Exclusive: how the ATO was lent on to deliver high-end cuts

When Treasurer Scott Morrison rose in Parliament in May to deliver a budget speech promising high-end tax cuts "from July 1", he knew he faced a powerful obstacle.

Bundles of emails released to Fairfax Media under the Freedom of Information Act reveal he had been told in April that Tax Commissioner Chris Jordan was reluctant to agree to the request, believing that in normal circumstances pay-as-you-earn tax scales could only be adjusted after legislation, passed by both houses of Parliament.

Jordan, a former policeman who studied accounting at night and went on to work for both prime minister John Howard and treasurer Wayne Swan on tax matters, wanted to stick to the rules.

But Morrison and Prime Minister Malcolm Turnbull had run out of time. Parliament was due to finish sitting within days of the budget without time to legislate the change and it wouldn't resume until after the election, well into the new financial year.

Asked the morning after the budget whether the tax cuts would be delivered from July 1 as promised, Turnbull replied with more confidence than he might have felt, "that is exactly the goal". The cuts would be delivered "administratively".

Emails between the Tax Office and the Treasury ahead of the budget had all-but snuffed out that possibility, offering only a flicker of a hope that if the legislation was introduced into Parliament and supported by the opposition (the words "introduced" and "and" were underlined) a commissioner might be able to "turn their mind to the circumstances at the relevant time".

To this end, on April 21, a fortnight before the budget, the Treasury told the Tax Office that the Treasurer's Office "was confident that the proposed personal tax changes would secure passage", even though they hadn't yet been announced.

But the opposition gave no such assurance, and Commissioner Jordan's position hardened. In the pre-election budget update released as part of the Charter of Budget Honesty, he inserted a paragraph saying he required "the relevant legislation to be passed" before he would amend the schedule.

The Tax Office went further in an email to West Australian journalist Shane Wright, raising the possibility that even a change in the law mightn't be enough. "If" a change was legislated by the incoming government, the ATO would "consider" the administrative approaches available to implementing new rates. It normally adjusted scales only once each year, and the date had passed.

After the election and after the Coalition was returned without delivering the promised tax cut, the Treasury wrote to the Tax Office pleading for "more specificity", saying: "As you would appreciate, when people actually receive the benefit of the tax cut will be a key sensitivity."

The office backed down just a bit, saying that because it took several weeks for employers to adjust their computer systems to implement new scales, it was prepared to announce them before the legislation had passed, so long as it had been introduced and it was "clear that the measure has sufficient support in Parliament".

But it couldn't find evidence for that support. It scoured newspapers and press releases and determined that Greens were opposed, the position of the new senators was "unclear" and there was "no reliable source indicating Labor's position on this matter since the election".

Then, unintentionally, Labor supplied it. In a press release headed "SloMo on the income tax cuts" on September 1, two months after the promised cuts, Labor's Chris Bowen and Andrew Leigh berated the Treasurer for being unable to prevail over the Tax Commissioner.

It included the words: "Labor immediately gave bipartisan support to these income tax cuts". Morrison's office immediately forwarded it to the Tax Office and asked for it to approve the new schedule straight away. If it could "let us know if possible by 2pm question time that would be great".

Some in the Tax Office weren't convinced. "There is no explicit statement of support here," complained one official. But in the middle of question time on September 1, deputy commissioner Matthew Bambrick relented, writing that he was satisfied the legislation would pass and that he would issue the new schedules.

The tax cut, for Australians earning between $80,000 and $87,000 would be delivered on October 1. Employers would be given four weeks to update their software. The commissioner had been worn down.

In The Age and Sydney Morning Herald

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Tax cuts next month. Commissioner buckles

Taxpayers earning more than $80,000 are set to get their promised tax cuts from October, but only after a backdown by the bureaucracy.

After the $6 per week tax cut was announced in the May budget, Tax Commissioner Chris Jordan defied Prime Minister Malcolm Turnbull who said it would be implemented "administratively" because the Parliament wouldn't be able to sit before it was due to start on July 1.

Mr Jordan told the Treasury and Finance departments that he wanted "the relevant legislation to be passed before the change will be incorporated into the income tax withholding schedules".

This meant that although high earners might eventually get a refund of up to $6 per week, tax would be deducted from their pay packets at the old rate until the legislation had been approved by both houses of Parliament.

The Australian Tax Office backed up its stance in an email to journalists which said it amended deductions once each year in June and only in accordance with "enacted law".

"If the personal income tax cut measure is legislated by the incoming government, the ATO will at that time consider the administrative approaches available to implement the new individual income tax rates that apply," the email said.

That remained the ATO position until Friday, when newspaper reports warned that high earners might have to wait until the end of the financial year to get the tax cuts promised from July 1.

Within hours Treasurer Scott Morrison announced that they would get them from October 1. Although the legislation hadn't been passed, it been introduced into the lower house, and that was good enough for the ATO.

Asked why it had backed down, the ATO said though a spokeswoman it had made a political judgement. 

Public statements provided "confidence that it is likely Parliament will pass the amendments". The new deduction schedule would be registered on Friday.

Asked whether the ATO had ever previously changed an income tax deduction schedule ahead of a change in the law, the spokeswoman said she would check.

In 2013 the ATO told Fairfax Media it could "only take dollars from people and give dollars to people if there is legislation in place for us to do it". 

For other kinds of tax the ATO does have the authority to change schedules ahead of legislation, a latitude that has at times caused problems.

In 2008 the it boosted the rate of tax on luxury cars after an announcement by the treasurer. When the increase was voted down it faced the prospect of handing the tax back to buyers and had to negotiate a compromise.

In 2009 it boosted the rate of tax on so-called alcopops by 70 per cent only to see that legislation voted down, raising the prospect of a refund to distillers. Again, it negotiated a compromise.

In The Age and Sydney Morning Herald

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Revealed. The 56 Australian millionaires who pay no tax:

Paying tax has become optional for 56 of Australia's highest earners.

Newly-released tax statistics show each of the 56 paid next to no income tax in 2013–14, not even the Medicare Levy, even though each earned more than $1 million.

But escaping tax cost the millionaires dearly. The same document shows 27 of the 56 claimed a combined $46.7 million for the "cost of managing tax affairs", around $1.7 million each.

The Tax Office says "cost of managing tax affairs" includes the cost of preparing and lodging tax returns, the fees paid to recognised tax advisors, the cost of court appeals and interest charges imposed in relation to tax disputes.

Combined, the 56 earned $128.6 million, around $2.3 million each.

The claims for the cost of managing tax affairs are so big in relation to their reported incomes as to raise suspicions that at least some had access to extra income they did not report.

Each of the 56 managed to drive their taxable incomes down below the $18,200 tax-free threshold. Fifty-one managed to drive their taxable incomes down below $6000. Forty-three reported taxable incomes of zero. Eight reported combined losses of $19.3 million.

Fifteen claimed a combined $21 million for gifts or donations to charities and political parties, equating to $1.4 million each. Three claimed deductions for uniforms or clothing, amounting to $150 each. Seven claimed deductions for interest payments, amounting to a combined $4 million.

Nine had been unsuccessful farmers, carrying forward previous losses of $6 million. Four had been unsuccessful in other businesses, bringing forward previous losses of $18.1 million. Seventeen had sold assets at a loss, carrying forward capital losses of $28.2 million. Five negatively geared, losing between them $240,000 in rent.

All but two paid no income tax at all. One paid $3603, the other was asked to pay just $4...

>Millionaires weren't the only high-income Australians who managed to bring their taxable incomes down below the tax-free threshold. Another 117 high earners taking home between $500,000 and $1 million managed to drive their taxable incomes below the $18,200 tax-free threshold, paying no tax. They paid a combined $15 million to manage their tax affairs.

Another 2305 Australians earning between $100,000 and $500,000 succeeded in bringing their taxable incomes below the tax-free threshold in order to pay no tax. Between them they made $420 million. After deductions they lost a combined $38.2 million. They spent $47.9 million managing their tax affairs and lost $16.2 million negatively gearing.

A Tax Office spokesman said there were legitimate reasons wealthy taxpayers might escape paying tax in any particular year. Nevertheless wealthy taxpayers that do not pay tax were more likely to attract the attention of the Office and be subject to further scrutiny to ensure they are complying with their obligations.

"It is the Tax Office's role to safeguard Australia's tax and superannuation systems and ensure a level playing field," he said. "A key part of this is working closely with individuals we have identified as being wealthy (controlling assets between $5 million -$30 million) or highly wealthy (controlling more than $30 million)."

The figures show 1.26 million Australians negatively geared during 2013–14, around 1 in every 10 taxpayers. A further 777,000 rented properties for profit. The negative gearers lost $11 billion between them, far more than the $7.2 billion made by landlords who rented for profit.

The average wage or salary income in 2013-14 was $56,690. The highest taxable incomes, averaging $200,015, were found in the Sydney postcode of 2027, which takes in Darling Point, Edgecliff, Rushcutters Bay and Point Piper in the Prime Minister's electorate of Wentworth. The second-highest average taxable incomes of $167,407 were in the Melbourne postcode of 3142, which takes in Hawksburn and Toorak.

In The Age and Sydney Morning Herald

 

 

 

 

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