Early engagement with Revenue Offices – how it can save you money

DATE PUBLISHED: June 19, 2024

key takeaways

Undertaking a review of past compliance for state/territory or federal taxes can provide savings opportunities and reduce risk. If you are looking to buy or sell a business or shares in a company, it can also offer potential purchase price benefits.
It can also provide future savings where potential benefits (including exemptions, concessions and exclusions) are not being applied or sought.

Taxes are an Ongoing risk for taxpayers

Revenue offices are not always limited to going back 5 years for investigations, reviews and audits and amended assessments. There is a risk that this period could be longer, due to the statutory limitation periods not applying to default assessments, or some matters not limited by time.

Any past or ongoing non-compliance puts a taxpayer at risk for penalties being applied at the highest rate in addition to interest being charged on the unpaid primary tax.

Taking steps to review past transactions, group structures and current tax liabilities can provide you with some savings on those transactions and potentially for the future including:

Payroll tax:

If you have been reporting on a grouped basis and circumstances are such that the Commissioner may exercise a discretion to exclude members from the group which reduces the payroll tax liability.
If you have not been reporting taxable wages paid to contractors and make voluntary disclosure of the error, the Commissioner may remit penalties (and possibly interest). Whilst additional tax may be payable with the risk that penalty tax could be imposed at a rate of up to 75% of the primary tax. , the benefits of voluntary disclosure are likely to outweigh the additional payroll tax liability.

Land tax:

If exemptions are available which have not been applied for.
If the foreign surcharge applies but has not been paid, voluntary disclosure can reduce the interest and penalties applied if the Commissioner undertakes an audit or investigation and uncovers the non-compliance.
Objections to the valuations that are used for the calculation of land tax. NOTE: the process for objections to valuations sits outside of the land tax regime and there are strict timeframes for objecting to valuations.

How to achieve savings

Payroll tax reviews:

This includes:

Undertaking a grouping analysis to see if there are any opportunities to exclude members from the group. Where members can be excluded, this provides:

opportunities for multiple thresholds to be applied across multiple groups.
if a retrospective exclusion order is granted – a refund of tax paid on the grouped basis.

Review of contractor arrangements

to determine whether any exemptions are available in respect of contractors – if exemptions can be applied, a refund of tax paid should be available.
to confirm correct treatment of payments to contractors – whilst not an immediate saving, correctly reporting payments to contractors can help avoid the imposition of interest and penalties in addition to any unpaid tax if any non-compliance is uncovered in the future.

Land Tax reviews:

This includes:

a review of the statutory valuation of the property – noting that any objection to valuations must be lodged within 60 days after the date of issue of the valuation (not the date of issue of the land tax assessment);
consideration of any exemptions that may apply in respect of the property and whether any exemptions currently applied by the Revenue Office still apply (or whether notice is required to advise of a change of circumstances);
whether the land tax liability has been properly calculated;
whether any of the land referred to in the assessment notice has been disposed of prior to midnight on 30 June.

Due diligence for share sale transactions

Where you are selling or buying a company an often-overlooked aspect of due diligence is past state tax compliance. This can be for transfer duty/stamp duty, payroll tax and even land tax. Where a seller of shares is a foreigner, consideration should also be given to additional foreign acquirer duty as well as surcharges for land tax.

For sellers – checking to ensure that you have been compliant with state tax requirements can ensure that there are no warranty claims in respect of any past non-compliance. For example, if you have contractors and have not been paying payroll tax on payments to contractors and this is uncovered during an investigation or audit during the warranty period, you are at risk of having amounts clawed back by the buyer.

For buyers – where due diligence includes a review of past state tax obligations, including any grouping risks for the target entity, this can ensure that you are not left holding the state tax baby where warranties may not extend to state taxes or the warranty period has ended.

As mentioned above, there is no limitation period for default assessments. This means that, particularly for acquisitions of shares in companies, there is a risk that an investigation or audit may be triggered after the end of any warranty period.

Risks and benefits for liquidator

Where a liquidator takes control of a company, they should undertake a review of the company’s past compliance with its tax obligations. This includes payroll tax as well as any past acquisitions of real property (including to determine whether additional foreign acquirer duty should have been paid) and land tax obligations (including whether the land tax surcharge is payable and has been paid).

Case study – acting for a liquidator

We recently assisted a liquidator to make voluntary disclosure of past, deliberate non-compliance relating to the acquisition of a property for which additional foreign acquirer duty should have been paid as well as the consequential land tax surcharge that should have been paid. Through early engagement and voluntary disclosure, we recently achieved a tax and duty saving of over $300,000 for a liquidator as well as providing certainty for the liquidator that they would not be at risk for failing to ensure that the company had complied with its tax and duty obligations.

Ongoing risks for directors and advisers

Some state and federal tax regimes make directors liable for non-compliance of companies. Additionally, there are provisions in some legislation that trigger penalties being applied to persons where a person, by any wilful act, default or neglect or by any fraud, art or contrivance, avoids or attempts to avoid certain taxes. The penalties can be substantial amounts for the directors, including a possibility of a risk of a liability three times the amount if the tax avoided or attempted to be avoided.

how can mcw help?

Undertaking a review of past transactions, group structures and current tax liabilities can provide you with some instant and ongoing or permanent savings.

McInnes Wilson Lawyers’ Tax and Revenue Team are well placed to assist with all tax matters and reviews including applications for exemptions, concessions and rulings or determinations from a revenue authority.