Proceed of Crime - Taxable ?

Discussion in 'Accounting & Tax' started by Paul@PAS, 7th Jan, 2020.

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  1. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Came across a interesting issue several months ago. Facts have been altered for privacy.

    Darth Vader operates a empire from his workplace - The Death Star. He has been taking funds from the coffers of The Empire and the Emperor noticed this after some time and got upset and called in the police. Total sum over two years is $200,000. Darth makes an agreement with the Emperor to repay the funds and a little extra to cover some associated costs. Darth is dismissed. Darth also faces police focus during this process but criminal charges arent pursued. Darth is no longer capable of being employed in his profession and is struck off. And he gets some ATO focus.

    The ATO advise The Emperor Pty Ltd Darths employer that the $200,000 need not have a PAYG summary since its "business income" since Darth stole in a systematic and organised way. And the way he stole was through issue of false company contractor invoices anyway. And no super or withholding obligations arise.

    Darth isnt impressed and is advised by the ATO they propose to amend 2 years of tax returns to include the $100,000 in each year. But he asks - Can I claim a deduction as I repaid it ?


    The receipt of stolen proceeds taken in a systematic way is assessable business income. It was received by a company. However can Darth deduct the repayment or reduce the assessable income for the amount repaid?

    No. The stolen proceeds are company income despite their being an apparent personal services income issue. However the theft of the income is systematic and organised so its business income for the company. There are no personal services provided. It was at best theft. The subsequent repayment was not made by the company. It was agreed to and made by Darth as a outgoing to discharge his criminal potential. So the company is assessed on the income and no reduction is permitted. Darth cannot claim a tax deduction as the outgoing he made wasnt necessarily incurred in producing income. It was a repayment. Darth seeks legal opinion on whether the company has a obligation and this indicates it has no obligations and did not incur any outgoing. Darth acted in a personal capacity and not as Director to give the money back.
     
  2. Westminster

    Westminster Tigress at Tiger Developments Business Member

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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  4. thatbum

    thatbum Well-Known Member

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    Seems like a pretty rough call by the ATO on poor Darthy.
     
  5. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Not unusual for tax law to act as a penalty scheme. Essentially super laws use tax law in many ways to inflict monetary penalties
    - Non complying tax rate
    - Non arms length income rule
    - Excess contributions and caps
    - Complying v non-complying pensions
    This more often harms SMSFs v industry and public funds who tend to work to the letter of the law

    During ATO audits its not unusually for Part IVA, ordinary income rules AND CGT rules to all be applied so that double taxation occurs (and penalties + interest) and then you get to fight it out. The example Terry raises is a further example of two pronged actions. More than one tax rule can apply.

    One of the nastiest ones is a default assessment. ATO can decide what your taxable income might have been. You have 14 days to lodge. If you dont they assess and they add 75% as a penalty. And you cant amend or object.
     
    Last edited: 7th Jan, 2020
  7. Scott No Mates

    Scott No Mates Well-Known Member

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    No, both Darth and his planet was obliterated to make way for a new entry ramp for a glaxial bypass.
     
  8. Hamish Blair

    Hamish Blair Well-Known Member

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    Was he stealing from the Death Star Canteen?
     

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