7. Taxpayer Alerts
There are two parts to this agenda item.
We appreciate the important role of the Tax Office’s Taxpayer Alerts (TA) in optimising taxpayer voluntary compliance through the 'early warning' of significant new and emerging higher risk planning issues or arrangements. However, when cast too widely, we are also concerned that Taxpayer Alerts put unnecessary upward pressure on compliance costs when tax agents and taxpayers are not clear about whether or not their arrangements fall within a particular TA.
In both the recently released TAs, TA 2009/4 and TA 2009/5 – relating to GST – each these TAs provides a diagramatic summary of the arrangement of concern. However, each TA precedes this summary with an indication that it applies 'to arrangements having some or all (emphasis supplied) of the following features' listed in the TA. Our concern is that, for example, a number of key aspects of structures based in the building and construction industry may have some of the features listed in the TA without necessarily equating with the diagrammatic summary and where there was no attempt or intention to impact on any pre/post GST effect of the transaction.
Having regard to the features listed in each of these TAs:
7.1. Would the Tax Office please clarify which particular arrangement of concern is covered by the TA?
Response
Taxpayer Alert TA 2009/4
In this arrangement, an owner of land acquired before 1 July 2000 contracts an associate to construct residential premises. The associate neither invoices nor requires payment until after the owner registers for goods and services tax (GST), allowing the owner to register as close as possible to the sale of the premises.
The aim of the arrangement is to secure the dual benefits of minimal GST under the margin scheme and a full input tax credit for construction costs.
Taxpayer Alert TA 2009/5
This arrangement involves a land owner engaging an associate to construct residential premises that are to be leased. The associate claims input tax credits that may not otherwise be available to the land owner.
The arrangement is also designed to allow the associate to defer, in some cases indefinitely, its GST liability on the supply of construction services to the land owner.
Entities dealing at arms-length on normal commercial terms would not fall within the parameters of these TAs.
7.2. Is it only the situation represented in the diagrammatic summary? If so, would the Tax Office please amend these TAs to clarify their scope and application?
Response
We do not consider it necessary to amend the Taxpayer Alerts to clarify their scope and application. The arrangements of concern are those that fall within the contextual setting of the diagrammatical representations including variations, outlined in the Alerts.
Moreover, the alerts do not cover those arrangements where there is no attempt or intent to impact on the GST effect of the transaction. Therefore, transactions that have some of the features would not come under scrutiny if there is no attempt to obtain unintended GST benefits.
We intend to issue a formal view about the application of taxation laws to these arrangements as soon as possible.
Deputy Commissioner, Stephanie Martin, Aggressive Tax Planning, will attend this meeting to provide a stock take of TAs issued since January 2008 and will discuss the Taxpayer Alert Program more generally.
Meeting discussion
There was discussion regarding the two taxpayer alerts mentioned and the wording used. Members expressed concern as it was thought that the wording created some confusion regarding their application.
The Commissioner commented that he thought the wording of GST Taxpayer Alert TA 2009/5 was clear in relation to articulating the mischief.
Deputy Commissioner Martin provided context around the taxpayer alert process, the objective of which is to provide early warning to taxpayers regarding Tax Office concerns about particular arrangements prior to reaching a concluded view. Information, including alerts, is available on the Aggressive Tax Planning section of the website. Members were advised that not all tax planning issues that are examined are subject to an alert. The practice statement, PS LA 2008/15 which was issued in October 2008, is to be updated to better reflect the approach used for TAs.
Members were advised as to what matters are considered in providing alerts, and aim to issue alerts on appropriate matters in a timely way. This is then followed up as quickly as possible to clarify the ATO view on the arrangement. Media releases and advice to specific tax agents and tax professionals are provided following the issue of alerts. In some cases, advice has also been forwarded to known participants or potential participants.
An outline of the three main types of alerts and follow up was provided.
- Alerts where there is no ATO view and where we seek to provide the ATO view
- Alerts where we have a view that the arrangement is ineffective, such as where evasion is involved. An ATO view is not needed for these alerts.
- Alerts where there may also be an ATO view on foot and the alert is being issued because there is information that indicates renewed promotion of the arrangements.
Members were advised that the Tax Office continues to consider how the alert process and products can be improved and referred to the wording used in the mentioned alerts.
The intent is to strike the right balance between specificity of a single issue compared to a general view, to focus on the concern rather than the detail of the features. The Commissioner confirmed that the focus of alerts needs to be on the underlying mischief.
The Tax Office agreed to review the wording in future Alerts to provide greater clarity about the arrangements covered by the warnings, including adopting the members’ suggestion to use 'arrangements with features substantially equivalent to the following' instead of 'arrangements with some or all of the following features'.
Members were provided with a handout, included below, which outlines the alerts issued for 2008 and 2009, including the status in relation to the ATO view.
Action item
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NTLG 0903/01
The Tax Office agreed to review the wording in future Alerts to provide greater clarity about the arrangements covered, and to adopt the words 'arrangements with features substantially equivalent to the following'.
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ATO view status for taxpayer alert topics
From 1 January 2008
Alert no.
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TA 2008/1 – Issued:14/1/08
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Topic
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Certain stapled securities involving notes and preference shares.
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ATO view required
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Yes. Finalised.
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Progress/status of view
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Finalised. Tax Determination (TD) 2008/D6 issued
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Alert no.
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TA 2008/2 – Issued:13/3/08
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Topic
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Use of certain legal structures established in Liechtenstein to attempt to avoid or evade Australian tax obligations.
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ATO view required
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No
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Progress/status of view
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Arrangements appear to involve concealment and fraud. Issues being resolved at case level by application of ordinary provisions. No issues of interpretation identified in cases to date. Considering marking up Alert accordingly that the arrangement is ineffective.
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Alert no.
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TA 2008/3 – Issued:26/3/08
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Topic
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Uncommercial use of certain trusts.
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ATO view required
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Yes. Finalised.
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Progress/status of view
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Priority Technical Issue raised. Draft TD 2008/D16 issued 18/11/08. Proposed issued date for final TD is 23/04/09.
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Alert no.
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TA 2008/4 – Issued:26/3/08
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Topic
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Self-managed superannuation funds deriving income from certain uncommercial trusts.
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ATO view required
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Yes. Finalised.
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Progress/status of view
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Priority Technical Issue raised. TD 2006/7 issued.
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Alert no.
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TA 2008/5 – Issued:4/4/08
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Topic
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Certain borrowings by self managed superannuation funds.
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ATO view required
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Yes. To be finalised.
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Progress/status of view
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Priority Technical Issue raised. Question and answer document issued at same time as Alert.
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Alert no.
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TA 2008/6 – Issued:10/4/08
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Topic
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Claiming tax deductions for debts from a previous tax planning scheme that are forgiven or where repayments are refunded.
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ATO view required
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Under consideration.
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Progress/status of view
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Priority Technical Issue finalised. ATO view dependant on how scheme implemented, that is, questions of fact. Considering issuing a series of related ATO IDs.
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Alert no.
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TA 2008/7 – Issued:18/4/08
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Topic
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Application of Part IVA of the ITAA 1936 to 'wash sale' arrangements.
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ATO view required
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Yes. Finalised.
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Progress/status of view
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ATO view finalised prior to issue of Alert.
Refer TR 2008/1.
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Alert no.
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TA 2008/8 – Issued:7/5/08
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Topic
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Australian resident entities creating false deductions and/or concealing income through arrangements with promoters based in Vanuatu.
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ATO view required
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No
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Progress/status of view
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Arrangements appear to involve concealment and fraud. Issues being resolved at case level by application of ordinary provisions. No issues of interpretation identified in cases to date. Considering marking up Alert accordingly that the arrangement is ineffective.
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Alert no.
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TA 2008/9 – Issued:23/5/08
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Topic
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Private company loan arrangement to obtain tax-free distributions and avoid deemed dividends.
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ATO view required
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No
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Progress/status of view
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Alert indicate that arrangement was ineffective, based upon previous advice on decided cases, so ATO view not required. In line with ATO view in litigation cases currently underway.
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Alert no.
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TA 2008/10 – Issued:23/5/08
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Topic
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Purported prepayment of service fees designed to postpone tax liability.
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ATO view required
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No
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Progress/status of view
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Alert indicate that arrangement was ineffective, based upon previous advice on decided cases, so ATO view not required. In line with ATO view in litigation cases currently underway.
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Alert no.
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TA 2008/11 – Issued:6/6/08
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Topic
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Land Impairment Trust Arrangement.
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ATO view required
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Yes. Finalised.
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Progress/status of view
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Matter considered by GAAR Panel for preliminary advice prior to issue of Alert. Case-level decisions already made. Issue currently being handled through relevant product rulings (ATO views).
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Alert no.
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TA 2008/12 – Issued:13/6/08
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Topic
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Non-cash contributions to superannuation funds.
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ATO view required
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Yes. To be finalised.
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Progress/status of view
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Priority Technical Issue raised. Draft ruling in progress.
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Alert no.
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TA 2008/13 – Issued:25/6/08
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Topic
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Employee Savings Plans.
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ATO view required
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Yes. To be finalised
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Progress/status of view
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Priority Technical Issue raised. Tax ruling and determinations to be issued in draft form in May.
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Alert no.
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TA 2008/14 – Issued:25/6/08
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Topic
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Salary Deferral Arrangements.
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ATO view required
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Yes. To be finalised.
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Progress/status of view
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Priority Technical Issue raised. Tax ruling and determinations to be issued in draft form in May.
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Alert no.
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TA 2008/15 – Issued:25/6/08
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Topic
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Profit washing scheme using a trust and a loss entity.
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ATO view required
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Yes. To be finalised.
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Progress/status of view
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Recurrence of previous arrangement, with small variations. Preparing addendum to previous view in (TD 2005/34) to add clarity to ATO view and reference to Raftland decision.
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Alert no.
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TA 2008/16 – Issued:25/6/08
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Topic
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Liquidation of entities to avoid the payment of tax liability.
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ATO view required
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Yes. To be finalised.
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Progress/status of view
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Recurrence of previous arrangement, with small variations. Preparing addendum to previous view in TD 2005/34.
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1 July 2008 to 31 December 2008
Alert no.
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TA 2008/17 – Issued: 27/8/08
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Topic
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Claims for GST refunds beyond four years arising from the reclassification of a previously taxable supply as GST free GST Refunds.
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ATO View required
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No
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Progress/status of view
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Alert indicated that the Commissioner would not exercise the discretion in such circumstances where the taxpayer did not bear the economic burden of the GST.
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Alert no.
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TA 2008/18 – Issued:13/11/08
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Topic
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Arrangements to shift foreign business losses into Australian branches or resident entities.
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ATO View required
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No
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Progress/status of view
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Alert indicated that arrangement was ineffective, so ATO view not required. Currently conducting risk reviews on cases that may involve this arrangement.
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Alert no.
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TA 2008/19 – Issued:18/11/08
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Topic
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Disposal of Australian real property under Division 855 Income Tax Assessment Act 1997 (ITAA 1997).
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ATO View required
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No
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Progress/status of view
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Alert indicated that arrangement was ineffective, so ATO view not required. Features were covered by examples in the Explanatory Memorandum (EM) for the Division, but non-compliance detected in actual cases.
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Alert no.
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TA 2008/20 – Issued:18/11/08
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Topic
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Foreign residents exploiting asset valuations to avoid CGT.
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ATO View required
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No
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Progress/status of view
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Alert indicated that arrangement was ineffective, so ATO view not required. Features were covered by examples in the EM for the Division, but non-compliance detected in actual cases.
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From 1 January 2009
Alert no.
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TA 2009/1 – Issued:8/1/09
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Topic
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Superannuation Illegal Early Release Arrangements.
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ATO View required
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No
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Progress/status of view
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Alert indicate that arrangement was ineffective, so ATO view not required. Based upon previous case level decisions regarding fraud on related arrangements and successful Australian Securities and Investment Commission (ASIC) prosecutions on organisers of such arrangements.
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Alert no.
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TA 2009/2 – Issued:22/1/09
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Topic
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Certain cross-border Prepaid Forward Purchase Agreements.
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ATO View required
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Yes
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Progress/status of view
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Several cases already decided on the basis that the arrangement is ineffective. Considering whether to issue an ATO ID or mark up the Alert that the arrangement is ineffective.
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Alert no.
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TA 2009/3 – Issued:5/2/09
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Topic
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Bringing forward deductions to rehabilitate a mine site.
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ATO View required
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Yes
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Progress/status of view
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Currently conducting risk reviews that appear to involve this arrangement. Depending upon findings of fact, will consider whether to issue an ATO ID or mark up the Alert that the arrangement is ineffective.
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Alert no.
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TA 2009/4 – Issued:17/2/09
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Topic
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Land owner’s use of a registered associate to maximise input tax credit entitlements and reduce GST payable under the margin scheme.
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ATO View required
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Yes. To be finalised.
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Progress/status of view
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Priority Technical Issue raised. Proposed to result in ATO view, either via TD or ATO ID, depending upon complexity.
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Alert no.
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TA 2009/5 – Issued:17/2/09
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Topic
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Use of an associate to obtain GST benefits on construction of residential premises for lease.
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ATO View required
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Yes. To be finalised.
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Progress/status of view
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ATO view under development, based upon case level advice – likely via an ATO ID.
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Sections within Agenda items
Last Modified: Friday, 3 July 2009
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