PROFESSIONAL SPORTSPERSONS

4 COLOUR LOGO Cyan Magenta Yellow Black TAX GUIDE PROFESSIONAL SPORTSPERSONS 7TH EDITION AUGUST 2013 Suite 126, 117 Old Pittwater Road, Brookvale, NSW 2100 PO Box 6340 Frenchs Forest DF NSW 2086 P 02 9981 2300 F 02 9971 2651 E allanhall@allanhall.com.au www.allanhall.com.au Allan Hall Business Advisors Pty Ltd ABN 35 003 211 907 Member of the Alliott Group Liability limited by a scheme approved under the Professional Standards Legislation

The aim of this publication is to make professional sportspeople aware of the taxation environment in which they operate. There are few other professions or businesses which provide the opportunities available to sportspeople to ensure that taxation is legally minimised. Like inventors, authors and performers, sportspeople are able to average their income to take greater advantage of lower tax rates. Full- time professional athletes, particularly those who travel for a large portion of the year, generally are able to claim as a tax deduction many items of expenditure which would be treated as private expenditure to other people. It is very important for professional athletes to plan their taxation affairs well in the early years even though they may not be earning large incomes. Due to the averaging provisions careful planning in early years can save tax in later years. Successful sportspeople can earn extremely large incomes. As our top marginal tax rate is not far below 50%, tax can potentially be the greatest cost that a professional athlete incurs in their career. It is important to seek advice before making any major financial decisions and prior to setting up record keeping procedures. 1 Allan Hall is a seven Partner firm of Chartered Accountants employing more than 80 people located on Sydney s Northern Beaches. We have established a specialist advisory division assisting professional athletes comprising two partners and two senior accountants. With our wide experience in advising professional sportspeople at all income levels, we believe we are well placed to provide the advice and service you require. 1 IMPORTANT: We suggest that our clients do not act only on the basis of material contained in this paper because the items herein are of the nature of general comments only and may be liable to misinterpretation in a particular circumstance. Also, changes in legislation sometimes occur quickly. We, therefore, recommend that our advice should be sought before acting in any of these areas.

TABLE OF CONTENTS 1. HOW IS TAXABLE INCOME DETERMINED...4 2. WHAT IS INCLUDED IN ASSESSABLE INCOME...4 3. TAX RATES...4 4. THE CHOICE OF ENTITY THROUGH WHICH TO TRADE AND INCOME SPLITTING...5 5. DEDUCTIONS...6 A. SELF ASSESSMENT AND EXPENSE SUBSTANTIATION...6 B. COMMON DEDUCTIONS FOR SPORTS PEOPLE...7 6. INCOME AVERAGING...12 7. GST...14 8. EARNING INCOME OVERSEAS...15 9. CAPITAL GAINS TAX...15 10. NEGATIVE GEARING...16 11. FRINGE BENEFITS TAX...17 12. RECORD KEEPING...18 13. TAX AUDITS...19 14. TIME FOR LODGEMENT OF RETURNS...20 3 P age

1. HOW IS TAXABLE INCOME DETERMINED Assessable Income - Allowable Expenditure = NET INCOME (TAXABLE INCOME) Taxable income is net income after deducting all allowable expenditure from all assessable income. Once taxable income has been determined you apply the tax scales to determine your primary tax liability. This may then be adjusted to include any rebate which may be due. 2. WHAT IS INCLUDED IN ASSESSABLE INCOME All competition winnings and fees received. All endorsements in cash or goods. All prizes received eg. Best and Fairest awards. Salaries and wages. Holiday pay, long service leave and other payments on termination of employment. Interest earned on savings. Company dividends received. Rental from property. Profits on disposal of business assets, such as motor vehicles, training or competition equipment. Some capital gains on the sale of assets. Most forms of income earned overseas, if you are an Australian tax resident. 3. TAX RATES The rate scale to apply from 1 July 2013, subject to review each year in the Budget, is as follows: Income Range ($ per annum) Tax Payable (Rate %) 0 18,200 NIL 18,201 37,000 19% of excess over $18,200 37,001 80,000 $3,572 + 32.5% of excess over $37,000 80,001 180,000 $17,547 + 37% of excess over $80,000 Over 180,000 $54,547 + 45% of excess over $180,000 4 P age

A low income rebate of $445 applies where taxable income is less than $37,000. An additional 1.5% is added to the above rate being the Medicare Levy. No Levy is payable if income is below $20,542. A Medicare levy surcharge of 1% applies where income exceeds $80,000 and you have no private hospital cover. The surcharge increases to 1.5% where taxable income exceeds $130,000. If you earn more than $80,000, join a health fund! Companies are taxed at a flat rate of 30%. Many people believe that their tax liability will be significantly increased if they move into the next tax bracket even by say $10. This is not the case. All taxpayers benefit by applying the lower rates of tax to the first part of their income and only pay the higher rate on that part of the income that moves into the higher bracket. For example, if a person s income was $37,010 they would pay 30% tax on $10, the balance of their income would be taxed at either 19% or zero. The most important aspect of tax planning is to ensure that no income is taxed at say 30% if it was capable of being taxed at 19%. The concept of income averaging centres on having more income assessed at lower rates. 4. THE CHOICE OF ENTITY THROUGH WHICH TO TRADE AND INCOME SPLITTING Most forms of income earned by professional sportspeople is termed personal exertion income and must be assessed to the sportsperson individually. In particular, all competition winnings, playing fees, prizes, salary and wages, Internet, radio and television appearance fees, and media interviews are deemed to be personal exertion income. This income is not capable of being split with other people (e.g. relatives), nor can it be redirected to a Company or other legal entity. On the other hand, all endorsement income is genuine business income generated by the goodwill of the sportsperson s name and image. This income is generated by that goodwill asset rather than by the direct personal exertion of the athlete. The ATO issued an Interpretative Decision (ATO ID 2004/511) confirming this treatment. Non- personal exertion income is capable of being redirected to another entity, normally a Company or Trust. Certain taxation and other advantages can be gained by transferring such income to Companies and Trusts, these advantages include: Potentially lower tax being a flat rate of 30% with no Medicare Levy compared to 46.5% including the Medicare levy for individuals. In some instances opportunities to benefit from more lenient tax treatment with regard to travel expenses, both domestic and overseas. Please refer to page 9 detailing significant savings in respect of the food and incidentals component of travel costs. 5 P age

The ability to split income with spouses and other relatives via Company dividends or Trust distributions. Being able to access the benefits of limited liability, particularly where some form of business trading is carried on. This means that if the business fails, the creditors are not usually able to get their hands on your personal assets. Prestige. In some instances if you are negotiating with a sponsor and they realise you have your own sports promotion company they may view you as a more professional business person. The disadvantages of Companies include: Cost: Set up costs are approximately $1,000 and the annual cost to maintain a Company including the ASIC fee is approximately $1,000 more than if no Company was involved. Companies are not normally good vehicles through which to hold capital appreciating assets such as properties as they can suffer a disadvantage in determining capital gains tax. Consequently those sportspeople who trade via a Company would normally purchase property in their own names. 5. DEDUCTIONS A. Self Assessment and Expense Substantiation In Australia, we operate under a system of Self Assessment where only limited information is provided to the Tax Office. However, very strict rules apply requiring that detailed documentation be maintained to support or substantiate expenditure claims. The Tax Office has shifted its approach in recent years from one where a detailed review was undertaken when returns were lodged, to one where greater emphasis is placed on tax audits. Generally an audit or investigation can be carried out at any time in the next 5 years and all documentation to support claims must be maintained. This documentation should support both the amount and reason for the expenditure. Special substantiation requirements exist for employees and self employed taxpayers in order to claim motor vehicle expenses and overseas and extended domestic travel expenses. 6 P age

B. Common Deductions for Sports People In order to claim a deduction, the taxpayer must establish a nexus between the earning of income and the relevant expenditure. You must also be able to establish that the expenditure relates to income rather than improving the value of a capital asset. 1. Motor Vehicle Expenses Once a reasonable basis of determining the business versus private portion of expenditure has been achieved, the following components of motor vehicle expenditure can be brought into the claim: (a) Depreciation on the cost component of the vehicle (subject to a limit on cost; currently $57,466). If you buy a car for $30,000, you would be entitled to a claim of $9,000 in the first full year aimed to roughly equate to the diminution in value of the vehicle over the time you own it. (b) Interest on money borrowed to purchase the vehicle but not the full value of the loan repayment. (c) If the vehicle is leased then the annual lease fee which would apply in place of items (a) and (b) and over the life of the vehicle should roughly equate to the claims generated under (a) and (b). (d) Petrol, oil, servicing and repairs. (e) Registration and insurance. (f) Parking, tolls, car wash and polish, etc. (Please note, fines are not deductible). Various options are available to determine the business portion of expenditure. Where the business portion is high (say at least 80%) a log book is usually the best option. To be able to rely on business travel as a percentage of total travel determined by the log, it must be maintained strictly and for a continuous period of at least 12 weeks. Once completed, that log book is valid for 5 years unless the nature of your travel changes significantly. 7 P age

Business travel does not include travel to or from work, however case law has determined that a professional sportsperson is travelling at work not to work in the following situations: From home to competition events and return. From home to training and return. From home to consult managers, doctors, physiotherapists, or any other professional consultant regarding their sport or income earning capability. From home to the airport and return for sports related travel. From home to purchase, inspect or repair equipment used. To or from promotional activities. From a salaried job to training. The following travel could not normally be treated as business: From home to a place of employment where the employment is not part of the sporting activity. From home to the shops to do grocery shopping even though you may purchase, amongst other things, some deductible items such as vitamins. Once the business portion has been determined you simply claim that percentage of the expenditure incurred as outlined in points (a) to (f) above. Alternatively, a claim can be based on one of the following as applicable: If more than 5000 business kilometres travelled per annum: (i) 12% of purchase price of the vehicle; OR (ii) 1/3 of the running costs as determined at (a) to (f). If 5000 business kilometres or less travelled per annum: A set rate per kilometre as shown below for non- rotary engine vehicles: Engine Capacity Rate per Kilometre Up to 1,600cc 63 1,601 to 2,600cc 74 Over 2,600cc 75 8 P age

These rates are based on NRMA surveys of total costs incurred in owning and running a vehicle. They are reset each year. Some types of vehicles allow the taxpayer to claim 100% business use without maintaining a vehicle log book. However, you would need to show a need to transport bulky goods. Please seek advice if you are thinking of replacing a vehicle. 2. Travel Expenses Strict substantiation requirements apply to claims for overseas travel and domestic travel of 6 nights or more. The requirements are far less onerous for people trading through a Company or Trust structure as will be explained shortly. Travel diaries need to be maintained in the correct format for two reasons: (1) To substantiate that the trip was in fact for business purposes. Most travel by professional sportspeople is clearly identifiable as business particularly where it is to compete, train or perform promotional activities. (2) To verify that the expenditure is actually incurred. For people who are not travelling as employees of a Company, the documentary evidence of expenditure required includes: A receipt in the required format. A diary entry to support items that are not normally receiptable. Employees of Companies and Trusts can be paid an allowance to cover food, drink and incidental expenses on a per day basis. They are not required to substantiate their expenditure against this allowance. The Tax Office issues an annual ruling which specifies the amount of the reasonable allowance per day in various Australian and overseas locations. It is based on the daily allowance paid to Public Servants and ranges from $A80 to $A260 per day for overseas locations and $A100 to $A110 for Australian locations. You are able to claim accommodation and car hire costs on top of this amount. A travel diary would only be required for trips that were not obviously 100% business. Trips that are part business and part private are apportionable. Please seek advice prior to taking such trips to ensure documentation is sufficient and claims are maximised. 9 P age

Many sportspeople are accompanied on business travel by their spouse or another relative. Generally a deduction will not be allowed for the costs of the accompanying relative. The private portion will be the relative s airfare, meals and the additional accommodation cost of a double room over a single. Until a recent case was decided in the taxpayer s favour the commissioner treated 50% of the accommodation costs as private where a spouse travelled with a taxpayer. In certain circumstances it will be possible to claim in full the costs of an accompanying person. You would need to be able to prove that there was a genuine and substantial business purpose for their presence. The deduction will not be permitted where the duties performed by the accompanying person are incidental to those of the traveller and where it can be reasonably assumed that the accompanying person would not have travelled but for the personal relationship. Our interpretation of the legislation is that the following examples would qualify as allowing the travel costs of the associated person: (i) A parent of a young tennis player who clearly handles all of their financial arrangements including negotiations with sponsors. This would be particularly relevant if the athlete was too young to drive or hire a car. (ii) The manager/wife of a touring professional surfer who worked around 20 hours per week performing the following duties: - - - - - Booking all travel arrangements particularly during periods when the circuit moves to new events weekly. Fielding all media enquiries including booking interviews. Performing all financial duties including negotiating with sponsors, paying accounts, and record keeping. Liaising with event officials regarding timing of events and promotional activities. Arranging training facilities at constantly changing tour locations. We would expect such an arrangement would only be justified if the athlete had significant media duties at each location (iii) The husband of a lady golfer who was also her caddie. We would expect that the husband of a professional golfer who already travelled with a manager and a caddie would not qualify as it is clear that he would not have travelled if it were not for their personal relationship. Where the necessary business connection can be made, the relative may also be paid a reasonable salary and qualify for the daily meals and incidentals allowance mentioned earlier. Travel costs for unrelated people like physiotherapists, personal trainers or managers would be fully deductable including travel allowances. 10 P age

3. Other Deductions (a) Depreciation on essential training and competition equipment, e.g. a video camera, jet ski or bicycle. (b) Repairs and maintenance of equipment. (c) Replacement of competition and training gear and accessories where not provided by sponsors. (d) Regular massage. (e) Vitamins and dietary supplements. (f) Manager s fees (g) Direct training costs including coaches fees, gymnasium and pool entry fees. (h) Promotional costs including the preparation of a portfolio. (i) Costs of professional advice including accountancy fees and most sports related legal fees. (j) Business portion of telephone and Internet. (k) Postage and stationery. (l) Bank charges including currency conversion costs. (m) Personal training courses, such as public speaking. (n) Competition entry fees and association fees. (o) Living costs while in short term training camps. (p) Insurance, such as travel insurance, public liability, sickness and accident, superannuation. (q) Secretarial services. (r) Undertaking particular training activities prescribed either by a coach or medical advisor, e.g. costs of playing squash have been held to be deductible to professional footballers. 11 P age

6. INCOME AVERAGING Sportspeople, like inventors, artists, authors, production associates and performers are able to average their income received from these activities. In the mid 1980's the government introduced an averaging scheme in recognition of the fact that sportspeople and other eligible persons may have one or more years of abnormally high income which would otherwise be taxed at the highest marginal rate. In a sporting context the scheme only applies to people who compete in a sport. It does not apply to coaches, administrators, promoters or assistants such as a caddie or member of a pit crew. Once a person is an eligible person, all sports related income is eligible to be averaged including competition fees, endorsements, advertising, interviews and commentating. Under the scheme, the tax payable is calculated by applying to the abnormal (above average) income the average rate of tax that would have applied to one fifth of the income if it had been the top slice of the taxpayer s taxable income. The definition of normal and abnormal income is quite complex. Basically abnormal income is defined under s.158 of the ITAA to be eligible sports income, less your average eligible sports income of the previous four years. Normal income is the balance. Averaging is only of benefit to a taxpayer while normal income is below the top tax bracket. It is important to note that you can never pay more tax by applying averaging. If in a future year there was no benefit to be gained you would simply elect not to apply averaging. 12 P age

The best way to explain how averaging works is to compare the tax scale that normally applies (Table A) to the one potentially available under averaging (Table B). SCALES FOR 2012-2013 TABLE A Taxable Income (Column 1) Tax on Column 1 Percentage On Excess (Marginal Rate) 18,200 NIL 19% 37,000 3,572 32.5% 80,000 17,547 37% 180,000 54,547 45% TABLE B Taxable Income (Column 1) Tax on Column 1 Average Rate % on Excess Tax Without Averaging Tax Saving 91,000 NIL NIL 19% 21,617 21,617 185,000 17,860 9.65% 32.5% 56,797 38,937 400,000 87,735 21.93% 37% 153,547 65,812 900,000 272,735 30.30% 45% 378,547 105,812 A Medicare Levy of 1.5% applies in addition. The above examples ignore the low income rebate. Usually an athlete can only get the full use of the Table B scale once. A very significant tax saving can result from judicious use of negative gearing combined with tax averaging. The concept of negative gearing is explained on Page 16. 13 P age

As the definition of abnormal income refers only to eligible income and negative gearing results from ineligible rental income, it follows that a loss from negative gearing will always reduce normal income, not abnormal income. With careful planning you can achieve a loss equal to (or a significant proportion of) your normal income. You may then be able to apply the scales in Table B for 2 or 3 additional years. The following example illustrates the position: A young footballer becomes a star player in his second season in grade. In his first season he earns $40,000 and in his second year earns $300,000. In each year his only earnings are from football. In year 1 he is eligible to use Table B as he has no prior period average income and no non sporting income (i.e. his normal income is zero). We assume he has tax deductions in respect to training equipment and car costs of $10,000 in year 1 and $20,000 in year 2, so his taxable incomes are $30,000 and $280,000 respectively. In year 1 he pays no tax (only a Medicare Levy of $450). In year 2 he has negative gearing deductions of $10,000, which under the averaging system in this example is equal to his prior period average. Once again he uses Table B. On a taxable income of $270,000 ($280,000 less $10,000 negative gearing) he pays $45,485. This is a saving of $49,562 on tax calculated without averaging. The example given is a fairly extreme one although significant tax savings can be created for most people whose normal income exceeds $91,000. 7. GST Athletes like all Australians earning non employment income are required to have an ABN but they don't necessarily need to register to pay GST. You are only required to register for GST where your Australian income is greater than $75,000. Many athletes choose to register for GST as their endorsement income will be increased to cover GST and it enables them to receive a refund of GST on their purchases including, for example, a motor vehicle. You pay no GST on overseas income and receive no credit on overseas expenditure. If you are registered, you are required to lodge a quarterly Business Activity Statement (BAS). If you are not registered, you may still be required to pay quarterly instalments of income tax lodging an Instalment Activity Statement (IAS). 14 P age

8. EARNING INCOME OVERSEAS Australian residents earning personal exertion income overseas, particularly competition winnings and endorsements, will be subject to Australian tax on that income at normal rates. If tax was paid in the foreign country, as is often the case, you are required to declare the gross income in Australia and claim a credit for the tax paid overseas against the tax due here. If you are non taxable in Australia because your net income is below the tax free threshold you will not be refunded the tax paid overseas. Some taxpayers who earn an extremely high income mostly sourced overseas choose to change their residency status to become residents of a less highly taxed country. These people face restrictions on the amount of time spent in Australia. They must show that they have a residence overseas and meet other strict tests. Non residents competing in Australia must pay tax on their Australian sourced income. 9. CAPITAL GAINS TAX This is relevant to successful sportspeople who invest in capital appreciating assets. Capital Gains Tax (CGT) is not a separate tax. Proceeds from a transaction on which CGT is assessable are added to the taxpayer s taxable income. The main features of CGT are that it: Generally applies only to assets purchased (or deemed to be purchased) after 19 September 1985; Applies on disposal (or deemed disposal) of the assets; and Is imposed at personal or Company rates of tax (whichever is applicable). Exemptions include: Principal residence owned personally and surrounding land (up to 2 hectares) which is not used for income producing purposes; Proceeds of superannuation and life insurance policies; Certain motor vehicles; Gains on certain personal use assets; and Gains on the sale of business goodwill in limited circumstances. Income or trading losses can be offset against realised capital gains either in the year in which the loss occurs or carried forward to be offset against future income. Capital losses on the other hand can only be offset against capital gains realised in the current year or be carried forward and offset against capital gains in subsequent years. 15 P age

Where an asset is owned by individuals and is held greater than 12 months, 50% of the gain will be tax free. The following information must be kept on all assets acquired after 19 September 1985: The date of acquisition of the asset; The amounts included in the cost base (purchase price, etc); Any expenses incurred to improve or protect the asset; and If the asset has been disposed of: - The date of disposal; and - The sale price and details of costs of sale. The Sale of your Family Home A taxpayer in the process of changing residences may have two dwellings as the sole or principal residence for up to six months. Temporary absences: A taxpayer is allowed up to 6 years away from home while remaining eligible to claim exemption from CGT on principal residence grounds. This exemption is not lost if the property is rented to produce assessable income. Where the property has large borrowings relevant to its purchase it can often be worthwhile moving out of your home to gain negative gearing benefits without suffering CGT problems. Often a successful athlete will buy a home, possibly qualify for the first home owner s concessions, live in the home for at least six months then rent it. In most cases they will pay no CGT if sold within six years. 10. NEGATIVE GEARING This is the term used to describe the position where the tax deductible expenditure in relation to an asset, including interest on borrowings, exceeds the income produced by that asset. This excess or loss can be used as an income tax deduction against other sources of income. Although the term negative gearing has become synonymous with rental property investments, it can be equally applied to other forms of income producing investment, particularly dividend paying shares. Many people mistakenly believe that creating a negatively geared result on rental property is the desired result without considering the compensatory gain that makes the exercise worthwhile. 16 P age

For example, a situation where interest on borrowings, rates, repairs and other claims on property exceed rent by $10,000 will create a tax saving of $4,650 for a person in the highest tax bracket. However, even after reducing the loss by the amount of the tax saved, the person remains out of pocket by $5,350. The investment becomes worthwhile only if the net realisable gain on disposal of the property exceeds the after tax loss incurred. Tax legislation makes negative gearing attractive when property prices rise as it subsidises the gearing loss incurred but provides concessions to the tax on the capital gain. The following points need to be carefully considered before entering into a negatively geared property investment: (i) (ii) (iii) (iv) Are you in a stable income position where you will have no problem funding the gearing loss? Do you believe there is real prospect of growth in the value of the property of at least 5% per annum? Do you have funds available that will allow you to hold the investment for at least three years? Given the costs associated with transferring property including stamp duty, legal fees and estate agents commission, it would be rare to consider a geared property investment for a term of less than three years. Are you in a position to gain the added advantage from income averaging? 11. FRINGE BENEFITS TAX For the majority of people, packaging salary to include a fringe benefit achieves nothing. Packaging items subject to fringe benefits tax is effectively paying tax at 48.5%. For example, if a taxpayer earned $100,000 and decided to direct $15,000 to home loan repayments the fringe benefits tax would be calculated as follows: 1. Gross up the amount by multiplying by 1.94% ($15,000 x 1.94) $29,100 2. Fringe benefits tax payable ($29,100 x 48.5%) $14,114 3. The amount charged to the package is the home loan payment plus the fringe benefits tax paid $29,114 As a taxpayer has received $15,000 on a $29,114 package they have effectively paid 48.5% tax. The Government has obviously structured fringe benefits tax in this way to ensure that there is no benefit in simply electing to take a fringe benefit rather than a salary. If the person earned less than $80,000 they will pay more tax by packaging fringe benefits. 17 P age

However, a sportsperson employed by a tax exempt body is effectively able to suffer fringe benefits tax at a rate of 32.65%. The reason is that tax exempt bodies are effectively exempt from the grossing up provisions. They actually receive a rebate under Section 65J of the Fringe Benefits Tax Act that operates to exempt them from the grossing up provisions. For example, if a professional footballer earning $100,000 per annum decides to direct $15,000 to his home loan payments, FBT would be calculated at 48.5% of $15,000, i.e. he would pay $7,275 FBT. His package would have been charged with $22,275, being $15,000 home loan payment and $7,275 FBT payment. He has consequently paid tax of $7,275 on a gross of $22,275 that is a tax rate of 32.65%. The difference between the footballer and an ordinary taxpayer is that FBT was charged on $15,000, not on $29,114. A few years ago the government brought in provisions to limit the amount of benefit that each taxpayer could take to approximately $15,000 p.a. As with the averaging provisions, the added benefit apart from saving tax is that it encourages the athlete to buy a property and pay it off as quickly as possible with fringe benefits taxable lump sum payments. The following is a list of typical expenditure which could be packaged as fringe benefits taxable amounts: Home mortgage payments or home rental. Utility payments including electricity, gas, rates etc. Personal Loan repayments. Health Fund Premiums. Insurances. Private travel. School fees, preschool fees and HECS- HELP. 12. RECORD KEEPING It is most important that proper records be maintained to record all income and expenditure in a systematic manner. This is important for three reasons: 1. It is helpful in the event of a tax audit. 2. It is normally less costly to have tax returns prepared as all accountants base fees on time spent so time is not wasted sorting through files of paper. 3. You can be more confident that you will not miss out on claims to which you are entitled. 18 P age

We have recently created a record keeping folder which, if completed correctly, will ensure that your accounts can be completed efficiently and correctly, recording all the information necessary to survive an audit. 13. TAX AUDITS The chance of a tax audit is far greater now than at any time in the past. The Tax Office has redirected its whole approach to collecting revenue by taking staff away from the checking of returns when lodged and placing them in the field to conduct detailed audits. There is now little or no checking of information when returns are lodged. Taxpayers are generally selected for an audit on the following basis: (i) (ii) (iii) (iv) They are dobbed in. The Tax Office will act on almost all cases. As part of an industry attack. The tax office recently announced that professional sportspeople are currently on their ever increasing hit list. On this basis 10% of sports people could expect an audit in the next couple of years. The computer prints out your return as being unusual in some significant respect. You are extremely unlucky and are selected absolutely at random. Whatever the reason for selection, all clients should be prepared to justify their claims to an auditor if called upon to do so. If you are ever contacted for an audit, once you have established the authenticity of the caller you should advise the auditor that your accountant has all of your records and that we will contact the auditor to make a suitable appointment. YOU SHOULD NEVER ANSWER ANY QUESTIONS WITHOUT SUITABLE REPRESENTATION If adjustments are made to your return during an audit you could generally expect to pay the tax shortfall together with an interest penalty and a culpability penalty which could be as high as 200% of the tax avoided, it is normally between 25% and 75% of the tax in dispute. 19 P age

14. TIME FOR LODGEMENT OF RETURNS Once you are included on a tax agent s approved lodgement program, individuals can lodge returns as late as May following the end of the year. Companies are generally required to lodge returns in May depending on the level of tax to be paid. Failure to lodge returns on time will result in penalties of $170 per 28 day period. If a taxpayer fails to lodge a return within 14 days of being requested in writing to do so, they can be subject to a court- imposed fine in addition to the above penalties. Should you require an explanation of any items raised in this paper please contact Scott Somerville, Scott Jago, Robert Baldwin or Toutai Hala who are our professional athlete specialists. 20 P age