Seeing an Accountant may not be enough !!

[coastymike]

Recent case http://www.austlii.edu.au/au/cases/cth/AATA/2010/902.html

See comments from the AAT it might be necessary for taxpayers to not only seek accounting advice but also legal advice.

Mr Sinclair did not seek formal legal advice regarding the taxation consequences of the contractual arrangement with Towerlake, although
he did approach his accountant and his solicitor who all felt the amount
of $99,000 would be deductible as pre-*‐paid interest in respect of an activity
that produced income.

This was found to be insufficient as it was not put in writing by the solicitors, nor was the solicitor asked to give specific legal advice about the arrangement.

And although the accountant had given advice to Mr Sinclair,‘Mr Jasper is
a Fellow of the Tax Institute of Australia but he could not give legal advice
regarding the taxation implications of the arrangements’.

 

[wobbycarly]

But wasn't the ruling that the $99,000 was deemed as a capital expense, so should not have been claimed against income?

58. The characterisation of the sum of $99,000 is also important.
...
In the absence of any evidence as to the amount of the interest payable to Statewide, that clause leads me to conclude that the relationship between the sum of $99,000 and a payment of interest is one of timing and convenience but not one of substance.
...
Special Condition 19.5 cast aside any link of substance when it provided that Mr Sinclair must pay to Towerlake any difference between the sum and the amount of the interest owed by Towerlake to Statewide. That sum is clearly part of the purchase price payable by
Mr Sinclair. (my emphasis) It is not payable on Settlement Day but the manner of payment of the purchase price is a matter for the contracting parties.

59. As part of the purchase of the property, it is a capital expenditure and so excluded from the deductibility provision in s 8-1(1) by s 8-1(2)(a) of ITAA97.
...
63. My conclusion that the payment of $99,000 was capital expenditure leads to the conclusion that it is not deductible and my deciding to affirm the Commissioner’s objection decision in so far as it relates to the assessment.
...
67. These findings lead me to conclude that, so far as rental is concerned, Mr Sinclair did not gain any assessable income.
...
68. Mr Jasper also submitted that I should have regard to Mr Sinclair’s plan to develop the property. While I accept that Mr Sinclair had that plan in mind when he purchased the property, it lasted but a short time. Other than having an architect look at the property as a friend, he did not take any steps to bring it to fruition.

So the advice given was incorrect? AND the purpose of the purchase changed - THAT'S something to watch out for, IMO. If he'd continued his plans to develop and sell (make an income through his property development company) then it probably would have been OK - or rather, he may not have been audited!

 

[coastymike]

Wobbly

Issue isn't whether the interest is deductible or not the issue is whether obtaining advice from an accountant is sufficient to reduce penalties. It appears not.

 

[wobbycarly]

OK - gotcha.

 

[Insight1234]

The Accounting bodies (CA's, CPA's etc) are all aggresively fighting this ridiculous newly created interpretation that only lawyers can give tax legislation advice that you can reasonably rely upon (not enough Aust tax lawyers anyway to cope with the workflow). I wouldn't be surprised to see this overturned in the not too distant future.

 

[Foundation]

The Accounting bodies (CA's, CPA's etc) are all aggresively fighting this ridiculous newly created interpretation that only lawyers can give tax legislation advice that you can reasonably rely upon (not enough Aust tax lawyers anyway to cope with the workflow). I wouldn't be surprised to see this overturned in the not too distant future.

LOL - another ATO vs CA/ICAA/Big 4 fight

 

[Terryw]

And what about Financial Planners giving tax advice. I believe they are not supposed to give advise on tax under the new Tax Agent Act (unless they are also licensed Tax Agents), but there is an exemption until next year so the Govt can work out how they should be regulated for tax.