The PainLab

On this issue, it should be remembered that the current tax system is based on a system of self assessment and as a result taxpayers are required to be aware of their obligations under the ITAA. Consequently ignorance or lack of awareness by taxpayers of their obligations is not a valid excuse for non compliance.. An important outcome of the self assessment system is that there is an obligation by all taxpayers to correctly determine their assessable income ( and appropriate deductions) to enable a determination of their taxable income and a correct assessment of the tax which is due . These obligations extend right across the full range of taxes, whether e.g. Luxury Car Tax, Fringe Benefits Tax, GST, Capital Gains Tax or Income Tax.

Offshore Voluntary Disclosure Initiative

In order to encourage taxpayers to make a full disclosure of their offshore activities, the ATO has established an “Offshore Voluntary Disclosure Initiative ( OVDI) to provide taxpayers with an opportunity to make a full disclosure of their offshore income.

”We are going to wait until June 2010 and then all bets are off and the law will apply … we think we’ve given people enough notice of the opportunity to come in and get their affairs cleaned up,” Tax commissioner Michael D’Ascenzo said yesterday”.

The main features of the OVDI are;

1.Where a taxpayer makes a voluntary disclosure of offshore income and the additional taxable income is $ 20000 or less in any tax year there will be no tax shortfall penalty.

2.Where the additional taxable income exceeds $ 20 000 in any tax year the shortfall penalty will be remitted to $10% of the additional tax for the year.

3.The general interest charge will be reduced to nil for the tax years prior to 2003.For 2003 and 2004 the general interest charge will be reduced to the base rate. For 2005 onwards the shortfall interest charge will apply.

4.Where disclosure is made the tax office will indicate to the taxpayer whether there is any breach of criminal law.

From the above it seems there are some positive benefits arising from a taxpayer undertaking appropriate disclosure under the OVDI initiative. However it is important to note that the OVDI should not be taken or seen as a tax amnesty The OVDI is nothing more than an “offer” for taxpayers to come forward and voluntarily disclose any omitted offshore income and or capital gains or over-claimed deductions.

Usually the purpose of a Tax Amnesty would be:

•To raise Tax Awareness;

•To raise Tax Compliance, especially those taxpayers who are non tax compliant;

•To Increase Tax Revenue; and

•To eliminate any penalties, without being criminally prosecuted.

As part of the OVDI initiative the ATO has also sent letters to a number of taxpayers offering them the opportunity to make a voluntary disclosure (and where appropriate, receive a reduction in penalty). This has also been sent to to 17,000 small businesses which the ATO it had identified as working in high-risk industries.

It should be noted that taxpayers seeking to make a disclosure pursuant to the OVDI may still be liable for a criminal prosecution.Take for example, a taxpayer who makes a voluntary disclosure about his/her offshore income before 30th June 2010 and pays the tax with penalties and interest. In this respect while the taxpayer may have complied with his/her tax obligations it then does not prevent the Commissioner from referring the matter to the Commonwealth Director of Public Prosecutions.

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