ATO cops court hits
The ATO has been battered this week with criticism of its handling of billions of dollars in family trusts and business debts.
The Australian Taxation Office (ATO) faces renewed scrutiny and criticism over its handling of family trusts, following a landmark legal defeat concerning tax avoidance strategies.
On March 8, the Full Court of the Federal Court ruled against the ATO in a case involving Minerva Financial Group (MFG), a non-bank financial services provider.
Between 2012 and 2015, MFG Trust distributed its interest income to non-resident members, incurring a withholding tax of 10 per cent instead of the corporate rate of 30 per cent.
The ATO's designation of this strategy as a tax-avoidance scheme was overturned by the court, emphasising the “real economic and financial effect” of trusts and stating that such financial arrangements alone do not indicate tax avoidance.
This decision has far-reaching implications, not only for large corporations but also for the estimated 1.7 million Australians involved in family trusts, which distribute around $60 billion annually.
The ruling introduces a degree of legal uncertainty for trustees, especially with the end of the tax year approaching.
Furthermore, the ATO has come under fire for its mishandling of an estimated $15 billion in debts from small businesses and individuals.
The independent tax ombudsman has criticised the ATO's debt recovery efforts, likening them to the controversial robo-debt saga.
The ATO's communication strategy, which involved issuing letters for debts considered historical or on hold, has been deemed ineffective and distressing to taxpayers.
New best-practice guidelines for debt collection have been introduced in response to these criticisms, urging more transparency, clear communication, and support for those owing money.