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Tax, sham entities, hundreds of thousands of dollars - where's the ATO?

Last Friday we ran a blog piece entitled The Al Capone approach to law enforcement.

Everyone knows the story, US law enforcement authorities couldn't ping Capone on primary offences, he was locked up on Alcatraz for tax evasion.

That post on Friday has elicited this scholarly work from a specialist in the field of taxation and tax law in Australia.   He has chosen to submit this paper anonymously, but the references within it are available for all to see, as is the very clear logic he has applied.   I'm sure he would be available to authorities if asked to help.

The essence of this paper is that the AWU-WRA was a sham entity.  That being the case, it ought be ignored, it was a conduit for money that was received by Wilson and others.   Here's a quote:

As between, on the one hand, Wilson and any other party involved and benefiting, and the AWU WRA the arrangements in my opinion are clearly a sham.

It was never intended by those behind it that the Association would engage in activities for which it was registered.

Let me know what you think of the paper, which was written for you and this blog by a master in the field.   It should have a few sets of feet shaking in boots and well crafted shoes today.

The AWU Workplace Reform Association - a sham 

I do not believe there can be much dispute about the following statements.

1The AWU WRA provided personal benefits to Wison and others.

2. It was never conducted in accordance with its governing rules. In fact it never had the member numbers required and should not have been incorporated to start with for this and other reasons.

3. It invoiced Theiss for non-existent services.

4. It was acknowledged by Gillard as being "something" other than what it purported to be.   She said it was a "slush fund".  As it turned out it was, but not for the purpose of promoting workplace reform and Health and Safety or election-candidates.

5. The Association was necessary in order for Theiss to be able to make payments to an organisation that had AWU in the title, no other reason. The Dawesville Cut agreement provided an apparent basis for the payment for anyone at Theiss (or auditors) who cared to look. This does not imply that Theiss were a party to the deception. It only looks to the true relationship between Wilson and the AWU WRA.

6. It was never intended by those involved to be anything other than a vehicle to enable Wilson (and perhaps others) to extract money from Theiss to be used for their personal benefit.   It was never intended to be used to provide actual services (and this would, in any event, have been contrary to its governing legislation).   

It was never intended to carry out its stated objects.

No attempt was ever made to follow the procedures stipulated for its operation.

I am concerned here only with the relationship between Wilson and the AWU WRA.

In  Snook  v London and West Riding Investments Ltd (1967) 2 QB 786 (at p 802) Diplock L J provided the following description of a Sham transaction.

“As regards the contention of the plaintiff that the transactions between himself, Auto-Finance Ltd and the defendants were a "sham", it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the "sham" which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. One thing I think, however, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co v Maclure; Stoneleigh Finance Ltd v Phillips), that for acts or documents to be a "sham", with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a "shammer" affect the rights of a party whom he deceived.

There is an express finding in this case that the defendants were not parties to the alleged "sham".

The arrangement between Snook and Auto-Finance to disguise a Loan as a H/P transaction could not affect the actual provider of the funds who was not aware of these facts.

However it would be relevant if any issue were to arise between Snook and Auto- Finance.

In Scott v FCT (no 2) (1966) 40 ALJR 265 ( at p279) Windeyer J in discussing the operation of a Superannuation Fund said:

“ If the scheme, including the deed, was intended to be a mere facade behind which activities might be carried on which were not to be really directed to the stated purposes but to other ends the words of the deed should be disregarded... A disguise is a real thing: it may be an elaborate and carefully prepared thing; but it is nevertheless a disguise.....did the parties who entered into the ostensible transaction mean it to be in truth their transaction, or did they mean it to be, and in fact use it as, merely a disguise, a facade, a sham, a false front... concealing their real transaction”

A Superannuation Fund was held not to be in existence in this case because the parties to the deed did not intend it to take effect and operate according to its tenor ; that a fund should be set up subject to the trusts of the deed  and that the trustee should be bound to carry out those trusts.

As between, on the one hand, Wilson and any other party involved and benefiting, and the AWU WRA the arrangements in my opinion are clearly a sham.

It was never intended by those behind it that the Association would engage in activities for which it was registered.

It was never intended that it would actually provide services on the Dawesville project for which a legitimate claim for payment could be made.

It was intended to provide a name as a payee and a bank account as a conduit for the intended recipients.

Although this is not essential to these conclusions, in the absence of any other explanation those behind it were receiving these funds as consideration for ensuring industrial peace on the project.

The funds devolving on Wilson for his benefit clearly represent his income.

The AWU WRA was a mere facade which was never intended to operate according to its tenor. Its role was to act as a mere conduit to receive payment for something other than the non existent services for which it invoiced Theiss.

In relation to the monies received from Theiss it (that is the Association) should for tax purposes be ignored.

There is no time limit for the Tax Office to issue amended assessments where fraud is involved.

Further Wilson would carry the onus of proving that any assessment was excessive.

Even if the argument of sham were rejected the moneys paid to or for the benefit of Wilson would represent a dividend (either under the definition of dividend in S6 of the 1936 Act or under s108 of the same enactment in conjunction with s44) and this in itself would support any assessment raised against him in relation to these amounts.

I’ll wager a sheep station that the funds involved here have never found their way into the tax returns of any entity or individual.

In the case of Wilson at least they should have.

As a final comment the so called living away from home allowance paid by the AWU to Wilson should not have been subject to the LAFHA concessions (he had a house in Melbourne he was living in) and the so called redundancy payments to Wilson and others should not have been subject to concessional tax treatment ( there were no redundancies, just dismissals). 

 - ENDS - 

Original signed by our friend learned in accountancy, taxation and law.