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Welcome to the September edition of BDO Kendalls' Tax News. This month we highlight a number of recent decisions and take a look at the new Australia/Japan tax treaty, the 2008-09 Compliance Program, and an upcoming review of the Australian taxation system.
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Review of taxation system commences
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In the 2008-09 Budget, the Government announced a comprehensive review of the Australian Taxation System. Read more |
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New Australia/Japan tax treaty
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The International Tax Agreements Amendment Bill (No. 1) 2008 was recently introduced into Parliament and contains a modernised tax treaty between Australia and Japan. Read more |
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Guidance on dividend exemptions
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The ATO has issued two Tax Determinations dealing with the exemption from tax of certain dividends paid by a non resident to a resident company Read more |
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Company reinstated for Part IVA
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The Federal Court has ordered that a company should have its registration reinstated so that the Commissioner could make a Part IVA determination against the company (Deputy Commissioner of Taxation v James Hardie Australia Finance Pty Ltd (Deregistered) (2008) FCA 1181).
The taxpayer company was deregistered in 2005 after a member’s voluntary winding up which commenced in 2003. Certain transactions were entered into prior to the winding up which resulted in the taxpayer having minimal assets. The taxpayer had paid out over $1 billion to its sole shareholder (which was also subsequently liquidated). The ATO received information from the United States tax authorities which led it to conclude that the taxpayer was involved in a global tax avoidance scheme.
Under the Corporations Act 2001, the Commissioner sought to have the taxpayer reinstated so that he could make a Part IVA determination against the taxpayer and raise an amended assessment for the 2002 income year. The estimated tax and penalties from the amended assessment was expected to exceed $150 million.
However, the Commissioner could not raise any assessment if the taxpayer no longer existed. A reinstatement could be sought if a person had been ‘aggrieved by the deregistration’ and the Court was ‘satisfied that it is just that the company’s registration be reinstated’.
The Commissioner argued that he was not aware of the potential tax liability of the taxpayer until the ATO received information from its United States counterparts in 2005 and 2006 and until he made further investigations into the transactions during 2007.
The Court agreed with the Commissioner’s submissions and held that it was ‘just’ that the taxpayer be reinstated so that the Commissioner could raise the amended assessment and attempt to recover the taxes due.
BDO comment
It is unusual to see a case where the Commissioner is trying to reinstate a taxpayer company for the purpose of raising an assessment worth hundreds of millions of dollars in tax and penalties where the reinstated taxpayer will have no assets to pay the tax due. However, the case involves a high profile taxpayer so there will be some public interest in the progress of the Commissioner in seeking payment of the outstanding tax.
It is also possible that the Commissioner can recover the tax from other persons or entities connected with the taxpayer. By having the opportunity to raise an amended assessment against the taxpayer, this would also give the opportunity to the Commissioner to fund an investigator to try and recover the taxes.
However, the Court also recognised that the making of the Part IVA determination and amended assessment ‘may prove fruitless’ and that the investigator may advise against any attempt to recover the money. But the Court considered that the ATO should have the opportunity to attempt to undertake the recovery.
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2008-09 Compliance Program
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The Commissioner of Taxation recently released the ATO’s 2008-09 Compliance Program. The publication of the Compliance Program is part of the ATO’s policy of a more open and transparent Read more | | | |
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Tax Design Review Panel
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In February this year, the Government established a Tax Design Review Panel to examine ways to reduce delays in the enactment of tax legislation Read more |
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Issuing shares for assets/services
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The Commissioner has released Taxation Ruling TR 2008/5, which deals with the tax consequences for companies of issuing shares in return for the acquisition of assets Read more |
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'Climate Ready Grants' program
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The ‘Climate Ready’ program is a competitive based grants program delivered by AusIndustry. It aims to encourage growth and successful innovation Read more |
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