New Arrivals Caught by Tax System

New arrivals to Australia are now figuring in Administrative Appeals Tribunal cases adversely over tax issues. The lesson here is that Australian tax laws bite backed by increasingly sophisticated computer systems used as surveillance over transactions.

An important element of advising new arrivals to Australia is a healthy warning that the cash based systems which may have been used back home to reduce tax will not work in Australia.

Furthermore unsophisticated systems without professional advice to reduce tax will also usually fail.

Here are some examples of recent cases in the AAT involving the Australian Taxation Office (ATO).

Li v ATO [2008] AATA 849 (23.9.08) concerned a cook who’s employer paid him substantial amounts in undeclared tax and therefore declared a low figure for his annual wages to the ATO.  The ATO conducted an audit of the restaurant which revealed the following:

 At the interview on 28.4.06, the principal of the restaurant, Rosetta Lee, admitted that a substantial amount of money was paid in cash wages, in this context meaning undeclared, unrecorded cash wages… She believed it was a standard practice in the industry.

Some remarkable things emerged as the AAT reported, once the ATO began its investigations:

•22.              The company then prepared some false documents and asked their employees to pay the tax that should have been paid by them, as the company had withheld tax money from employees.

•23.              [the cook] had referred the matter to the federal Workplace Ombudsman & to the NSW Office of Industrial Relations on the ground that his previous employer had paid him much less than he deserved. The complaint was still under investigation.

•24.              Unless he could obtain funds from the restaurant, his plan would be to pay his outstanding tax debt by instalments, as he is now engaged in the full-time study of English in order to improve his employment prospects and his family relies mainly on Centrelink for living expenses.

•25.              He believed the penalty should be waived because he had no intention of evading tax but was influenced by his employer. He was a new immigrant at the time and ignorant in matters of tax law. Given his family’s currently low income, it would be difficult for him to pay the amount owing to the respondent.

The AAT found that there was about $15,000 undeclared income, ordered the cook to pay the proper tax and applied a 25% penalty in its conclusions:

•46.              [the cook] submitted.. the penalty as assessed on the basis of 25% of the tax shortfall should be waived entirely because he had no intention to evade tax and the matter was not yet concluded.

•47.              [the cook] admitted.. he had known the figures set out in the statement of earning were substantially less than his real wages and his own current estimate of $900 per week net confirms that position.

•48.              I accept the [ATO’s] contention that such a false statement in a tax return would normally qualify for a penalty at the 50% rate for recklessness.. but.. because of his immigrant status and lack of familiarity with Australian tax law, the 25% rate for lack of reasonable care is appropriate.

Weston v ATO [2008] AATA 869 (30.9.08) concerned a nut farmer who failed to pay a group of employee Koreans their proper superannuation. Under the Superannuation Guarantee (Administration) Act 1992 an employer must pay superannuation due to employees directly to the superannuation fund.  Here the farmer just paid the employees 10% extra and asked the employees to pay their own superannuation.  The farmer also claimed that he paid all the money due to the Koreans to one of them and therefore they were contractors, not employees.  But in the end the evidence did not stack up for the farmer as the AAT found as follows:

•9.                  In relation to the amounts paid for the labour of the Korean nationals, it is possible that payments were made to one as the organiser or contractor of labour supplied by others. If this was accepted the result could be that the payment is not deemed salary or wages being a payment to a head contractor for the labour of others leaving the potential liability with that head contractor. Alternatively, the actual amount due to one individual may be less than $450 in a month. Mr Weston believed that the group worked for a short period of 8 – 10 days and all of them did not work every day. Unfortunately, it is difficult to accept fully the evidence of Mr Weston. The records show that in 04 & 05, payments were made to 5 different individuals with names which appear to indicate Korean nationality. Payments covered periods of work of between 8 & 39 days. Clearly there was no one period where all payments were made to one individual. Consequently, and likely to be unfortunately for Mr Weston, I am unable to find that he has discharged the onus of proof that the payments were not salary or wages under the Act.