A Commonwealth Ombudsman investigation into the ATO’s disallowance of Budplan investors’ tax deductions has concluded that the ATO acted correctly in disallowing participants’ tax deductions.

Commonwealth Ombudsman Ron McLeod said: ‘Although the ultimate decision as to the legality of the Budplan deductions will probably be made in the courts, our investigation indicates that the Commissioner’s decision to disallow the participants’ deductions was reasonable. The Commissioner’s action to disallow participants’ tax instalment variations and to amend their tax returns was appropriate.’

The Commonwealth Ombudsman’s Office received some 1600 complaints from Budplan investors, many of whom were faced with large tax liabilities as a result of the ATO’s actions. Mr McLeod said: ‘This is the largest single tax issue investigated by the Ombudsman’s Office since the special Tax Team was established in 1995. The investigation put considerable pressure on the team, under the leadership of the new Special Tax Adviser, Catherine McPherson.

The Ombudsman joined the Commissioner for Taxation, Michael Carmody and Chairman of the Australian Securities and Investment Commission, Alan Cameron, who recently warned investors that they should be wary of tax effective investment schemes which offer benefits that seemed ‘too good to be true’.

‘Our investigation of this matter has revealed the importance of taxpayers obtaining certainty in taxation matters before they begin investing in, and claiming deductions for, arrangements like Budplan,’ Mr McLeod said.

‘As a result of the issues raised by Budplan, and the proliferation of other so called ‘tax effective’ investment schemes, the ATO has introduced a product ruling system, designed to provide greater certainty for would be investors.

‘Our investigation did find some minor administrative shortcomings, however, these deficiencies did not affect the appropriateness of the Commissioner’s decisions.

‘The ATO has now sought to rectify these problems by centralising much of its decision making to improve consistency for people seeking rulings and other decisions related to investment schemes of this type, including the processing of tax instalment variations.

‘My office will monitor the effectiveness of these initiatives to ensure they provide taxpayers with more timely rulings and greater certainty,’ Mr McLeod said.

Media contacts

Media 02 6276 3759
Email – Media@ombudsman.gov.au

Date of release: 11 June 1999