A SYDNEY lawyer has been found guilty of conspiring with his client Glenn Wheatley to conceal income from a Kostya Tszyu world title fight in order to avoid tax.

A Victorian Supreme Court jury yesterday found Paul John Gregory, 60, guilty of conspiring to cause a risk of loss to the Commonwealth by hiding offshore $400,000 Mr Wheatley had earned promoting a world title fight between Tszyu and Jesse James Leija in Melbourne in 2003.

The jury, which deliberated for a day before returning its verdicts, found Gregory had participated in a scheme to pay the amount to a fake company, called Overseas Promotions Inc, as its pretend share of the Tszyu promotion.

The money was transferred into an offshore account kept for Mr Wheatley by two men who ran British Channel Islands-based accountancy firm Strachans, Philip Egglishaw and Philip de Figueiredo.

Gregory acted as a conduit to Egglishaw and de Figueiredo, who took a 15 per cent cut for handling the funds.

The High Court has injected a significant element of practical common sense into the judging of liability under the safety laws. The standard of perfection that has been required by the Industrial Court in the past has been rejected as an approach.

* The landmark High Court decision in Kirk v WorkCover NSW & Ors will have dramatic repercussions for occupational health and safety prosecutions in New South Wales and across Australia.
* The Decision is likely to be welcomed by employers and expected to change both the way WorkCover NSW will prosecute breaches of the Occupational Health and Safety Act 2000 (NSW) (Act) and the way the legislation is interpreted by not just the NSW Industrial Court, but courts across Australia hearing safety matters.

Facts of the case

Kirk Holdings Pty Limited was the owner of a farm near Picton, New South Wales. Mr Kirk was a director of the Company but had no farming experience and left the day-to-day management of the farm to Mr Graham Palmer. Mr Palmer had over 20 years experience as a farmer and had a large property of his own.

On 28 March 2001, Mr Palmer was killed whilst driving an All Terrain Vehicle (ATV) owned by the Company. Rather than using an established road, Mr Palmer had directed the ATV down the side of hill causing the ATV to overturn.

The Company and Mr Kirk were charged with breaches of the Occupational Health and Safety Act 1983 (NSW) (Act) (the predecessor legislation to the current act), for failing to ensure the health and safety of the farm’s employees.

In an interview on ABC radio, Mr Kirk explained that the initial decisions of the NSW Industrial Court mean that the prosecution did not have to show what Mr Kirk could have done to prevent the accident. The fact that a fatal accident occurred meant that he was guilty of a criminal offence with no right of appeal.

The decision

The High Court held that, the legislation requires the charges to identify the measures which should have been taken by the defendants to obviate an identifiable risk. This requires the statement of the charge to be more specific than simply stating for example, that the defendant “failed to ensure the health and safety of employees.”

The High Court said that “It must specifically consider what constituted the risk and what particular measures should have been taken by the employer to address or obviate that risk.”

Whilst Justice Heydon agreed with the majority’s decision in substance, he provided his own further reasons for his decision and was highly critical of the approach taken by both the Industrial Court and WorkCover NSW.

Justice Heydon felt that the prosecutions against Mr Kirk and the Company should never have been instituted. The accident occurred in circumstances where Mr Palmer, a man of optimum skill and experience, had been inexplicably reckless. It was therefore absurd to prosecute the owner of a farm on the basis that he failed to ensure the health and safety of his employee.

Further he thought the emphasis placed on Mr Kirk’s failure to supervise his employees on a daily basis was astonishing. He held that to require farm owners that do not live on or near their properties to supervise their staff on a daily basis is an obligation that in many instances will be impossible for farm owners to comply with these requirements. This will have significance on the emphasis placed on issues of supervision and reliance placed upon known expertise in future OHS prosecutions

Impact for future OH&S prosecutions

The decision is likely to have four main impacts for the conduct of future OH&S prosecutions.

1. Most importantly, the decision does not mean that the level of safety that must be provided by employers has in any way been diminished. It will be more important than ever for employers to implement comprehensive safety systems. Employers will now be able to rely on the quality of their systems to assist them in successfully defending any prosecutions.
2. Prosecutors will be more specific when drafting the particulars of any charge, ensuring that each particular specifically identifies a measure that should have been taken by an employer to obviate an identifiable risk. This will enable defendants to make a more informed decision as to whether to defend a prosecution. It is to be expected that the form of charges will be more regularly challenged unless the Prosecutors around Australia comply with what the High Court has said in Kirk.
3. Defendants may be more successful in proving one of the defences as they will only be required to prove that it was not reasonably practicable for the employer to adopt the measures listed in the particulars of the charge.
4. The decision will also have a significant impact on the way the industrial courts across Australia interpret the duties placed on employers by the various OH&S acts and what acts or omissions will constitute breaches of those duties.

If you have a net loss from a business activity you carry on as an individual, either as a sole trader or in partnership, the non-commercial loss rules will apply. These rules determine whether you can use your business loss to offset income from other sources.   

Changes to the operation of the non-commercial loss rules apply for the 2009-10 and later income years.

The key changes include:

• The introduction of an income requirement to further restrict the circumstances where a business loss can offset other income. You will meet the income requirement where your income for non-commercial loss purposes is less than $250,000.
• A new exception for business losses solely caused by deductions claimed for the small business and general business tax break.
• A new Commissioner’s discretion for individuals who do not meet the income requirement but whose business activity is subject to a lead time.
• Ensuring existing Commissioner’s discretions continue to apply.

The new rules became law on 14 December 2009

For income years prior to 2009-10, you can only offset your loss against assessable income from other sources if:

• one of the exceptions for primary production or professional arts businesses apply
• your business activity passes one of four tests (profits test, assessable income test, other assets test, real property test), or
• the Commissioner of Taxation (the Commissioner) exercises a discretion to allow the loss to be offset against other income.

For the 2009-10 and later income years, you can only offset your loss against assessable income from other sources if:

• one of the exceptions for primary production or professional arts businesses apply
• you meet the income requirement and one of the four tests is satisfied (profits test, assessable income test, other assets test, real property test)
• the Commissioner has exercised his discretion to allow you to claim the loss, or
• the loss is solely due to a deduction claimed under the small business and general business tax break.

In every year that your business activity makes a net loss, you must consider whether:

• you can deduct the loss in the current year, or
• you must defer the loss.

Details of the four tests can be found in the ATO fact sheet

I have always been extremely skeptical when ever a politician promises to cut red tape. I met with the former NSW premier John Fahey about this way back before he even became premier, and he has been retired for ages now. And little has really changed.

However, I do think that a lot of what The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP released for discussion are very worthwhile reforms. I how they can successfully pull it off.

“The reforms will reduce unnecessary reporting obligations on companies and implement a number of other important refinements to our corporate regulatory framework.” Mr Bowen said

The key measures to reduce red-tape include:

• significantly reducing the regulatory burden on companies limited by guarantee (which typically have a not-for-profit purpose), by introducing a three tiered differential reporting framework;
• streamlining parent-entity reporting;
• providing greater flexibility for companies to pay dividends, by replacing the profits test with a solvency-type test; and
• allowing companies to more easily change their year-end date to minimise the burden on companies and their auditors during peak reporting periods.

The reforms will also implement refinements to the regulatory framework, including:

• improving disclosure of non-financial information in the directors’ report;
• protecting solicitors’ representation letters from disclosure to enable auditors to properly verify a company’s contingent liabilities;
• refining the statement of compliance with International Financial Reporting Standards contained in the directors’ declaration; and
• clarifying the circumstances in which a company can cancel its share capital.

Copies of draft amendments, the explanatory material and the regulation impact statement can be obtained from the Treasury website: www.treasury.gov.au.

The closing date for submissions is 3 February 2010.

The Minister for Superannuation, Chris Bowen MP, and Minister for Small Business, Craig Emerson MP, last week announced that the Government will deliver its free superannuation clearing house service for small business through Medicare Australia.

The clearing house service will be available for small businesses with less than 20 employees from July 2010.

“To meet their choice of fund obligations, small businesses currently face the time and paperwork burden of paying contributions into numerous funds. The super clearing house will cut this red tape burden by enabling small businesses to pay their superannuation contributions electronically to a single location,” Minister Bowen said.

“Medicare Australia is well placed as one of the Commonwealth Government’s key service delivery agencies – with significant electronic and payment processing capacity whilst ensuring the privacy of information and the security of funds.”

Key features of the superannuation clearing house for participating small businesses include:

• Superannuation contributions made to numerous funds will be electronically paid to a single location (the clearing house) which will process the transactions;
• Small businesses that choose to use the clearing house service will have their legal obligation to make superannuation contributions discharged when payment of the correct amount is made to the clearing house;
• The clearing house facility will be offered free of charge to small businesses with less than 20 employees; and
• The clearing house will manage employers’ choice of fund obligations.

Source: Media Release from Minister for Financial Services, Superannuation and Corporate Law

Nick Connell, Taxation Manager of the National Tax & Accountants Association has expressed concerns about recent reports pre-empting what may be in the Henry Review of Australia’s taxation system.

Is not convinced that those aspects of the Henry proposal that have been leaked will simplify the tax system for the benefit of Australian taxpayers.
Softening up taxpayers
He says that the NTAA is concerned that, rather than having an open and robust public discussion, the Henry
Review of the taxation system seems to have entered the phase of softening up the Australian
taxpayer.
It’s an old tactic. Leak a part of the story, wait for a response then pounce. Dr Henry
has already started flexing his muscles by saying that he is fully prepared for “scare campaigns”.
So, presumably, any unfavourable response will be labeled a scare campaign. A little harsh given the
fact that he has chosen to only release a tidbit and not release the whole document.
That said, the Henry proposal, to be released in December, is expected to recommend that taxpayers
will receive a one-page summary “income tax return” which will include a “standard” deduction for work
related expenses. Taxpayers will be able to ‘tick’ a 1 page document issued by the ATO and sit back
and wait for their refund.
The refund will be based on a ‘standard’ deduction for work related expenses and a figure of $500 has
been floated. (
Now taxpayers have a right to be scared!

Nick Connell, spokesperson for the NTAA said that “Treasury has for years been concerned at the
blow-out in work-related deductions and we believe that the concept of a ‘standard’ deduction may
well be the first step in controlling deductions for work-related expenditure.”
“We are concerned, and we believe justifiably concerned, that if taxpayers allow their claims for
work-related expenses to be “standardised” in any form at all, that they may end up losing them.”
“Millions of taxpayers are entitled to legitimately claim hundreds or thousands of dollars in
deductions that they incur in earning their income. This right is written into the law.”
“Most of us make claims for car expenses, travel and accommodation, home office, uniform,
protective clothing, laundry, telephone, computer, power, etc. The list goes on.”
“How long will these claims last,” he asked, “once we allow them to be standardised?”

Is the end-game the abolition of tax refunds?
“Australians love their income tax refunds. They rely on them as a, sort of, forced way of saving.
They are an institution and it is our right to be able to claim work-related deductions and receive
income tax refunds.
We urge taxpayers to not allow the government to standardise deductions that they are legally
entitled to. Make no mistake about it. Let them get their foot in the door and the refunds we love
to get will one day be wiped out.”
Leaking a tidbit from the proposals raises more questions than answers and the NTAA calls on Dr Henry
to have an open dialogue with the Australian people and not seemingly engage in a surreptitious
campaign to gauge public reaction.

From NTAA

To put the $500 standard deduction in perspective , most union members pay more than this in annual fees. The average amount of work related deductions claimed is $1,920. -SH

The government’s new tax agent laws, which are due to begin early next year will make tax agents more accountable and boost protection for consumers, according to Australia’s peak accounting bodies – the Institute of Chartered Accountants in Australia (ICAA), CPA Australia and the National Institute of Accountants.
 
Assistant treasurer Nick Sherry will today brief members of Australia’s tax profession on the implications of the new regime at an event hosted at the ICAA’s head office in Sydney.

The joint accounting bodies said the tax agent reform has been 15 years in the making and that consumers of tax agent services would finally have a better safety net under the new laws.

All three bodies have supported the government’s initiative of putting in place a national regulatory regime that encompasses a uniform code of conduct for all practitioners.

One of the benefits of the new regime will be to deliver to consumers a better ’safety net’ in respect of their dealings with tax practitioners.

As treasury secretary Dr Ken Henry will no doubt point to in the recommendations he makes as part of his current tax review, simplification of the tax system for all taxpayers – especially those that rely on tax agent services - is one of his key priorities. The joint accounting bodies believe that the introduction of the new tax agent services regime heralds the first significant step on the path towards reform of Australia’s tax system.

The joint accounting bodies will work closely with the soon-to-be-announced Tax Practitioner’s Board in order to support them in getting on with the task of educating and transitioning the tax profession into this new regulatory framework from around 1 January 2010.

The ongoing fight over the Australian tax Office’s decision to refuse tax deductions for fees paid by sportsperson to their managers was finally decided by the Australian High Court  in June and now the ATO his issued its response. 
 
For the background to this see our earlier articles at tax-office-loses-2-court-cases-on-sportsperson-fees-appeals and sportsperson-management-fees-tax-deduction .

The Courts decision was that the taxpayers’ appeals were allowed. The fees were deductible. Now the ATO has release a Decision Impact Statement .

The tax office had argued that the footballers were employees and that the fees paid for the negotiation of the playing contracts were incurred only to obtain new employment contracts and had no connection with the course of the taxpayers earning income from their non-playing businesses.
However The High Court unanimously held in both cases that the fees were deductible as being incurred by the taxpayers in the course of gaining or producing assessable income from carrying on a business of commercially exploiting their sporting prowess and associated celebrity.

The Tax Office will now amend Taxation Ruling TR 2000/5 to clarify that it does not apply to employees whose employment activities form part of the carrying on of a business. That is, it accepts the fees are deductible, but only for those whose activities extend beyond mere employment and can be regarded as carrying on a business.

the Assistant Treasurer, Senator Nick Sherry, announced that two high-profile tax crackdowns have this past financial year raised more than $313 million in tax liabilities and penalties against tax cheats.

Project Wickenby targets a range of tax avoidance schemes, including the use of offshore tax havens.

“Phoenix” companies are those which deliberately go into liquidation to avoid tax and other responsibilities, such as superannuation payments and service leave entitlements owed to employees. They then re-emerge as another corporate entity, but with largely the same management.

During the year ended 30 June 2009:

• Wickenby raised $230 million in tax liabilities and collected $40 million in cash. In addition Wickenby collected $159 million in tax collected in subsequent years from people who have been subject to Wickenby action.
• Targeting of phoenix practices also raised more than $83 million in tax and penalties within Australia.

Project to date, Wickenby has raised $406 million in tax liabilities and collected $117 million in cash. In addition $235 million in tax has been collected in subsequent years from people who have been subject to Wickenby action. Wickenby agencies have also been responsible for restraining $76 million of assets under proceeds of crime legislation.

The government has allocated  $122 million extra funding for Project Wickenby investigations over the next three years.

The audit results and other key details in the fight against tax crime are contained in a new online magazine published by the ATO Targeting tax crime is available at www.ato.gov.au/targetingtaxcrime