Local investors tune in to inquiry report

THE final Senate Inquiry report into Mass Marketed Tax Effective Schemes is expected to be released before Federal Parliament resumes next Tuesday.

The 65,000 investors who have more than $5 billion in deductions at stake will be following the release of the report very closely. It has been estimated that half of the investors are from WA, with more than 50 per cent of all families in Kalgoorlie affected.

The ATO also has much at stake. It was criticised in the Senate Committee’s interim report for its handling of the schemes issue. The Committee noted a lengthy time lag from when participants invested in schemes and claimed deductions, to when the ATO eventually moved to disallow those deductions. In some cases the delay reached up to six years.

In its interim report, the Committee was not convinced that the measures adopted by the ATO went far enough in addressing its own growing concerns about the abusive features appearing in some schemes.

Investors claim they would not have invested if they had known the ATO was examining the schemes.

Some parties have gone as far as to say that, by turning a blind eye, the ATO effectively was endorsing the schemes.

The ATO has made some changes, it has reduced penalties, suspended debt recovery of the unpaid tax until after a series of test cases have been determined, and now allows investors to claim contributions to fighting funds as a tax deduction.

Another recent change by the ATO is the introduction of a Taxpayer Alert system. These alerts are intended to provide an “early warning” of significant new and emerging tax planning issues that the ATO has under risk assessment. Since December, two alerts have been posted on the ATO website – the first concerns a home loan unit trust arrangement and the other looks at an internet marketing expenses scheme.

The Senate Committee’s final report will be released by Monday at the latest. It is expected to look at whether the actions taken by the ATO were appropriate and adequate relative to the level of risk emerging at the time, and whether the steps taken were sufficient to provide certainty for taxpayers.

The final report is expected to propose legislative change to prevent the tax system from being exploited by these schemes in the future, and to propose sanctions that should be developed against persons who seek to promote such tax avoidance schemes. The final report is also expected to address serious flaws that the Committee noted in the self-assessment system.

The Federal Government generally gives careful consideration to Senate Committee reports and it frequently acts on committee recommendations. We can expect the Government to inform the Senate of its response to the final report within three months.

February will be a big month for the ATO, with its new overseer, the Minister for Revenue, making her major policy statement at the Sydney Institute this month.

Senator Coonan has been given the task of overhauling the tax administration to get a more fair and efficient system, and she will be outlining the priorities of her portfolio on February 28.

Senator Coonan also has responsibility for developing the position of Inspector General of Taxation. The Inspector General will be responsible for resolving disputes about the administration of tax law by the ATO. The accounting bodies have called for the person taking on this new role to be a tax professional with commercial experience.

As well as the Senate Committee, the new Minister for Revenue, and the Inspector General of Tax, Tax Commissioner Michael Carmody, also has the Board of Taxation to consider.

The Board of Taxation was established to contribute a business and broader community perspective to improving the design of taxation laws and their operation.

Already this year the Tax Board has recommended a radical overhaul of the way tax law is developed, and it will be presenting its report to the Federal Government this month.

Hopefully Mr Carmody had a good Christmas break, because February could be an extremely difficult month for him, given the amount of scrutiny to which the ATO will be subjected.

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