Forget the Grim Reaper - Fear the Taxman
Tuesday 8 May 2012
In their sensationally successful 1966 album Revolver, the Beatles launched their hit song “Taxman”. The lyrics are now, in the year 2012, as prophetic as they were in 1966. Here’s the second verse - “if you drive a car I’ll tax the street, if you try to sit I’ll tax your seat, if you get too cold I’ll tax the heat, if you take a walk I’ll tax your feet”. Whatever you may think of the rights and wrongs of the imposition of tax, like it or not, you simply must pay it. That usually causes pain. Some of us are better organized than others and so we lessen the pain by putting funds aside to meet an upcoming tax bill. But when it all boils down, the chances of wriggling out of one’s liability to pay tax are extremely slim. Plus, the taxman has a very elaborate, sophisticated arsenal of weapons at his disposal, all purpose built to make your life very difficult when it comes to contesting a tax bill. Presumptions about validity and correctness of amounts in notices and presumptions about liability for payment are just two and if you lose on them there’s not much else to discuss. Let’s face it, the Beatles lyrics have it spot on.
So why am I mentioning this in my weekly column that the wonderful people of Law and More so kindly grant me?
This week one of my colleagues, a friend dare I say, was rubbed out for three years for not filing tax returns. By the time he actually filed the returns he had amassed a very large tax debt and by the time his case came on for hearing he had all but paid it off. Still, he only got to the point of paying the large tax bill because he was driven into a corner by being required to lodge his returns and once he lodged them the full extent of his indebtedness emerged. He put up a valiant fight on liability then made a touching plea. In the end it came to nothing as he was told to surrender his entitlement to pratise law for three years. Goodness knows what he will do for the next three years. He married late and has three children under five. He has no other skills but those in law. He has earned a lot but he has spent a lot as well. Now he has precious little to show for over 20 years’ work as a self-employed barrister. Some say he got a tough run from the judge who sentenced him. Others say he deserved everything he got – we all pay tax so why shouldn’t he?
As a conversation piece you will get very sharply divided opinions about professionals who come unstuck by reason of tax. The morally proper will tell you that a person has a moral and civic duty to pay taxes on time. Some, perhaps the more creative among us, will say tax is a debt just like any other debt and all is fair in reducing it. One can’t help but think of the Sheriff of Nottingham who, in the 1440s, was a civic officer whose job involved delivering prisoners to the courts, keeping the peace, ensuring that trade routes through Sherwood Forest were safe, keeping poachers from the King’s deer and, did I mention, collecting taxes. He was never a particularly loved soul.
Over here, over the last ten years we have seen an upsurge in the moral propriety of being scrupulously straight with one’s tax obligations. Two high profile legal eagles recently fell badly on their swords with very public and very humiliating results. This probably paved the way for the whack that my friend got.
Let me tell you about J D Cummins QC, a fellow who didn’t feel the need to be troubled by the personal inconvenience of lodging tax returns – for 38 years. In the same period over which he was not lodging returns he was a highly successful common law silk, an owner of racehorses and a committee member of the Australian Jockey Club. In the reasons for judgment of the Court of Appeal of the Supreme Court of New South Wales that removed his name from the Roll of Legal Practitioners, the Chief Justice said he was perfectly capable of conducting his personal and financial affairs as a practitioner, director, investor and manager, save in one respect - he never performed his duties as a citizen and taxpayer. The court said four interrelated interests are involved when a lawyer performs his or her role. First, clients must feel secure when confiding their secrets to lawyers. Second, fellow practitioners must be able to depend implicitly on the word and behaviour of their colleague. Third, the judiciary must have confidence in those who appear before them. And fourth, the public must have confidence in the legal profession as central players in the administration of justice. The court said that an errant practitioner’s name is removed from the roll because the probability is that the legal person is permanently unfit to practise and a QC who behaved with such a complete disregard for his civic and legal obligations brings the entire profession into disrepute. Strong words, but 38 years? How could anyone forget to file a tax return year after year for 38 years?
A similar fate befell another silk from New South Wales, although his villainy lay in having been convicted for failing to lodge a few tax returns as well as failing to provide information to the tax office. He too was rubbed out.
Somehow I don’t like my friend’s chances for a successful appeal. He is front and centre in a world in which the tide is running very quickly against a legal practitioner who is derelict in his compliance with his tax obligations.
So how can we attempt to prevent this?
For new recruits who are not paying tax from a regular monthly or fortnightly salary, it is essential that you squirrel away about half of everything you earn. That means you need to adopt a mind-set of thinking you can spend half of the amount you actually receive by way of income. It takes serious discipline and it can be painful at times. That means you do not – repeat do not – eat into the amount you have saved for tax to do such things as pay for a holiday, pay school fees, pay the deposit on a house etc. For everyone else in the self-employed category, live within your means. For those with a taste for the exotic in tax minimization, try to resist doing things that draw heat form the tax office. And in all cases, for god’s sake lodge your returns.
The three people whose plight I’ve mentioned in this weekly instalment have suffered the debasing humiliation of ridicule and derision among their peers. They will not practice a profession for which they studied for a long time to become entitled to practice. Why did they disregard their obligations towards paying tax in such stunning ways? Only they can tell.
But, as they say, being fore warned is being fore armed. If you know the consequences of trouble with the taxman, don’t invite it. Unless you bring an army of high priced very skilled lawyers, in a battle with the taxman you will definitely come off second best.
Dr Wilson’s regular weekly insights into the legal profession are influenced by his decades of experience in court and teaching across the world. Dr Wilson SC has been practising as a barrister in Australia for over 25 years, having already served in the Melbourne Magic Circle and as an associate to a Supreme Court judge. His expertise derives from worldwide advocacy experiences and he is usually found in the Supreme Courts and Federal Court of Australia dealing with commercial and equity cases. Married to a judge and father of three, Josh (and his kung fu black belt) is an advocate of all things law and more. A legal genius (Josh took Silk in 2008 and holds a PhD in extradition law!) and with a large topping of good humour, Law and More proudly welcomes Dr Joshua Wilson SC as a columnist.
Next week's instalment from Josh asks Law and More readers whether witnesses lie!
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