tax schemes under attack

In todays' Aus, could impact on confidence in TIM, OLE, GNS & a swag of others.



THE Howard Government is planning a major strike against tax avoidance, with promoters of contentious investment schemes facing new fines of more than $500,000.

The fresh crackdown against investment schemes designed to rip off the tax system follows growing concern from Treasury about the billions of dollars being lost through mass-marketed schemes.

The new $500,000-plus civil penalties are designed to shut down the promoters and stop the tax-avoidance schemes that have proliferated over the past decade. Cracking down on tax avoidance will also increase the Howard Government's options for taxation reform during the next three years, handing it potential revenue gains that could help fund cuts in personal tax rates.

John Howard and Treasurer Peter Costello are under growing pressure from Coalition MPs to use the Government's Senate majority to overhaul the tax and welfare systems.

The crackdown against promoters - foreshadowed in confidential discussions with tax and industry groups this week - is expected to be unveiled by Revenue Minister Mal Brough within days.

Mass-marketed tax schemes have been a political headache for the Howard Government since the late 1990s.

The schemes involve financial advisers encouraging their clients to invest in highly speculative projects such as olive groves, tea-tree oil or pine plantations on the promise of massive tax deductions and healthy returns.

Promoters have aggressively targeted wealthy professionals such as pilots and contract miners in remote regions looking to minimise their tax obligations. The schemes proliferated in Western Australia during the 1990s, but were also promoted in other Australian states.

The Australian Taxation Office launched a belated crackdown in the late 1990s when the level of deductions being claimed under the dubious investments mushroomed to more than $4 billion. The tax office's bungling of the schemes controversy sparked a Senate inquiry and created substantial political pressure on Coalition MPs before the 2001 election campaign.

The Government has recently brokered another politically contentious settlement between the tax office and the Inspector-General of Taxation involving employee benefit arrangements where deductions worth close to $2 billion were claimed by the participants.

Employee benefits arrangements are superannuation-based schemes that have been used primarily by small businesses through trusts as a vehicle to minimise tax.

New civil penalties for promoters were first raised by the Howard Government three years ago at the height of the mass-marketed schemes controversy, but the proposal did not proceed.

But the schemes issue was revived in the Coalition partyroom during the past two sitting weeks of parliament, with outspoken West Australian backbencher Don Randall taking on Mr Brough in a bruising encounter over the Government's approach to brokering settlements.

And high-profile political newcomer Malcolm Turnbull suggested a crackdown on promoters in his first speech to parliamentary colleagues.

Mr Turnbull suggested that promoters be forced to put warranties on their schemes to ensure taxpayers achieved the benefits promised in the promotional material used to sign them up.

Mr Turnbull's comments were made in the context of how the Government protects the revenue base into the future and can therefore afford to cut income taxes in coming years.

Mr Randall has led a crusade within the Government to get a better deal for taxpayers caught up in the schemes - many of whom live in his West Australian electorate.

Mr Randall's campaign has annoyed some colleagues, who spoke out in the partyroom two weeks ago against his activity.

The Government is keen to ensure the new penalties apply only to the promoters of the schemes - not to tax agents, lawyers or accountants who give routine tax advice to their clients.

It will take advice from industry professionals before proceeding with legislation giving effect to the new penalties.

Mr Brough's new crackdown will go some way to mollifying concerns among Coalition MPs who have had to field hundreds of complaints from taxpayers facing massive tax debts and penalties as a result of the schemes.