Funny Stuff

Interesting tax deductions…

From Ogden and Commissioner of Taxation (Taxation) [2016] AATA 32 (29 January 2016):

MS HAMMOND: Okay. In that same income year you also claimed an amount of secretarial services?
MS HAMMOND: $5,388. That’s a payment you allegedly paid your son, who was seven and a half, in the income year?

The AAT concluded that “I find that Mr Ogden’s son did virtually nothing for his father by way of secretarial assistance or anything of that nature. Indeed, the evidence established no more than that the son sometimes ran upstairs to the study when the phone was ringing, answered the phone and then handed it to his father.” Thats a lot of pocket money for picking up the phone.

MS HAMMOND: Now, you were working in your home office until 6.15?
MS HAMMOND: And you then popped down the road to the St George Leagues Club which is – what – approximately five minutes from your home?
MR OGDEN: Yes. Across the road more or less, yes.
MS HAMMOND: And 10 minutes after you finish in your home office you’re ordering a meal at the St George Leagues Club?
MS HAMMOND: And you say that’s an overtime meal?

He claimed a series of interstate meals and then gave the ATO his diary that showed he never worked interstate (other than a few Canberra trips from Sydney).

MS HAMMOND: So you finish up work at 5.30 in the afternoon and you pack your family up and you’re heading off to the snow?
MS HAMMOND: You stop at the BP at Marulan?
MS HAMMOND: And you claim a meal?

He thought he had worked very hard that day so he should get a tax deduction for the food on the way to the snow.

MS HAMMOND: Then in August you purchase even more items for these clients. You purchase another two packets of the Bega stringer cheese. Now you’ve got four of these packets by this stage. You also purchase Bega dairy cheese in the eight pack, Bega slice cheese. Can I ask you, did you actually ever offer anybody a Bega stringer cheese?
MR OGDEN: Probably David when he’s over.
MS HAMMOND: But David is not a business partner?
MS HAMMOND: Did you offer the three gentlemen that you identified as coming to your home, a Bega stringer cheese?

He claimed an amazing amount of his groceries (including one month with 31 soft drink bottles… MS HAMMOND: So at this point you had 31 bottles of soft drink. Where were you keeping 31 bottles of soft drink? Did you tuck them under your desk in the office? MR OGDEN: They would have been consumed by the family – and 39 packets of monte carlo biscuits) in case a customer came to his home office – the only one he could think of was the tax agent who helped him put totter this tax return… I am going to offer all my clients Bega stringer cheeses…

He also claim almost 25% of his house as a home office (every cupboard) which was reduced to around 1.5%, he claimed rubber soled shoes as static electricity will destroy your laptop, almost $1,000 worth of batteries but the only thing he used that had batteries in it was a small calculator, and best of all he claimed all the groceries he purchased on the day his tax agent visited as the tax agent may have eaten some of the food (all claimed as cost of preparing the tax return)!

And my favourite quote…

I note that Mr Ogden also claimed, as deductible “stationery”, the following items – a wall chart, Texta colour pens, a “Dora the Explorer” pencil case, heart and star shaped stickers, crayons and art brushes. For the avoidance of doubt, I find that none of those were used in the course of gaining or producing his assessable income.

Thanks for clearing up the doubt…

Funny Stuff

Fairfax at it again

The report will I think make it almost impossible politically for this government to sell its austerity program or its GST “reform” proposals. The mantra that Australia has a spending problem, not a revenue problem, looks hollow in the light of the low tax contribution from big business.

And so Fairfax runs the same argument it has all through the holidays. The fact that 30% of large companies paid no company tax in 2014/15, means we don’t need to pursue any revenue or spending reform. We can just raise all the revenue we need to cover the $35 billion yearly deficit (closer to $50 billion if we include the States and Territories).

They are forced to admit…

Some will have an innocent explanation

But that still not going to stop Fairfax’s crusade to avoid any spending restraint or real tax reform.

But lets think this through? If there are a large number of companies not paying the tax they owe, then what has the Commissioner been doing? He has the power to access all of the financial information of these organisations (more powers than the police have) and would already know if there is an innocent explanation for each of these companies.

So if there is no innocent explanation, and the Commissioner has not issued additional assessments on these taxpayer, then the only conclusion is he is either incompetent or corrupt. So does Fairfax think the Commissioner is corrupt or incompetent?

I know most of the senior staff at the ATO and they are some of the smartest people I know. More importantly they are the most ethical people I have met!

But back to Fairfax. The journalist know all this and they know there is no story if they concede this. So they try to argument that the Commissioner needs more resources (which he specifically denies he does), that there needs to be more public disclosure (the Commissioner already has all the information and the broadest access powers of any government agency), or that certain “big business concessions” need to be removed. For example:

Foreign tax offsets (tax credits), imputation offsets and research and development offsets might be part of the explanation. That however just raises a question as to whether such offsets (and special deductions and exemptions businesses may get) are good policy.

Removing foreign tax credits means that Australian companies that invest overseas should pay tax in the other country and tax in Australia on the same amount. 35% US corporate tax and then another 30% Australian tax – how stupid.

Removing imputation means that if the subsidiary company earns income and pays it up to the head company of the group the tax rate is now 60% – how stupid. Worse still, ever suggestion to remove imputation is linked to a massive reduction on the company tax rate which will decrease the company tax take from inbound multinationals!

So with their argument causing anyone who knows the smallest thing about tax to start laughing or crying (Rob Heffernan, who is the head of Tax Policy in the Federal Treasury did actually chuckle when he was last called before the Senate to be asked about why certain companies are paying so little tax), they try their last argument…

Google also appears to have “diverted” much of its Australian source income to Singapore. It is easy to do. When Australians contract with Google to put ads on the site, we contract with a Singapore entity. In general terms, under the tax treaty with Singapore, that country then has the taxing rights over that income because it isn’t associated with the Australian entity.

This entire argument relies on the journalist ignoring the network of world wide tax treaties, and that there are more countries other than Australia in the world.

First the treaties. These treaties are pretty much the same all over the world and they all decide which country gets the taxing rights over what income. They say that income is taxed out of the “permanent establishment” from which it is derived. Selling advertising on a website is obviously not derived where the customer who wants something advertised is. But it is where the advertiser runs their operations. So Google has not diverted any income at all, they have just applied the tax treaties correctly.

At this point people scream that we should change the tax treaties so the income is taxed where the customer is? Do you really want all of BHP’s tax to be paid overseas and none in Australia as most of its products are sold overseas? No mining or resources companies paying any tax in Australia? You can’t have it both ways. Changing the treaties to tax based on the location of the customer would bankrupt Australia overnight as there would be no tax on any of our exporters (and the rest of the world is not going to agree anyway).

Second, let remember there are other countries in the world other than Australia. All the Google entities in the world are owned by a US company. And when Google wants to buy its next $1 billion acquisition, it repatriates some of its global income to do this back to the US. When it does this, the repatriated amount is taxed at 35% (US company tax rate) less the tax paid in the foreign country.

So if Australia wants to start taxing all of Googles advertising revenue paid by Australian customers (ignoring the treaties) then when Google bring the cash back to the US instead of getting 23% tax (25% US tax less 12% Singapore tax) they will get 5% tax (35% US tax less 30% Australian tax).

Earlier this year, the Secretary of the US Treasury called Joe Hockey. He was concerned that it looked like Australia was considering “stealing” the future tax payments that the US Treasury has already budgeted for. And “stealing” is the right word, as it is contrary to the signed US / Australia double tax treaty.

I think that the public finances in Australia are broken. And I think we need BOTH spending reform and tax reform. But until Fairfax stop lying to the Australian public that this problem can be solved by corporate tax reforms, no one will listen to any idea on how to solve the real problem.

And here is the real problem. Go read the article linked above. And then laugh or cry that it was written for Fairfax by a former assistant commissioner of taxation in the Australian Tax Office. When arguments as weak as this are peddled by people with reliable CVs, what hope do we have.

Funny Stuff

Volumetric taxation

Estimates of the effective rates on excisable products in 2014–15 range from as low as $1.71 per litre of alcohol for low-strength non-commercial beer to $79.38 per litre of alcohol for spirits and ready-to-drink beverages. Estimates of the effective rates for wine range from $2.99 per litre of alcohol for a $15 four-litre cask through to $45.52 per litre of alcohol for a $40 bottle

From the Parliamentary Budget Office.

Every independant policy thinker says alcohol should be taxed based on the amount of alcohol in the product… In Australia we still have a long, long, long way to go.

Funny Stuff

Tax weirdness Down Under

I was recently asked by the Institute of Chartered Accountants in Scotland about weird taxes in Australia… And here was my response

The seafarer’s tax offset

This little present by the previous Labor government to the Maritime Union allows those who employ seafarers a 30% tax offset for the salaries they pay. The rationale for the introduction of this tax offset was to “stimulate opportunities for Australian seafarers to be employed on overseas voyages and to gain maritime skills”. Since its introduction, it has been claimed by fewer than five taxpayers. Right now there is a bill before the Senate to repeal it. But it will get blocked as in Australia you can’t even take away handouts that no one uses.

Salary-packaged cars

The reason we have tax concessions that encourage people to salary packaged cars is because back in 1986, when Australia introduced a fringe benefits tax to tax benefits provided to employees by their employers, it was too difficult to track car expenses. Also, Government wanted to continue to encourage the thriving Australian car manufacturing industry. We still salary-package cars today when it’s a piece of cake to track car expenses, and the car manufacturing industry in Australia is almost gone and will definitely be gone by 2017. So we are spending $800 million a year to fund an industry that hardly exists today and will not exist in 2017.

Queen bee levy

Australia has over 125 different taxes, and some of these taxes are as ridiculous as the queen bee levy. Up until recently, if you sold a queen bee for over $20 you had to arrange a 10 cent payment to the Government. A really big money earner for the Government!

Aussie alcohol taxation

Unlike many countries that use volumetric taxation, where you tax the product based on how much alcohol is in it, Australia has a unique system where it taxes beverages based on how “Aussie” they are. Australians like drinking beer so beer is taxed substantially less than spirits, at almost half the rate. But for some reason Brandy is taxed substantially less than other spirits – I never knew Brandy was an Aussie favourite! Probably remembering the colonial days.

Wedding bells

While it is on its way out in April next year, right now doctors at public hospitals can use the tax system to effectively pay for half of their kids’ weddings. There is no tax on entertainment benefits that public hospitals give to their staff. Therefore, a doctor just asks their employer to reimburse them the cost of their kids wedding (which is entertainment) and says that the employer can reduce their pre tax salary by the same amount. The employer pays the doctor the same amount as they would have if the doctor had not salary packaged the wedding, and doctor gets to pay for the wedding out of pre tax salary. So now we know why doctors families have the most expensive weddings!

For technology’s sake

Small businesses can give staff several electronic devices, like a phone, tablet and a laptop, in a signal year, as is often the case when a new employees starts, without paying any Fringe Benefits Tax. But don’t think about doing this if you are a medium or large business! As these devices have “substantially similar functions”, the tax system says that if these medium and large businesses provide more than one of these to an employee each year there should be FBT payable. Welcome to your new employer. Would you prefer to have either a phone or a computer to read your emails for your first year, because for tax purpose we can’t afford to give you both… Quite 1980’s.

Funny Stuff

Greece Taxes And Pools

In Greece, if you own a pool of over 25 meters squared under the tax law you are required to add an amount to your assessable income of sometimes close to 20,000 euros.

The policy is designed to be both a luxury tax and an acknowledgement that you must have paid for the pool from income you probably did not declare (I love the way there is an assumption that everyone who is rich has not declared all their income).

But in Greece you can buy floating tiles, so that when you are not using the pool you can walk over the pool and no one will ever know there is a pool.

This product did not exist until it was announced that the revenue authority in Greece had used google maps to find that, rather than the 300 pool that had been declared in Athens suburbs, there were well over 16,000 that were large enough for this tax to apply.

Since then there has been an amazing increase in their sales.

I wonder what public finances would look like in Greece if the Greeks took their world leading passion for avoiding taxes and applied that passion to anything even slightly productive?

Funny Stuff Tax Policy

Common sense test… There is none at Fairfax…

In another weak attempt at understanding the tax system Fairfax are arguing we get rid of the tax system and replace it with a common sense test.

They have tried every angle on why multinationals are naughty boys and failing at all of them, they are now arguing we should just use common sense at start taxing those naughty IT companies…

If they want common sense, try this…

What the anti google and amazon authors are arguing for is ridiculous. If my company writes an app called “Angry lefties” and it is only purchased from my website five times, once by a Uzbeki, once by a Syrian, once by a New Zealander, once by a Norwegian and once by a Canadian, according to their bleetings I should prepare five tax return in each of the five countries where the person decided to use my app (this is the only way Australia will get the share of the profits these Fairfax journalists want), rather than declaring my income where I am a resident, where I developed my app and claimed all my deductions for developing it… It is the classic problem of “journalists” not being able to see the comic practical conclusion of their ideas…

Funny Stuff

A “fairness” tax?

In Belgium they have a tax called a “fairness tax”. It is a 5.5% tax on dividends paid by certain companies – on top of corporate taxes paid.

Interestingly it is so “fair” that it is likely to be struck down in both the Belgium Supreme Court and the European Court of Justice.

So when does a “fairness tax” apply?

There has always been a problem with the fact that if you fund operations by debt you get deductions that you don’t get if you fund the operations with equity. So many countries, like Belgium, have an “Allowance for Corporate Equity”, or ACE as it is more commonly known. This is a tax deductions for using equity and is supposed to remove the tax difference between using debt and equity. Economists love these and get a run in every tax review (even got a run in the Henry Review final report).

After implementing an ACE the Belgium tax authorities found companies were claiming deductions for their equity – exactly as they were supposed to.

And this meant some of the company’s accounting profit was not subject to tax. And this profit, like any other profit, could be paid out as a dividend.

So to penalise corporates for doing what they were supposed to do under an ACE the Belgium government taxes dividends paid from untaxed profits at 5.5% – and they call this tax a “fairness tax”.

It appears in Belgium it is unfair to claim deductions that the tax laws specifically allow you to claim…

Funny Stuff

Uniting Church replacing the Australian Taxation Office

I have never thought that the Uniting Church would be competing with the Australian Taxation Office but now they are…

The Uniting Church has reportedly revealed it targeted international mining giant Glencore International with a private investigator to highlight the lack of transparency behind big multinationals.

According to The Australian Financial Review, the church said in a submission to the Senate committee inquiry into corporate tax avoidance that it had hired a former Australian Federal Police and AUSTRAC officer on a short-term contract to map Glencore’s structure in Australia.

The church’s Victorian social justice spokesman Mark Zirnsak told the newspaper Glencore had been in its sights for some time, but its investigation was “not a witch hunt”.

“We’ve been aware of concerns around them and allegations [over tax] keep coming up,” Mr Zirnsak said.

“There is a view that if a multinational company is suspected of tax dodging in one jurisdiction, it is worthy of examination as to whether that extends across other parts of their operation globally.”

Hopefully they are better at acting as a revenue collector than running a church. Try this for running a church into the ground.

According to the National Church Life Survey, attendance at Uniting churches dropped 11% from 1991 to 1996, 11% from 1996 to 2001 and 40% from 1991 to 2011.

So it looks like a trend of losing 11% every 5 years for 20 years.

The surveys show the Uniting church are losing attenders faster than any other church by a pretty far margin.

A church that had 250,000 attending in 1977 now has 97,000 and if the 20 year trend contines will be under 40,000 by 2050.

A church that is all but falling apart should probably think about where the spend its money wisely and not to employ “a former Australian Federal Police and AUSTRAC officer on a short-term contract to map Glencore’s structure in Australia.”

Perhaps leave that to the 23,259 employees (at June 2014) that the Australia Taxation office have.

By the way, in 2075 there will be more employees in the Australia Taxation Office than people who attend a Uniting Church

Funny Stuff GST Tax Policy

Queensland. Beautiful one day, tax insanity the next…

The Queensland government raises about $44 billion a year in taxes, fees…

About 20% of this amount comes from the GST that is collected by the Federal Government and passed on to the states and territories.

This makes the GST almost as large as all the other taxes combined that the Queensland government charges (all those taxes together come to about 24% of all the revenue).

And the GST is almost as large as all other grants the Federal Government makes to Queensland (about 28% of all Queensland government revenue).

So the GST is by far the most important single revenue item for the Queensland government…

And the Queensland opposition leader can’t even quote the rate is 10%.

She knows exactly how she wants to spend the revenue but has no interest on how the revenue is collected…

But before I laugh at Queensland politicians I need to remember that my local Canberra representative thought that the government paid for the superannuation increases for workers…

Where do they find these people?

UPDATE: And we now have a Premier who can’t quote the GST rate…

Funny Stuff Tax Policy

Can Fairfax economists please get a lesson in tax…

Coming on the back of five wrong articles in the SMH And the Age on a mythical $8 billion of unpaid company tax (notice that the only paper in the Fairfax fold not claiming there is missing company tax is the AFR – because they actually understand taxation) another Fairfax journalist tells us he can fix the budget, and fix it without cutting expenditures or raising tax. Michael Pascoe finds this magic solution just like another Fairfax economist Peter Martin did a month ago, by saying: “You have the luxury of a third dimension: tax expenditures.” He claims that cutting a tax expenditures are not raising taxes. How simply can I put this. A tax expenditure is where a concession in the tax laws exists, for example the 15% tax rate for super contributions. To do what Michael suggest, and reduce tax expenditures you need to do what??? Increase the rate or the base, which in relation to the 15% tax rate for super contributions means increasing the rate above 15%. ARE WE SUPPOSED TO BELIEVE INCREASING THE SUPER CONTRIBUTION RATE FROM 15% TO SAY 20% IS NOT AN INCREASE IN TAX??!!?? Michael, stop being disingenuous and admit there are only two ways to solve our public finance problems. Raise taxes or cut expenditures. A reduction in a tax expenditure is just an increase in tax… No ifs or buts… I personally would increase the contribution rates but I am not going to claim some pixie dust argument that in doing so I am not raising taxes… Man up Fairfax economists..