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Tuesday, 2 December 2003
Page: 23530

Mr Windsor asked the Treasurer, upon notice, on 25 June 2003:

(1) What action will he take in response to the issues raised in the editorial in Taxpayers Australia on 28 April 2003 that posed the question “Has the Australian Taxation Office (ATO) become a law unto itself”.

(2) What action is the ATO taking in response to the Federal Court's decision on Essenbourne Pty Ltd v Commissioner of Taxation [2002] and can he explain the implications of this action.

(3) Is the Australian Taxation Office ignoring the Federal Court's decision on the Essenbourne employee incentive trust scheme case by pursuing taxpayers who have been involved in similar employee incentive trust schemes; if not, will he explain why; if so, will he intervene to direct the ATO to treat all taxpayers in similar circumstances in a manner consistent with the Court's decision and in light of the concerns expressed in the Taxpayers Australia editorial.

Mr Costello (Treasurer) —The Minister for Revenue and Assistant Treasurer has provided the following answer to the honourable member's question:

(1) The Commissioner of Taxation has advised that a senior ATO officer has responded directly to Mr McDonald, addressing the issues raised in the article.

(2) The Commissioner of Taxation advised that in the case of Essenbourne Pty Ltd v Commissioner of Taxation, [2002] ATC 5201; (2002) 51ATR 629, the Federal Court upheld the ATO's decision to disallow a deduction claimed under the general deduction provisions of the tax law, in respect of a payment to an employee benefit trust.

While the Court also found that neither FBT nor Part IVA applied, the ATO felt that not enough clarity was given to these issues, but saw no point in appealing as the court confirmed that the scheme did not create allowable deductions.

The ATO is continuing to deny deductions and to decide objections in similar cases, in accordance with the Essenbourne decision. However, the ATO has offered reduced penalties for taxpayers involved in these arrangements who agree to settle.

The implications of these actions are that taxpayers will either settle with the ATO on the basis of a single taxing point, or they will choose to litigate, in which case the courts will determine the appropriate single taxing point.

Because of the structure of EBAs, they generally involve multiple possible taxing points. The ATO issued multiple assessments to ensure that all the relevant legal issues will be considered by the courts in the event of litigation.

(3) The Commissioner of Taxation advised that the Federal Court's decision in Essenbourne affirmed the ATO's view that payments made to these types of employee benefit trusts do not create allowable deductions. The ATO's settlement offer to participants in these arrangements is entirely consistent with the court decision.