ATO Focusing On Inappropriate Loss Schemes

by Mary Swire, Tax-News.com, Hong Kong

22 May 2009

Australia's Tax Commissioner Michael D’Ascenzo has released taxpayer alerts warning people that the Australian Taxation Office (ATO) is closely reviewing three arrangements that attempt to falsely generate claims for inappropriate tax losses.

Mr D’Ascenzo said he has doubts about the legitimacy of these arrangements.

'In the current economic environment we’re expecting to see an increase in tax losses,” Mr D’Ascenzo explained, adding:

“However, this means that we will be carefully scrutinizing claims to ensure taxpayers only claim losses to which they are entitled."

“These alerts are a timely reminder for people who may be tempted to artificially create losses or to transfer them inappropriately as tax time approaches."

“It also reminds people to take care in claiming genuine losses, for example capital losses can only be claimed against capital gains,” he continued.

Investors who are unsure about their situation are being advised to seek independent advice or contact the Tax Office for a private ruling on their individual circumstances.

People who approach the Tax Office before they are contacted for an audit will be entitled to a reduction in any penalties that might apply.

The arrangements in question are:

Re-characterizing capital losses as revenue losses

The Tax Office warns it is paying close attention to people who attempt to claim losses as share traders on a revenue account where previously they claimed to be long-term investors eligible for the capital gains tax 50% discount.

Managed Investment Schemes: purported partnership participation

The Tax Office has seen attempts by promoters to sell interests in managed investment schemes (MIS) to groups of individual investors on the basis that they will be ‘partners’ in a partnership and will be able to claim upfront deductions for their interests in the MIS.

This taxpayer alert reminds taxpayers they can only rely on a product ruling if it is implemented in accordance with the arrangement in that product ruling and warns that partnerships of the type in this alert are not covered by Tax Office product rulings or other tax clearances.

“Please take care,” Mr D’Ascenzo said in regard to this particular arrangement.

CGT consequences of assignment of default beneficiary’s capital interest

Under this arrangement a taxpayer attempts to create or claim a capital loss arising from the artificial receipt and surrender of an interest in a discretionary trust as a default beneficiary.

Tax agents with information about people or companies who may be promoting arrangements covered by these alerts have been advised by the ATO to call the tax practitioner integrity service.

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