The Federal budget will also provide over $146 million in funding for the Australian Taxation Office to address fraudulent tax refund claims, monitor inaccurate grant payments and introduce a new measure that will see certain businesses forced to report payments to contractors.

These initiatives are estimated to provide the Government with a further $900 million in revenue over the next four years.

“What we want is a tax system that reinforces respect for government tax collection by not only being responsive to taxpayer needs, but by displaying effectiveness,” Assistant Treasurer Bill Shorten said in a statement.

Phoenix arrangements crackdown

The Government has bolstered current laws regulating phoenix activity, which occurs when companies avoid paying debts and charges – including taxes – by transferring assets from a collapsed business into a new one. The new business is operated or controlled by the same person or persons.

The new laws will see an expansion of the director penalty regime, which will now make directors personally liable for failing to pay superannuation to employees.

The ATO will also be awarded the authority to start recovery processes against directors under the penalty regime without the need for a 21-day grace period for liabilities left unreported for three months after they are due.

Moreover, in some circumstances directors and their associates will be stopped from obtaining credits for withheld amounts in their tax refunds if their company hasn’t paid enough to the ATO.

Fraudulent refund detection

The Government will provide $56.4 million over the next four years to crack down on fraudulent tax refund claims, with Shorten warning there is evidence the system is being abused by some who are claiming too much.

The money will be provided so the ATO can crackdown on over-reporting of tax losses before the actual refunds are issued, while funds will also be used for more business education and enforcement activities.

“Refund fraud is a compliance risk with the potential to undermine community confidence in the integrity of the tax system,” Shorten said.

Government grant and payments fraud

The Government believes some recipients of grants and other payments may not be aware of their tax obligations. Therefore $43.3 million is being handed to the ATO in order to clamp down on accurate reporting of grant payments.

While many Government grants provide full assistance to recipients, many are in the form of loans and need to be repaid over a certain period of time, depending on how much the original funding was.

Shorten says the ATO will continue with its data-matching practices to examine compliance activity.

“It is important that the recipients of Government grants and payments properly account for these payments,” Shorten says.

Taxable payments fraud

New money for taxable payments fraud is split into two parts, with the changes mainly aimed at contractors.

Shorten warns there appears to be some contractors either unaware of their tax obligations, or deliberately under-reporting them. As a result, certain businesses in the building and construction industries must report to the ATO annually on payments made to contractors, along with their ABN.

Just over $46 million will be provided to the ATO for this over the next four years, while some of the money will be used “to provide further assistance and education to industry”.

This requirement will come into effect from July 1, 2012, but Shorten says businesses will only generally be required to report information they already have anyway.

“The reporting regime will allow data-matching to provide information for review, targeted audits or further assistance and education,” Shorten says.

Public consultation will be underway during 2011-12 to investigate a reporting scheme made for contractors in the commercial cleaning sector.

Smart company article

The $400 million-plus project has been ramped up by 24 per cent in the number of audits, the Australian Financial Review reports.

Established in 2006, the cross-agency taskforce was designed to uncover people promoting or participating in the use of secret overseas tax havens.

The new probe is aimed at people who failed to come forward after an amnesty that ended in June last year.

“It’s a very significant ramping up of inquiries of people either transacting with high-risk haven areas or who have been involved in schemes,” the head of the ATO’s serious non-compliance area, Michael Cranston, told AFR.

The ATO says Operation Wickenby has raised more than $1 billion from rich tax cheats.

AFR said today that while Wickenby has issued $1 billion in assessments to date, $500 million is under dispute and $250 million is in money stashed offshore and doubtful of being remunerated.

Among Wickenby’s high-profile cases, music promoter Glenn Wheatley, who managed John Farnham and Delta Goodrem, was jailed for 15 months in 2007 after the ATO successfully convicted him for failing to declare income from a Farnham concert and a boxing match he promoted.

Actor Paul Hogan was also targeted before the ATO dropped its investigation into the Crocodile Dundee star, who has vowed to sue the federal government for losses.

Hogan has since lost a court challenge to reverse a decision allowing the ATO access to confidential documents seized during an investigation.

Smh article

The ATO have flagged a review of employer obligations of up to 5000 businesses particularly involving fringe benefits tax. A similar review last year reaped the ATO an extra $717 million.

The ATO can assess employer obligations such as FBT, PAYG withholding and superannuation guarantees for a much broader period than for most other taxes.

Fringe benefits tax can be assessed retrospectively for up to 6 years. Superannuation guarantee can be assessed for an even longer period.

The cause of underpayments could often be traced back to incorrect positions taken under the tax law, a lack of substantiation, or poor record-keeping.

Article excerpts from news.com.au

Not for Albert Edwards, the best known bear in the City of London. He has seen nothing to dent his Ice Age thesis – the term he coined as early as 1996 to describe the relative decline of equities versus bonds.

He thinks there may still be another Japanese-style ”lost decade” to endure. ”Big structural bear markets take 19 years on average and have four recessions,” he says. ”We’ve had two.”

Edwards is thus sticking to two eye-catching predictions. Sharemarkets will revisit their March 2009 lows. And, despite the hints in recent months of a return of inflation, gilt yields will fall below 2 per cent (from 3.5 per cent today) as deflationary forces reassert themselves. And for good measure, prepare for a hard landing in China and the crash in commodity prices.

Ridiculous? Well, remember that Edwards’s Ice Age call in 1996 has proved to be a winner: even if you include the sharemarket’s dotcom bubble years at the end of the 1990s, equities are still a long way behind bonds since 1996.

Remember that Edwards’s forecasts were rubbished at the time.

His dismissing of the supposed Asian Miracle in the mid-1990s as ”Noddynomics” was resented – until the Asian currency crisis of 1998. To Edwards’s amusement, correspondents to his employer were still trying to get him sacked in 2000. ”Send this old, sclerotic and dangerous man into pension or … take him to prison,” said one. ”He’s obviously ill and not qualified to be chief strategist of Dresdner Kleinwort. I hope his prophecy will destroy his career for the next thousand years.”

In fact, the Ice Age prophecy has been the making of his career. He started out in the Bank of England’s economics department, spent three years in fund management and then had a 19-year stint at Dresdner Kleinwort until 2007. He and his colleagues (at the French bank Societe Generale) have been the top-rated analysts in the ”global strategy” category for seven years, despite being too quick out of the blocks with some predictions.

At times, though, during the great banking bust, Edwards’s views have come close to becoming consensus wisdom. The same cannot be said about his view on China.

”The biggest risk to market valuations and to sentiment generally is a China hard landing,” he says. ”China is a much more potentially volatile economy than people think. The Chinese situation is the one that could come out of nowhere because people are not considering it as a serious possibility.”

But hasn’t China been gloriously unaffected by the turmoil in the West, producing growth of 10 per cent or so with little difficulty? Edwards’s argument is that ”when you have a good crisis, success can become a curse”. Japan sailed through the 1987 crash. Similarly, the US economy escaped with a shallow recession after the bursting of the dotcom bubble; house prices started to rise as the authorities declared a period of stable inflation and ”great moderation” to be under way.

”Then what happens is that the housing and credit bubble goes out of control,” argues Edwards. ”You tap your foot on the brakes and the whole thing starts crashing and you can’t control it on the downside,” he says. ”China is exactly the same. It had a very good crisis in 2007, opened the credit floodgates, got a house price bubble going, and they’re now trying to tap their foot on the brakes.”

In Edwards’s view, China is a ”freak economy”; its investment-to-GDP ratio is off the scale in terms of size and endurance. ”In development history, Korea is the only one that got close. It then collapsed. China is basing a growth model on the most unstable part of GDP. The Chinese authorities have recognised this and are trying to steer the economy over to consumption – which is fine, but it will take a long time.”

The danger is that China has produced such strong growth for such a long time that investors assume the process will last indefinitely.

”There is too much confidence in the lack of volatility. If you get a zero or a small minus for Chinese GDP, in the great scheme of long-term development it’s not a great problem. But it’s a bit like investing in Nasdaq stocks in 2000 – there would be a big adjustment in price. There is an investment edifice built on the idea that China is the new growth engine of the world.”

He points to the OECD’s leading indicator of economic activity, which measures factors such as electricity production, freight activity and money supply. In China, it is slowing rapidly, even though commodity prices are as elevated as they were in early 2008 (prices then plunged). Something has to give – and probably sooner than most people assume. The degree of ”pushback” from clients to his view on China reminds him of the resistance to his bearish calls on the dotcom and east Asian bubbles.

Closer to home, the Ice Age thesis suggests disappointments for the economy are inevitable. Edwards points to Japan, which enjoyed occasional rallies in share prices without conquering its long decline.

The lesson is that ”to avoid recession you need to stimulate all the way through the deleveraging phase”. That makes Austerity Britain more vulnerable to recession than the US.

The middle classes have been ”totally shafted” by a house-price bubble that created the illusion of prosperity. ”In the US, one in eight are on food stamps. Japan was a cohesive society that shared its pain collectively. That is not how it stacks up in the US, UK, Spain, Greece etc. You have a much more fractious environment to have a lost decade in. The ructions for society will be far worse.”

So Edwards’s answer to the question that obsesses investors at the moment – are we past the worst? – is a resounding no. Or, as his final research piece of 2010 put it: ”I’ve been doing this job long enough to recognise when the markets are entering a new phase of madness that leaves me scratching my head with bemusement.

”The notion that we are back in a sustainable economic recovery is as ludicrous as it was in 2005-07. But investors are back on the dance floor, waltzing their way towards the next, inevitable implosion, [which] yet again they will no doubt claim in retrospect was totally unpredictable!”

As emails go, it was a cracker. And with thousands of tax refunds still being processed, surely it was true?

“After calculations of your fiscal activity we have determined that you are eligible to receive a tax refund. See your refund status by downloading attachment.”

Clicking on the attachment, the reader was taken to a website closely resembling that of the Australian Taxation Office.

They just had to fill in a few personal details, and all would be fine.

But a Perth real estate agent found out recently, almost to her cost, that some things are too good to be true.

“I thought it was strange, we’ve got an accountant and never had anything like that before,” she said.

“I was thinking in the back of my mind, it’s a bit different from normal. But it was very realistic and another of the girls in the office also got the same email.”

Right she was. Thankfully the fraud section of her bank was on the alert and called to tell her there had been suspicious activity on her account.

“Someone was using it to try and do some gambling on a UK website,” the victim said.

The transaction – for “not a huge amount” – was cancelled.

The victim was mystified as to how the scammers got her credit card details – they were caught when asked to enter the three-digit security code on the back of the card – given that she had “only” given them her bank details.

The link she was sent actually redirects the user to a Spanish website with an extremely strong likeness to the official ATO site.

It is the latest in a string of hoax emails claiming to be from the ATO.

A Tax Office spokesman said refunds were unable to be processed online and the ATO would never ask for details such as a Tax File Number, date of birth, passwords, or credit card details.

Anyone who has given out their TFN to a scam site should contact the ATO, as the information could lead to a wide variety of identity thefts, the spokesman said.

If you are unsure whether an email is legitimate, you can check the ATO website www.ato.gov.au/onlinesecurity for examples of SMS and email activities, or call on 13 28 61.

The Victorian Supreme Court yesterday heard that Mr Hoy, who is now bankrupt and on bail, would plead guilty late next week to as many as 47 charges.

Mr Hoy, 68, had previously told the court he would plead not guilty to 204 charges, including 178 charges of obtaining financial advantage by deception and charges of dishonestly using his position in a company. His trial is expected to start early next year.
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The businessman’s decision to enter guilty pleas means he will instead face a pre-sentence hearing on December 9, when the pleas will be formally entered.
Judge Terry Forrest suggested the sentencing hearing would be heard next year in Geelong, the city where he founded his now-failed business empire.

Mr Hoy’s former cohort, Ian Stewart Rau, 48, is already in jail for his role in the collapse of Chartwell, a company that falsely purported to trade in derivatives and other financial instruments but proved to be nothing more than a Ponzi scheme.

Chartwell promised investors it could generate returns of up to 80 per cent through canny investment strategies. The spiel attracted millions of dollars from unsophisticated investors.

As word of Chartwell’s miraculous returns spread, funds poured into its coffers.
But when the company suddenly closed its doors in April 2008, Chartwell’s liquidators were besieged by angry investors seeking repayment of millions of dollars.

It emerged that only a sliver of the funds received had been invested in financial products. The rest was siphoned out Chartwell’s backdoor to meet dividend payouts promised to original investors.

Liquidators calculate Chartwell creditors lost $71 million. In a recent report to the Australian Securities and Investments Commission, they said there was no prospect of creditors getting anything back.

After courtroom examinations by the liquidators, in which Mr Hoy compared himself to King Canute and Rau declared he was merely a ”bunny” acting on

Mr Hoy’s directions, criminal charges were laid against the pair in August 2009.

Earlier this year Rau pleaded guilty to five breaches of the Corporations Act and obtaining property by deception.

In August, Justice Forrest sentenced Rau to two years and seven months in jail and ordered that he serve a minimum term of 18 months. In his sentencing comments, Justice Forrest described Rau’s actions as ”disgraceful”.
Chartwell’s liquidator clawed back $180,000 from two Chartwell investors who, in the weeks before the company collapsed, had demanded and received a refund.

A third investor was asked to repay more than $286,000, but the liquidators were unable to proceed after discovering that the entity which received the funds now has no assets.
Smh article

Mr Patrick pleaded guilty in the Melbourne Magistrate Court to one charge of carrying on a financial services business without holding an Australian financial services (AFS) license and three charges of managing a corporation while disqualified.

ASIC found that between 1 August 2003 and 31 December 2006 Mr Patrick induced approximately 40 investors to invest in 3 property development schemes. E.K.B Properties raised approximately $4 million, Sandgrove Specialised Securities Ltd raised approximately $1.5 million and Cardinia Specialised Securities Ltd raised approximately $1 million.

None of the investors have been repaid.

The Commonwealth Director Public Prosecutions prosecuted the matter.

Background

In February 2007, following an ASIC application, the Federal Court appointed Simon Wallace-Smith and Timothy Bryce Norman of Deloitte as liquidators the entities controlled and/or managed by Mr Patrick and Mr Karl Heinz Veljkovic, of Beaconsfield, Victoria, , E.K.B Properties Pty Ltd, Sandgrove Specialised Securities Ltd and Cardinia Specialised Securities Ltd (refer MR07-29).

Mr Veljkovic and Mr Patrick also consented to Federal Court orders banning them from: carrying on a financial services business; parting with any funds that have come into his possession by issuing, selling or offering a financial product; and
managing corporations for a period of 20 years.

As is well known, one of the main functions of the Act is to provide
Contractors with a fast-track means to obtain payment, via an adjudication
process, with the aim of protecting the contractor’s cash-flow.

The Building and Construction Industry Security of Payment Amendment Act 2010
(Amendment Act) will extend the reach and potency of this regime in favour
of Subcontractors.

Under the Contractors Debt Act 1997, where a “middle” Contractor has failed to pay
its Subcontractor, the Subcontractor may serve a “debt certificate” on the
Principal Contractor, obliging the Principal Contractor to pay the Subcontractor
directly (out of money that would otherwise have been paid by the Principal
Contractor to the defaulting Contractor).

A debt certificate may be obtained by a Subcontractor following receipt of a court
judgment in its favour in relation to the debt, or where an adjudication
certificate received under the Act has been filed in court as a judgment for a
debt.

Now, as a result of the Amendment Act, a Subcontractor may, as part of an
adjudication against a Contractor, require a Principal Contractor to withhold
money owed by it to the Contractor.

The new section 26A of the Act provides that where a Subcontractor has
served an adjudication application on a Contractor under the Act, the
Subcontractor may also serve a “payment withholding request” on the
Principal Contractor, requiring it to withhold payment from the Contractor
sufficient to cover the Subcontractor’s claim.

If the Principal Contractor fails to comply with this request, he will become
jointly and severally liable with the Contractor for the amount owed to the
Subcontractor.

The purpose of this new mechanism is to enable Subcontractors to secure
payments owed to them by a defaulting Contractor. However, the obvious
concern for Contractors is that Subcontractors may use this new entitlement
as a means of imposing greater commercial pressure on Contractors with
respect to forcing settlement of claims.

Under the “old” regime, where a Subcontractor included spurious claims in
an adjudication application, a Contractor might choose to contest those claims
as part of the adjudication process. Now however, the Contractor faces a
scenario where potentially large amounts of its cash-flow are frozen throughout
the adjudication process, irrespective of whether the amounts relate to bona fide
Subcontractor claims or are purely spurious.

Even where the Contractor is ultimately successful in the adjudication process,
it appears the money may remain frozen for 20 or more business days following
the adjudicator’s determination (refer to section 26B(3) of the Act as amended).

Needless to say, this is a significant period of time to do without payment for a
Contractor that may not have substantial cash reserves to cover the shortfall.

The amendments are also of concern from a Principal Contractor point of
view. As mentioned above, a Principal Contractor may become jointly and
severally liable, with the Contractor, to the Subcontractor for the amount
claimed.

Clearly, Principal Contractors must ensure their administrative and
accounts functions are operating efficiently in order to avoid this situation.
More importantly however, Principal Contractors must be concerned that
Subcontractors will now have the ability to potentially impose severe cashflow
pressure on important Contractors, perhaps to the detriment of the
project.

The Amendment Act received assent on 29 November 2010 but had not yet
commenced as at the date of this update. However, the amendments will
apply retrospectively and thus may impact upon adjudication applications
served before commencement of the amendments.

Analysis by Colin Biggers & Paisley

ASIC also announced that it will commence legal proceedings against parties, including Commonwealth Bank of Australia Limited (CBA), Bank of Queensland Limited (BoQ) and Macquarie Bank Limited (MBL) seeking compensation for investors arising out of the collapse of Storm. The compensation proceedings will not be filed immediately, in order to allow a short further period (no more than three weeks) for the commercial resolution discussions to continue.

ASIC’s Chairman, Tony D’Aloisio, said, ‘We have not, to date, been able to reach an acceptable commercial resolution with key parties on compensation which ASIC was prepared to recommend to investors. In the circumstances, it was not possible for ASIC to continue to defer the decision to commence legal proceedings. However, ASIC remains of the view that a commercial resolution is the preferable course.’

He went on to say, ‘The compensation actions we have decided to bring are complex, but we consider that it is in the public interest for ASIC to assist retail investors by bringing these actions. In addition to seeking compensation for investors, ASIC is pursuing regulatory outcomes in relation to those who implemented the Storm Model.’

Civil penalty proceedings against the Cassimatises

ASIC will allege that the Cassimatises breached their duty as directors by causing and permitting Storm to be exposed to legal liability arising from the implementation of a financial services business model (Storm Model) which involved providing commoditised financial advice to investors that failed to take into account the personal circumstances of individual investors.

The relief to be sought by ASIC will include orders that the Cassimatises each pay substantial pecuniary penalties which can be imposed in respect to each breach of duty, and that they be disqualified from managing corporations and be restrained from providing financial services.

Compensation proceedings against BoQ, Senrac and MBL

ASIC has decided that it will commence proceedings against BoQ, the owner and franchisee of the BoQ’s North Ward branch (Senrac Pty Limited (Senrac)) and MBL. The proceedings are proposed to be brought by ASIC in its own name and on behalf of two former Storm investors. ASIC will allege primary causes of action against BoQ and MBL based on:

• breach of contract (breach of Banking Codes of Practice);
• contravention of the statutory prohibitions against unconscionable conduct; and
• liability as linked credit providers of Storm under section 73 of the Trade Practices Act 1974.

The case against Senrac is based on its involvement in BoQ’s alleged contraventions.

ASIC will seek relief which includes declarations of unconscionable conduct, statutory and common law damages and compensation orders, and orders setting aside various loan transactions and securities.

Proceedings against CBA, BoQ and MBL – unregistered managed investment scheme

ASIC will allege that the conduct of the Storm Model amounted to the operation of a managed investment scheme that was required to be registered under the Corporations Act and was not registered. It will be alleged that CBA, BoQ and MBL participated in the operation of that scheme.

ASIC proposes to adopt a staged approach to proceedings in relation to the alleged scheme. ASIC will initially seek relief including declarations as to the existence of the scheme and the parties who participated in its operation.

If successful, ASIC will thereafter seek orders for the payment of compensation to investors to place them in the position that they would have been in now had they not invested in the Storm scheme (the ‘no transaction’ case for compensation).

Timing of ASIC proceedings and future of confidential commercial resolution

As the Commission decisions have been made to commence proceedings, ASIC will now move to complete the processes leading to filing and service of the legal proceedings. However, the proceedings will not be filed immediately to allow a short further period to test whether the commercial resolution discussions can achieve an acceptable outcome.

Mr D’Aloisio went on to say, ‘The commercial resolution discussions have been conducted in good faith by all participants in those discussions. Given the age and financial means of many investors involved in the Storm Model, a speedy commercial resolution should be what ASIC and all involved should continue to seek to achieve’.

Other proceedings against other parties

ASIC’s enquiries with respect to whether parties other than BoQ, CBA and MBL also participated in the operation of any unregistered managed investment schemes continues, as does ASIC’s work in connection with other investigations into the collapse of Storm, preparation of further potential legal proceedings and possible administrative action against former Storm advisers.

According to the Australian Taxation Office almost 400 people were convicted of tax avoidance or fraud during the three months to September 30, a 10 per cent increase on the previous quarter.

17 of the most serious offences resulted in custodial sentences ranging from 8 months to over 7 years.

The latest convictions also included offences under the ATO’s Project Wickenby investigation into offshore financial arrangements.

Prosecutions from this project resulted in a 2 1/2-year jail sentence for a NSW man and a two-year sentence for a woman.

The ATO set up Project Wickenby five years ago to target tax fraud, including money laundering and offshore tax havens.

Recent high-profile Wickenby targets include Australian actors Paul Hogan and John Cornell.

The ATO take tax evasion, fraud and intentional non-compliance very seriously, and these cases are a reminder that the ATO is watching and working with other government agencies to enforce the law.

The ATO expects to cross-reference, or data-match, more than 500 million financial transactions this year as part of its normal audit program. This involves cross-referencing information included in tax returns with transactions from financial institutions, government organisations and other third-party bodies.

Examples of ATO wins:

AN illegal tobacco grower was found in possession of cut tobacco for potential sale — the tobacco industry is heavily regulated and taxed.

A WOMAN who operated a clothing business failed to declare up to $3 million in cash receipts and was sentenced to 6 1/2 years jail.

AN American man illegally living and working in Australia was sentenced to 8 months’ jail for failing to report his income.

A MAN acting as a tax agent was convicted and fined $20,000 for demanding and receiving a fee while not a registered agent.

A MAN who lodged 180 false business activity statements and received more than $9.4 million in ATO refunds was sentenced to 7 1/2 years’ jail.