Personal Services Business and what you need to know - Part 2 by Anthony -Assistant Commissioner Anthony Marvello and Director Madeleine Phillip
2 Tax Preparers Charged Over $65 Million In False COVID-19 Relief Claims
The Tax Office’s popular online discussion forum is facing criticism for spreading incorrect advice on issues as basic as the capital gains discount.
Taxpayers and their agents are being warned against relying on ATO Community for answers to their tax questions, with one expert calling the platform's lack of moderation “dangerous” and a source of misleading or “plainly wrong” information.
ATO Community is described as a peer-to-peer discussion forum allowing taxpayers to “join the conversation and find answers to your tax and super questions”.
But tax lawyer Matthew McKee told Accountants Daily he was concerned unsuspecting taxpayers were at risk of being subject to incorrect advice from anonymous users and even the ATO’s own staff.
“Tax is very complex and very difficult, and often it involves nuance and degree that doesn’t convey or come across well online,” McKee said.
McKee, a veteran tax and super lawyer based in Sydney,
discovered the “danger” of relying on ATO Community after one of his tax agent clients showed him an official ATO response to a thread about capital gains tax.
The thread, from November 2022, features a question from an Australian resident about CGT liability on the sale of an investment property they purchased as a non-resident.
Section 115-105 of the Income Tax Assessment Act 1997 states that a CGT discount is only available for periods in which a taxpayer is a resident.
But the top response from a verified ATO account suggested that simply becoming a resident automatically enabled access to the discount.
“The fact you’re selling the property when you’re an Australian resident, as opposed to a foreign resident, means you can use the Australian resident rules,” the answer said.
“If you’ve owned the property for 12mnths+, you can apply the CGT discount. You don’t have to use the CGT discount for foreign resident if you’re now an Australian resident for tax purposes.”
McKee said the answer was “plainly wrong” despite addressing a “basic” tax concept.
“It’s just fundamentally wrong,” he said. “It’s quite concerning.”
“If I'm a lay taxpayer, I'm probably going to think that that person and what they say is authoritative. It seems very clear, and I have no reason to question that could be wrong.”
Reliance on such advice, McKee warned, could expose taxpayers to significant penalties, as statements made outside the ATO’s private ruling system were non-binding.
The issue was compounded by the forum’s visibility to the public: “I searched ‘CGT discount, ATO foreign resident,’ and that post was the sixth entry on Google,” McKee said.
“I don't mind a person getting it wrong. I have a problem with the process by which a person getting it wrong can be published on the website. It feels like there should be a system in place to prevent that occurring.”
ATO Community was launched in 2017 to encourage taxpayers to self-serve and resolve queries online.
Last year, chief service delivery officer David Allen
referred taxpayers to the online forumas “with more than 117,000 members involved and over 225,000 posts, it’s likely your query has already been answered”.
The ATO also claims it has staff who moderate and “place a stamp of approval on correct information so you can trust the advice you receive”.
But McKee was unconvinced and said he could not think of an instance where he would recommend his clients to use the forum.
“I don’t know when you would want to rely on it,” he said.
“It feels like the ATO is taking a utilitarian approach where the benefits outweigh the negatives.”
“More information awareness is good, but it must be good information. Once you create a system that allows for bad information awareness, I think that's a detriment.”
The ATO was contacted for comment.
Vanuatuan matriarch’s $33m sent to brother not taxable, court rules
The ATO has failed to show a Vanuatuan supermarket chain owner's transfers to family members in Australia were “ordinary income”.
By Christine Chen • 04 December 2024
A taxpayer who received around $33 million over 10 years from his elder sister in Vanuatu has successfully fended off the ATO by proving the money was not taxable income but “gifts of capital”.
Rene Cheung, 80, emerged victorious in a long-running tax dispute that hinged on the nature of 99 overseas deposits from his sister Graziella Leong, owner of Au Bon Marche (ABM), a prominent Vanuatu-based supermarket chain.
The Federal Court ruled last week that the income tax assessments were “excessive” and that the ATO overlooked the family dynamics of the Cheung-Leong family unit and their cultural values.
“They were just gifts of capital voluntarily made by a loving sister who has an acute sense of family loyalty and responsibility and who has enjoyed good fortune in business for Rene, a loved brother respected for his business judgement and like sense of family loyalty and responsibility, to invest as he saw fit and to draw upon personally if he saw fit,” Justice Logan said.
“The Commissioner’s case that the payments were returns in respect of an ownership interest by Rene in the ABM business fails on the facts.”
Leong and Rene are two of seven siblings. Their parents, originally from Fujian, China, settled in Vanuatu’s capital, Port Vila. After their parents died in the 1950s, they were raised by their older siblings John and Anna.
Leong married George Leong in 1961 and had three children. They inherited a small grocery that they would grow into the ABM business. In 1978, following their separation, Leong became the sole owner of ABM.
Justice Logan described Leong as “a respected, matriarchal figure in relation both to her descendants and the wider Cheung (including Leong) family”.
“In 1978, Mrs Leong was left with three young children and a business, which became solely her business, to run,” he said.
Following Leong’s divorce from her husband, he said her family “rallied around her”, with Rene assuming the role of ABM general manager.
When Rene retired in 2000, ABM had grown from a single store to the largest supermarket chain in the country. It now has six retail outlets, one wholesale operation, four fuel stations and employs around 600 employees.
Upon his retirement, Rene also took up permanent residence in Australia with his wife for their children’s education.
By that time, Leong was “frequently sending money generated by ABM to him for investment”.
The investments in Australia had begun as early as the 1970s, with Rene using an investment vehicle, Ah Pow Pty Ltd, to make purchases including a Condell Park shopping complex in 1980 and the Coogee Bay Hotel in 1991 for the Cheung-Leong family’s benefit.
But the Tax Office took issue with a series of 99 deposits totalling $32.8 million between 2005 and 2015, which was used to buy properties in the NSW suburbs of Double Bay and Narrabeen as well as Kangaroo Point in Queensland.
The ATO characterised the deposits as “income under ordinary concepts”, to which Rene objected.
In court, the ATO argued the payments were a reward to Rene for services rendered to ABM.
This was denied by Rene and Leong’s sons Andrew and Michael as witnesses.
“Rene is not the owner, it’s my mother,” Andrew told the ATO’s lawyers in cross-examination. “I’ve been going for a five couple hours now, he’s not the owner, sir, please, understand my feeling.”
Justice Logan found that “Andrew’s answers were given with considerable and obvious emotion and, to my observation, absolute and transparent honesty”.
He said that from Leong’s separation from George, “up to and including all the relevant period (and, as related above, beyond for a period), [ABM] was always her business”.
As a result, the funds sent to Rene by Leong were “not income in Rene’s hand in any sense”.
He characterised the deposits as “gifts of capital” made voluntarily by Leong as expressions of family loyalty, stemming from a long-standing practice of her entrusting family funds for investment.
“They were just her funds disposed of at her will to a brother trusted to invest them wisely and well for the wider Cheung/Leong family as, if and when occasion required, according to his value judgement but without any formal legal obligation,” he said.
He also criticised the ATO’s ignorance of family and cultural dynamics at play, calling the ATO’s objection decision an “uncritical rehearsal of cases divorced from an understanding of a family reality and a related absence, save for interest, of an income tax liability”.
“The importance in taxation administration of open-mindedness and detachment from assessment in decision-making in respect of objections cannot be over-emphasised.”
