De facto relationship or not?
The Working for Families Tax Credit (WFFTC) is a notoriously complex scheme when it comes to determining eligibility and quantifying entitlement. This leads you to wonder how well the scheme is policed by Inland Revenue, and whether fraud is able to ‘fly under the radar’.
Accordingly, it was heartening to see a case brought before the Taxation Review Authority in October of last year regarding a taxpayer making false claims about their de facto relationship.
The taxpayer claimed $39,740 of WFFTC’s for the years 2015 to 2018 on the basis that they were a single parent. However, at the time they were living with a Mr X, with whom the Commissioner considered the taxpayer to be in a de facto relationship. Support was given by the taxpayer, their sister, and Mr X claiming that no de facto relationship existed. However, the evidence to the contrary was extensive.
They lived together, went on holidays together, had social media profiles that indicated they were a couple, attended work functions as a ‘couple’ and were financially interdependent. As a result, the income of Mr X was deemed to be included in the WFFTC calculation and the taxpayer’s actual entitlement for the four years was reduced to nil.
If the taxpayer was not satisfied with this, the Commissioner went further to say that regardless of whether a de facto relationship existed or not, their entitlement would have been reduced anyway due to the taxpayer stealing from her place of employment. Because they had stolen money, it would count as income towards the calculation of their WFFTC and their entitlements should have been reduced in 2016 and 2018, and no entitlement would have existed in
2017.
The taxpayer claimed that the Commissioner should exercise their discretion to not collect tax given that the stolen money was used to fund their gambling addiction. Unsurprisingly, the Commissioner held that the taxpayer’s circumstances were ‘far from justifying the exercise of such a discretion’.
Although this case demonstrates some absurd circumstances, it provides comfort that Inland Revenue does apply resources to ensure schemes such as WFFTC are policed and that their exploitation is met with appropriate action. It also demonstrates the variety of investigation skills within Inland Revenue and provides a warning for those who are considering stretching the truth when it comes to their WFFTC claims.