Auditing of Income Tax Returns of Non-Resident Entertainers & Sportspeople
Date posted: Monday, February 4, 2013
AUSTRALIA
Auditing of Income Tax Returns
of
Non-Resident Entertainers & Sportspeople
The Australian Taxation Office (ATO) has conducted a number of audits of past income tax returns filed on behalf of non-resident entertainers (NREs) over recent months. It would appear that this will become a permanent feature of the Australian withholding tax regime.
It is clear from the approach being taken by the ATO that NREs may face higher withholding tax rates in Australia in the future if they are unable to ultimately document, by way of invoice and valid agreements, ALL those costs supplied for purposes of obtaining a Foreign Resident Withholding Variation (FRWV) if or when called upon to do so.
In the instance where a NRE instructs an Australian tax agent to file an income tax return on the basis of such costs (which cannot later be proved/verified) the tax return will be amended by disallowing all the unsubstantiated expenses claimed. An Amended Notice of Assessment will subsequently be raised by the ATO thereby creating a tax liability in the name of the NRE (not the promoter).
This will result in the following –
An increased amount of tax payable – the difference between the original FRWV and the Amended Notice of Assessment.
- A penalty for filing an incorrect income tax return – this may vary from 25% – 100% of the tax payable.
- The necessity to formally object to the Amended Notice of Assessment if the NRE wishes to contest the legitimacy of its expense claims – this typically takes a great deal of time, cost and effort.
- Where the audit findings conclude that an expense cannot be verified it will be rejected and an Amended Notice of Assessment will be issued to the NRE. This will impact on the application for an FRWV the next time the NRE chooses to tour Australia. Effectively, this means that a withholding tax variation will be denied to the NRE upon its return to Australia.
In summary, it is essential that a NRE only claim deductions for those costs for which it knows it can adequately substantiate to the satisfaction of the ATO.
Any queries concerning clarification of the issues discussed above may be directed to Michael Roseby on +61 3 9823 3366 or msr@rosroy.com.au
ARTIST ESCROW SERVICES PTY LTD
