SMSF practitioners using the proposed Division 296 tax to meet with clients and provide advice on dealing with the new impost are unlikely to breach Part IVA tax avoidance provisions, but may instead fall foul of the promoter penalty laws, a super legal specialist has warned.
DBA Lawyers special counsel Bryce Figot said the reason the former may not apply, but the latter could, was due to the scope of the laws, how they were applied and the information an accountant or adviser provided to a client.
“[Section 177D of the Income Tax Assessment Act 1936] says Part IVA applies if it would be concluded having regard to certain matters that people entered into a scheme for the purpose of enabling a taxpayer to obtain a tax benefit in connection with the scheme,” Figot said during a webinar today.
“I might add ‘tax benefit’ has a specific definition and it relates generally to income tax.
“It does not relate to the Division 296 tax, so Part IVA for that reason is unlikely to apply.
“However, the promoter penalty regime laws can apply to Division 296.
“For everyone who is an adviser, it’s really that regime that’s going to be particularly relevant.”
He pointed out the promoter penalty laws, which are in section 290-60 of schedule 1 of the Taxation Administration Act 1953, state “an entity must not engage in conduct that results in that or another entity being a promoter of a tax exploitation scheme”.
“You’re not a promoter if you merely provide advice about a scheme,” he added.
“However, if you go beyond advice, if you encourage the growth of a scheme or interest in it, you’re a promoter.
“Additionally, if you or an associate of yours receives consideration in respect of that marketing or encouragement, directly or indirectly, and having regards to everything it’s reasonable you had a substantial role in that marketing or encouragement, you’re a promoter, which does cast quite a wide net.
“When it comes to being a tax scheme promoter, the law casts a wider net than just income tax.
“When it comes to being a promoter, that law is focused on many taxes. In fact, it’s focused on anything which is a pecuniary liability to the commonwealth arising directly under a taxation law, that is, an act of which the commissioner [of taxation] has general administration.
“So the promoter penalty regime could definitely capture you when you are discussing Division 296 once it becomes a law.”
