пятница, 15 ноября 2013 г.

The waiving of a tax debt due to financial hardship

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When the ATO won't waive a tax debt due to financial hardship
Friday, 15th November, 2013, by Ana Cox
In today's Smart Tax Bulletin:
  • Severe financial hardship does not automatically mean a  tax debt waiver
  • The importance of keeping your liabilities under control
Dear Reader,

In today's Smart Tax Bulletin, our Editor-in-Chief, John Kelly, will be taking a look at a recent AAT case involving a taxpayer suffering severe financial hardship. This case highlights the fact that, while the ATO will in some circumstances waive tax debts where financial hardship occurs, this is not by any means a given. 

The ATO and AAT do not just take the level of hardship into account in such cases, but also the taxpayer's financial history and behaviour.

There are various reasons why the ATO may decide not to waive a tax debt due to hardship, but in this instance it was related to the fact that the taxpayer had numerous liabilities other than the tax debt that his income was unable to service.

Regardless of whether such decisions seem fair, it is important to understand that not all financial hardship looks the same to the ATO.

Until next time...
Ana Cox
Ana Cox
Editor
Smart Tax Bulletin
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When liabilities exceed assets: a cautionary tale
By John Kelly

Editor-in-Chief, Smart Tax HandbookIn my recent bulletin on natural disasters, I mentioned that the ATO has the ability to waive a tax debt for individuals suffering serious financial hardship. However as a recent case shows, the ATO  will not automatically waive a debt if an individual is in financial hardship.

The case in question concerned a taxpayer whose tax debt the ATO refused to waive even though he was indeed suffering severe financial hardship. The taxpayer subsequently appealed the decision to the Administrative Appeals Tribunal (AAT) and lost.

In conjunction with his wife, the taxpayer owned a family home and a taxi licence business. Both assets were rented out and the taxpayer also earned income from other activities. His wife had a long-term illness and gradually became more and more dependent on the taxpayer. As a result, the taxpayer was not able to earn as much income from his own activities and was unable to pay a $30,000 tax bill.

The AAT looked at whether the taxpayer satisfied the severe financial hardship test and decided that he did. The taxpayer did not have the means to buy food, clothing or medical supplies for his wife, or to continue to provide accommodation, education and other basic items for his family.

However, the AAT held that the financial hardship was due to the taxpayer's liabilities exceeding his assets, and that the income made from his assets and his income earning activities was not sufficient to meet the outgoings to service those liabilities. The AAT saw that the tax liability was only one of the many liabilities the taxpayer owed, and it could therefore not be said that the taxpayer was under severe financial hardship because of the tax debt. For this reason, the AAT ruled that the tax debt should not be waived.

Whether this ruling is harsh or fair, it is certainly a reminder that suffering serious financial hardship does not automatically mean a tax debt will be forgiven, and that keeping your liabilities under control is your best course of action.

Warm regards,
John Kelly
John Kelly
Editor-in-Chief
Smart Tax Handbook


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