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13 Feb 2020 Member feedback

Regarding Senior Tax Counsel’s article on ‘CUM-EX TRADES’

Editor’s note: Bob Deutsch’s recent article “CUM-EX TRADES : Immoral, illegal or none of the above?“ can be found in TaxVine 4 (7 February 2020).

Member 29 writes:

Bob, that was an excellent and well-considered piece on cum-ex trades in the TaxVine. I agree with your approach.

Member 30 writes:

In response to Bob’s article on this topic, the ATO has previously issued TD 2014/10,

Member 31 writes:

Regarding the Cum-ex trades, the European Governments might look at Paul Keating's solution to ‘bottom of the harbour’ schemes and just back-date some form of Part lVA legislation. Of course, they might think that this sort of action by any democratically elected Government was the first step on a very slippery slope towards a dystopian society.

The next step might be that they completely ignore a referendum, forbidding a national ID card, by simply enforcing lengthy ID checks and instigating TFN's throughout the financial system.  I see that the latest portal registrations are another means of tagging the individual - that some may have considered an invasion of privacy, when we had some.  One day, we all may recognise that Keating's Privacy Act was the key to Australians losing whatever privacy they had.

My children bought me a T-shirt that says, "Make Orwell fiction again", they know me well... 

Member 32 writes:

Can’t agree Bob. What about Codes of Ethics that require not only obeying the law but “not seeking to circumvent or avoid the law”?

The word morality is not the right one here; the question that should be posed is whether it is ‘ethical.’

I can’t use any ethical decision-making framework that would support double-dipping refunds. It may not be illegal, but I would say, it is definitely against the spirit of the legislation.

Member 33 writes:

I always enjoy reading your weekly preamble in the TaxVine Bob and thanks for sharing your thoughts.

While I don't agree with getting two refunds, I agree wholeheartedly with your view that "the law is the law and morality only forms part of it in the development of the law and not in the interpretation" and share your fear of judges making subjective assessments of morality based on their own views of morality.  I think this is the reason why in law school, the metaphor of The Constitution as a growing tree was always repugnant to me. 

Member 34 writes:

Further to the comments of Bob Deutsch, it is interesting to consider how the zeitgeist impacts on what is morally and legally acceptable.

It is also interesting to compare and contrast with historical events – e.g. Bottom of the Harbour (Part IVA and its impotent anti-avoidance precursor), Securities Lending Arrangements (schemes to channel franking credits from non-residents to residents and the belated amendments to Part IVA to address legislative deficiencies where tax credits arise).

Then there is the morality question when the shoe is on the other foot – such as retrospective tax legislation, or where the punishment is grossly disproportionate to the unwitting victim’s crime (always disingenuously described as revenue protection / anti-avoidance measures).

For instance, Superannuants exceeding contribution limits and swelling government coffers with 93% tax bills and no right of appeal. Or Australian expats who sell their former family home post 1 July 2020 being subject to CGT on previously exempt gains dating back to 1985! And to rub salt into the wound, being denied the CGT discount as a result of legislative changes a few years ago. 

Not to mention other black swan events and developments unrelated to tax, but still relevant as they illustrate the potential in all aspects of society for challenges/threat to the previously entrenched status quo. Like the populist movement kicked off by Trump’s rise to power on a protectionist ‘make America great again’ platform, unwinding the post WW2 era of free trade/globalisation and the institutions that have supported it.

Of course, there’s also Telstra’s CEO Andy Penn’s recent call for climate action by companies/directors who need to understand they can no longer exist just to make profits for shareholders, which effectively makes defunct some of the core teachings of Nobel Laureate Milton Friedman. 

Then there’s the question of whether pension fund trustees are in breach of their fiduciary duties if they do/don’t take into account ESG factors when making investment decisions. 

Philosophers and ethicists have never been busier.

Member 35 writes:

Thanks for sharing the case Bob. Perhaps I am also being naïve to understand that conjuring two refunds is not immoral and illegal? Why has an Australian bank apologised for the involvement, if that is not so?

There must be only one law for tax refund (exempt entities must be exempt). Therefore, in as much as the amount is huge, the German investigators/auditors must have relevant documents/information/calculations for the conjured two refunds.

The German Government must present to the court that the bank records are not standard. The dividends paid (including tax) to the German Government and other countries should have been reconciled by the auditors?

In that case, in my opinion, the German government will win if that relevant reconciled dividends accounts are presented to the court? After all, that is what the case is about.

Member 36 writes:

Thank you to Bob Deutsch for pointing to the interesting issues raised by the cum-ex trades.

Following the Hayne commission, exposes such as Panama and Paradise papers and other publicity surrounding the accounting profession's connection with tax evasion, the TTI may wish to consider taking a leadership role on such issues (i.e. are tax advisers meeting community expectations around ethical behaviour).

The principles behind equity law appear relevant to situations where other laws fail to deliver justice, particularly where unconscionable conduct is involved.

Laws are essentially a set of rules established by the community, particularly in relation to rights.

Rights to a tax refund can only arise through a grant by the community, and such a right is implemented through its laws. If the community never intended for anyone to have the rights to a double dip, then any technical manipulation attempting to give rise to such an outcome is not lawful by definition.  If it is clear that the rights to a double dip were never intended nor granted by the community, then there is no legitimate basis for anyone to claim such a right, since such a right simply does not exist.

The threshold question for a judge (or tax adviser) is not whether on a strict technical reading of written laws a taxpayer is somehow "entitled" to a right, but rather, on the facts, does the taxpayer meet the conditions for the right intended to be granted by the community.

It may be difficult to discern the community's intention in a particular fact scenario (for example, through poorly worded legislation) and this then gives rise to legitimate differences of opinion to be tested through the courts.  However, based on Bob's summary, it seems abundantly clear that rights to double tax refunds were never intended to be granted by the community, and hence no fact or circumstance (however technically compliant with written rules) can (or should) give rise to a double-dip, since no such right exists.

As Bob observed, in Australia, Part IVA appears aligned with such an approach.

Bob asserts that the place for morality is in the development of the law and not in its interpretation, on the basis that judges would otherwise be making subjective decisions based on their personal views of what is right or wrong.

In practice, judges often have to make decisions around the intention of the laws they apply.  In doing so, my understanding is that judges are obliged to consider the community values around any matters of morality as far as is humanly possible, rather than their own personal values.  In the case of cum-ex trades, the community intentions seem clear.

This would make a good topic for a formal debate at one of the TTI conferences since I'm sure a variety of views will be held by TTI members.

Member 37 writes:

Bob captures in a very succinct manner a human and tax conundrum, which black letter law will never cover but society will judge over time in a mercurial manner.

Member 38 writes:

I liked the blog, but I did not like this comment which is no longer possible due to it being incorrect:

What about billionaires pumping huge amounts into superannuation to earn income in a virtually tax-free environment

Non-concessional contributions are precluded once a member reaches a $1.6M total super balance. Further, the pension exemption phases out at a $1.6M transfer balance cap.

Treasury has done much more to limit superannuation and the tax effectiveness of super these days is not great.

Member 39 writes:

If morality was to play a part in whether tax applied, the ATO may have some serious issues about the way it applies the law.

Member 40 writes:

Thanks, Bob, for your preamble, it is interesting.   Of course, it must be a fraudulent act to claim a refund for tax that has not been paid – however it may seem on paper that you can do so. There is an adage some are using around here – just because you can do something it does not mean you should.  But I think it goes further than morals - it must be criminal.

That aside I found it interesting that apparently Macquarie got caught up with this very late. The other banks had been doing it for a couple of years and eventually the Macquarie nerds could not resist doing it too. It was right at the end of the game and just as the German authorities decided to put a stop to it.  I think theirs was the last scheme undertaken as by then all the other banks had backed off.  Not so smart after all

Welcome back to TaxVine Bob and thanks all for the interesting stuff.

Lodgment due date confusion

Member 41 writes

Each time I look at a client in Online Services, it tells me that the 2019 tax return

is due on the 5th of June. I wondered if for this year the “usual” lodgment due date of 15 May had been changed.

Called the ATO – it hasn’t – lodgment due date is still 15 May, the concessional date we’ve always had – as long as you pay up front. Why confuse things by showing it as 5 June?

I’ve just downloaded a list of “Not Yet Lodged Returns”.

The Column headed up “2019 Lodgment Due Date” has the following dates for various clients:

  • 31 March 2020
  • 15 May 2020
  • 18 May 2020
  • 28 May 2020
  • 5 June 2020

Can someone from the ATO confirm that these due dates are correct? Can you confirm if I need to apply for an Extension of Time for instance, then I can lodge such an Application on 5th June 2020 because this is the Due date for Lodgment for a lot of my clients?

Deceased client’s 2019 Tax Return

Member 42 writes:

Client died December 2019. Just tried to lodge the 2018-19 individual tax return using my tax lodgment software – it was rejected.

Apparently, a Deceased Person’s return can only be lodged by paper.

I now have to sit down and handwrite the return I’ve already completed. WHY?

Maybe I missed something in all the kerfuffle about Agents not being able to view deceased clients’ info on Online Services.

Tax Counsel Stephanie Caredes comments: The Inspector-General of Taxation and Ombudsman is currently running a review of the administration of deceased estates by the ATO. See link.  We encourage members to provide their comments to the IGT about issues they experience when dealing with administration matters concerning deceased estates. The Tax Institute’s submission to this consultation will be available on our website soon.

Substantiation dilemmas

Member 43

I recently lost it when an ATO employee insisted that the receipts, invoices etc. he was demanding were not substantiation. He said that the claim was exempt from that, and no, he was not asking for substantiation, he just wanted proof (the definition of substantiation).

This was followed by a different officer stating that the evidence was to confirm that the claim was reasonable - despite the fact that we were claiming the Commissioner’s Reasonable Travel Allowances. The ATO is regularly using a part of s900B, that I believe was to reveal whether a taxpayer had actually travelled or not, to now ignore the exclusion from substantiation entirely.


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