Accountancy and law and financial planning partners may be prosecuted by the tax office if one of their fellow partners breaches anti-tax avoidance laws, draft practice statements issued by the tax office yesterday reveal.
The practice statements, issued in response to complaints about the wide scope of so called “promoter penalty” laws introduced by the Federal Government last year, have only served to exacerbate industry concerns.
Each partner could be exposed to an individual penalty of up to $550,000 under the laws. And unlike companies, which have a capped total liability of $2.75 million, partnerships are exposed to potentially unlimited liability.
The laws effectively extend commercial principles of vicarious liability — under which each partner in a firm is liable for the acts of every other partner — to the tax office’s quasi-criminal civil penalty regime, Riordan’s Lawyers tax partner Tony Riordan says.
“The promoter penalty legislation raises very serious concerns for SME tax advisers at all levels,” Riordan says.
The “poorly targeted” and “badly drafted” nature of the legislation means even firms that establish internal procedures prohibiting partners from engaging in risky tax advising will still be vulnerable if subjected to a hostile tax investigation, Riordan says.
The professions are up in arms. Taxation Institute of Australia senior counsel Michael Dirkis says the laws involve “massive overreach” in terms of their application and the size of the penalties involved. He says the new practice statements have made it clearer how the tax office will administer the laws, but some blurry areas remain.
“Looking at an arrangement and saying it doesn’t work won’t get you in trouble, but there is a fine line in advising on how a scheme might work and if you push it too much you risk getting caught by the legislation,” Dirkis says.
But Dirkis says a new promoter penalty review panel to be established by the tax office will provide an extra layer of accountability in the decision to commence prosecutions under the laws.
Graham Lester, a partner with Davis & Benson Chartered Accountants, says most small accounting firms steer clear of risky tax advising and scheme promotion.
Lester says large firms where partners operate more independently from each other will be at greater risk than a small firm.
“In small firms you’re usually aware of all the clients in the partnership and you know how your other partners operate – especially if you’re doing anything contentious, things you’d talk about it,” Lester says.
— Mike Preston
Entrepreneur Gerry Harvey made a cool $31 million yesterday after pulling off a deal to sell Rebel Sport at the last minute.
And the windfall profit from the deal plus the profits of yet another successful year is set to catapult Harvey into the exalted ranks of Australia’s the top-10 billionaires this year.
Harvey Norman may also go on a spending spree, looking for acquisitions with $150 million profit added to its war chest.
Yesterday Harvey managed to convince Rebel shareholders to approve a $370 million buyout by private equity firm Archer Capital.
Harvey Norman, which owns a 53% stake in Rebel, will make a profit of $150 million from the deal. Rebel shares were bought at 83 cents and sold five years later for $4.60.
Gerry Harvey, who owns 29% of Harvey Norman, watched his wealth rise by $31 million yesterday as shares rose by 10 cents on the news of the deal. James Thomson, editor of the BRW Rich List, says Harvey will also receive a large dividend from the deal. “The market has factored in some gain from the Rebel deal already, and Harvey Norman shares have risen by 21% over the last 12 months, so we are looking at a substantial rise in his valuation,” Thomson says.
Last year Harvey was valued at $1.5 billion on the BRW Rich List. A back-of-the-envelope estimate by SmartCompany puts his wealth at about $1.8 billion this year. This would take him from 12th on the BRW Rich List to somewhere in the top 10 – as long as Australia’s other top-10 billionaires have not had the same good fortune.
— Amanda Gome
The tight labor market might force wages higher, warned Federal Treasurer Peter Costello yesterday.
Costello says that wages increases will likely be in the high growth sectors of the economy.
A recent NAB Monthly Business Survey pointed to the mining, construction, manufacturing, recreation, finance, property and business services sectors as the most likely to face significant wage growth.
The NAB report showed wages grew 1.8% between November 2006 and January 2007, the highest growth rate since 1998.
The warning comes from Ian Harper, chairman of the Australian Fair Pay Commission, who says the minimum wage for 1.2 million low-paid workers would be close to the prevailing inflation rate of 3%.
For more on wages, see Operations: Wages nightmare.
Remarks yesterday by Australian Fair Pay Commissioner Ian Harper indicate minimum wage earners are likely to get a pay rise close to the rate of inflation when the AFPC makes its next ruling mid-year, The Australian Financial Review reports. The AFPC’s most recent decision in December last year awarded low-paid workers a 5.6% pay rise.
— Mike Preston
Reserve Bank of Australia Assistant Governor Malcolm Edey has talked down recent panic about the slowing US economy in a speech to the Australia & Japan Economic Outlook Conference 2007 in Sydney today.
Edey says the “mild” slowing of the US economy is desirable because it will reduce inflationary pressures, while the housing downturn so far has not caused any major disruption to output and employment in the rest of the economy.
Another volatile morning for Australian stocks this morning. The S&P/ASX 200 dropped 0.48% from opening to sit at 5824.8 by 12.10pm.
That hasn’t stopped the Australian dollar nudging above US79 cents to be worth US79.3 cents at 12.10pm, up from US78.54 cents at opening.
And the number of short-term visitors to Australia fell by 1.3% in February, while goods imports increased by 3% in seasonally-adjusted terms, according to Australian Bureau of Statistics figures released today.
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