Tax Office issues warning for dubious taxpayers

Tax Office targets taxpayers who use three specific arrangements to falsely generate claims for inappropriate tax losses

The Australian Tax Office is targeting taxpayers who use three specific arrangements to falsely generate claims for inappropriate tax losses.

These include:

  • Re-characterising capital losses as revenue losses
  • Managed investment schemes: purported partnership participation
  • CGT consequences of assignment of default beneficiary’s capital interest.

Tax Commissioner Michael D’Ascenzo says he has doubts about the legitimacy of these arrangements.

"In the current economic environment we’re expecting to see an increase in tax losses," he says.

"However, this means that we will be carefully scrutinising claims to ensure taxpayers only claim losses to which they are entitled.

"These alerts are a timely reminder for people who may be tempted to artificially create losses or to transfer them inappropriately as tax time approaches."

The Tax Office is paying close attention to people who attempt to claim losses as share traders, on a revenue account where previously they claimed to be long-term investors eligible for the capital gains tax 50 percent discount.

The second area the ATO has flagged is attempts by promoters to sell interests in managed investment schemes to groups of individual investors on the basis that they will be ‘partners’ in a partnership and will be able to claim upfront deductions for their interest.

Taxpayers are reminded that they can only rely on a product ruling if it is implemented in accordance with the arrangement in that product ruling.

Partnerships of this type are not covered by Tax Office product rulings or other tax clearances.

Finally, when it comes to CGT consequences, the ATO stresses that taxpayers should avoid attempts to create or claim a capital loss arising form the artificial receipt of an interest in a discretionary trust as a default beneficiary.

Investors who are unsure about their situation should seek independent advice or contact the Tax Office for a private ruling on their individual circumstances.

People who approach the ATO before they are contacted for an audit will be entitled to a reduction in any penalties that might apply.

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