Tax avoidance is organising your affairs to avoid paying tax. Nothing wrong with that. But if you’re always crapping on about other people paying more tax then it’s not a good look. Step right up, John Kerry.
… the senator had purchased his New Zealand-built, 76-foot floating palace back in March and ported her in Rhode Island, a state which repealed its Boat Sales and Use Tax back in 1993. By doing so, the senator could dodge some $437,500 in Mass. sales taxes and an annual excise bill of around $70,000.
The high-seas tax maneuver was completely legal, but if Kerry had brought the yacht into Massachusetts waters within six months of taking ownership, he could have been liable for a use tax – the equivalent of the sales tax – and excise taxes.
He will now pay the tax.
Sen. John Kerry lowered the flag and surrendered yesterday, agreeing to pony up some $500,000 in state and local taxes in a bid to end the furious tempest over his decision to dock his new $7 million yacht in Rhode Island.
“As we’ve said from the beginning, we have always complied with tax laws and we always will,” the senior senator said in a statement. “We’ve reached out to the Massachusetts Department of Revenue and made clear that, whether owed or not, we intend to pay the equivalent taxes as if the boat’s home port were currently in Massachusetts. That payment is being made promptly.”
While I understand his embarrassment the fact of the matter is that he won’t be compliant with the law – he is paying money to the government that it is not entitled to. If he had wanted to pay money to the government he should have moored his yacht in Massachusetts.
Jamie’s headline for this story:
‘Kerry’s Second Wife’s First Husband’s Trust Fund to Pay Taxes on Luxury Yacht.’
C.L.
29 Jul 10 at 8:24 pm
ouch. LoL.
Sinclair Davidson
29 Jul 10 at 8:25 pm
Ouch indeed.
Peter Patton
29 Jul 10 at 8:30 pm
What is needed is Samuel J’s voluntary tax bill http://catallaxyfiles.com/2010/02/21/voluntary-tax-bill/
Samuel J
29 Jul 10 at 8:32 pm
I don’t mean to be nitpicking, but actually, there is something wrong with tax avoidance – it’s illegal. Quite different from its grey brother, the perfectly legal art of ‘tax minimisation’…
dorinny
29 Jul 10 at 10:41 pm
Tax evasion is illegal. Tax avoidance is perfectly legal.
http://en.wikipedia.org/wiki/Tax_avoidance_and_tax_evasion
C.L.
30 Jul 10 at 12:27 am
The answer is actually somewhere in between. Part IVA of the ITAA 1936, also known as the General Anti-Avoidance Rules, will allow the Commissioner to disregard a scheme that was put in placce for the dominant purpose of gaining a tax benefit. Div 165 of the GSt Act is similar. This doesn’t render tax avoidance ‘illegal’ as such, it just allows the ATO to circumvent it by deeming transactions not to have taken place. It can also deem that day is night, night is day and that Coventry City nnever won the FA Cup.
The targets of such provisions are artificial and contrived schemes that are merely designed to avoid tax. However, if a taxpayer has two choices on how to carry out a normal transaction, he is free to choose the one that is most tax effective for him. So avoidance is OK unless it is too blatant.
Kerry was probably on the right side of the line, but as Dumbocrat he has to be seen to pay tax, because his party is the party of high taxes.
Rococo Liberal
30 Jul 10 at 9:15 am
CL
It’s probably best not to cite Wikipedia on legal matters.
Rococo Liberal
30 Jul 10 at 9:17 am
“Tax avoidance is perfectly legal.”
Not when it’s tax evasion. The Venn diagram would show a small cirsle (evasion) completely within a larger one (avoidance). The distinction exists entirely in whether or not an activity is considered illegal.
FDB
30 Jul 10 at 9:26 am
What Rococo said
dorinny
30 Jul 10 at 12:26 pm
“Div 165 of the GST Act is similar.”
It also used to send me off on a tangent about the “Divine” Mr Carmody.
.
30 Jul 10 at 12:43 pm
RL
I was reading a report the other day that showed tax barristers were the richest lawyers in the UK. Is it the same here in Oz?
Peter Patton
30 Jul 10 at 12:47 pm
PP
Yes
Tax lawyers tend to charge out more than other lawyers. This means they get paid more
Rococo Liberal
30 Jul 10 at 4:06 pm
It’s not a “legal matter”, RL. It’s common parlance and common knowledge. Avoiding tax is perfectly legal. Evading it altogether is not.
And Wiki certainly would have sufficed to steer you away from your recent claim that Queen Elizabeth II rules Australia.
C.L.
30 Jul 10 at 6:28 pm
“Avoiding tax is perfectly legal. Evading it altogether is not.”
Avoidance and evasion mean the same exact thing in common usage. In tax law, avoiding tax is legal only inasmuch as it falls short of evasion as defined by legislation and precedent. Evasion is a subset of avoidance.
Evasion has nothing necessarily to do with how much you avoid – it’s whether you do it legally or not.
FDB
30 Jul 10 at 6:33 pm
In fact I’d go further and say that tax avoidance is not only legal but morally necessary – in the same way as protecting and securing your own property is morally necessary. To do anything else is to listlessly allow, through negligence, government theft and the relentless growth of the state that results. As Sgt. Hartman tells Private Pile in Full Metal Jacket after discovering the unlocked foot-locker, “If it wasn’t for dickheads like you, there wouldn’t be any thievery in this world, would there?”
C.L.
30 Jul 10 at 6:45 pm
Now there’s a change, both CL and FDB are wrong, and both think they can argue with someone who avoids tax for others every day.
CL If I said QEII rules Australia I was incorrect. At law she reigns and is the ultimate font of all power, constitutionally.
Tax is imposed by law, so tax avoidance is a legal issue. Tax avoidance is not the same as tax evasion. Tax evasion is the mere non reporting of income or sales. Tax avoidance is using the law (there’s that pesky word again CL), to pay less than would otherwise be payable. Often such avoidance will not be in breach of the law and is thus propoerly known in the trade as tax minimisation or tax effective structuring.
The tax acts contain many specific anti-avoidance provisions which don’t make ceratin actions illegal, but merely render them ineffective. Then ther is the mystical GAAR provisions which do make certain practices illegal in that the Commissioner can reverse them.
Both the specific and the general anti-avoidance rules are in place because governments have determined that certain acts, transactions or schemes unfairly diminish the revenue in ways that run counter to the policy of the relevant legislation.
Since the GAAR most people in the tax profession would say that once something becomes “avoidance’ it will probably be banned by the ATO/Government. Until such time it is not avoidance but minimisation.
Rococo Liberal
30 Jul 10 at 10:46 pm
I stand corrected.
Learning is fun!
FDB
31 Jul 10 at 9:20 am
RL, don’t be silly. The Queen isn’t the font of any Australian power – as formalised in Commnwealth, State and British parliaments in 1986 with the Australia Act.
You’ve now agreed with me twice that tax avoidance is perfectly legal.
C.L.
31 Jul 10 at 10:07 am
….with someone who avoids tax for others every day.
You’re doing God’s work, RL.
JC
31 Jul 10 at 10:45 am
C.L.,
I suggest you try to correct some of the Menzies House threads. They’d call you a republican traitor, etc….
.
31 Jul 10 at 10:53 am
Tax avoidance is illegal if Part IVA applies. If Part IVA doesn’t apply, then it’s tax minimsation, not avoidance. Clear enough for you CL
The Australia Acts and Statute of Westminster do not reverse the Constitutions of the Cth and the States, you dope, all they say is that the UK Parliament can’t override the Australian Parliaments. QEII is still HoS of the Cth and all the States. The Parliaments of all those entities exist only to advise her and provide Supply for Her Governments.
FOr someone so bright and briliant on most things, you seem to have real difficulties with Constitutional History and law.
Rococo Liberal
31 Jul 10 at 12:44 pm
Let me give you a practical example of the difference bewteen tax avoidance and tax minimisation.
A company has developed a new philanthropic initiative that allows you to save lives in Africa by donating medicine rather than money. By buying in bul they have also allowed donors to pay a 7.5% deposit down and not pay back the balance for 10, 30 or 50 years. The Donor gets the deduction for the full purchase price of the medicine in the year of onation, whilst the cash outlay in that year is very small.
This tax minimisation, because it is clearly available at law. It is not tax avoidance because the tax benefit is not the dominant purpose of the scheme, philanthropy is. If the dominant purpose of the scheme were tax avoidance, then it would become illegal by dint of the fact that the ATO would use its powers to cancel the tax benefit.
Rococo Liberal
31 Jul 10 at 12:52 pm
RL – aren’t we really being a bit pedantic and arguing over definitions? Tax minimisation is what most lay-people would consider avoidance. The GAAR while called ‘avoidance’ is really about schemes to evade tax. Given the difficulty of providing bright line law, the parliament have established some sort of judicial oversight mechanism. (Not that I approve of the GAAR, but that would be the general argument).
Sinclair Davidson
31 Jul 10 at 1:24 pm
Tax minimisation is what most lay-people would consider avoidance.
Right.
The Australia Acts and Statute of Westminster do not reverse the Constitutions of the Cth and the States…
Really? Perhaps you could point to where I said they did. The Australia Acts, inter alia, definitely ended the English monarch’s say in the practical constitutional governance of the states and the Commonwealth. England and its head of state are not, as you incorrectly stated, the “ultimate font” of any power – let alone “all power.”
The Parliaments of all those entities exist only to advise her and provide Supply for Her Governments.
They don’t “advise” her at all and they aren’t her governments.
C.L.
31 Jul 10 at 1:55 pm
RL
This ALL wrong.
QEII is still HoS of the Cth and all the States. The Parliaments of all those entities exist only to advise her and provide Supply for Her Governments.
Peter Patton
31 Jul 10 at 2:30 pm
I think this is a more credible link than wiki:
http://www.ato.gov.au/atp/content.asp?doc=/content/00244038.htm&page=2&H2
I think an easier example to understand the difference is:
Tax Minimisation – a company generates profit of $45,000 before wages and pays a salary package of $15,000 including super to each of its 3 directors, none of which have any other income – effectively, the company and all 3 directors pay zero tax.
Tax Avoidance – a company generates profit of $45,000 and pays a ‘management fee’ of $45,000 to its associated company which is based in Monaco. Monaco is a tax haven and therefore no tax is paid by either entity. This could be deemed a tax scheme by the ATO.
Tax Evasion – a company generates profit of $45,000 but then deliberately fails to report $45,000 of its income, reducing the reported taxable profit to zero.
dorinny
31 Jul 10 at 4:06 pm
So tax “minimisation” is legal tax avoidance.
C.L.
31 Jul 10 at 4:44 pm
PP
How is ‘this’ ALL wrong? The Queen appoints all premiers and PM. The point of parliaments is to carry on the Queen’s government. MPs are the people we choose to advise the Sovereign. This may appear to be mere form, but the Crown is still the heart of our polity.
CL
‘So tax “minimisation” is legal tax avoidance.’
Yes. There is a distinction between ‘illegal’ and ‘criminal.’ Something can be illegal without being criminal (eg torts, breach of contract defamation or tax avoidance). Tax avoidance is usually criminal.
Rococo Liberal
31 Jul 10 at 9:54 pm
CL
You don’t understand the Australia Act at all do you? It merely removed the UK parliament from the mix as far as the States were concerned, not HMQ.
If the Governments of the Australian polities are not the Queen’s governments, why is it that she appoints all the Governors and the GG? If they are all not her Governments why did we go through the Republican campaigns.
As I said above, I respect you (and JC) above all other commentators on this site, so I can only assume that somehow I am not making myself clear. For that I apologise. But is clear from British and Australian Constitutional history that all Australian Governments are commissioned by the Crown, and therefore there power stems from the Crown.
Next you’ll be telling me that we have no Bill of Rights … Remember 1688.
Rococo Liberal
31 Jul 10 at 10:07 pm
Yes. Don’t steal from the government, they hate competition.
Sinclair Davidson
31 Jul 10 at 11:22 pm