Tag Archives: evidence

Only a loan? Impugnable loans, proving them for tax and shams

 

Is a loan just a sum advanced to be repaid by a borrower to a lender? Accountants understand that a loan can be a nimble device to explain and show why money and value is elsewhere even when the relationship between the borrower and the lender is not arms length or clear.

Necessary elements of a loan

So a loan is recognised. It is clearly recorded in the books of account and appears as a liability in the financial statements of the “borrower”, the “lender” or frequently both. The individual, who is the controlling mind of the borrower, says yes, it is a loan, and the apparent lender, who has an established relationship with that individual, doesn’t say it is not. Will that apparent loan be accepted as a loan by all persons interested?

A number of recent tax cases in the aggressive tax planning space show that, in those kinds of cases, the Commissioner of Taxation is prepared to commit significant resource and effort into:

  1. disabusing courts that arrangements with the appearance of loans are loans in fact; and
  2. pursuing high profile tax scheme promoters and their clients using arrangements based on inpugnable loans.

A wide but demarcated construct

There is no doubt that a loan is a wide concept. In Taxation Ruling TR 2010/3 Income tax: Division 7A loans: trust entitlements, the Commissioner took a wide view of what amounts to a loan, or to what amounts to at least one or more of:

(a) an advance of money; and

(b) a provision of credit or any other form of financial accommodation; and

(c) a payment of an amount for, on account of, on behalf of or at the request of, an entity, if there is an express or implied obligation to repay the amount; and

(d) a transaction (whatever its terms or form) which in substance effects a loan of money.

being a loan under section 109D of the Income Tax Assessment Act (“ITAA”) 1936 which triggers a deemed dividend to a shareholder or an associate under Division 7A of that Act. The “loan” regime in Division 7A is an exception though. Generally, if a taxpayer can establish that a sum received is received as an advance of a loan, that receipt can explain why that money or value is not in the nature of income that may be assessable to the taxpayer. That is a vital capability when the schema of Australian income tax recovery is “asset betterment” allowing the Commissioner to assert that money or value received is income unless the taxpayer can prove that it is otherwise.

Hart v Commissioner of Taxation (No 4)

So it was in Hart v Commissioner of Taxation (No 4) [2017] FCA 572, a decision of Bromwich J. of the Federal Court, concerning the personal tax affairs of the senior tax partner of Brisbane-based law firm and tax planning and tax scheme services provider Cleary Hoare. Mr Hart asserted that the amount in dispute in that case was a loan to him by an associated trust clearly recorded as a credit loan in the books of the trust.

The firm of Cleary Hoare was operated by a practice trust (“the Practice Trust”) in which discretionary trusts of the partners owned units in the Practice Trust which, it transpired, was not structured in accord with Queensland legal professional practice rules. The discretionary trust of Mr Hart owning units in the Practice Trust was referred to in the decision as the Outlook Trust.

Loan or benefit or both to the taxpayer (“borrower”)?

During the 1997 income year, the Outlook Trust included $220,398 in its assessable income as a distribution to it as a unitholder in the Practice Trust under section 97 of the ITAA 1936. The distribution was routed by a series of on-distributions through a network of interposed trust entities associated with Cleary Hoare, or its associates, to a company carrying significant tax losses, Retail Technology Pty. Ltd. and by the making of gifts by way of promissory notes to and through entities that were associated with Cleary Hoare or its associates, including Mr Hart. The Commissioner took issue with the last flow of the money through the arrangement back to Mr Hart. The Commissioner viewed that last flow as a distribution to Mr Hart for the benefit of Mr Hart. For his part, Mr Hart contended that the payment was a loan to him from the Outlook Trust, or alternatively from the Practice Trust, and that the payment was so recorded in the books of account of the Outlook Trust.

The Commissioner also pressed a number of alternative cases including a case that, even if the payments were not trust distributions, the application of general anti-avoidance provision in Part IVA of the ITAA 1936 meant that, in the absence of the scheme, the money would still have been paid to Mr Hart and instead been taxable, to which Mr Hart, for his part, contended that such payments would not have taken place in the absence of the scheme.

Present entitlement by benefiting trust beneficiaries

One of the alternative cases run by the Commissioner was that payments benefiting Mr Hart of at least $84,615.52 of the $220,398 were assessable directly to Mr Hart who was also a special unitholder, as trust distributions to him by the Practice Trust. In the absence of a sustainable case that the $220,398 or any part of it was a loan, the court could find that sections 95A and 101 of the ITAA 1936, which have the effect of deeming payments to or for the benefit of a beneficiary to be payments to which the beneficiary is presently entitled, applied to bring the $84,615.52 into the special unitholder’s assessable income for the 1997 income year.

Although this finding did not directly inform the character of the remaining $135,782, this application of sections 97, 95A and 101 of the ITAA 1936 to at least $84,615.52 of the amount in dispute, which the court accepted, did not assist Mr Hart to prove that the assessment of the greater $220,398 was excessive.

How Mr Hart’s loan contention failed

The court deduced from the submissions of the parties that whether the 1997 assessments of Mr. Hart were excessive or not turned on whether Mr Hart received the $220,398 as a loan. Mr Hart’s counsel contended that the evidence of Mr Hart, including the accounts of the Outlook Trust which showed the borrowing to Mr Hart, was sufficient to show that the funds had been loaned to Mr Hart. However other evidence caused this contention to unravel, viz.:

  1. there was nothing in writing to record or otherwise evidence a loan;
  2. there was no interest paid or payable under the purported loan;
  3. there were no repayments required or made under the purported loan, despite more than 19 years having elapsed since the advance of money under the purported loan (and the “creditor” trust had not traded for 15 years); and
  4. there were records of contemporaneous bank statements showing “pay” or “sol[icitor] pay” which were made on a fortnightly basis to a bank account of Mr and Mrs Hart between at least 5 July 1996 and 23 April 1997.

In addition to this evidence, which the court found, of itself, compelling, was the coup de grâce of a credit approval request by Mr. Hart to Suncorp Bank for two loans in 1999 in which Mr Hart, as an applicant providing personal details, appeared to state he had income of precisely $220,398 in 1997. The court observed that stating this, if it was nothing more than antecedent indebtedness, was hardly going to assist in securing a further loan, so it didn’t make sense as a loan.

Was the loan a sham?

Mr Hart’s counsel asserted that, as the Commissioner had not demonstrated that the purported loan was a sham, the court was obliged to accept the evidence lead by Mr Hart viz. his testimony and the accounts of the Outlook Trust, that there had been a loan. The court observed that a sham requires there to be a purported transaction which is falsely presented as being genuine. The court agreed with the Commissioner that, in this case, there was thus no sham loan, but that no loan had been proven to exist with the burden of proving that there was a loan on the taxpayer.

Loan terms in writing?

In Hart v Commissioner of Taxation (No 4), the taxpayer relied on an undocumented related party loan recorded only in the accounts of a related trust which gave the Commissioner leeway to run a case based on there being no loan at all. That leeway is reduced, of course, if the loan is reduced to writing in a loan agreement. However if that writing does not present the real arrangement then the loan can still be impugned by the Commissioner and the issue of sham will more likely arise with that false presentation.

Commissioner of Taxation v Normandy Finance and Investments Asia Pty Ltd

The taxpayer in Commissioner of Taxation v Normandy Finance and Investments Asia Pty Ltd [2016] FCAFC 180 faced that predicament.

Mr. Townsing was a client of Vanda Gould, a Sydney accountant and offshore tax scheme promoter. The taxpayer and two other companies were controlled by Mr Townsing. The taxpayer asserted that these companies were borrowers under loans from three companies controlled by Mr Gould recorded in written loan arrangements with those companies.

The Townsing controlled companies received substantial advances from the Gould controlled companies. The Commissioner asserted that payments to the Townsing controlled companies were sham borrowings used by Mr Townsing to bring assets held for his benefit into Australia and that they were thus assessable income of the companies.

The judges in this case noted the excessive length of the submissions of more than 1000 pages of submission material, ostensibly in support of oral argument at trial, to the primary judge by the taxpayer and the Commissioner.

Edmonds J. of the Federal Court, (Normandy Finance Pty Ltd v FCT [2015] FCA 1420) found for the taxpayer at first instance but did so on what was to prove a precarious basis. Edmonds J. found that the loans were not shams, even though the loan documents revealed disguises and pretences directed to demonstrating that the loans were at arms length, when the evidence was that the advances under the purported loans happened differently, and not at arm’s length. Still Edmonds J. found that, despite these irregularities, elements of the loans, including commitments to repay the loans, could be indentified in the evidence and so the loans were allowed to stand.

Appeals

The Commissioner appealed to the Full Federal Court. All three judges of the Full Federal Court closely considered the evidence that was before Edmonds J., and the majority, Jagot and Davies JJ., found that the basis on which Edmonds J. had recognised the loan arrangements as loans, distinct from the impugned purported written loan agreements, was expressly negated by the evidence of Mr Townsing under cross-examination by senior counsel for the Commissioner. The majority concluded that, in his evidence, Mr Townsing had rebuffed the facts upon which Edmonds J. had relied to find that there were loans not shams. Logan J., in the minority, disagreed with the majority and agreed with the trial judge’s approach to the evidence.

The taxpayer sought special leave to appeal from the Full Federal Court to the High Court but leave was refused by the High Court on the basis that the taxpayer did not have sufficient prospects of success of reversing the Full Federal Court majority’s findings.

Take-outs

Documenting a loan in writing reduces the scope of the Commissioner to assert there is no loan leaving the taxpayer, carrying the burden of the onus of proof, to prove the loan.

However documenting the loan may be a two-edged sword in contentious situations. Forcing the Commissioner to assert a sham will not necessarily give a taxpayer, who must disprove a sham in Part IVC of the Taxation Administration Act 1953 tax appeal proceedings, an advantage. Costs in litigation with the Commissioner to redress the consequences of a loan inadequately documented, can be significant. Poor documenting may have the adverse effect of revealing aspects of the arrangement that are not real or genuine. In other words, the pretences in the document and later compromising admissions by a taxpayer asserting the loan may irretrievably taint the believable in an asserted loan document and cause a loan to fail as a construct for a payment.

Loans not at arms length are the most likely to be challenged by the Commissioner. Trust beneficiary loan accounts may be held up to particular scrutiny. If a purported trust beneficiary loan is impugned sections 95A and 101 can trigger present entitlement to payments/advances to the beneficiary under the “loan” as assessable income.

These cases and the earlier Full Federal Court case of Millar v FCT [2016] FCAFC 94:

  1. which again involved an impugned loan devised by the Sydney accountant Vanda Gould for other clients; and
  2. where the taxpayers opted not to admit evidence from Mr Gould but relied on evidence of the relevant loan only from the lay taxpayer parties to the purported loan;

show that the Federal Court will not readily allow an appeal based on such restricted evidence as sufficient to prove the existence of a loan or to disprove a sham in the process of determining whether an assessment is excessive and that the High Court is reluctant to allow appeals to disturb these Federal Court decisions.

Why setting up offshore companies for Australians is a tricky business

Suppliers of offshore companies often supply companies to international clients with the promise that the company will give rise to no or little income tax. What they might really mean is the tax that applies in the offshore place of incorporation or the offshore place of operation of the company. The promise may not be informative about income tax implications in the place of tax residence of the client of taking on the offshore company.

It is useful for Australians looking to acquire an offshore company, and for offshore company suppliers who may supply an offshore company to them, to know about how offshore companies may be treated for Australian income tax purposes. And the involvement of the offshore company supplier in the company may be significant to what that treatment may be.

When offshore companies are controlled foreign corporations

Australia has had a controlled foreign corporations (“CFCs”) regime since 1990 which applies to treat an offshore company controlled by Australian tax residents (“AUTRs”) as a CFC. Like with other CFC regimes, the CFC itself is not, by virtue of being a CFC, treated as a tax resident of Australia generally subject to Australian income tax on its worldwide income; nonetheless the regime functions by attributing offshore income of the CFC to its AUTR controllers. So, although tax may be low on the company in the country of operation of the company, the AUTR faces Australian income tax on the income of the CFC even where the income of the CFC remains unrepatriated from the CFC.

The CFC regime has an active income exemption which applies to exclude income earned by a CFC carrying on an active business in an offshore place from attribution to AUTRs. Where the active income exemption can apply to the CFC an offshore company supplier may be better placed to make good on their promise of low income tax to an Australian client.

Another way of making good on the promise, but a way which is not, in any way, legal under Australian laws, including under the associate-inclusive control tests in the CFC rules, is to hide the Australian control of the offshore company from Australian authorities and from others whom it may concern. Offshore company suppliers have been known to do this by providing local-based company directors and nominee shareholders who follow the directions of the client through opaque protocols, which can be in various forms, to give the client the necessary control and assurance that the client’s directions concerning the offshore company will be followed.

megaphone-clipartkid

Offshore company is an Australian tax resident after all?

A offshore company under covert directions of AUTRs not only faces the risk that its income will be attributed as attributable income taxable in Australia under the CFC regime but also faces possible treatment as an Australian tax resident, itself. In that eventuality Australian tax authorities won’t need to rely on the CFC regime to tax the income of the offshore company in Australia.

When a company will be treated as an Australian tax resident

Under the Australian Income Tax Assessment Act 1936 a company is resident in Australia if:

it is incorporated in Australia or, if not incorporated in Australia, if it carries on business in Australia and has either its central management and control in Australia or its voting power controlled by shareholders who are residents of Australia

(definition of “resident” or “resident of Australia” in sub-section 6(1))

This is similar to the formulation of tax residence of companies that applies in most OECD countries.

The highest court in Australia, including on tax matters, is the High Court of Australia. In the 1973 case of Esquire Nominees Ltd. v. Federal Commissioner of Taxation, Gibbs J., who lead the High Court in this case, observed that:

  • “the real business [of a company] is carried on where the central management and control actually abides”; and
  • “the question where a company is resident is one of fact and degree”.

In Esquire Nominees, the High Court was able to find that a Norfolk Island company was not centrally managed and controlled from Australia despite evidence that Australian-based accountants:

  • formulated a tax avoidance scheme involving the company acting as the trustee of a number of trusts; and
  • communicated every aspect of the scheme of the trusts to the directors of the corporate trustee in Norfolk Island including how the scheme was to be carried out.

Gibbs J. was satisfied that the directors of the corporate trustee in Norfolk Island  had sufficient independent power in their role, beyond the control of the Australian-based accountants, to support a finding that the central management and control of the company was on Norfolk Island. This was despite what appeared to be the whole reliance of the directors on the communications from the Australian-based accountants. The board of directors of the company did not to have to comply with directions from the Australian-based accountants.  Gibbs J. found that the (board of) directors were making the decisions of the company, albeit in line with the strong influence of the Australian-based accountants, and that they met to do so on Norfolk Island.

Bywater Investments Limited v Commissioner of Taxation, Hua Wang Bank Berhad v Commissioner of Taxation

A November 2016 decision of the High Court has shown that:

  • relevant matters to be taken into account in ascertaining the central management and control of a company include, but are not limited to:
    • the location of the company’s registered office;
    • the residency of the company’s directors;
    • the residency of the company’s shareholders;
    • where the company’s meetings, including its directors’ meetings, are held; and
    • where the books of the company are kept;
  • the place where the board of directors meets, in particular, is not sufficient, by itself, to show where the central management and control of a company, and thus the Australian tax resident status of a company is; and
  • despite the outcome in Esquire Nominees,  Australian courts will not always accept, just because a company has a properly appointed and functioning offshore-based board of directors, that the independence or autonomy of those directors can be inferred.

In Bywater Investments Limited v Commissioner of Taxation Hua Wang Bank Berhad v. Commissioner of Taxation [2016] HCA 45 a Sydney accountant (“G”) had complete legal and actual control of Swiss-based and Samoan-based companies despite the considerable lengths taken by G:

  • to conceal the fact of G’s control of the companies; and
  • to project apparent control of these companies by boards of directors in Switzerland and Samoa arranged by Swiss-based and Samoan-based offshore company and corporate services providers.

Companies involved were incorporated in the Cayman Islands and in the Bahamas. Only through the course of the Australian investigation and litigation did it become clear that various legal means, including:

  • in the case of Hua Wang Bank Berhad, the device of an unredeemed secured bearer debenture which operated to suspend the rights of the offshore shareholders of the company to vote or demand a poll; and
  • in the case of “JA Investments”, another significant company in the structure, appointment of G as “Appointor” with the power to appoint additional members of this company who in turn could remove directors;

had been devised to give G control of the companies.

The abrogation exception

The High Court in Bywater Investments Hua Wang Bank Berhad found that, although the central management and control of a company will ordinarily be where meetings of its board are conducted; a long line of authorities, including Esquire Nominees and the UK House of Lords decision in Unit Construction Co Ltd v Bullock [1960] AC 351, identify a significant exception where a board of directors abrogates its decision-making power in favour of an outsider, and the board operates as a puppet or cypher, effectively doing no more than noting and implementing decisions made by the outsider as if they were, in truth, decisions of the board.

puppetmen-clipartkid

In Bywater Investments Hua Wang Bank Berhad it was found that G was such an outsider in control of companies that made the decisions of each company. These decisions were implemented as decisions of the boards of the Samoan-based and Swiss-based companies and the central management and control of these companies, was with G, the outsider, who was thus carrying on the business of each company in Australia.

Place of effective management of offshore companies

In the case of the Swiss-based companies, where a consideration of the place of effective management was also relevant under the applicable double tax treaty between Switzerland and Australia , the finding viz. that that place of effective management was Australia, was no different. The consequence was that the Swiss-based companies were not entitled to protection from Australian taxation under the double tax treaty.

Demonstrating board autonomy of an offshore company

The company in Esquire Nominees was able to show that it was in the ordinary case, albeit by an indistinct or possibly by a fine margin, in contrast to the boards of directors of the companies in Bywater Investments Hua Wang Bank Berhad which failed to show that they were not puppets or cyphers of its AUTR controller.

The evidence in Bywater Investments Limited Hua Wang Bank Berhad was in stark contrast to the evidence in Esquire Nominees from which the court accepted the contention that the board of the Norfolk Island company had maintained a sufficient autonomy over decision-making by the company. In Bywater Investments Hua Wang Bank Berhad the evidence of the companies unravelled as it was found that:

  • the documents and evidence produced by directors of the companies where untruthful and falsely contrived to corroborate testimony that the offshore directors operated autonomously;
  • the offshore directors were a “fake”;
  • the offshore ownership structure of the companies was a “ruse”; and
  • the means used by G to conceal that he was the true owner of one of the companies suggested dishonesty. Every decision of consequence for that company was made by G.

It follows that AUTR clients of offshore company suppliers may be challenged to sustain that an offshore company has central management and control in an offshore jurisdiction where the offshore directors are nominees, arranged by offshore company service providers potentially identifiable as “puppets and cyphers” and not directors with real understanding of the affairs of the offshore company who are genuinely involved in the decision-making of the offshore company.

Conclusion

Following Bywater Investments Hua Wang Bank Berhad Australian clients of offshore company suppliers may have reason for concern that an offshore company they procure from an offshore company provider may be an Australian tax resident.  Those concerns arise in the absence of real business activity by the company in the offshore place or real autonomy, in relation to the affairs of the company, given to the offshore directors in the offshore place which is evident from a holistic evaluation of the constituent legal documents of the company on which control of the company comes to rely.

Although the appearance of offshore decision-making by the company may initially show that the central management and control of the company is outside of Australia, that conclusion may not withstand a persistent scrutiny should the company be investigated, or more, and forced to produce its constituent legal documents to defend its offshore tax resident status. The outcome may be that the company is dealt with as an Australian tax resident without reliance on the CFC provisions to attribute and tax income of the offshore company to its AUTR controllers.

Are electronic records OK for tax?

They’re OK.

 

electronic paper-shredder

It’s clear on the ATO website that electronic storage of paper records is acceptable:

This article from Addisons explains the big picture:

  1. including in the context of record keeping obligations of companies under the Corporations Act 2001; and
  2. refers to the general requirement that taxpayers keep their (Commonwealth) tax related documents for five years.

ATO record keeping requirements in detail are in Practice Statement Law Administration PS LA 2005/2. PS LA 2005/2 shows that the period for keeping records referred to in the article can be longer than five years in certain cases. Records of documents going back to when an asset was acquired, even if prior to the introduction of capital gains tax in 1985, need to be kept for five years after the CGT asset is disposed of. It is also apparent under PS LA 2005/2 that the ATO can impose a range of penalties for failure to keep records including referring cases for criminal prosecution to the DPP where they perceive deliberate falsifications of records.

The article shows how ATO record keeping requirements reflect the Electronic Transactions Act (C’th) 1999. In essence, section 12 states that electronic records of paper documents required to be kept under Commonwealth law are OK if the electronic system is capable of conveniently and adequately reproducing the paper record. That section is referred to and is in line with Taxation Ruling TR 2005/9 Income tax: record keeping – electronic records.

Implementing electronic tax records

A taxpayer fails these requirements, and risks penalty, if electronic records are lost. Using a backup system is critical whatever electronic system is being used. Moreover electronic records have ease of duplication and filing advantages that make electronic records preferable to paper records.

There are other risks of loss of electronic records that should be borne in mind. Export to other formats from legacy or crippleware systems is an imperative when the records can no longer be retrieved from computer software say because the software becomes, over time, no longer licensed, no longer runs in the taxpayer’s operating system environment or the software itself has inherent restraints on its archiving capability. Many modern bookkeeping systems have easy to use export features which can be worthwhile using as a failsafe to ensure compliance with record keeping obligations.

Is a tax invoice that is only electronic OK?

The position with tax invoices is clear. In para 12 of Goods and Services Tax Ruling 2013/1 the ATO states:

Tax invoices in electronic form
  1. A document in electronic form that meets the requirements of subsection 29-70(1) (and if applicable, subsections 48-57(1) and 54-50(1)), will be in the approved form for a tax invoice. [Footnote 9 – This record must be in English or readily accessible and easily convertible to English as required by subsection 382-5(8) of Schedule 1 to the TAA 1953.]

Pleading grounds in a tax objection

We have mentioned how facts and evidence in dispute should be systematically presented in an objection in a considered and rigorous way.

Restriction on grounds that can be argued in a tax case

If an income tax objection is disallowed by the commissioner of taxation then the taxpayer is generally restricted to the grounds set out in the objection on appeal to the Administrative Appeals Tribunal or to the Federal Court. The grounds so set out become the equivalent of “pleadings” in a court claim or writ commencing litigation.

The law changed in 1986, to allow a limited discretion to the tribunal or the court, to alter the grounds of an objection on which an appeal could be based. The Treasurer then stated in the explanatory memorandum to the changes:

It is expected that, in exercising the discretion, the general principles on which courts have permitted amendments of pleadings in other areas of the law will generally be applied. For example, the discretion is likely to be exercised where the need for an amendment of the grounds of objection arises as a result of the Commissioner relying on arguments in defence of an assessment where the particular basis was not adverted to in the adjustment sheet accompanying the notice of assessment.

Lawyer-prepared pleading can be worthwhile

So we recommend legal input in to the preparation of a tax case at the objection stage:

  • where the case is of importance to the taxpayer; or
  • particularly where the taxpayer wants to be able to appeal the case if the objection is disallowed by the commissioner of taxation.

If a taxpayer has used a simple objection letter that does not adequately plead the taxpayer’s case, prospects of success on grounds not pleaded are diminished. Trained tax lawyers like The Tax Objection can prepare or review an objection with legal “pleadings” method to prevent loss of prospects of success on appeal like that.

The burden of proof in a tax objection

The onus or requirement of proof differs in different kinds of disputes in Australia. The most familiar is the burden or onus on a prosecution in a criminal court to establish a case beyond reasonable doubt. In civil court cases the burden or onus is on a claimant to prove a case on the balance of probabilities. In those kinds of cases the defendant may not need to prove anything.

Burden of proof in tax cases

In tax cases a reverse burden or onus applies. A tax assessment is taken to be right unless the taxpayer can prove otherwise.

Why is that? The answer is probably more practical than philosophical. In any case, it’s a bad idea not to return income and to wait for the commissioner to do the task because the commissioner’s findings will be hard to rebut if the commissioner is taken to be right to begin with.

Either in the case of a decision on an income tax objection:

the burden of proving that the assessment is excessive or is otherwise incorrect and of proving what the assessment should have been is on the taxpayer under the Taxation Administration Act (C’th) 1953. Similar state laws putting the burden of proof on to taxpayers apply to state taxes.

How is a tax objection form done?

An objection:

Be convincing

The grounds on which the taxpayer relies, i.e. the contentions and arguments, should be robust and conclusive to convince the commissioner to allow the objection. In most cases, contentions and arguments alone will not be convincing and the objection submission should show:

  • the facts supporting the grounds; and
  • the evidence which supports the facts.

GroundFactsEvidence

Presentation of grounds, facts and evidence

How grounds, facts and evidence should be presented varies case by case. Where facts or evidence are open to dispute then they need to be presented in the objection in a considered and rigorous way.

We advocate systematic organisation of grounds, facts and evidence in cases where facts and evidence supporting grounds are voluminous or complex.

If facts and evidence are presented wrongly then the credibility of the taxpayer and the contentions are undermined. It is also possible that:

  • the taxpayer may make unnecessary or unhelpful admissions;
  • the commissioner will:
    • draw adverse inferences;
    • further investigate the facts; or
    • impose a penalty tax for a false or misleading statement; or
  • in the event of an appeal, the taxpayer and witnesses could be cross-examined about matters contained in the objection.

The not so helpful ATO objection forms

The Australian Taxation Office (“ATO”) has a generic and a “Professionals” version of its objection form to complete and send as paper or online. However:

a form of objection that does not mimic the ATO forms can be prepared for a taxpayer and submitted to the ATO in a number of ways including:

  • using the tax agent portal – although a “correspondence” rather than an “objection” gateway must be used so that the objection is not corralled to the ATO form and style of objection;
  • by post;
  • by delivery of the objection in person to an ATO shopfront – this way can be useful if the taxpayer needs to ensure and prove submission within the time limit.