Yesterday I was asked for advice on whether a compensation payment was taxable. I asked what it was compensation for and was told that that was confidential. I explained that whether compensation is taxable depends on what it is compensation for, and if the Commissioner asks for the compensation agreement he can get it. I was then told that the Commissioner could not get this agreement as the parties had agreed to make the agreement confidential.
I then told them that McDonald’s Australia has been convicted and fined for failing to provide documents only days before.
In the Mussalli v FCT (2021) FCAFC 71, the Full Federal Court held that upfront payments to secure a rent reduction under long-term leases from McDonalds were on capital account and not deductible under s 8-1. It appears to me that McDonalds had tried to write the contracts to get deductions for their franchises but it reality the payment was capital. I guess McDonalds tried the line “the documents you are asking a commercial in confidence”, which did not work, and ended up with them paying a large fine.
This reminds me of when I was training AFP officers involved in Project Wickenby. They asked what type of warrant the Commissioner had to get to get documents and enter a premise. I laughed and said he does not need one. They asked if they could just take an ATO officer everywhere and claim they were checking tax compliance when they raided a drug lord…
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