Tax Update - CPDlive · This paper represents the opinion of the author(s) and not necessarily...
Transcript of Tax Update - CPDlive · This paper represents the opinion of the author(s) and not necessarily...
Tax UpdatePeriod Ending 09 February 2017
Chartered Accountants Australia and New Zealand
Tax Update
Period ending 09 February 2017
Presented by:
Chartered Accountants Australia and New Zealand Tax Trainers. This package
covers developments for the period 12 January to 09 February 2017.
Tax Update February 2017
Copyright © 2017 Chartered Accountants Australia and New Zealand 2
Disclaimer
This paper represents the opinion of the author(s) and not necessarily those of Chartered Accountants Australia and New Zealand or its members. The contents are for general information only. They are not intended as professional advice - for that you should consult a Chartered Accountant or other suitably qualified professional. Chartered Accountants Australia and New Zealand expressly disclaims all liability for any loss or damage arising from rel iance upon any information in these papers.
Items indicated as having first appeared in Reuters Thomson Weekly Tax Bulletin or Reuters Thomson Latest Tax News are copyright Reuters Thomson and may not be further reproduced or communicated.
Tax Update February 2017
Copyright © 2017 Chartered Accountants Australia and New Zealand 3
© Chartered Accountants Australia + New Zealand 2016
Session Outline
• Legislation
• Income
• Deductions
• CGT
• Indirect tax
• Taxation of superannuation
• Tax administration
• International tax
• Tax controversy
• State Taxes
• Tax reform
LEGISLATION ..........................................................................8
ASICATO information sharing: exposure draft legislation released 11
Increasing penalties for significant global entities 13
Increase in unincorporated small business tax discount 15
Bills proposed for introduction 16
Financial advisers' education & training standards – Bill passed 17
DPT, increased penalties, transfer pricing guidelines 19
Tax Bill (No 2) 2016 awaits Royal Assent 21
Tax Update February 2017
Copyright © 2017 Chartered Accountants Australia and New Zealand 4
INCOME
© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
ACNC releases Interpretation Statement on PBIs
• ACNC Interpretation Statement on meaning of “public benevolent institution”
• ACNC-registered PBIs can seek endorsement from ATO as:
‒ tax concession charities (income tax and FBT exemptions, GST concessions)
‒ deductible gift recipients.
Income
CIS 2016/03 – Public Benevolent Institutions
................................................................................................ 22
ACNC releases Interpretation Statement on PBIs 22
High Court: Industry severance scheme not a unit trust for Div 6 purposes 24
Taxpayer held resident of Australia under Aust/Malaysia DTA 27
No disclaimer of interest in trust: assessments increasing taxable income by $13m stand 29
DEDUCTIONS........................................................................ 32
Home office expenses on floor area basis – FCT's method preferred 32
MPs: allowances, reimbursements, donations, deductions, etc 33
Deduction for bad debts: beneficiary of a trust and UPEs 35
Work-related travel expenses not deductible – taxpayer fails burden of proof 36
Commercial website deductibility 38
Depreciating assets – composite items 41
Draft effective lives: Data centre assets; coal seam gas industry. 44
Deduction for cost of tools rejected 45
Overtime meal expenses disallowed 47
No deduction or capital loss for guarantee "obligation" 49
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Taxpayer denied deduction for work expenses of $60,000 51
CGT......................................................................................... 53
Intangible capital improvements made to a pre-CGT asset - a separate asset 53
INDIRECT TAXES ................................................................. 54
GST: determining if a recipient is an Australian consumer 54
GST: no recovery for margin scheme increasing adjustment 58
GST cross-border law changes and currency conversion – draft determination released 60
GST on home care and residential care – ATO seeks views on guidance material 61
TAXATION OF SUPERANNUATION................................... 63
ATO guidance on concessional contributions and constitutionally protected super funds 63
ATO releases 2014-15 SMSF statistical overview 65
SMSFs: LRBAs and non-arm's length income 66
Superannuation objective - draft reg released 67
Super reforms: total superannuation balance 68
Super reforms: $1.6m pension cap; commutations; actuarial certificates 71
Super trustee rollover obligations amid ATO website outage 74
Super reforms: Defined benefit income streams – life expectancy and market-linked pensions 75
ATO SuperSeeker service decommissioned 77
TAX ADMINISTRATION ....................................................... 78
ATO corporate tax transparency report for 2014-15 released 78
Backpackers tax registration deadline extended for employers 81
SMSF trustees (and LRBA trustees): garnishee notices invalid for group payroll tax 82
Court gives judgment for full tax debt of $1.1 million 84
Taxpayers' Rights & Obligations – IGT releases report 86
Default assessments upheld - burden of proof not satisfied re unexplained deposits and cash 88
No summary judgment for DPN liability - unresolved facts re whether director took "reasonable
steps" 90
Tax Update February 2017
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Reminder of easier GST reporting for new small businesses from 19 Jan 2017 92
Review of tax and corporate whistleblower provisions in Australia 93
Ride sourcing providers 95
Simplifying income recognition for NFPs 96
Summary judgment against taxpayers for $30.5m upheld – no conscious maladministration 98
TPB Information sheet on payroll service providers 100
Current ATO data-matching activities 102
Incorrect PAYG instalment variations and GIC 103
ATO explains what caused systems outage 104
No grounds to set aside DPO order 106
Exemptions from registering with ATO re foreign ownership of water or agricultural land. 108
ATO releases Guide to Reportable Tax Positions 2017 110
Tax risk management and governance review guide 111
Extension of time for AAT review granted 113
Alternate assessments not tentative 115
Tax practitioners, cloud computing and the Code of Professional Conduct – TPB Practice Note 118
ATO warns of criminal activity targeting AUSkeys 120
Enhanced ATO record-keeping tool for sole traders 121
Tax Inspector-General announces his 2017 work program 122
Tax Office Website updates 125
Application to give evidence in Nudie Juice tax case by video link refused 127
FCT refutes media reports re ATO systems and Tax Time 2017 129
ATO help for agents having lodgment problems after ATO systems outages 131
Appeals update 132
Appeals update: Bai (onus of proof) 133
INTERNATIONAL TAX ....................................................... 134
Exchange of information by the ATO with foreign revenue authorities about indirect taxes 134
ATO releases Country-by-Country reporting Q&As 136
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Australia's adoption of BEPS Multilateral Instrument – consultation paper released 138
OECD releases further BEPS guidance on Country-by-Country reporting 142
Interaction between tax treaty provisions of BEPS Action 6 report and treaty entitlement of non -
CIV funds 145
More than 1,300 bilateral relationships now in place across the globe re CRS 147
Revised Australia-Germany DTA enters into force 148
FCT wins appeal: taxpayer failed onus of proving payments "loans" 150
ATO compliance approach to transfer pricing issues related to marketing and other hubs –
Guideline released 153
Overseas income not exempt 159
TAX CONTROVERSY ......................................................... 161
Personal services income diverted to SMSFs: ATO offer to remit penalties extended 161
Re-characterisation of income from trading businesses 164
R&D claims in building and construction industry – ATO Taxpayer Alerts warn of issues of concern
165
STATE TAXES..................................................................... 168
NSW duty: not so happy days 168
TAX REFORM...................................................................... 170
Extending AML / CTF regime to accountants, lawyers, etc 170
MYEFO flags changes re franking credit distributions, chasing tax debts, etc 172
Income products for retirement – Govt releases discussion paper 174
Tax Update February 2017
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LEGISLATION
Progress of Legislation
Bill Introduction
to the House
Passed
House
Introduction
to the Senate
Passed
Senate
Date of
Royal
Assent
Tax and
Superannuation Laws
Amendment (2016
Measures No 1) Bill
2016
10 Feb 2016 3 Mar 2016 16 Mar 2016 4 May 2016 5 May 2016
Tax Laws Amendment
(New Tax System for
Managed Investment
Trusts) Bill 2015
3 Dec 2015 10 Feb 2016 22 Feb 2016 4 May 2016 5 May 2016
Income Tax Rates
Amendment
(Managed Investment
Trusts) Bill 2015
3 Dec 2015 10 Feb 2016 22 Feb 2016 4 May 2016 5 May 2016
Medicare Levy
Amendment
(Attribution Managed
Investment Trusts) Bill
2015
3 Dec 2015 10 Feb 2016 22 Feb 2016 4 May 2016 5 May 2016
Income Tax
(Attribution Managed
Investment Trusts -
Offsets) Bill 2015
3 Dec 2015 10 Feb 2016 22 Feb 2016 4 May 2016 5 May 2016
Tax Laws Amendment
(Tax Incentives for
Innovation) Bill 2016
16 Mar 2016 2 May 2016 3 May 2016 4 May 2016 5 May 2016
Tax and
Superannuation Laws
Amendment
(Medicare Levy and
Medicare Levy
Surcharge) Bill 2016
2 May 2016 2 May 2016 2 May 2016 3 May 2016 4 May 2016
Treasury Laws
Amendment (Income
Tax Relief) Bill 2016
1 Sep 2016 10 Oct 2016 10 Oct 2016 12 Oct 2016 20 Oct 2016
International Tax
Agreements
Amendment Bill 2016
1 Sep 2016 12 Oct 2016 13 Oct 2016 13 Oct 2016 20 Oct 2016
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Bill Introduction
to the House
Passed
House
Introduction
to the Senate
Passed
Senate
Date of
Royal
Assent
Treasury Laws
Amendment
(Enterprise Tax Plan)
Bill 2016
1 Sep 2016
Budget Savings
(Omnibus) Bill 2016 31 Aug 2016 14 Sep 2016 14 Sep 2016 15 Sep 2016 16 Sep 2016
Income Tax Rates
Amendment (Working
Holiday Maker
Reform) Bill 2016
12 Oct 2016 17 Oct 2017 07 Nov 2016
Treasury Laws
Amendment (Working
Holiday Maker
Reform) Bill 2016
12 Oct 2016 17 Oct 2016 07 Nov 2016 24 Nov 2016 02 Dec 2016
Superannuation
(Departing Australia
Superannuation
Payments Tax)
Amendment Bill 2016
12 Oct 2016 17 Oct 2016 07 Nov 2016 24 Nov 2016 02 Dec 2016
Passenger Movement
Charge Amendment
Bill 2016
12 Oct 2016 17 Oct 2016 07 Nov 2016 24 Nov 2016 02 Dec 2016
Treasury Laws
Amendment (2017
Measures No 1) Bill
2017
01 Dec 2017
Treasury Laws
Amendment (GST
Low Value Goods) Bill
2017
Treasury Laws
Amendment
(Enterprise Incentives
No 1) Bill 2017
Corporations
Amendment
(Professional
Standards of Financial
Advisers) Bill 2016
23 Nov 2017 07 Feb 2017 08 Feb 2017 09 Feb 2017
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Bill Introduction
to the House
Passed
House
Introduction
to the Senate
Passed
Senate
Date of
Royal
Assent
Treasury Laws
Amendment
(Combating
Multinational Tax
Avoidance) Bill 2017
Tax Update February 2017
Copyright © 2017 Chartered Accountants Australia and New Zealand 11
© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
ASIC-ATO information sharing
• Exposure draft released
• Proposed amendment to Australian Securities and Investments Commission
Act 2001 to allow ASIC to more readily disclose confidential information to
ATO.
Legislation
Draft TLA (2017 Measures No 1) Bill 2017: ASIC
ASICATO information sharing: exposure draft legislation released
The government has released exposure draft legislation proposing to amend s 127(2A) of the
Australian Securities and Investments Commission Act 2001 to enable ASIC to share information
with the FCT. The proposed amendment to s 127(2A) of the ASIC Act would enable ASIC to more
readily share confidential information with the ATO without involving the ASIC Chairperson or their
delegate. This would mirror the existing arrangements for sharing information between ASIC and the
Reserve Bank and APRA.
Currently, there are strict confidentiality rules around the use and disclosure of the information ASIC
obtains. Under s 127 of the Act, ASIC must take all reasonable measures to protect confidential
information it receives as part of its statutory functions from unauthorised use or disclosure.
ASIC is authorised to share confidential information it obtains with certa in prescribed individuals and
entities, including the relevant Minister, the Reserve Bank and APRA: s 127(2A) of the ASIC Act.
However, at present, in order for ASIC to share information with the ATO, the ASIC Chairperson, or
their delegate, must be satisfied that doing so would enable or assist the FCT to perform or exercise
their functions or powers. This causes inefficiencies and hinders effective collaboration between the
agencies in ensuring compliance and investigating potential illegal activity.
The amendment proposed by the Exposure Draft - Treasury Laws Amendment (2017 Measures No
1) Bill 2017 would add the FCT to the entities listed in s 127(2A) of the ASIC Act to which disclosure
of confidential information is authorised. As a result, the amendment would authorise ASIC to
provide the FCT with information it holds that is protected or that is given to it in confidence in
connection with the performance of its functions or exercise of its powers. This seeks to simplify the
process and create efficiencies by allowing information to be shared without the Chairperson's, or
their delegate's, involvement.
Tax Update February 2017
Copyright © 2017 Chartered Accountants Australia and New Zealand 12
Date of effect
The proposed amendment would commence the day after the Bill receives the Royal Assent. The
application provisions authorise ASIC to disclose information to the FCT following the
commencement of the Bill, including disclosure of any information held by ASIC at that time,
regardless of whether it was obtained before or after the amendment commences.
Submissions
Submissions are due by 13 January 2017 to: Manager, Corporations and Schemes Unit, Financial
System Division, Treasury - Tel: (02) 6263 2804; Email: [email protected].
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Increasing penalties for significant global entities
• Draft legislation on 2016-17 Budget measure to increase penalties imposed
on companies with global revenue of $1bn or more who breach tax disclosure
obligations
• Maximum penalty to be increased from $4,500 to $450,000
• Proposed date of effect: 1 July 2017.
Taxation of Legislation
Draft legislation released
Increasing penalties for significant global entities
Draft legislation released
The government has released draft legislation to implement its 2016-17 Budget measure that would
increase administrative penalties imposed on companies with global revenue of $1 billion or more
(significant global entities) who fail to adhere to tax disclosure obligations. Schedule 1 to the TAA is
to be amended to implement this.
From 1 July 2017, penalties relating to the lodgment of tax documents to the ATO will be increased
by a factor of 100 (in reference to the maximum penalty for large entities under the existing law) .
This will raise the maximum penalty from $4,500 to $450,000, which is designed to encourage
multinational companies to meet their reporting obligations. Under the proposed changes, the base
penalty amount would be multiplied by 500 if the entity concerned is a significant global entity at the
relevant time. This would result in a maximum penalty of $450,000, which would apply where the
lodgment is more than 16 weeks late.
From 1 July 2017, penalties for significant global entities relating to making false and misleading
statements to the ATO will be doubled, which is aimed at discouraging multinational companies from
being reckless or careless in their tax affairs.
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An entity's status as a significant global entity for the purposes of the proposed provisio ns will be
determined on the basis of the most recent income year, for which the FCT has made an income tax
assessment for the entity. This determination is to be made by reference to the day on which the
relevant approved form is due to be provided to the FCT. The FCT makes an assessment following
lodgment of the entity's income tax return or if the entity has not lodged a tax return, the
FCT may have issued a default assessment. However, if the FCT is satisfied that the entity is not, or
will not be, a significant global entity for the income year during which the relevant approved form is
due to be provided to the FCT, then the FCT may remit the higher penalty amount.
It is also proposed that significant global entities that have not already provided a ge neral purpose
financial statement to ASIC must give a general purpose financial statement to the FCT in the
approved form. An entity that fails to provide such a statement to the FCT by the due date or in the
manner specified by the FCT would be liable for an administrative penalty.
Comments
Comments are due by 13 January 2017.
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Tax Update February 2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Increase in unincorporated small business tax discount
• Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 (still in House of
Reps) seeks to lift unincorporated small business tax offset threshold to $5m
and incrementally increase offset rate
• From 1 July 2016, tax offset will rise from 5% to 8%
• ATO will accept tax returns as lodged while Bill before Parliament
• Taxpayers can then seek amendment if measure enacted & they didn’t claim
offset, or if measure not enacted.
Taxation of Legislation
ATO admin treatment
Increase in unincorporated small business tax discount
In the 2016-17 Budget, the government announced an increase to the tax discount for
unincorporated small businesses incrementally over 10 years from 5% to 16%. From 1 July 2016, it
is proposed that the tax discount will increase to 8%, remain constant at 8% for 8 years, then
increase to 10% in 2024-25, 13% in 2025-26 and reach a new permanent discount of 16% in 2026-
27. The Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 , introduced on
1 September 2016 to implement this, is still before the House of Reps.
The increases are designed to coincide with staggered cuts in the corporate tax rate to 25%, also
included in that Bill. The current cap of $1,000 per individual for each income year will be retained.
ATO admin treatment
The ATO says it will accept all tax returns as lodged during the period up until the law change is
passed by Parliament. If the new law is enacted as expected, taxpayers who did not claim the offset
will need to review their positions for the 2016-17 income year and seek amendments. If a reduction
in liability results, interest on overpayment will be paid.
If the new law is not enacted as expected, those taxpayers who incorrectly claimed the offset will
need to seek amendments. The ATO says no tax shortfall penalties will be applied and any interest
accrued will be remitted to the base interest rate up to the date of enactment of the law change. In
addition, any interest in excess of the base rate accruing after the date of enactment will be remitted
where taxpayers actively seek to amend assessments within a reasonable timeframe after
enactment.
26/01/2016
Tax Update February 2017
Copyright © 2017 Chartered Accountants Australia and New Zealand 16
© Chartered Accountants Australia + New Zealand 2017
2017 Autumn Sittings
• Treasury Laws Amendment (GST Low Value Goods) Bill 2017:
– GST will apply to low value goods (up to $1,000) supplied to Australian
consumers by offshore businesses
• Treasury Laws Amendment (Enterprise Incentives No 1) Bill 2017:
– Gives taxpayers option to self-assess effective life of certain intangible assets
– Amends tax incentives for early stage investors.
Bills proposed for introduction
Legislation
Bills proposed for introduction
2017 Autumn Sittings
Federal Parliament's 2017 Autumn Sittings run from 7 February to 30 March 2017. Legislation proposed for introduction in those sittings includes the following Bills. Bills marked # are proposed for introduction and passage in the Autumn sittings.
Treasury Laws Amendment (GST Low Value Goods) Bill 2017 # - would impose the obligation to charge and remit GST on offshore businesses that import goods to Australian consumers where the imported goods have a value of $1,000 or less. Would apply from 1 July 2017. Would implement a 2016-17 Budget measure.
Treasury Laws Amendment (Enterprise Incentives No 1) Bill 2017 - would (i) provide taxpayers with the new option, for certain intangible assets acquired on or after 1 July 2016, to self-assess the tax effective life of the asset or use the existing statutory effective life; and (ii) amend the tax incentives for early stage investors, to ensure that investors who access the tax concessions for early stage investors through an interposed trust are not subject to a subsequent capital gain equal to the amount of the exempt gain in the early stage innovation company. Would implement a 2015-16 MYEFO decision.
9/02/2017
Tax Update February 2017
Copyright © 2017 Chartered Accountants Australia and New Zealand 17
© Chartered Accountants Australia + New Zealand 2017
Corporations Amt (Professional Standards of Financial Advisers) Bill 2016
• Passed both Houses without amendment:
– Awaits Royal Assent
• Amends Corporations Act 2001 to require certain financial advisers to meet
specified education and training standards, comply with ethics code
• Amends Tax Agent Services Act 2009 to enable information sharing.
Financial advisers' education & training standards – Bill passed
Legislation
Financial advisers' education & training standards – Bill passed
The Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 has
now passed all stages without amendment and awaits Royal Assent.
The Bill amends the Corporations Act 2001 to:
Require that certain financial advisers meet specified education and training standards and
comply with a code of ethics; apply transitional arrangements to existing financial advisers;
Impose an obligation on an Australian financial services licensee to ensure that its financial
advisers comply with the education standards and are covered by a compliance scheme;
Restrict the use of the titles "financial adviser" and "financial planner";
Amend the content requirements for the register of financial advisers;
Provide for sanctions where a financial adviser or licensee fails to comply with the new
obligations; and
Establish a standards body which will approve foreign qualifications and develop and set the
education standards, an examination and a uniform code of ethics.
The Bill also amends the Tax Agent Services Act 2009 to provide for the Tax Practitioners Board
and monitoring bodies to share information.
Tax Update February 2017
Copyright © 2017 Chartered Accountants Australia and New Zealand 18
Date of effect
The new requirements will commence on 1 January 2019. From this date, new advisers will be
required to hold a relevant degree before they are eligible to commence the supervision year and to
sit the exam. Existing advisers will have two years, until 1 January 2021, to pass the exam and five
years, until 1 January 2024, to reach a standard equivalent to a degree. The transition period
recognises that existing advisers may need to complete the education requirements on a part-time
basis while continuing to service their existing clients. The Code of Ethics will commence on
1 January 2020, with all advisers being required to adhere to the code from that day forward. Once
the reforms are bedded down, the government said it will turn its attention to developing and
implementing an industry funding model for the standards body.
9/02/2017
Tax Update February 2017
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© Chartered Accountants Australia + New Zealand 2017
Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill
• Bill introduced into Parliament
• Expands Pt IVA to include 40% diverted profits tax for significant global
entities – from 1 July 2017
– Tax imposed by Diverted Profits Tax Bill 2017
• Increases admin penalties for significant global entities that fail to lodge
returns, certain other documents – from 1 July 2017
• Updates transfer pricing rules to include 2016 OECD BEPS amendments to
OECD Transfer Pricing Guidelines – from 1 July 2016.
DPT, increased penalties, transfer pricing guidelines
Legislation
DPT, increased penalties, transfer pricing guidelines
Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill
The Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 was
introduced in the House of Reps on 9 February 2017. It proposes to make the following
amendments:
Diverted Profits Tax: The Bill would amend the ITAA 1936, the Taxation Administration Act
1953 and associated Acts to introduce a new diverted profits tax (DPT). This would be done
by expanding the scope of Pt IVA. The Treasurer says the DPT would target multinationals
that enter into arrangements to divert their Australian profits to offshore related parties in
order to avoid paying Australian tax. If the DPT applies, the Diverted Profits Tax Bill 2017,
also introduced on 9 February 2017, would impose tax on the amount of the diverted profit at
a rate of 40%. The DPT aims to ensure that the tax paid by significant global entities (annual
global income of $1 billion or more and Australian income of more than $25 million) properly
reflects the economic substance of their activities in Australia and aims to prevent the
diversion of profits offshore through contrived arrangements. The DPT will not apply to
managed investment trusts or similar foreign entities, sovereign wealth funds and foreign
pension funds. The government expects the DPT to raise $100 million in revenue a year from
2018-19. Approximately 1,600 taxpayers potentially fall within the scope of the new law. Date
of effect: This measure will apply in relation to tax benefits for an income year that starts on
or after 1 July 2017 (whether or not the tax benefits arise in connection with a scheme that
was entered into, or was commenced to be carried out, before 1 July 2017).
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Copyright © 2017 Chartered Accountants Australia and New Zealand 20
Increasing penalties for significant global entities: The Bill proposes to increase the
administrative penalties that can be applied by the FCT to significant global entities to
encourage them to better comply with their taxation obligations, including lodging tax
documents on time and taking reasonable care when making statements. Under the
changes, the amount of administrative penalty that applies for significant global entities that
do not lodge a return, notice, statement or other approved form with the FCT on time would
be increased by 100 times. The base penalty amount will be multiplied by 500 if an entity is a
significant global entity at the relevant time. At the current $180 value of a penalty unit, this
would result in a maximum penalty of $450,000 (currently $4,500), which would apply where
the lodgment is more than 16 weeks late. [Note that in the 2016-17 Mid-Year Economic and
Fiscal Outlook, the government announced an increase in the value of a Commonwealth
penalty unit to $210, with effect from 1 July 2017. That would take the maximum penalty to
$525,000.] Date of effect: The amendments would generally apply from 1 July 2017.
Transfer pricing rules updated: The Bill proposes to amend the ITAA 1997 to update the
reference to OECD transfer pricing guidelines in Australia's transfer pricing rules in Division
815 to include the 2016 OECD BEPS amendments to the guidelines. Date of effect: The
amendments would apply to income years commencing on or after 1 July 2016.
9/02/2017
Tax Update February 2017
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© Chartered Accountants Australia + New Zealand 2017
Tax and Superannuation Laws Amendment (2016 Measures No 2) Bill 2016
• Passed both Houses without amendment
• Measures include:
– Remedial power for FCT to modify law by legislative instrument to ensure
intended purpose of law achieved – will apply from Royal Assent
– Primary producer income averaging: replaces permanent choice to opt out of
averaging with 10-year opt-out period – will apply from 1 July 2016
– LCT exemption for certain public institutions that import or acquire luxury cars for
public display – will apply from Royal Assent.
Tax Bill (No 2) 2016 awaits Royal Assent
Legislation
Tax Bill (No 2) 2016 awaits Royal Assent
Tax and Superannuation Laws Amendment (2016 Measures No 2) Bill 2016
The Tax and Superannuation Laws Amendment (2016 Measures No 2) Bill 2016 has now
passed all stages without amendment and awaits Royal Assent.
The Bill amends the:
ITAA 1997 and Taxation Administration Act 1953 to establish a remedial power so the FCT can make a disallowable legislative instrument to modify the operation of a taxation law in certain circumstances. Before exercising the power, the FCT must be satisfied that any appropriate and reasonably practicable consultation has been undertaken. Date of effect: This measure would commence on the day after Royal Assent. This would allow the FCT to make legislative instruments from that date to modify the operation of a taxation law.
ITAA 1997 to enable primary producers to access income tax averaging 10 income years or more after choosing to opt out, instead of that opt-out choice being permanent. Date of effect: This change would apply to the 2016-17 income year and later income years.
A New Tax System (Luxury Car Tax) Act 1999 to provide an exemption from luxury car tax (LCT) to certain public institutions that import or acquire luxury cars for the sole purpose of public display. The changes would apply to public museums, galleries, and libraries that are registered for goods and services tax and that have been endorsed as deductible gift recipients. Date of effect: These amendments would apply to luxury cars that are imported or acquired from the day after the Bill receives Royal Assent.
9/02/2017
Tax Update February 2017
Copyright © 2017 Chartered Accountants Australia and New Zealand 22
INCOME
© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
ACNC releases Interpretation Statement on PBIs
• ACNC Interpretation Statement on meaning of “public benevolent institution”
• ACNC-registered PBIs can seek endorsement from ATO as:
‒ tax concession charities (income tax and FBT exemptions, GST concessions)
‒ deductible gift recipients.
Income
CIS 2016/03 – Public Benevolent Institutions
ACNC releases Interpretation Statement on PBIs
The Australian Charities and Not-for-profits Commission (ACNC) has published a new
Commissioner's Interpretation Statement on Public Benevolent Institutions (PBIs). It outlines the
ACNC's current understanding of the law concerning PBIs and how organisations may fit the charity
subtype. The statement is binding on ACNC staff during the decision-making process. Registered
charities with PBI status are granted Deductible Gift Recipient status by the ATO.
The release of the statement follows consultation with the public, charity sector members and
professional advisors on an Exposure Draft Statement issued earlier in 2016.
Previously, the ATO determined whether an organisation was a PBI for Commonwealth taxation
purposes. Entities can now apply to the ACNC to be registered under the charity subtype, PBI.
The ATO administers the taxation concessions available to registered charities and registered PBIs,
including the "in Australia" condition for deductible gift recipient status.
For ACNC purposes, the Interpretation Statement says a PBI is a charitable institution with a main
purpose of providing benevolent relief to people in need. While the phrase PBI is a compound
expression, the ACNC says it is nevertheless appropriate to define each word in the phrase.
Accordingly, the ACNC says a PBI must be:
"Public" in the required sense;
Benevolent; and
An institution.
Tax Update February 2017
Copyright © 2017 Chartered Accountants Australia and New Zealand 23
Additionally, to be eligible for registration as a PBI subtype of charity, an entity must also be eligible
for registration as a "charity" under the Australian Charities and Not-for-profits Commission Act
2012. To be registered as a charity, an entity must: (i) meet the definition of a "charity" in s 5 of the
Charities Act 2013 (Cth) and therefore must have a "charitable purpose" as set out in s 12 of the
Charities Act; and (ii) meet all of the entitlement criteria in s 25-5 of the ACNC Act.
12/01/2017
Tax Update February 2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
High Court: Industry severance scheme not a unit trust for Div
6C purposes
• FCT wins High Court case
• Industry severance scheme not a unit trust for tax purposes
• Workers didn’t have “units” in scheme.
Income
ElecNet (Aust) Pty Ltd v FCT [2016] HCA 51
High Court: Industry severance scheme not a unit trust for Div 6
purposes
ElecNet (Aust) Pty Ltd (Trustee) v FCT
The High Court has unanimously dismissed the taxpayer's appeal from the Full Federal Court
decision in ElecNet (Aust) Pty Ltd (Trustee) v FCT [2015] FCAFC 178 and confirmed that the
Electrical Industry Severance Scheme was not a "unit trust" within the meaning of Div 6C of Pt III of
the ITAA 1936 and therefore was not entitled to be taxed like a company. It did so on the basis of
finding that the interests of the electrical industry workers in the scheme could not be characterised
as "units". In arriving at its decision, the High Court also indicated that the workers' interests were
"discretionary" in nature which was contrary to the concept of a "unit" interest: ElecNet (Aust) Pty Ltd
v FCT [2016] HCA 51 (High Court, Kiefel, Gageler, Keane, Nettle and Gordon JJ,
21 December 2016).
Background
The taxpayer was the trustee of the Electrical Industry Severance Scheme (EISS) which provided
benefits to "workers" (as defined) who left or changed their employment in circumstances set out in
the Industry Severance Scheme.
The EISS was established to provide portability and security of termination and redundancy benefits
to workers in the electrical contracting industry. Employers within the relevant industry become
members of EISS and were required to make weekly contributions to it in respect of their workers
pursuant to obligations under industrial awards. When a worker's employment was terminated, EISS
was required to make a severance or redundancy payment to the worker, dependant on the
category of the worker.
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In December 2012, the taxpayer applied to the FCT for a private ruling that it was a "unit trust" (ie a
"public unit trust" and a "public trading trust" for the purposes of Div 6C), so that it could be taxed like
a company. The FCT ruled that the EISS was not a "unit trust" for these purposes, and therefore not
a "public unit trust" or a "public trading trust". The taxpayer appealed against the FCT's disallowance
of its objection against the private ruling and, in doing so, raised the issue of whether workers have
"a beneficial interest in any property" of the trust estate within the statutory def inition of "unit" in
s 102M.
The question for determination was whether the trust terms of the EISS trust deed supported the
characterisation of the EISS as a "unit trust" for Div 6C purposes.
At first instance, in ElecNet (Aust) Pty Ltd (Trustee) v FCT [2015] FCA 456, the Federal Court
allowed the taxpayer's appeal and held that the industry severance scheme was a unit trust for the
purposes of Div 6C. In doing so, the Court noted that where a worker becomes entitled to a
severance payment, the trustee had to deal with the worker's entitlement to the amount standing to
the credit of that worker in that worker's account as prescribed by the trust deed which it also fou nd
conferred on workers an interest of a proprietary nature in the trust fund. This was the case even
though the entitlement is a right to a payment in the future was conditional upon the happening of a
prescribed severance event. The Federal Court also noted as a matter of general principle (in
accordance with the High Court's decision in CPT Custodian v Comr of State Revenue (Vic) [2005]
HCA 53; (2005) 224 CLR 98) that the term "unit trust" does not, in the absence of an applicable
statutory definition, have a constant fixed normative meaning and that otherwise the key features of
a unit trust were present in this case.
However, the Full Federal Court in FCT v ElecNet (Aust) Pty Ltd (Trustee) [2015] FCAFC 178
unanimously allowed the FCT's appeal and held that the EISS was not a "unit trust" for the purposes
of Div 6C. In doing so, the Court essentially found that in terms of the relevant trust deed, the
beneficiaries did not have a "beneficial" interest in any of the income or property of the trust, and that
their interests in the trust were not, in effect, divided into units or "unitized" as required for the
existence of a "unit trust".
Before the High Court, the FCT argued that the EISS was not a unit trust within the meaning of
Div 6C because the beneficial interest in the trust "was not divided into units (however described)"
and because the various rights and entitlements created in members were disparate in nature and
quantity and for the most part they were dependent upon the exercise of a discretion by ElecNet in
favour of a particular identified individual worker". Likewise, the FCT submitted that by reason of the
broad discretions conferred upon ElecNet by the deed, any given worker did not have a beneficial
interest in any of the income or property of the trust estate within the meaning of the definition of
"unit" in s 102M.
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Decision
In unanimously finding for the FCT, the High Court held that on any view of the interest created by
the trust deed in favour of a worker, the effect of the deed was such that the interest so created was
"not cognisable as a unit in a unit trust for the purposes of Div 6C". In short, the High Court held that
the EISS was not a unit trust for the purposes of Div 6C because any interest created by the deed in
favour of employees could not be characterised as a "unit". In arriving at its conclusion , the Court
noted the following matters:
The broad discretions conferred upon ElecNet to determine which workers should benefit under the
scheme, and the extent of any such benefit, supported the contention that no worker had a
beneficial interest in any of the income or property of the trust estate and that it could not be said
that the beneficial interests of workers have been divided into units.
There is no reported case, in Australia or elsewhere, in which the expression "unit trust" has been
applied other than in circumstances where, under the applicable trust deed, the beneficial interest in
the trust fund is divided into units, which when created or issued are to be held by the persons for
whom the trustee maintains and administers the trust estate.
The purpose of Div 6C is to treat unit trusts for tax purposes as analogous to the relationship
between companies and shareholders, but, in this case, the relationship established by the deed
between ElecNet and a worker is not analogous to that between a company and a shareholder.
A payment to a worker by ElecNet was not even tenuously analogous to a dividend paid to a
shareholder in a company because both the making of a payment to a worker, and the quantum of
any such payment, depend on the exercise of a discretion by the trustee having regard to
circumstances personal to the worker.
It was to strain the language of the deed to describe that what occurred when a payment is made to
a worker as the "cancellation, extinguishment or redemption of an interest" in a prescribed trust
estate because no "right" was "held" by a worker to be cancelled, extinguished or redeemed.
In a separate judgment, Nettle J concluded that what was determinative of the issue in this case was
that the beneficial interest in the EISS was not divided into units and that instead the EISS provided
for different amounts of the trust estate to be credited to each individual worker's account, which
were then held on trust to make payments to that worker upon the occurrence of a severance event
- and in an amount to be determined by ElecNet up to the amount standing to the credit of that
worker's account. Moreover, Nettle J said this was "more akin to a defined benefits superannuation
scheme fund which [was] held on trust for the payment of retirement, death or total disability benefits
to members or their dependants".
Finally, the High Court concluded that this inclusive definition of "unit" in Div 6C did not expand the
meaning of "unit trust" for the purposes of that Division.
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Taxpayer resident of Australia under Aust/Malaysia DTA
• Taxpayer: born in Malaysia, Australian citizenship and passport
• Self-employed as software development consultant
• For 2014-15, in Australia 279 days, in Malaysia 88 days
• From 1 April 2015, leased room in Malaysia from mother-in-law
• AAT found taxpayer resident of Australia – Malaysian source PSI and
business profits taxable in Australia.
Income
Re Tan and FCT [2016] AATA 1062
Taxpayer held resident of Australia under Aust/Malaysia DTA
Re Tan and FCT [2016] AATA 1062
The AAT has upheld the FCT's decision that a taxpayer was a resident of Australia for the whole of
the income year ended 30 June 2015. Therefore, his Malaysian source personal services income
and business profits were taxable in Australia: Re Tan and FCT [2016] AATA 1062 (AAT, Walsh SM,
AAT File No: 2016/2243, 21 December 2016).
Background
The taxpayer was born in Malaysia, but has lived in Australia since 1998. He is an Australian citizen
and holds an Australian passport. He married a Malaysian citizen in 2011 (she is an Australian
permanent resident). The couple had a child early in 2016. The Tribunal said that du ring the income
year ended 30 June 2015, the taxpayer was self-employed as a professional software development
consultant and received income from a US company, pursuant to a contract for professional
software development and consultancy services, and from worldwide customers who accessed his
website and purchased his mobile app. In a private binding ruling, the FCT stated that all of the
taxpayer's above income was assessable in Australia. The taxpayer's objection to his 2015
assessment was disallowed.
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The issue in this case was whether the application of the Australia/Malaysia double tax agreement
(DTA) meant that the taxpayer is a tax resident of Australia or Malaysia for the year ended
30 June 2015. While in Australia, the taxpayer and his wife lived at his parents' home in WA and
while in Malaysia, they lived at his wife's parent's home. The FCT contended that the taxpayer was
to be treated as a tax resident of Australia for the entirety of the income year ended 30 June 2015.
The taxpayer accepted that for the period 1 July 2014 to 31 December 2014, he is to be treated as a
tax resident of Australia, and that, for the period 1 January 2015 to 31 March 2015, he is to be
treated as a tax resident of Australia, by reason of the operation of the DTA. However , for the period
1 April 2015 to 30 June 2015, the taxpayer contended that he should be treated a tax resident of
Malaysia. On 1 April 2015, the taxpayer entered into a 12 month lease agreement with his wife's
mother to rent a room at the Malaysian address, with an option to renew. The taxpayer said he paid
a monthly rental from 1 April 2015 until at least 1 June 2016 (although the Tribunal noted that he did
not provide any bank statements evidencing payment of these amounts).
The Tribunal said that, during the income year ended 30 June 2015, the taxpayer: (i) was in
Australia for a total of 279 days, and in Malaysia for a total of 88 days; (ii) had a bank account in
Australia containing about $200,000; (iii) owned a car stored in Australia; (iii) maintained a private
health policy with HCF: (iv) held a WA driver's licence; (v) was registered on the Australian electoral
roll; and (vi) was entitled to Medicare benefits.
Decision
After reviewing the matter, the Tribunal said "it must be concluded that [the taxpayer's] remuneration
for his services, whether performed in Australia or Malaysia, may be taxed in Australia. Even though
[the taxpayer] has performed some of his personal services in Malaysia, Article 14 of the
Australia/Malaysia DTA does not prevent Australia from taxing this income. Although
Malaysia may also tax remuneration from personal services performed in Malaysia by an Australian
resident, nothing in the Australia/Malaysia DTA prevents Australia from also taxing this income." The
Tribunal considered that applying Article 7(1) of the DTA to the taxpayer, his business income,
whether derived in Australia or Malaysia, will be taxable Australia. The Tribunal also considered that
the taxpayer's "personal and economic relations" with Australia "are far closer than his 'personal and
economic relations' with Malaysia". His "centre of vital interests" is in Australia, the Tribunal said.
The Tribunal therefore found that the taxpayer was a resident solely of Australia pursuant to the
"tiebreaker" test in Article 4(2)(c) of the Australia/Malaysia DTA.
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No disclaimer of interest in trust
• Following audits:
‒ Trusts denied carried forward losses
‒ Beneficiary’s income increased by over $12m
• Before AAT, beneficiary said she disclaimed trust interests (this wasn’t raised
in her objection)
• AAT didn’t allow objection to be amended to rely on disclaimers – FCT would
be prejudiced.
Income
Re TVKS and FCT [2016] AATA 1010
No disclaimer of interest in trust: assessments increasing taxable
income by $13m stand
Re TVKS and FCT [2016] AATA 1010
A beneficiary of two trusts whose assessable income was increased from some $70,000 to some
$13m in respect of her entitlement to distributions from the trusts has been unsuccessful before the
AAT in arguing that she had "disclaimed her interests" in the trusts: Re TVKS and FCT [2016] AATA
1010 (AAT, Ref No: 2015/4655- 4656, Forgie DP, 9 December 2016).
Background
The taxpayer was a beneficiary of two trusts, one of which ("Archer") was involved in investments in
residential complexes in partnership, or as "syndicate member", with another entity. Following an
audit of the trusts (and an earlier settlement arrangement), Archer was denied deductions for
significant "syndication" costs it had previously incurred while the other trust ("Shee") was likewise
denied significant deductions. The effect of these adjustments was to substantially reduce the
deductible carried forward losses of the trusts.
As a result, in May 2013 amended assessments for the 2006 and the 2007 income years also
issued to the taxpayer as the beneficiary of the trusts who was entit led to 100% of the trust income
from them. These amended assessments increased her taxable income from $9,000 to $10m in the
2006 income year and from $60,000 to $3m in the 2007 income year. In addition, shortfall interest
charge (SIC) of $3.2m was imposed (as reduced by the FCT over certain periods of the audit and
assessment process).
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The taxpayer unsuccessfully objected to the amended assessments, and before the AAT argued the
following:
A "disclaimer of trust interests" entered into in December 2015 was effective to disclaim any
entitlement to the trust distributions;
The Archer trust resolution to distribute "income" of the trust to the taxpayer was not valid in
terms of the Archer trust deed;
"Default" resolutions made by both trusts to distribute the trust income to another party in the
event that their deductions were denied by the ATO were valid and effective;
The amended assessments were issued out of time;
The denied carried forward losses were in fact available to Archer; and
The SIC should be remitted.
Decision
In dismissing the taxpayer's application on all grounds, the AAT found as follows.
Disclaimer of trust interest
The AAT ruled that because the taxpayer had not specifically raised the disclaimer issue in her
grounds of objection, it would not be permissible to raise it in the application before the AAT. In
arriving at its decision, the AAT also noted, among other things, that the relevant parties had had the
benefit of the distributions, the significant passage of time between the distributions and the making
of the disclaimer, and that her husband (who managed the affairs of the trusts) could have arranged
for the otherwise "retrospective" disclaimers to be made before the amended assessments had
issued. Furthermore, the AAT found that it would not be in the interests of justice to give her leave to
extend the grounds of her objection given that the objection never touched on the issue of
disclaimer.
Validity of Archer trust resolution
The AAT concluded that the resolution made by the Archer trust to distribute the "income" of the
trust to the taxpayer was not an invalid exercise of its power merely because it referred to "income"
and not "net income" of the trust. Likewise, the AAT found that leave should not be granted to the
taxpayer to expand the grounds of her objection to include that the Archer resolution was ineffective
to distribute income to her. This was because the AAT said that the FCT would be "prejudiced"by
such leave in that he could have instead issued an assessment to Archer making it liable for the tax
on the trust income under s 99A of the ITAA 1936.
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Validity of the default resolutions
The AAT also found that the "default" resolutions were not effective because neither they, nor the
"initial" resolutions, were technically subject to a "contingency" and because the initial resolutions
clearly intended, and had the effect of, making the taxpayer entitled (both in "interest" and
"possession") to the whole of the income of the trusts - and which, furthermore, was the "practical
effect" of the resolutions. In addition, the AAT noted that the effect of initial resolutions meant that
there was nothing left to be distributed under the default resolutions.
Assessments out of time
The AAT found that the amended assessments had not been issued out of time to the taxpayer as
she had, in terms of s 170(7), Item 4 of the ITAA 1936, consented to a relevant extension to the
limitation period per the FCT's request for such an extension that he made during the audit process
involving her tax affairs.
Carried forward losses
The AAT confirmed that the carried forward losses had been correctly denied by the FCT. This was
because the evidence indicated that deductions had been appropriately reduced for the amounts
"actually incurred" in the relevant year by Archer in respect of the purchase of property by the
syndicate, and for which it was claiming a deduction for its share of the outgoings as a syndicate
member.
SIC remission
Finally, the AAT found that there was no ground for further remission of the SIC imposed by the
FCT. In doing so it dismissed her arguments that she was unaware of the trust distributions or of the
trusts themselves. The AAT also noted that she had placed entire responsibility for her taxation and
financial affairs in her husband who was also her tax agent.
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DEDUCTIONS
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Home office expenses on floor area basis – FCT's method
preferred
• Taxpayer – employee electrician
• Applied for private ruling on home office expenses
• AAT agreed with FCT that apportionment on “floor area” basis appropriate.
Deductions
Re HWZG and FCT [2016] AATA 1017
Home office expenses on floor area basis – FCT's method preferred
Re HWZG and FCT [2016] AATA 1017
The AAT has affirmed the FCT's decision on the deductibility of a taxpayer's home office expenses
on a "fair and reasonable" apportionment on a floor area basis.
The taxpayer sought review of the FCT's decision to disallow his objection to a private ruling in
relation to the deductibility of home office expenses under s 8-1 of the ITAA 1997 in respect of the
income tax years ended 30 June 2016, 30 June 2017 and 30 June 2018. The taxpayer is a full-time
employed electrician. It was not in dispute that the taxpayer uses part of his home for business
purposes (namely, an inside office, the "right hand side" driveway (the RHS driveway) a nd an
adjoining secure garage). The dispute concerned the appropriate method of calculating the
deduction.
After reviewing the matter, the Tribunal considered the FCT's approach to be a "fair and reasonable"
approach to apportionment in the particular circumstances of the taxpayer's case. The FCT
considered that a "fair and reasonable" methodology would treat the areas in question (ie the RHS
driveway and corresponding secure garage and the LHS driveway and open carport) equally, either
by including, or excluding, both equivalent areas.
Re HWZG and FCT [2016] AATA 1017, AAT, Walsh SM, AAT File No: 2016/3278-3280,
6 December 2016
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MPs: allowances, reimbursements, donations, deductions, etc
• Substantial amendments made to Ruling TR 99/10
• Amendments clarity tax treatment of allowances and expenses incurred in
financing, holding and maintaining accommodation that MPs purchase or
lease and stay in when travelling.
Deductions
Addendum to TR 1999/10
MPs: allowances, reimbursements, donations, deductions, etc
Addendum to TR 1999/10
The ATO has released an Addendum to TR 1999/10 (Income tax and FBT: Members of Parliament
– allowances, reimbursements, donations and gifts, benefits, deductions and recoupme nts). The
Addendum is dated 15 December 2016, the date it was intended for release but for the ATO's
systems problems.
It makes substantial amendments to TR 99/10 to provide greater clarity around the tax treatment of
allowances and accommodation expenses incurred in financing, holding and maintaining
accommodation that a Member of Parliament purchases or leases and stays in when travelling away
from home for work.
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Some of the amendments made to the Ruling include:
Because of a Withholding Variation, most domestic travel allowances for accommodation,
food, drink or incidentals or overseas travel allowances for food, drink or incidentals will not
be shown on a Member's payment summary. Travel allowances not shown on a Member's
payment summary are not required to be returned as assessable income on their tax return
if:
o The travel allowance received is a bona fide travel allowance; and
o The travel allowance is used for travel related expenses; and
o The travel allowance received does not exceed the amounts considered reasonable
by the FCT for substantiation purposes; and
o The Member chooses not to claim deductions for relevant expenses in his or her
income tax return.
A deduction is allowable for revenue expenses incurred in financing, holding and maintaining
an additional property purchased or rented by a Member where certain conditions are met eg
if it is used by the Member for accommodation when he or she is undertaking work-related
travel away from home. However, the Addendum says if the Member's revenue expenses in
relation to the property are disproportionate to what the member would have paid for suitable
commercial accommodation for the period of the travel, a deduction is not allowable to the
extent that the expenses are incurred in the pursuit of another ob ject unrelated to the earning
of the Member's assessable income.
Notwithstanding the substantiation exception in relation to overseas travel allowance expenses
referred to in para 52 of TR 1999/10, travel records for overseas travel must still be kept if t he
travel involves the Member being away from their ordinary residence for six or more nights in
a row.
The receipt of an allowance does not automatically entitle a Member to a deduction for travel
expenses. Travel expenses covered by a travel allowance for accommodation, food, drink
and incidentals, but not fares, constitute "travel allowance expenses" for substantiation
purposes. This means a deduction is not allowable unless written evidence of the expense
has been obtained and retained by the Member.
Date of effect
The Addendum applies to years commencing both before and after its date of issue.
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Deduction for bad debt: beneficiary of a trust and UPEs
• Beneficiary not entitled to bad debt deduction for unpaid present entitlement
• ATO gives two reasons:
‒ Trustee’s equitable obligation to pay UPE not a debt at common law
‒ UPE not “included” in beneficiary’s assessable income under Div 6 ITAA 1936, as
required by s 25-35(1)(a) ITAA 1997.
Deductions
Taxation Determination TD 2016/19
Deduction for bad debts: beneficiary of a trust and UPEs
Taxation Determination TD 2016/19
The ATO has issued Taxation Determination TD 2016/19 which states that a beneficiary is not
entitled to a deduction under s 25-35 of the ITAA 1997 for an amount of unpaid present entitlement
(UPE) that the beneficiary purports to write off as a bad debt. It says this is because the amount of
UPE is not included in the beneficiary's assessable income, rather the entitlement is used to
determine the amount of net income of the trust included in the beneficiary's assessable income
under Div 6 of Pt III of the ITAA 1936.
Consequently, according to the Determination, the requirement in s 25-35(1)(a) of the ITAA 1997 (ie
it requires the relevant debt to be included in the taxpayer's income in that year or in an earlier
income year) cannot be met. It includes two examples outlining a simple unpaid entitlement and
where an entitlement is treated as a loan.
The TD was previously released as Draft TD 2015/D5.
Date of effect
Applies to years of income commencing both before and after its date issue.
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Work-related travel expenses not deductible – taxpayer fails
burden of proof
• Test engineer worked for offshore division of Indian company
• Deductions for travel to India, medical insurance disallowed
• Private expenditure.
Deductions
Re Thambiannan and FCT [2016] AATA 1004
Work-related travel expenses not deductible – taxpayer fails burden of
proof
Re Thambiannan and FCT [2016] AATA 1004
The AAT has held that a taxpayer was not entitled to deductions for work-related travel expenses
and medical insurance as they were of a private nature.
The taxpayer, a senior test engineer, worked for an offshore division of a company based in India.
He generally worked in Australia but sometimes overseas on client projects. He claimed work-
related travel expenses totalling $6,200 for a trip to India that he said he undertook for work
purposes, and a deduction for medical insurance of $1,321. The claims were made for the year
ended 30 June 2013. The ATO audited the taxpayer and disallowed the claims.
The taxpayer's tax agent said his client provided information that he was required to work on a client
project in India for about 25 days during 2013. The FCT received information from the taxpayer's
employer that he had not travelled officially to "any other location/state/county during his
employment".
The Tribunal said it was not satisfied that the claimed travel expenses were incurred "in the course
of" gaining or producing assessable income or that the travel had any nexus with the taxpayer's
employment. "None of the documents produced by [the taxpayer] or by [his] employer support his
assertion that his travel to India was for a work related purpose", the Tribunal said. In addition, the
AAT said payment summaries indicated the taxpayer took paid annual leave and unpaid personal
leave in June 2013 being the time when he was in India. In other words, the Tribunal said the
payment summaries showed the taxpayer was in India on his own time and not on his employer's
time.
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In relation to the deduction claimed for the medical insurance premium, the taxpayer's tax agent
argued that the taxpayer was entitled to claim the deduction because his employer had made an
allowance for this in his salary package. However, the Tribunal said that, regardless of whether his
employer had paid him an allowance for the expense, it was not deductible as medical insurance "is
inherently private in nature". The fact that the taxpayer needed to incur the expense to be able to
obtain a sub-class 457 visa in the relevant year and to commence work in Australia did not, in the
Tribunal's view, change the essential character or nature of the expenditure, which was that it was
private in nature and, therefore, not deductible. That is, even if it was a prerequisite to him working
and earning assessable income, it was not deductible, the Tribunal said.
The Tribunal therefore found the taxpayer failed to discharge the burden of proof. Specifically, it said
the limited information and documents he provided, through his tax agent, did not support the
deductibility of the deductions claimed. On the evidence available, the Tribunal considered the
expenses claimed by the taxpayer were of a private nature and not deductible.
Re Thambiannan and FCT [2016] AATA 1004 , AAT, Lazanas SM, AAT Ref: 2015/5072,
8 December 2016
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Commercial website deductibility
• Detailed ruling on expenditure on websites used for carrying on business
• Covers deductions for acquiring, developing, maintaining or modifying
website.
Deductions
Taxation Ruling TR 2016/3
Commercial website deductibility
Taxation Ruling TR 2016/3
The ATO has issued Taxation Ruling TR 2016/3 which sets out the deductibility of expenditure
incurred in acquiring, developing, maintaining, or modifying a website for use in carry on a business.
It covers expenditure in acquiring, developing, maintaining and modifying a website. The Ruling also
covers the deductibility of content migration, development of microsites, social media accounts,
domain names and copyright. However, it notes that assets such as hardware, the right to use the
domain name, and content that has independent value to the business are identified separately and
are not considered a part of a commercial website.
According to the ATO, expenditure in relation to commercial websites includes labour, off -the-shelf
software products, registration, licensing and other periodic usage fees. Generally, it st ates that
where the expenditure (labour, software, registration etc) is directly referable to the enhancement of
the profit-yielding structure of the business, it would be considered to be capital. Specifically in
relation to off-the-shelf software products that are licensed periodically, or where a website is leased
from a web developer and the business does not have a right to become the owner of the website,
any expenses incurred are likely to be of a revenue nature, the Ruling states.
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The Ruling indicates that acquiring or developing a commercial website for a new or existing
business is considered to be capital, and that maintaining a website is a revenue expense, including
remedying of software faults. It notes that any modification to a website that adds new functionality
to both back-end and front-end (ie interactivity available directly to the website or management of
background operations) or materially expands existing functionality is capital. However, the Ruling
says that expenditure on regularly upgrading existing website software to allow web pages to appear
correctly with new mobile devices, browsers, or operating systems is generally considered to be
deductible, as it is considered to be operational and directed at facilitating continued acce ss. It
further notes that similar principles apply to determining whether expenditure incurred in acquiring or
developing a microsite is of a capital or revenue nature, however, expenditure on a temporary
microsite is more likely to be of a revenue nature where it is set up for a transient marketing purpose.
In some instances, the Ruling says, the modifications to websites may be piecemeal but may result
in a significant improvement to the website. It states that some indicators that a piecemeal
modification is a part of a program of work for improving the website (and thus capital) include
documentation for a program of work, extent to which the end-state is planned and the importance of
incremental enhancements to achieving the end-state, and casual or temporal links with other
modifications.
In relation to content migration, the Ruling indicates that if the content is migrated as part of
establishing a new website, the cost is capital. However, it says if the content is migrated as a part of
a website upgrade, the cost is capital if the upgrade itself is capital, otherwise it is a revenue
expense. Further, the Ruling states that the migration of content due to replacement of hardware
without a material change to the commercial website is a revenue expense.
According to the Ruling, establishing a presence on a social media website is a capital asset that is
separate from the website and is not "in-house software" as it resides on the social media platform.
Expenditure incurred on the profile may be treated as a revenue expense where the cost of setting
up the profile is trivial and the profile is maintained for marketing purposes, the Ruling states.
Where the website costs are not otherwise deductible under s 8-1 of the ITAA 1997, the
expenditure may be classed as "in-house software" and deductible under the capital allowances
regime, the Ruling states:
Expenditure may be deducted over five years from the time the software is first installed or
ready for use;
The expenditure may be allocated to a software development pool; or
Small business entities may choose to use simplified depreciation rules in Subdiv 328-D (ie
immediate write off where asset is under threshold or depreciated in accordance with general
small business pool rules).
Tax Update February 2017
Copyright © 2017 Chartered Accountants Australia and New Zealand 40
In-house software
Note that the Ruling defines in-house software to include: software in a commercial website that
enables the website owner to interact with the user, where any independent benefit to the user is no
more than incidental to the interaction; software provided on a commercial website for installation on
the user's device if its purpose is solely to provide a user interface with the business; and content on
a website which is incidental to the website and not an asset having value separate from the
website. The Ruling also outlines what is considers is not "in-house software".
CGT issues
Where the website costs are neither deductible under s 8-1 or under the capital allowances regime,
the CGT regime will recognise the expenditure as a part of the cost base of a CGT asset , the Ruling
states. It also states that s 40-880 will generally not apply (as it is a provision of last resort) since
commercial websites will usually be "in-house software" or if not, it is likely to be part of the cost
base of a CGT asset.
In relation to domain names, an amount paid once-and-for-all to secure the right to use a domain
name is capital expenditure and the right to use a domain name is a CGT asset, thus, the right to
use a domain name forms part of the cost base of that asset. However, it notes that periodic
registration fees for a domain name including the initial registration fee are revenue expenses and
are deductible when paid, unless the fees relate to a period greater than 13 months, in which case
the expenditure is deductible over the period to which the fee relates.
Copyright
The Ruling notes that copyright can subsist in parts of a website but not in a website as a whole.
Hence, it states where a website owner holds copyright in a component of the website held for
taxable purposes, the decline in value of the copyright may be deducted. If the component is both
copyright and a part of an in-house software asset, the Ruling states the most appropriate treatment
will be to deduct the decline in value of the in-house software asset. It also says that copyright in
software or content is not considered a part of the website and whether the copyright is able to be
depreciated will depend on whether the commercial website expenditure is able to be depreciated.
Previous draft
The Ruling was previously issued as Draft Taxation Ruling TR 2016/D1 and contains significant
changes. It contains 25 examples to illustrate the deductibility of various scenarios (note the
examples have also significantly changed from the Draft).
Date of effect
Applies to income years commencing before and after its date of issue.
12/01/2017
Tax Update February 2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Depreciating assets - composite items
• Draft ruling on whether composite item is single depreciating asset
• Component parts may be separate depreciating assets if they can be
separately identified or recognised as having commercial and economic
value.
Deductions
Draft Taxation Ruling TR 2017/D1
Depreciating assets – composite items
Draft Taxation Ruling TR 2017/D1
The ATO has released Draft Ruling TR 2017/D1, which sets out the FCT’s views on how to
determine whether a composite item is itself a depreciating asset or whether the component parts
are separate depreciating assets.
A “composite item” is an item that is made up of a number of components that are capable of
separate existence. Whether a particular composite item is itself a depreciating asset or whether one
or more of its components are separate depreciating assets is a question of fact and degree to be
determined in the circumstances of the particular case.
For a component (or more than one component) of a composite item to be considered to be a
depreciating asset, it is necessary that the component (or components) is capable of being
separately identified or recognised as having commercial and economic value. Purpose or function
is generally a useful guide to the identification of an item.
Tax Update February 2017
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The draft ruling lists the main principles to be taken into account in determining whether a compos ite
item is a single depreciating asset or consists of more than one depreciating asset. These include:
Identifiable function – the depreciating asset will tend to be the item that performs a separate
identifiable function, having regard to the purpose or function it serves in its business context;
Use – a depreciating asset will tend to be an item that performs a discrete function. However,
the item need not be self contained or able to be used on a stand alone basis;
Degree of integration – the depreciating asset will tend to be the composite item where there is
a high degree of physical integration of the components;
Effect of attachment – the item, when attached to another asset having its own independent
function, varies the performance of that asset; and
System – a depreciating asset will tend to be the multiple components that are purchased as a
system to function together as a whole and which are necessarily connected in their
operation. However, where an element of a system is purchased or installed at a different
time to the system and has a separate identifiable function, that element may be a separate
depreciating asset.
The mere fact that an item cannot operate on its own and has no commercial utility unless linked or
connected to another item or items tends to indicate that it will form part of a composite item, rather
than being a separate depreciating asset. An item that is designed to be functionally
interchangeable, or is used in this way, with other items may indicate there are separate
depreciating assets.
Other issues considered in the draft ruling include:
Whether a modification or alteration to an existing depreciating asset can itself be a
depreciating asset;
Intangible depreciating assets; and
Jointly held tangible assets.
The draft ruling contains 14 examples, covering items such as industrial storage racking, a desktop
computer package, a mainframe computer, a local area network, a car GPS, rail transport
infrastructure, a solar power system and photographic lighting equipment.
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The draft ruling replaces TD 2002/5 What is a “distribution line” in the electricity distribution industry
for the expression “depreciating assets” in s 40-100 of the ITAA 1997? which is withdrawn with effect
from 18 January 2017. The ATO has also withdrawn the following seven ATO IDs with effect from 18
January 2017, as they have been replaced by Draft TR 2017/D1:
ATO ID 2002/751 Depreciating asset – photovoltaic solar system;
ATO ID 2002/930 Depreciating assets – photographic lighting equipment;
ATO ID 2003/489 Capital Allowances: rail transport trackwork – depreciating asset;
ATO ID 2004/612 Capital Allowances: depreciating asset – car global positioning system
device;
ATO ID 2007/119 Capital Allowances: depreciating asset – composite item;
ATO ID 2011/1 Capital allowances: depreciating asset – jointly held – composite asset; and
ATO ID 2011/2 Capital allowances: depreciating asset - segments of a fibre optic cable
system.
When the final ruling is issued, it is proposed to apply both before and after its date o f issue.
Comments are due by 17 February 2017 and should be sent to: Darryl Palmer: Tel: (08) 8208 1917;
email: [email protected].
19/01/2016
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Effective life of assets – drafts released
• Draft effective lives of assets used in electronic information storage services
(data centre) industry released
• Draft effective lives of assets used in coal seam gas industry released
• Proposed date of effect for both: 1 July 2017.
Deductions
Draft lists released
Draft effective lives: Data centre assets; coal seam gas industry.
The ATO is seeking comments on a draft list of effective lives for assets used in the electronic
information storage services (data centre) industry. The ATO proposes to add a new list of effective
life determinations to the FCT's schedule to apply to assets purchased (or otherwise first used or
installed ready to use) on or after 1 July 2017. The list includes items such as data centre control
systems, data centre cooling assets, fire protection systems, and modular data centre.
Comments due by 28 February 2017.
Coal seam gas industry
The ATO is also seeking comments on a draft list of effective lives for assets used in the mineral
mining support services industry, specifically the coal seam gas extraction industry. The ATO
proposes to add a new list of effective life determinations to the FCT's schedule to apply to assets
purchased (or otherwise first used or installed ready to use) on or after 1 July 2017. The list includes
items such as Blasting assets, mobile processing units, dewatering pumps, and surface drill rigs.
Comments due by 24 February 2017.
26/01/2016
Tax Update February 2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Deduction for cost of tools rejected
• Taxpayer claimed he bought $24,750 worth of tools online, paid vendor in
cash from gambling winnings, had handwritten "tax invoice" for "87 hand tools
and/or power tools"
• FCT denied deduction, imposed 25% shortfall penalty
• AAT agreed with FCT – no tools purchased, vendor non-existent, fake tax
invoice.
Deductions
Re Ishaq and FCT [2017] AATA 35
Deduction for cost of tools rejected
Re Ishaq and FCT [2017] AATA 35
A taxpayer has failed to convince the AAT that he spent over $24,000 buying work tools and
therefore failed to discharge the burden of proving that an amended assessment was excessi ve.
The taxpayer was an aircraft maintenance engineer with an airline. After finishing his apprenticeship
he decided to buy his own tools as he considered those provided by his employer to be inadequate.
He allegedly bought 87 tools online for $24,750, together with two tool boxes. He claimed a
deduction for that amount, but it was eventually disallowed following an audit of his tax affairs. An
amended assessment was issued increasing his taxable income substantially, along with a notice of
assessment of a 25% shortfall penalty.
Before the AAT, the taxpayer alleged that the vendor (a Mr Shaw) had delivered the tools to his
home and he had paid Mr Shaw in cash from gambling winnings he kept at home. The taxpayer
produced a hand-written document purporting to be a "tax invoice". The document contained a date,
Mr Shaw's name, address and phone number and a statement which read "87 hand tools and/or
power tools". The document also stated a total price of $24,750. The signature was in Mr Shaw's
name. There was no reference in the document to the tool boxes.
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The AAT dismissed the taxpayer's challenges to the amended assessment and shortfall penalty.
The AAT considered that the taxpayer had not purchased the tools and that the "tax invoice" was a
false document. The following matters were relied on in support of this conclusion: the ATO had
been unable to trace Mr Shaw despite extensive inquiries; there was no independent evidence as to
the existence of the tools (eg photographs and witness statements); there was no evidence the
taxpayer was a successful gambler who kept a large amount of cash at home; and the taxpayer's
girlfriend, who apparently witnessed the transaction with Mr Shaw, did not appear at the hearing to
confirm that.
Re Ishaq and FCT [2017] AATA 35, AAT, Ref No 2015/6214, Lazanas SM, 17 January 2017
26/01/2016
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Overtime meal expenses disallowed
• Deduction for overtime meal expenses disallowed – 25% shortfall penalty
affirmed
• Taxpayer not paid allowance under industrial agreement (as required by s 32-
50 ITAA 1997)
• Paid same amount each week, regardless of how much overtime he worked.
Deductions
Re Kael and FCT [2017] AATA 38
Overtime meal expenses disallowed
Re Kael and FCT [2017] AATA 38
A taxpayer has failed in his claim for deductions for overtime meal expenses as he was not paid an
allowance under an industrial agreement: Re Kael and FCT [2017] AATA 38 (AAT, Ref Nos
2016/0299 and 2016/0300, Dr Popple SM, 20 January 2017).
Background
The taxpayer worked for a building company. His responsibilities included project management,
building construction supervision, quantity surveying and occupational health and safety. He worked
during the day on building sites and would do paperwork in the evenings. He would often work on
weekends.
His pay was set at the start of each income year and included amounts to cover regular overtime,
work performed at home and out-of-pocket expenses. For 2011-12, there was an additional amount
to cover work-related car expenses. He was paid a fixed amount weekly and did not receive regular
payslips. The taxpayer also received a profit share bonus on the completion of each project.
The taxpayer claimed deductions for work-related travel expenses (for 2012-13 only) and for other
work-related expenses, including overtime meal expenses (for both 2011-12 and 2012-13). The
deductions totalled $6,636. Following an audit of the taxpayer's tax affairs, amended assessments
were issued for both 2011-12 and 2012-13 reducing the amounts claimed as deductions. In addition,
an administrative penalty of 25% of the shortfall amount was imposed.
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Ultimately, the only issues for the AAT to determine were whether the taxpayer was entitled to claim
deductions in both 2011-12 and 2012-13 for overtime meal expenses ($376 in total), whether the
FCT was correct to impose a 25% administrative penalty and whether it should be remitted.
Decision
Whether overtime meal expenses were deductible depended on whether the taxpayer had received
a food or drink allowance under an industrial instrument, in terms of s 32-5 ITAA 1997. The AAT
agreed with the FCT that the taxpayer had not received such an allowance. Indeed, the taxpayer
had not received any allowance at all.
Ruling TR 92/15 (which explains the difference between an allowance and a reimbursement) states
that a payment is an allowance "when a person is paid a definite predetermined amount to cover an
estimated expense". In this case, there were no estimated overtime meal expenses. The taxpayer
was paid the same amount each week, regardless of how much overtime he worked during that
week, and was even paid that same weekly amount in relation to times when he was on leave and
could not possibly have worked overtime. Accordingly, the AAT agreed with the FCT that "it is
illogical to suggest that you can predetermine an amount of allowance without having reference to
when the employee works overtime".
Turning to the administrative penalty, the AAT concluded that the 25% penalty was the minimum
amount that should be imposed, commenting that a 50% penalty for recklessness, or even a 75%
penalty for intentional disregard of the law, may possibly have been appropriate.
The AAT also rejected an argument that, in terms of s 284-225 in Sch 1 to the TAA, the taxpayer
had voluntarily disclosed information to the FCT that would have saved a significant amount of time
or resources in the audit. That was not the case as the taxpayer had in fact increased the amounts
claimed as deductions during the course of the audit.
Finally, the AAT decided that there were no grounds to remit the 25% penalty.
26/01/2016
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
No deduction or capital loss for guarantee "obligation"
• Taxpayers (controllers of trusts) involved in property development
• Income of 2 family trusts increased by $4.3m after capital loss of associated
unit trust disallowed
• Taxpayers claimed they were entitled to $4.3m deduction or capital loss as
trusts guaranteed business loan which lender (another related entity) had
called on guarantors to meet
• AAT found insufficient evidence to support existence of guarantee.
Deductions
Re Carioti and FCT [2017] AATA 62
No deduction or capital loss for guarantee "obligation"
Re Carioti and FCT [2017] AATA 62
The AAT has affirmed that two family trusts that were involved in a building and construction
business with other related entities were not entitled to a deduction or a capital loss for $4.3m. It did
so on the basis that both the documentary evidence and the oral evidence of the relevant controllers
of the trusts was not sufficiently credible to support the "bona-fides" of the alleged guarantee
arrangement: Re Carioti and FCT [2017] AATA 62 (AAT, File Nos: 2014/1471, 1474, 1484 & 1485,
Frost DP, 25 January 2017).
Background
Following the audit of the applicants and their associated entities who were involved in a building
business, an amended assessment was made in relation to a unit trust for the 2007 income year.
The amended assessment reflected the disallowance of a $4.3m cap ital loss which the FCT
concluded, and the applicants accepted, was not incurred by the unit trust. As a consequence, the
unit trust had an additional $4.3m available for distribution to its unit holders. That amount was
distributed as to 50% to one discretionary trust (controlled by the first and second applicants), and
as to 50% to another discretionary trust (controlled by the third and fourth applicants). From those
discretionary trusts, distributions flowed to each of the applicants personally.
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The FCT then amended the applicants' assessments for the 2007 income year to take account of
those additional distributions. Each of the applicants objected against their amended assessment
and against the assessment of 50% shortfall penalties for recklessness. They claimed their
respective discretionary trusts were entitled either to a deduction, or to a capital loss, equal to the
amount of additional income attributed to it. Specifically, the applicants claimed that each of their
trusts guaranteed a loan which the borrower became unable to service and that, as a result, the
lender (a related entity) had called on the guarantors to meet the debt.
Decision
In affirming the FCT's decision to disallow the taxpayers' objections to their amended assessments,
the AAT found that both the documentary evidence and the oral evidence of the relevant controllers
of the trusts was not sufficiently credible to support the existence of the alleged "deeds of
guarantee". Specifically, the AAT found that there were unusual features of the guarantee deed in
evidence that put into question whether the trusts were genuinely subject to a guarantee obligation.
The AAT also expressed concerns about the evidence of the amount of the loan in question, but
found it sufficient to decide the matter on the evidence as to the existence of the guarantee.
In this regard, the AAT noted that the guarantee deed made no reference to what was involved in
the guarantors "securing" the debt and did not, as would normally be expected, record an
undertaking by the guarantors to perform the obligations of the debtor under the loan agreement in
the event of default by the debtor. Likewise, the AAT noted that the deed said nothing about the
process to be undertaken by the lender to recover from the guarantors in the event of default.
Furthermore, the AAT stated that the only director of the debtor on the date the deed of guarantee
was made (apart from another party who was not at arm's length from the applicants) said he knew
nothing about a guarantee.
In these circumstances, the AAT said there must be considerable doubt as to whether the applicants
"truly did expose themselves to any guarantee obligation under the document in question". In doing
so, the AAT also noted the well-settled principle that "the evidence of witnesses who have an
interest in the outcome of litigation needs to be approached critically".
The AAT also affirmed the 50% shortfall penalties for recklessness. In this respect, the AAT said the
immediate cause of the applicants' failure to include the distributions in their assessable income was
"not only an error of attribution but one of fundamental entitlement as well" that was due to "extreme
sloppiness". Moreover, it stated that "putting aside the attribution error and focusing on the question
of fundamental entitlement ...the error was caused by gross carelessness". The AAT also found
there were no grounds to remit the penalties in these circumstances.
3/02/2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Taxpayer denied deduction for work expenses of $60,000
• AAT found that mechanical engineer not entitled to deductions for:
‒ Car expenses – not work related
‒ Self-education costs – no nexus with income-producing activities
‒ Other “work” expenses – not substantiated
• AAT also affirmed 25% shortfall penalty for lack of reasonable care.
Deductions
Re Vakiloroaya and FCT [2017] AATA 95
Taxpayer denied deduction for work expenses of $60,000
Re Vakiloroaya and FCT [2017] AATA 95
The AAT has confirmed that a mechanical engineer with a PhD qualification was not entitled to
deductions for various work related expenses of approximately $60,000 claimed by him in the 2014
tax year - subject to certain minor deductions conceded by the FCT and several further ones allowed
by the AAT. The expenses in question were motor vehicle expenses (around $3,000), self-education
expenses (approx $48,000) and other work expenses (about $7,000): Re Vakiloroaya and FCT
[2017] AATA 95 (AAT, Ref No 2015/6422, Lazanas SM, 31 January 2017).
Motor vehicle expenses
In relation to the motor vehicle expenses, the taxpayer claimed he was required to use his car to
travel to meetings with clients and visit sites and continue with his work duties at home. He also
claimed that he was required to carry "confidential and sensitive documents" to and from a work and
therefore was entitled to a deduction on this basis as well. However, the AAT found the taxpayer did
not prove that his expenses were work-related and were not private in nature. In this regard, the
AAT noted that his employer did not "'reference" any requirement for him to attend any work -related
client meetings or site visits.
In respect of his claim for motor vehicle expenses on the basis that he was carrying "confidential information", the AAT found that, in fact, the information related to patents and other trade secret information which belonged to him and which had nothing to do with his employment or where he was studying. Furthermore, the AAT stated that even if he was carrying confidential information relating to his employer between home and work, he would not be entitled to claim a deduction for his motor vehicle expenses on that basis alone.
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Self-education expenses
In relation to the self-education expenses claimed, the taxpayer argued that the expenses (for
physical products such as instrumentation equipment) related to an invention he was working on to
license to another company that was his own business or "industry". In disallowing this claim, the
AAT found the expenses had nothing to do with his employment or his university course and
therefore there was no requisite connection with any income-producing activity. In this regard, the
AAT also noted that an engineer engaged in developing a device was not engaged in a business.
The AAT also noted there was a failure to substantiate certain of the expenses.
Other work-related expenses
In relation to a range of miscellaneous work-related expenses claimed (including mobile phone
charges, internet, professional membership fees, conference fees and depreciation), the AAT found
that virtually all the deductions claimed were not properly substantiated in any way. It further stated
that both the FCT and the AAT itself were not satisfied that a deduction should be allowed on the
basis of the "nature and quality" of any other evidence regarding the incurrence of the expense
pursuant to s 900-195 of the ITAA 1997.
Shortfall penalty
Finally, the AAT said it was not satisfied that the decision by the FCT to impose 25% shortfall
penalties for failing to take reasonable care by was not incorrect - in view of, among other things,
that the taxpayer was a very knowledgeable and highly credentialed professional and academic, and
that the deductions claimed were "significant" in contrast to his assessable income for the relevant
year. Likewise, the Tribunal found there were no grounds for the AAT to exercise its discretion to
remit any part of the penalty.
3/02/2017
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CGT
© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Intangible capital improvements made to a pre-CGT asset - a
separate asset
• Intangible capital improvement to pre-CGT asset can be separate CGT asset
• Example provided of pre-CGT land being rezoned and subdivided – ATO says
improvements to land may be separate CGT assets.
CGT
Taxation Determination TD 2017/1
Intangible capital improvements made to a pre-CGT asset - a separate
asset
Taxation Determination TD 2017/1
The ATO issued Taxation Determination TD 2017/1. It provides that for the purposes of the
"separate asset" rules in ss 108-70(2) or (3) of the ITAA 1997, intangible capital improvements can
be a separate CGT asset from the pre-CGT asset to which those improvements are made if the
relevant thresholds are satisfied. (These are that the improvement's cost base is more than the
improvement threshold for the income year in which the CGT event happened to the original asset,
and that the improvement's cost base is more than 5% of the capital proceeds from the event.)
The TD also provides the following example: A farmer, holding pre-CGT land, obtains council
approval to rezone and subdivide the land. Those improvements may be separate CGT assets from
the land.
Note : The Determination was originally issued as CGT Determination Number 5 in relation to the
CGT provisions in the ITAA 1936. The current TD updates the ruling for the purposes of the
equivalent ITAA 1997 provisions, without any change in substance.
Date of effect
The Determination applies to years of income commencing both before and after its date of issue.
26/01/2017
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INDIRECT TAXES
© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
GST: determining if a recipient is an Australian consumer
• Draft ruling on Netflix tax
• Explains when suppliers can rely on automated systems and when they need
to take extra measures to determine customer’s GST status
• Netflix tax applies from 1 July 2017, transitional rules started on
1 July 2016.
Indirect Taxes
Draft GST Ruling GSTR 2016/D1
GST: determining if a recipient is an Australian consumer
Draft GST Ruling GSTR 2016/D1
From 1 July 2017, the supply of services, digital products or rights will be connected with Australia
(and so potentially liable to GST) if made to an Australian consumer by an overseas-based supplier.
This is referred to as the digital import or "Netflix tax" rules.
The ATO has released Draft GST Ruling GSTR 2016/D1, which explains how suppliers can decide
whether a recipient of a supply is an Australian consumer. It explains what evidence suppliers
should have, or what steps they should take to collect evidence, in establishing if the supply is not
made to an Australian consumer.
Meaning of "Australian consumer"
There are two limbs that must be satisfied for an entity to qualify as an Australian consumer. First,
an entity must be an Australian resident for income tax purposes (although there is an exception for
residents of external Territories). This is referred to in the Draft as the "residency element".
Second, the recipient must either:
Not be registered for GST; or
If registered, not acquire the thing solely or partly for their enterprise.
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This second limb is referred to as the "consumer element" in the Draft. Both these limbs are
discussed under the headings below.
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Overseas suppliers can treat the supply as having not been made to an Australian consumer (and
so not liable for GST) if they:
Have satisfied particular evidentiary requirements; and
Reasonably believe that the recipient is not an Australian consumer.
The supplier can satisfy the evidentiary requirements by using either the supplier's usual business
systems and processes (the "business systems approach") or by using what the Draft terms the
"reasonable steps" approach, ie where the supplier has taken steps to obtain information about
whether the recipient is an Australian consumer.
The reasonable belief requirement can be based on a belief that the recipient does not satisfy either
the residency element or the consumer element.
Residency element
The meaning of "non-resident" for GST purposes is considered in GST Ruling GSTR 2004/7.
Although that Ruling considers the definition of non-resident for the purposes of the export rules (in
s 38-190(1)), the Draft states that the FCT will adopt it for the purposes of the Australian consumer
rules.
In terms of the business systems approach for evidentiary requirements, the Draft provides the
following examples of information that the FCT will accept to support a conclusion about whether the
recipient satisfies the residency element:
The recipient's billing address;
The recipient's mailing address;
The recipient's banking or credit card details, including the location of the bank or credit card
issuer;
Location-related data from third party payment intermediaries;
Mobile phone SIM or landline country code;
Recipient's country selection;
Tracking/geolocation software;
Internet protocol (IP) address
Place of establishment of the recipient (for non-individual recipients);
Representations and warranties given by the recipient;
The origin of correspondence; and
Locations, such as a Wi-Fi spot, where the physical presence of the person receiving the
service at that location is needed.
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Copyright © 2017 Chartered Accountants Australia and New Zealand 57
In terms of the reasonable steps approach for evidentiary requirements as it applies to the residency
element of the Australian consumer test, the Draft states relevant circumstances to be considered in
determining what steps are reasonable include:
The level of interaction the supplier has with the recipient in making the supply or in
maintaining the commercial relationship;
The type of personal information that a recipient will usually share, or usually be willing to
share with the supplier in the course of making a supply or in maintaining the commercial
relationship, taking into account the type of supply, the value of the supply, and the nature of
the commercial relationship between the supplier and the recipient;
The difficulty and costs involved for the supplier in taking steps to obtain information about
whether an entity is an Australian consumer of a supply (including both direct and indirect
costs); and
The expected reliability of the information about whether an entity is an Australian consumer.
The ATO will also accept that the evidentiary and reasonable belief requirements have been
satisfied if an overseas-based supplier sets up its systems to comply with an overseas jurisdiction's
requirements and such systems indicate that the recipient's residency is outside Australia. This
applies to suppliers operating in countries from the EU, as well as New Zealand and Norway.
The Draft also examines what should be done where there is inconsistent evidence or other
uncertainty. It provides many examples to illustrate the FCT's views.
Consumer element
It is reasonable for overseas suppliers to believe that a customer is not an Australian consumer if the
customer provides an ABN and a declaration or statement indicating that it is registered for GST.
The ATO expects suppliers to take reasonable steps to ensure that the ABNs are likely to be valid
and belong to the customer. These steps may include:
Using the ABN Lookup website and tool;
Ensuring the ABN provided is in the correct format; and
Ensuring that there are no duplicate ABN entries for different recipients.
Date of effect
The Netflix tax changes come into effect from 1 July 2017. However, there are transitional rules that
commenced on 1 July 2016. For this reason, when the final Ruling is issued, it will apply to
arrangements begun to be carried out from 1 July 2016.
Comments
Comments are due by 17 February 2017. ATO contact: Jo Drum; Tel: 03 8792 1469; email:
12/01/2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
GST: no recovery for margin scheme increasing adjustment
• Developer sold land to local council
• Subject to margin scheme
• Council required to pay GST on the supply
• Court held council not required to pay increasing adjustment in developer’s
BAS.
Indirect Taxes
McEwans Australia Pty Ltd v Brisbane City Council [2016] QDC 347
GST: no recovery for margin scheme increasing adjustment
McEwans Australia Pty Ltd v Brisbane City Council
A developer has been unsuccessful in recovering the GST liability from a purchaser which arose as
a result of it making an increasing adjustment: McEwans Australia Pty Ltd v Brisbane City Council
[2016] QDC 347 (District Court of Queensland, McGill SC DCJ, 21 December 2016).
Background
An entity ("Developer") had purchased two blocks of land, one of which was subject to the margin
scheme ("Block 1") while the other was subject to the normal rules ("Block 2"). It claimed an input tax
credit for the GST paid on the acquisition of Block 2. No input tax credit could be claimed for Block 1
as it had been subject to the margin scheme.
Developer then entered into an agreement with the local council ("Council") for the subdivision and
development of the two blocks. The contract provided for Council to acquire part of the land for use
as a sports park. This parcel of land consisted of part of Block 1 and part of Block 2. The contract
specified a value of $7.3m, less the "community purpose infrastructure contribution" that Developer
was otherwise required to pay. The contract specified that, in addition to this "agreed balance",
Council would pay Developer "an amount equal to the GST that [Developer] will have to pay on
account of GST associated with the receipt of the Agreed Balance". The parties agreed in writing
that the margin scheme would apply. In other words, Council would pay the agreed balance (ie
$7,003,024) and the amount of GST referable to this supply, which was to be calculated using the
margin scheme (ie $250,881). These amounts were not disputed and were paid by Council.
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However, Developer was required to make an increasing adjustment in its BAS for the input tax
credit it claimed on Block 2. This is a statutory requirement which applies where some but not all of
the land supplied under the margin scheme has been purchased as part of a taxable supply
calculated under the normal rules: s 75-22(1) of the GST Act. Developer sought reimbursement from
Council for this increasing adjustment amount as well. That is, it argued that the increasing
adjustment was part of the GST payable on the supply of the land to Council. This meant that it
sought an additional amount of $161,116 from Council.
Developer argued that the term "GST" as used in the contract carried the same meaning as in th e
GST Act, which referred to the net amount calculated under that Act – which included increasing
adjustments. Further, it argued that the increasing adjustment was associated with the receipt of the
agreed balance, because it flowed automatically from the application of the margin scheme to the
transaction.
Decision
The District Court of Queensland dismissed Developer's application and held that Council had no
further amount to pay.
The "ordinary and natural" meaning of the words used in the relevant clause meant that what
constituted "GST" was the GST imposed on the transfer of the sports park land, which was
calculated by reference to s 75-10(1) of the GST Act. Whether and to what extent the transfer of the
land produced an increasing adjustment under s 75-22(1) was solely within the knowledge of
Developer and did not form part of this calculation. The Court considered that, in effect, Developer
was seeking to be insulated by Council from the operation of s 75-22(1), as well as have Council pay
the GST levied immediately on the transaction under the margin scheme. There was nothing in the
contract itself which indicated an intention for the indemnity to extend that far.
12/01/2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
GST cross-border law changes and currency conversion
• Draft determination provides currency conversion options for businesses
impacted by GST cross-border changes
• Includes method to convert foreign consideration into Australian currency.
Indirect Taxes
Draft FOREX 2016/D1 GST: Foreign Currency Conversion Determination
GST cross-border law changes and currency conversion – draft
determination released
The ATO has released Draft FOREX 2016/D1 GST: Foreign Currency Conversion Determination
(No xx) 2016. It contains currency conversion options for businesses impacted by the GST cross-
border law changes and sets out the method to convert amounts of consideration that are expressed
in foreign currency into Australian currency for the purposes of working out the value of a taxable
supply.
When final, it will replace the A New Tax System (Goods and Services Tax) Act Foreign Currency
Conversion Determination (No 30) 2016.
Comments are due by 31 January 2017.
19/01/2016
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
GST on home care and residential care
• ATO draft guidance documents to help home & residential care suppliers work
out if their services are GST-free
• Also explains how GST applies to sub-contracted services.
Indirect Taxes
ATO seeks views on guidance material
GST on home care and residential care – ATO seeks views on guidance
material
The ATO has prepared two draft guidance documents to help home care and residential care
suppliers work out when the services they supply are GST-free, and how GST applies to
subcontracted services. The two documents are:
GST and home care – consultation. The purpose of the guidance is to assist home care
service providers: (i) working out when (and to what extent) supplies of care and related
services are GST-free, and (ii) to understand how GST applies to subcontracted services.
This draft guide looks at government funded care, consumer directed care, additional
services a care recipient pays for, non-government funded home care services. The guide
says home care services are generally only GST-free where the contractual recipient of the
supply is an individual who receives the services. If someone contracts with another entity to
deliver home care for them, the supply to that entity is not generally GST-free. However, the
supply is GST-free to the extent that the underlying service to the care recipient is GST-free
where the supply is made to, for example, an insurer settling a claim under an insurance
policy or an operator of a statutory compensation scheme.
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GST and residential care – consultation. Covers government funded residential care
services, non-government funded residential care services other than in a retirement village,
non-government funded residential care services in a retirement village, accommodation,
subcontracting services. The draft guide explains when the supply of residential care
services to an aged or disabled person is GST-free where the supplier does not receive any
funding directly from government for its residential care services and does not operate a
retirement village and, in the alternative, where it does operate a retirement village.
Accommodation is GST-free if it is supplied in the course of supplying GST-free residential
care services. To be supplied "in the course of supplying GST-free residential care services",
the guide says the accommodation must be integral to the supply of the care, and the
resident is accommodated at the facility so that they can receive the care services which they
require.
The ATO is seeking the views of suppliers or interested parties on the draft guidance documents.
Comments on the documents are due by 5pm Friday, 17 February 2017.
3/02/2017
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TAXATION OF SUPERANNUATION
© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
ATO guidance on concessional contributions and
constitutionally protected super funds
• Draft guidance on calculating concessional contributions for defined benefit
interests and constitutionally protected funds
• Under super reforms, extra amount included in concessional contributions
from 1 July 2017 to reflect full amount of accrued benefits for defined benefit
interests.
Taxation of Superannuation
Draft Law Companion Guideline LCG 2016/D11
ATO guidance on concessional contributions and constitutionally
protected super funds
This ATO Draft Law Companion Guideline LCG 2016/D11 explains how concessional contributions
will be calculated for defined benefit interests and constitutionally protected funds (CPFs) from
1 July 2017.
As part of the super reforms legislation that received Assent on 29 November 2016, the exclusions
for contributions and amounts from concessional contributions for interests in CPFs will be removed
from 1 July 2017. Contributions made and amounts allocated after 1 July 2017 in respect of interests
in a CPF will be included in a taxpayer's concessional contributions under s 291-25 of the ITAA
1997. However, such contributions and allocated amounts on their own will not result in excess
concessional contributions but will instead limit an individual's ability to make further concessional
contributions to other funds.
Under the super reforms, an additional amount will be included in an individual's concessional
contributions from 1 July 2017 to reflect the full amount of accrued benefits (funded and unfunded)
for defined benefit interests. The ATO says this additional amount of concessional contributions will
be the amount by which the "defined benefit contributions" for the interest exceed the "notional taxed
contributions" for the interest. Note that the grandfathering transitional rules that apply to defined
benefit interests held on 5 September 2006 or 12 May 2009 will not apply to defined benefit interests
in a CPF.
Defined benefit contributions will be calculated via the modified rules used for Div 293 purposes in
s 293-115 and Sch 1A to the ITA Regs. However, these modifications do not apply to the calculation
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of defined benefit contributions when working out the excess to be included in a taxpayer's
concessional contributions. The draft guideline sets out seven examples to illustrate the operation of
the provisions.
Example
Kayla has a defined benefit interest in a CPF. During 2016-17, Kayla has no notional taxed
contributions for the CPF as there are no notional taxed contributions for CPFs for that financial
year. Kayla makes a salary sacrifice contribution of $15,000 to another superannuation fund which is
not a CPF. For 2016-17, Kayla's amount of concessional contributions is $15,000.
During 2017-18, on the advice of an actuary, the trustee of the CPF calculates Kayla's notional taxed
contributions as $30,000 and her defined benefit contributions as $35,000 for that financial year.
(Note that the grandfathering transitional rules that limit the amount of notional taxed contributions to
the amount of an individual's cap do not apply to interests in CPFs). Kayla also makes a deductible
personal superannuation contribution of $15,000 to another superannuation fund (which is not a
CPF) for which she has claimed a deduction. Subject to the modification explained below, Kayla's
amount of concessional contributions for 2017-18 would be $50,000 ($15,000 + $30,000 + ($35,000
- $30,000).
Kayla's concessional contributions cap for 2017-18 is $25,000. As the amount of concessional
contributions in relation to Kayla's interest in the CPF of $35,000 ($30,000 + ($35,000 - $30,000))
cannot create an excess and is greater than Kayla's concessional contributions cap for the financial
year, the amount of those concessional contributions is equal to her concessional contributions cap.
Therefore, Kayla has excess concessional contributions of $15,000 ($40,000 modified concessional
contributions - $25,000 concessional contributions cap) for 2017-18.
Comments
Comments are due by 23 January 2017 to: Grahame Hager (ATO contact officer) - Tel: (02) 9374
8762; Email: [email protected].
12/01/2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
ATO releases 2014-15 SMSF statistical overview
• 99.6% of super funds are SMSFs
• 29% of super assets (totalling $622 billion) in SMSFs
• 6% of SMSFs held assets under LRBAs with > 90% of LRBA investments in
real estate
• 31% growth in number of SMSFs over five years.
Taxation of Superannuation
ATO releases 2014-15 SMSF statistical overview
The ATO has released the annual Self-Managed Superannuation Funds: A Statistical Overview
2014-15 Report and the September 2016 edition of the quarterly Self-Managed Superannuation
Funds Statistical Report.
Assistant Commissioner Kasey Macfarlane said SMSFs account for 99.6% of all superannuation
funds and 29% of the $2.1 trillion in total superannuation assets in Australia. She said that in the five
years to 2015-16, the number of SMSFs has grown by 31% to 577,000, with total assets worth $622
billion. Other points from the reports include:
In 2014-15, SMSFs experienced a positive return on assets of 6.2%.
In 2014-15, some 6% of SMSFs held assets under Limited recourse borrowing arrangements
(LRBAs), similar to the prior year of 5.7%.
The value of estimated assets held under LRBAs as a proportion of total SMSF assets
remained relatively low in 2014-15 at approximately 3.4%.
Real property assets make up over 90% of the total value of LRBA investments by SMSFs.
There continues to be a decrease in the median age of new members in newly established
funds. In 2015, the median age was 48 years compared with 55 years in 2011.
At June 2015, the estimated value of total SMSF borrowings was equivalent to 2.8% of total
SMSF assets.
12/01/2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
SMSFs: LRBAs and non-arm's length income
• ATO says two-step process to determine if non-arm’s length income rules
apply to SMSF limited recourse borrowing arrangement:
‒ Are terms of LRBA consistent with safe harbours in PCG 2016/5?
‒ Can SMSF trustee otherwise show that LRBA on arm’s length terms?
• If yes, don’t consider TD 2016/16 (non-arm’s length LRBAs).
Taxation of Superannuation
ATO info re interaction and application of PCG 2016/5 and TD 2016/16
SMSFs: LRBAs and non-arm's length income
ATO info re interaction and application of PCG 2016/5 and TD 2016/16
The ATO has released information about the interaction and application of PCG 2016/5 and TD
2016/16.
The ATO recently published PCG 2016/5 and TD 2016/16 which provide guidance to self-managed
super fund (SMSF) trustees and their advisers on when the non-arm's length income (NALI)
provisions apply to an SMSF's limited recourse borrowing arrangements (LRBA). The ATO says it is
important to recognise that it is a two-step process to determine whether the NALI provisions apply,
based on the terms of the borrowing arrangement.
First, it must be determined whether:
The terms of the LRBA are consistent with the safe harbours the ATO has provided in PCG
2016/5;
The SMSF trustee can otherwise demonstrate that they are arm's length.
If the answer is yes, then trustees do not have to consider TD 2016/16 and are assured that the
ATO will not seek to apply the NALI provisions on the basis of the borrowing terms under the
arrangement. The ATO says TD 2016/16 only needs to be considered if an SMSF has an LRBA on
terms that are non-arm's length.
12/01/2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Superannuation objective - draft reg released
• Draft reg sets out subsidiary objectives of super system , eg:
‒ Managing risks in retirement
‒ Being invested in best interests of fund members
‒ Alleviating fiscal pressures on government.
Taxation of Superannuation
Draft Superannuation (Objective) Regulation
Superannuation objective - draft reg released
The government has released for consultation the Exposure Draft - Superannuation (Objective)
Regulation 2016 setting out the subsidiary objectives of the superannuation system to support the
primary objective proposed in the Superannuation (Objective) Bill 2016 (which is still before
Parliament). The draft reg proposes that the subsidiary objectives would include:
Facilitating consumption smoothing over the course of an individual's life;
Managing risks in retirement;
Being invested in the best interests of fund members;
Alleviating fiscal pressures on the government; and
Being simple and efficient with appropriate safeguards.
Date of effect
When finalised, the regulation will commence immediately after the Superannuation (Objective) Bill
2016 (which will commence from the start of the first quarter following Royal Assent).
Comments
Submissions of the draft reg are due by 10 February 2017 to: Manager, Superannuation Tax
Reform, Retirement Income Policy Division, Treasury via the Consultation Hub. Enquiries to Jessica
Carew - Tel: +61 2 6263 2548.
12/01/2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Superannuation reform: total superannuation balance
• Explains how individual's total superannuation balance is calculated from 30
June 2017.
Taxation of Superannuation
Draft Law Companion Guideline LCG 2016/D12
Super reforms: total superannuation balance
Draft Law Companion Guideline LCG 2016/D12
The ATO has released Draft Law Companion Guideline LCG 2016/D12 providing guidance on how
an individual's "total superannuation balance" will be calculated from 30 June 2017.
As part of the super reform legislation, the concept of an individual's "total superannuation balance"
(s 307-230 of the ITAA 1997) will apply from 1 July 2017 as a method for valuing an individual's total
superannuation interests. An individual's total superannuation balance will be used to determine
eligibility for various super measures, including the non-concessional contributions cap and bring-
forward rule, government co-contributions, the spouse contributions tax offset, carry forward of
unused concessional contributions and the SMSF segregation method.
Total superannuation balance
An individual's total superannuation balance at a particular time (ie 30 June) is broadly the sum of:
The accumulation phase value of the individual's superannuation interests that are not in the
retirement phase. The accumulation phase value covers transition to retirement income
streams (TRIS), non-commutable allocated pensions or annuities, and deferred
superannuation income streams that have not yet become payable. The ATO notes that the
time that a contribution is made to a superannuation fund may be relevant for calculating an
individual's total superannuation balance. For example, a transfer of money initiated on
29 June 2018 but not "received" by the superannuation fund until 1 July 2018 would not be
included in the individual's total superannuation balance at the end of 30 June 2018;
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If an individual has a transfer balance account, their transfer balance or modified transfer
balance (but not less than nil). If an individual is the recipient of certain account -based
income streams in the retirement phase and/or has made any structured settlement
contributions, their transfer balance is subject to modifications for the purpose of calculating
their total superannuation balance. Credits that have arisen in an individual's transfer balance
account from becoming a retirement phase recipient of an account-based income stream are
disregarded. Similarly, debits are disregarded if they have arisen from a commutation, a
family law payment split, an income stream that fails to comply with the standards, a fund
failing to comply with a commutation authority, or an event that results in the superannuation
interest being reduced (eg for fraud, dishonesty or bankruptcy). However, a credit in an
individual's transfer balance account that has arisen from excess transfer balance earnings is
not disregarded. A debit is also not disregarded where it has arisen in relation to a n on-
commutable excess transfer balance. The individual's transfer balance is then increased by
the total amount of superannuation lump sums that would become payable if the individual
voluntarily caused the superannuation interest to cease at that time; and
The amount of any roll-over superannuation benefit not already reflected in the individual's
accumulation phase value of their superannuation interests or their transfer balance. This
component captures any roll-over superannuation benefits paid at or before 30 June, but not
received by the complying superannuation plan until after that time,
reduced by the sum of any structured settlement contributions (covered by s 292-95 of the ITAA
1997 about structured settlements or court-ordered personal injury payments).
Example
The draft guideline sets out examples to illustrate the calculation of an individual's total
superannuation balance in various scenarios, including the following example involving an individual
with an account-based pension and a defined benefit lifetime pension.
Shane commenced both an account-based pension ($500,000) and a defined benefit lifetime
pension ($500,000) on 1 December 2017. He has no remaining superannuation interests in
accumulation phase. Shane's transfer balance account commenced on 1 December 2017. At the
end of 30 June 2018, the amount that would be paid to Shane if he voluntarily ceased the account -
based pension is $400,000. Shane's total superannuation balance at the end of 30 June 2018 is the
sum of:
Step 1: Accumulation phase value = zero
Step 2: Modified transfer balance
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Shane's transfer balance at the end of 30 June 2018 is $1,000,000:
Credit Balance
1 Dec 2017 Account-based pension $500,000 $500,000
1 Dec 2017 Defined benefit lifetime pension $500,000 $1,000,000
Disregard the amount of the credit that has arisen in respect of the account -based pension
($500,000).
Increase the balance by the amount that would become payable if the account -based pension
was voluntarily ceased at the end of 30 June 2018 ($400,000).
Credits and debits to Shane's transfer balance account that are relevant to his defined benefit
lifetime pension are not disregarded.
Modified transfer balance is $1,000,000 – $500,000 + $400,000 = $900,000.
Step 3: Rollover superannuation benefits = zero
Step 4: Structured settlement contributions = zero
Shane's total superannuation balance at the end of 30 June 2018 is $900,000 (Steps 1, 2, 3 and 4).
Comments
Comments are due by 6 February 2017 to: Grahame Hager (ATO contact officer) - tel: (02) 9374
8762; email: [email protected].
12/01/2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Super reforms: $1.6m pension cap; commutations; actuarial
certificates
• Draft regs to complement super reforms & $1.6m transfer balance cap
released
• Allow commutation of certain super income streams to reduce excess transfer
balance
• Actuarial certificate exemption re income stream benefits in retirement phase
• Broader range of death benefits to be treated as roll-over benefits.
Taxation of Superannuation
Draft Treasury Laws Amendment (Fair and Sustainable Super) Regulation
Super reforms: $1.6m pension cap; commutations; actuarial certificates
Draft regulation released
The government has released for consultation the Exposure Draft - Treasury Laws Amendment
(Fair and Sustainable Superannuation) Regulation 2016 to complement its super reforms
legislation.
The draft regulation will amend the ITA Regs, SIS Regs, RSA Regs and Corporations Regulations
2001 to support the $1.6m transfer balance cap that will apply from 1 July 2017 to limit the amount
of superannuation an individual can transfer into retirement phase. The proposed amendments
include:
Commutations - the existing exceptions to the restrictions on commutations will be
expanded to permit the commutation of certain superannuation income streams that are
done for the purpose of reducing or avoiding an excess transfer balance. This means that an
individual will be able to advise their fund to commute or partially commute such a pension or
annuity to reduce an excess transfer balance. While the amendments will permit
commutations of certain pensions and annuities, the amount of a commutation will be limited
to the greater of the amount of the individual's excess transfer balance and the "crystallised
reduction amount" stated in the excess transfer balance determination issued by the FCT;
Actuary's certificates - superannuation income stream benefits that are in "retirement
phase" will be exempt from the requirement to obtain an actuary's certificate in applying the
proportionate method, if they are payable from allocated pensions, market linked pensions,
or account-based pensions (or a death benefit pension). However, a fund will not be eligible
for the exemption if any part of its currently payable liabilities relate to another type of income
stream;
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Minimum draw-downs - the pension and annuity standards will be amended so that
payments that are made by way of commutation cannot satisfy the minimum draw-down
requirements. This more general requirement will cover commutations that are done to
remove a lump sum amount from the superannuation system and will continue to exclude
roll-overs (which are initiated by way of a commutation of an existing interest);
"Fund-capped contribution" limit - will be repealed for non-concessional contributions.
According to the government, the changes to the non-concessional contributions cap, and
the eligibility conditions based on an individual's total superannuation balance, mean that
setting a value limit on the amount a fund can accept as a contribution is no longer practical;
Deducting personal contributions - the draft reg will prescribe the superannuation funds in
which a member holds a defined benefit interest that will not qualify for a deduction in respect
of certain personal contributions. The prescribed superannuation funds in which a member
holds such a defined benefit interest will be able to choose for either all contributions to the
fund, or contributions to defined benefit interests in the fund, to be non-deductible;
Roll-over of death benefits - benefits that are treated as "roll-over superannuation benefits"
will be expanded to include a broader range of superannuation death benefits. From
1 July 2017, it will be possible to roll over a superannuation death benefit provided that it is
paid to a dependent beneficiary covered by reg 6.21(2A) of the SIS Regs (eg a spouse, child
under 18 years, financially dependent child under 25 years, or a child with a disability). While
it will be possible to roll over a death benefit income stream for a dependant beneficiary, the
income stream must be in retirement phase;
Death benefit pensions - a death benefit that is cashed as one or more pensions or
annuities will need to be a superannuation income stream that is in retirement phase. This
will mean that the only income streams that can be paid to a dependant beneficiary of a
deceased member are those in retirement phase;
Other - when a fund creates a new accumulation phase interest when complying with a
commutation authority, the time limit for providing a product disclosure statement (PDS) will
be deferred for 3 months and the general application form requirements will not apply. Minor
amendments will also support the concept of a "total superannuation balance" for the
purposes of valuing superannuation interests. Consequential amendments to the conditions
of release will reflect the simplified release authority regime that will apply from 1 July 2018.
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Date of effect
When finalised, the regulation will generally commence the day after it is registered, applicable from
1 July 2017. The commutation exceptions will apply from registration of the regulation to enable
individuals to use the exceptions to avoid an excess transfer balance when the transfer balance cap
comes into effect on 1 July 2017. The amendments to simplify the release authority regime will apply
from 1 July 2018.
Submissions
Submissions are due by 10 February 2017 to: Manager, Superannuation Tax Reform, Retirement
Income Policy Division, Treasury via the Consultation Hub. Enquiries to Jessica Carew - Tel: +61 2
6263 2548.
Further draft regulations to support retirement income stream products and valuation rules for the
transfer balance cap will be released in early 2017, the government said.
12/01/2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Super trustee rollover obligations amid ATO website outage
• APRA advised RSE licensees in December 2016:
‒ It won’t take action for breaches directly related to ATO website outage
‒ RSE licensees not required to give APRA formal notice of such breaches.
Taxation of Superannuation
Super trustee rollover obligations amid ATO website outage
APRA on 16 December 2016 wrote to RSE licensees acknowledging that the Tax Office website
outage has affected ATO web-based services used by RSE licensees to process roll-over
superannuation benefits and verify the details of RSEs and individuals.
APRA Deputy Chairman Helen Rowell said that during the period of the outage, and potentially for
some days afterwards, it may be impossible for RSE licensees to meet regulatory time limits to
process rollovers within three days. APRA notes the importance of the 3-day rollover rule (reg 6.34A
of the SIS Regs) but recognises that there may be occasions where, for reasons outside the control
of the trustee, 100% compliance may not be possible. Accordingly, APRA said it will take no action
for breaches directly related to the ATO website outage, and RSE licensees are not required to
provide APRA with formal notification of such breaches. The ATO itself addressed the impact of its
Website outage on trustee obligations along similar lines in CRT Alert 049/2016.
12/01/2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Super reforms: Defined benefit income streams life
expectancy and market-linked pensions
• Draft Guideline on defined benefit income cap rules and income stream
pensions/annuities paid from non-commutable, life expectancy and market-
linked products
• From 1 July 2017, capped defined benefit income streams:
‒ Will count towards $1.6 million transfer balance cap
‒ Won’t, of themselves, lead to excess transfer balance.
Taxation of Superannuation
Draft Law Companion Guideline LCG 2017/D1
Super reforms: Defined benefit income streams – life expectancy and
market-linked pensions
Draft Law Companion Guideline LCG 2017/D1
The ATO has released Draft Law Companion Guideline LCG 2017/D1 on how the defined benefit
income cap rules will apply to non-commutable life expectancy pensions and market-linked products,
as part of the super reform legislation.
The Draft Guideline seeks to clarify how the defined benefit income cap will apply from 1 July 2017
to superannuation income stream benefits that are paid from a non-commutable life expectancy
pension or annuity, or a market-linked pension or annuity (also known as a market linked income
stream (MLIS). Note that non-commutable lifetime pensions and annuities were covered in Draft
Guideline LCG 2016/D10.
As with other types of superannuation income streams, the value of “capped defined benefit income
streams” will count towards an individual’s transfer balance cap of $1.6 million from 1 July 2017. The
transfer balance cap regime is designed to limit the amount of an individual’s superannuation that
can be moved into the retirement phase, where it benefits from the fund earnings tax exemption.
Capped defined benefit income streams cannot, of themselves, result in an excess transfer balance
for an individual. This is because capped defined benefit income streams generally cannot be
commuted and cashed as a lump sum. Therefore, the modified rules apply to achieve an equivalent
tax outcome for defined benefits.
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Instead of excess capped defined benefit income streams causing a breach of the transfer balance
cap that needs to be remedied by removing the excess, modified rules apply for capped defined
benefit income streams to:
Give rise to a credit in an individual’s transfer balance account for a “special value” (worked
out under a statutory formula) of the defined benefit interest; and
Result in certain amounts being included in the recipient’s assessable income and adjustments
to the availability of tax offsets.
Special value for MLIS and life expectancy pensions
Where an individual receives a pension or annuity, from a life expectancy or market -linked product, a
credit arises in their transfer balance account equal to the “special value” of the superannuation
interest that supports the income stream. The special value of a superannuation interest that
supports a life expectancy or market-linked pension or annuity is calculated by multiplying the
“annual entitlement” by the product’s “remaining term”, ie number of years remaining in the period
that superannuation income stream benefits are payable under a product (rounded up to the next
whole number).
For superannuation income streams that are in the retirement phase prior to 1 July 2017, the credit
is equal to the special value just before 1 July 2017 of the superannuation interest that supports that
income stream. This will be calculated based on the first superannuation income stream benefit that
you are entitled to receive on or after 1 July 2017.
Example
Victoria is 62 and purchases a market-linked pension on 1 April 2017 with a 10-year term. The
pension has an annual entitlement of $60,000 just before 1 July 2017. The remaining term in
Victoria’s pension just before 1 July 2017 is 9.75 years, but this is rounded up to 10 years (being the
next whole number) when determining the pension’s special value. The special value of her pension
just before 1 July 2017 is $600,000. A credit arises in Victoria’s transfe r balance account on 1 July
2017 equal to this amount.
Additional income tax
The Draft Guideline also explains the additional income tax consequences for an individual with
defined benefit pension income that exceeds the defined benefit income cap ($100,000 per annum)
for a financial year. In a taxed fund, 50% of the excess capped defined benefit income stream
payments will be included in the recipient’s assessable income and taxed at the marginal rates to
the extent they exceed $100,000 per annum. For untaxed defined benefit arrangements, the 10%
tax offset will be limited to the first $100,000 per annum of defined benefit income the individual
receives from 1 July 2017. PAYG withholding obligations will also apply to these amounts that will be
subject to taxation from 1 July 2017.
Comments
Comments are due by 17 February 2017 to: Grahame Hager (ATO contact officer) – Tel: (02) 9374
8762; Email: [email protected].
19/01/2016
Tax Update February 2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
ATO SuperSeeker
• SuperSeeker online service for individuals now decommissioned
• Individuals can find/manage super via myGov
Taxation of Superannuation
Service decommissioned
ATO SuperSeeker service decommissioned
The ATO has decommissioned its SuperSeeker online service for individuals. The service previously
enabled individuals to conduct an online search for superannuation on the ATO's Lost Members
Register. The ATO had originally planned to decommission SuperSeeker from April 2017 but due to
its recent system outages, which began on 12 December 2016, it has now decided that
SuperSeeker will not be revived.
The ATO has suggested replacing any links to SuperSeeker with links to the ATO's Check your
super using myGov page. According to the ATO, individuals can find and manage their super using
the secure ATO online services through myGov.
3/02/2017
Tax Update February 2017
Copyright © 2017 Chartered Accountants Australia and New Zealand 78
TAX ADMINISTRATION
© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
ATO corporate tax transparency report for 2014-15
• Second annual report on corporate tax transparency released
• Data from 2015 tax returns of large corporates operating in Australia
• Once third of listed taxpayers reported no tax payable – FCT said don’t
assume tax avoidance
• Of top 100 public or foreign companies, six in highest risk quadrant.
Tax Administration
2014-15 Report of Entity Tax Information
ATO corporate tax transparency report for 2014-15 released
The ATO has published its second annual report on corporate tax transparency. This report for
2014-15 includes tax information for 1904 companies, including:
1579 Australian public and foreign-owned companies with an income of $100 million or more;
and
325 Australian-owned resident private companies with an income of $200 million or more.
The report is based on the 2014-15 financial year tax returns of some of the largest corporate
entities operating in Australia. It also describes changes that have occurred since 2013 -14. As
required by law, the figures in the report are taken directly from tax returns lodged and processed, or
amendments advised by taxpayers themselves, by 1 September 2016. It also doesn't include any
figures resulting from ATO initiated assurance and risk assessment activities. It is important to note
that the aggregate figures cannot reflect the complexity of the tax system, the relationships between
entities, the calculations behind the numbers or the extent and nature of any ATO activity.
The name and ABN of each company is listed, as well as information taken from three labels of their
tax returns: (i) total income; (ii) taxable income; and (iii) income tax payable. It also includes those
entities with Petroleum Resource Rent tax (PRRT) payable.
The ATO noted that about a third of the taxpayers in this reported nil tax payable for the reporting
period. However, no tax paid does not necessarily mean tax avoidance, and assumptions about an
entity's compliance with their tax obligations, or those of their associated groups, cannot be made
solely on the basis of this data.
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In order to support company tax compliance, the ATO said it will continue to have real-time
engagement with large taxpayers, including access to a wide range of data, including tax return and
accounting records, and third party data. (Source: ATO media release, 9 December 2016.)
FCT's comments
In releasing the report, FCT Chris Jordan said the companies covered in the transparency report
account for $42 billion (around 63%) of total company income tax payable for 2014-15. The law
requires the ATO to publish three labels of a company tax return as part of this transparency
measure. "No more, no less", Mr Jordan said. Therefore, the figures alone do not tell the complete
story of a company's tax affairs or their level of engagement with the ATO, he said.
In terms of the data, the FCT said there are no surprises. This is because the information in the
report provides transparency on the operations of these entities, but it does not change the level of
transparency they have with the ATO. While the FCT cannot talk about specific taxpayers, he said
the ATO already has access to far more detailed information and regularly engages with these
entities to assure their tax behaviour.
He also noted that the data is historical and doesn't reflect recent changes to the administratio n of
the tax system. This includes the recently introduced Multinational Anti-Avoidance Law (MAAL),
work undertaken through the Tax Avoidance Taskforce or any ATO interventions undertaken with
these taxpayers over the last two years.
While about one-third of taxpayers on the list reported no tax payable, the FCT said that no tax paid
does not necessarily mean tax avoidance. Even companies with very high total income sometimes
make losses and there are many legitimate reasons why this might be the case, Mr Jordan said.
These companies may have incurred an accounting and tax loss in the current year or in prior years,
and are now using those to reduce current taxable income. The FCT also said that many companies
are now publishing information describing any losses or other economic factors that contribute to
their taxable position.
Although the numbers in the 2014-15 report are in many ways similar to the previous release, the
FCT expects this to change over time as the data doesn't include any figures resulting from ATO-
initiated audit activities. For example, Mr Jordan said that many companies subject to the MAAL that
took effect earlier in 2016 are still restructuring their affairs and identifying the value of the services
conducted in Australia. As more value is attributed to sales forces in Australia, the ATO expects
more companies to be reporting over the thresholds in future reports.
The FCT encouraged companies to be more transparent about their tax status by adopting the
Board of Taxation's Voluntary Tax Transparency code. Mr Jordan said 56 companies have agreed to
adopt the code, with about 15 reports already publicly available. For example, BHP, Crown and
Singtel have already been on the public record themselves where the ATO has issued amended
assessments involving disputes.
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Compliance approach
In terms of compliance, Mr Jordan said the focus remains on "prevention before correction" with
tailored engagements across all markets based on taxpayer choices, behaviours, size, complexity,
risk and engagement attributes. In this respect, Mr Jordan said the ATO continually engages with
the top 100 public or foreign companies and have categorised six of these in the highest risk
quadrant. These 100 companies alone paid $30 billion in tax, with the next 1,100 paying a further
$10 billion, he said.
For private businesses, the FCT said that the ATO takes a group approach and engages one-to-one
with the top 320 groups which pay about $3 billion in tax each year. The ATO also collects, on
average, about $2 billion from compliance activities with these large and private companies each
year, which is not reflected in the report.
The FCT also flagged the establishment of the Tax Avoidance Taskforce as part of the 2016 -17
Budget in terms of bolstering its efforts in ensuring multinational and large public and private groups
pay the right amount of tax. The ATO has also renewed its focus on providing early warnings to
taxpayers and their advisers to set out the ATO's expectations and allow them to make more
informed tax planning decisions. To this end, the ATO has issued nine Taxpayer Alerts in the past
eight months. These are now happening in real time. In one instance, the FCT issued a Taxpayer
Alert on the MAAL within 16 days of learning about a scheme to circumvent it.
Outlook statement
When the ATO releases the 2015-16 transparency report, Mr Jordan said he expects to see a
further drop in profitability of the energy and natural resources sector, and a reduction in tax paid by
that sector, partially offset by strengthening in other industries such as the banking and finance
sectors.
12/01/2017
Tax Update February 2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Backpackers tax registration deadline extended for employers
• From 1 Jan 2017, working holiday maker WHT rate of 15%
• Employers can withhold 15% even if unregistered
• Unregistered employers won’t be penalised if they register by 31 Jan 2017.
Tax Administration
Backpackers tax registration deadline extended for employers
The ATO has advised that employer registration re working holiday makers has been extended to 31
January 2017. Employers employing working holiday makers will not be penalised as long as they
register by 31 January 2017. They can still use the new withholding tax rate of 15% from 1 January
2017.
Anybody can hire a working holiday maker, especially where there is a need for labour for a short
period of time. Agriculture, hospitality, construction and domestic services often use working holiday
makers, or backpackers, to meet this demand. Working holiday makers hold a visa subclass 417 or
462 that allows them to work while in Australia.
From 1 January 2017, the working holiday maker tax rate of 15% applies from the first dollar earned.
They cannot claim the tax-free-threshold regardless of their residency status and must provide a
TFN, otherwise the employer needs to withhold at the top rate of tax.
Once employers register, a withholding rate of 15% applies to the first $37,000 of a working holiday
maker's income. From $37,001, normal foreign resident withholding rates apply. If employers do not
register, they must withhold tax at 32.5% for the first $37,000 of a working holiday maker's income.
From $37,001, normal foreign resident withholding rates apply. Penalties may apply for failing to
register.
12/01/2017
Tax Update February 2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
SMSF trustees (and LRBA trustees): garnishee notices invalid
for group payroll tax
• Custodian company & SMSF/LRBA trustees had payroll tax liability under
grouping rules
• Custodian sold property held on trust for SMSF trustees
• Garnishee notices issued to purchasers invalid
• Garnishee notice can’t be used to recover tax from trust property to satisfy
trustee’s tax debt if debt incurred in another capacity.
Tax Administration
Comr of State Revenue v Can Barz Pty Ltd & Anor [2016] QCA 323
SMSF trustees (and LRBA trustees): garnishee notices invalid for group
payroll tax
Comr of State Revenue v Can Barz Pty Ltd & Anor [2016] QCA 323
The Queensland Court of Appeal has dismissed the Commissioner of State Revenue's appeal and
confirmed that garnishee notices issued to the purchasers of real estate held on trust for SMSF
trustees were invalid: Comr of State Revenue v Can Barz Pty Ltd & Anor [2016] QCA 323 (Qld Court
of Appeal, Morrison, Philippides and Robert McMurdo JJA, 2 December 2016).
Facts
The taxpayers, a custodian company and two individual trustees of a self-managed superannuation
fund, had a $2.6m payroll tax liability by virtue of the grouping provisions of the Payroll Tax Act
1971. The custodian held two investment properties on trust for the SMSF trustees, who were
members of the SMSF.
The custodian entered into a contract to sell one of the properties. Before settlement, the
Commissioner of State Revenue issued garnishee notices under s 50 of the Taxation Administration
Act 2001 to the purchasers and to the real estate agents who held the deposit. Section 50 applies
where the Commissioner of State Revenue reasonably believes a person "is liable or may become
liable to pay an amount to the taxpayer." The taxpayers challenged the validity of the garnishee
notices. Their chief argument was that s 50 does not permit a garnishee notice to be issued in
respect of money that a taxpayer has the right to receive in their capacity as a trustee because the
money does not "belong" to the taxpayer.
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Supreme Court decision
The Supreme Court (in Can Barz Pty Ltd & Anor v Comr of State Revenue & Ors [2016] QSC 59)
stated that s 50 should only apply where the right to payment from the garnishee is legally and
beneficially held by the taxpayer and the taxpayer is free to use that right in the taxpayer's own
interest. In the Court's view, it could not have been intended that the Commissioner "should be paid
tax out of property which the Commissioner must have reasonably believed in equity did not belong
to the taxpayer at the time of receipt of the relevant notice".
Court of Appeal decision
On appeal, the Commissioner argued that the language of s 50 was such as to render it
unnecessary to inquire into the nature of the taxpayer's entitlement to the garnishee amo unt. Section
50 permitted the Commissioner to issue a garnishee notice on the basis of a reasonable belief as to
the position between the garnishee and the taxpayer, rather than upon the basis of the fact of that
position. From this, the Commissioner submitted that there is an evident legislative intention "that the
precise circumstances in which the garnishee is to pay amounts to the taxpayer are not critical", and
that the legislature did not intend to compel close analysis of the technical legal arrangements
concerning the taxpayer.
In rejecting this argument, the Court observed that it suggested that …"s 50 called for less precision
in the engagement of the provision. Precision is required in that the power under s 50, affecting as it
does the recipient of a notice with potential civil and criminal consequences, ought not to be
exercised except by a strict adherence to the conditions of that power specified in the section".
The Court also rejected the Commissioner's alternative argument that the relevant inquiry, in so far
as equitable interests were concerned, was restricted to whether there has been a disposition of an
interest in the moneys including by way of an equitable assignment or charge, but did not extend to
exclude from the application of the garnishee provisions moneys which were the subject of a trust.
12/01/2017
Tax Update February 2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Court gives judgment for full tax debt of $1.1m
• Taxpayer with $1.1m tax debt
• During recovery proceedings, taxpayer produced $600,000 bank cheque,
reducing tax debt to $500,000
• Court gave judgment against taxpayer for $1.1m – said cheque is conditional
payment, could be dishonoured.
Tax Administration
DCT v Dukes [2016] NSWSC 1759
Court gives judgment for full tax debt of $1.1 million
DCT v Dukes
The NSW Supreme Court has given judgment against a taxpayer for tax debts of some $1.1 million
despite the taxpayer during the middle of the proceedings leaving the Court and obtaining a cheque
from his bank for $600,000 to reduce the debt owed so that judgment would only be given for some
$500,000. In this regard, the Court agreed that a cheque is only a conditional payment, and that
there was always a possibility that it could be dishonoured. The Court also noted that, in any event,
once the FCT came into funds on the presentation of the cheque, he would not be looking to
execute the judgment for any balance.
At the same time, the Court dismissed the taxpayer's claims that he had not been served with the
notices of assessment that gave rise to the debt and, therefore he had also had been denied the
opportunity to object to them. In this regard, the Court noted that the assessments were sent by
prepaid ordinary post to the taxpayer's last known address, and that such service by prepaid
registered post was effective service in accordance with s 174 of the ITAA 1936. It also noted that
the taxpayer had been in possession of the amended assessments since the commencement of the
proceedings and that he had not objected to them.
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Finally, the Court confirmed that the two components of the judgment debt (namely, assessments for
some $290,000 including penalties and interest, and unpaid quarterly instalment demands of some
$800,000) were properly "verified" as debts due and owing to the FCT. This occurred by way of
(respectively) the assessments being conclusive evidence of their due making and correctness, and
the RBA instalment printout together with a signed and dated certificate under s 8AAZJ of the TAA,
which gave prima facie evidential effect to its contents.
DCT v Dukes [2016] NSWSC 1759, NSW Supreme Court, Fagan J, 2 December 2016
12/01/2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Taxpayers’ rights and obligations
• IGT recommends ATO implement measures to ensure:
‒ Taxpayers’ Charter at forefront of ATO’s interactions with community
‒ ATO’s performance against Charter principles measured and publicly reported
• If stakeholder concerns persist, IGT may undertake follow-up review and
make recommendations to government.
Tax Administration
IGT Review into the Taxpayers' Charter and Taxpayer Protections released
Taxpayers' Rights & Obligations – IGT releases report
Inspector-General of Taxation (IGT), Ali Noroozi, has his report into the Review into the Taxpayers'
Charter and Taxpayer Protections. The IGT's review was undertaken to examine concerns raised in
relation to the ATO's adherence to the Charter, its currency and effectiveness. Specifically, the IGT
said stakeholders consider there are limited avenues for enforcement of the Charter principles,
diminishing its effectiveness in affording protection to taxpayers.
The IGT has formed the view that, before any further enforceable remedies are considered, there
are administrative measures which the ATO could implement to realise significant improvements.
Such improvements include ensuring that the Charter is at the forefront of the ATO's interactions
with the community and its performance against the Charter principles is appropriately measured
and publicly reported.
The 325-page report made four recommendations with which the ATO has either agreed in full, in
part or in principle. They include:
In respect of the Taxpayers' Charter, that the ATO:
o Promote and educate taxpayers and tax practitioners about the Charter and in
particular draw their attention to its principles at the outset of interactions which are
likely to generate dispute or disagreement, such as reviews, audits, objections and
litigation;
o Treat allegations of any breaches transparently and address them independently of
the substantive issues;
o Enhance ATO staff awareness and understanding of their obligations under the
Charter through more practical training and guidance.
Tax Update February 2017
Copyright © 2017 Chartered Accountants Australia and New Zealand 87
That the ATO improve the currency of its website to provide more up-to-date public
information about its administration of the Scheme for Compensation for Detriment caused
by Defective Administration, including its decision-making and review procedures to enhance
public confidence.
That the ATO improve its public communication and guidance on the nature of the Model
Litigant Obligation and the limitations including that only the Attorney-General may enforce
the rules, and that it improve its investigation process for alleged Model Litigant Obligation
breaches.
That the ATO centrally publish information on all aspects of exchange of information (EOI)
including: (i) its guidelines for requesting and responding to EOI; (ii) safeguards for protecting
taxpayer information; (iii) avenues through which taxpayers may raise concerns; and (iv)
when taxpayers would be informed of an EOI request being made in relation to their affairs
and, where appropriate, have an opportunity to review the information obtained.
However, the report noted that the ATO's level of agreement and its accompanying commentary
"create a level of uncertainty as to how and to what extent the recommendations would be
implemented". Accordingly, to the extent that stakeholder concerns persist, the IGT sa ys
he may undertake a follow-up review to assess the effectiveness of resulting ATO actions and, if
necessary, make recommendations for government to consider mandatory reporting of the ATO's
compliance with the Charter and additional enforceable remedies.
The IGT noted there are two significant documents attached to his report as appendices: (i) a report
by UNSW, that the IGT commissioned, into the current status of taxpayer rights in Australia; and (ii)
a report the IGT prepared for the IBFD on the protection of taxpayer rights in Australia.
12/01/2017
Tax Update February 2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Default assessments upheld - burden of proof not satisfied
• Unexplained deposits to bank accounts controlled by taxpayer
• Significant gambling at casinos
• AAT affirmed default assessments
• Taxpayer’s claims that money came from family gifts, loans from friends,
gambling wins rejected.
Tax Administration
Re Nguyen and FCT [2016] AATA 1041
Default assessments upheld - burden of proof not satisfied re
unexplained deposits and cash
Re Nguyen and FCT [2016] AATA 1041
The AAT has affirmed default assessments issued to a taxpayer after concluding she did not satisfy
the burden of proof that the assessments were excessive: Re Nguyen and FCT [2016] AATA 1041
(AAT, O'Loughlin SM, AAT File Nos: 2015/1862-1866, 19 December 2016).
Background
For the 2008 to 2012 income years, the FCT issued default income tax assessments to the taxpayer
to include various unexplained deposits to bank accounts she controlled and unexplained cash
presented by her at casinos totalling $2,471,789. The FCT imposed penalty at the rate of 75% for
intentional disregard of a taxation law for the first year, and increased the rate to 90% under s 284-
220(1)(c) of Sch 1 to the Taxation Administration Act 1953 for each of the 2009 to 2012 income
years. The 2008 to 2010 income years' amended assessments were made after the FCT formed an
opinion there had been fraud or evasion for the purposes of item 5 of the table in s 170(1) of the
ITAA 1936. Following the FCT's decision on the taxpayer's objections to the amended assessments
and penalties, the Tribunal said that only the 2008, 2010 to 2012 income years remained in dispute.
In brief, the taxpayer claimed the deposits in her bank accounts and any cash she held were
attributable to: (i) significant gifts from family members; (ii) significant loans from her friend; (iii)
occasional wins from betting at various casinos; and (iv) income from working as a beauty therapist
as an employee, and a sole trader.
Tax Update February 2017
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Among other things, the taxpayer claimed to have borrowed $2.555 million from a fr iend. The friend
provided a statutory declaration stating that he lent the taxpayer large sums on various occasions.
The Tribunal said the taxpayer relied on these loans to explain the majority of the funds either
deposited by her to her bank accounts and/or presented by her at various casinos. The Tribunal said
there were a number of criticisms of the statutory declaration, including that: (i) there were no
records or documentation concerning the loans between parties who claim to be unrelated; (ii) no
security was provided for the alleged loans; (iii) no repayments appeared to have been made; (iv)
the entries in the bank statements identified by the friend as supporting the cash advances he said
were handed to the taxpayer "make those statements implausible".
Decision
The Tribunal concluded that "in circumstances where [the friend's] statutory declaration is relied on
heavily by the [taxpayer], and where it appears inherently improbable that the statutory declaration is
true, and [the friend] is not able to be scrutinized in respect of his statutory declaration, none of the
content of that statutory declaration can be accepted as proven or true".
Upon review of the evidence, the Tribunal concluded the taxpayer had failed to demonstrate the
character of the sources of money available to her. The taxpayer was held not to have satisfied the
burden of proof that the assessments were excessive.
12/01/2017
Tax Update February 2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
No summary judgment for DPN liability - unresolved facts re
whether director took "reasonable steps"
• Summary judgment in respect of $167,000 director penalty notice not granted
• Unresolved question of fact – whether director took reasonable steps to
ensure company complied with ATO payment arrangement.
Tax Administration
DCT v Pedley [2016] WADC 166
No summary judgment for DPN liability - unresolved facts re whether
director took "reasonable steps"
DCT v Pedley [2016] WADC 166
The District Court of Western Australia has refused a DCT's application for summary judgment in
respect a director penalty notice (DPN) liability of some $167,000. It did so on the basis that such an
application should only be granted where there is no real question to be tried and where there is a
high degree of certainty about the ultimate outcome of the proceedings if it went to trial, and that this
was not the case in these proceedings.
Rather, the Court found that it was not clear whether the actions that the directo r took amounted
to "reasonable steps" to cause the company to comply with its obligations pursuant to s 269-
35(2)(a)(i) of the TAA. This uncertainty related to the taxpayer's sworn evidence that he had
complied with relevant payment arrangements with the DCT as required, and had secured
guarantees for the balance of the payment to be made under the arrangement.
Specifically, the director deposed that he had entered into an arrangement with the ATO to
discharge the DPN liability (and an income tax liability) by instalments and that significant payments
had been made pursuant to that arrangement. He further claimed that at the time of his resignation
as a director, he reasonably berlieved that the balance of the payments would be forthcoming as the
company was owed some $900,000 by the Department of Housing (and the company's accounts
reflected such "receivables due").
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Copyright © 2017 Chartered Accountants Australia and New Zealand 91
The director gave further sworn evidence that another director of the company had diverted
payments from the Department of Housing to that director's personal bank account (but made some
payments to the company to give the appearance that the Department of Housing was remitting
funds). The director also claimed that under an agreement he entered into for the sale of his shares
in the company to that other director he had obtained a guarantee that the current DPN payment
arrangements with the ATO would continue to be met.
In these circumstances, the Court found that it was not appropriate to grant the DCT's application for
summary judgment given that it remained opened whether or not the director had sufficiently
ensured compliance with the payment arrangement with the ATO and whether, upon finding out
there had been non-compliance, he had reasonably considered taking other steps. Moreover, the
Court said that as this was a question of fact it would not be proper to determine these unresolved
factual issues in a summary manner.
DCT v Pedley [2016] WADC 166, District Court of Western Australia, Registrar Kingsley,
1 December 2016
12/01/2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Reminder of easier GST reporting for new small businesses
from 19 Jan 2017
• Newly registered SMEs can lodge simpler BAS from 19 January 2017
‒ Quarterly reporters select "Option 2: Calculate GST quarterly and report
annually"
‒ Monthly reports insert "0" at labels G2, G3, G10 and G11
‒ Annual reporters leave labels G2, G3, G10 and G11 blank.
Tax Administration
Reminder of easier GST reporting for new small businesses from 19 Jan
2017
Newly registered small businesses can lodge a simpler BAS from 19 January 2017. The ATO has
reminded tax professionals that from that date, newly registered small businesses have the option to
report less GST information on their BAS. SMEs that plan to register for GST after 19 January 2017
can access the reporting benefits of the simpler BAS early.
To take advantage, the ATO says they need to do the following based on the reporting cycle they
elect when registering for GST:
Quarterly - select "Option 2: Calculate GST quarterly and report annually" on their first BAS.
The ATO says it will not seek the additional GST information or lodgment of the Annual GST
information report. This will provide SMEs with a simpler BAS reporting solution.
Monthly - insert "0" at labels G2, G3, G10 and G11 on their BAS.
Annual - they can leave labels G2, G3, G10 and G11 blank on their Annual GST return.
12/01/2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Review of tax and corporate whistleblower provisions in
Australia
• 2016-17 Federal Budget plan to better protect tax whistleblowers
• Government now seeks public comments on proposed tax whistleblower
protection.
Tax Administration
Consultation paper released
Review of tax and corporate whistleblower provisions in Australia
Consultation paper released
The government has released a consultation paper on the Review of tax and corporate
whistleblower protections in Australia. It seeks public comments to assist the government with the
introduction of appropriate protections for tax whistleblowers and in assessing the adequacy of
existing whistleblower protections in the corporate sector. The paper also looks at protections in
other jurisdictions – the UK, Canada, US and New Zealand.
In respect of tax whistleblowers, the paper proposes that the identity of a tax whistleblower and the
disclosure of any information which is capable of revealing their identity be subject to an absolute
requirement of confidentiality (ie prohibiting the release of any information by anyone to anyone,
including to a court or tribunal), unless:
The whistleblower gives informed consent to the release of their identity; or
The revelation is necessary to avert imminent danger to public health or safety, to prevent
imminent violation of any criminal law, or to enable whistleblowers to secure compensation
for reprisals.
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In the 2016-17 Federal Budget, the government announced the introduction of new arrangements to
better protect tax whistleblowers as part of its commitment to tackling tax misconduct. In addition, as
part of the Open Government National Action Plan, the government says it has committed to
ensuring appropriate protections are in place for people who report corruption, fraud, tax evasion or
avoidance, and misconduct within the corporate sector.
Comments
Comments are due by 10 February 2017.
12/01/2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Ride sourcing providers
• ATO to identify ride sourcing drivers who don’t meet tax obligations
(registration, reporting, lodgment, payment)
• Data from financial institutions for 2016-17 and 2017-18
• ATO wants details of payments from ride sourcing facilitator to ride sourcing
provider
• Records relating to up to 60,000 individuals to be collected.
Tax Administration
ATO data matching
Ride sourcing providers
The ATO will acquire data to identify individuals that may be engaged in providing ride sourcing
services during the 2016-17 and 2017-18 financial years. Details of all payments made to ride
sourcing providers from accounts held by a ride sourcing facilitator will be requested from the
facilitator's financial institution for the 2016-17 and 2017-18 financial years. Ride sourcing facilitators
provide an electronic platform enabling members of the public to engage the services of a ride
sourcing provider (a driver). The ATO estimates that up to 74,000 individuals (ie ride sourcing
drivers) offer, or have offered, the service.
The ATO will match the data provided by the facilitator's financial institution against AT O records.
This is designed to identify ride sourcing drivers that may not be meeting their registration, reporting,
lodgment and/or payment obligations. Where the ATO is unable to match a driver's details against
ATO records, it will obtain further information from the financial institution where the driver's account
is held.
12/01/2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Simplifying income recognition for NFPs
• New standards to apply from 1 January 2019:
‒ AASB 1058 Income of Not-for-Profit Entities
‒ AASB 2016-7 Amendments to Australian Accounting Standards – Deferral of
AASB 15 for Not-for-Profit Entities
‒ AASB 2016-8 Amendments to Australian Accounting Standards – Australian
Implementation Guidance for Not-for-Profit Entities.
Tax Administration
New standards coming
Simplifying income recognition for NFPs
New standards coming
The ATO says the Australian Accounting Standards Board (AASB) has released details of changes
to financial reporting for not-for-profit (NFP) entities. The Board says financial reporting for NFP
entities will now more closely reflect economic reality.
Revenue from grants and donations will be recognised when any associated performance obligation
to provide goods or services is satisfied, and not immediately upon receipt as usually occurs with
current standards. More assets will also be recorded on the balance sheet under the new
requirements, including leases with significantly below-market terms and conditions. Currently, only
assets acquired by NFP entities at nil or nominal consideration must be recognised at fair value.
The new requirements will broaden this to assets where entities pay significantly less than fair value
principally to let them further their objectives (ie not trade discounts or distress sales).
The requirements will be effective from 1 January 2019, with earlier application permitted.
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The new standards are:
AASB 1058 Income of Not-for-Profit Entities;
AASB 2016-7 Amendments to Australian Accounting Standards – Deferral of AASB 15 for Not-
for-Profit Entities; and
AASB 2016-8 Amendments to Australian Accounting Standards – Australian Implementation
Guidance for Not-for-Profit Entities.
The AASB will release a webcast covering the new requirements early in 2017, as well as further
education materials later on.
Further details are on the AASB website.
12/01/2017
Tax Update February 2017
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Summary judgment against taxpayers for $30.5m upheld –
taxpayers lose appeal re ATO use of Cayman Islands info
• $30.5m summary judgment against Vanda Gould and company he controlled
• Assessments based on info from Cayman Islands tax authority
• Taxpayers alleged ATO obtained info unlawfully
• Held: assessments valid.
Tax Administration
Gould & Anor v DCT [2017] FCAFC 1
Summary judgment against taxpayers for $30.5m upheld – no conscious
maladministration
Gould & Anor v DCT [2017] FCAFC 1
Two taxpayers (an individual and a company) have lost their appeals against Federal Court
decisions for summary judgment totalling over $30.5m, failing to establish conscious
maladministration in the assessment process: Gould & Anor v DCT [2017] FCAFC 1 (Full Federal
Court, Gilmour, Logan and Robertson JJ, 9 January 2017).
Background
The Federal Court (Perram J) had granted the DCT summary judgment against both Vanda Russell
Gould and Russell Associates Limited for debts totalling over $30.5m under assessments and
amended assessments ($15.213m in the case of Mr Gould and $15.342m in the case of Russell
Associates): see DCT v Leaver & Ors [2015] FCA 1454. The circumstances relied upon by the
taxpayers to challenge the assessments and amended assessments in question concerned the
obtaining and use of information by the DCT from the Cayman Islands Tax Information Authority,
pursuant to an agreement between the Federal government and the Cayman Islands for the
exchange of information with respect to taxes ("the information exchange agreement").
Under cross-claims brought under s 39B of the Judiciary Act 1903 (Cth), the taxpayers alleged that
various documents were unlawfully obtained by the DCT and were unlawfully used in raising the
assessments or amended assessments in question. As a result, they argued, the assessments an d
amended assessments did not attract the protection of s 175 of the ITAA 1936 and s 350-10 of Sch
1 to the TAA and were invalid.
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Perram J found that the pleadings in the proceedings were inadequate and ordered that they be
struck out as failing to disclose a reasonable cause of action or defence to the DCT’s action. The
Court then granted summary judgment to the DCT.
In seeking leave to appeal against that decision, the taxpayers contended that his Honour should
have allowed them to re-plead rather than granting summary judgment. In essence, the taxpayers
submitted that the assessments and amended assessments in question were invalid on the basis
that there was conscious maladministration in the collection of information, which formed part of the
assessment process.
The taxpayers did not allege that the ATO officer(s) who raised the assessments or amended
assessments knew of any illegality, nor that they relied upon information that had been obtained with
conscious impropriety. Nor did the taxpayers challenge Perram J’s finding that there were no
material facts in the pleadings to support the allegation that the ATO officers deliberately made
assessments that they knew to be incorrect or arbitrary, or which were based upon inaccurate
information or which intentionally misrepresented the information used to make the assessments or
amended assessments.
Decision
The Full Federal Court granted the taxpayers leave to appeal (and in doing so granted an extension
of time) but then dismissed their appeals.
Robertson J (Gilmour J agreeing) held that the primary judge was correct to conclude that the
taxpayers’ pleading did not properly plead jurisdictional er ror outside the scope of s 175.
Robertson J said that the taxpayers sought to emphasise the "process of assessment" and to reason
therefrom that any improper purpose, in administrative law terms, would vitiate the assessment. In
His Honour’s opinion, the High Court’s decision in FCT v Futuris Corporation Ltd [2008] HCA 32 "is
not authority for the proposition that conscious maladministration is established where, as here,
each applicant accepts that the ATO officers did not deliberately make assessments that they knew
to be incorrect or arbitrary, or which were based upon inaccurate information, or which intentionally
misrepresented the information in the officer’s possession that was used to make the assessments;
and where the ATO officers did not use the information provided by the Cayman Islands Authority for
any purpose other than, or alien to, the fulfilment of their duty under s 166 of the ITAA 1936 to make
an assessment from the returns and from other information in their possession".
Logan J also dismissed the taxpayers’ appeals, albeit for reasons that were "not completely
congruent with those of Robertson J".
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TPB Information sheet on payroll service providers
• Information Sheet gives examples to help payroll service providers determine
if they must register with TPB.
Tax Administration
TPB(I) 31/2016 - Payroll service providers
TPB Information sheet on payroll service providers
The Tax Practitioners Board has released TPB Information sheet TPB(I) 31/2016 - Payroll service
providers. It seeks to assist payroll service providers understand operation of tax agent services
regime and their responsibilities in relation to registration. It was released in draft form on
11 July 2014 and then on 18 August 2016.
The Information Sheet contains information on:
Background about the tax agent services regime;
Examples of circumstances where a payroll service provider does not need to register as a tax
agent or BAS agent;
Examples of circumstances where a payroll service provider must register as a tax agent or
BAS agent.
Registration required
The Information Sheet provides several examples of services that may be provided by a payroll
service provider, which the TPB considers to be covered by the definition of a tax agent service
(including a BAS service) and therefore would require the payroll service provider to be
registered eg:
A client outsources their entire payroll and accounts work to a payroll service provider - In the
provision of this service, the payroll service provider interprets and applies a taxation law, which
includes a BAS provision, and/or represents the client in their dealings with the FCT and it would be
reasonable to expect that their client will rely on those services.
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A payroll service provider offers a help desk which provides customised advice to assist their client
to meet a specific tax outcome - For advice to constitute a tax agent service, the advice would need
to relate to the client's particular circumstances and would require the interpretation of taxation laws.
It must also be reasonable for the client to rely on the advice. If these conditions are met, such
advice will be a tax agent service.
A payroll service provider undertakes a payroll compliance review for their client to ensure
compliance with taxation obligations - For the payroll compliance review to constitute a tax agent
service, it would need to involve the payroll service provider providing an assessment and/or opinion
as to whether their client is compliant with their taxation obligations under one or more taxation laws.
Registration not needed
The Information Sheet says a payroll service provider does not need to register as a tax agent or
BAS agent if, for example:
The services provided are considered to be "in-house services". This includes arrangements
where there may be a cost recovery and/or shared services arrangement in place for the
provision of the services by entities regarded as in-house service providers;
The services are not provided for a fee or other reward;
The services provided do not meet the definition of tax agent service.
12/01/2017
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Current ATO data-matching activities
• ATO collecting data from banks on:
‒ Credit and debit card payments received by businesses
‒ Payments to ride-sourcing drivers
• Also collecting data from on-selling sites about sellers who sold at least
$12,000 worth of goods or services.
Tax Administration
Credit and debit card, online selling, ride-sourcing data-matching
Current ATO data-matching activities
The ATO has reminded tax professionals that it is collecting data from financial institutions and
online selling sites to use in its credit and debit card, online selling, and ride-sourcing data-matching
programs. These data-matching exercises were announced in 2016.
The data will include:
The total amount of credit and debit card payments businesses received;
Online sellers who have sold at least $12,000 worth of goods or services during the 2015–16,
2016–17 and 2017–18 financial years;
Payments made to ride-sourcing drivers from accounts held by the ride-sourcing facilitator –
covers the 2016–17 and 2017–18 financial years.
19/01/2016
Tax Update February 2017
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Incorrect PAYG instalment variations and GIC
• ATO says some taxpayers incorrectly varying PAYG instalment rate or
amount
• Liable to penalty, GIC if variation significantly incorrect
• ATO may contact tax agents to discuss clients’ variations.
Tax Administration
Incorrect PAYG instalment variations and GIC
The ATO warns that some taxpayers are incorrectly varying their PAYG instalment rate or amount.
This may result in a debt at the end of the financial year and attract GIC if the variation was
significantly incorrect.
If instalments are more than 15% under the actual tax payable at the end of the year, the taxpayer
may be subject to GIC on the difference. However, the ATO says taxpayers may ask it to reduce or
waive the interest by writing to the ATO about the circumstances that led them to underestimate their
instalment rate or amount.
Taxpayers may have to pay GIC if they vary an instalment rate or amount to less than 85% of the:
Actual tax payable on their business and/or investment income for the income year; or
Instalment rate that should have applied for the income year.
The ATO has advised tax professionals that it may contact them to discuss their clients’ PAYG
instalment variations and how to help them get it right.
19/01/2016
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ATO explains what caused system outage
• Cause of ATO’s Dec 2016 system outage: major malfunction of data storage
infrastructure in central computing system
• ATO insists taxpayer data not lost or compromised
• PwC to independently review system outage (has expertise with ICT storage
at heart of incident)
• ATO also conducting internal review: focus on key stakeholders.
Tax Administration
Announces independent review
ATO explains what caused systems outage
The ATO has advised that it has appointed PwC to conduct an independent review into the
unplanned system outage which began on 12 December last year. PwC was appointed because of
its specific expertise with the ICT storage that is at the centre of the incident, the ATO said. The PwC
review will address questions such as
What caused the outage?
Why was there such a significant impact?
Was the ATO response appropriate?
What are the residual risks - if any?
What actions can be taken to mitigate further or future issues?
According to the ATO, the review will help it fully understand what happened and why, and what
needs to be done to ensure it is not exposed to this type of incident in future. The PwC review is due
to be finalised in March 2017. At the same time, the ATO says it is also conducting its own internal
review which will focus on key stakeholders, including tax professionals and software developers.
At the same time, the ATO has published a letter to Tax Practitioners from Ramez Katf (ATO Chief
Information Officer) in relation to the December 2016 System Outage. The letter explained what
caused the problem, additional measures to assist tax agents, and provided other information.
Tax Update February 2017
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Additional measures to assist Tax Agents
Mr Katf said the ATO took action to defer due dates in December as well as the 15 January income
tax due date. The ATO said if tax agents lodged within the deferred period, they will not be
penalised and their Lodgment Program "85% on time requirement" will not be affected.
If agents have been affected by the outage and require additional deferrals, the ATO said they can:
Send a secure message through the portal;
Call the Registered Agent phone line (13 72 86) - A special fast key code will soon be
available to help route these enquiries.
Mr Katf said ATO staff that review these requests "will consider them in light of the impacts of the
outage".
He went on: "While the availability of deferrals should assist you in managing your lodgment
program, we understand that as a consequence of the outage some agents may not be able to meet
the '85% on time' Lodgment Program requirement. Where this is the case we will not apply sanctions
this year."
26/01/2016
Tax Update February 2017
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No grounds to set aside DPO
• Dubai resident served with amended assessments, departure prohibition
order (DPO) while going through customs
• Federal Court dismissed application to set aside DPO:
– DPO not issued for improper purpose given taxpayer’s significant tax liability
($4.5m) & poor compliance record
– Australian tax debt not enforceable in UAE.
Tax Administration
Bakri v DCT [2017] FCA 20
No grounds to set aside DPO order
Bakri v DCT [2017] FCA 20
The Federal Court has dismissed a taxpayer's application to set aside a departure prohibition order
(DPO) following the issue of amended assessments to him for some $4.5m. In doing so, the Court
dismissed the taxpayer's claims that the DPO was issued for an "improper purpose". At the same
time, it found the FCT had "reasonable grounds" as required to prevent the taxpayer from leaving
Australia in the circumstances: Bakri v DCT [2017] FCA 20 (Federal Court, Burley J,
23 January 2017).
Background
The taxpayer was involved in the construction industry both in Australia and Dubai. From 2013, he
had lived and worked in Dubai, although he regarded Australia as his permanent place of residence.
On 6 January 2017, the taxpayer returned to Australia and, when passing through customs, was
served with notices of amended assessment of his tax liabilities for the years 2011 to 2015 resulting
in a tax liability of some $4.5m. The amended assessments arose from a "covert audit" of the
taxpayer which revealed that he was listed as a director and shareholder of five Australian
companies and that he had a history of remitting and receiving funds of over several million dollars
from Dubai either personally or through various businesses.
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In seeking to have the DPO set aside, the taxpayer argued that it was issued for an "improper
purpose" in that it was used to detain him in Australia in order to gather information from him
concerning his domestic and international financial position, and not for the collection of tax as
required under s 14S of the TAA. He also claimed that the FCT did not have "reasonable grounds"
for the required belief under s 14S that the tax liability would not be met or that appropriate
arrangements would not be made to discharge it. The taxpayer also argued that if he did not return
to Dubai, then he would lose his job and his accommodation, and that the health of his wife would
suffer on view of the stress of the situation.
Decision
In dismissing the taxpayer's application, the Court found that the decision to issue the DPO did not
suggest an "improper purpose" in view of the FCT's stated reasons for issuing the DPO - namely,
the taxpayer's "significant tax liability", his "poor compliance record" and the fact that he had "limited
links" to Australia. In relation to the taxpayer's claim that the DPO was improperly issued to gather
information about his financial affairs, the Court found that the FCT was authorised under the
relevant provision of the TAA to gather such information to facilitate in the recovery of a taxpayer's
tax liability and therefore, the DPO could not be regarded as having been issued for an improper
purpose on this basis.
In relation to the taxpayer's claims that the FCT did not have "reasonable grounds" for issuing the
DPO, the Court found that the FCT had formed the requisite belief that it was "desirable" to prevent
him from leaving Australia before discharging the liability or coming to an arrangement to do so. In
this regard, the Court noted that the taxpayer apparently did not have assets in Australia to meet the
liability, there was no ability to enforce the debt in the UAE where the taxpayer apparently had
significant assets (eg moneys transferred to Dubai and real estate), he was a "flight risk" as he
clearly intended to leave Australia and, contrary to his claims, the taxpayer did have the opportunity
to discuss the assessments with the ATO, lodge objections and seek legal advice.
26/01/2016
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Exemptions from registering with ATO re foreign ownership of
water or agricultural land
• Draft rules to support Register of Foreign Ownership of Water or Agricultural
Land Act 2015 released
• Water Register from 1 July 2017
• Draft rules provide reporting exemptions for:
– Harvestable rights
– Irrigation infrastructure operators
– Foreign persons re security held under money lending agreement.
Tax Administration
Exemptions from registering with ATO re foreign ownership of water or
agricultural land.
The government released for consultation draft rules to support the Register of Foreign Ownership
of Water or Agricultural Land Act 2015 and a draft Water Registration Form which outlines the
proposed data fields for water registration.
As part of the foreign investment framework reform package, the government agreed to introduce
legislation to establish a Water Register before 1 December 2016. Following consultation, the 2016-
17 Budget provided that the government would implement the Water Register by requiring foreign
persons to notify and update their interests in water entitlements with the ATO.
The legislation to give effect to the Water Register passed Parliament on 1 December 2016. Water
entitlements will not need to be registered before 1 July 2017.
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The Act provides that Rules may exempt kinds of water rights from the definition of "registrable
water entitlement" or that certain foreign persons do not need to register. Broadly, the draft rules
propose that the following exemptions will apply to the requirement to register with the ATO:
"Harvestable rights" will be exempt from the definition of "registrable water entitlement". The
term "harvestable right" takes a different meaning in different jurisdictions but for the
purposes of the Water Register, it will be a right which allows water harvested from rainfall to
be used for stock and domestic purposes.
Irrigation infrastructure operators will not need to register the water they hold for the
purposes of meeting their requirements under an irrigation right with a customer, or
conveyance water, which is the additional water which may be lost in transit or as a result of
seepage or evaporation.
Foreign persons will not need to register registrable water entitlements or contractual water
rights which are obtained through the enforcement of a security held for the purposes of a
money lending agreement.
COMMENTS are due by 10 February 2017.
26/01/2016
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ATO releases Guide to Reportable Tax Positions 2017
• ATO guide to help companies complete:
• Reportable tax position schedule 2017 (NAT 74066)
• Reportable tax position early disclosure form 2017 (NAT 74067)
• RTP Category C (reportable transactions or events) expanded to cover issues
of concern to ATO (eg those in recent taxpayer alerts)
• Category C questions must be answered if company’s income year ends on
or after 30 June 2017.
Tax Administration
ATO releases Guide to Reportable Tax Positions 2017
The ATO has released its Guide to Reportable Tax Positions 2017. It provides information to help
companies understand and identify reportable tax positions and to help them to complet e the
Reportable tax position schedule 2017 (NAT 74066) and Reportable tax position early disclosure
form 2017 (NAT 74067).
The ATO says it has made substantial changes to RTP Category C (Reportable transactions or
events) this year. RTP Category C now covers a number of specific issues that the ATO says it finds
concerning. Taxpayers with income years ending on or after 30 June 2017 are required to answer
the new Category C questions. There are no materiality thresholds for Category C RTPs.
Next year, the ATO says it is extending the RTP requirements to companies in economic groups
with turnovers above $250 million. This change will come into effect for the year ending on or after
30 June 2018. For companies covered by the extension, the ATO will notify them in writing
(including by email) that they must complete the RTP Schedule with their tax return.
26/01/2016
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Tax risk management and governance review guide
• Businesses can use ATO’s Tax risk management and governance review
guide to:
‒ Develop/improve their tax governance & internal control framework
‒ Test their framework against ATO best practice benchmarks
‒ Show reviewers & stakeholders effectiveness of internal controls.
Tax Administration
ATO guide updated
Tax risk management and governance review guide
The ATO has released a tax risk management and governance review guide to help businesses
develop and test their governance and internal control frameworks (as they relate to tax), and
demonstrate the effectiveness of their internal controls to reviewers and stakeholders.
The guide sets out principles for board-level and managerial-level responsibilities, and examples of
evidence that entities can provide to demonstrate the design and operational effectiveness of their
control framework for tax risk.
It was developed primarily for large and complex corporations, tax consolidated groups and foreign
multinational corporations conducting business in Australia. The principles outlined can be applied to
a corporation of any size if tailored appropriately, the ATO says. When appropriate, the ATO
assesses the tax governance processes of large business entities that it has under review, however,
it says the aim of this guide is to help businesses understand what the ATO believes better tax
corporate governance practices look like, so a business can:
Develop or improve its own tax governance and internal control framework;
Test the robustness of the design of its framework against ATO best practice benchmarks;
Understand how to demonstrate the operational effectiveness of its key internal controls to its
stakeholders, including the ATO.
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For directors, the guide covers areas such as: Corporate governance and risk management; Justified trust and key controls (eg periodic internal control testing, document control frameworks); Three lines of defence; Board-level controls; Internal controls testing; Managerial-level controls; Directorship responsibilities and liability.
The guide also discusses board and managerial-level responsibilities, and tax control frameworks for
medium and small corporations.
3/02/2017
Tax Update February 2017
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Extension of time for AAT review granted
• Company granted extension for review of GST objection decision
• Applied for extension nearly 1 year late. However, AAT satisfied that:
‒ Acceptable explanation for delay (controller had “lack of understanding”, hard to
get lawyer due to financial problems)
‒ No prejudice to FCT
‒ Amount of tax payable is in dispute.
Tax Administration
Re New Access Investment Group Pty Ltd and FCT [2017] AATA 63
Extension of time for AAT review granted
Re New Access Investment Group Pty Ltd and FCT [2017] AATA 63
The AAT has granted a company an extension of time to apply for review of objection decisions.
Objections to GST assessments and administrative penalties were lodged in March 2015. The
objections were disallowed in September 2015. The time for applying to the AAT for a review of
those decisions expired towards the end of November 2015. It was not until 22 September 2016 that
the company applied for an extension of time.
Initially an application was not made because of a lack of understanding on the part of the person
who controlled the company (Mr Y) and because the company's financial situation made it difficult to
obtain legal representation. In addition, Mr Y gave evidence that he did not remember seeing a fact
sheet sent by the ATO to the company's previous tax representatives outlining the company's review
rights. Once the company was able to engage a solicitor, there was a further four-month delay
because the solicitor believed that the ATO would consent to an extension of time, having notified
the ATO that the company would challenge the objection decision if debt recovery proceedings were
commenced.
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The AAT decided to grant an extension of time on the basis that:
There was an acceptable explanation for the delay in applying for review. In reaching this
conclusion, the AAT accepted Mr Y's evidence;
The ATO conceded that there was no prejudice caused by the delay; and
There were complex issues between the parties as to the amount of tax that was properly
payable - the AAT accepted the evidence of the company's solicitor on this point, noting that
she had experience working in the ATO.
The AAT commented that it was unwise to assume that the ATO would automatically consent to an
extension of time or that the AAT would grant an extension.
3/02/2017
Tax Update February 2017
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Alternate assessments not tentative
• FCT gave trustee 2 sets of assessments re same income:
‒ “Primary” assessment on basis that beneficiaries (including minor) presently
entitled to net income of trust
‒ “Alternative” assessment on basis of no present entitlement
• Total tax shortfall – $23.5m
• Federal Court held assessments valid – alternative assessments can be
issued to trustee re same income (1 amount is recoverable).
Tax Administration
Whitby Land Company Pty Ltd (Trustee) v DCT [2017] FCA 28
Alternate assessments not tentative
Whitby Land Company Pty Ltd (Trustee) v DCT
The Federal Court has found that assessments were not tentative and provisional and therefore
were valid: Whitby Land Company Pty Ltd (Trustee) v DCT [2017] FCA 28 (Federal Court, Jagot J,
30 January 2017).
Background
The taxpayer was a company which was the trustee of a discretionary trust (the Whitby Trust). The
beneficiaries were the five children of the company’s director. One of the children was a minor and
thus under a legal disability.
For the 2011 to 2014 income years, the DCT notified the taxpayer that it was liable to pay tax
assessed in two different amounts, calculated by two different methods.
The “primary assessments” for each year were calculated on the basis that the four adult
beneficiaries were each presently entitled to equal shares tota lling 80% of the net income of the
Whitby Trust (relying on s 99A ITAA 1936) and the beneficiary who was a minor was presently
entitled to a 20% share of the net income of the trust, but was subject to a legal disability (relying on
s 98 ITAA 1936). The primary assessments were issued in April 2014 following an audit of
transactions undertaken by the Whitby Trust.
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The “alternative assessments” were made by reference to the same 80% and 20% proportions, but were on the basis that none of the beneficiaries were presently entitled to a share of the net income of the trust for each relevant year. The alternative assessments were issued in October 2015. The total tax shortfall over the four income years was just over $23.5 million. The DCT also imposed administrative penalties.
When issuing the alternative assessments, the DCT explained in a letter to the taxpayer that if the
primary assessments were invalid then the alternative assessments were original assessments, but
if the primary assessments were valid then the alternative assessments affirmed or amended the
primary assessments. The DCT asserted in the letter that “on any view, these are valid
assessments”.
The DCT sent further letters to the taxpayer stating that he would apply Law Administration Practice
Statement 2006/7 which deals with the collection of tax where there are primary and alternative
assessments.
The taxpayer sought relief under s 39B of the Judiciary Act 1903 (Cth) on the basis that the primary
and alternative assessments were invalid as they were tentative and provisional. The taxpayer
argued that the assessments were tentative because, for each year, they imposed two separate and
different liabilities to income tax in its single capacity as a trustee. As a result, the taxpayer owed
different debts in each relevant year in circumstances where payment of one did not abate the other,
and each debt was an independent debt owed to the Commonwealth and was payable to the DCT
(with interest accruing on each debt).
The DCT, on the other hand, argued that a trustee’s liability to pay income tax is of a “representative
character” and the relevant provisions in the ITAA 1936 (in this case ss 98 and 99A) envisage that a
trustee might be liable to multiple assessments in respect of different beneficiaries ’ entitlements to a
share of the net income of the trust. As such, the primary and alternative assessments were
comparable to assessments to two or more taxpayers in relation to the same income in the same
income year, which are not liable to be set aside as tentative or provisional.
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Decision
Jagot J considered the interaction between the provisions of the ITAA 1936 dealing with the taxation
of trusts (in particular ss 98 and 99A) and the provisions of the ITAA 1936 concerning assessments
and amended assessments (in particular ss 166 and 169). In finding for the DCT, her Honour
advanced various propositions.
1. Section 166 ITAA 1936 is concerned with the making of an assessment on the “taxable
income” of any taxpayer. Under ss 4-10(4) and 9-5 item 6 of the ITAA 1997, however, the
liability of a trustee in that capacity to income tax is not worked out by reference to the net
income of the trust for the income year, under the process established by ss 98, 99 and 99A
ITAA 1936, and not by reference to taxable income. Accordingly, in making the assessments
in this case, the DCT was not exercising his power under s 166.
2. Sections 98, 99 and 99A ITAA 1936 contemplate that a trustee will be assessed and liable to
pay tax in respect of the different beneficiaries depending on the status of the beneficiary. As
a result, the position of a trustee in this context is different from that of an individual or
corporate taxpayer who is liable to be assessed and pay income tax on their taxable income
for the year.
3. The assessments specified the amount of tax income assessed and the amount of tax payable
thereon. Nothing in the evidence otherwise undermined the definite character of the liability
imposed. It was merely that one set of assessments assumed a present entitlement of the
beneficiaries and the other set assumed no such present entitlement.
4. The DCT has taken a view of the facts and made assessments for each year based on that
view (the primary assessments). The alternative assessments were not issued for the
purpose of double recovery, but performed a protective function lest the DCT’s view about
the operation of the trust be incorrect. The difficulties to which such concurrent
liabilities may give rise were not seen as a sufficient reason to lead to a different result
in DCT v Richard Walter Pty Ltd (1995) 29 ATR 644 and the same conclusion applied in this
case.
In conclusion, Jagot J was not persuaded that “the statutory scheme precludes the approach the
DCT has taken or, of necessity, renders that approach tentative or provisional in the sense that the
assessments are no assessments at all”.
3/02/2017
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Cloud computing & Code of Professional Conduct
• Code of Conduct may be breached if cloud arrangements inadequate & client
info unprotected
• TPB says registered agents may wish to consider:
‒ Details of limitation of liability arrangements
‒ Whether provider can unilaterally change terms of agreement
‒ How data integrity is maintained.
Tax Administration
Tax Practitioners Board Practice Note TPB (PN) 1/2017
Tax practitioners, cloud computing and the Code of Professional
Conduct – TPB Practice Note
The Tax Practitioners Board (TPB) has released its Practice Note TPB (PN) 1/2017 - Cloud
computing and the Code of Professional Conduct. Cloud computing, at a broad level, is the provision
of information technology resources as a service through a network (including storing, managing and
processing data), typically over the internet, instead of using a local server or a personal computer.
The Board says that when entering into cloud arrangements, various factor s will need to be
considered, depending on the nature of the particular cloud arrangement and also the circumstances
of the registered tax practitioner. However, as a starting point, the Practice Note says registered tax
practitioners may wish to consider a number of general factors including:
What are the details of any limitation of liability arrangements (eg clauses contained in the
terms and conditions of the cloud provider agreement(s) or terms of use)?
Whether the provider is allowed to unilaterally change relevant terms of the agreement (that is,
without input from the registered practitioner), including in relation to how or where data is
stored or managed?
How is the information being transferred between systems and data integrity being
maintained?
How is the information being stored?
Whether information is being held offshore (that is, information that is stored or processed in
equipment not located in Australia) and, if so, the consequences (including relevant
additional legislative and regulatory requirements that the information may be subject to)?
What processes does the cloud provider have in place in relation to the backup and archiving
of information (such as multiple backup servers)?
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Concerning the Code of Professional Conduct, the Practice Note says practitioners need to be
mindful of Code Item 6 which provides that a registered practitioner must not disclose any
information relating to a client's affairs to a third party without the client's permission, unless there is
a legal duty to do so. A third party is any entity other than the client and the registered practitioner.
This includes entities that maintain offsite data storage systems (including "cloud storage"),
recognising that there is a distinction between data storage that a third party cannot effectively
access (for instance, through the use of encryption) and disclosure to a third party. It is only
necessary that the information relates to the affairs of a client. Therefore, the information does not
have to belong to the client, or have been directly provided by the client to the registered
practitioner.
The Practice Note says registered practitioners must obtain permission from each client prior to
divulging client information to a third party (including cloud service providers).
The Practice Note was originally in draft form on 13 October 2016, based on the Tax Agent Services
Act 2009 as at 5 March 2016.
3/02/2017
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ATO warns of criminal activity targeting AUSkeys
• ATO has detected identity theft re AUSkeys linked to businesses
• AUSkeys used to access portals, lodge BASs, change account details for
refunds
• ATO took quick preventative action – affected AUSkeys cancelled
• Tax practitioners asked to check Access Manager permissions to shield
practice from identity theft.
Tax Administration
ATO warns of criminal activity targeting AUSkeys
The ATO has advised that it has detected criminal activity where identity thieves have fraudulently
obtained AUSkeys linked to businesses. They have used these to access the portals, lodge activity
statements and change account details for refunds. The ATO said it was able to take preventative
action quickly and the affected AUSkeys have been cancelled.
The ATO has warned tax practitioners to check their Access Manager permiss ions to protect their
practice from identity theft.
3/02/2017
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Enhanced ATO record-keeping tool for sole traders
• ATO announces record-keeping enhancements to myDeductions
• Sole traders with simple tax affairs can now record business income,
expenses & vehicle trips on smart phone or device
• Ability to upload data directly into tax return will be available in later release.
Tax Administration
Enhanced ATO record-keeping tool for sole traders
Sole traders can get a head start on tax this year with new record-keeping functionality
enhancements to myDeductions in the free ATO app, Small Business Minister Michael
McCormack has announced. He said the improvements mean sole traders with simple tax affairs
can now record business income, expenses, and vehicle trips on their smart phone or device in
addition to employee work-related expenses.
Mr McCormack said the record-keeping tool is the quick and easy way for sole traders to get into
good record keeping habits by capturing transactions “on the go”. This also means sole traders won't
have the hassle of lost and faded receipts at tax time. The Minister said sole traders can easily email
their detailed records to their tax agent or enter the data straight into myTax at tax time. The ability to
upload data directly into a tax return will be made available in a later release, he said.
More details are on the ATO app myDeductions webpage.
3/02/2017
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Tax Inspector-General
• Planned reviews:
‒ GST refunds – taxpayers concerned about refund delays
‒ PAYGI – interaction with income tax system
‒ Future role of tax professionals in tax system.
Tax Administration
2017 work program announced
Tax Inspector-General announces his 2017 work program
The Inspector-General of Taxation (IGT), Ali Noroozi, has released details of his 2017 work program.
The IGT intends to commence at least three reviews in the 2017 calendar year:
Future of the Tax Profession - The IGT said he is conducting this review in response to a
request from the FCT. The IGT has, in recent years, examined the state of the ATO's
services and support for tax practitioners. This new review will be forward-looking and will
examine the future role of tax professionals in the tax system particularly in light of increased
use of digital technology and ATO service delivery initiatives. In doing so, the IGT will also
examine concerns raised by tax practitioners with the IGT on issues affecting their industry.
The IGT will consult extensively with the tax profession, the ATO and the TPB to identify
opportunities to improve the tax system as a whole.
Delayed GST refunds – Since 2012, the ATOs discretion to withhold GST refunds for
verification has been governed by s 8AAZLGA of the Taxation Administration Act 1953. The
provision allows the ATO to retain a refund until it is no longer reasonable to require
verification. The IGT said complaints data and submissions to the work program have
indicated that the ATO's administration of this provision may, in some instances, result in
inappropriate and unfair delays in GST refunds being issued. This rev iew will examine the
ATO's administrative approaches, the impact on taxpayers and the need for any
administrative or policy improvements.
PAYG Instalments system – The IGT said submissions and complaints received suggest the
system is generating confusion and misunderstanding for certain taxpayers who are required
to make these payments. The interactions between the PAYGI and income tax systems as
well as the related correspondence will be explored to identify potential opportunities for
improvement.
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Further potential reviews
The IGT has also identified four additional reviews which may also commence in the 2017 calendar
year depending on time and resourcing considerations as well as competing priorities:
ATO Advice and Guidance - The IGT said stakeholders have raised concerns regarding the
ATO's approach to providing advice and guidance. In particular, they have noted fewer public
rulings being issued and the ATO's use of practical compliance guidelines and website
materials both of which provide less certainty for taxpayers. The ATO's use of Taxpayer
Alerts was also identified as another area of concern, especially when and how these will be
issued and the uncertainty they create when there is no subsequent ATO guidance or action.
In relation to private rulings, the concerns related to timeliness, the ATO's unwillingness to
rule on certain issues and, in some instances, issuing "letters of comfort", which do not
provide the same level of certainty. The ATO has informed the IGT that it has more recently
undertaken an internal review of its public advice and guidance processes. The IGT will
monitor these issues and if concerns persist, a review in this area may be conducted.
Fraud or evasion opinions - The IGT said stakeholders have raised concerns about the
ATO's use of fraud or evasion opinions based on which the ATO may examine and amend
assessments outside of standard periods of review (typically four years). Significant
compliance and evidentiary burdens may be imposed on taxpayers wishing to dispute such
amended assessments because of the considerable time that may have elapsed since those
assessments were initially made, the IGT said. Complaints and concerns raised with the IGT
have claimed that the ATO's processes for forming fraud or evasion opinions are not
sufficiently robust and may lead to unfair outcomes. The IGT's review would examine the
ATO's administrative processes, evidence gathering and engagement with taxpayers. The
IGT has been advised that the ATO is currently undertaking an internal review of its use of
fraud or evasion opinions across all business lines. The IGT will consider any improvements
resulting from such a review and determine whether to commence his own investigation.
Research & Development - The IGT said stakeholders have raised concerns about the
ATO's approach to R&D Tax Incentive claims. The major concerns relate to the interactions
between the ATO and AusIndustry and, in particular, the eligibility of R&D activities being
questioned during ATO compliance activities where the taxpayer believed that AusIndustry
had, at least, tacitly approved such eligibility in the past. The IGT noted there has been a
recent review of the R&D Tax Incentive which was completed in 2016. Moreover, in
considering these issues, the IGT would only be empowered to examine the relevant actions
of the ATO and not that of AusIndustry. Accordingly, to the extent that concerns persist, the
IGT said he may either consider the issue within the constraints of his jurisdiction or,
alternatively, may engage with other agencies, such as the Commonwealth Ombudsman, to
examine the issue holistically.
Influencing willing participation in the tax and super systems - The FCT has also requested
that the IGT undertake a review to identify strategies and opportunities for the ATO to work
with others to encourage willing participation in the tax and superannuation systems. The
review would focus particularly on youth and school programs.
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Areas not included
The IGT also noted areas not included in his 2017 work program eg debt collection and super
guarantee; settlements and litigation; transfer pricing (re the MAAL and proposed DPT – the IGT
said it seemed appropriate to allow the ATO time to consult and implement its administrative
approach); compliance approach to large business; digital by default.
3/02/2017
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ATO advice under development
• ATO website lists advice under development for:
– income tax
– CGT
– international issues
– GST
– FBT.
Tax Office Website updates
Tax Administration
Tax Office Website updates
From the ATO website:
Advice under development - income tax issues - New items include a proposed Draft
Ruling on corporate residency and CM&C in Australia in response to Bywater Investments
Limited & Ors v FCT; and a consultation paper on scholarships (Comments due by
31 March 2017). Updated topics include: capital allowances (composite items);
environmental protection activities; corporate limited partnership "credits"; deductions for
mining and petroleum exploration; deductibility of legal expenses; withholding provisions
relating to natural resource income; deduction for work-related travel expenses; personal
services income (meaning of personal services business; attribution and deductions); non -
share dividends paid by ADIs; and meaning of "alteration, extension or improvement" in
Div 43 of the ITAA1997.
Advice under development - international issues - Updated topics include: distributions
from foreign companies; foreign hybrid limited partnership; direct contro l interests
(partnerships and trusts); transfer pricing rules and debt/equity tests; transfer pricing benefit
from an outbound/inbound interest free loan; thin capitalisation (arm's length debt test);
internal derivatives by multinational banks; thin capitalisation attribution of ADI equity capital
and controlled foreign entity equity; transfer pricing safe harbours; and significant global
entities lodging general purpose financial statements.
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Advice under development - capital gains tax issues - Topics include: trust capital gains; capital
gains from a non-resident beneficiary on a non-fixed trust; capital gain or loss - residency
assumption; capital gains - discount or capital loss offset.
Advice under development - GST issues - Updated topics include: Australian consumers;
GST cross border supplies - supplies of online advertising; GST and prepared meals;
proposed amendments to Ruling GSTR 2006/9 following FCT v MBI Properties Pty Ltd
[2014] HCA 49; and GST on digital products and services - electronic distribution platforms.
Advice under development - FBT issues - Safe harbours for FBT and remuneration. The
minor use of exempt vehicles proposal and minor benefits and entertainment proposal are
still in progress. The expected completion date for the safe harbours has been extended
to June 2017 to allow further time to develop and implement the concepts identified by the
working group.
Advice under development - superannuation issues - Updated topics include: deductions
for superannuation funds (proposed Addendum to Ruling TR 93/17 yet to be completed); and
the 6 Draft Law Compliance Guidelines in response to the major superannuation reforms
from 1 July 2017.
Advice under development - petroleum resource rent tax issues - Updated PRRT topics
include: deductibility of social infrastructure expenditure; closing down expenditure; and
reversion of licence.
2016 completed issues - Unpaid present entitlement (bad debts) in Determination TD
2016/19; and deductibility of expenditure on commercial website in Ruling TR 2016/3.
Consolidation rulings under Project Refresh - The ATO says it is considering
consolidating a number of rulings under its Project Refresh.
Ruling rewrites under Project Refresh - Lists the Rulings being considered for rewriting
under Project Refresh.
Ruling updates under Project Refresh - Lists the Rulings being considered for updating
under Project Refresh.
Public ruling withdrawals under Project Refresh - The ATO says a number of public
rulings might be withdrawn under its Project Refresh.
9/02/2017
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DCT v Binetter [2017] FCA 69
• Case involved Nudie Juice entities
• Federal Court refused application for taxpayer (Nudie co-founder and CEO)
to give evidence from USA via video link
• Concluded there was no impediment to taxpayer travelling to Australia to give
evidence, even though liquidators could exercise their legal rights to stop him
returning to USA.
Application for evidence in tax case by video link refused
Tax Administration
Application to give evidence in Nudie Juice tax case by video link
refused
DCT v Binetter
The Federal Court has held there was no evidence of any impediment to a taxpayer (Mr
Andrew John Binetter) travelling to Australia and then returning to the United States after giving
evidence in a complex tax proceeding.
Mr Binetter lives in New York with his family. The substantive issue in the case concerns tax issues
arising from the sale of the Nudie Juice business. The companies in the substantive proceeding (the
"Nudie entities") seek their costs in the proceedings and compensation for what is said to be loss
and damage suffered by them by reason of freezing orders obtained by the FCT on
29 January 2015. The proceedings had been commenced by the FCT to recover monies said to be
owed under certain income tax assessments for part of the year of income ended 30 January 2015
but objections to the assessments were subsequently allowed by the FCT in March 2016. On
29 January 2015, however, the FCT had obtained freezing orders in respect of $45.2 million of funds
of the Nudie entities. Those freezing orders continued until 29 March 2016 when they were
discharged by order of the Court. The proposed evidence to be given by Mr Binetter in support of the
claims by the Nudie entities in support of the substantive application concerned matters such as: (i)
the background to the proceedings; (ii) the sale of the Nudie Juice business for $82 million plus GST
on 30 January 2015 and the disbursements of the sale proceeds; (iii) the working capital adjustment
made to the sale price of the Nudie Juice business some time after completion; (iv) the freezing
orders granted. The FCT opposed the application for Mr Binetter's evidence to be given by video link
because he wished to cross-examine him on a number of matters.
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The Court observed that the evidence of Mr Binetter would be "of central importance to the
determination of the claims by the Nudie entities although much will be relatively uncontroversial".
Mr Binetter claimed that a number of factors would prevent him from travelling to Australia to give
evidence eg (i) the medical situation of his wife and son, (ii) his significant responsibility for
managing a US business of which he is CEO, (iii) the fact that when he was last in Australia, the
liquidators of a number of corporations obtained orders against him requiring him to surrender his
passport, and as a result he was unable to leave the country for a number of months until his
passport was returned, (iv) those liquidators are continuing legal proceedings in Australia, and Mr
Binetter was concerned that if he returned to Australia to give evidence, he may be the subject of
similar steps being taken by the liquidators to prevent him from leaving Australia. The Court however
said that such factors did not justify an order that Mr Binetter give evidence by video link from New
York.
DCT v Binetter [2017] FCA 69, Federal Court, Pagone J, 8 February 2017
9/02/2017
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Says ATO systems will be ready for Tax Time 2017
• FCT denies reports Tax Time 2017 under threat due to recent system
outages
• ATO “absolutely confident” taxpayers can lodge returns and receive refunds
on time from 1 July 2017.
FCT refutes media reports
Tax Administration
FCT refutes media reports re ATO systems and Tax Time 2017
The FCT issued a statement saying that claims made in the media on 8 February 2017 that Tax
Time 2017 is under threat due to the ATO's recent system outages "are completely without
foundation". Mr Jordan said the ATO is "absolutely confident" that taxpayers will be able to lodge
their returns and receive refunds on time from 1 July.
The FCT said: "Initial indications are there has been a failure by Hewlett Packard Enterprise (HPE)
to provide contracted services in a reliable way and ensure stability of our systems. The cause of the
failures will be informed by the review led by PwC that I commissioned after the first outage
in December 2016. As I said at that time, I want to know what happened in forensic detail so that we
can assure the community they will not face this kind of disruption in their dealings with us, that
businesses who rely on our services can go about running their business without interruption."
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The FCT assured the community that the ATO is taking this seriously and it has the highest priority.
He went on:
"I have already met a number of times with the most senior HPE representatives in the region and
corresponded with their CEO to ensure they are aware of the disruption and damage this kind of
event causes and remind them of their contractual arrangements.
Our immediate priority is to provide stable services to the community, business, our key
stakeholders and government.
Our ATO technicians are working with HPE's global team of experts to fully replace the affected
hardware. …
We are committed to offering contemporary and reliable services to the community. The
development and release of many new service offerings under our Reinvention program have not
contributed to these system outages. Initial indications are that the outages have been caused by
faulty hardware.
I commit to you we will get to the bottom of this, fix it for the longer term and maintain contemporary
and reliable services to the community."
9/02/2017
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ATO help
• 21 December 2016 and 15 January 2017 due dates deferred
• Tax agents can apply for additional deferrals
• Clients not penalised, 85% on-time lodgment requirement not affected if
agents lodge within deferred periods
• ATO “will not apply sanctions this year” if less than 85% lodged on time “as a
consequence of the outages”.
Tax agent lodgment problems following ATO systems outages
Tax Administration
ATO help for agents having lodgment problems after ATO systems
outages
The ATO has advised tax agents that if they need help meeting their lodgment program after the
unplanned systems outages in December 2016 and February 2017, additional services and support
are available.
The ATO said it understands that the outages created lodgment backlogs for some practitioners, so
it deferred the 21 December 2016 and 15 January 2017 due dates to help. If practitioners lodged
within these deferred periods, the ATO said their clients will not be penalised and agents' 85% on -
time lodgment requirement will not be affected.
If agents require additional deferrals, they can:
Submit an ATO assessed deferral application;
Phone 13 72 86 Fast Key Code 5.
The ATO said it will review deferral requests in light of the impacts of the outages.
The ATO said it understands that as a consequence of the outages, some agents may not be able to
meet the 85% on-time lodgment requirement. Where this is the case, the ATO said it "will not apply
sanctions this year".
9/02/2017
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Appeals update
• FCT discontinues Full Federal Court appeal
• Case arose from private ruling that profit from land sale was ordinary income
• AAT found taxpayer ran property development business
• Court held AAT engaged in fact-finding exercise – can’t do this in ruling
review – based on facts in ruling, profit not ordinary income
• Federal Court decision now stands matter remitted to AAT.
Income
Rosgoe Pty Ltd v FCT [2015] FCA 1231
Appeals update
FCT v Bai (NSD 1276 of 2015)
The taxpayer has sought special leave to appeal to the High Court against the Full Federal Court
decision in FCT v Bai [2015] FCA 973 - which was one of four related cases heard by the Full
Federal Court in Binetter & Ors v FCT [2016] FCAFC 163. In the Bai matter, the Full Court
unanimously confirmed that the onus was on the taxpayer to show the absence of fraud or evasion
where an amended assessment had been issued out of time on that basis. It also unanimously held
that the AAT had not wrongly applied the criminal standard of proof when originally deciding the
matter against the taxpayer. Finally, the majority held that the taxpayer had not be en denied
“procedural fairness” in not having access to certain seized documents in attempting to discharge
the onus of proof that the amended assessment was excessive.
Rosgoe Pty Ltd v FCT [2015] FCA 1231
The FCT has withdrawn his notice of appeal to the Full Federal Court against the decision in Rosgoe
Pty Ltd v FCT [2015] FCA 1231. In that decision, which now stands, the Federal Court allowed the
taxpayer’s appeal, holding that the profit from the sale of land was not ordinary income. The Federal
Court held that, on the facts as set out in a private binding ruling, the profit from the sale of the land
was not ordinary income because the sale was not part of the taxpayer ’s profit-making scheme,
which later came to be abandoned. As the land was a capital asset, the Court remitted the matter to
the AAT to determine the second part of the ruling request concerning the application of the GST
provisions.
19/01/2016
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Appeals update
• One of the taxpayers (Tao Bai, NSD 1276 of 2015) seeks special leave to
appeal to High Court
• Full Federal Court held that taxpayer:
– Had burden of proving absence of fraud or evasion for amended assessment
issued out of time on that basis
– Was not denied procedural fairness in not having access to certain seized
documents.
Tax Administration
Binetter & Ors v FCT [2016] FCAFC 163
Appeals update: Bai (onus of proof)
Binetter v FCT [2016] FCAF 163
The taxpayer has sought special leave to appeal to the High Court against the Full Federal
Court decision in FCT v Bai (NSD 1276 of 2015) - which was one of 4 related cases heard by the
Full Federal Court in Binetter & Ors v FCT [2016] FCAFC 163. In the Bai matter, the Full Court
unanimously confirmed that the onus was on the taxpayer to show the absence of fraud or evasion
where an amended assessment had been issued out of time on that basis. It also unanimously held
that the AAT had not wrongly applied the criminal standard of proof when originally deciding the
matter against the taxpayer. Finally, the majority held that the taxpayer had not been denied
"procedural fairness" in not having access to certain seized documents in attempting to discharge
the onus of proof that the amended assessment was excessive.
26/01/2016
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INTERNATIONAL TAX
© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
Exchange of info with foreign revenue authorities on indirect
taxes
• Practice Statement guides ATO staff on exchanging information about indirect
taxes under international tax agreements
• ATO shares publicly available information without restriction
• Taxpayer-specific info can only be exchanged if authorised by legal
instrument.
International Tax
Practice Statement PS LA 2016/6
Exchange of information by the ATO with foreign revenue authorities
about indirect taxes
The ATO released Practice Statement PS LA 2016/6 (Exchange of information with foreign
revenue authorities about indirect taxes) on 9 December 2016. It provides guidance for ATO officers
on the exchange of information with foreign revenue authorities about indirect taxes under
international tax agreements.
The Practice Statement says the way requests for information from foreign revenue authorities are
handled depends on whether the information requested is publicly available or specific to an
individual or entity:
Publicly available information, such as that in Taxation Statistics, on www.ato.gov.au, Report
of Entity Tax Information or from business' public websites, can be shared without restriction.
Taxpayer specific information - Information specific to a taxpayer, either an individual or an
entity such as a company, can only be exchanged if it is authorised by a legal instrument as
set out in section 2 of the Practice Statement eg under the Mutual Convention on the Mutual
Administrative Assistance in Tax Matters, bilateral tax treaties, Tax Information Exchange
Agreements.
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As a consequence, the following Practice Statements were withdrawn on 9 December 2016 as they
have been replaced by PS LA 2016/6:
PS LA 2007/13 - Exchange of Information with foreign revenue authorities in relation to GST,
under international tax agreements.
PS LA 2007/14 - Gathering and use of information from foreign agencies or sources in
relation to GST, wine tax and luxury car tax administration.
12/01/2017
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ATO releases Country-by-Country info
• Q&As represent ATO’s transitional admin practice
• Q&As cover:
‒ General issues and eligibility
‒ CbC report
‒ Master file
‒ Local file.
International Tax
Q&As on CbC reporting and transfer pricing documentation
ATO releases Country-by-Country reporting Q&As
The ATO has released a list of Q&As on its website regarding Country-by-Country (CbC) reporting
and transfer pricing documentation. The ATO says this guidance represents its transitional
administrative practice until the planned 2020 review of CbC Reporting.
The development of the Q&As is in response to practical questions taxpayers have as they work
through their CbC reporting obligations. The ATO expects to update and enhance the Q&As on an
ongoing basis.
The Q&As cover:
General issues and eligibility – The ATO says that where a global parent entity (GPE) files
a CbC report in a foreign jurisdiction using a different reporting period to the local entity, that
local entity can rely on that CbC report to satisfy its obligation in Australia. A local entity
intending to rely on the filing of the CbC report by the GPE as satisfying the local entity's
filing obligation would need to know that this has occurred by the time it is obliged to file
locally. In addition, the ATO says a local entity will have CbC reporting obligations where an
extraordinary transaction results in its annual global income (or that of its GPE) exceeding
the $1 billion annual global income threshold for one year only.
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The CbC report. The ATO says the amounts reported in the CbC report are not required to
reconcile or be reconciled to the amounts in the global financial statements for the group. To
the extent the CbC report contains information on entities other than the Australian entity or
members of its Australian tax consolidated group or MEC group, the ATO says it will not
generally disclose the CbC report to the local entity. If, on the date on which a CbC report is
due to be filed, all of the following conditions are met or are expected to be met, the ATO
says a local entity with a foreign GPE will not be required to file the CbC report. The
conditions are:
o The foreign GPE is obligated to file a CbC report in its jurisdiction of tax residence;
o The jurisdiction in which the foreign GPE is resident for tax purposes has a CbC
automatic exchange arrangement with Australia including a Competent Authority
Agreement that covers the automatic exchange of CbC reports; and
o Neither jurisdiction that is a party to the Agreement has notified the other of
suspension of automatic exchange.
The Master file. Some foreign parent entities, such as those located in the United States,
are not currently required to prepare or file a master file. While the ATO will not generally
grant an Australian resident entity with such a parent an exemption from filing the master file,
it does recognise that Australian resident entities with foreign GPEs may have transitional
issues in meeting their CbC reporting obligations. As a concession for the first reporting
period, the ATO says it will not seek the master file for the entity's first reporting period from it
or other Australian resident entities in respect of which the master file is to be lodged, if
certain conditions are met.
The Local file. The ATO says that transactions between an offshore branch of an Australian
legal entity and a subsidiary incorporated in that jurisdiction are required to be included in the
local file. However, the local file excludes transactions within a legal entity. For example,
amounts attributed by an Australian resident entity to its offshore branch would not meet the
"cross border test".
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Australia's adoption of BEPS Multilateral Instrument
• Consultation paper on potential impacts of Australia becoming Party to OECD
Multilateral Convention to Implement Tax Treaty Related Measures to Prevent
Base Erosion and Profit Shifting released.
International Tax
Consultation paper released
Australia's adoption of BEPS Multilateral Instrument – consultation paper
released
The government has released a consultation paper on the potential impacts of Australia becoming a
Party to the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent
Base Erosion and Profit Shifting (the Multilateral Instrument or MLI). The paper poses a number of
consultation focus questions.
The Multilateral Instrument, which was released by the OECD on 24 November 2016, is a
multilateral treaty that will enable jurisdictions to swiftly modify their bilateral tax treaties to implement
measures designed to better address multinational tax avoidance. These measures were developed
as part of the OECD/G20 BEPS project.
The paper notes that although the Australian government is yet to make a final decision on adopting
the MLI, signing and adopting it to the widest possible extent possible "would be consistent with
Australia's strong track record on tackling multinational tax avoidance".
Adopting jurisdictions will be required to identify which of their bilateral tax treaties they want the MLI
to apply to and modify. By omission, jurisdictions can exclude particular treaties from the scope of
the MLI. While some of the MLI articles are mandatory, most are optional. Jurisdictions can, for
example, choose to adopt the minimum standards only, or they can choose to also adopt some, or
all, of the optional articles.
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The initial approaches outlined in the paper have been formulated using the following principles:
Apply the MLI to all bilateral tax treaties that do not already incorporate BEPS rules
(which would exclude the 2015 German treaty - which incorporates most of the BEPS treaty-
related measures).
Adopt the minimum standards and as many optional MLI articles as possible. Broad
adoption of the MLI articles would enable the full range of tax integrity measures
recommended under the BEPS Action Plan to be applied across Australia's tax treaty
network (subject to the agreement of the relevant treaty partner).
Make limited use of the MLI reservation system. Australia might consider entering a
reservation if Australia's existing treaty practice already meets or exceeds the new standard,
or it is necessary to avoid any significant unintended impacts. For instance, it would be
appropriate to enter a reservation if adopting the MLI article could create technical difficulties
or if adopting the MLI article would inadvertently override existing integrity provisions that
Australia should retain.
Unlike an amending DTA Protocol which directly amends the text of the existing bilateral treaty, the
MLI sits side by side with, and modifies the existing bilateral treaty provisions to create new
(modified) provisions.
At the time of signing and ratifying, jurisdictions will lodge their choices with the Depository (the
OECD). By comparing the relevant Party's sets of choices, stakeholders will be able to identify the
affected treaties and provisions and the specific MLI articles that each jurisdiction has chosen to
adopt. Where these match, the MLI will modify the relevant bilateral clauses. The paper notes that
this will potentially increase the complexity of interpreting modified treaties. If adopted, the ATO
expects to develop guidance.
Australia's approach to various MLI Articles
Australia's approach to some of the MLI articles is noted below.
MLI Article 3 (Transparent entities) corresponds to and implements BEPS Action 2 on hybrid
mismatches and BEPS Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate
Circumstances). The paper says Article 3 is consistent with Australia's preferred treaty practice of
including provisions in its bilateral treaties to ensure that treaty benefits are available for income
derived by or through fiscally transparent entities (FTEs) (see, for example, Article 1(2) of the 2015
Australia-Germany treaty). On this basis, Australia's initial approach would be to adopt Article 3 of
the MLI across all of its covered tax agreements and possibly enter the reservation permi tted by
Article 3(5)(d) ie Adopt Article 3 but not for treaties that already have a detailed FTE provision.
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MLI Article 4 (Dual resident entities) implements recommendations outlined in the BEPS Action 6.
Australia's treaty practice has varied (with most of Australia's bilateral treaties prescribing the POEM
as the determinative test) but has not previously permitted the Competent Authorities (CAs) to
decide on the extent of treaty benefits to be granted if the CAs are unable to agree on a single
jurisdiction of residence. The paper says that, as adopting the expanded criteria will generally
improve the integrity of the current tie-breaker rules, Australia's initial approach would be to adopt
Article 4 across all of its covered tax agreements (CTAs) and enter the reservation permitted by
Article 4(3)(e) ie adopt Article 4 but exclude the rule that allows the CAs to allow treaty benefits in
the absence of reaching an agreement on the country of residence of the entity. In such cases,
treaty benefits would be denied.
MLI Article 5 (Application of methods for elimination of double taxation) implements
recommendations outlined in the BEPS Action 2 (Neutralising the Effects of Hybrid Mismatch
Arrangements). All of Australia's treaties apply the "credit method" for relieving double taxation for
Australian residents. On this basis, the paper says Australia's initial approach would be to not adopt
Article 5 and also not to prevent other Parties from applying their chosen options.
MLI Article 6 (Purpose of a Covered Tax agreement) implements BEPS Action 6. Article 6 is
consistent with Australia's view that the object and purpose of tax treaties is to eliminate double
taxation without facilitating double non-taxation or tax avoidance or evasion. The 2015 Australia-
Germany treaty includes both the new and additional preamble text. On this basis, Australia's
preliminary approach would be to adopt Article 6 across all of its covered tax agreements, including
the additional preamble text.
MLI Article 7 (Prevention of treaty abuse) implements BEPS Action 6. Article 7 would modify
jurisdictions' bilateral treaties to include a general anti-avoidance rule (the Principal Purpose Test
(PPT)) and a supplementary (and optional) rule - the Simplified Limitation on Benefits rule (S-LOB
rule). The PPT is consistent with Australia's preferred treaty practice of including provisions in its
bilateral treaties that deny treaty benefits where a main purpose of a transaction or arrangement is
to obtain a treaty benefit (see, for example, Article 10(9) of the 2009 Australia-New Zealand treaty).
Article 23 of the 2015 Australia-Germany treaty includes the PPT rule but not the optional PPT
consultation rule. On this basis, Australia's initial approach would be to adopt the PPT, but not the
optional PPT consultation rule, in Article 7 across all of its covered tax agreements. In addition,
Australia would not wish to adopt the S-LOB in relation to treaties that already contain a detailed
LOB rule (for example, the 2008 Australia-Japan treaty). However, Australia would not need to enter
the reservation permitted by Article 7(15)(c) unless Australia chooses to apply Article 7(7)(a) or (b).
MLI Article 8 (Dividend transfer transactions) implements BEPS Action 6. A number of Australia's
tax treaties already include holding periods to access the concessional rates (see the 2015
Australia-Germany treaty which includes a 12-month holding period for the nil rate for non-portfolio
intercorporate dividends and a 6-month holding period for the 5% rate for non-portfolio
intercorporate dividends). The existing 12-month holding period provisions require that the period be
satisfied at the time the dividend is declared whereas the MLI provides that the 365 day period
includes the day of the payment of the dividends (and therefore the holding period does not have to
be in advance of the dividend payment date). Australia's initial approach would be to adopt Article 8
without reservation across all of its covered tax agreements. This would standardise the holding
period rules for non-portfolio intercorporate dividends in Australia's treaties.
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Likely date of effect for Australia
In Australia's case, the MLI would need to be legislated and then formally ratified. As a result, if
adopted, it is expected that the MLI could potentially take effect in Australia from 1 January 2019 (for
rules relating to withholding taxes) and 1 July 2019 (for rules relating to other taxes), subject to its
ratification by Australia's treaty partners. It is expected that some jurisdictions will take longer to
complete their domestic processes than others and that as a result the date of effect for different
treaties is likely to be staggered.
Comments
Comments are due by 6 February 2017.
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OECD releases further BEPS guidance
• OECD releases:
‒ Key details of jurisdictions' domestic legal frameworks for CbC reporting
‒ Additional interpretative guidance on CbC reporting standard
• If notice to tax administrator required to identify reporting entity within MNE
Group, notification due date can be extended (particularly relevant in
transition period).
International Tax
Country-by-Country reporting
OECD releases further BEPS guidance on Country-by-Country reporting
The OECD has released two new documents and guidance to support the global implementation of
Country-by-Country (CbC) reporting (BEPS Action 13):
Key details of jurisdictions' domestic legal frameworks for CbC reporting; and
Additional interpretive guidance on the CbC reporting standard.
The OECD also released a database containing information on CbC reporting implementation by
various countries to date.
These documents provide essential information that will give certainty to tax administrations and
MNE Groups alike on implementation of CbC reporting.
Parent surrogate filings
The 5 December guidance adds China, Hong Kong, and Nigeria to the countries that intend to have
parent surrogate filing available for fiscal periods that begin on or from 1 January 2016. The previous
12 October guidance listed the following countries that will allow parent surrogate filings for
2016: Japan; Liechtenstein; Russia; Switzerland; US.
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The final BEPS Action 13 report recommended that countries implement a legal requirement for CbC
reporting with respect to MNEs' fiscal periods commencing on or after 1 January 2016. Where
jurisdictions will not be able to implement CbC reporting with respect to the fiscal period
commencing from 1 January 2016, this gives rise to a transition issue. In these situations,
jurisdictions may be able to accommodate voluntary filing for Ultimate Parent Entities resident in
their jurisdiction. This would allow the Ultimate Parent Entities of an MNE Group resident in those
jurisdictions to voluntarily file their CbC report for the fiscal period commencing on or from
1 January 2016 in their jurisdiction of tax residence. This is referred to as "parent surrogate filing."
Where surrogate filing (including parent surrogate filing) is available, there are no local filing
obligations for the particular MNE in any jurisdiction which otherwise would require local filing in
which the MNE has a Constituent Entity (referred to as the Local Jurisdiction), under the following
conditions:
The Ultimate Parent Entity has made available a CbC report conforming to the requirements
of the final Action 13 report to the tax authority of its jurisdiction of tax residence by the filing
deadline (ie 12 months after the last day of the Reporting Fiscal Year of the MNE Group).
By the first filing deadline of the CbC report, the jurisdiction of tax residence of the Ultimate
Parent Entity must have its laws in place to require CbC reporting (even if filing of a CbC
report for the Reporting Fiscal Year in question is not required under those laws).
CbC Reporting Notifications
The 5 December guidance also includes a new section on CbC reporting notification requirements,
which addresses whether countries can still meet the BEPS Action 13 minimum standard on CbC
reporting by extending the notification deadline for fiscal year 2016. The guidance says that
countries can extend the notification deadline because MNE groups may not know which entity
should be the appropriate CbC reporting entity by 31 December 2016.
The model CbC reporting legislation included in the final BEPS Action 13 report does not provide a
specific CbC reporting notification deadline for fiscal year 2016, and countries may extend the 2016
deadline to another date, such as the deadline for filing corporate tax returns.
CbC Reporting Database
The CbC reporting database released on 5 December 2016 lists implementation information for
various countries:
Whether the country has primary CbC reporting law in effect.
Whether the country has secondary CbC reporting law in effect.
First fiscal year for CbC reporting rules in effect.
Whether local CbC reporting filings are required, and if so, the first fiscal year for which they
are required.
Whether the country allows surrogate CbC reporting filings.
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Whether the country allows parent surrogate filings (countries listed above, as of 5
December).
The 12 October 2016 guidance says that the OECD intends to also include information in the CbC
reporting database on agreements for each country that allow for exchang e of CbC report
information. One option is exchange of CbC information via the OECD Multilateral Competent
Authority Agreement for the automatic exchange of CbC reports ("CbC MCAA"). Under the CbC
MCAA, signatories may exchange CbC reports with other signatories if they have CbC reporting
requirements in place and are a party to the OECD Convention on Mutual Administrative Assistance
in Tax Matters.
Among other things, the CbC MCAA provides that CbC report information will be used to assess
high-level transfer pricing and other BEPS-related risks, but not as a substitute for a detailed transfer
pricing analysis of individual transactions and prices based on a full functional analysis and full
comparability analysis. The information may be used as a basis for further inquiring into the
multinational's transfer pricing arrangements in the course of a tax audit. If an adjustment resulting
from further inquiries based on the CbC report leads to undesirable economic outcomes, the tax
authorities of the jurisdictions of residence of the affected entities must consult each other in
attempting to resolve the case.
Other
The details on jurisdictions' legal frameworks for CbC reporting include the status of the legislation,
first reporting periods, availability of surrogate filing and voluntary filing, and whether local filing can
be required. The OECD said this will be updated as Inclusive Framework members continue to
finalise their legal frameworks. Information will also be published in the coming months as to the
Qualifying Competent Authority Agreements (QCAA) being put in place to facilitate the international
exchange of CbC reports between tax administrations.
The additional guidance relates to the case where a notification to the tax administration may be
required to identify the reporting entity within a MNE Group (as provided in Article 3 of the Model
Legislation in the BEPS Action 13 Report). The guidance confirms that if such notifications are
required, jurisdictions have flexibility as to the due date for such notifications. This may be
particularly relevant during the transition period where jurisdictions are still completing their
implementation of CbC reporting, as MNE Groups may not yet have the necessary information to
submit their notifications. The guidance also confirms that jurisdictions may wish to consider other
transitional relief for MNE Groups with respect to these notifications, which would also be consistent
with the minimum standard.
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Interaction between tax treaty provisions of BEPS Action 6
report and treaty entitlement of non-CIV funds
• Discussion draft released by OECD
• Three draft examples on follow-up work on interaction between:
‒ Treaty provisions of BEPS Action 6 report
‒ Treaty entitlement of non-CIV funds.
International Tax
Interaction between tax treaty provisions of BEPS Action 6 report and
treaty entitlement of non-CIV funds
The OECD has released for comment a discussion draft containing draft examples on the follow-up
work on the interaction between the treaty provisions of the report on BEPS Action 6 and the treaty
entitlement of non-CIV funds.
Paragraph 14 of the final version of the BEPS report on Action 6 (Preventing the Granting of Treaty
Benefits in Inappropriate Circumstances) indicated that the OECD would continue to examine issues
related to the treaty entitlement of non-CIV funds to ensure that the new treaty provisions included in
the Report on Action 6 address adequately the treaty entitlement of these funds.
As part of the follow-up work on this issue, on 24 March 2016, the OECD published a consultation
document on the treaty entitlement of non-CIV funds which included a number of specific questions
related to concerns, identified in the comments received on previous discussion drafts related to the
Report on Action 6, as to how the new provisions included in that Report could affect the treaty
entitlement of non-CIV funds as well as possible ways of addressing these concerns. The comments
received in response to that consultation document were published on the OECD websi te on 22
April 2016.
The discussion draft now released has been prepared to provide stakeholders with information on
the subsequent developments in the work on the interaction between the treaty provisions of the
report on BEPS Action 6 and the treaty entitlement of non-CIV funds, including the conclusions
reached at the May 2016 meeting of Working Party 1 and the subsequent work on the development
of examples related to the application of the principal purposes test (PPT) rule included in the Report
on Action 6 with respect to some common transactions involving non-CIV funds. The discussion
draft invites comments on three draft examples under consideration by the Working Party for
inclusion in the Commentary on the PPT rule.
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The three draft examples in the discussion draft cover:
Regional investment platform – RCo operates as a regional investment platform. A decision
to establish the regional investment platform in State R was mainly driven by factors such as
the availability of directors with knowledge of regional business practices and regulations, the
existence of a skilled multilingual workforce, State R’s membership of a regional grouping.
Under the DTA between State R and State S, the withholding tax rate on dividends is
reduced from 30% to 5%. The draft example concludes that it would not be reasonable to
deny the benefit of the State R-State S tax convention to RCo.
Securitisation company – RCo, a securitisation company resident of State R, was
established by a bank which sold to RCo a portfolio of loans and other receivables owed by
debtors located in a number of jurisdictions. In establishing RCo, the bank took into account
a large number of issues, including State R's robust securitisation framework, its
securitisation and other relevant legislation, the availability of skilled and experienced
personnel and support services in State R and the existence of tax benefits provided under
State R's extensive tax convention network. The draft example concludes that it would not be
reasonable to deny the benefit of the State R-State S tax convention to RCo.
Immovable property non-CIV fund – the draft says that, in this example, whilst the decision
to locate RCo in State R is taken in light of the existence of benefits under the tax
conventions between State R and the States within the specific geographic area targeted for
investment, it is clear that RCo's immovable property investments are made for commercial
purposes consistent with the investment mandate of the fund. It concludes that it would not
be reasonable to deny the benefit of the tax treaties between RCo and the States in which
RCo's immovable property investments are located.
Comments
Comments are due by 3 February 2017.
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More than 1,300 bilateral relationships now in place across the
globe re CRS
• Over 1,300 bilateral relationships now in place, most based on CRS MCAA
• List of automatic exchange relationships on OECD's Automatic Exchange
Portal.
International Tax
More than 1,300 bilateral relationships now in place across the globe re
CRS
The OECD has advised that on 22 December 2016, another important step to implement the OECD
Common Reporting Standard (CRS) was taken, with a further 350 bilateral automatic exchange
relationships being established between over 50 jurisdictions committed to exchanging information
automatically pursuant to the CRS, starting in 2017.
The OECD says there are now more than 1,300 bilateral rela tionships in place across the globe,
most of them based on the Multilateral Competent Authority Agreement on Automatic Exchange of
Financial Account Information (the CRS MCAA). The full list of automatic exchange relationships
that are currently in place under the CRS MCAA and other legal instruments can be accessed on the
OECD's Automatic Exchange Portal. That list includes Australia which bilateral exchange
relationships in place with 41 countries. With respect to the jurisdictions exchanging as of 2017,
1,133 out of the 1,459 possible bilateral exchange relationships are now established. The 326 non
activated exchange relationships are mainly due to the fact that six jurisdictions were not yet in a
position to provide a full set of notifications.
Two more rounds of activations are scheduled to take place in March and June 2017 which will allow
the remaining 2017 and 2018 jurisdictions to nominate the partners with which they will undertake
automatic exchanges in the coming months. The OECD says the next update on the latest bilateral
exchange relationships will be published before the end of March 2017, with updates to follow on a
periodic basis. In total, 101 jurisdictions have agreed to start automatically exchanging financial
account information in September 2017 and 2018, under the CRS.
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Revised Australia-Germany DTA
• Replaces 1972 DTA
• Several BEPS recommended treaty provisions form part of new minimum
standards on treaty shopping and effective mutual agreement procedures
• Takes effect in Australia from: 1 January 2017 – withholding taxes; 1 April
2017 – FBT; 1 July 2017 – income tax.
International Tax
Entry into force on 7 December 2016
Revised Australia-Germany DTA enters into force
The Minister for Revenue has announced that Australia-Germany double tax agreement (DTA)
entered into force. It replaces the 1972 DTA between the 2 countries. The DTA was given the force
of law in Australia by the International Tax Agreements Amendment Bill 2016 which passed all
stages without amendment and received Royal Assent on 20 October 2016 as Act No 64 of 2016.
Dividends, interest and royalties may generally be taxed in both countries, but there are limits on the
tax that the country in which they are sourced may charge on such income flowing to residents of
the other country who are the beneficial owners of the income. Those tax limitations range fro m 0%
to 15% for dividends, 10% for interest, and 5% for royalties.
Several of the BEPS recommended treaty provisions form part of the new minimum standards in the
DTA on treaty shopping (intended to put an end to the use of conduit companies to channel
investments) and effective mutual agreement procedures (intended to ensure that the fight against
double non-taxation does not result in double taxation) to which OECD and G20 countries have
committed.
The DTA includes the treaty provisions which form part of the minimum standards for protecting
against treaty shopping (included in the BEPS Action 6 2015 Final Report) and ensuring effective
mutual agreement procedures (included in the Action 14 2015 Final Report), as well as many of the
other treaty provisions recommended in the 2015 BEPS Final Reports on Actions 2 (Neutralising the
Effects of Hybrid Mismatch Arrangements), 6 (Preventing the Granting of Treaty Benefits in
Inappropriate Circumstances), 7 (Preventing the Artificial Avoidance of Permanent Establishment
Status) and 14 (Making Dispute Resolution Mechanisms More Effective).
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Date of effect
The DTA takes effect in Australia as follows:
In respect of withholding tax on income that is derived by a non-resident, in relation to
income derived on or after 1 January 2017;
In respect of FBT, in relation to fringe benefits provided on or after 1 April 2017;
In respect of other Australian tax, in relation to income, profits or gains of any year of income
beginning on or after 1 July 2017.
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Loans v "shams" - Payments from overseas company
• FCT wins appeal from decision that $3.8m in payments from foreign company
to Australian subsidiary and other related companies were genuine loans
• Lenders owned by company controlled by Vanda Gould
• Majority held that primary judge’s conclusion – that agreements were shams
for limited purpose of convincing third parties that borrowers were at arm’s
length from lenders – not open on facts.
International Tax
FCT v Normandy Finance and Investments Asia Pty Ltd [2016] FCAFC 180
FCT wins appeal: taxpayer failed onus of proving payments "loans"
FCT v Normandy Finance and Investments Asia Pty Ltd & Ors [2016] FCAFC 180
In a majority decision, the Full Federal Court has allowed the FCT's appeal and found that it was not
open to the judge at first instance to find that payments of around $4m made from a foreign
company to its Australian subsidiary and other related companies were genuine loans (and not
"shams"). In particular, the majority found it was not appropriate to find that the taxpayers had
discharged the onus of proving that assessments were excessive in circumstances where the
taxpayers had made inconsistent (or "alternative") arguments about the nature of the payments: FCT
v Normandy Finance and Investments Asia Pty Ltd & Ors [2016] FCAFC 180 (Full Federal Court,
Logan, Jagot and Davies JJ, 16 December 2016).
Background
The case involved assessments and amended assessments made to several taxpayer companies
covering the 1994 to 2009 income years n which the Commissioner claimed that payments from
several overseas companies (ie Normandy Finance and Investments Asia Ltd, Normandy Finance
and Investments Limited and Hua Wang Bank Berhad) to the taxpayers were not loans, but "sham"
transactions. Mr Henry George Townsing was the directing mind and will of each of these taxpayer
companies, and the "lender" companies were owned by a company controlled by Mr Vanda Gould.
The Commissioner assessed the taxpayers on the basis that the payments were shams and that the
amounts were ordinary income of the taxpayers and assessable under s 6-5 of the ITAA 1997, while
Normandy Finance claimed that some $3.8m it received from Normandy Asia was by way of loans or
financing.
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At first instance, in Normandy Finance Pty Ltd v FCT [2015] FCA, the Federal Court held that the
payments were genuine loans, and not "shams". It did so on the basis of finding that while the
written agreements were shams or largely shams, this sham was only implemented for the limited
purpose of making third parties believe that the borrowers were at arm's length from the lenders.
However, otherwise, the Court at first instance found that the advance and repayment obligat ions
(whether in the loan agreements or from some oral agreement) were "genuine".
On appeal, the FCT argued that it was not open to the primary judge to make this finding as it was
contrary to the case the taxpayers had put for the purpose of discharging their onus of proving that
the assessments were excessive. In particular, the FCT claimed that the Court at first instance could
not find that the payments were "loans" when the taxpayers had inconsistently argued that, on one
hand, the loans were "wholly genuine" while on the other (their "alternative" argument) the loans
involved at least some pretence for the limited purpose of making third parties believe that the
borrowers were at arm's length from the lenders.
Note also that following the decision of the Court at first instance, Edmonds J, sitting as a
Presidential Member of the AAT also ordered that a number of the assessments of income tax and
penalty tax issued to the relevant parties should be accordingly reduced. (See Re Pilmora Pty Ltd as
Trustee of the Townsing Family Trust and FCT[2015] AATA 976 , AAT, Edmonds J, File Nos
2013/6548-6552, 2013/6560-6562, 2013/6563-6571, 2013/6572-6580, 2013/6581, 2013/6582,
2014/3353-3354, 17 December 2015).
Decision
The Full Federal Court majority agreed with the FCT that it was not open to the Court at first
instance to make the finding that the loans were genuine as it was "impermissible for the primary
judge to determine the case on a basis inconsistent" with the manner in which the taxpayers had
argued the matter – namely, that on one hand the loans were genuine but on the other hand, they
were shams for a different purpose (ie for the purposes of their "alternative" case).
In short, the majority found that by arguing its case in this manner, it "necessarily meant that only
one outcome was open – the taxpayers had not discharged their onus of proof that the assessments
were excessive because they had not proved the moneys advanced were loans".
Specifically, the majority considered the conclusion of the Court at first instance was "not only
inconsistent with the evidence of the directing mind and will of the borrowers, but was incapable of
any form of rational reconciliation with that evidence". Furthermore, the majority said it was a
conclusion "made in circumstances where all of the lenders had been cross-examined on the basis
of a different case before the alternative case was first raised by the primary judge (which may not
be fatal of itself, given that their evidence was of marginal significance), but also where the evidence
of the key witness, Mr Townsing, precluded any possibility of the credibility of the alternative case
being explored in cross-examination (which is fatal in and of itself, given that Mr Townsing was the
directing mind and will of the taxpayers)".
Logan J, in dissent, was of the view there was no basis for disturbing the conclusions reached by the
Court at first instance, and at the same time rejected the Commissioner's contention that the primary
judge delivered inadequate reasons.
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However, in relation to dealings between Normandy Asia and Normandy Australia involving loans,
the majority accepted that it would have been open to the primary judge, on the case which the
taxpayers ran, to conclude that the taxpayers had discharged their burden of proof with respect to
the dealings between Normandy Asia and Normandy Australia involving loans. The majority
considered that this aspect of the appeal "must be remitted for further hearing and cannot be dealt
with as part of the appeal".
Note also that in light of its decision, the majority of the Full Federal Court also ordered the setting
aside of the accompanying decisions originally made by Edmonds J (sitting as a Presidential
Member of the AAT) in which he had ruled that a number of related assessments issued to the
parties be reduced. (See Re Pilmora Pty Ltd as Trustee of the Townsing Family Trust and FCT
[2015] AATA 976.)
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
ATO compliance approach to transfer pricing issues related to
marketing and other hubs – Guideline released
• Guideline to help businesses manage compliance risk associated with
offshore hubs
• Businesses can self-assess transfer pricing outcomes using ATO's hub risk
framework
• Date of effect: 1 January 2017 – applicable to new and existing hubs.
International Tax
Practical Compliance Guideline PCG 2017/1
ATO compliance approach to transfer pricing issues related to marketing
and other hubs – Guideline released
The ATO has released Practical Compliance Guideline PCG 2017/1 ATO compliance approach to
transfer pricing issues related to centralised operating models involving procurement, marketing,
sales and distribution functions.
The ATO on 16 January 2017 released Practical Compliance Guideline PCG 2017/1 - ATO
compliance approach to transfer pricing issues related to centralised operating models involvin g
procurement, marketing, sales and distribution functions. This final PCG contains changes from its
draft form that was released in August 2016.
The Guideline sets out the ATO’s compliance approach to transfer pricing issues related to the
location and relocation of certain business activities and operating risks into a centralised operating
model (referred to as “hubs”). The type of activities commonly centralised include marketing, sales
and distribution functions although centralised operating models are not necessarily limited to these
functions.
The ATO says it understands that the overall structure of hubs, the transactions that flow in and out
and the diversity and sophistication of a hub’s dealings contribute to increased complexity and
higher costs for tax compliance. It says the Guideline is designed to help businesses manage the
compliance risk and therefore the compliance costs associated with their hub.
At this stage, a risk benchmark has been included for offshore marketing hubs only. The ATO says it
is intended that risk benchmarks will be added for other types of hubs at a later stage.
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Structure of Guideline
The Guideline is structured as follows:
Part A sets out the general indicators and principles of the hub risk framework. These
principles are relevant to all types of offshore hubs and apply to both outbound and inbound
goods and commodity flows;
Part B provides guidance to assist businesses when preparing their transfer pricing analysis if
they are outside the so-called “green zone” (ie low risk) – a business will be in the green
zone if either: (i) hub profit is less than or equal to 100% mark-up of hub costs: or (ii) full
attribution of hub profit; and
Schedules attached to the Guideline set out specific indicators relevant to particular types of
hubs.
The ATO says a business can use the framework set out in the Guideline to:
Assess the compliance risk of the transfer pricing outcomes of its hubs in accordance with the
ATO’s risk framework;
Understand the compliance approach the ATO will likely adopt having regard to the risk profile
of the businesses’ hub;
Work with the ATO to mitigate the transfer pricing risk in relation to the hub and be confident
the business has reduced its risk exposure; and
Understand the type of analysis and evidence the ATO would require when testing the
outcomes of the hub.
Risk zones
The Guideline provides a self-assessment risk framework that allows businesses to assess their
transfer pricing outcomes using the ATO’s risk framework. The hub risk framework is made up of six
risk zones:
White zone – self-assessment of risk rating unnecessary (see below);
Green zone – low risk – hub profit less than 100% mark-up of hub costs;
Blue zone – low to moderate risk – hub profit is greater than 100% mark-up of hub costs; net
tax impact below $5 million per annum;
Yellow zone – moderate to high risk – hub profit is greater than 100% mark-up of hub costs;
net tax impact between $5 million and $50 million per annum;
Amber zone – high risk – hub profit is greater than 100% mark-up of hub costs; net tax
impact above $50 million per annum; and
Red zone – very high risk – hub profit is greater than 100% mark-up of hub costs; unable/or
choose not to (i) apply risk methodology, or (ii) calculate tax impact.
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A business works out its risk rating for its hub having regard to a number of factors including pricing
indicators, possible tax at risk and the quality of its transfer pricing documentation.
The ATO says an offshore marketing hub will be assessed as being in the green zone if it satisfies
the low risk benchmark. The low risk benchmark is based on the cost plus methodology (the “cost
plus indicator”). The “cost plus” indicator is less than or equal to 100% mark -up of hub costs. [The
draft guidance referred to a second indicator of low risk, ie the “commercial realism” indicator (that
the profit outcomes of the hub are commercially realistic), but that is not mentioned in PCG 2017/1.]
In certain circumstances, the ATO says a business does not need to self -assess the risk rating of its
hub. Generally speaking, this will be the case where the ATO has already reviewed the hub and the
transfer pricing outcomes have been agreed, are considered low risk or are otherwise resolved.
More specifically, it will not be necessary to self-assess the risk rating of a hub if in relation to the
hub, one of the following applies:
The business has an Advance Pricing Arrangement (APA) that applies to the current year, or
There is a settlement agreement between the business and the ATO that applies to the current
year, or
A court decision was handed down within the last two years dealing with the transfer pricing
outcomes of the hub, or
The ATO has conducted a review of the hub in the last two years and provided the business
with a “low risk” rating,
and
There has not been a material change in pricing, comparability factors and/or the functions, assets
and risks of the hub since the period reflected in the agreement, decision or review.
The ATO says its engagement with a business will be tailored having regard to its hub’s risk rating.
Risk and ATO compliance activity
The Guideline says there is no presumption that because a hub is outside the low risk zone that the
transfer pricing outcomes for the business are incorrect, but rather, it means that the ATO con siders
that the business is at risk of obtaining a transfer pricing benefit and therefore the ATO may conduct
further compliance activity to test the outcomes of the hub. In these circumstances, the ATO
suggests businesses should ensure they have transfer pricing documentation and supporting
evidence commensurate to the risk profile of their hub . As a general proposition, the ATO says the
higher the risk rating, the more detailed and comprehensive the ATO would expect the transfer
pricing documentation and supporting evidence to be.
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Pricing hub arrangements
The ATO says the transfer pricing methods used in the risk framework in the Guideline are for risk
assessment purposes only and there is no requirement that a business use these methodologies
when pricing its hub arrangements. Consistent with the OECD Transfer Pricing Guidelines for
Multinational Enterprises and Tax Administrations 2010 , the ATO says when a business prices its
arrangements, it should use the transfer pricing methodology (or combination of methodologies) that
is most appropriate and reliable for its circumstances. The Guideline warns that if a hub is subject to
further ATO review, the business can expect the ATO will test the actual pricing outcomes of its
arrangement and will apply the “most appropriate transfer pricing methodology for its particular
circumstances” (which may be different from the methodologies used as the risk benchmarks in the
Guideline). The ATO says it is not limited by this risk framework when testing the actual condit ions
and pricing of the hub.
ATO compliance approach – Guideline not a “safe harbour”
The ATO says it intends to concentrate its efforts on international related party dealings “that pose
the highest risk of not complying with the transfer pricing rules”.
The Guideline identifies and describes the features and attributes (scenarios) of hubs that are
considered by the ATO as low risk of not complying with the transfer pricing rules. Following the
Guideline does not limit or waive the operation of the law, bu t the ATO says it “acknowledges that
should you choose to follow the Guideline and align your hub, or your hub already aligns, with the
specific low risk indicators set out in this Guideline and associated schedules, then we will generally
not allocate compliance resources to examine the transfer pricing outcomes of your hub”.
Factors and issues ATO will consider in reviewing hubs
In reviewing a hub, the ATO says it will consider a range of issues, eg:
What are the arm’s length commercial and financial rela tions with respect to the particular hub
arrangement?
In arrangements between independent parties dealing wholly independently, how is the pricing
determined, say on a cargo-by-cargo basis for marketing hubs, or on a product by product
basis for procurement hubs?
What is the economic substance and commercial purpose of a separate and/or centralised hub
(that is, an entity separated from the principal production entity or the manufacturer as a user
of hub procured goods)?
What evidence is there to substantiate that key decision making is occurring in the hub?
Where functions have been transferred from Australia to an offshore hub, what is the evidence
that those functions are no longer physically performed in Australia?
What is the evidence that supports which risks are economically significant to the value chain?
What is the nature of the risk borne in substance by the hub?
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What evidence is there to substantiate the cost and consequence of the risk, together with the
ability of the hub to control or manage as well as bear the financial consequences of the risk?
Based on the analysis of the legal form and the economic substance, does the profit accruing
in the hub reflect the true economic contribution made by this part of the global business?
If there is evidence of “market conduct” that resembles the structure of the arrangement
between the associated enterprises, is there other evidence that demonstrates the profit
outcomes are appropriate in the specific circumstances of the associated enterprises?
When profits in the hub are measured, can they be reconciled with reference to profit
outcomes observed in other similar independent entities with reference to a range of profit
level indicators (that is, those based on sales; operating costs; operating assets)?
Current transfer pricing compliance hotspots
The Guideline also provides background of some areas of dispute between taxpayers and the ATO
that have arisen in some (but not all) cases. The ATO has included this information to assist
businesses to understand possible areas of difference when dealing with the ATO and to enable
them to make informed choices and decisions. The ATO cites issues that arose from cases related
to offshore marketing hub arrangements in the energy and resource sector, noting that they could be
informative for other types of hubs and industries. They include:
Use of third party commission rates. The ATO’s concern has been the absence of
supporting information – in particular, information that addresses the OECD “factors
determining comparability” – to establish the market indicators relied upon by taxpayers as
representing reliable CUP information.
Testing transfer prices – using alternative profit level indicators. In certain scenarios, the
ATO has found that the results implied by a taxpayer’s transfer pricing method vary
significantly depending on which profit level indicator is applied.
Failure to revisit the price setting mechanism in response to significant changes in the
external environment.
ATO offers amnesty re penalties and inte rest
The FCT says he recognises that the publication of the Guideline may cause taxpayers to review
their hubs with the effect that some taxpayers may adjust the pricing of their hub dealings going
forward to come within the green zone.
If taxpayers have an existing arrangement and they intend to adjust their pricing to move within the
green zone going forward, the ATO says the FCT is willing to resolve the “back years” in a “co -
operative and practical manner”.
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In recognition that this is the first time the FCT has publicly released guidance in relation to hubs and
to encourage willing and co-operative compliance going forward, the FCT, for a limited time, is
willing to remit penalties and interest if certain pre-conditions are met. Specifically, the
Commissioner undertakes that if a taxpayer makes a voluntary disclosure in relation to the back
years and adjust its pricing to come within the green zone, the FCT will exercise his discretion to
remit:
Penalties arising under Div 284 of Sch 1 of the TAA to nil; and
Shortfall interest charges arising under Div 280 of Sch 1 of the TAA to base rate.
The ATO says this undertaking is conditional on:
The taxpayer’s hub having commercial and economic substance and not otherwise coming
within the exceptions in para 19 of PCG 2017/1. Paragraph 19 says the Guideline is
premised on the basis that the taxpayer’s hub has commercial and economic substance. The
comments and guidance provided by Taxation Ruling TR 2014/6 ( Income tax: transfer pricing
- the application of s 815-130 of the ITAA 1997) are of assistance in this regard. In particular,
para 19 says taxpayers should pay close attention to whether any of the exceptions to the
basic rule apply to their circumstances and consider adjusting their arrangement as
appropriate (refer to paras 44 to 61 of TR 2014/6). [Note that para 20 of the Guideline says
that if the arrangement “is one that independent entities would not have entered into or one
that would have been entered on different commercial or financial relations, then this
Guideline will not apply to your circumstances”.]; and
The taxpayer making a full and true disclosure of the arm’s length conditions based on the
commercial or financial relations in connection with which the actual conditions of its
arrangement operate.
In recognition of the complexity of these arrangements, the FCT’s undertaking will remain in place
for 12 months from the date of publication of the relevant schedule in the Guideline ie until 16
January 2018.
Date of effect
The Guideline has effect from 1 January 2017 and applies to existing and newly created hubs. The
schedules will have effect from the date of effect stated in each schedule. The ATO says the use
and application of the Guideline will be under continuous review over the next three year s.
19/01/2016
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© Chartered Accountants Australia + New Zealand 2017
Re Wilson and FCT [2017] AATA 119
• In 2010-11, electrician sub-contracted to US Army
• Worked in Afghanistan for 4 months
• Claimed earnings exempt under s 23AF ITAA 1936
• Key issue: did taxpayer work on “approved project”?
• AAT said no:
– Although it was eligible project, not approved in writing by Minister (as required
by s 23AF(11)).
Overseas income not exempt
International Tax
Overseas income not exempt
Re Wilson and FCT
Income earned by a taxpayer working for the US Army in Afghanistan has been held by the AAT not
to be exempt under s 23AF of the ITAA 1936.
The taxpayer was an electrician and mechanic who, during the 2010-11 income year, was
subcontracted by his American employer to work for the US Army in Afghanistan. He travelled there
on at least four occasions, including for one period of at least four months. He had a role in "outside
plant construction" that was a critical part of the future power distribution network.
The taxpayer claimed that his 2010-11 earnings were exempt from income tax under s 23AF. That
section exempts personal services income (including salary and wages) that is attributable to a
period of qualifying service on an "approved project". The period must be continuous for 91 days or
more.
An "approved project" is an "eligible project" which the Trade Minister, being satisfied that the project
is or will be in the national interest, has approved in writing. There are various categories of "eligible
project", including for (a) the design, supply or installation of any equipment or facilities, (b) the
construction of works or (c) the development of an urban or regional area.
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The AAT decided that the s 23AF exemption did not apply because the taxpayer had not worked on
an approved project. Although the particular project satisfied both (a) and (b) of the definition of
eligible project, it was not an approved project. This was because the Trade Minister (or their
delegate) had not approved the project in writing for the purposes of s 23AF. In this context, the AAT
pointed out that although the Trade Minister has a discretion whether to approve an eligible project,
the approval must be in writing.
The AAT also commented that there was no evidence indicating the Trade Minister (or their
delegate) considered the project the taxpayer worked on to be in the national interest.
Re Wilson and FCT [2017] AATA 119, AAT, Ref No 2016/3489, Tavoularis SM, 1 February 2017
9/02/2017
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TAX CONTROVERSY
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Diverting personal services income to an SMSF
• TA 2016/6 (issued in April 2016) warns about arrangements to divert PSI to
SMSF to avoid paying tax at personal marginal rates
• ATO’s voluntary disclosure offer (to remit penalties) extended to 30 April
2017.
Tax Controversy
ATO extends voluntary disclosure offer
Personal services income diverted to SMSFs: ATO offer to remit
penalties extended
The ATO's offer to remit penalties in relation to arrangements involving the diversion of personal
services income to SMSFs has been extended from 31 January to 30 April 2017.
Since April 2016, the ATO has been reviewing arrangements where individuals purport to divert
personal services income (PSI) to a SMSF. The arrangements, described in Taxpayer Ale rt TA
2016/6, involve individuals (typically SMSF members at or approaching retirement age) performing
services for a client but do not directly receive any (or adequate) consideration for the services.
Instead, the client remits the consideration for the services to a company, trust or other non-
individual entity. That entity then distributes the income to the individual's SMSF, purportedly as a
return on an investment in the entity (including an unrelated third party). The SMSF treats the
income as subject to concessional tax (15%) or as exempt current pension income.
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Other variations of the arrangement include the income being remitted by the entity to the SMSF via
a written or oral agreement between the entity and SMSF, instead of as a return on an investment.
The SMSF may also record the income from multiple entities or through a chain of entities.
Alternatively, the entity may distribute the income to more than one SMSF of which the individual or
associates are members.
ATO view
The FCT considers that such arrangements may be ineffective at alienating income such that it
remains the assessable income of the individual under s 6-5 of the ITAA 1997 or as PSI. The ATO
also warns that the amounts received by the SMSF may constitute non-arm's length income of the
SMSF under s 295-550 of the ITAA 1997 (taxable at 47%).
Other compliance issues include:
The amounts received by the SMSF may be a contribution and generate excess contributions
tax consequences for the individual; and
Superannuation regulatory issues - the arrangement may breach the sole purpose test under
s 62 of the SIS Act. Such breaches of the SIS Act may lead to the SMSF being made non-
complying or the disqualification of an individual as a trustee.
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ATO offer to remit penalties extended to 30 April 2017
The ATO has now extended the due date to contact it in relation to TA 2016/6 from 31 January to
30 April 2017. With all the superannuation changes taking place, including the super reforms
legislated in November 2016 and review of non-arm's length LRBAs (due by 31 January 2017), the
ATO has acknowledged that people may not have had sufficient time to consider its voluntary
disclosure offer.
Individuals and trustees who are not currently subject to ATO compliance action, and who come
forward before 30 April 2017, will have administrative penalties remitted in full. However, shortfall
interest charges still apply.
Where individuals and trustees come forward to work with it to resolve issues, the ATO anticipates
that in most cases the PSI distributed to the SMSF by the non-individual entity would be taxed to the
individual at their marginal tax rate. The ATO says issues affecting the SMSF will be addressed on a
case-by-case basis, but it will take the individual's co-operation into account when determining the
final outcome.
3/02/2017
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Re-characterisation of income from trading businesses
• ATO reviewing arrangements where trading company divided in contrived way
to re-characterise trading income as passive income
• Income artificially diverted into trust – no tax or lower rate than corporate tax
rate paid on distribution
• Arrangements typically involve stapled structures, are promoted to overseas
investors
• Pt IVA may apply.
Tax Controversy
Taxpayer Alert TA 2017/1
Re-characterisation of income from trading businesses
The ATO on 31 January 2017 released Taxpayer Alert TA 2017/1 - Re-characterisation of income
from trading businesses.
The ATO said it is reviewing arrangements that attempt to fragment integrated trading businesses in
order to re-characterise trading income into more favourably taxed passive income. Its concern
arises where a single business is divided in a contrived way into separate businesses. The income
that might be expected to be subject to company tax is artificially diverted into a trust where, on
distribution from the trust, that income is ultimately subject to no tax or a lesser rate than the
corporate rate of tax. Stapled structures are one mechanism being used in these arrangements, but
the ATO said its concerns are not limited to arrangements involving stapled structures.
The ATO said it is engaging more closely with taxpayers who have proposed these arrangements to
explore the issues of concern and ensure that arrangements of the type outlined in the Alert do not
seek to avoid the payment of corporate tax. Taxpayers and advisors who implement these types of
arrangements will be subject to increased scrutiny. The ATO said it is continuing to develop its
technical position on these arrangements and expects to issue further guidance in respect of its
concerns.
3/02/2017
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© Chartered Accountants Australia + New Zealand 2017
Taxpayer Alerts TA 2017/2 and TA 2017/3
• ATO and AusIndustry reviewing arrangements where R&D tax offset claimed
for:
– Building and construction activities (TA 2017/2)
– Ordinary business activities (TA 2017/3).
R&D claims in building and construction industry
Tax Controversy
R&D claims in building and construction industry – ATO Taxpayer Alerts
warn of issues of concern
The ATO and the Department of Industry, Innovation and Science (DIIS) have released two new
Taxpayer Alerts - TA 2017/2 (Claiming the R&D Tax Incentive for construction activities) and TA
2017/3 (Claiming the R&D Tax Incentive for ordinary business activities) - as a warning to those not
being careful enough in their claims or seeking to deliberately exploit the R&D Tax Incentive
program.
The R&D tax incentive encourages companies to engage in R&D benefiting Australia, by providing a
tax offset for eligible R&D activities. ATO DCT Michael Cranston said the Alerts relate to particular
issues identified in the building and construction industry where specifically excluded expenditure is
being claimed as R&D expenses. The alerts provide clarification for a wide range of businesses who
had been incorrectly claiming ordinary business activities against the R&D tax incentive.
The Alerts are designed to clarify what can and cannot be claimed, and help businesses to avoid
mistakes such as ordinary business activities being self-assessed as R&D activities, Mr Cranston
said. He said that while "most do the right thing, we are seeing some businesses in these industries
and their advisors improperly applying for the tax incentive where the activities and expenditure
claimed don't match with legislative requirements".
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For example, Mr Cranston said the ATO has seen an increase in claims for ordinary business
activity expenses, or for large parts of projects that do not correspond to the scale or scope of
experimental activities. Ordinary business activities are not generally carried out with a purpose of
generating new knowledge. He said the ATO often sees issues including claims that encompass
whole of projects (where project, management, environmental and commercial risks are mistaken for
technical risks) and where the activities use existing knowledge and expertise.
Mr Cranston warned that the ATO is undertaking "a range of compliance activities to address
businesses and advisors deliberately doing the wrong thing and will take legal action ag ainst those
who wilfully misuse the R&D Tax Incentive".
TA 2017/2
TA 2017/2 deals with claiming the R&D Tax Incentive for construction activities. The Alert says the
arrangements under review concern claimants of the R&D Tax Incentive who are involved in either:
acquiring buildings, or extensions, alterations or improvements thereto (the acquirer); or whose
business it is to construct, extend, alter or improve buildings (the builder).
These types of arrangements exhibit a number of features, including:
A contract is entered into between the acquirer and the builder to construct, extend, alter or
improve a building or buildings (construction).
The contract is a standard construction contract and is not for the provision of R&D services
and does not specify that R&D will be carried out by the builder.
The acquirer or the builder registers one or more activities associated with the construction of
the building for the R&D Tax Incentive, identifying the structure or construction techniques as
purportedly involving untested or novel elements.
Some or all of the activities registered are broadly described and non-specific. For example,
whole construction projects may be registered rather than the specific activities which are
being undertaken.
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TA 2017/3
TA 2017/3 deals with claiming the R&D Tax Incentive for ordinary business activities. The ATO says
the types of arrangements under review exhibit some or all of the following features:
A company registers one or more activities for the R&D Tax Incentive.
Some or all of the activities registered are broadly described and non-specific. For example,
projects may be registered instead of the specific activities undertaken.
Some or all of the activities registered are ordinary business activities that are not eligible for
the R&D Tax Incentive.
Some or all of the activities were undertaken in the course of their ordinary business activities
and recharacterised as R&D activities at a later time.
The company claims the R&D Tax Incentive for expenditure that is not on eligible R&D
activities.
The ATO says it has observed a number of cases where the company's ineligible ordinary business
activities have not been distinguished from any eligible R&D activities. It also observed that often,
some of the expenses included in the calculation of the R&D Tax Incentive claim are not for amounts
that relate to eligible R&D activities, eg ordinary production costs of products sold to the market in
the ordinary course of business.
The ATO says it will be contacting companies directly to advise them of its concerns with their
registered activities and/or their R&D Tax Incentive claims if:
"Advisors who may apply high risk practices" are involved in the preparation of the
registration application and/or claim.
The registration of R&D activities continues with the use of broad descriptions that fail to
distinguish them from ordinary operational business activities.
The level of expenditure claimed for the R&D Tax Incentive is high for the industry or stage of
business.
9/02/2017
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STATE TAXES
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NSW duty: not so happy days
• Property bought by private company as custody trustee for SMSF
• Bank insisted that non-trading company be custodian
• Purchase completed when property transferred to new company
• Late substitution of custody trustee exposed SMSF to double duty (on
contract of sale & transfer)
• Exemption didn’t apply as transferee didn’t exist when contract made.
State Taxes
Happy Days Property Pty Ltd v CSR [2016] NSWCATAD 289
NSW duty: not so happy days
Happy Days Property Pty Ltd v Chief Comr of State Revenue [2016] NSWCATAD 289
The late substitution of a custody trustee has exposed an SMSF to double duty on its acquisition of
a property: Happy Days Property Pty Ltd v Chief Comr of State Revenue [2016] NSWCATAD 289
(NSW Civil and Administrative Tribunal, N S Isenberg SM), 8 December 2016.
Background
On 17 March 2015, FP Transitions Pty Ltd ("Transitions") entered into a contract (the Contract) to
purchase a property at Mosman for $610,000. It was intended that Transitions would be the "custody
trustee", ie it would hold the property in trust for Happy Days Management Pty Ltd (HDM) which was
the trustee of a self-managed super fund for Mr Anthony Dickin.
However, the bank financing the purchase rejected Transitions (of which Mr Dickin was sole director,
secretary and shareholder) as custody trustee, insisting that a non-trading corporate entity act as
custodian. On 7 April 2015, Happy Days Property Pty Ltd (HDP) was registered and appointed as
custodian.
On 28 April 2015, the purchase of the property was completed in accordance with an undated Real
Property Act transfer (the Transfer).
On 30 April 2015, the Contract was stamped with duty of $22,940 and the Transfer was stamped at
$10 on a concessional basis under s 18(3) of the Duties Act 1997.
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On 15 July 2015, the Office of State Revenue advised that it had concluded that s 18(3) did not
apply and that it had reassessed duty on the Transfer as being payable on an ad valorem basis (ie
another $22,940).
Decision
The key issue before the NSW Civil and Administrative Tribunal was whether the Transfer qualified
for s 18(3) relief from double duty applicable in circumstances where a transfer of property is not
made in conformity with the contract for the sale of the property (in this case the "non-conformity"
being the substitution of HDP for Transitions). In particular, s 18(3) requires that, when the
agreement was entered into and at settlement, the purchaser and the transferee are related
persons.
The Tribunal found that, as HDP did not exist at the time the agreement was entered into
(17 March 2015) and there was no evidence or submission that HDP could, prior to coming into
existence, be related to Transitions, s 18(3) could not be satisfied.
12/01/2017
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TAX REFORM
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Extending AML/CTF regime to accountants, lawyers etc
• A-G's Department consulting on regulatory models for accountants, lawyers
etc under Anti-Money Laundering and Counter-Terrorism Financing Act 2006
• Five sector-specific consultation papers released for comment.
Tax Reform
A-G consultation
Extending AML / CTF regime to accountants, lawyers, etc
A-G consultation
The Federal Attorney-General's Department has advised it is conducting a consultation on
regulatory models for lawyers, conveyancers, accountants, high-value dealers, real estate agents,
trust and company service providers under the Anti-Money Laundering and Counter-Terrorism
Financing Act 2006 (AML/CTF Act).
The Department has released five sector-specific consultation papers for comment. They cover
accountants, high-value dealers, legal practitioners and conveyancers, real estate professionals,
and trust and company service providers.
The purpose of the consultation paper dealing with accountants is to obtain feedback about options
for regulating accountants under the AML/CTF regime. The consultation paper says the regulation of
accountants under the AML/CTF regime would deliver a number of benefits. These include
spreading the regulatory burden associated with combating ML/TF, closing a regulatory and
intelligence gap, enhancing national security, and enhancing the reputation of the Australian
financial system.
The paper says the AML/CTF regulation of accountants would also further enhance the profession's
awareness of ML/TF risks and harden the sector against criminal exploitation. According to the
paper, accountants are vulnerable to risk and misuse for ML/TF purposes because many are likely
to be unaware that their services are being exploited by criminals to establish opaque business
structures and conduct transactions that disguise and launder proceeds of crime. AML/CTF
obligations would prompt accountants to fully consider and better understand the identity of their
Tax Update February 2017
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client, the source of funds used by a client for a transaction and the nature of the intended business
relationship with the client.
The paper says an obligation to conduct customer due diligence (CDD) would assist accounting
professionals to identify "red flags" that may be early indicators of criminality or potential misconduct.
Red flags can relate to the client, the source of the client's funds and the choice of accountant.
These indicators, the paper says, should not automatically be considered as a basis for a suspicion
of ML/TF, as a client may be able to provide a reasonable explanation for the circumstances
surrounding the way in which a transaction is being conducted. However, where there are a number
of indicators, it is more likely that an accountant should have a suspicion that ML or TF (and the
underlying predicate crimes) is occurring. For example, the legal structure of the client company has
been altered numerous times, the activities of the company are unclear, and the company is seeking
or engaging in transactions that involve sending funds to a country with weak AML/CTF regulation. If
an accountant is aware of ML/TF risks but does not conduct sufficient CDD, the accountant will not
be able to meaningfully identify these indicators or conduct an appropriate assessment of the extent
to which the client exposes the business or practice to ML/TF risks.
Comments
Submissions are due by 31 January 2017.
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© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017
MYEFO flags changes
• Tax announcements made:
‒ ATO to give Credit Reporting Bureaus info on businesses with > $10,000
tax debts – 1 July 2017
‒ No franking credits if special dividend funded by capital raising activities
that result in issue of new equity interests – 19 December 2016
‒ Penalty unit increase from $180 to $210 – 1 July 2017.
Tax Reform
2016-17 Mid-Year Economic and Fiscal Outlook released
MYEFO flags changes re franking credit distributions, chasing tax debts,
etc
The Treasurer has released the 2016-17 Mid-Year Economic and Fiscal Outlook (MYEFO). He said
it confirms that the Budget is projected to return to balance in 2020-21. Mr Morrison said the
underlying cash deficit is now expected to narrow from $36.5 billion or 2.1% of GDP in 2016 -17
(down on the $37.1 billion reported in the Budget and PEFO) down to $10 .0 billion (0.5% of GDP) in
2019-20. He said that since PEFO (the 2016 Pre election Economic and Fiscal Outlook), the total
effect of parameter and other variations – but not policy decisions – has been to negatively impact
the Budget by $12.8 billion. This includes a $30.5 billion downward revision of revenue, driven
principally by weaker wage and profits growth and weaker collections, offset by $16.5 billion in
reduced payment estimates.
Looking ahead, MYEFO announced:
Tax debts and credit reports: From 1 July 2017, the government will allow the ATO to
disclose to Credit Reporting Bureaus the tax debt information of businesses "that have not
effectively engaged with the ATO to manage these debts". The ATO does not currently
provide this information. This measure will initially only apply to businesses with ABNs and
tax debt of more than $10,000 that is at least 90 days overdue.
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Copyright © 2017 Chartered Accountants Australia and New Zealand 173
Franking credit distributions: The government will introduce a specific measure preventing
the distribution of franking credits where a distribution to shareholders is funded by particular
capital raising activities. The measure will apply to distributions declared by a company to its
shareholders outside or additional to the company's normal dividend cycle (a special
dividend), to the extent it is funded directly or indirectly by capital raising activities which
result in the issue of new equity interests. Examples of capital raising activities include an
underwritten dividend reinvestment plan, a placement or an underwritten rights issue. Where
such arrangements are entered into, the corporation will be prevented from attaching
franking credits to shareholder distributions. This measure is intended to address the issues
raised in Taxpayer Alert TA 2015/2: Franked distributions funded by raising capital to release
credits to shareholders. Date of effect: This measure will apply to distributions made after
12:00pm (AEDT) on 19 December 2016.
Penalty unit: The government will increase the value of the Commonwealth penalty unit from
$180 to $210, with effect from 1 July 2017. The value will be indexed every 3 years in line
with the CPI with the first indexation occurring on 1 July 2020 (this will supersede the
indexation arrangements announced in the 2015-16 Budget).
ASIC: Following an evaluation process, the government has decided not to proceed with the
commercialisation of the ASIC Registry functions given final bids received did not deliver a
net financial benefit for the Commonwealth.
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Income products for retirement
• Discussion paper on developing framework for “MyRetirement products”
released
• Views sought on structure of retirement income products, framework for
regulating products.
Tax Reform
Government releases discussion paper
Income products for retirement – Govt releases discussion paper
The government has released for public consultation a discussion paper that explores the key issues
in developing a framework for Comprehensive Income Products for Retirement, or MyRetirement
products. Views are sought from interested stakeholders, in particular on:
The structure and minimum requirements of these products;
The framework for regulating these products; and
The offering of these products.
In its response to the Financial System Inquiry, the government agreed to support the development
of more efficient retirement income products and to facilitate trustees offering these products to
members. These products were labelled by the Inquiry as "Comprehensive Income Products for
Retirement", or CIPRs; however, the government proposes to use "MyRetirement products" as a
more consumer-friendly and meaningful label.
The MyRetirement framework is intended to increase individuals' standard o f living in retirement,
increase the range of retirement income products available, and empower trustees to provide
members with an easier transition into retirement. Through this framework, the government is aiming
to increase the efficiency of the superannuation system so it can better achieve the proposed
objective of superannuation, which is to provide income in retirement to substitute or supplement the
Age Pension.
COMMENTS are due by 28 April 2017.
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