In thecomingweeks, more focus will be placed on the end of the financial year and the part planners can play in formulating effective year-end tax strategies.
This topic is even more appropriate given the Australian Taxation Office (ATO) has indicated it will offer settlements to investors involved in tax effective schemes. The ATO has not automatically extended this offer to planners, an issue the Financial Planning Association (FPA) is challenging at present.
At the same time, there are various cases in the judicial system around the country which are testing the bounds of these tax effective schemes. In some of these cases, clients are seeking to avoid paying back tax that was deemed to be exempt before the ATO reconsidered the nature of the schemes late last year.
Into this environment comes news that the stock broking arm of the Hartley group was found to have broken the law and breached its responsibility to a client, resulting in a huge payout to the clients.
These two factors set the stage for a potential legal stoush between financial planners and the ATO. This would come about as clients seek redress, using the Hartley case as a blueprint, from planners for schemes that have since been rejected for tax purposes by the ATO.
Given that planners can only act within the confines of the law as they know and understand it at any particular time, it would be understandable and highly likely for planners to protest in court at the moving of the goalposts by the tax office.
Planners value their reputations, and having this reputation placed under threat, by supposedly advising on schemes that are out of favour with the ATO, is a big hurdle to overcome.
Whether planners will choose to lock horns with the ATO to maintain their reputation is the next question, and is dependent on whether clients will choose to sue planners for the tax bills the ATO is now demanding.
Regardless of how tax schemes are considered in the mind of the public, if they had been given the green light in the past, one would have to question whether they should be given the red light now.
Clients should not be held liable for actions taken in good faith and any financial planner who chooses to argue against the ATO on these grounds should have a very powerful argument indeed.
