Australian Tax Office Targets Top End Of Town

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

08 August 2001

After sorting the gum-trees from the tea-trees during its recent attack on agri-tax shelters which brought it more abuse than dollars, the Australian Tax Office has moved away from the politically-sensitive middle classes, who can defend themselves through their journalist friends, to have a go at plain old rich folk, who are so ashamed at being rich in the first place that they won't get anybody's sympathy if they fall foul of the tax-man.

Tax Commissioner Mr Michael Carmody told the Sydney Morning Herald yesterday that he has his sights set on "boutique" schemes being marketed to those who might have $500,000 to spare, for example. That was "where I see the real action at the moment".

Typically a financial institution such as a merchant bank lends an investor money against the security of a parcel of shares, the institution guarantees the capital value of the shares and the investor can deduct the cost of the loan for tax. The tax savings can then be divided between the institution and the investor; the finance house insulates itself against loss using equity derivatives, and everybody is happy, except that is Mr Carmody.

"On the face of it they look like legitimate financial arrangements, but when you get behind the arrangements the end result is that the commercial return is the tax benefit," he said, "I guess it's fair to say that what we are seeing is what looks very much to us like the son or daughter" of earlier so-called financial investment products which were aimed at minimising tax.

The schemes are marketed privately, and those concerned agree with each other not to reveal details publicly. "It continues to amaze me that people go along to a meeting - closed-door - and sign a secrecy agreement that [they are] not going to tell anybody about this and think somehow there's not something wrong with it," said the tax 'tec.

Mr Carmody also said claims that high income tax rates encouraged people to cut their taxes were just an excuse: "I've got no doubt that different rates create different tensions, however ... I talk to my colleagues in countries that might have lower tax rates and there is still the same level of activity and inducement ... for people to find ways to rationalise why it's OK for them to go into these sorts of arrangements." Bet that doesn't include Vanuatu or the Cook Islands.

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