M O R G A N’ S T A X M O N T H
- April 2015 Developments This is a collection of developments in Australian tax law and practice that occurred in
April 2015 and which aims at being of relevance to tax lawyers.*
F John Morgan
A member of the Victorian Bar (www.FJMtax.com)
Liability limited by a scheme approved under Professional Standards Legislation
Table of Contents
________________________________________________________________________
ACTS, BILLS AND ANNOUNCEMENTS ................................................................................... 3
Acts, Bills & Draft Legislation .................................................................................................... 3
*Managed investment trusts - proposed tax system: draft legislation [1] ................................. 3
*ESS Bill: Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015
– introduced [2] ......................................................................................................................... 5
*CGT scrip-for-scrip rollover - integrity rules to be tightened: draft leg released [3] .............. 7
*Consolidation loopholes addressed: draft legislation released [4] .......................................... 9
Cents per Kilometre Car Deductions - Treasury Laws Amendment (2015 Measures No 1)
Regulation 2015 [5] ................................................................................................................... 9
Higher education loan scheme (HECS): 2015-16 repayment rates and income thresholds [6]
................................................................................................................................................. 10
Announcements .......................................................................................................................... 10
*GST to cover intangible supplies by non-residents; $1,000 threshold may also be lowered
[7] ............................................................................................................................................ 10
*Structure of the tax system: Treasury paper released on theoretical aspects [8] ................... 10
Negative gearing - no changes says the Prime Minister [9] .................................................... 11
UK and Australia agree to collaborate on multinational tax [10] ........................................... 11
Serious tax offenders brought to justice – ATO and DPP [11] ............................................... 12
CASES AND APPEALS ................................................................................................................ 13
High Court .................................................................................................................................. 13
Justice Gordon appointed to the High Court [12] ................................................................... 13
*Queensland Nickel Pty Ltd v The Commonwealth of Australia – issue of free ‘carbon units’
did not give preference to one state and therefore valid [13] .................................................. 13
*FCT v Australian Building Systems Pty Ltd (in liq) & Anor – special leave to appeal liquidator does not have to retain funds for tax on disposal [14] ............................................ 14
Full Federal Court ..................................................................................................................... 15
Federal Court ............................................................................................................................. 15
Bond v FCT – Pilot’s insurance proceeds on losing his license for medical reasons was an
ETP and not capital for personal injury under s82-135 [15] ................................................... 15
*Commissioner of Taxation v Seymour – AAT should not have permitted the taxpayer to give
video evidence for fear of arrest or DPO [16] ......................................................................... 17
*NB: I have gathered these articles from various sources for the purposes of study and
teaching and I have acknowledged the sources. None of this publication should
reproduced in breach of copyright belonging to the acknowledged source. The headings
to the articles are often mine (and shouldn’t necessarily be attributed to the publisher).
Where I’ve editorialised, its separately distinguished.
Source Abbreviations: ATO LPR = ‘ATO Legal Professions Relationships’ emails; IT =
‘Intelliconnect Tracker’, published by CCH; LTN = ‘Latest Tax News’ published by
Thomson Reuters; ‘Sievers’ = Chris Sievers’ GST post (www. http://chrissievers.com);
TaxBar = ‘Tax Bar Association Newsletter’ (Melbourne) at www.vicbar.com.au /
Members / Bar Associations / Tax; Taxvine is the weekly publication by the Tax Institute
of Australia; WTB = ‘Weekly Tax Bulletin’ published by Thomson Reuters.
Morgan’s Tax Month – April 2015 Developments
*Donoghue v FCT – recovery proceedings dismissed - underlying assessments invalid
because of intentional use of material protected by LPP [17] ................................................. 19
Hii v FCT – Failure to consider ‘fraud or evasion’ issue not s39B invalid – Notice of
Assessment conclusive except in Part IVC proceedings [18] ................................................. 19
Administrative Appeals Tribunal (AAT) ................................................................................ 20
*Trustee for the Payne Superannuation Fund v FC of T – ‘net exempt income’ losses cannot
be carried forward to reduce future ‘net exempt income’ [19] ............................................... 20
*Re Applicant and FCT – no reduction in tax on capital gain for prior year capital loss; lot
compulsorily acquired and holding costs [20] ........................................................................ 21
Re Pacific Worldwide Pty Ltd and CEO of Customs – taxpayer wins as imported wontons,
dumplings not classified as ‘pasta’ [21] .................................................................................. 23
Re Creation Ministries International Ltd and Screen Australia - Refundable film tax offset
disallowed [22] ........................................................................................................................ 23
Other Courts & Tribunals ........................................................................................................ 24
*Westpac Banking Corporation v Jamieson & Ors - Judgment for damages resulting from
financial loss upheld; gross-up for taxable damages [23] ....................................................... 24
*In the matter of 4 Doonan Street Collinsville Pty Ltd (in liq) – FCT can set off amounts in
the taxpayer’s RBA without breaching liquidation rules [24]................................................. 26
*Paloto Pty Limited v Herro - No variation in trust vesting date to avoid tax liabilities [25] 27
*Robson & Ors v FCT - Incorporated association legislation does not import Corporations
Act provisions about unfair preferences on winding up [26] .................................................. 27
Appeals ........................................................................................................................................ 28
FCT v Macoun – taxpayer seeks leave to appeal to the High Court from decision that a World
Bank pension was not exempt from tax [27] ........................................................................... 28
COMMISSIONER’S PUBLICATIONS & NEWS ..................................................................... 28
Decision Impact statements....................................................................................................... 28
Rulings ........................................................................................................................................ 28
Determinations ........................................................................................................................... 28
TD 2015/10 - Interest arising from arrangement funding return through connected entities
[28] .......................................................................................................................................... 28
Class Rulings & Product Rulings ............................................................................................. 29
Class Rulings on 1.4.15 [29] ................................................................................................... 29
Product Ruling 1.4.15 [30] ...................................................................................................... 29
CR 2015/28 & PR 2015/5 [31] ................................................................................................ 29
CR 2015/29 - Chandler Macleod Group Limited Scheme of Arrangement and Permitted
Dividend [32] .......................................................................................................................... 29
ATO Interpretative Decisions ................................................................................................... 29
ATO ID 2015/9 – No SGC on attributed personal services income (it’s not actual salary and
wages) [33] .............................................................................................................................. 29
Practice Statements.................................................................................................................... 30
Tax Alerts ................................................................................................................................... 30
*TA 2015/1
: Private company dividends diverted to SMSF – concerns that it might be
dividend stripping or ‘non-arm’s length income in the fund [34] ........................................... 30
Other ATO news or statements ................................................................................................ 31
Wealthy individuals and their private groups: ATO starts "tax assurance talks" [35] ............ 31
Early ATO warning - franked distributions funded by capital raisings [36] ........................... 31
Tips for trustees of death benefits [37] .................................................................................... 31
Choose reporting options for PAYGi and GSTi – election of method must be made in the
first quarter [38] ....................................................................................................................... 32
Federal Taxation Statistics 2012-13 [39] ................................................................................ 32
GST DEVELOPMENTS ............................................................................................................... 33
Legislation & Announcements (GST) ...................................................................................... 33
GST to cover intangible supplies by non-residents; $1,000 threshold may also be lowered
[40] .......................................................................................................................................... 33
Cases (GST) ................................................................................................................................ 34
*Re Andrew Garrett in his capacity as an Authorised Officer of various trusts - no standing
as holder of trustee’s power of attorney - breach of Corps Act [41] ....................................... 34
Australia Pacific LNG Pty Ltd & Ors v Building & Construction Industry (Portable Long
Service leave) Authority – levy on GST-inclusive cost [42] .................................................. 35
Rulings, Determinations & Other things (GST) ..................................................................... 35
2
Morgan’s Tax Month – April 2015 Developments
SUPERANNUATION DEVELOPMENTS ................................................................................. 35
Legislation, Announcements etc. (Super) ................................................................................ 35
Cases (Super) .............................................................................................................................. 35
Temporary Residents – draft legislation to exempt employers having to offer choice of funds
for superannuation contributions [43] ..................................................................................... 35
Trustee for the Payne Superannuation Fund v FC of T – ‘net exempt income’ losses cannot
be carried forward to reduce future ‘net exempt income’ [44] ............................................... 36
Rulings & Other things (Super) ............................................................................................... 36
Ward’s case – ATO’s view of AAT’s approach to reviewing ‘excess super contributions tax
assessments’ [45] ..................................................................................................................... 36
AUSTRALIAN CHARITIES & NOT-FOR-PROFITS (ACNC) SECTOR ............................. 37
BOARD OF TAXATION .............................................................................................................. 37
*‘Debt - Equity’ report released by Minister and draft legislation foreshadowed to implement
recommendations to reduce uncertainty and cost [46] ............................................................ 37
EXTERNAL SUPERVISORS – IGT; OMBUDSMAN, JCPAA & ANAO .............................. 37
*IGoT tax over Ombudsman’s tax function from 1 May 2015 [47] ....................................... 37
TAX PRACTITIONERS BOARD & LEGISLATION .............................................................. 38
Tax (financial) advisers: TPB info sheets on sufficient/relevant experience for advisers
applying for registration during the ‘transition period’ [48] ................................................... 38
Re ATP Group Pty Ltd and FCT - AAT grants stay in tax agent's deregistration [49] ........... 39
STATE TAXES .............................................................................................................................. 39
Legislation & Announcements (State) ..................................................................................... 39
*NT Budget 2015-16: payroll tax; stamp duty changes [50] .................................................. 39
Vic stamp duty: Nanos & Anor v Comr of State Revenue - substantially one arrangement, so
dutiable value aggregated [51] ................................................................................................ 40
Cases (State) ............................................................................................................................... 41
NSW land tax: Bright & Anor v Chief Comr of State Revenue – principal residence
exemption refused because of lease longer than 6 months [52] .............................................. 41
NSW land tax: Perumal v Chief Comr of State Revenue – Applicant could not get PPR
concession for both their ‘previous’ and ‘new’ residences [53].............................................. 42
Qld payroll tax: Comr of State Revenue v Gympie Noosa Broadcasters Pty Ltd & Ors summary judgment for Commissioner – no prospect of success [54] .................................... 44
SA land tax: T & S Liapis Pty Ltd v Comr of State Taxation - primary production exemption
allowed [55] ............................................................................................................................. 45
Rulings & Other (State) ............................................................................................................ 45
OTHER DEVELOPMENTS ......................................................................................................... 45
Global tech giants give evidence (or fail to) at the Senate hearings into corporate tax
avoidance [56] ......................................................................................................................... 45
THE END.................................................................................................................................... 46
________________________________________________________________________
ACTS, BILLS AND ANNOUNCEMENTS
Acts, Bills & Draft Legislation
*Managed investment trusts - proposed tax system: draft legislation [1]
The government has released exposure draft legislation introducing a new tax
system for managed investment trusts. It is proposed this new system will
broadly apply to income years starting on or after 1 July 2015 (the deferred start
date as announced in the 2014/15 Federal Budget).
The new rules will apply to trusts that are managed investment trusts (MITs)
whose members have clearly defined interests in relation to the income and
capital of the trust. Such trusts are referred to in the draft law as attribution
MITs or AMITs. The amendments also broaden the eligibility criteria for a trust
3
Morgan’s Tax Month – April 2015 Developments
to be an MIT and insert a modified definition of MIT into the ITAA 1997,
particularly with regard to the widely held requirements.
Under the new tax system, contained in the proposed Div 276 of ITAA 1997,
attribution MITs will qualify as a fixed trust for tax purposes.
They will also be able to attribute different types of income (eg taxable
income, exempt income, non-assessable non-exempt income) to their
members on a fair and reasonable basis, thus enabling the tax character of
an amount to be retained as it flows through the trust.
Other features of the new system include the ability to reconcile, in a later
income year, variances between amounts actually attributed and amounts that
should have been attributed to members using the “unders and overs” regime.
The draft legislation also contains other amendments as follows:
•
•
trustees of attribution MITs will be liable to pay tax in certain
circumstances, eg if a discrepancy occurs resulting in taxable income of the
attribution MIT not being fully attributed to members.
• PAYG withholding and withholding tax liability provisions will apply to
attribution MITs and their members.
• members will be able to make annual upward and downward adjustments
to the cost bases of their interest in the trust.
• the treatment of tax deferred distributions is clarified such that the
distributions will be applied to reduce the cost base of membership interests
that are CGT assets and the tax costs of those that are revenue assets
(transitional rules to be developed will ensure this amendment applies from
1 July 2011).
• the public unit trust rules in Div 6B of Pt III of the ITAA 1936 will be
repealed, and
• the 20% tracing rules for public trading trusts in Div 6C of Pt III of ITAA
1936 will not apply to superannuation funds and exempt entities that are
entitled to a refund of excess imputation credits.
The new rules follow the recommendations made by the Board of Taxation in
its report of August 2009. The Board concluded that the existing rules were
complex and created uncertainty for this sector.
Comments - Comments on the exposure draft and accompanying explanatory
materials may be submitted to the General Manager, Corporate and
International Tax Division, The Treasury, Langton Crescent Parkes ACT 2600
or via email to [email protected]. Last day for comments is Thursday, 23
April 2015.
Source: Treasury website, 9 April 2015.
•
[IT 9/4/15]
Treasury, on Thur 9.4.2015, released exposure draft legislation which proposes
to modernise the tax rules for eligible managed investment trusts (MITs) and
increase certainty for both MITs and their investors. The proposed new rules
aim to enhance the international competitiveness of Australian managed funds
and promote the greater export of Australia's funds management expertise.
The key features of the proposed new tax system for eligible MITs include:
•
•
•
•
an attribution model for determining member tax liabilities, which allows
amounts to retain their tax character as they flow through a MIT to its
members;
the ability to carry forward understatements and overstatements of taxable
income, instead of re-issuing investor statements;
deemed fixed trust treatment under the income tax law;
upwards cost base adjustments to address double taxation; and
4
Morgan’s Tax Month – April 2015 Developments
• legislative certainty about the treatment of tax deferred distributions.
PROPOSED DATE OF EFFECT: The amendments to introduce a new tax
system for MITs are proposed to apply to income years starting on or after
1 July 2015.
The amendments to extend the scope of eligible investors for the purpose of
the widely held requirements that must be satisfied for a trust to qualify as a
MIT are proposed to apply from 1 July 2014.
• Furthermore, transitional rules, which are still to be developed, will be
designed to help ensure the amendments to clarify the taxation treatment of
tax deferred distributions will apply from 1 July 2011 (as announced in the
2014-15 Mid-Year Economic and Fiscal Outlook).
COMMENTS are due by 23 April 2015.
•
[LTN 66, 9/4/15]
*ESS Bill: Tax and Superannuation Laws Amendment (Employee Share
Schemes) Bill 2015 – introduced [2]
The Australian Government has introduced the Tax and Superannuation Laws
Amendment (Employee Share Schemes) Bill 2015 containing measures designed
to ease the tax impost for employee shares schemes, to make Australia’s
taxation of those interests more competitive by international standards, and to
assist Australian companies to attract and retain high quality employees in the
international labour market. This Bill should be passed and take effect from 1
July 2015.
What was the outcome on consultation with key stakeholders and are there
any further changes from those previously announced? - Following the
release of the exposure draft legislation, the government consulted key
stakeholders in relation to those changes.
While the government acknowledges that a number of strong policy arguments
were put forward for further changes as part of that consultative process, the
government’s view is that any further changes to meet those policy issues would
come at an additional cost to revenue and are not achievable in the current
budget environment. In this vein, the federal government acknowledges that
there were strong calls for the start-up company concessions to be extended to
cover biotech and other companies (including those incorporated for more than
10 years), but has not amended the draft proposed changes to meet those calls.
As a result, in almost all respects, the content of the Bill is the same as the
exposure draft legislation released in January 2015. There are, however, some
key modifications to the way in which the start-up concessions may apply.
Start-up concessions - The main benefactor of the proposed changes remains
as those companies that qualify for the “start-up” concessions.
In summary, where relevant conditions are met, the discount on an employee
share scheme (ESS) interest (right, option or share) issued by these companies
is not included in an employee’s assessable income.
*General and employer conditions - The main qualification requirements for a
company to be an “eligible” start-up company for the concessions to be
available are:
•
•
•
•
the company and all group companies must not be listed;
the company and all group companies must be less than 10 years old;
the aggregated turnover of the group must not exceed AU$50m (aggregated
turnover includes connected entities which may include and foreign entities
connected to the group); and
for shares (but not rights or options) the scheme must be available to at least
75% of the permanent employees with at least three years’ service.
5
Morgan’s Tax Month – April 2015 Developments
The Bill now provides that in applying the listing, the 10-year and aggregate
turnover threshold limits, investments by eligible venture capital and early stage
venture capital funds can be ignored. This will mean that assets and investments
of those kinds of partnerships and funds will not affect an investee start-up
company’s ability to access the start-up concessions.
*ESS interest conditions - From a participant perspective, the ESS interest
being offered must meet the following requirements:
the discount on the ESS interest being offered to an employee must:
o in the case of a share, be less than 15% of the market value [of the
share]; and
o in the case of a right or option, have an exercise price that is greater
than or equal to the current market value of an ordinary share (ie
issued at market value or out of the money)
• an employee must be required to hold their rights or shares for the
“minimum holding period”. The minimum holding period is set as the
same period which currently applies (and will continue to apply) for
AU$1,000 tax exempt schemes — the rights or shares must be held for
three years or until the employee ceases employment; and
• the employee must not hold more than 10% of the shares in the company
(including the shares that could be acquired by exercising options/rights
held by that employee).
The Bill maintains the position that options must have an exercise price equal
to, or greater than, the current market value of the underlying share, for the
concessions to apply. The government’s position is that this requirement is
necessary to ensure that the concession is appropriately targeted, is not subject
to potential abuse through inappropriate salary packaging arrangements, and is
fiscally sustainable.
In those circumstances, the options will still be considered, for income tax
purposes, to have been issued at a “discount” and that discount is not subject to
income tax. However, where the options are exercised and the shares are sold,
any capital gain by the employee will be subject to capital gains tax (CGT).
Generally where a share is sold, it must have been held for more than 12 months
in order for an employee to be eligible to receive the 50% CGT relief. The draft
legislation makes clear that the 50% CGT relief will be available to an
employee where they have received options subject to the start-up concession
and they have held the options and shares collectively for at least 12 months,
even where the shares they received on exercise have been sold by them within
12 months of exercise of their options.
The Bill also makes slight improvements to the “minimum holding period”
condition, by allowing the Commissioner to exercise his/her discretion to
reduce this period (and as a result for the concession to continue to apply) in
situations where all relevant employees are required to dispose their rights or
shares prior to the end of that period (such as on a trade sale or IPO) and where
there was an original genuine intention for the minimum holding period to have
been met. This covers a potentially unfair situation where a taxing point occurs,
but is completely out of the control of the affected employees.
What happens when an employee ceases employment? - Unfortunately one
of the key issues raised by stakeholders as part of the consultation, the cessation
of employment as an earlier taxing point, has not been addressed by the
government and Australia’s taxation of employee share schemes seems set to
remain “out of step” with most of the developed world.
This means that where an employee ceases employment but continues to hold
options (perhaps because they are a “good leaver”), they will be required to pay
•
6
Morgan’s Tax Month – April 2015 Developments
income tax at the time they cease employment, even though they will not have
realised any value (and may never realise any value) from those options.
As a way of partially addressing this issue, if an employee chooses not to
exercise those options in the future or allows those options to lapse, the changes
proposed by the draft legislation will allow the employee to obtain a refund of
the income tax they have already paid.
When will these changes take effect? - The changes proposed by the Bill will
only apply to ESS interests acquired by employees on or after 1 July 2015.
The current laws will continue to apply to ESS interests acquired before 1 July
2015 and as a result there are no transitional provisions contained in the Bill.
[IT, 9/4/15 - Brett Feltham, and James Newnham, DLA Piper]
*CGT scrip-for-scrip rollover - integrity rules to be tightened: draft leg released
[3]
On 14 December 2013, the Government announced it would proceed with
amendments first announced in May 2012 to tighten the scrip for scrip roll-over
rules. The intention is to make it harder for companies and trusts to avoid
capital gains tax when they sell subsidiary companies other than as part of a
genuine merger or restructure of their business.
The proposed amendments:
expand the significant and common stakeholder tests to include any
entitlements that interest holders have to acquire additional rights;
• provide that a capital gain arising on the settlement of a debt owed by an
acquiring entity to its parent company as part of the scrip for scrip
acquisition is no longer disregarded;
• extend the application of the cost base allocation rules regardless of whether
the interest is issued to the group’s parent company or to another member of
the group;
• introduce a new condition on the availability of scrip for scrip roll-over
relief in downstream acquisitions; and
• extend the application of the restructure provisions to trusts restructures.
The amendments apply in relation CGT events happening after 7.30 pm, by
legal time in the Australian Capital Territory, on 8 May 2012.
•
[Treasury website] [LTN 80, 29/4/15]
Extract from Draft Explanatory Memorandum
Stakeholder rules and entitlements to acquire rights
1.1
Amendments are made to ensure that entitlements to acquire relevant
interests are taken into account in the significant and common stakeholder tests.
This is achieved by treating any entitlement to acquire relevant interests to have
been realised. [Exposure Draft, item 8, subsections 124-783A(1) and (2) of the
ITAA 1997]
1.2
The relevant interests assessed under the stakeholder tests (for example
voting rights in a company) are known as ‘stake interests’. An entitlement to
acquire stake interests includes entitlements arising under a right, option, share or
other interest (a ‘stake option’). [Exposure Draft, item 8, subsections 124-783A(3)
and (4) of the ITAA 1997]
1.3
Where a stake option may be exercised or converted in a number of ways
or has a variable outcome in terms of the stake interests acquired, it is assumed that
the maximum number of stake interests possible is realised. In some circumstances,
it may not be possible to ascertain the maximum amount with certainty and a
reasonable estimation will be required.
1.4
The rule does not apply in situations where an interest holder has an
entitlement to exercise an option that diminishes its holding, such as a put option.
7
Morgan’s Tax Month – April 2015 Developments
1.5
This rule does not apply to stake options or interests that cannot be
realised within five years of the scrip for scrip arrangement being completed. The
integrity rule is targeted towards short-term entitlements that distort the application
of the stakeholder rules without having an ongoing impact on the commercial
positions of the relevant entities. [Exposure Draft, item 8, subsection 124-783A(3)
of the ITAA 1997]
…
1.6
The amendments apply in addition to the current law. That is, if an entity
would have a significant or common stake under the current law (section 124-783),
they will continue to do so under the amended law. [Exposure Draft, item 8,
subsection 124-783A(5) of the ITAA 1997]
Repayment of debt within corporate groups
1.7
Subsections 124-784(3) and 124-784C(3) provide that, if a loan is repaid
by the acquiring entity to its ultimate holding company, any capital gain made on the
debt from that repayment is disregarded.
1.8
Those provisions are repealed as part of a broader rewrite of sections 124783 and 124-784C. [Exposure Draft, items 8 and 11, sections 124-784 and 124784C of the ITAA 1997]
1.9
This amendment ensures that the full value of a capital gain deferred
under the scrip for scrip roll-over is recovered through the operation of the
stakeholder rules. Replacement entities that are controlled by original interest
holders who are significant or common stakeholders will not be able to shelter the
capital gain with the use of intra-group debt.
Cost base allocation rules
1.10
Sections 124-784 and 124-784C contain cost base allocation rules for
debt and equity issued as part of a downstream acquisition. The cost base of the
parent company’s debt or equity received is determined by reference to the
acquisition cost of the membership interests in the original company that the
acquiring entity acquires.
1.11
Currently, the rules only apply to debt and equity issued by an acquiring
entity to the parent company of the group. An amendment is made to apply these
rules equally where the acquiring entity issues debt or equity to another member of
the group. [Exposure Draft, items 8 and 11, sections 124-784 and 124-784C of the
ITAA 1997]
…
1.12
To prevent structuring that circumvents these expanded rules, a new
condition is placed on the availability of scrip for scrip roll-over relief. That is, rollover relief will not be available where the acquiring entity has issued debt or equity
(other than a replacement interest) to an entity outside the wholly-owned group.
[Exposure Draft, item 4, paragraph 124-780(3)(f) of the ITAA 1997]
1.13
This rule will prevent scenarios where the acquiring entity issues debt
or equity to another member of the group through an interposed entity that is not part
of the wholly-owned group.
…
Trusts
1.14
A number of amendments are made to the scrip for scrip roll-over in
order to align the treatment of trusts with that of companies.
1.15
The primary amendment is to allow the restructure provisions to apply
to trusts. [Exposure Draft, item 9, subparagraph 124-784(1)(a)(i) of the
ITAA 1997]
1.16
Currently, the method statement in section 124-784A relies on
calculating the market value of shares and associated rights and options. An
8
Morgan’s Tax Month – April 2015 Developments
amendment is made to expand the scope of the method statement to include units in
trusts and options and rights to acquire units. [Exposure Draft, item 10, step 3 of
the method statement in subsection 124-784A(2) of the ITAA 1997]
1.17
Further amendments are made to the trust roll-over provision (section
124-781) and the common stakeholder provisions (subsections 124-783(9) and (10)).
The amendments include trusts in the defined term ‘replacement entity’ and apply
this term in a standardised way so that it applies correctly to both companies and
trusts. [Exposure Draft, items 5 and 7, subparagraphs 124-781(1)(a)(i) and (ii),
and subsection 124-783(9) and (10) of the ITAA 1997]
*Consolidation loopholes addressed: draft legislation released [4]
On 6 November 2013 the Government announced that it would proceed with
amendments to strengthen the integrity of the tax consolidation rules.
The Board of Taxation conducted a post-implementation review of the
consolidation regime and provided reports to the former government in June
2012 and April 2013. The Board concluded that the consolidation regime is
generally working well, but considered that a number of loopholes should be
addressed to ensure the ongoing integrity of the consolidation regime.
The attached exposure draft legislation covers five measures that were
announced in the 2013-14 and 2014-15 Budgets:
remove a double benefit (or double detriment) that can arise in respect of
certain liabilities held by a joining entity that is acquired by a consolidated
group;
• remove anomalies that arise when an entity joins or leaves a consolidated
group where the entity has securitised an asset;
• prevent the tax costs of a joining entity's assets from being uplifted where
no tax is payable by a foreign resident owner on the disposal of the joining
entity in certain circumstances;
• clarify the operation of the Taxation of Financial Arrangements provisions
when certain intra-group assets or liabilities emerge from a consolidated
group because a subsidiary member leaves the group; and
• remove anomalies that arise when an entity leaves a consolidated group
holding an asset that corresponds to a liability owed to it by the old group
because the value of the asset taken into account for tax cost setting
purposes is not always appropriate.
The amendments generally apply from 2013 Budget time but the securitisation
amendments apply from 2014 Budget time.
•
[Treasury website] [LTN 80, 29/4/15]
Cents per Kilometre Car Deductions - Treasury Laws Amendment (2015
Measures No 1) Regulation 2015 [5]
The Treasury Laws Amendment (2015 Measures No 1) Regulation 2015 inserts
the annual “cents per kilometre” rates for calculating tax deductions for car
expenses for the 2014/15 income year in Pt 2 of Sch 1 to the Income Tax
Assessment Regulations 1997.
The rates are as follows:
Description
Small car
Medium car
Engine capacity of
car not powered by
a rotary engine (cc)
Not exceeding
1600cc
Exceeding 1600cc
but not exceeding
2600cc
Engine capacity of
car powered by a
rotary engine (cc)
Not exceeding 800cc
Rate per
kilometre
(cents)
65
Exceeding 800cc but
not exceeding
1300cc
76
9
Morgan’s Tax Month – April 2015 Developments
Large car
Exceeding 2600cc
Exceeding 1300cc
77
The cents per kilometre rates for the 2014/15 income year for calculating
income tax deductions for car expenses are the same as those for the 2013/14
rates. These rates are also relevant for the purposes of the Fringe Benefits Tax
Assessment Act 1986.
Source: Treasury Laws Amendment (2015 Measures No 1) Regulation 2015,
registered on 30 March 2015 as F2015L00367.
[IT 1/4/15]
Higher education loan scheme (HECS): 2015-16 repayment rates and income
thresholds [6]
A notice has been gazetted specifying the repayment incomes and repayment
rates for the Student Financial Supplement Scheme (SFSS) for the 2015-16
financial year. The details are:
SFSS repayment rates 2015-16
For repayment income in the
range
Below $54,126
$54,126 to $66,456
$66,457 to $94,331
$94,332 and above
Percentage rate to be applied to repayment
income
Nil
2%
3%
4%
[LTN 66, 9/4/15] [IT 9/4/15]
Announcements
*GST to cover intangible supplies by non-residents; $1,000 threshold may also
be lowered [7]
Mr Hockey said: ‘The [relevant] integrity measures were in relation to what is
emerging as an OECD consensus, that GST should be charged at the source [of
the payment for the service], so a company providing intangible services into
Australia, such as media services or so on, wherever they are located they
should charge GST on those services [and pay the GST to Australia]. So there
are some obvious ones [suppliers] of more recent times engaged in that, and
without naming companies, I think you can work them out. And there are a
number of those companies that are prepared to charge the GST on the services
that they are putting into Australia, but they want to know that they are not at a
competitive disadvantage. Now, the States agreed in principle that we should
move in that regard. I have offered to work as quickly as possible with them to
introduce legislation to address that in relation to intangibles.
If you were to apply it [Australian GST] to goods under $1,000 for low-value
thresholds, that would probably be the appropriate system to follow as well,
because there are now fewer providers of goods into Australia than there might
have been two or three years ago. Therefore, you can identify those major
providers of goods and therefore ask them to charge GST as well, so that there
is competitive neutrality. I see those things as integrity measures for the tax
base, not a broadening of the GST or an increase of the GST.’
[Transcript of Treasurer’s interview – 9/4/15]
*Structure of the tax system: Treasury paper released on theoretical aspects
[8]
Treasury, on Tue 7.4.2015, released its Working Paper 2015-01. It aims to
complement earlier studies and contribute to a broader discussion about the
structure of Australia's tax system by estimating the welfare cost and identifying
the economic incidence of marginal changes to the tax system. The Paper's
10
Morgan’s Tax Month – April 2015 Developments
estimates of the additional welfare cost of a marginal tax change (ie the
marginal excess burden) of major Australian taxes largely align with estimates
reported in earlier Australian studies.
Consistent with earlier studies, the Paper says stamp duty on conveyances and
the company income tax are the least efficient taxes (ie they have relatively high
marginal excess burdens), while the most efficient tax is a hypothetical broadbased land tax. The Paper tests the sensitivity of the ranking of the efficiency of
major Australian taxes to a range of assumptions about economic agents and the
structure of the Australian economy and finds that the relative marginal excess
burden of major Australian taxes is robust to a wide range of model parameters.
Finally, the Paper shows that the incidence of major taxes is largely borne by
workers through lower real wages caused by lower labour productivity.
[LTN 64, 7/4/15]
A Treasury Working Paper comparing the relative efficiency of different taxes
imposed in Australia has found that conveyancing stamp duty and company
income taxes are the least efficient taxes.
The paper — Understanding the economy-wide efficiency and incidence of
major Australian taxes — is intended to contribute to the broader discussion
about the tax system by estimating welfare cost and identifying the economic
incidence of marginal changes to the tax system.
The paper states that the incidence of company income tax is largely borne by
workers through lower labour productivity, so reducing real wages. Based on
the modelling adopted, it suggests that the most efficient tax would be a
hypothetical broad-based land tax, and while GST and individual tax are not as
efficient, they are more efficient than company income taxes and stamp duties.
The paper uses a static representative household general equilibrium model to
examine the incidence of efficiency of the various taxes.
[IT 7/4/15]
Negative gearing - no changes says the Prime Minister [9]
The Prime Minister has ruled out any changes being made to negative gearing.
He made the commitment when responding to a question about an ACOSS
report that had recommended there should be tighter restrictions around what
was claimable on negatively geared properties.
[LTN 72, 17/4/15]
UK and Australia agree to collaborate on multinational tax [10]
The Chancellor of the Exchequer, the Rt. Hon. George Osborne, MP, and the
Treasurer of Australia, the Hon. Joe Hockey, MP, announced during the course
of the G20 meeting the urgent establishment of a joint working group to further
consider and develop initiatives in relation to diverted profits by multinational
enterprises.
The G20 meeting in Washington DC (16-17 April) highlighted the issue that,
through contrived arrangements, some multinationals are diverting profits to
avoid tax in their relevant jurisdictions.
The Ministers have resolved, subject to the completion of the UK general
election, to establish a senior officials working group that will develop measures
to address the diversion of profits by multinational enterprises away from their
host countries.
Both the UK and Australia have sought to put in place competitive business tax
regimes in order to encourage enterprise and investment, but those tax rates
should be paid, not avoided through artificial structures.
11
Morgan’s Tax Month – April 2015 Developments
The working group will build on the UK’s experience of introducing a Diverted
Profits Tax, which came into effect at the beginning of April.
This is a global issue that needs to be quickly addressed, and as such the
working group will be open to all G20 members.
Any working group initiatives will be consistent with the work of the OECD on
Base Erosion and Profit Shifting, and other international initiatives such as the
Automatic Exchange of Information and Tax Inspectors Without Borders.
[Treasurer’s Press Release 19/4/15] [LTN 73, 20/4/15]
Serious tax offenders brought to justice – ATO and DPP [11]
There are currently close to 100 serious criminal tax offence matters before the
courts across the country. This is a result of government agencies working
together to catch tax offenders and bring them to justice.
Serious fraud offences that go before the courts include use of falsified invoices
to claim deductions not entitled to, GST refund fraud, excise fraud (alcohol and
fuel tax credit fraud), identity crime with suspected links to overseas organised
crime groups, and income tax refund fraud.
The courts view tax crime seriously and will impose lengthy gaol sentences for
the worst offenders. This year gaol sentences have included an 8 year term of
imprisonment (with 5 years to serve) for a man who claimed large false diesel
fuel rebate claims.
“These people are the worst kind of tax cheats. They were calculated in their
attempts to - deliberately commit fraud and evade their tax obligations,
ultimately stealing from the Australian public, and placing an unfair burden on
others who are doing the right thing” Deputy Commissioner Michael Cranston
said.
Mr Cranston said that the ATO, Australian Federal Police, the Australian Crime
Commission and the Commonwealth Director of Public Prosecution (CDPP)
work closely together, along with other relevant agencies, as part of a whole-ofgovernment approach to address tax crime and ensure serious offenders are
caught and face the full force of the law. The ATO has a role in detecting,
investigating and referring matters for prosecution to the CDPP.
“We have sophisticated systems in place to detect and catch those who do the
wrong thing. Our current focus for prosecution referrals is on wealthy
individuals who engage in serious evasion, as well as promoters and facilitators
of tax fraud including those in positions of trust such as accountants and
lawyers.” Mr Cranston said.
Deputy Director CDPP, James Carter said that as an independent prosecution
service, the CDPP works with partner agencies to advance their goals and
priorities through prosecution in accordance with the Prosecution Policy of the
Commonwealth.
“Tax fraud prosecutions protect the revenue, ensuring that offenders are brought
to justice and potential offenders are deterred”.
In a recent matter Her Honour Judge Mary Sexton of the Melbourne County
Court said “Tax fraud is not a victimless crime. Tax revenue funds essential
services that the community relies upon including schools and healthcare and
it’s important we protect our tax system.”
In addition to gaol time, courts also may impose fines and other penalties
including reparation orders, where offenders are ordered to repay stolen funds,
and proceeds from crime may be seized.
People who are unclear of their tax or superannuation obligations, or are
struggling to meet their obligations, should contact the ATO on 13 28 61 to
discuss their situation.
12
Morgan’s Tax Month – April 2015 Developments
[ATO/CDPP media release, 19 April 2015] [LTN 73, 20/4/15]
CASES AND APPEALS
High Court
Justice Gordon appointed to the High Court [12]
The Attorney-General has announced that the Governor-General has accepted
the advice of the Government to appoint the Honourable Michelle Marjorie
Gordon, a Judge of the Federal Court of Australia, as the next Justice of the
High Court of Australia. Justice Gordon will replace the Honourable Justice
Kenneth Hayne AC, who will reach the statutory retirement on
5 June 2015. Justice Gordon will be sworn in on 9 June 2015.
[LTN 69, 14/7/15]
*Queensland Nickel Pty Ltd v The Commonwealth of Australia – issue of free
‘carbon units’ did not give preference to one state and therefore valid [13]
On Wed 8.4.2015, the High Court unanimously upheld the validity of
provisions of the Clean Energy Regulations 2011 (Cth) that provided for the
free issue of carbon "units" to entities engaged in the production of nickel.
The Clean Energy Act 2011 (Cth), Clean Energy (Charges – Excise) Act 2011
(Cth), Clean Energy (Charges – Customs) Act 2011 (Cth) and Clean Energy
(Unit Shortfall Charge – General) Act 2011 (Cth) established and imposed a tax
on liable entities for certain greenhouse gas emissions in excess of a specified
threshold volume. Entities could reduce their tax liability by surrendering
"units" that were set-off against emissions in excess of the threshold. Schedule 1
to the Clean Energy Regulations 2011 (Cth), titled the "Jobs and
Competitiveness Program" ("JCP"), provided for the issue of free units to
entities engaged in "emissions-intensive trade-exposed" activities.
One such activity was the "production of nickel", which was defined in Div 48
of Pt 3 of the JCP ("Div 48"). The number of free units issued to nickel
producers was calculated by reference to the volume of nickel produced and
industry averages for greenhouse gas emissions per unit volume of nickel
production.
The plaintiff, Queensland Nickel Pty Limited, carried out the production of
nickel at a refinery in Queensland. Its major competitors carried out the
production of nickel in Western Australia. Due to differences in the kinds of ore
processed, the production processes employed and the types of nickel products
produced, the plaintiff's refinery emitted more greenhouse gases per unit
volume of nickel than its Western Australian competitors. The issue of free
units under the JCP therefore effected a proportionately smaller reduction in the
plaintiff's overall tax liability than it did for the plaintiff's competitors.
Section 99 of the Constitution prohibits the Commonwealth, by any law or
regulation of trade, commerce, or revenue, giving preference to one State or any
part thereof over another State or any part thereof.
The plaintiff commenced proceedings in the High Court, claiming that Div 48
contravened s 99 because it made no allowance for the differences in inputs,
production processes and outputs between the plaintiff and the Western
Australian nickel producers. The plaintiff argued those differences were caused,
at least to some extent, by differences in natural, business or other
circumstances between Queensland and Western Australia.
The Court found that the differences between the plaintiff's and the Western
Australian producers' inputs, production processes and outputs were not due to
differences between Queensland and Western Australia in natural, business or
13
Morgan’s Tax Month – April 2015 Developments
other circumstances. As a matter of fact, therefore, the Court held that Div 48
did not give a preference to one State over other States and did not contravene s
99 of the Constitution.
(Queensland Nickel Pty Ltd v The Commonwealth of Australia [2015] HCA 12,
High Court, French CJ, Hayne, Kiefel, Bell, Gageler, Keane and Nettle JJ,
8 April 2015.)
[High Court Summary] [LTN 65, 8/4/15] [IT 8/4/15]
*FCT v Australian Building Systems Pty Ltd (in liq) & Anor – special leave to
appeal - liquidator does not have to retain funds for tax on disposal [14]
The High Court heard (on 17.4.15), the Commissioner's applications for special
leave to appeal against the decision of the Full Federal Court decision in FCT
v Australian Building Systems Pty Ltd (in liq) & Anor [2014] FCAFC 133. The
Full Federal Court had confirmed that s 254(1)(d) of the ITAA 1936 does not
require a liquidator to retain monies from the sale proceeds of a property for the
payment of any resulting CGT liability to the Tax Office, until a relevant
assessment has been issued to the taxpayer. The Commissioner argued that such
an obligation existed to retain moneys to meet the expected tax liability.
[LTN 69, 14/4/15]
The High Court this morning allowed the Commissioner's special leave
application in the matters of Commissioner of Taxation v Australian Building
Systems Pty Ltd ACN 094 238 678 (In liquidation) and Commissioner of
Taxation v Ginette Dawn Muller and Joanne Emily Dunn as liquidators of
Australian Building Systems Pty Ltd ACN 094 238 678 (In liquidation). The
application was heard before Keane and Kiefel JJ.
The issue in this case is whether the issuing of a notice of assessment is a
necessary requirement before a liquidator can [must] retain an amount from the
proceeds of a sale of land to meet the tax on the capital gain.
[ATO LPR]
The High Court, on Friday 17.4.2015, granted the Commissioner's applications
for special leave to appeal against the decision of the Full Federal Court in FCT
v Australian Building Systems Pty Ltd (in liq) & Anor [2014] FCAFC 133. The
Full Federal Court had confirmed that s 254(1)(d) of the ITAA 1936 does not
require a liquidator to retain monies from the sale proceeds of a property for the
payment of any resulting CGT liability to the Tax Office, until a relevant
assessment has been issued to the taxpayer.
[LTN 72, 17/4/15]
Section 254(1)(d) of the Income Tax Assessment Act 1936 (ITAA36)
254(1) Agents and trustees
(1) With respect to every agent and with respect also to every trustee [which includes
‘liquidators’], the following provisions shall apply:
(a)
He or she shall be answerable as taxpayer for the doing of all such things as are
required to be done by virtue of this Act in respect of the income, or any profits
or gains of a capital nature, derived by him or her in his or her representative
capacity, or derived by the principal by virtue of his or her agency, and for the
payment of tax thereon.
(b)
He or she shall in respect of that income, or those profits or gains, make the
returns and be assessed thereon, but in his or her representative capacity only,
and each return and assessment shall, except as otherwise provided by this Act,
be separate and distinct from any other.
(c)
If he or she is a trustee of the estate of a deceased person, the returns shall be the
same as far as practicable as the deceased person, if living, would have been
liable to make.
(d)
He or she is hereby authorized and required to retain from time to time out of
any money which comes to him or her in his or her representative capacity so
14
Morgan’s Tax Month – April 2015 Developments
(e)
(f)
(g)
(h)
much as is sufficient to pay tax which is or will become due in respect of the
income, profits or gains.
He or she is hereby made personally liable for the tax payable in respect of the
income, profits or gains to the extent of any amount that he or she has retained,
or should have retained, under paragraph (d); but he or she shall not be otherwise
personally liable for the tax.
He or she is hereby indemnified for all payments which he or she makes in
pursuance of this Act or of any requirement of the Commissioner.
Where as one of 2 or more joint agents or trustees he or she pays any amount for
which they are jointly liable, each other one is liable to pay him or her an equal
share of the amount so paid.
For the purpose of insuring the payment of tax the Commissioner shall have the
same remedies against attachable property of any kind vested in or under the
control or management or in the possession of any agent or trustee, as the
Commissioner would have against the property of any other taxpayer in respect
of tax.
FJM Note
This issue might matter if the liquidator proposed paying all the creditors prior to year
end and thus prior to any assessment issuing (leaving no funds for paying the tax when
the assessment does finally issue). But the Commissioner has the power to issue a
special assessment straight after the sale (even though this was prior to the end of the
income year) – see s168 of the ITAA36. Then the Commissioner could ‘prove’ for the
tax debt, along with other creditors, and be paid the same dividend.
This issue gets even more interesting if a receiver (who is also a deemed ‘trustee’ for the
purposes of s254(1)(d)) sells a property under a mortgage in favour of a secured lender.
Would s254(1)(d) apply (or could it be said that the disposal proceeds do not “come[ ]
to him or her in his or her representative capacity”)? And if s254(1)(d) did apply to
such a receiver, does it elevate the Commissioner’s claim for tax above the normal
position of being unsecured (where he has to stand in line with all other unsecured
creditors to be paid some dividend). If it does elevate his claim, it would do so above
secured creditors. If that were so, the secured lender would do better to get the taxpayer
(borrower) to sell the property itself, so that all the proceeds could go to the secured
lender, rather than through the hands of an intermediary that is deemed to be a ‘trustee’
to which s254(1) could apply. Further, s254(1)(d) may be powerless to overcome a sale
by a mortgagee in possession (who would not be a ‘trustee’ for the purposes of s254(1)).
Surely, there could not be these differences in priority, depending only on how the sale
was effected.
Full Federal Court
[-]
Federal Court
Bond v FCT – Pilot’s insurance proceeds on losing his license for medical
reasons was an ETP and not capital for personal injury under s82-135 [15]
The Federal Court has held that a lump sum payment made to an airline pilot
who lost his pilot’s license for medical reasons was assessable as an eligible
termination payment (ETP).
Facts - The taxpayer was employed as an airline pilot. Following the
cancellation of his pilot’s licence for medical reasons the taxpayer received a
“loss of licence” (LOL) payment from his employer. The payment was made as
a result of a successful claim by the taxpayer under an insurance policy
provided by his employer pursuant to an industrial agreement. Eligibility for the
payment was dependent on the relevant employee being no longer able to work
as a pilot.
15
Morgan’s Tax Month – April 2015 Developments
Prior to receiving the payment the taxpayer signed a Deed of Release as per his
employer’s policy, which stated that the payment represented all moneys owing
to him pursuant to his employment and termination.
The Commissioner assessed the payment to the taxpayer as an ETP under s 82130 of the ITAA 1997. The taxpayer’s objection to that assessment was
unsuccessful and he sought a review by the AAT of that decision.
The AAT held that the payment was assessable income on the basis that it was
an ETP, or if it did not have that character, because it was assessable under s 152 of ITAA 1997, or as a capital gain. It found that the connection between the
payment and the termination of employment was not simply temporal, that the
termination of employment as a pilot was a prerequisite to payment and in that
sense payment followed on the termination of employment and had the
necessary connection with it.
The taxpayer appealed to the Federal Court contending that the payment was
not an ETP because:
the AAT misconstrued s 82-130 of the ITAA 1997 by applying the wrong
test for determining whether there was a relevant connection between the
payment and the termination of his employment
• it fell within s 82-135(i) of the ITAA 1997, ie the payment was made for, or
in respect of, personal injury to the taxpayer, and
• the payment was not a fringe benefit provided to the taxpayer by his
employer in respect of his employment under s 136(1) of the Fringe
Benefits Tax Assessment Act 1986.
Decision - The court rejected the contention that the AAT had misconstrued
s82-130 and held that the payment was an ETP. It said the payment followed on
from, and was an effect or result in a causal sense, of the termination of the
taxpayer’s employment. It was a consequence of the termination of his
employment, in the circumstances, because he was no longer able to work as a
flight crew employee. It also said that the words “in consequence of” did not
require that the termination of employment be the only or dominant cause of the
relevant payment.
The court also held that the AAT did not err in concluding that the payment was
not a capital payment (or consideration of a capital nature) for, or in respect of,
personal injury to the taxpayers so as to take it out of the status of an ETP.
The court said that it agreed with the taxpayers’ submission that the AAT erred
by treating the payment as excluded from the definition of a fringe benefit.
However, that did not affect its final conclusion.
Court ref: [2015] FCA 245, Mansfield J, 25 March 2015, Adelaide.
•
FJM note: this case was one of three matters heard together because the issues were
relevantly the same. The other matters were Purvis v FC of T [2015] FCA 246 and
Kentish v FC of T [2015] FCA 247.
[IT, 1&2/4/15] [LTN 63, 2/4/15]
Section 82-135 of the ITAA 1997
Payments that are not employment termination payments
The following payments you receive are not employment termination payments :
(a)
a * superannuation benefit (see Divisions 301 to 307);
(b)
a payment of a pension or an * annuity (whether or not the payment is a
superannuation benefit); and
(c)
an * unused annual leave payment (see Subdivision 83-A);
(d)
an * unused long service leave payment (see Subdivision 83-B);
(e)
the part of a * genuine redundancy payment or an * early retirement scheme
payment worked out under section 83-170 (see Subdivision 83-C);
(f)
a payment to which Subdivision 83-D (Foreign termination payments) applies;
16
Morgan’s Tax Month – April 2015 Developments
(fa)
a payment (or part of one) made by a company or trust as mentioned in
subsection 152-310(2);
(g)
a payment that is an advance or a loan to you on terms and conditions that would
apply if you and the payer were dealing at * arm's length;
(h)
a payment that is deemed to be a *dividend under this Act;
(i)
a capital payment for, or in respect of, personal injury to you so far as the
payment is reasonable having regard to the nature of the personal injury and its
likely effect on your capacity to * derive income from personal exertion (within
the meaning of the definition of income derived from personal exertion in
subsection 6(1) of the Income Tax Assessment Act 1936;
(j)
a capital payment for, or in respect of, a legally enforceable contract in restraint
of trade by you so far as the payment is reasonable having regard to the nature
and extent of the restraint;
(k)
a payment:
(i)
received by you, or to which you are entitled, as the result of the
commutation of a pension payable from a * constitutionally protected
fund; and
(ii)
wholly applied in paying any superannuation contributions surcharge (as
defined in section 37 of the Superannuation Contributions Tax (Members
of Constitutionally Protected Superannuation Funds Assessment and
Collection Act 1997);
(l)
a payment:
(i)
received by you, or to which you are entitled, as the result of the
commutation of a pension payable by a superannuation provider (within
the meaning of the Superannuation Contributions Tax (Assessment and
Collection) Act 1997); and
(ii)
wholly applied in paying any superannuation contributions surcharge (as
defined in section 43 of that Act);
(m) an amount included in your assessable income under Division 83A of this Act
(which deals with employee share schemes).
Note:
For paragraph (e)--the remaining part of a genuine redundancy payment
or an early retirement scheme payment (apart from the amount mentioned in the
paragraph) is an employment termination payment if section 82-130 applies to that
part.
*Commissioner of Taxation v Seymour – AAT should not have permitted the
taxpayer to give video evidence for fear of arrest or DPO [16]
The Federal Court has set aside an AAT decision that had allowed a married
couple who live in Mauritius to give evidence in a tax case by video link.
The AAT had allowed the couple to give their oral evidence in a tax case by
video link - Re The Overseas Applicants and FCT [2014] AATA 788. They had
been issued with assessments and amended assessments totaling several million
dollars. The Tribunal decided to allow the applicants to give their oral evidence
by video link pursuant to s 35A of the Administrative Appeals Tribunal Act
1975. In the Tribunal's view, "in balancing the competing considerations and
determining what is fair and just to the parties, I have decided that [the
applicants] should be given a reasonable opportunity to present their cases and
that permitting them to give oral evidence by video link is an appropriate
course".
The Federal Court came to the view that the AAT fell into jurisdictional error in
2 particular respects:
•
First, in the circumstances of the present case, the Court said it was a
jurisdictional error (ie an error of law which affected the exercise of power)
for the AAT to take into account, or give any weight to, the refusal of the
taxpayers to come to Australia if they did not receive an assurance that a
DPO (Departure Prohibition Order) would not be issued by the
Commissioner to prevent, or delay, them from leaving immediately.
17
Morgan’s Tax Month – April 2015 Developments
Secondly, the further consequence of the above jurisdictional error was that
the AAT denied to the Commissioner a reasonable opportunity to present
his case by removing the opportunity for effective cross-examination. The
Court said that was a denial of procedural fairness in a general sense and
would also represent a failure to conduct the proceedings in accordance
with s39 of the AAT Act.
Although the Court did not accept other challenges to the AAT decision made
by the Commissioner, it said this was "one of those rare, or exceptional, cases
where the Court should intervene at an interlocutory stage to correct
jurisdictional error and address injustice between the parties".
The Court set aside the order made by the AAT. The Court said the AAT need
not deal further with the particular application, which was before it. If a further
application is made which merits consideration and raises different issues, the
Court said the AAT would "no doubt follow its usual procedures, bearing this
judgment in mind". If the taxpayers do not appear at the hearing to be crossexamined on their affidavits, the Court said the AAT will need to deal with the
proceedings, and make its rulings and decision, in that light.
(FCT v Seymour [2015] FCA 320, Federal Court, Buchanan J, 7 April 2015)
•
ATO summary
The Federal Court this afternoon handed down the attached favourable decision
for the ATO on an application under section 39B of the Judiciary Act
challenging an AAT decision to permit the respondents to give evidence by
video link. The ground being that the AAT had committed jurisdictional error.
The taxpayers in question resided in Mauritius, and opposed attendance in
Australia on the fear of arrest or being prevented from leaving.
His Honour, Buchanan J found that the AAT had fallen into error in two
particular respects.
(1) The AAT ought not have given weight to the taxpayers' refusal to come to
Australia on the absence of an assurance by the Commissioner that he would
not issue a departure prohibition order; and
(2) The use of a video link would have denied the Commissioner the
reasonable opportunity of effective cross-examination.
[ATO LPR 7/4/15]
Section 39 of the AAT Act
39.
Submissions--Divisions other than Security Division and Social Services and
Child Support Division
(1) Subject to sections 35, 26 and 36B, the Tribunal shall ensure that every party to a
proceeding before the Tribunal is given a reasonable opportunity to present his or her
case and, in particular, to inspect any documents to which the Tribunal proposes to have
regard in reaching a decision in the proceeding and to make submissions in relation to
those documents.
(2) This section does not apply to:
(a)
a proceeding in the Security Division to which section 39A applies; or
(b)
a proceeding in the Social Services and Child Support Division (see
section 39AA).
(3) This section does not limit subsection 25(4A) (Tribunal may determine scope of
review).
FJM Note
Often the AAT has allowed witnesses to give evidence by telephone (which
makes cross-examination even harder than by video link). I’m not sure why this
is all of a sudden a denial of procedural fairness and jurisdictional error. I hope
this is not giving the Commissioner special latitude.
18
Morgan’s Tax Month – April 2015 Developments
Taxpayer appeals to Full Federal Court
The taxpayers have appealed to the Full Federal Court against the decision in
FCT v Seymour [2015] FCA 320. In that case, the Federal Court had set aside
an AAT decision that had allowed a married couple who live in Mauritius to
give evidence in a tax case by video link. The Federal Court came to the view
that the AAT had fell into jurisdictional error in 2 particular respects.
[LTN 68, 13/4/15]
*Donoghue v FCT – recovery proceedings dismissed - underlying
assessments invalid because of intentional use of material protected by LPP
[17]
The Federal Court has dismissed tax recovery proceedings against a taxpayer
following earlier quashing assessments issued to him.
Proceedings for the recovery of a taxation liability, grounded in the quashed
assessments and related general interest charge (GIC), were originally instituted
by a Deputy Commissioner of Taxation against the taxpayer in the Supreme
Court of Queensland.
Given that the assessments concerned had been quashed (in Donoghue v FCT
[2015] FCA 235), the Court said it was a necessary consequence that the
recovery proceeding must be dismissed. That is because, in light of the
quashing of the assessments, there is no taxation liability which is the subject of
those recovery proceedings. The Court said the GIC otherwise payable must
necessarily as a matter of law abate in full with the disappearance of the primary
assessments to which the charge relates.
The Deputy Commissioner argued that the Court should adjourn further the
recovery proceedings. However, the Court said that "to do that, though, would
be to deny Mr Donoghue the consequential fruit of the forensic success which
he has enjoyed in the judicial review proceedings mentioned".
(Donoghue v FCT [2015] FCA 291, Federal Court, Logan J, 17 March 2015
(but updated as at 31 March 2015))
[LTN 67, 10/4/15]
Hii v FCT – Failure to consider ‘fraud or evasion’ issue not s39B invalid –
Notice of Assessment conclusive except in Part IVC proceedings [18]
The Federal Court has dismissed a taxpayer's application seeking orders that
second amended assessments issued to him were invalid. These assessments
were issued following the taxpayer being partially successful in his objection to
the original amended assessments.
In seeking the orders that the second amended assessments were invalid, the
taxpayer argued that while the original amended assessments had been raised by
the Commissioner on the basis there had been "fraud or evasion", the
Commissioner had failed, when determining the taxpayer's objections to the
original amended assessments, to form an opinion as to whether there had been
an "avoidance of tax due to fraud or evasion" that justified issuing several of the
original amended assessments out of time.
However, in dismissing the taxpayer's application, the Court found that as the
second amended assessments were neither tentative nor provisional
assessments, nor attended by any conscious maladministration on the part of the
Commissioner, it was not open to the taxpayer to seek a declaration they were
invalid under the Judiciary Act (1903).
In doing so, the Court noted that the production of notices of assessments is
conclusive evidence of their correctness, subject to any appeal proceeding under
Pt IVC of the TAA - and that such proceedings were on foot in this case, and
that this was the correct approach for the taxpayer to take.
19
Morgan’s Tax Month – April 2015 Developments
The Court also found it was not a necessary precondition of the exercise of the
Commissioner's power to further amend the second amended assessments that
the Commissioner positively form a view concerning whether the taxpayer's
conduct constituted avoidance of tax due to fraud or evasion. In this regard, the
Court found that the failure of the Commissioner to form the relevant opinion at
the time of the objection decision did not make that decision or the second
amended assessments invalid.
At the same time, the Court dismissed the taxpayer's application that the second
amended assessments also be declared invalid on the basis that the
Commissioner had no reasonable prospect of successfully defending the
taxpayer's appeal against them.
Instead, the Court found that the complexity of the case, on the basis of the
material before it, was such that it was not one where the Court could easily
reach the conclusion that the Commissioner lacked reasonable prospects of
defending the appeal.
(Hii v FCT [2015] FCA 375, Federal Court, Collier J, 23 April 2015.)
[LTN 78, 27/4/15]
Administrative Appeals Tribunal (AAT)
*Trustee for the Payne Superannuation Fund v FC of T – ‘net exempt income’
losses cannot be carried forward to reduce future ‘net exempt income’ [19]
In a case involving the calculation of losses carried forward under Subdiv 36-A
of ITAA 1997, the AAT has confirmed that a net exempt loss of a year of
income cannot be carried forward to a future year but rather is lost.
Under s 36-10 of ITAA 1997, a tax loss arises in any income year in which a
taxpayer’s allowable deductions exceed the taxpayer’s assessable income
(ignoring tax losses of earlier income years), provided that excess also exceeds
any net exempt income for the income year. This can be expressed as the
following formula:
Tax loss = [Allowable deductions − Assessable income] − Net exempt income
The taxpayer argued that a net exempt loss of the SMSF (ie where losses and
outgoings incurred in deriving exempt income exceed total exempt income)
should be allowed to be carried forward to offset the net exempt income of a
future year. This was contrary to the Commissioner’s long-standing position.
The AAT held that a taxpayer cannot carry forward the excess of losses and
outgoings relating to the taxpayer’s exempt income as a carried forward loss to
be offset against the taxpayer’s exempt income in a future year. It said that there
are no provisions of the tax law that provide that where losses and outgoings in
relation to exempt income exceed exempt income the excess can be applied to
reduce net exempt income in a future year. While there are specific provisions
relating to earlier year tax losses related to assessable income (eg s 36-10 and
36-15 of ITAA 1997) there is no corresponding provision in relation to exempt
income.
AAT ref: [2015] AATA 58, RW Dunne (Senior Member), 3 February 2015,
Adelaide.
[IT 2/4/15] [LTN 66, 9/4/15]
FJM Note
Tax losses are an excess of current year deductions over assessable income and can be
carried forward to reduce what would otherwise be the taxpayer’s taxable income, after
first being reduced by ‘net exempt income’ (see relevant sections below). There is some
conceptual merit in the taxpayer’s position, in that ‘deductions’ are not allowable to the
extent that the loss or outgoing was incurred to derive exempt income (of which there
can be a lot in a superannuation fund). If this is not to act in a penal way, ‘net exempt
20
Morgan’s Tax Month – April 2015 Developments
income losses’ should be able to be carried forward to reduce future ‘net exempt
income’ amounts. But, as the AAT noted, there are no express provisions to facilitate
this.
Extract from ITAA 1997
36-10 - How to deduct tax losses of entities other than corporate tax entities
(1) Your * tax loss for a * loss year is deducted in a later income year as follows if you
are not a * corporate tax entity at any time during the later income year.
Note 1:
See section 36- 17 for the deduction of a tax loss of an entity that is a
corporate tax entity at any time during the later income year.
Note 2:
A tax loss can be deducted only to the extent that it has not already been
utilised: see subsection 960-20(1).
If you have no net exempt income
(2) If your total assessable income for the later income year exceeds your total
deductions (other than * tax losses), you deduct the tax loss from that excess.
If you have net exempt income
(3) If you have *net exempt income for the later income year and your total assessable
income (if any) for the later income year exceeds your total deductions (except *tax
losses), you deduct the tax loss:
(a)
first, from your net exempt income; and
(b)
secondly, from the part of your total assessable income that exceeds those
deductions.
(4) However, if you have *net exempt income for the later income year and those
deductions exceed your total assessable income, then:
(a)
subtract that excess from your net exempt income; and
(b)
deduct the tax loss from any net exempt income that remains.
To work out your net exempt income: see section 36-20.
General
(5) If you have 2 or more * tax losses, you deduct them in the order in which you
incurred them.
36-20 - Net exempt income
(1) If you are an Australian resident, your net exempt income is the amount by which
your total * exempt income from all sources exceeds the total of:
(a)
the losses and outgoings (except capital losses and outgoings) you incurred in
deriving that exempt income; and
(b)
any taxes payable outside Australia on that exempt income.
*Re Applicant and FCT – no reduction in tax on capital gain for prior year
capital loss; lot compulsorily acquired and holding costs [20]
The AAT has affirmed the Commissioner's objection decisions denying a
taxpayer's claims for reduction of a capital gain on the disposal of a property.
In the year ended 30 June 1989, the taxpayer acquired 14.508 hectares of
unimproved land, zoned "Rural", situated in Wanneroo in Western Australia
(Property) with the intention of developing it for use as a turkey farm.
However, as a result of what the taxpayer said was "planning (resumption) and
environmental obstacles, beyond his control", the Property was ultimately never
used as a turkey farm. Instead, it was rezoned to "Special Rural", subdivided
and sold by the taxpayer in the years ended 30 June 2007 to 30 June 2010,
resulting in the realisation of a CGT asset.
The taxpayer's objections to assessments totalling just over $870,000 for the
2007 to 2010 years were disallowed and the matter came before the Tribunal.
The Tribunal had to consider whether:
•
the taxpayer's gross capital gain for the year ended 30 June 2007 (from the
disposal of part of the Property in Lots) should be reduced by $222,576,
which the taxpayer argued was a net capital loss he incurred in the year
ended 30 June 1998 (or a subsequent year) and carried forward to the year
21
Morgan’s Tax Month – April 2015 Developments
ended 30 June 2007 in respect of a payment made by the taxpayer as a
guarantor of a tax debt owed by a related company;
• the taxpayer's gross capital gain for the year ended 30 June 2009 should be
reduced by $340,740, which the taxpayer argued should have been included
in the cost base of Lot 300. Lot 300 was a result of the subdivision of the
Property. Lot 300 was compulsorily acquired by the City of Wanneroo in
the 2009 year; and
• the taxpayer was entitled to deductions totalling $1,894,147 in the years
ended 30 June 2007, 2008 and 2010 under s 51(1) of the ITAA 1936 or s 81(1) of the ITAA 1997, as applicable, for revenue expenses (interest, land
tax and council rates) the taxpayer claimed to have incurred in the years
ended 30 June 1990 to 2010 inclusive resulting in deductions in, or "tax
losses" carried forward to, the years ended 30 June 2007, 2008 and 2010.
After reviewing the matter, the Tribunal affirmed the Commissioner's objection
decisions. [NO REASONS given in this summary – see FJM Notes below.]
(Re Applicant and FCT [2015] AATA 244, AAT, Walsh SM, File Nos:
2013/6115 – 6118, 23 April 2015.)
[LTN 77, 24/4/15]
No carry forward capital loss - FJM note
The Applicant claimed the capital loss arose when the debt owed by his related
company (OCS) ended without being paid resulting in no capital proceeds and a
capital loss.
The Commissioner’s submissions (which the AAT accepted – see para [54]
were) were that far from the Applicant ceasing to have a debt owed by OCS on
making the tax payment (on 16 Dec 2004), the debt from OCS didn’t arise until
he made the tax payment on behalf of OCS (under the ‘Deed of
Acknowledgment, Guarantee and Indemnity’, under which OCS indemnified
the Applicant for the tax paid on its behalf). OCS was in insolvent
administration from 10 July 2001 to 3 June 2010 and was deregistered on 30
June 2011. The Commissioner submitted that it was not until OCS was
deregistered that the debt ceased to exist and the capital loss arose (too late for
relief in the relevant 2007 to 2010 years).
And for good measure, the Commissioner also submitted that the debt that the
Applicant acquired was a ‘personal use’ asset on which capital gains and losses
are disregarded (under s108-20(1) ITAA97). This was because the debt did not
arise in the course of deriving assessable income or in the course of carrying on
a business for that purpose (s108-20(2)). The Tribunal agreed with these
submissions too (see para [63]).
No increase in cost base for Lot 300 - FJM Note
The Applicant Taxpayer claimed legal fees and planning fees (on top of a share
of the cost base for the whole land) as his basis for submitting that the cost base
should be boosted by the $340,740 amount.
But the Commissioner submitted that these fees had already been apportioned to
Lots 11 & 15, which had also been compulsorily resumed, and that they could
not be claimed again (or that there was no evidence as to what a ‘reasonable’
basis for splitting the cost base between these 3 lots would be – as required by
s112-30(1)). The Tribunal agreed with these submissions (see para [76]).
No deduction for holding costs - FJM Note
The Applicant Taxpayer’s contention was that he incurred revenue expenses
(interest, land tax and council rates) totaling $1,894,147 during the years
between the acquisition of the Property in 1989 and the sale of the final lot in
the year ended 30 June 2010 and that these gave rise to deductions based on his
intention to carry on a turkey farm, until that was frustrated by planning
22
Morgan’s Tax Month – April 2015 Developments
problems (relying on Steele’s case about deductions incurred to derive future
income and Brown’s case about deductions being available after that business
finished).
However, the facts were that the Applicant Taxpayer did not settle the purchase
until March 1990 and only one month later (April 1990) the Applicant Taxpayer
engaged planning consultants to have the land rezoned from ‘Rural’ to ‘Special
Rural’ (which does not permit turkey farming). In June 1992 new planning
consultants applied for the land to be rezoned ‘Special Rural’ and it was so
rezoned in June 1998. The Commissioner argued that the intention to carry on a
turkey farming business (and thus the relevant income earning nexus with
incurring these expenses) was severed from this June 1992 date when the
Taxpayer applied for re-zoning that excluded turkey farming. The Tribunal
agreed (see para [92]). And for good measure, the Commissioner also
challenged whether the Taxpayer had discharged his onus of proof that these
holding cost amounts had all been incurred at all. The Tribunal agreed with
these submissions also (see para [113]). And finally, the Taxpayer could not
show that any carry forward losses actually established had not been ‘utilised’
(para [118]).
Re Pacific Worldwide Pty Ltd and CEO of Customs – taxpayer wins as
imported wontons, dumplings not classified as ‘pasta’ [21]
The AAT has held that a decision by Customs be set aside that had classified
goods entered as wontons, dumplings, parcels and hargows as Pasta.
The taxpayer is an importer of frozen foods, broadly described as dumplings
and wontons with a seafood filling. The AAT said the goods are imported from
Vietnam under the brand-name Chan's Yum Cha at Home. Customs decided on
17 July 2014 that the goods should be identified as stuffed pasta under tariff
heading 1902. The taxpayer disagreed (contending the goods should be
classified to tariff sub-heading 1605.29.00 or 1605.54.00 in Sch 3 to the
Customs Tariff Act 1995 – Crustaceans, mollusks and other aquatic
invertebrates), paid duty paid under protest and sought review of the decision.
After reviewing the matter, the Tribunal said it was not satisfied that consumers
or retailers would regard the skins of the imported goods as pasta. It said pasta
is a word commonly understood as being confined to Italian cuisine, unlike the
imported goods in question, which belong to Asian cuisine. The Tribunal set
aside the decision under review and in substitution decided that the imported
goods should be classified to tariff heading 1605.
(Re Pacific Worldwide Pty Ltd and CEO of Customs [2015] AATA 253, AAT,
Handley SM, File No: 2014/4541, 24 April 2015.)
[LTN 79, 28/4/15]
Re Creation Ministries International Ltd and Screen Australia - Refundable film
tax offset disallowed [22]
The AAT has upheld a decision of Screen Australia which held that certain
expenditure by the applicant was not incurred by the applicant for the purpose
of qualifying for a refundable film tax offset.
The applicant (Creation Ministries) is a not-for-profit corporation that seeks to
affirm the reliability of the Bible. It made a film concerning the impact of the
life and work of Darwin and made application to Screen Australia for a final
certificate for producer offset pursuant to s376-65 of the ITAA 1997. The
applicant claimed to have incurred "qualifying Australian production
expenditure" totalling $780,069. However, Screen Australia determined the
qualifying Australian production expenditure to be $452,518. Of the balance,
$47,463 was held not to qualify for reasons not in issue in these proceedings
23
Morgan’s Tax Month – April 2015 Developments
and $288,008 was held not to have been incurred by Creation Ministries, but by
Fathom Media (a company incorporated in connection with the production of
the film, of which a person associated with Creation Ministries was its only
member and sole director - Fathom Media acted as the trustee of a discretionary
trust that included Creation Ministries amongst its beneficiaries).
The case concerned whether Creation Ministries "incurred" the $288,008. The
AAT said Creation Ministries loaned funds to Fathom Media over several years.
After reviewing the matter, the Tribunal found that the relationship between
Creation Ministries and Fathom Media was one of lender and borrower. It said
that Creation Ministries was never under a "presently existing liability"; it was
not "definitively committed" nor "completely subjected" to, the amounts paid by
Fathom Media to discharge its contractual obligations to suppliers and other
third parties. Fathom Media was the contracting party; it was the entity that
incurred the expenditure, the AAT said. Creation Ministries did not incur the
expenditure by lending Fathom Media sufficient funds to discharge the
contractual debts that Fathom Media incurred.
Screen Australia's decision was therefore upheld.
(Re Creation Ministries International Ltd and Screen Australia [2015] AATA
250, AAT, Hack SC DP, File No: 2014/4749, 24 April 2015.)
[LTN 80, 29/4/15]
Other Courts & Tribunals
*Westpac Banking Corporation v Jamieson & Ors - Judgment for damages
resulting from financial loss upheld; gross-up for taxable damages [23]
The Qld Court of Appeal has dismissed appeals by a bank and cross-appeals by
a husband and wife concerning damages awarded for a financial loss stemming
from advice given by a financial planner.
In mid-2007, a husband and wife obtained a statement of advice from a
financial planner employed by Westpac Banking Corporation.
• The husband acted on that advice by borrowing $5m and investing it in a
registered managed investment scheme for 3 years.
• He hoped to generate a profit and to offset the costs of and interest on the
loan to eliminate his substantial income tax liability.
• The couple also acted on the planner's advice to borrow $600,000 for their
superannuation fund to invest in shares, which they hoped would be
profitable, ultimately borrowing $700,000 for that purpose.
• Following the global financial crisis in late 2007, both investment strategies
became unprofitable and the couple subsequently suffered significant
losses.
• They and their super fund trustee company sued Westpac for damages
arising from the financial planner's advice for breach of contract, negligence
and statutory contraventions.
They were successful on some claims. The primary judge found that Westpac
was negligent and in breach of contract and of its statutory obligations under
s 12DA(1) of the Australian Securities and Investments Commission Act 2001.
•
•
•
•
His Honour determined that the husband's loss on the managed investment
scheme, after tax, was $623,236.
Had he not taken up the Westpac recommendations, he would have invested
$200,000 in agribusiness, resulting in a loss, unrelated to Westpac's advice,
of $134,107.
The Court said the damages of $623,236 should be reduced by $134,107 to
reflect this, so that his net damages after tax were $489,129.
24
Morgan’s Tax Month – April 2015 Developments
As the husband would have to pay tax on his damages of $489,129 pursuant
to s 20-20 of the ITAA 1997, that figure had to be "grossed up" by an
amount of $200,992 to ensure that he was left with $489,129 after tax.
• His Honour assessed the husband's total damages arising from the
investment as $690,121.
• After adding interest of $228,535, his Honour gave judgment in the sum of
$918,656.
In his reasons, his Honour made clear that he considered the assessable amount
of the judgment for taxation purposes under s 20-20 was $489,129.
In the claim arising out of the super fund investment, his Honour gave judgment
for the couple inclusive of interest in the sum of $161,799.
Westpac appealed and the husband and wife cross-appealed, filed a notice of
contention and applied to adduce further evidence in the appeal. After reviewing
the matter, the Court unanimously refused the appeal, the cross-appeal and the
application to adduce further evidence, although each Judge gave separate
reasons.
(Westpac Banking Corporation v Jamieson & Ors [2015] QCA 50, Qld Court of
Appeal, Margaret McMurdo P and Morrison JA and Applegarth J,
10 April 2015.)
•
[LTN 68, 13/4/15]
Catchwords [2015] QCA 50
DAMAGES – GENERAL PRINCIPLES – OTHER MATTERS – where a bank was
found to have given negligent and misleading investment advice to a customer – where
the advice did not adequately disclose that more than 10 per cent of the investor’s
wealth would be at risk if the investment performed poorly – where the investment
performed poorly, partly as a result of the GFC, and the customer was liable for interest
under loans made to finance the investment – whether the bank is responsible for the
total loss suffered by the customer – whether the rule in Potts v Miller should have been
applied to assess the loss – whether the primary judge erred in considering what the
customer would have done had he not been induced to make the investment and
associated loans – whether the investor would have borrowed and invested in a tax
minimising scheme and suffered a loss on that alternative investment
CORPORATIONS – FINANCIAL SERVICES AND MARKETS – FINANCIAL
PRODUCTS – GENERALLY – where a bank advised a customer to borrow to
contribute to a self-managed superannuation fund – whether bank was negligent in
failing to adequately advise the customer of the detriments of using borrowed money to
make undeductible contributions
DAMAGES – INCIDENCE OF TAXATION AFFECTING DAMAGES – where
the primary judge found that an award of damages would be assessable income under
the Income Tax Assessment Act 1997 (Cth) – where the primary judge “grossed-up” the
amount of damages on account of the tax treatment of the award – whether the figure
used by the primary judge as the customer’s net loss was correct – whether the
methodology used by the primary judge to “gross-up” the assessed loss was correct –
whether the “grossed-up” award of damages should be “grossed-up” ad infinitum
Income Tax Assessment Act 1997 – s20-20
20.20 - Assessable recoupments
Exclusion
(1) An amount is not an assessable recoupment to the extent that it is * ordinary
income, or it is * statutory income because of a provision outside this Subdivision.
Insurance or indemnity
(2) An amount you have received as * recoupment of a loss or outgoing is an
assessable recoupment if:
(a)
you received the amount by way of insurance or indemnity; and
(b)
you can deduct an amount for the loss or outgoing for the * current year, or you
have deducted or can deduct an amount for it for an earlier income year, under
any provision of this Act.
25
Morgan’s Tax Month – April 2015 Developments
Other recoupment
(3) An amount you have received as * recoupment of a loss or outgoing ( except by
way of insurance or indemnity) is an assessable recoupment if:
(a)
you can deduct an amount for the loss or outgoing for the * current year; or
(b)
you have deducted or can deduct an amount for the loss or outgoing for an earlier
income year;
under a provision listed in section 20-30.
FJM Comment
It’s not clear to me that the Applicant customers were entitled to a gross-up for their
damages being taxable after they had (as a requirement for s20-20(2) operating) got a
deduction for their losses.
*In the matter of 4 Doonan Street Collinsville Pty Ltd (in liq) – FCT can set off
amounts in the taxpayer’s RBA without breaching liquidation rules [24]
In a complex procedural matter, the NSW Supreme Court has held that where a
company is in liquidation, the Commissioner is nevertheless entitled to make
adjustments to the company's running balance account (RBA) in respect of
transactions which took place prior to the company being placed in liquidation.
The adjustments related to a credit for an amendment lodged by the liquidator
for a reduced capital gains tax liability of some $650,000 and subsequent debits
by the Commissioner against that credit for income tax withholding, income
tax, GST and the superannuation guarantee charge. The liquidator contested the
RBA debiting in the circumstances (albeit, he was successful in obtaining
judgment for the amount of $113,914 after the Court's determination of the
issue).
In arriving at its decision, the Court noted that the Commissioner was entitled
under the RBA provisions of the Taxation Administration Act 1953 to make the
offsetting debits and credits amongst the various tax debts of a taxpayer at his
discretion and to arrive at a net position by aggregating the relevant RBA
accounts of the taxpayer.
In any event, it noted that any net debit owing to the Commissioner had to
be proved on liquidation or any net credit owing to the taxpayer would have
to be repaid to the taxpayer (as was the case here).
• The Court also found that the setting-off of RBA amounts in different
accounts was permissible for a company in liquidation.
• The Court also dismissed the company's claim that debits made by the
Commissioner against the company's RBA credits acted as an "attachment,
sequestration, distress or execution" against the property of the company
contrary to the Corporations Law.
• Instead, the Court found that credit amounts in the RBA against which the
debits had been made would not become "property of the company" until a
net balance had been determined by the Commissioner, and that the debit of
amounts did not amount to an attempt to enforce a debt.
(In the matter of 4 Doonan Street Collinsville Pty Ltd (in liq) [2015] NSWSC
437, NSW Supreme Court, Black J, 17 April 2015.)
•
[LTN 76, 23/4/15]
Catchwords from [2015] NSWSC 437
CORPORATIONS – winding up – conduct and incidents of winding up –
where Commissioner sought to determine net position within running balance
accounts – whether Company had a chose in action as to tax credit prior to setoff – whether amounts in accounts were property under s 9 of the Corporations
Act – whether set-off constituted attachment under s 500 of the Corporations
Act 2001 (Cth).
26
Morgan’s Tax Month – April 2015 Developments
*Paloto Pty Limited v Herro - No variation in trust vesting date to avoid tax
liabilities [25]
The NSW Supreme Court has declined to allow the variation of a trust vesting
date in order that tax liabilities could be avoided.
The plaintiff is the trustee of a trust that was created by a Deed of Settlement
made on 8 June 1965. The Trustee was required to hold the settled property on
trust for the beneficiary. The Deed was later varied and changes were made to
the terms of the trust, including a new clause as to the vesting day. The vesting
day is the day on which the period of 50 years after the execution of the Deed of
Settlement expires ie 8 June 2015. The plaintiff is concerned that if there is a
vesting of the trust property on that date, there will be consequences adverse to
the beneficiaries, in particular the incurring of CGT and stamp duty liabilities.
The Settlor died in 1991 so the power of variation contained in the Deed is no
longer available. The Deed contains no other power of variation. Accordingly,
the plaintiff sought relief to enable it as Trustee to vary the vesting date to any
day not later than 7 June 2045.
The Court said the only assets of the trust were 100 ordinary shares and 20
redeemable preference shares in a private company, Khalil Investments Pty
Limited, which apparently had assets with a net market value of in excess of
$16m. The Court said there was also evidence that if there were a vesting of the
trust property in June 2015, there would be a net capital gain (allowing for the
50% discount) of $1,365,302 and thus a total CGT liability (assuming a
marginal tax rate of 49%) of $668,998. According to the second defendant,
there may also be a liability for stamp duty totaling an amount estimated to be
greater than $38,000. It was claimed that if the vesting took place in June 2015,
it would be necessary for assets to be sold to meet the tax liabilities.
After reviewing the matter, the Court found this was not a case where it would
be justified in sanctioning a variation of the terms of the trust to provide for a
later vesting day. The Court did not think it was correct to characterise the
circumstances of the present case as involving an emergency that had arisen in
the course of administration of the estate, which needs to be resolved in the
interests of preserving the trust property.
(Paloto Pty Limited v Herro [2015] NSWSC 445, NSW Supreme Court,
Darke J, 10 April 2015.)
[FJM Note: I’m not sure this is the required test: an ‘emergency’.]
[LTN 77, 24/7/15]
*Robson & Ors v FCT - Incorporated association legislation does not import
Corporations Act provisions about unfair preferences on winding up [26]
The Qld Supreme Court has held that s 91(2) of the Associations Incorporation
Act 1981 (Qld) ("AIA") does not pick up and apply Pt 5.7B of the Corporations
Act 2001, including s 588FF(1)(a), to the winding up of an incorporated
association.
The Court said when an association incorporated under the AIA is ordered to be
wound up by the court, s 91(2) of the AIA provides, in effect, that the winding
up is to be done in accordance with the provisions of Pt 5.7 of the Corporations
Act. The dispute between the parties in this case was whether s 91(2) thereby
picks up and applies the provisions of Pt 5.7B of the Corporations Act to the
winding up of an incorporated association. The Court said the plaintiffs' claim
depended on the conclusion that it does.
The second plaintiff, the Regional Community Association Incorporated (ABN
91 076 047 780), was incorporated in May 1994 as an association under the
AIA. It was ordered to be wound up in August 2013. The first plaintiffs alleged
that the Association made payments in reduction of its taxation liabilities to the
27
Morgan’s Tax Month – April 2015 Developments
Tax Commissioner, and the first plaintiffs alleged that such payments were also
unfair preferences pursuant to the Corporations Act. The plaintiffs claimed from
the Tax Commissioner the sum of $117,616.00 as an unfair preference. The
plaintiffs and the defendant applied for an order for the decision of a question
separately before the trial of the proceeding, in effect whether the provisions of
Pt 5.7B of the Corporations Act, including s 588FF, applied in the winding up
of the second plaintiff, as an incorporated association.
The Court concluded that, properly construed, s 91(2) of the AIA does not pick
up and apply Pt 5.7B of the Corporations Act, including s 588FF(1)(a), to the
winding up of an incorporated association under s 90 of the AIA, because
neither s 582 nor s 583 of the Corporations Act applies Pt 5.7 or s 588FF to a
Part 5.7 body in the first place. In the result, the Court declared that Pt 5.7B of
the Corporations Act 2001, including s 588FF(1), did not apply in the winding
up of the Regional Community Association Incorporated (ABN 91 076 047
780).
(Robson & Ors v FCT [2015] QSC 76, Qld Supreme Court, Jackson J,
27 April 2015.)
[LTN 79, 28/4/15]
Appeals
FCT v Macoun – taxpayer seeks leave to appeal to the High Court from
decision that a World Bank pension was not exempt from tax [27]
The taxpayer has applied for special leave to appeal to the High Court against
the decision in FCT v Macoun [2014] FCAFC 162. The Full Federal Court had
unanimously allowed the Commissioner's appeal from an earlier AAT decision,
effectively finding that an early retirement pension received by a resident
taxpayer from the World Bank was not exempt from Australian income tax.
[LTN 80, 29/4/15]
COMMISSIONER’S PUBLICATIONS & NEWS
Decision Impact statements
[-]
Rulings
[-]
Determinations
TD 2015/10 - Interest arising from arrangement funding return through
connected entities [28]
This Determination, issued on Wed 22.4.2015, states that the fact a company
has issued a debt interest to a listed property trust within the same stapled
property group will not of itself be sufficient to form a conclusion under para
974-80(1)(d) of the ITAA 1997 that there is a scheme, or a series of schemes,
designed to operate so that the returns on the debt interest are used to fund
returns on an equity interest held by another person (the 'ultimate recipient').
The Determination was previously issued as Draft TD 2014/D20 and is largely
the same.
DATE OF EFFECT: Applies to years of income commencing both before and
after its date of issue.
[LTN 75, 22/4/15]
28
Morgan’s Tax Month – April 2015 Developments
Class Rulings & Product Rulings
Class Rulings on 1.4.15 [29]
The ATO has issued the following class rulings:
•
•
Class ruling CR 2015/24 Income tax: Calliden Group Limited Scheme of
Arrangement and Special Dividend. The ruling applies from 1 July 2014 to
30 June 2015, and
Class ruling CR 2015/25 Income tax: Calliden Group Limited Scheme of
Arrangement — Special Dividend — Participants of the Calliden Group
Limited Incentive Rights Plan. The ruling applies from 1 July 2014 to 30
June 2015.
[IT, 1/4/15]
Product Ruling 1.4.15 [30]
The ATO has released Product Ruling PR 2015/3 Income tax: deductibility of
interest in relation to investment in units in the Macquarie Flexi 100 Trust
issued on or before 30 June 2018 — Flexi Professional. The ruling applies
prospectively from 1 April 2015.
[IT, 1/4/15]
CR 2015/28 & PR 2015/5 [31]
The ATO, on Wed 22.4.2015, issued the following Class Ruling and Product
Ruling:
•
•
CR 2015/28: Exchange of shares in Fiducian Portfolio Services Limited for
shares in Fiducian Group Limited; and
PR 2015/5: TFS Sandalwood Project 2015.
[LTN 75, 22/4/15]
CR 2015/29 - Chandler Macleod Group Limited Scheme of Arrangement and
Permitted Dividend [32]
The ATO on Wed 29.4.2015, issued Class Ruling CR 2015/29 (Chandler
Macleod Group Limited Scheme of Arrangement and Permitted Dividend). It
applies from 1 July 2014 to 30 June 2015.
[LTN 80, 29/4/15]
ATO Interpretative Decisions
ATO ID 2015/9 – No SGC on attributed personal services income (it’s not
actual salary and wages) [33]
The ATO, on Fri 17.4.2015, issued ATO ID 2015/9 (Superannuation Guarantee
Scheme: attributed personal services income). The ID deals with the following
question:
Does attributed personal services income attract superannuation guarantee
(SG) obligations on the part of the relevant personal services entity?
The ID says no, except for actual salary or wages that are paid in the year of
income but which are reported as attributed personal services income because
they were paid more than 14 days after the end of the PAYG payment period in
which the relevant amount was derived as income of the personal services
entity.
[LTN 72, 17/4/15]
ATO ID 2015/9 – extract
“A personal services entity is a company, partnership or trust whose income includes the
PSI of one or more individuals.
29
Morgan’s Tax Month – April 2015 Developments
“In certain circumstances, under section 86-15 of the ITAA 1997, an amount of income
derived by a personal services entity from the personal services (principal work) provided
by an individual may be included in the assessable income of the individual. These
amounts (referred to as attributed amounts) are excluded from the assessable income and
exempt income of the personal services entity under section 86-30 of the ITAA 1997.
“Attributed amounts [normally excluded from the entity’s assessable income under s8630] do not include personal services income paid promptly by the personal services entity
to the individual, as an employee, as salary or wages. T[o be ‘prompt’ the salary]
payment must be made before the end of the 14th day after the relevant PAYG payment
period [that is the period in which the entity derived the personal services income]. These
[‘prompt’] payments are deductible to the personal services entity and therefore reduce
the amount that would otherwise be attributable personal services income (due to the
operation of subsection 86-15(4) of the ITAA 1997).
“However, the treatment of salary or wages that are paid to the personal services provider
more than 14 days after the end of a PAYG payment period in which the amount became
ordinary or statutory income of the personal services entity is different. These amounts
are not included as salary or wages on a personal services provider's tax return, but are
instead reported as attributed personal services income.” [But because these amounts
were paid as actual salary (albeit not ‘promptly’ there is still SGC payable by the entity.]
Practice Statements
[-]
Tax Alerts
*TA 2015/1: Private company dividends diverted to SMSF – concerns that it
might be dividend stripping or ‘non-arm’s length income in the fund [34]
Overview - This Taxpayer Alert describes arrangements where a private
company with accumulated profits channels franked dividends to a selfmanaged superannuation fund (SMSF) instead of to the company's original
shareholders. As a result, the original shareholders escape tax on the dividends
and the original shareholders or individuals associated with the original
shareholders benefit as members of the SMSF from franking credit refunds to
the SMSF.
What is the issue? - The ATO is concerned that contrived arrangements are
being entered into by individuals (typically SMSF members approaching
retirement) so that dividends subsequently flow to, and are purportedly treated
as exempt from income tax in, the SMSF because the relevant shares are
supporting pensions. The intention is for the original shareholders of the private
company and/or their associates to avoid 'top-up' income tax on the dividend
income; and for the SMSF to receive a refund of the unused franking credit tax
offset, which is available for tax free distribution to its members.
This arrangement has features of dividend stripping which could lead to the
ATO cancelling any tax benefit for the transferring shareholder and/or denying
the SMSF the franking credit tax offset.
What are the ATO's concerns?
(a)
The ATO considers that the main anti-avoidance provisions for
arrangements of this type are whether:
(i)
the franked dividends received by the SMSF may be part of a
dividend stripping operation under paragraph 207-145(1)(d) of the
Income Tax Assessment Act 1997 [denying the franking credit to
the SMSF shareholder].
(ii) the arrangement may be a scheme by way of or in the nature of, or
have substantially the effect of, dividend stripping to which section
30
Morgan’s Tax Month – April 2015 Developments
(b)
(c)
177E of the Income Tax Assessment Act 1936 applies [taxing the
previous shareholders on the dividend].
(iii) the arrangement may be a scheme to obtain imputation benefits to
which section 177EA of the 1936 Act applies [also denying the
franking credit to the SMSF].
The ATO considers that arrangements of this type may also give rise to
non-arm's length income for the SMSF under section 295-550 of the
ITAA 1997 [so that the SMSF’s dividend income is taxed at maximum
marginal rates].
Other compliance issues for arrangements of this type may include:
(i)
capital gains tax consequences, such as transfers below market
value [giving the transferor a deemed capital gain];
(ii) ordinary dividend or deemed dividend consequences;
(iii) superannuation regulatory issues, including non-arm's length
dealings between members or associates and the SMSF, and/or
(iv) excess contributions tax consequences [fund tax on under value at
which the SMSF acquired the shares].
[TA 2015/1] [LTN 81, 30/4/15]
Other ATO news or statements
Wealthy individuals and their private groups: ATO starts "tax assurance talks"
[35]
The ATO has released details of its approach to wealthy individuals and their
private groups. The ATO says it was taking a "prevention-before-correction
approach and ramping up face-to-face engagement with key taxpayers". Acting
Second Commissioner Michael Cranston said most wealthy individuals and
their private groups do the right thing; however, some choose to avoid tax, and
that is why the ATO was shifting its approach. Mr Cranston said the ATO will
be visiting the largest private groups to look at their tax affairs in real time, raise
any concerns and resolve issues before companies lodge their tax returns.
According to the ATO, about 30% of wealthy individuals and their private
groups are considered "high-risk". Mr Cranston said there are about 175 private
groups controlling almost 6,000 entities with more than $1bn in turnover or
$500m in net assets. He said the ATO will begin visits "by the end of the
month". Further, he said if taxpayers are open and transparent with the ATO,
they can expect better services and faster turnaround on key decisions.
Further information is available on the ATO Building confidence, Privately
owned and wealthy groups, webpage.
Source: ATO media release, 16 April 2015
[LTN 71, 16/4/15]
Early ATO warning - franked distributions funded by capital raisings [36]
The ATO is considering its position on the recent transactions of some public
companies involving franked distributions (by way of special dividends or
otherwise) which are funded by equity raisings. We have some concerns about
these types of arrangements and a taxpayer alert will be available soon.
[ATO website] [LTN 73, 20/4/15]
Tips for trustees of death benefits [37]
On a trust return, when a death benefit employment termination payment (ETP)
and/or a superannuation lump sum is paid to a client's deceased estate:
•
do not record these amounts as distributed to beneficiaries of the trust;
31
Morgan’s Tax Month – April 2015 Developments
include the assessable amounts at item 54 Statement of distribution at
'Income to which no beneficiary is presently entitled'. This ensures the tax
liability raised is correct and the benefits of any tax concessions are
realised.
• Include the assessable components at item 13 on the trust return
We will then use the taxed and untaxed elements of the death benefit shown at
item 13 to determine how much tax the trustee of the estate is liable to pay.
•
Last modified: 27 Apr 2015
QC 44927
[ATO website] [LTN 79, 28/4/15]
Choose reporting options for PAYGi and GSTi – election of method must be
made in the first quarter [38]
PAYG Instalments - Your clients can generally choose between two options
for reporting and paying their pay as you go (PAYG) instalment obligations for
the income year. They can either:
• pay the pre-printed instalment amount, or
• calculate their PAYG instalment using the rate option.
In Quarter 1, if an activity statement due date has passed and a reporting method
has not been clearly indicated, your client will not be able to change their
reporting method until the first quarter of the next income year.
Existing quarterly payers who have not chosen a reporting method will
default to the method used in the previous year. If they are no longer
eligible to use the instalment amount option, they will default to the
instalment rate option.
• New payers will default to the instalment amount option.
GST Instalments - Depending on your client's GST turnover and other
eligibility requirements, they can report and pay GST monthly, quarterly or
annually.
Quarterly payers can elect to pay and report GST using:
•
• Option 1: Calculate, report and pay GST amounts quarterly
• Option 2: Calculate and pay GST quarterly and report annually
• Option 3: Pay GST instalments quarterly and report annually
Notify us of your preferred option by the due date of the Quarter1 activity
statement in the financial year that relates to the election.
Existing quarterly payers who have not chosen a reporting method will
default to the method used in the previous year
• New payers will default to Option 1 if an election is not made by the due
date.
However, entities are able to change between Options 1 and 2 at any time
throughout the year.
•
[ATO website] [LTN 79, 28/4/15]
Federal Taxation Statistics 2012-13 [39]
The ATO on Wed 29.4.2015 released Taxation Statistics 2012-13 which
present an overview of 2013 income tax returns for individuals, companies,
superannuation funds, partnerships and trusts. The statistics also cover other
aspects of the taxation system such as GST, FBT and excise, along with the
superannuation system, in relation to the 2013-14 financial year.
Highlights from the statistics for the 2012-13 year include:
•
Individuals - 12.7m individuals lodged income tax returns. Tax agents
submitted 9.4m of the tax returns, 2.8m were submitted using e-tax, and
547,100 returns were lodged by self-preparers (down from 912,205 in 201132
Morgan’s Tax Month – April 2015 Developments
•
•
•
•
•
12). Individuals declared total income of $738.7bn in 2012-13 (compared
with $703.9bn in 2011-12) and a cumulative net tax payable of $154.9bn.
Companies - 854,745 companies lodged returns (up from 817,885 in 201112). Total company expenses were $2,485.8bn (up from $2,344.4bn in
2011-12) and companies reported total income of $2,714.9bn (up from
$2,573.1bn in 2011-12). Companies were liable for $64.5bn in net tax (up
from $64.2bn in 2011-12).
CGT - net capital gains were reported by 505,750 individuals (up from
424,320 in 2011-12), 13,950 companies (up from 13,115 in 2011-12) and
56,470 funds (up from 52,130 in 2011-12) totalling $23.9bn in net capital
gains.
GST - GST liabilities and Customs collections totalled $51.7bn for 2013-14
(up from $48.4bn in 2012-13).
Superannuation - 451,620 funds lodged returns (up from 428,055 in 201112). Total fund deductions were $22.2bn (down from $22.7bn in 2011-12).
Cost of tax compliance - the average time taken by an individual to
complete an income tax return was 4.7 hours (up from 4.6 hours in 201112). Companies took on average 7.1 hours to complete an income tax return
(down from 8 hours in 2011-12). For individuals, the average cost of
managing tax affairs has increased to $379 in 2012-13 (from $371 in 201112).
[LTN 80, 29/4/15]
GST DEVELOPMENTS
Legislation & Announcements (GST)
GST to cover intangible supplies by non-residents; $1,000 threshold may also
be lowered [40]
Mr Hockey said: ‘The [relevant] integrity measures were in relation to what is
emerging as an OECD consensus, that GST should be charged at the source [of
the payment for the service], so a company providing intangible services into
Australia, such as media services or so on, wherever they are located they
should charge GST on those services [and pay the GST to Australia]. So there
are some obvious ones [suppliers] of more recent times engaged in that, and
without naming companies, I think you can work them out. And there are a
number of those companies that are prepared to charge the GST on the services
that they are putting into Australia, but they want to know that they are not at a
competitive disadvantage. Now, the States agreed in principle that we should
move in that regard. I have offered to work as quickly as possible with them to
introduce legislation to address that in relation to intangibles.
If you were to apply it [Australian GST] to goods under $1,000 for low-value
thresholds, that would probably be the appropriate system to follow as well,
because there are now fewer providers of goods into Australia than there might
have been two or three years ago. Therefore, you can identify those major
providers of goods and therefore ask them to charge GST as well, so that there
is competitive neutrality. I see those things as integrity measures for the tax
base, not a broadening of the GST or an increase of the GST.’
[Transcript of Treasurer’s interview – 9/4/15]
The Treasurer has announced that he will introduce legislation to apply GST to
intangible supplies, such as media services, provided by companies (wherever
they are located) into Australia. He said such "integrity measures" were in
relation to what is emerging as an OECD consensus ie that GST should be
charged at the source [ie. where the payment is made], so a company providing
33
Morgan’s Tax Month – April 2015 Developments
intangible services into Australia, such as media services etc, wherever they are
located, should charge GST on those services [and pay GST to Australia]. He
said the States had agreed in principle that the Government should move in that
regard and he has "offered to work as quickly as possible with them to introduce
legislation to address that in relation to intangibles".
Mr Hockey also said that "if you were to apply it to goods under $1,000 for
low-value thresholds, that would probably be the appropriate system to follow
as well".
[LTN 67, 10/4/15]
Cases (GST)
*Re Andrew Garrett in his capacity as an Authorised Officer of various trusts no standing as holder of trustee’s power of attorney - breach of Corps Act [41]
The AAT has held that an individual was not a person who was entitled to apply
for review of reviewable objection decisions made by the Commissioner. The
Tribunal also refused the individual's request to extend the time within which to
lodge an application for review of the objection decisions.
The individual, in his own name in various capacities, sought an extension of
time to lodge applications seeking review of objection decisions in relation to 3
entities: the OenoViva (Australia & New Zealand) Plant and Equipment Trust
(P&E Trust), the OenoViva (Australia & New Zealand) Plant and Equipment
Trust No 2 (P&E Trust No 2), and the Andrew Garrett Family Trust No. 3
(Family Trust No 3). Generally, the issues concerned GST refunds, GST
registration cancellation and input tax credit claims.
The individual's applications were out of time, hence the request for extension.
After comprehensively reviewing the matter, the Tribunal decided not to extend
the time within which the individual could lodge each of the applications. It
found he was not a person who was entitled to make an application for review
of the Commissioner's objection decisions. Therefore, the Tribunal said there
was no basis on which it could consider his applications for extension of time
within which to lodge an application.
[In an August 2014 decision (in Re The Trustee of Oenoviva (Australia & New
Zealand) Plant and Equipment Trust and FCT [2014] AATA 614), the
individual was unsuccessful before the AAT in seeking to have standing and
authority to act on behalf of another entity (a trustee of a trust) in relation to 2
applications concerning a claim for input tax credits that had been denied and an
imposition of an administrative penalty.]
(Re Andrew Garrett in his capacity as an Authorised Officer of the OenoViva
(Australia & New Zealand) Plant & Equipment Trust No 2 and Ors and FCT
[2015] AATA 247, AAT, Forgie DP, File Nos: 2014/4068, 4070, 4071,
24 April 2015.)
[LTN 79, 28/4/15]
FJM Note – what is the ‘authorised officer’ and why he couldn’t apply for review
Andrew Garret had been disqualified from being a director of the relevant
corporate trustees for dishonest dealings (para [54]) and then sought to be
appointed as the power of attorney of these companies (para [56])
notwithstanding that s206A(1) of the Corporations Act 2001 made it an offence
for such a disqualified person to be involved in the management of the
company. The Tribunal held that s14ZZ(1) of the Taxation Administration Act
1953 only allowed the trustee of these trusts to object and apply for review (and
it appears that Mr Garrett’s criminal attempt to speak for the corporate trustee
did not ‘cut the mustard’).
34
Morgan’s Tax Month – April 2015 Developments
Australia Pacific LNG Pty Ltd & Ors v Building & Construction Industry
(Portable Long Service leave) Authority – levy on GST-inclusive cost [42]
In a February 2014 decision in Australia Pacific Pty Ltd & Ors v Building and
Construction Industry Authority [2014] QMC 004, the Magistrates Court of Qld
held that GST on domestic and imported goods used in a coal seam gas project
in Qld is a component of the cost of building and construction work. This meant
the GST was subject to a building and construction training levy, and long
service leave levy and a work health and safety levy under s 66 of the Building
and Construction Industry (Portable Long Service Leave) Act 1991 (Qld). GST
on the building and construction costs for the purpose of the various levies
totalled around $1.2bn with the result that the first appellant was assessed to pay
levies totalling over $85m. The applicants appealed.
The Industrial Court of Qld has now dismissed the applicants' appeals. The
Court said the words of Pt 8 of the above Act "compel the conclusion that there
is no reason for the GST component in the costs of building and construction
work to be excluded from the amount upon which the levy is imposed". It said
this was the case whether the GST was incurred on acquisition of domestic or
imported supplies or materials. The Court held that the applicants had not
demonstrated that the Magistrates Court had been in error.
(Australia Pacific LNG Pty Ltd & Ors v Building & Construction Industry
(Portable Long Service leave) Authority [2015] ICQ 013, Martin P,
28 April 2015.)
[FJM Note: without having been able to look at the relevant section in this
Act, it does seem counter-intuitive, to include in ‘cost’, the GST component,
which is ultimately refunded by the ATO. This is why, after all, all income tax
figures are net of input tax credits.]
[LTN 80,29/4/15]
Rulings, Determinations & Other things (GST)
[-]
SUPERANNUATION DEVELOPMENTS
Legislation, Announcements etc. (Super)
[-]
Cases (Super)
Temporary Residents – draft legislation to exempt employers having to offer
choice of funds for superannuation contributions [43]
Treasury has released draft legislation to give effect to the government’s
announcement to remove the obligation for employers to offer a choice of
superannuation fund to temporary residents, or when superannuation funds
merge, from 1 July 2015.
In particular, employers will not be required to give employees a standard
choice form if they hold a temporary visa as defined by the Migration Act 1958.
Further, employers will not be required to give employees a standard choice
form when their superannuation benefits are transferred from a chosen fund or a
default fund to a successor fund as a result of a superannuation fund merger
arrangement.
The closing date for submissions is Wednesday, 15 April 2015.
[IT 1/4/15]
35
Morgan’s Tax Month – April 2015 Developments
Trustee for the Payne Superannuation Fund v FC of T – ‘net exempt income’
losses cannot be carried forward to reduce future ‘net exempt income’ [44]
In a case involving the calculation of losses carried forward under Subdiv 36-A
of ITAA 1997, the AAT has confirmed that a net exempt loss of a year of
income cannot be carried forward to a future year but rather is lost.
Under s 36-10 of ITAA 1997, a tax loss arises in any income year in which a
taxpayer’s allowable deductions exceed the taxpayer’s assessable income
(ignoring tax losses of earlier income years), provided that excess also exceeds
any net exempt income for the income year. This can be expressed as the
following formula:
Tax loss = [Allowable deductions − Assessable income] − Net exempt income
The taxpayer argued that a net exempt loss of the SMSF (ie where losses and
outgoings incurred in deriving exempt income exceed total exempt income)
should be allowed to be carried forward to offset the net exempt income of a
future year. This was contrary to the Commissioner’s long-standing position.
The AAT held that a taxpayer cannot carry forward the excess of losses and
outgoings relating to the taxpayer’s exempt income as a carried forward loss to
be offset against the taxpayer’s exempt income in a future year. It said that there
are no provisions of the tax law that provide that where losses and outgoings in
relation to exempt income exceed exempt income the excess can be applied to
reduce net exempt income in a future year. While there are specific provisions
relating to earlier year tax losses related to assessable income (eg s 36-10 and
36-15 of ITAA 1997) there is no corresponding provision in relation to exempt
income.
AAT ref: [2015] AATA 58, RW Dunne (Senior Member), 3 February 2015,
Adelaide.
[IT 2/4/15] [LTN 66, 9/4/15]
Rulings & Other things (Super)
Ward’s case – ATO’s view of AAT’s approach to reviewing ‘excess super
contributions tax assessments’ [45]
The ATO has issued a Decision Impact Statement on the decision in Re Ward
and FCT [2015] AATA 138. In that case, the AAT ruled that it had jurisdiction
to review a decision by the Commissioner not to make a determination to
disregard or reallocate excess superannuation contributions after finding that
s 292-465(9)(a) of the ITAA 1997 was "manifestly absurd".
The ATO said the Commissioner had not appealed the decision and that it was
consistent with his longstanding practice. It said the decision has significance
for a taxpayer who wishes to object under Pt IVC against:
an excess non-concessional contributions tax (ENCCT) assessment for any
financial year; or
• an excess concessional contributions tax (ECCT) assessment for a financial
year up to and including the 2012-13 year (there are no ECCT assessments
for the 2013-14 year and later years), on the ground they are dissatisfied
with the Commissioner's decision not to make a subsection 292-465(1)
determination or with such a determination the Commissioner did make,
where they applied for a subsection 292-465(1) determination on or after
17 November 2010.
Consequently, the ATO says this decision also has significance for the
jurisdiction of the AAT when reviewing an objection decision of the kind and in
the circumstances described in the previous paragraph, since the AAT can only
•
36
Morgan’s Tax Month – April 2015 Developments
review an objection decision in relation to an objection validly made under Part
IVC.
[LTN 79, 28/4/15]
AUSTRALIAN CHARITIES & NOT-FOR-PROFITS (ACNC) SECTOR
[-]
BOARD OF TAXATION
*‘Debt - Equity’ report released by Minister and draft legislation foreshadowed
to implement recommendations to reduce uncertainty and cost [46]
The Assistant Treasurer, on Thur 2.4.2015, released the Board of Taxation's
review into aspects of the tax integrity rules that distinguish debt finance from
equity. Specifically, the report recommends reforms to the related scheme
provisions and the equity override provision in the tax rules for debt and equity.
Mr Frydenberg said the Board of Taxation has provided advice on how to
address the uncertainty and compliance costs that result from the current rules,
while still preserving the integrity of the debt equity tax rules. He said the
Government will consult on exposure draft legislation to implement the Board
of Taxation's recommended approach "in the coming months".
The Assistant Treasurer said the proposed changes "will operate with
prospective effect, and taxpayers who self-assessed in accordance with the 2011
announcement will be protected".
The Board of Taxation's accelerated report (April 2015) is available on the
Board website.
[Media Release] [LTN 63, 2/4/15] [IT 2/4/15]
EXTERNAL SUPERVISORS – IGT; OMBUDSMAN, JCPAA & ANAO
*IGoT tax over Ombudsman’s tax function from 1 May 2015 [47]
From 1 May 2015, the Inspector-General of Taxation (IGT) will be able to
consider and assist taxpayers with their complaints about the Australian
Taxation Office (ATO) and Tax Practitioners Board (TPB). The transfer of this
function from the Commonwealth Ombudsman to the IGT was announced in
last year’s Federal Budget and the relevant legislation was enacted earlier this
year.
Since 2003, the IGT has been delivering improvements to tax administration
through its investigations of systemic issues and recommendations for change.
The integration of the complaint handling function with the IGT’s existing role
will provide a single port of call for all taxpayers and tax practitioners for their
complaints or broader concerns about the tax system as administered by the
ATO or TPB.
“As an independent and dedicated scrutineer of the ATO for the past twelve
years, my office with its specialist tax staff, is well-placed to help taxpayers and
tax practitioners address their individual issues with the ATO or TPB,” said Mr
Noroozi.
The integration of the complaints function and IGT’s traditional investigations
of systemic issues is consistent with recommendations he has previously made
to the Government. The benefits of such integration include enabling the IGT to
be more proactive to emerging issues in tax administration.
“Handling single complaints will provide my office with real-time insight into
emerging problems and potentially head them off before they become
systemic,” he said.
37
Morgan’s Tax Month – April 2015 Developments
As the ATO, TPB and IGT operate independently of each other, the IGT cannot
compel the TPB or the ATO to take a particular course of action – that is the
role of the courts or tribunals. The IGT’s role has been likened to a safety valve
that can re-establish communication and achieve procedural fairness.
“We will consider all complaints, from the simple to the complex, including
those arising during audits, objections and litigation. Our goal is to ensure that
taxpayers and tax practitioners are treated with fairness and respect,” Mr
Noroozi said.
Last year, the Ombudsman reported that his office had received 1,369
complaints about the ATO. The IGT has worked with the Ombudsman to ensure
that the transfer of the function is smooth and services to the community are not
unduly disrupted. The IGT has also been working with the ATO and the TPB,
including their internal complaints handling areas, to ensure that any matters are
addressed expeditiously and effectively.
Further information regarding the IGT’s new functions and how complaints
may be lodged, including the use of an electronic complaints form, will be
available on the IGT’s website.
23 April 2015
[IGoT’s 23/4/15 Media Release] [LTN 76, 23/4/15]
TAX PRACTITIONERS BOARD & LEGISLATION
Tax (financial) advisers: TPB info sheets on sufficient/relevant experience for
advisers applying for registration during the ‘transition period’ [48]
The Tax Practitioners Board (TPB), on Fri 17.4.2015, released a finalised
Information Sheet, TPB(I) 25/2015, on Applying for registration during the
transitional period: Sufficient experience to be able to provide tax (financial)
advice services to a competent standard.
Between 1 January 2016 and 30 June 2017 (transitional period), entities seeking
registration as a tax (financial) adviser under the "transitional option" will need
to satisfy the TPB that, among other things, they have sufficient experience to
be able to provide tax (financial) advice services to a competent standard.
TPB(I) 25/2015has been prepared by the Board to assist entities in
understanding the TPB's approach to this requirement. The TPB considers that
the equivalent of 18 months or longer of full-time experience would satisfy the
"sufficient experience" requirement and anything less would need to be
considered by the TPB on a case-by-case basis.
The Board also released Information Sheet TPB(I) 24/2015 on Relevant
experience for tax (financial) advisers. From 1 January 2016, entities will be
able to seek registration (including renewal of registration) as a tax (financial)
adviser under the "standard option". Information Sheet TPB(I) 24/2015 seeks to
assist individuals to understand the TPB's approach to the meaning of "relevant
experience" for the purpose of registration as a tax (financial) adviser under the
standard application option.
[LTN 72, 17/4/15]
TPB(I) 24/2015 – scope
The Information sheet is broken into segements to deal with each of the
following classes of experience mentioned in the Act.
4. 'Relevant experience' is defined in Item 305 of Schedule 2, Part 3, Division
2 of the Tax Agent Services Regulations 2009 (‘TASR’) to mean work by an
individual:
(a)
as a registered tax (financial) adviser; or
(b)
as a registered tax agent; or
(c)
under the supervision and control of a registered tax (financial) adviser;
38
Morgan’s Tax Month – April 2015 Developments
(d)
under the supervision and control of a registered tax agent; or
(e)
of another kind approved by the Board;
that included substantial involvement in one or more of the types of tax
(financial) advice services described in section 90-15 of the TASA, or
substantial involvement in a particular area of taxation law to which one or more
of those types of tax (financial) advice services relate.
Re ATP Group Pty Ltd and FCT - AAT grants stay in tax agent's deregistration
[49]
The AAT has granted a stay in the Tax Practitioners Board decision to cancel
the registration of a company, ATP Group Pty Ltd, as a tax agent.
The Tribunal said a decision to cancel the registration of a tax agent will
ordinarily be stayed by the AAT unless the public interest requires otherwise.
The Tribunal decided to grant the stay for a number of reasons, including:
If the ATP Group were to succeed in its primary application to have the
cancellation reversed, it would suffer serious damage both reputational and
otherwise if the matter were not stayed.
• The ATP Group has about 925 clients that rely on it for the conduct of their
tax affairs. The Tribunal said if the primary application were to fail, they
would need to find a new agent but at this stage the time, cost and
inconvenience that this would entail is not warranted.
• About half of the clients of the ATP Group are Arabic speakers and feel
comfortable communicating with tax agents who speak their language. In
these circumstances, the Tribunal said forcing so many clients (almost 500)
to find a new agent with the requisite Arabic skills was not warranted at this
stage.
• There seemed in the Tribunal's view to be no identifiable material prejudice
to the TPB if a stay is granted.
In the result, the Tribunal held that the implementation of the Board's decision
of 23 December 2014 to cancel the registration of ATP Group Pty Ltd as a tax
agent is stayed until the decision of the Tribunal on the application for review
comes into operation or until further order of the Tribunal.
(Re ATP Group Pty Ltd and FCT [2015] AATA 225, 15 April 2015, AAT,
Deutsch DP, File No: 2015/0240, 15 April 2015.)
•
[LTN 78, 27/4/15]
STATE TAXES
Legislation & Announcements (State)
*NT Budget 2015-16: payroll tax; stamp duty changes [50]
The NT Budget 2015-16 was handed down on Tuesday 28.4.2015. Key revenue
measures included:
•
•
Payroll tax exemption for charities to be tightened - To ensure the
exemption for charitable entities is being provided for its intended purpose,
the Payroll Tax Act will be amended from 1 July 2015 in 2 key respects: (1)
the exemption will be removed for any commercial work, or work
performed in competition with the private sector; and (2) bodies that
promote trade, industry or commerce, and professional associations, will
not be entitled to receive the charities exemption.
Payroll tax exemption for apprentices to be abolished - The payroll tax
exemption for apprentices and trainees will be abolished from 1 July 2015.
The resulting saving to the Budget will instead be passed to employers
through a new direct assistance program "Training for the Future" (which
39
Morgan’s Tax Month – April 2015 Developments
•
•
•
•
comprises a commencement grant, a completion grant and a
recommencement grant).
Stamp duty changes for life insurance and senior home-buyers - Stamp
duty on life insurance will be abolished from 1 July 2015. Additionally, all
life insurance riders, as additional insurance added to life insurance
products, will be taxed as general insurance.
The Senior, Pensioner and Carer stamp duty concession to assist eligible
seniors and concession cardholders to purchase a new home will be
increased to $10,000 (from $8,500) for transactions entered into from
Tuesday 28.4.2015.
Gaming tax - From 1 July 2015, Territory casinos will be required to pay
the 10% community benefit levy in the same manner as Territory hotels.
Other changes - The Budget also contains a range of other minor but not
unimportant changes (eg amendments to the Payroll Tax Act "relevant
contract" provisions to maintain harmonisation with other States).
[LTN 79, 28/4/15]
FJM Note – limitation to payroll tax exemption for charitable organisations
This amendment would prevent the likes of the Law Institute of Victoria being
recognised as a ‘charitable’ institution and getting payroll tax exemption (which it has
attempted to do and awaits the Supreme Court’s decision). This limitation follows a
similar move by Western Australia.
Legislation introduced
The Revenue and Other Legislation Amendment Bill 2015 (NT) was
introduced in the NT Legislative Assembly, on Wed 29.4.2015. It proposes to
implement the NT Budget 2015-16 measures announced (see above).
[LTN 80, 29/4/15]
Vic stamp duty: Nanos & Anor v Comr of State Revenue - substantially one
arrangement, so dutiable value aggregated [51]
The Victorian Civil and Administrative Tribunal has affirmed a decision of the
Commissioner of State Revenue (Vic) to assess duty on 2 transfers of land
based on an aggregated dutiable value pursuant to s24 of the Duties Act 2000
(Vic).
The taxpayers (mother and son) purchased on the same day a property referred
to as the "land contract" and another property referred to as the "house
contract". The "house contract" contained a special condition requiring the
purchasers to also purchase the property under the "land contract". The transfers
for both transactions took place on the same day.
The Commissioner formed the view that the land contract and the house
contract were, substantially, one arrangement relating to all of the items or parts
of the dutiable property. The transactions were therefore aggregated pursuant to
s24 and duty assessed on that basis. The taxpayers maintained that the house
and land transfers should not be aggregated. The Tribunal noted correspondence
from the agent who negotiated the sale of the land and the house indicated that
both properties were offered on the open market separately and concurrently.
The Tribunal said it was clear that in this case one contract was dependent on
the other. Accordingly, it concluded there was substantially one arrangement as
the transactions were not separate and independent. The concurrence of parties,
contract dates, settlement dates and dates of transfers add to the substance of the
conclusion, it said.
(Nanos & Anor v Comr of State Revenue (Review and Regulation) [2015]
VCAT 328, Victorian Civil and Administrative Tribunal, Butcher SM,
24 March 2015.)
40
Morgan’s Tax Month – April 2015 Developments
[LTN 63, 2/4/15]
Cases (State)
NSW land tax: Bright & Anor v Chief Comr of State Revenue – principal
residence exemption refused because of lease longer than 6 months [52]
In a decision handed down, on Tue 21.4.2015, the NSW Civil and
Administrative Tribunal affirmed a decision of the Commissioner of State
Revenue (NSW) refusing the taxpayers' claim for the principal place of
residence (PPR) exemption in respect of a property for the 2012 and 2013 land
tax years.
The taxpayers (a couple) argued the property located at Longueville (NSW) was
their PPR. In 2011, the couple had to move to Melbourne for employment and
the property was leased. The couple said they had to regularly visit Sydney to
see family including their children and the husband's father who was ill. It was
submitted that they did not move to make a profit but merely to keep in work as
an active member of the community. On 1 December 2011, the couple returned
to Sydney but were unable to take up residence as the property was leased. They
sought to sell the property in mid-2013 however they were unable to do so as
the agent had re-leased the property. It was submitted the assessment resulted in
an "unfair and unjust" treatment of the taxpayers.
The key issue was whether the ‘absence’ concession contained in clause 8 of
Sch 1A to the Land Tax Management Act 1956 (NSW) applied. It was common
ground that the property was rented from 30 June 2011 to at least
3 January 2014. The Tribunal held the concession did not apply to the taxpayers
in respect of the relevant tax years. It held the taxpayers had not satisfied it on
the balance of probability that land tax was not payable by them in respect of
the relevant period in accordance with the assessment.
(Bright & Anor v Chief Comr of State Revenue [2015] NSWCATAD 80, NSW
Civil and Administrative Tribunal, Isenberg SM, 21 April 2015.)
[LTN 74, 21/5/15]
Catchwords from [2015] NSWCATAD 80
Land tax - principal place of residence exemption; absence from former
residence; income derived from use or occupation of a former residence.
Principal Place of Residence – ‘absence’ concession: s8, Schedule 1A
8. Concession for absences from former residence
(1) A person is taken, for the purpose of the principal place of residence exemption, to
continue to use and occupy land formerly used and occupied by the person as a
principal place of residence (a "former residence" ), after the person ceases to so use and
occupy the former residence, if the Chief Commissioner is satisfied that:
(a)
the person used and occupied the former residence as a principal place of
residence for a continuous period of at least 6 months, and
(b)
the person does not own any other land used and occupied by the person as a
principal place of residence.
(2) The maximum period for which a person may be taken, under this clause, to
continue to use and occupy a former residence as a principal place of residence is 6
years starting at the end of the last period (of at least 6 months) during which the former
residence was used and occupied by the person as a principal place of residence (not
including any period for which the person may be taken, under clause 7 or this clause, to
have used and occupied the former residence as a principal place of residence).
(3) If the principal place of residence exemption applies to the former residence of a
person by operation of this clause, the exemption ceases to have effect if the person is
the owner of the former residence at the end of the 6-year period referred to in subclause
(2) and fails:
41
Morgan’s Tax Month – April 2015 Developments
(a)
to resume actual use and occupation of the residence as a principal place of
residence by the end of that period, and
to continue that use and occupation for at least 6 months.
(b)
…
(6) This clause applies in respect of the assessment of a person’s ownership of land in a
tax year only if the Chief Commissioner is satisfied that no income has been derived
from the use or occupation of the former residence in the preceding tax year, except as
permitted by subclause (7).
(7) Income may be derived from the use or occupation of the former residence in a tax
year if:
(a)
the income is derived from a lease, licence or other arrangement under which a
person has a right to occupy the former residence and the period for which any
such right of occupation is conferred does not exceed a continuous period of 6
months, or a total period of 182 days, in the tax year, or
(b)
the income is derived from any arrangement under which a person occupies the
former residence, but the income is no more than is reasonably required to cover
council, water and energy rates and charges and maintenance costs of the owner
in respect of the residence.
NSW land tax: Perumal v Chief Comr of State Revenue – Applicant could not
get PPR concession for both their ‘previous’ and ‘new’ residences [53]
In a decision handed down on Tuesday 28.4.2015, the NSW Civil and
Administrative Tribunal dealt with a preliminary matter concerning whether the
principal place of residence (PPR) concessions under clauses 6 (unoccupied
land concession) and 7 (change to PPR concession) of Sch 1A of the Land Tax
Management Act 1956 (NSW) could apply to exempt more than one property
owned by a single taxpayer or joint taxpayers.
The chronology was as follows.
The new property was purchased on 15 January 2007 (the transfer
registered on 21 February 2007).
• The couple (the taxpayers) had sold their former property on
13 December 2012 (the transfer was registered on 27 March 2013).
• The couple entered into an agreement with a builder to construct a new
residence on the new property (the council occupation certificate was issued
on 10 April 2013).
• The Commissioner issued an assessment for the 2013 land tax year which
exempted the new property but taxed the former property on the basis that
the PPR concession under clause 7 did not apply to the former property
[allowing the PPR exemption to apply to both the ‘former residence’ and
the ‘new residence’ for a limited period] as the new property was not
acquired within 6 months preceding the relevant tax date (ie
31 December 2012) as required by clause 7(2)(b).
In relation to clause 7, the Tribunal said there was no other evidence to establish
that the taxpayers were anything other than the registered proprietors in fee
simple of the new property from no later than 21 February 2007. On this basis,
the Tribunal concluded the taxpayers did not become the owners of the new
property within the 6 month period before the relevant [31/12/12] taxing date
[under cl 7(2)(b) – see below]. Accordingly, it said clause 7 did not apply and
that the application could not proceed in so far as it relied on clause 7. There
were still various issues concerning clause 6.
The Tribunal said the application should proceed to a hearing on that basis,
unless the taxpayers would prefer to withdraw the application and accept the
existing assessment (which granted them the PPR concession in relation to the
new property).
•
42
Morgan’s Tax Month – April 2015 Developments
(Perumal Chief Comr of State Revenue (Respondent) [2015] NSWCATAD 85,
NSW Civil and Administrative Tribunal, Walker SM, 28 April 2015.)
[LTN 79, 28/4/15]
Principal Place of Residence – Schedule 1A, cl 6 & 7 (unoccupied land & change of
residence)
6 Concession for unoccupied land intended to be owner’s principal place of
residence
(1) An owner of unoccupied land is entitled to claim the land as his or her principal
place of residence, if the owner intends to use and occupy the land solely as his or her
principal place of residence. In such a case, the owner is taken, for the purpose of the
principal place of residence exemption, to use and occupy the unoccupied land as his or
her principal place of residence.
Note : It is an offence under section 55 of the Taxation Administration Act 1996 to
make a statement to a tax officer, or give information to a tax officer, orally or in
writing, knowing that it is false or misleading in a material particular.
(2) This clause does not apply unless:
(a)
the land is unoccupied because the owner intends to carry out, or is carrying out,
building or other works necessary to facilitate his or her intended use and
occupation of the land as a principal place of residence, and
(b)
if those building or other works have physically commenced on the land, no
income has been derived from the use and occupation of the land since that
commencement, and
(c)
the intended use and occupation of the land is not unlawful.
(3) This clause applies in respect of the assessment of a person’s ownership of land only
in the period of:
(a)
4 tax years immediately following the year in which the person became owner of
the land, or
(b)
if the land is used and occupied for residential purposes by a person other than
the owner at any time after the person became owner, 4 tax years immediately
following the tax year in which the building or other works necessary to facilitate
the owner’s intended use and occupation of the land are physically commenced
on the land.
(5) If the principal place of residence exemption applies by operation of this clause to
land not actually used and occupied by a person as his or her principal place of
residence on a taxing date, that exemption is revoked if the person fails to actually use
and occupy the land as his or her principal place of residence by the end of the period in
which this clause applies in respect of the assessment of the person’s ownership of the
land and to continue to so use and occupy the land for at least 6 months.
(6) The effect of the revocation is that the exemption is taken not to have applied to the
land in respect of any tax year to which, but for the revocation, it would have applied.
Land tax liability is to be assessed or reassessed accordingly.
(7) This clause does not apply in respect of land owned by a person if:
(a)
the person or any member of the person’s family (within the meaning of clause
12) is entitled to have his or her actual use and occupation of other land taken
into account under section 9C or 9D or under this Schedule, or
(b)
the person owns land outside New South Wales that is the principal place of
residence of the person or a member of the person’s family (within the meaning
of clause 12), or
(c)
the land, or the land if combined with any adjoining land of which the person is
an owner, is capable of having more than 2 residences or residential units
lawfully built on it.
(8) For the purposes of this clause:
"unoccupied land" means land that is not being used or occupied for any purpose.
43
Morgan’s Tax Month – April 2015 Developments
7 Concession for change [in] principal place of residence
(1) If the Chief Commissioner is satisfied that, on a taxing date ("the relevant taxing
date" ):
(a)
a person is the owner of land ("the former residence" ) that was the principal
place of residence of the person on the relevant taxing date or was the principal
place of residence of the person on the preceding taxing date, and
(b)
the person is the owner of other land ("the new residence" ) that is being or is
intended to be used and occupied by the person as his or her principal place of
residence,
both the former residence and the new residence are taken, for the purpose of the
principal place of residence exemption, to be used and occupied by the person as the
person’s principal place of residence on the relevant taxing date.
(2) This clause applies in respect of land owned by a person only if the Chief
Commissioner is satisfied that:
(a)
the former residence has not been used or occupied except as the person’s
principal place of residence, and no income has been derived from the use or
occupation of the residence, since the preceding 1 July, except:
(i)
income derived from an excluded residential occupancy (within the
meaning of clause 4), or
(ii)
income derived under a lease or licence entered into by the purchaser
under a contract for the sale of the former residence for a period pending
completion of the sale, and
(b)
the person became the owner of the new residence within the period of 6 months
before the relevant taxing date [31/12/12], and
(c)
since the person became owner of the new residence the new residence has not
been used or occupied except:
(i)
as the person’s principal place of residence, or
(ii)
by a tenant under a lease entered into by the previous owner.
(3) The principal place of residence exemption cannot be claimed for both a former
residence and a new residence under this clause for more than one taxing date.
(3A) A principal place of residence exemption that applies, by operation of this clause,
to land not actually used and occupied by a person at the relevant taxing date is revoked
if the person is not actually using and occupying the new residence as his or her
principal place of residence by the next taxing date immediately following the relevant
taxing date.
(4) The effect of the revocation is that the principal place of residence exemption is
taken not to have applied in respect of the tax year to which, but for the revocation, it
would have applied. Land tax liability is to be assessed or reassessed accordingly.
Qld payroll tax: Comr of State Revenue v Gympie Noosa Broadcasters Pty Ltd
& Ors - summary judgment for Commissioner – no prospect of success [54]
The Commissioner of State Revenue (Qld) has been successful before the Qld
District Court in seeking summary judgment against a group of 3 taxpayers to
recover unpaid payroll tax, penalty tax and unpaid tax interest.
The taxpayers raised a number of arguments in disputing the proceedings and
the Commissioner's application.
Among other things, the taxpayers disputed the giving (or serving) of the
assessment notices on a date earlier than 9 February 2015.
• In turn, the taxpayers disputed the appropriateness of bringing the
application for summary judgment when, it was argued, the 60-day limit for
lodging an objection had not yet expired, and therefore, the taxpayers' right
to object to the assessments had not been exhausted.
• The taxpayers also sought to defend the proceedings on the basis that the
relevant provisions of the Payroll Tax Act 1971 (Qld), which imposed
liability, were void or invalid because of s 92 of the Commonwealth
Constitution.
The Qld District Court held it was appropriate to exercise its discretion under
Rule 292 of the Uniform Civil Procedure Rules 1999 (Qld) to give judgment for
•
44
Morgan’s Tax Month – April 2015 Developments
the Commissioner against the taxpayers. The Court was satisfied that the
taxpayers had no real prospect of defending the Commissioner's claim, and that
there was no need for a trial of the claim.
(Comr of State Revenue v Gympie Noosa Broadcasters Pty Ltd & Ors [2015]
QDC 074, Qld District Court, Bowskill DCJ, 17 April 2015.)
[LTN 73, 20/4/15]
SA land tax: T & S Liapis Pty Ltd v Comr of State Taxation - primary production
exemption allowed [55]
A taxpayer has, in the main, been successful before the SA Supreme Court in a
matter concerning the primary production land tax exemption.
The taxpayer owned 5 hectares of land. It created a residential subdivision on
3.5 hectares of the land and by 30 June 2005 had sold all but 2 residential
allotments. It developed an olive grove on the remaining 1.5 hectares ("the
Land"). In August 2009, the Commissioner of State Taxation (SA) issued to the
taxpayer documents the Commissioner contended comprised notice of land tax
assessments for 2004-05 to 2008-09. The taxpayer objected claiming it was
entitled to the primary production exemption under s 5(10)(g) of the Land Tax
Act 1936 (SA) in respect of the Land. The Minister disallowed the objection and
confirmed the assessments.
Before the Supreme Court, the taxpayer appealed against the assessments for
the 2005-06 and 2006-07 years. The taxpayer raised various contentions,
including that the documents issued by the Commissioner in August 2009 did
not constitute notices of assessment of land tax within the meaning of the
Taxation Administration Act 1996 (SA) for any year except 2008-09.
The Supreme Court said it was not open to an appellant on an appeal under s 92
of the Taxation Administration Act against an assessment to contend that there
was no assessment. Any such challenge must be brought by way of judicial
review proceedings, it said.
However, the Supreme Court concluded the taxpayer was entitled to the primary
production exemption under s (10)(g)(vi). It allowed the appeal and set aside the
land tax assessments for 2005-06 and 2006-07.
(T & S Liapis Pty Ltd v Comr of State Taxation [2015] SASC 63, SA Supreme
Court, Blue J, 22 April 2015.)
[LTN 80, 29/4/15]
Rulings & Other (State)
[-]
OTHER DEVELOPMENTS
Global tech giants give evidence (or fail to) at the Senate hearings into
corporate tax avoidance [56]
Global tech giants Google, Apple and Microsoft are "under review" by the
ATO, senior executives said, on Wed 8.4.2015, when appearing before the
Sydney hearing of the Senate Economics References Committee Inquiry into
corporate tax avoidance. The executives said the review means the Tax Office
has not renewed agreements with the companies on transfer pricing.
Australia is following the lead of Britain and the United States in holding a
public inquiry into corporate tax avoidance, although the company executives
declined to provide full details about their financial structures.
Google Australia's Managing Director Maile Carnegie, Apple's Australia and
New Zealand head Tony King and Microsoft tax executive Bill Sample all
45
Morgan’s Tax Month – April 2015 Developments
declined to say what proportion of their income was taxed in Australia and how
much of it they moved overseas, if at all.
All 3 executives denied they avoided tax.
"We haven't shifted any profits," said Apple's King. He said Apple
Australia booked its revenues and sales locally.
• Carnegie and Sample told the inquiry that they booked most of the revenue
from their Australian business in Singapore
In their submissions to the Senate committee, both Google and Apple called for
Australia to participate in the BEPS project that is being co-ordinated by the
G20 countries and the OECD.
•
[LTN 66, 9/4/15]
THE END
FJM – 23.7.15
46