ATO appeals court tax ruling on deductibility of education expenses vs Youth Allowance income

Following our previous coverage on Symone Anstis v. Federal Commissioner of Taxation, the Australian Taxation Office has decided to appeal the Tribunal's decision. 

In other words, until the ATO is defeated once again in court, it will not allow education expenses to be claimed against "Commonwealth education assistance schemes".

SUMMARY FOR THOSE WHO MISSED THE CASE RULING

SYMONE'S CASE

Symone (the taxpayer) is claiming that her education expenses should be tax deductible because being enrolled in a tertiary education is one of the prerequisites for her entitlement to Youth Allowance.

So, she claimed various expenses such as textbooks, depreciation on the computer, travel, etc. 

COMMISSIONER'S CASE

The ATO claimed that this was bogus because she incurred these education expenses to finish her teaching degree and eventually qualify as a teacher. 

They are arguing that the expenses are not deductible because it wasn't incurred to derive an income. That is, she was not earning money as a teacher yet at this point in time.

They also rejected the argument that the education expenses was a valid deduction to get Youth Allowance income.

TIMELINE OF EVENTS

17/11/2006  ATO issues an amended tax assessment to Symone

27/11/2006  Symone objects to amendment

05/12/2006  ATO disallows Symone's objection 

12/12/2006  Symone goes to Tribunal to dispute ATO decision

18/04/2007  Tribunal rules in favour of ATO

21/07/2008  Symone appeals to the Federal Court

01/04/2009  The Federal Court rules in favour of Symone

29/05/2009  The ATO appeals against the Federal Court decision 

SUMMARY

We will have to wait and see whether or not the ATO's appeal will be allowed. If so, then the whole legal circus starts again. 

We will update everyone on the progress of this tax case. 

In the meantime, the ATO has issued a statement that it will continue to treat education expenses as non-deductible against Youth Allowance (and other government assistance) until a FINAL decision is made.

SPECIAL NOTE FOR LAW STUDENTS OR TAX LAW ENTHUSIASTS (!)

The case judgement is a very useful and straight-forward explanation of basic tax law. That is, the explanation of how revenue recognition and tax deductibility works.

The case judgement can be found here.

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

Is your employer taking out enough tax from your pay?

This is a quick post for those of you who are employees...

Have you ever happily lodged a boring tax return with just your employment income, NO extra income, NO exciting tax deductions and then get hit with a MASSIVE TAX BILL?

WELL... READ ON, THIS MAY JUST BE THE REASON..!

As part of your payroll, tax is withheld by your employer every pay period. The total tax withheld for the year forms the amount of tax that shows up in your PAYG Payment Summary (aka Group Certificate).

Assuming that your only taxable income is from your job, you shouldn't have to pay any additional tax when you lodge your income tax return. 

This is because your employer has already taken tax out every week/fortnight/month/etc throughout the year.

HOWEVER..!

How do you know that the CORRECT amount of tax is being withheld from your pay?

This is what you do...

You simply cross-check the tax withheld on your payslip against the ATO PAYG Withholding Tax Tables.

The ATO provides these simple tax tables to employers to allow them to easily deduct the correct tax from their employees. However, mistakes do happen and it is worthwhile double-checking.

This is what you need to know beforehand (HINT: have your payslip handy!): 

1. What is your pay cycle? ie Weekly, Fortnightly, Monthly

2. How much are you getting paid per pay cycle? 

3. Do you have HECS/HELP or SFSS?

4. Do you have leave loading? (most likely not)

5. Are you claiming a tax-free threshold for this employer?

Once you have the above information, you can use the Tax Tables that your employer also use. Here's the link to the ATO's PAYG Withholding Tax Tables.

Or....

If you are really lazy or just not into numbers (we don't blame you), then click on this link to the ATO's PAYG Withheld Calculator.

You enter all the information, click on Calculate and voila..! The calculator shoots out the Tax Withheld amount which should match up with your payslip.

If it doesn't match AND you answered all the calculator questions correctly, it's time to talk to your employer's HR or Finance team. 

It could be a simple case of ticking the wrong box when you first filled in your TFN Declaration form.

Note: The rates changed in July 09. So, when you will get a different tax withheld amount when you run the calculator in July 09.

GOOD LUCK..!

RIGHTING TAX WRONGS, ONE AT A TIME...

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

What the budget means for you

We have decided to provide commentary on the budget using a series of posts as to how they affect different segments of society. There is a lot of commentary out there from the major news outlets and there is a raft of changes. 

We have simplied our analysis into "What the budget means for...."

1. The Eldery:  We have defined this as 50 years of age and over, as the budget impacts the pension and the age pension from 2017

  

2. Young people: We have defined this as 25 and under and first home buyers

3. Business: We have a particular focus on SME's (small and medium enterprise business).

There will also be some additional posts from our contributors focusing on Superannuation and the economic impact.

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

Update on Madoff fraud victim tax relief..

We reported posted an article on the 17th of April about the IRS allowing the victims of the fraud losses to gain certain tax benefits.

Here's the link for those who missed it...

http://austaxation.blogspot.com/2009/04/irs-says-we-can-to-madoff-stanford.html

An update on the situation in the USA...

Despite the US IRS Federal tax ruling, it seems that the state government agencies are refusing to allow the same rules to apply to state income taxes.

Specifically, the California Franchise Tax Board is refusing to co-operate. 

The group of victims affected by this refusal amounts to around 10% of the US$65 billion fraud. They are currently lobbying the state governments for tax relief.

RECAP FROM AUSTRALIAN PERSPECTIVE

We have to keep in mind that the USA runs on a complicated multiple-tiered tax system. In some places, there are federal, state and municipal (what we call "local council") income taxes.

In Australia, we have only a federal level income tax system. This includes the Goods & Services Tax (GST) which was introduced in 2000 to replace the various State and Territory taxes, duties and levies.

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

IRS says "YES, WE CAN...!!" to Madoff & Stanford fraud loss claims - ATO?

The past few months saw news spread like wildfire across the globe about the insanely massive fraudulent Ponzi schemes that were uncovered..!!

Here's two of the biggest ones...!

Bernard Madoff ran a Ponzi Pyramid scheme which stole US$50 billion from investors around the world. 

Allen Stanford also allegedly ran a Ponzi scheme which stole US$8 billion from investors.

Now, that is all very sensational, but back to our world of TAX....

IRS

The IRS (US tax enforcement agency) recently released Revenue Ruling 2009-9 (PDF) which allows investors in these Ponzi schemes to claim their lost funds as a tax deduction..!

The Ruling is extremely generous and allows investors to claim ALL of the monies invested as well as the income declared by the funds less any actual cash withdrawals.

In other words, the defrauded investor can claim the net cash balance owed to them as a tax deduction.

A quick point by point summary by Loeb & Loeb LLP.

ATO

Well, this got us thinking...... 

"If the same thing happened in Australia, would the ATO as nice?"

Well, the quick answer is probably "NO" at this stage...!

The tax legislation does allow a tax deduction for businesses suffering a loss from theft as per s.25-45.

But, this is more for theft during the "normal operations of the business". For example, money being stolen from the safe or in transit to the bank.

See the following supporting ATO IDs...

1. ATO ID 2001/318

2. ATO ID 2001/59

However, the existing case law and ATO rulings seem to indicate that a loss from financial fraud does NOT fall under s.25-45.

Below are examples of cases where some unfortunate souls' attempt to claim the loss were knocked back by the ATO.

Refer to the following: -

1. ATO ID 2003/1029 - Deduction: Loss from misappropriation of money by an investment broker

2. Lean v. FC of T (2008) or great summary by Robert Richards of CPA Australia

So.....!

Loss from THEFT / BURGLARY:  

Loss from FINANCIAL FRAUD:

 

FINAL WORDS

In all honesty, we wouldn't be surprised if the ATO does release a POSITIVE ruling in favour of deductibility of financial fraud losses. 

The financial crisis has influenced our law-making bodies and the government in general to sway to the populist view of doing whatever it takes to "stimulate our economy".

Now, whether or not this is right or wrong is a discussion for another time and place...

But....

The integrity and strength of our legal system relies on its independence from political and economic conditions.

It should be about the interpretation of the law without bias or prejudice. 

Without Fear, Without Favour

NEC TIMES, NEC FAVENS

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

ATO ALERT: Data-matching program targeting car sales

Grim news for those caught under this new data-matching program started by the ATO.

The ATO will be reviewing all car sales  over $10,000 that was made in the 2007 / 2008 financial year. Apparently, 1.7 million sales records fall under this category. The information has been provided to the ATO via the motor registries around Australia.

The previous crackdown in 2008 was for "luxury" car sales over $57,000. In that case, a whooping 70% of investigations yielded a tax liability for the ATO. A very good return on investment, indeed..! 

So, no surprise that its now chasing after the "middle-class".

WHO DOES IT AFFECT?

1. Employers who have provided their employees with car benefits. 

Any benefit provided to your employees outside of wages & salaries is subject to the Fringe Benefits Tax (FBT) rules. 

The ATO will be catching out any employers who have not been declaring FBT on car benefits to employees.

2.  Persons who appear to be living beyond their financial means. 

If you declare a taxable income of only $10,000 but buys a car worth $30,000, then that's suss...!

The ATO will be investigating you to see whether or not you have been paid in cash and not declaring it.

3. Persons who buy and sells cars regularly for profit. 

There is a strong distinction between "car enthusiasts" & "car dealers". Its the ol'  hobby vs. business argument. It's commonsense at the end of the day. 

If you are turning over 50 cars a year, you may be classified as a business..!! The ATO will be looking at classifying those profits as undeclared capital gains on sale.

If you fall under any of the above, it might be a good idea to see a tax accountant to suss out potential liabilities, etc.

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

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From the AusTax team. 

The #1 provider of Australian tax news on twitter.