ATO Targets Mass-Marketed Tax Schemes
On 4 June 2001, the Federal Court will begin hearing the appeal of four taxpayers against the Commissioner’s rejection of deductions for their investments in the popular Budplan tax scheme. The cases will test the Commissioner’s allegations that the investment into the mass-marketed tax scheme is for the dominant purpose of avoiding tax. To date, there have been over 57,000 participants in mass-marketed tax schemes that have been ordered to repay over $4 billion in deductions. The ATO believes that with a further 40,000 scheme participants an estimated $3.5 billion dollars in deductions have been excessively claimed.
Michael D’Ascenzo, chief tax counsel of the ATO, is confident that the ATO will win its cases before the Federal Court. D’Ascenzo believes that the dominant purpose of entering into many of the mass-marketed tax schemes is avoiding tax because many schemes exhibit outrageous management fees, where deductions claimed for the management fees often far exceed cash contributions by the scheme participants, who specifically borrow most of their investments through non-recourse loans. Under a non-recourse loan arrangement, the participant’s risk is remarkably limited as the debt would not be pursued even if the investment project failed. D’Ascenzo claims that many of the mass-marketed schemes with the above features are designed to artificially create tax deductions or to grossly inflate deductions.