Supply-side Religion

Fun with supply and demand.
Matthew Ellard
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Re: Supply-side Religion

Postby Matthew Ellard » Sun Dec 10, 2017 12:27 am

Phoenix76 wrote: We introduced GST (Goods & Services Tax) to Australia, a supply tax, back on 1 July 2000. We had a lot of opposition, mainly I believe because people didn't understand the concept of it.
That's not exactly true. Australia had a 22% sales tax on manufactured good and no sales tax on service based transactions. We simply spread a 10% tax on everything other than fresh food, rent, medical and called it the good AND services tax. (GST)

The big surprise was that this new tax caught an unprepared black economy (cash economy) and the GST tax revenue was much larger than anticipated.


ATO revenue operational report comparatives.
https://annualreport.ato.gov.au/02-perf ... collection

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Re: Supply-side Religion

Postby Phoenix76 » Mon Dec 11, 2017 2:31 am

Okay Matthew, that's one way of putting it.

Trouble is that very few people had any understanding of the old Sales Tax regime. Unless you were in a business that dealt directly with ST, then you really knew nothing about it.

So when GST arrived, it was a completely new way of thinking for most people. When you bought something, it was "including GST". Previously, you never saw a price that said "including sales tax".

So whilst your point is quite legitimate, the confusion, and therefore dislike, came about because the people didn't understand that in ways they were better off, although services were now included.

But to me, as an accountant, the most surprising thing I came across was from so called business people. I should say "small business" people, who had no idea. And I'm not just talking about the extra compliance costs. One bloke I knew, called it an "insidious" tax. That being, according to the dictionary, "working in a subtle or apparently harmless way, but nevertheless dangerous or deadly". I'm not sure if his use of the adjective was appropriate, but he really had no real concept of how it worked.

As for the black economy, yes initially it caught people off guard, but Australians, being as inventive as they are, soon worked that out. I know that from direct experience. And the tax office is battling to curb the black economy, not only in GST, but it will be forever an uphill battle.

And whilst not everyone will agree with me, an increase to 15% from 10%, would go a long way to reducing Government debt. And it doesn't need to be widened to include the currently exempt items. One of the other problems we have had is the loathe of State Governments to do away with their own little taxes like stamp duty and payroll tax. It even took a long time to get rid of the so called "bad tax" with the banks. Overall, whilst I have no problem with a consumption tax, when the GST was introduced, the Government was quite lax in some departments with its implementation.

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Re: Supply-side Religion

Postby Matthew Ellard » Mon Dec 11, 2017 4:08 am

Phoenix76 wrote:So whilst your point is quite legitimate, the confusion, and therefore dislike, came about because the people didn't understand that in ways they were better off, although services were now included.


The biggest court case ever, was the UK "Jaffa Cakes" court case, in 1991. In the UK a biscuit did not attract VAT but a cake did. So was I selling a biscuit or a cake, simply because I named the biscuit, a cake?

Thankfully the UK paid for this and we introduced GST after the case was settled.
:D

Yep. The high excitement world of taxation cases. I'm surprised no one made a movie starring Clive Owen.

Phoenix76 wrote:But to me, as an accountant,.........
So imagine I'm a copyright publisher who trades balance sheet copyrights on a day to day basis, with similar firms and therefore under the periodicity rules, my trades are not capital gains tax events. Am I selling and buying GST things or exchanging financial capital? The ATO had to think about that for a year and issue a private ruling. (It's a GST transaction of stock on hand). :D

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Re: Supply-side Religion

Postby Phoenix76 » Mon Dec 11, 2017 10:51 am

Spot on Matthew. Your stock is copyright balance sheets, so not being an exempt item, eg a financial transaction, it incurs GST.

From what you are saying, am I to take it you are from the UK or are you only quoting case history? The Australian Taxation Office is like a hound dog, they chase, and once they have their jaws around you, they will not let go.

I'm currently involved in a GST case with the tax office that has now been going on since around January of this year, almost gone.

Client copped an audit on their September and December GST returns. We lodged an objection on their decision from the audit. The result of that was akin to Caesar judging Caesar. So we lodged an appeal to the Administration Tribunal. So far we have had an initial, informal discussion to see if we can agree somewhere. Result is due about Wednesday this week. If that fails to satisfy us, the next step is mediation, but that won't happen, we will then go to the tribunal for an official hearing.

So, my friend, this demonstrates the pigheadedness of the tax department. They can afford, with taxpayers money, to push their case to the ultimate. If they lose, so what, they just allege that they were trying to save the taxpayer money.

Dog eat dog world my friend.

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Re: Supply-side Religion

Postby Matthew Ellard » Mon Dec 11, 2017 9:33 pm

Phoenix76 wrote: From what you are saying, am I to take it you are from the UK or are you only quoting case history? The Australian Taxation Office is like a hound dog, they chase, and once they have their jaws around you, they will not let go.
I'm Aussie. I studied tax law at UNSW through the ATO ATAX schemes as I was running 10BA tax schemes and previously consulted to the Australia Council. My background is entertainment and copyright accounting. I started at a small chartered firm, that made Beyond 2000 as 10BA tax deferment packages for FAI Insurance in the 90's. I then started my own firm, which I sold off about eight years ago.

Phoenix76 wrote: I'm currently involved in a GST case with the tax office that has now been going on since around January of this year, almost gone. Client copped an audit on their September and December GST returns. We lodged an objection on their decision from the audit. The result of that was akin to Caesar judging Caesar. So we lodged an appeal to the Administration Tribunal. So far we have had an initial, informal discussion to see if we can agree somewhere. Result is due about Wednesday this week. If that fails to satisfy us, the next step is mediation, but that won't happen, we will then go to the tribunal for an official hearing.
That's exactly the procedural stuff that ATAX specialised in. ATAX was for ATO employees and government consultants.

Phoenix76 wrote:So, my friend, this demonstrates the pigheadedness of the tax department. They can afford, with taxpayers money, to push their case to the ultimate. If they lose, so what, they just allege that they were trying to save the taxpayer money. Dog eat dog world my friend.
I feel a little bit sorry for the ATO. Twenty years ago it was full of normal humans making decisions. Nowadays the employees have to work to "fixed scripts".

My only suggestion is to remember the ATO are humans and although you should fight your point to the death, you should do so politely. There's an internal escalation pyramid chart at the ATO. If I'm fighting a weak case I try to mediate as early as possible, so the reviewing officer can waive penalties. As you go up the pyramid they don't waive penalties.

10BA Film Incentives.
These no longer exist and worked best in a high inflation environment. The taxpayer invested $100K in an Australian film or TV show. The taxpayer writes off 130% in that tax year. (That reduced to 120% then 100% over years). The production company would guarantee a 70% return on investment, in future years when the taxpayer was in a retirement environment tax bracket. Because of high inflation that gave the taxpayer a 5 to 15% tax advantage.

Mad Max and Crocodile Dundee were 10BAs. However as bigger insurance companies wanted smaller investment packages for their taxpayers, the firm I used to work for started making TV science documentaries and called the series Beyond 2000. When the 10BA system ended the same firm started making Mythbusters for normal profit.
http://www.beyond.com.au/
What this means is that many Australian producers are ex-chartered accountants!
:D

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Re: Supply-side Religion

Postby Phoenix76 » Tue Dec 12, 2017 7:19 am

Well Matthew, I guess we all have to fade away somewhere as the years roll on.

You make a good point about being polite to the ATO employees. They are trying to do a very difficult job. BUT, there are some who are absolute "Little Hitlers" and who appear to be trying to make a name for themselves and perhaps a position for life. I learned many years ago that you get more with sugar than you do with vinegar. Unfortunately, my client is a hot head and has interfered a couple of times over the course of this matter and it has not helped our position. I get a bad headache bashing my head against the wall.

Well I'm supposed to get a response tomorrow so we will see how we went.

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Re: Supply-side Religion

Postby Poodle » Tue Dec 12, 2017 7:55 am

Accountants and tax officers are OK, deep down. They'd all improve with incentives, running from short jail terms for very minor errors to execution for complete howlers.

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Re: Supply-side Religion

Postby OlegTheBatty » Tue Dec 12, 2017 2:47 pm

Poodle wrote:Accountants and tax officers are OK, deep down.


At the bottom of a mine shaft in the Mariana Trench comes to mind.
. . . with the satisfied air of a man who thinks he has an idea of his own because he has commented on the idea of another . . . - Alexandre Dumas 'The Count of Monte Cristo"

There is no statement so absurd that it has not been uttered by some philosopher. - Cicero

Matthew Ellard
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Re: Supply-side Religion

Postby Matthew Ellard » Tue Dec 12, 2017 9:47 pm

Phoenix76 wrote:Unfortunately, my client is a hot head and has interfered a couple of times over the course of this matter and it has not helped our position.


My idiot brother in law copied a financial planning set of calculations and made it into a mobile application for horse race gambling. He set up one shelf company to own the software copyright and another self company to administer the business. He then sold shares into the admin company (without disclosing that another company owned the software) and simply paid himself a PAYG salary. The admin company has never made a cent.

He then claimed $40,000 in legal bills, establishing the companies, in his individual return, that he self prepared. The ATO rejected the $40,000 claim as not his personal cost, but also as establishment capital. So like a complete idiot he wrote to the reviewing officer and said "I am Australia's leading gaming software developer, how dare you reject a genuine business expense"......so the ATO initiated a full audit.

He now has both the ATO and ASIC chasing him down as well as investors who thought they were owning the software copyright. That's not the best bit. Two of the investors were wives of members of the Rebels Motorcycle Club and I don't think they will use lawyers to recover the money. :D

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Re: Supply-side Religion

Postby Phoenix76 » Fri Dec 15, 2017 10:21 am

Ah Matthew, yes, typical actions of someone perhaps part educated in these sorts of contorted ventures. At the end of the day, they all come home to roost.

My way of thinking would have been to look at setting up discretionary trusts. They can work very well. Actually just in the process of setting one up for a client. Easy money. Have a pro-forma sitting on my computer, just fill in the blanks and send out the bill. Along with ABN & TFN registration, $1,000 per hr is easy money. Go to a solicitor and the price is anybody's guess.

On face value, your B-I-L made a big mistake claiming deductions in his personal name. Those costs should have been put through the companies he set up. The money could have been put up a capital contributions, or loans subject to an interest rate.

I can certainly see where he was trying to go with this, but, to me, setting up shelf companies was not the best choice. And the legal bills in setting up the structure were outrageous. No wonder the ATO wanted to look closely at it.

I love using a discretionary trust with a corporate trustee. Any profit made by the trust must be paid out to beneficiaries in the year that it was earned. Having a company with shareholders who are beneficiaries under the trust, it can be paid the total required distribution. It then pays it's Company Tax at the going rate, and can earn tax credits. When this company has sufficient funds, it can pay fully franked dividends to the shareholders.

This system works exceedingly well and is quite simple. Let's face it, if you make a profit, somebody will have to pay tax somewhere down the line. If you think you can avoid (evade) paying your tax, just remember old mate, Al Capone. The only people who could bring him down was the IRS. But the system of discretionary trusts and a corporate beneficiary works very well, and it is legal. The tax man gets paid so he is happy. He doesn't really care who pays, as long as it's paid. But there are very legal tax benefits available to the persons behind it all. And if you happen to make losses in the early years, those loses are cumulative to be set against future profits.

It's all great fun Matthew, and I love it.


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