Embattled Labor MP Craig Thomson, or whoever used his credit card,  is facing some serious issues with the Australian Taxation Office. It is not a question of if but when the ATO decide to strike — if it hasn’t done so already.

Thomson, or, again, whoever used his credit card, is facing ATO action on several fronts, including the assessment to him personally of cash withdrawals, brothel and escort services, political campaign expenses and legal fees paid by the NSW ALP to keep him solvent and avoiding bankruptcy. A bankrupt cannot sit as a member of parliament.

Two leading Sydney tax barristers have confirmed to me that the ATO would assess this income to Thomson personally or whoever used his credit card.

In parliament on August 23, 2011, the Assistant Treasurer Bill Shorten, who has parliamentary responsibility for the ATO, let the cat out of the bag that Craig Thomson has some weighty tax issues to tackle by being very forthcoming in response to a question without notice;

Mr TONY SMITH (Casey) (14:49): My question is to the Assistant Treasurer. Can the Assistant Treasurer, in his capacity as the minister responsible for the Australian Taxation Office, advise whether the payment from the Australian Labor Party to the member for Dobell is assessable under the Income Tax Act? Can the minister advise whether he was involved in any discussions relating to the payment?

Mr BILL SHORTEN (Maribyrnong—Assistant Treasurer and Minister for Financial Services and Superannuation) (14:57): As much as I am tempted to ask what the question was because it has been so long since it was asked, what I do understand is the following: the payment of fees is assessable income of the person who received the payment; beyond that I am not going to comment about the tax affairs of either the member for Dobell, the ALP, any lawyers or anyone else involved in these matters.

Where most politicians would have ducked the question and simply responded that it is up to the tax office to determine such things, Shorten has added fuel to the fire with his direct, candid response. People can only speculate why. His rapid response also indicates to me that the ALP has in its possession either a private ruling from the ATO or has sought its own legal advice on the Thomson matter.

Last Friday The Daily Telegraph asked me to calculate Thomson’s (or whoever used his credit card) likely tax bill. The bill came to $239,818.

To calculate the bill, I included cash advances — $20,000 a year between 2002 and 2007 (total — $100,000), various payments for escort and brothel services on the public record, $40,000 spent on 2007 election campaign and the NSW ALP’s alleged $150,000 payment for Thomson’s legal costs associated with his failed defamation action against Fairfax.

The total bill is made up of $132,520 in tax payable on omitted income, $34,270 in penalties and $73,028 in interest charges dating back to 2002. My figures were verified by Sydney Chartered Accountants Charge Thoo & Co.

This presents a new challenge for Thomson and the Labor party. For Thomson, bankruptcy is a real threat because he wasn’t able to pay for a $150,000 legal bill so I would imagine he will not be able to pay $239,000 for his tax bill. If the Labor Party funds him again, I can see that will be a recurring drain on their financial resources.

If the Labor Party pays the $239,818 tax bill in, say, November 2011 or May 2012 that amount will be assessable to Thomson in the 2012 tax year. Adding $239,818 to Thomson’s income will generate a tax bill of $104,398 for the 2012 financial year. It follows that if the Labor party pay that bill it will continue to generate big tax bills for Thomson year after year. By next year it is conceivable that the ALP will have paid nearly $500,000 to keep Thomson solvent when you take into account the two tax bills and the payment of his legal fees. It’s a vicious cycle.

His 2013 tax bill will not be due until after the 2013 federal election by which time the ALP may consider to withdrawing its funding entirely.

Thomson has three choices when he gets the big tax bill. He can pay it in full or he can pay it in part and enter into an arrangement to pay the balance of the debt with the ATO or he can enter bankruptcy.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey