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Chartered Accountants Tax Bulletin Edition 11 - 2 April 2007
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Edition 11/2007
2 April 2007
    HEADLINES
  1. Harmonisation of payroll tax
  2. Government amendments to Tax Laws Amendment (2006 Measures No. 7) Bill 2006
  3. Non-forestry agribusiness and forestry managed investment schemes (MIS) - ATO transitional arrangements and exposure draft released
  4. Board of Taxation consultation on the application of the self assessment principles across all federal taxes


    5. INSTITUTE NEWS
  5. Small Business Alignment Second Round Consultation
  6. ATO Division 7A Working Party meeting
  7. Confidential Consultation on Family Trust Elections
  8. NTLG-FBT Subcommittee meeting - call for agenda items
  9. Joint submission on draft determination


    10. CASES
  10. Shares distributed to Hewlett-Packard shareholder an assessable dividend - Condell v Commissioner of Taxation of the Commonwealth of Australia [2007] FCAFC 44 (28 March 2007)
  11. Part IVA applies to viticulture investment scheme - Iddles v Commissioner of Taxation [2007] FCA 395 (23 March 2007)


    12. RULINGS
  12. Taxation Determinations
  13. Draft Taxation Determination
  14. Class Rulings
  15. Product Rulings
  16. Sales Tax Rulings - Withdrawals
  17. Wine Equalisation Tax Ruling - Addendum
  18. ATO Interpretative Decisions


    19. LEGISLATION
  19. Legislation update
  20. Legislative instruments


    21. ATO PUBLICATIONS

  21. Recent ATO publications


    22. OTHER NEWS
  22. ATO releases discussion paper on section 974-80
  23. Deputy Commissioner discusses super simplification measures
  24. Commissioner on compliance with legal and ethical standards
  25. Treasurer calls for abolition of inefficient state taxes
  26. ATO releases more decision impact statements
  27. ATO warning on email scam offering tax refund
TRAINING AND DEVELOPMENT

YOUR INPUT


HEADLINES

1. Harmonisation of payroll tax

On 29 March 2007, the State and Territory Treasurers agreed to simplify and harmonise the payroll tax legislation across the country. The new payroll tax arrangements will see the various States and Territories adopting common provisions and definitions for a number of matters including timing of lodgment, motor vehicle allowances, accommodation allowances, a range of fringe benefits and employee share acquisition schemes. However, the States and Territories will retain control over individual rates and thresholds. The standardisation of the payroll tax legislation will allow taxpayers to approach their payroll tax compliance with confidence.

The Institute recommended the standardisation of payroll tax legislation in its indirect taxes policy paper released in May 2005. Whilst the proposed payroll tax reform addresses part of our recommendation, we will continue to monitor developments in this area. A copy of the policy paper is available on the Institute website.

For more information on the payroll tax reform, see the joint media release.
Top

2. Government amendments to Tax Laws Amendment (2006 Measures No. 7) Bill 2006

Government amendments to delete Schedule 2 of the Tax Laws Amendment (2006 Measures No. 7) Bill 2006 were agreed to by the House of Representatives on 29 March 2007. Schedule 2 of the Bill contains changes to the interest withholding tax exemption in sections 128F and 128FA of the Income Tax Assessment Act 1936.

The amendments are consistent with the Institute's submission made to the Senate inquiry on 16 February 2007. A copy of the submission is available on the Institute website.

The Bill now awaits Royal Assent.
Top

3. Non-forestry agribusiness and forestry managed investment schemes (MIS) - ATO transitional arrangements and exposure draft released

On 27 March 2007, the Commissioner announced the following transitional arrangements for the ATO's reconsidered view of the tax treatment of agribusiness MIS:
  • The reconsidered view will apply to arrangements entered into from 1 July 2008
  • Product rulings will not be issued for investments in agribusiness MIS after 30 June 2008. If a test case is finalised prior to 30 June 2008 and confirms the ATO's view, product rulings will not issue past the date of the decision
  • A draft tax ruling outlining the reconsidered view will issue mid April
  • Investments in agribusiness MIS that are covered by existing product rulings will not be affected by the draft ruling.
For a copy of the Commissioner's media release, go here.

The Minister for Revenue and Assistant Treasurer welcomes the ATO's transitional arrangements, which will give industry time to consider their financial arrangements and plan for the future and allow sufficient time for the ATO's view to be tested in the courts.

A copy of the Minister's press release is available via this link.

On 27 March 2007, the exposure draft legislation for the proposed statutory deduction for investments in forestry MIS was released. The Government is still considering the removal of impediments to secondary markets for forestry MIS interests.

The exposure draft legislation is available via this link.
Top

4. Board of Taxation consultation on the application of the self assessment principles across all federal taxes

On 27 March 2007, the Minister for Revenue and Assistant Treasurer announced that he has asked the Board of Taxation to commence public consultation in the first half of 2007 on applying consistent self assessment principles across all federal taxes (including goods and services tax).

A copy of the Minister's press release is available here.
Top

INSTITUTE NEWS

5. Small Business Alignment Second Round Consultation

Treasury has given the Institute a brief opportunity to comment on the revised draft legislation (Tax Laws Amendment (Small Business) Bill 2007) and draft explanatory memorandum containing the small business alignment of thresholds measures. A copy of the revised draft legislation is here and the draft explanatory memorandum can be accessed via this link.

Treasury has also provided a summary of the key themes that were raised during the consultation process and has outlined the way in which the comments received have been incorporated into the revised draft legislation. The summary of the key themes can be viewed here.

We note that Treasury has incorporated the majority of the comments that the Institute made in its submission on the first version of the draft legislation, in the revised draft legislation. A copy of this submission can be viewed on the Institute website.

If you wish to make any comments on the revised draft legislation or the draft explanatory memorandum, please email your comments to Tax Group by COB Tuesday 3 April 2007.
Top

6. ATO Division 7A Working Party meeting

On 26 March 2007, Ali Noroozi and Karen Liew of the Institute, and Alexis Kokkinos (Deloitte), on behalf of the Institute, attended the ATO Division 7A Working Party meeting in Melbourne. The purpose of this meeting was to consult with Treasury in relation to the confidential draft legislative amendments to Division 7A. The confidential consultation with Treasury is continuing.
Top

7. Confidential Consultation on Family Trust Elections

Following the ATO Division 7A Working Party meeting, Ali Noroozi and Alexis Kokkinos met with Treasury to discuss issues arising from the confidential consultation on the proposed family trust election changes.
Top

8. NTLG-FBT Subcommittee meeting - call for agenda items

The next NTLG-FBT Subcommittee meeting is on 10 May 2007. Agenda items are due to be submitted to the ATO by 26 April 2007. If members have any issues that they would like the Institute to consider raising at the next meeting, please send them to Tax Group by COB 18 April 2007.
Top

9. Joint submission on a draft determination

The Institute has lodged a joint submission, available on the Institute website, on the following draft determination:

TD 2007/D2 - Income Tax: can the attribution regime relating to controlled foreign companies apply to an Australian entity that is a member of a foreign company limited by guarantee?
Top

CASES

10. Shares distributed to Hewlett-Packard shareholder an assessable dividend - Condell v Commissioner of Taxation of the Commonwealth of Australia [2007] FCAFC 44 (28 March 2007)

The majority of the Full Federal Court (Kenny & Allsop JJ, Gyles J dissenting) has dismissed the taxpayer's appeal in this case, agreeing with the conclusion of the primary judge that paragraph 44(1)(a) of the Income Tax Assessment Act 1936 was satisfied.

On 2 June 2000, Hewlett-Packard issued shares in Agilent Technologies Inc to its shareholders. This came about from a demerger of Hewlett- Packard where certain parts of its business were 'spun off' to another company, Agilent (which prior to the demerger was a subsidiary of Hewlett-Packard).

There was no issue on appeal about the distribution of shares in specie being a dividend. In agreeing with the primary judge, the majority found that "the relevant question was to understand the source of the distribution of shares" which was done by debiting the retained earnings account (only) of Hewlett-Packard. This meant that the dividend (i.e. the shares in Agilent) was paid entirely out of profits.

The Court found that the market value of shares distributed (which was higher than the amount debited to retained earnings) was irrelevant in terms of ascertaining the nature of the distribution. This was to be considered only from the parent company's perspective.

The taxpayer was provided with funding for this case under the ATO Test Case Litigation Program.
Top

11. Part IVA applies to viticulture investment scheme - Iddles v Commissioner of Taxation [2007] FCA 395 (23 March 2007)

The Federal Court (Besanko J) has dismissed the taxpayer's appeal against the Tribunal's decision that Part IVA applied to disallow deductions in respect of his investment in a viticulture project. Despite the taxpayer's arguments that he had a discernable commercial purpose for entering into the scheme, the Court determined that this did not preclude its finding that the dominant purpose of the taxpayer in entering into the scheme was to obtain a tax benefit. That was to be determined solely by reference to paragraphs 177D(b)(i) to (viii) of the Income Tax Assessment Act 1936.
Top

RULINGS

12. Taxation Determinations

The ATO has issued the following Taxation Determinations:

TD 2007/3 - Income tax: is a deduction allowable to complying superannuation funds, under section 279 of the Income Tax Assessment Act 1936, for insurance premiums attributable to the provision of benefits for members in the event of temporary disability longer than two years?
Not previously issued as draft

TD 2007/4 - Income tax: capital gains tax: is a 'policy of insurance on the life of an individual' in section 118-300 of the Income Tax Assessment Act 1997 limited to a life insurance policy within the common law meaning of that expression?
This ruling was released in draft form as TD 2006/D36

The joint submission lodged by the Institute and various other professional bodies on the draft determination and the ATO's response to the submission are available on the Institute website.

TD 2007/6 - Fringe benefits tax: for the purposes of section 28 of the Fringe Benefits Tax Assessment Act 1986 what are the indexation factors for valuing non-remote housing for the fringe benefits tax year commencing on 1 April 2007?
Not previously issued as draft

TD 2007/7 - Fringe benefits tax: for the purposes of section 135C of the Fringe Benefits Tax Assessment Act 1986, what is the exemption threshold for the fringe benefits tax year commencing on 1 April 2007?
Not previously issued as draft

TD 2007/8 - Fringe benefits tax: what are the rates to be applied on a cents per kilometre basis for calculating the taxable value of a fringe benefit arising from the private use of a motor vehicle other than a car for the fringe benefits tax year commencing on 1 April 2007?
Not previously issued as draft

TD 2007/9 - Fringe benefits tax: for the purposes of Division 7 of Part III of the Fringe Benefits Tax Assessment Act 1986, what amount represents a reasonable food component of a living-away-from-home allowance for expatriate employees for the fringe benefits tax year commencing on 1 April 2007?
Not previously issued as draft

TD 2007/10 - Fringe benefits tax: what is the benchmark interest rate to be used for the fringe benefits tax year commencing on 1 April 2007?
Not previously issued as draft

Withdrawal

TD 98/27W - Withdrawal - Income tax: is a deduction allowable to complying superannuation funds under section 279 of the Income Tax Assessment Act 1936, for insurance premiums attributable to the provision of benefits for members in the event of temporary disability longer than two years?
Top

13. Draft Taxation Determination

The ATO has issued the following Draft Taxation Determination:

TD 2007/D3 - Income tax: can a share in a company be a convertible interest by satisfying item 4 of the table in subsection 974-75(1) of the Income Tax Assessment Act 1997?

The Institute will be preparing or co-ordinating the preparation of a submission to the ATO in respect of this Draft Taxation Determination. If you have any comments please e-mail them to us at Tax Group by 17 April 2007.
Top

14. Class Rulings

The ATO has released the following Class Rulings:

CR 2007/22 - Income tax: return of capital: Incremental Petroleum Ltd

CR 2007/23 - Income tax: assessable income: umpires and referees: Warwick Leisure Centre receipts
Top

15. Product Rulings

The ATO has released the following Product Rulings:

PR 2007/20 - Income tax: ING Life Limited - OneCare Policy - Life Cover, Total and Permanent Disability Cover and/or Trauma Cover

PR 2007/24 - Income tax: Great Southern 2007 Diversified Olives Income Project - 2007 Growers

PR 2007/25 - Income tax: Kiri Park Project No. 2 - NCL

PR 2007/26 - Income tax: deductibility of interest incurred on borrowings in relation to the Macquarie Fusion Funds - June 2007 Offer

PR 2007/27 - Income tax: Great Southern Plantations 2007 Project

Withdrawals

PR 2006/115W - Withdrawal - Income tax: Future Films Australia: 'Stranger'

PR 2006/116W - Withdrawal - Income tax: Future Films Australia: 'The Boys are Back in Town'
Top

16. Sales Tax Rulings - Withdrawals

The ATO has withdrawn the following Rulings:

ST 2198W - Notice of Withdrawal - Sales tax: solar panels

ST 2200W - Notice of Withdrawal - Sales tax: herbal teas and tea alternatives

ST 2201W - Notice of Withdrawal - Sales tax: firelighters

ST 2202W - Notice of Withdrawal - Sales tax: imported horses

ST 2203W - Notice of Withdrawal - Sales tax: biscuits

ST 2204W - Notice of Withdrawal - Sales tax: abrasive pastes and powders

ST 2205W - Notice of Withdrawal - Sales tax: video tapes, pre-recorded and blank

ST 2206W - Notice of Withdrawal - Sales tax: water heating equipment

ST 2207W - Notice of Withdrawal - Sales tax: overseas travel literature

ST 2208W - Notice of Withdrawal - Sales tax: dredging equipment

ST 2209W - Notice of Withdrawal - Sales tax: Nail-Safe

ST 2210W - Notice of Withdrawal - Sales tax: classification of supplements, enclosures and inserts in newspapers

ST 2212W - Notice of Withdrawal - Sales tax: planter hooks and brackets and picture hooks

ST 2213W - Notice of Withdrawal - Sales tax: birdseed

ST 2214W - Notice of Withdrawal - Sales tax: precious and semi-precious stones

ST 2215W - Notice of Withdrawal - Sales tax: cleaning cloths made from synthetic material

ST 2216W - Notice of Withdrawal - Sales tax: table cloths, table napkins and table mats made from synthetic material

ST 2217W - Notice of Withdrawal - Sales tax: computers used in the mining industry

ST 2218W - Notice of Withdrawal - Sales tax: evaporative air coolers

ST 2219W - Notice of Withdrawal - Sales tax: satellite earth stations: domestic satellite receiving equipment
Top

17. Wine Equalisation Tax Ruling - Addendum

The ATO has withdrawn the following addendum to a ruling:

WETR 2006/1A - Addendum - Wine equalisation tax: the operation of the producer rebate for producers of wine in New Zealand
Top

18. ATO Interpretative Decisions

The ATO has released the following ATO Interpretative Decisions:

ATO ID 2007/60 - Capital Gains Tax: exemption for non-resident beneficiary of trust

ATO ID 2007/61 - Excise: licence conditions in relation to notification of change of trustee for a trust

ATO ID 2007/62 - PSO and a change to an item in the table in subregulation 4(1) within a claim period

ATO ID 2007/63 - Consolidations: Foreign Branch Transactions - single entity rule
Top

LEGISLATION

19. Legislation update

The following bills were introduced into the House of Representatives on 29 March 2007:
  • Tax Laws Amendment (2007 Measures No. 2) Bill 2007

    This Bill covers effective life changes for mining, quarrying and prospecting rights, deductions for boating activities, expenditu