Tax dodgems a no- go
A RECENT tribunal case ( Criterion Prestige Pty Ltd) highlighted the mischief some people get up to.
In the present case a Doctor Hirst desired to own a Lamborghini motor vehicle with an initial all- inclusive price of $ 461,387.
The problem is the vehicle attracted luxury car tax and GST. So the doctor, with the aid of his accountant, set up a company to conduct a car dealership business avoiding the need to pay the luxury car tax and also being able to claim back the GST on the purchase, thereby saving the good doctor somewhere in the range of $ 110,000.
The purchase occurred sometime in March 2013. The problem for the doctor is the company really didn’t do anything. The vehicle was housed at the doctor’s home, and there didn’t appear to be any real business of buying and selling vehicles.
However, the doctor stated he did take a number of potential purchasers on a test drive, but with him behind the wheel.
All of these potential purchasers were friends and associates and none were brought before the tribunal to give evidence on the doctor’s behalf. In 2013 Calyn, 7, pushed his brother Kya out of the way of a car, saving the four- year- old’s life. In the process Calyn was hit by the car, fracturing his skull and resulting in brain damage. For his heroic actions Calyn received the 2014 Pride of Australia Child of Courage Medal. Additionally, all of the test drives were conducted after the doctor became aware of the ATO’s interest in his scheme.
The doctor also drove the vehicle to two wineries claiming the winery was the venue for a dentists’ conference, and he thought some of the den- tists might be interested in purchasing the car. On the second occasion, the winery was hosting a professional conference which he was attending and to which he wished to display the vehicle.
In September 2013, the doctor became aware of the ATO’s interest in his scheme and soon after the ATO amended his BAS to disallow the GST claim and demand the luxury car tax be paid along with a 50 per cent penalty. The vehicle was eventually sold to another dealer in January 2014.
Unsurprisingly, the doctor was unable to convince the tribunal that he was operating a car dealership.
Therefore, the tribunal disallowed the doctor’s appeal and agreed with the 50 per cent penalty. Surprisingly, the ATO hadn’t imposed a 75 per cent penalty when they originally disallowed the claim. Surprising also is the fact that the doctor and his adviser thought they could set this scheme in place and actually pull it off.
His initial $ 110,000 tax savings turned into a tax bill of more than $ 165,000 plus interest.
I suspect by the time you take into account the cost to set the company up, his agent’s fees and the legal fees in fighting the case, he would have been out of pocket at least equal to what he had additionally saved.
Email your questions to David. Hall@ crowehorwath. com. au
This advice is general in nature, the personal opinion of the writer; readers should seek specialist advice before making decisions.
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