GAARs – 13 August 2015

The ATO has released a draft of PS LA 2005/24 to explain its practice regarding the General Anti-Avoidance Rules (GAAR), including the updated Pt IVA. The statement examines the key provisions of Pt IVA.

Among other things, the statement outlines the ATO’s approach in dealing with Part IVA, including the concepts of ‘scheme’, ‘tax benefit’ and ‘purpose’.

In the context of determining whether a ‘tax benefit’ exists pursuant to the post-2013 provisions, the statement confirms that no binding case law exists as yet on the updated Part IVA provisions, and that the only ‘sure source’ of guidance is the text of the new provision itself.

The statement also addresses the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 by stating the Commissioner’s view on the issues raised by the amendments. The statement acknowledges that it is difficult to provide a statement on the correct interpretation of the law, but does provide commentary on the amendments.

Comments and feedback on the draft are due by 25 September 2015.

Legislation

Small business measures No 3 Bill awaits assent – 13 August

The Tax Laws Amendment (Small Business Measures No 3) Bill 2015 is awaiting assent. The Bill provides individuals who run small businesses with an annual turnover of less than $2 million with a 5% tax offset.

Tax Laws Amendment (Combatting Multinational Tax Avoidance) Bill 2015

This Bill introduces an anti-avoidance rule to stop multinationals avoiding their Australian tax obligations. The Bill will help the ATO detect tax avoidance and increases penalties for multinationals.