On 20 August this year, the Supreme Court of Appeal (SCA) delivered its ruling in the matter of an Australian businessman who suffered a preservation order against his assets as a result of the application of the Double Tax Avoidance Agreement (DTAA)between SA and Australia.
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Mark Krok, the appellant, appealed an asset preservation order and an order for the appointment of a curator bonis secured by SARS in the South Gauteng High Court. The appellant was the beneficiary of a trust established in SA by his grandmother in 1973. He had emigrated to Australia in 2002 and then moved to the UK. Unfortunately, as evidence put before the SCA showed, he had made submissions to a bank not mentioned in the financial information he had furnished to the Australian Taxation Office (ATO).
In other words, while staying in Australia, the man had not made a full disclosure of his financial situation to the tax authority. He had structures set up in various jurisdictions where bank secrecy is still maintained, and had transferred the rights to gains and income to these. The ATO regarded these transfers as a sham, because evidence suggested Krok regarded the assets as his personal assets.
Thanks to Article 25A of the DTAA, the ATO (with the help of SARS) was able to target the taxpayer’s SA assets to recoup unpaid taxes in Australia.
Retrospectively
However, Article 25A came into affect in December 2008, and the appellant held that it could not be invoked retrospectively.
The SCA disagreed. After consulting a wide range of legal precedents, it said taxes which arose prior to the coming into force of Article 25A could be subject to the mutual assistance procedures.
Thus, the Gauteng High Court had acted correctly in issuing a preservation order in terms of which the assets in SA, comprising certain fixed property, investments and cash, were attached and held under Sections 185 and 163 of the Tax Administration Act. Krok’s appeal was dismissed. He had made a few errors in his dealings with his assets and these were part of the reason why the ATO was able to obtain the preservation order.
New pastures
For one, as noted, he had treated the assets as his own and dealt with them in documents issued to third parties as if he had full control, contradicting the submissions made to the ATO. It is important when implementing an estate or tax plan, to not allow any contradictions and to deal with assets in trust through the trustees, not in person.
Initially, thinking he had left for greener pastures, the appellant in this matter has, I hope, learnt that the unknown threats of a new jurisdiction may be worse than those on his home turf. After all, better the devil you know…
Phone Peter O’Halloran on 079 814 3002 or visit www.taxdomain.co.za.
