Too clever by half

The tax office in recent years has issued Taxpayer Alerts as early warnings of "significant new and emerging higher risk tax-planning issues" that tax officers are keeping a close watch on. The alerts can make fascinating and useful reading.

As the Australian Tax Handbook, published by Thomson Reuters, states: "Most of the alerts raise the possibility that Part IVA [the anti-avoidance provisions] might apply."

Some of the tax strategies named in the Taxpayer Alerts seem a little too clever by half yet could prove tempting to unsophisticated taxpayers in particular. (See: ATO taxpayer alerts)

When issuing the alerts, the tax office reminds taxpayers that they can seek a private ruling if they had been contemplating the strategies.

The tax office issued four new alerts this week that typify the somewhat complicated strategies that it sometimes highlights.

The first involves a scheme for employees to use a trust to convert their salaries into capital gains in order, the promoters claim, to cut tax. (See: Taxpayer alert - TA 2008/13)

And the second involves employees deferring their salaries and instead receiving allegedly non-taxable investment loans of the same amount. Later under the promoted strategy, the employee is paid a salary that is offset against the loan. The tax office is clearly worried. (See: Taxpayer alert - TA 2008/14)

Tax commissioner Michael D'Ascenzo warns that anyone entering such schemes should be aware that they will face close examination by his office. "These schemes are variations on ones that have concerned us before and we are considering whether the promoter penalty laws should be applied to people promoting them," he says.

In my view, the tax system seems already complicated enough without entering some of the extremely complex arrangements that are the subject of Taxpayer Alerts. To me, it seems like asking for trouble - at least if you don't first gain reputable tax advice and perhaps a private tax ruling.