Our campaign to reform the ATO continues. Good grief it’s an exhausting process! But the ATO keeps demonstrating why the reform is needed because the ATO keeps behaving badly.
Today we’re highlighting another case of ATO bad behaviour.
Many small businesses are structured as trusts. Most are family trusts. The ‘beneficiaries’ of such trusts are typically family members. A trust can distribute profits to the beneficiaries who then pay the tax.
In the ‘Carter case’ (see full details here) the ATO ‘assessed’ that the trust had made a profit. And here’s what then happened:
- The ATO declared that Natalie Carter, a mother with two school-age children, had received profit from the trust as a beneficiary.
- The problem was that no profit had been made. The ATO assessment was wrong. The ATO didn’t deduct expenses (interest etc) from the trust revenue. The trust had not sent any profit to Natalie because there was no profit.
- But the ATO still said there was profit and forced Natalie to pay tax, even though she had no income.
- Natalie then did what has been accepted as law for thirty years. She signed papers legally rejecting the (theoretical) profit. Sounds sensible. But no! The ATO refused to refund the tax already paid.
- Natalie appealed to the Federal court where all three judges agreed with Natalie. She owed no tax! Natalie won. The ATO lost.
- But the ATO is now appealing to the High Court, arguing that even if someone has not received a profit they must still pay tax. Crazy!!!! It’s just stupid.
Here’s how this weird obsession by the ATO to win—even when they are wrong—would play out. Say this 30-year law were chucked out.
- Take a divorce where the husband is a real b…. scam man. He has a business with a trust. He has the trust make a profit but then disappears overseas with all the money and his new mistress. He also makes a theoretical profit distribution to his ex-wife. The ATO says the ex-wife must pay the tax. But if the wife cannot legally declare that she doesn’t want the theoretical profit she is screwed. The ATO force her into poverty. Nice one ATO!
Sensible laws are there to protect people from scammers. What the ATO is seeking to do in the Carter case will enable the ATO to facilitate corrupt behaviour.
The Carter case is just another example of why the ATO must be reformed.