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1. Family trusts amendment measures Update
On 26 August, the Senate Standing Committee on Economics tabled a report on its inquiry into the Tax Laws Amendment (2008 Measures No.4) Bill 2008. The Committee recommended that the Senate passes the Bill which contains three schedules: Schedule 1- Demutualisation of private health insurers, Schedule 2 - Family trusts, and Schedule 3 - Minor.
Members may recall that the Institute has lodged a submission on the proposed changes in Schedule 2 (Family Trusts) of the Bill. Subsequently, Ali Noroozi (Institute’s Tax Counsel) and Julian Cheng (Deloitte), representing the Institute, appeared before the Committee’s hearing on the Bill. The Institute, both in its submission and at the hearing, urged the Government and the Senate respectively not to proceed with the proposed repeal of certain measures relating to family trust elections enacted by the previous Government last year, as reported in Edition 27/2008 and 31/2008 of the Tax Bulletin.
However, the Committee recommended the Senate passes these amendments, saying that although the revenue savings from the lineal descendents amendment is allegedly only a quarter that of Treasury’s estimate, the proposed amendment could potentially realise quite significant cost savings beyond the forward estimates period. The Coalition Senators did not share this view and their dissenting report recommended that the amendments contained in Schedule 2 be opposed.
At the time of writing, the Bill had been passed by the House of Representatives was proceeding to the Senate.
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2. Rights issues, GST refunds and related issues: Senate Committee report tabled
On the same day, the Senate Standing Committee on Economics tabled a report on its inquiry into Schedule 1 (shareholder and unitholder rights) and Schedule 2 (restriction on GST refunds and time limits for recovery and refund of indirect tax) of the Tax Laws Amendment (2008 Measures No.3) Bill 2008.
Members may recall that the Institute had lodged a submission in this regard on 7 July, as reported in Edition 27/2008 of the Tax Bulletin. In its submission, the Institute had recommended that Schedule 1 of the Bill be passed but had also noted that there are a number of other issues arising from the decision in McNeil’s case that could have been dealt with in the Bill to provide certainty to stakeholder. In relation to Schedule 2, the Institute submitted that the Bill and its accompanying Explanatory Memorandum should be amended to correct drafting errors to give a better contextual basis for interpretation prior to the Bill being passed.
In its report, the Committee recommended the Bill be passed. However, on rights issues, the Committee acknowledged the concerns raised and said that the Government should address the concerns of the Institute and other concerned organisations through continuing consultation.
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3. Commissioner of Taxation cautioned taxpayers about GST windfall gains
On 27 August, the Commissioner issued a Taxpayer Alert, TA 2008/17 (refer to item 19), warning taxpayers that the ATO will closely scrutinise GST refund requests which could result in windfall gains not intended by the law. Such a situation arises where GST was paid on a supply that was treated as taxable, but the supply is now contended not to be taxable supply and the taxpayer seeks to obtain a GST refund more than four years after the end of the tax period in which the GST was attributed. After four years, the Commissioner may be unable to recover GST input tax credits previously claimed by the recipient of that supply. This could lead to a windfall gain for the taxpayer and a loss to the revenue if a refund was paid.
The Alert asserts that the Commissioner may exercise his discretion to restrict refunds in these circumstances, and would not to give refunds where the economic burden of the GST was not borne by the taxpayer. Relevant in this respect will be any arrangements with the recipient for the taxpayer to share a percentage of the refund.
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4. Institute participates in consultation on climate change
On 26 and 27 August, the Institute's Tax Counsel, Ali Noroozi, participated in consultative meetings on taxation aspects of the proposed Carbon Pollution Reduction Scheme contained in the Green Paper which was released by the Government on 16 July 2008. Members will recall that the release of the Green Paper was reported in Edition 27/2008 of the Tax Bulletin.
The consultative meetings were conducted by the Department of Treasury with the ATO and Department of Climate Change as well as a number of other external stakeholders also taking part. The main topics of discussions included:
- Should permits be GST free or out of scope
- Income tax timing issues including potential mismatching
- Valuations under the rolling balance method
- Interaction with other regimes such as taxation of financial arrangements
- Tax incentives
Should members require more information in relation to the above, please e-mail us at Tax Group.
Members will recall that the Institute is planning to lodge a submission, with significant assistance from our Tax and Climate Change Sub-committee, on the Green Paper by the due date of 10 September.
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5. Submission on ATO discussion paper on intra-group finance guarantees and loans
On 27 August, the Institute lodged a submission on the ATO discussion paper on intra-group finance guarantees and loans (which was issued on 3 June 2008).
The Institute appreciates the ATO’s continued endeavours to clarify the interaction of the thin capitalisation rules, as set out in Division 820 of the ITAA 1997, with the transfer pricing rules contained in Division 13 of Part III of the ITAA 1936. However, the Institute has, and continues to have (with respect to some matters addressed in our joint submission on TD 2007/D20) significant concerns with the approaches proposed in the discussion paper at the following levels:
- Policy underlying the introduction of the safe harbour rules in the thin capitalisation regime
- Technical / interpretative
- Potential for retrospective application
- Additional compliance cost burden out of proportion to the revenue at risk, and
- Other observations.
These concerns are detailed in the submission.
In terms of next steps, as discussed at the NTLG Transfer Pricing Sub-group meeting on 22 July 2008, the ATO:
- Will create two working groups (including externals) to address the technical and practical issues arising out of the discussion paper; and
- Does not intend to finalise TD 2007/D20 until after an appropriate amount of time has been allowed for consultation on the discussion paper.
The Institute's submission is on the website as is the February joint submission on TD 2007/D20.
The ATO discussion paper is here.
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6. Submission on revised thin capitalisation draft legislation
As reported in Edition 30/2008 of the Tax Bulletin, the Institute has lodged a submission on 5 August, with Treasury on the draft legislation to amend the thin capitalisation regime to accommodate the departure from Australian equivalents to International Financial Reporting Standards (AIFRS). On 26 August, the institute lodged a further submission on the revised draft legislation and the draft explanatory memorandum.
As stated in our submission, the Institute’s most significant concern was in relation to the irrevocable nature of the choice to revalue assets despite the absence of an active market. In this regard, we understand that Treasury acknowledged this concern and that this will be changed in the final version of the legislation.
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7. Joint submission on draft ruling
The Institute has lodged a joint submission, available on the Institute website, on the following draft Goods and Services Tax Ruling:
GSTR 2008/D3 – Goods and services tax: partitioning of land
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8. Fees paid by professional footballers to agent/management company not allowable deductions - Commissioner of Taxation v Spriggs [2008] FCAFC 150 and Commissioner of Taxation v Riddell
The Full Federal Court (Goldberg, Bennett and Edmonds JJ) has allowed the Commissioner’s appeal against the decision of the primary judge who had allowed each of the respondents a deduction under section 8-1(1) of the ITAA 1997 for a fee paid to an agent or management company in the 2005 year.
Both Spriggs and Riddell were professional sportsmen in the Australian Football League (AFL) and National Rugby League (NRL) respectively at the relevant time.
The court found that although the facts in Federal Commissioner of Taxation v Maddalena (1971) 45 ALJR 426 were different, ‘the distinguishing features relied upon by the primary judge did not result in the principles laid down in Maddalena not being applicable in Spriggs and Riddell’.
It was unchallenged that the subject fee in each case was paid for negotiating the employment contracts for the respondents. As such, the outgoing ‘was not incurred in gaining or producing assessable income, in the sense of being incurred ‘in the course of’ deriving the employment income’.
As to the second limb of section 8-1(1), the court stated ‘If, as we believe to be the case, any business carried on by the respondent in the relevant year of income is confined to his non-playing activities, then an outgoing entirely incurred in negotiating and concluding a playing contract of employment, which on the evidence subsumes the whole of the playing activities, is not incurred in the course of carrying on that business’.
The court then queried the status of the proceedings as a ‘test case as to what’, observing that ‘each fee was paid entirely for negotiating the employment contract … In this regard, our conclusion says nothing, nor should it be taken to say anything, about the deductibility of fees paid by professional sportsmen to managers and agents for their services which cannot be so confined’ {at para 51].
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9. Claimed input tax credits on door sales reduced - VCF v Commissioner of Taxation [2008] AATA 731
The applicant was a company engaged in the purchase, processing and sale of scrap metal. Some of the purchases were through door trade, being scrap metal sold to it by individuals. The company became aware that an input tax credit claim could be made for such purchases when it changed tax advisers so claims were made on door sales from 1 July 2000 to 31 October 2002.
Broadly, section 66-5(1) of the GST Act allows input tax credits to be claimed in respect of certain second hand goods for the purposes of sale or exchange in the ordinary course of business. However, section 66-17(2) requires a claimant to record details of the supplier. Where addresses of the individual supplier to VCF were physically checked, it was found that no such addresses existed in some cases and the Tribunal considered whether the applicant knew identity information was false. The Tribunal then concluded that the assessments for the applicant’s claimed tax input credits should be reduced by 5%.
The Tribunal also found that actions of the taxpayer were consistent with it being reckless rather than intentional disregard of the law so that a 50% penalty was appropriate, rather than the 75% imposed by the Commissioner.
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10. No reviewable objection decision - Garrett v Commissioner of Taxation [2008] AATA 749
The Tribunal has dismissed the applicant's application for an extension of time to lodge an application for review on the grounds that the Tribunal had no jurisdiction in the matter.
The applicant’s complaint related to the liabilities of the Andrew Garrett Family Trust detailed in a statement of account. The Tribunal noted that only the penalties for failure to lodge Business Activity Statements could give rise to a right to lodge an objection under section 14ZL and there was no indication that this was the case. The self-assessed GST amounts could not be the subject of an objection nor could the general interest charges. In any event, it was not treated as an objection by the respondent.
The Tribunal concluded that there was no right under section 14ZZ or any other relevant provision of the Taxation Administration Act 1953 to apply to the Tribunal for a review.
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11. Appeals update
Special leave has been dismissed with costs by the High Court in the matter of Colby Corporation Pty Ltd v Commissioner of Taxation [2008] FCAFC 10 which concerned the disallowance of energy grants claimed for purchase of off-road diesel fuel.
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12. Taxation Rulings
TR 2008/5 - Income tax: tax consequences for a company of issuing shares for assets or for services
This ruling was released in draft form as TR 2008/D1
TR 2008/6 - Petroleum resource rent tax and income tax: treatment of geosequestration expenditure and receipts. This ruling was released in draft form as TR 2008/D2
TR 2008/7 - Income tax: royalty withholding tax and the assignment of copyright
This ruling was released in draft form as TR 2007/D5
The joint submissions lodged by the Institute and various other professional bodies on the draft rulings, along with the ATO’s responses, are available on the Institute website.
Withdrawal
TR 94/12 - Income tax: approved early retirement scheme and bona fide redundancy payments
Replaced by TR 2008/D6
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13. Draft Rulings
TR 2008/D6 - Income tax: genuine redundancy payments
TR 2008/D7 - Petroleum resource rent tax: transfer of expenditure incurred in relation to a project that did not have a production licence to other taxable projects of the person or other group companies under sections 45A and 45B of the Petroleum Resource Rent Tax Assessment Act 1987 (PRRTAA) where the expenditure is taken to be incurred by the person under sections 48 and 48A of the PRRTAA
The Institute will be preparing or co-ordinating the preparation of a submission to the ATO in respect of these Draft Tax Rulings. If you have any comments please e-mail them to us at Tax Group by 30 September 2008.
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14. Goods and Services Tax Determination
GSTD 2008/2: Goods and services tax: are supplies of food known as breakfast bars GST free?
This ruling was released in draft form as GSTD 2008/D1
The joint submission lodged by the Institute and various other professional bodies on the draft determination, along with the ATO’s response, is available on the Institute website.
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15. Class Ruling
CR 2008/55 - Fringe benefits tax: employer clients of Auto-Ad Pty Limited whose employees hire cars from Smart Car Rentals Pty Limited
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16. Fuel Tax Ruling – Addendum
FTR 2007/1 - Fuel tax: the meaning of ‘acquire’, ‘manufacture’ and ‘import’ in the expression ‘taxable fuel that you acquire or manufacture in, or import into, Australia to the extent that you do so for use in carrying on your enterprise’ in the Fuel Tax Act 2006
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17. ATO Interpretative Decisions
ATO ID 2008/115 - Eligibility for Tax Offset: R&D tax offset and exempt entity ownership exception
Withdrawals
ATO ID 2004/52 (Withdrawn) - Capital gains tax: Water rights - statutory licence rollover
ATO ID 2006/19 (Withdrawn) - Superannuation deductions and the research and development tax concession
ATO ID 2008/15 (Withdrawn) - Superannuation: deductibility of superannuation contribution made to a director of a corporate trustee
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18. Practice Statements
PS LA 2008/13 - ATO Receivables Policy
PS LA 2008/14 - Software system documentation for record keeping purposes
Withdrawal
PS LA 2006/11 (Withdrawn) - ATO Receivables Policy
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19. Taxpayer Alert
TA 2008/17 - Claims for GST refunds beyond four years arising from the reclassification of a previously taxable supply as GST free.
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20. Legislation update
Luxury Car Tax Bills: Senate Committee report tabled
On 28 August, the Senate Standing Committee on Economics tabled a report on its inquiry into Tax Laws Amendment (Luxury Car Tax) Bill 2008 and related Bills. Members may recall these Bills were introduced to amend the luxury car tax legislation to increase the luxury car tax rate from 25 per cent to 33 percent, with effect from 1 July 2008.
The Committee recommended the Senate to pass the Bill. However, the Coalition Senators recommended the proposed increase from 25 percent to 33 percent be opposed.
Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008: Senate Committee report tabled
On 27 August, the Senate Standing Committee on Economics tabled a report on its inquiry into Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008. Members may recall, this Bill proposes to:
- increase the Medicare levy surcharge threshold for individuals from $50,000 to $100,000;
- increase the Medicare levy surcharge threshold for families from $100,000 to $150,000.
The Committee recommended the Senate passes the Bill. However, Coalition Senators and Green opposed the Bill be passed in the present form.
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21. International Tax Agreements Amendment Bill (No.1) 2008 introduced
The Government has introduced into Parliament International Tax Agreements Amendment Bill (No.1) 2008 on 27 August. This Bill amends the International Tax Agreements Act 1953 to give the force of law in Australia to the Convention between Australia and Japan for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and its associated protocol and exchange of notes, (together referred to as ‘this Convention’) that were signed in Tokyo on 31 January 2008. This Convention will replace the agreement and its protocols signed between the two countries on 20 March 1969.
This Convention will become law from the date of Royal Assent. Further, the Convention will enter into force 30 days after the date of the last notification by diplomatic notes that the domestic processes to give this Convention the force of law in the respective countries have been completed.
The Explanatory Memorandum to the Bill is available here.
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22. Tax Laws Amendment (Political Contributions and Gifts) Bill 2008 introduced
The Government has introduced into Parliament Tax Laws Amendment (Political Contributions and Gifts) Bill 2008 on 27 August. Members may recall that this measure was contained as part of Tax Laws Amendment (2008 Measures No.1) Bill 2008 which was introduced in February this year. However, this measure was rejected by the Senate.
The Bill removes tax deductibility for contributions or gifts to political parties, independent members and independent candidates.
The Explanatory Memorandum to the Bill is available here.
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23. House of Representatives’ draft legislation program – 2008 Spring sittings week 2
The House of Representatives has released its draft legislation program for the period 1 to 4 September. It is expected to resume debate on the following tax related Bills:
- International Tax Agreement Amendment Bill (No.1
) – 3 September
- Tax Laws Amendment (Political Contributions and Gifts) – 4 September
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24. Senate’s draft legislation program – 2008 Spring sittings week 2
The Senate has released its draft legislation program for the period 1 to 4 September and it is expected to resume debate on the following tax related Bills:
- Tax Laws Amendment (2008 Measures No. 3) Bill
– 1 September
- Tax Laws Amendment (Luxury Car Tax) Bill – 1 September
- A New Tax System (Luxury Car Tax Imposition — Excise) Amendment Bill
- A New Tax System (Luxury Car Tax Imposition — Customs) Amendment Bill
- A New Tax System (Luxury Car Tax Imposition — General) Amendment Bill
- Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill – 3 September
- Tax Laws Amendment (2008 Measures No.4) Bill – 3 September
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25. Recent ATO publications
Booklets and publications
TAXAGENT magazine index of articles September 2007 - June 2008 - Index of articles in the TAXAGENT magazines from September 2007 until June 2008.
A pathway to the future - Presentation by Commissioner Michael D'Ascenzo to the ATO Compliance Conference, Sydney, 12 August 2008.
Alumni Network - The Alumni network will build a stronger sense of community between past and present employees as well as strengthen links to the wider community.
eLink 31/08 - Bulletin to inform tax practitioners of the most recent updates to ato.gov.au including a lead article titled 'Compliance program 2008-09'. Issued on 14 August 2008.
Capital Allowance
Capital allowances: effective life review of motor vehicle and motor vehicle parts manufacturing - Information on the Tax Office review of the effective life of the assets used in motor vehicle and motor vehicle part manufacturing.
Capital allowances: effective life reviews currently in progress - This document lists effective life reviews currently being undertaken, the expected date of new determinations, and Tax Office contact details for those interested in participating in the review process.
Administration
How to complete the information return for the period 1 July 2007 to 30 June 2008 - These instructions help you complete the Prescribed private fund information return 1 July 2007 to 30 June 2008. A PDF version of the return form and instructions is provided. NAT 7235-08.2008
Portal maintenance schedule - Scheduled downtime for 2008.
Tax agent technology survey 2008 - The tax agent technology survey 2008 seeks to gain an understanding of whether our products and services meet your needs.
Help for tax agents affected by natural disasters - Natural disasters such as flood, bushfires and drought periodically affect tax agents and their clients across Australia and the Tax Office has a longstanding policy of providing support to those affected.
Pre-filling initiatives - Tax Agent Portal - The pre-filling information has been updated to include current data issues. Tax Office interest amounts and private health insurance information are not available.
Product Ruling
Information required for a product ruling application - Product ruling applicants must complete the attached checklist. This version of the application checklist is current as at 15 August 2008 and supersedes all earlier versions.
Information required for a financial product ruling application - Applicant checklist for financial product ruling applications.
Superannuation
Access to super for members with a terminal medical condition - Information about the legislation allowing tax-free lump sum payments to those with a terminal medical condition.
Completing the Self managed super fund annual return - This information will help you complete the Self managed super fund annual return (NAT 71226).
Super co-contribution calculator - The super co-contribution calculator is a tool to help individuals and the self-employed estimate their co-contribution entitlement and eligibility
Tax-free super for people with a terminal medical condition - Recent changes to legislation mean people diagnosed with a terminal medical condition can now access their super tax-free.
Tax-free super for members with a terminal medical condition – Changes to the taxation of super lump sum payments paid to an individual with a terminal medical condition.
Non-profits
Non-Profit News Service No. 0215 - Tax Office is appealing the decision in Aid/Watch Incorporated - Aug 2008. The Tax Office is appealing the decision in Aid/Watch Incorporated v FC of T handed down in the Administrative Appeals Tribunal on 28 July 2008.
Tax aspects of incorporating a non-profit organisation - If you are considering incorporating your non-profit organisation, the document Tax aspects of incorporating your business provides useful information on the tax consequences of incorporation.
Non-Profit News Service No. 0214 - Compliance Program 2008-09 released - Aug 2008. On 13 August, Tax Commissioner Michael D'Ascenzo released the Compliance program 2008-09.The compliance program contains a non-profit organisations chapter that outlines the key priorities and activities for the non-profit market segment.
Non-Profit News Service No. 0213 - Tax Office is not appealing the decision in Victorian Women Lawyers Association - Aug 2008. The Tax Office is not appealing the charitable institution decision in the case of Victorian Women Lawyers Association Inc.
GST
TA 2008/17 - Claims for GST refunds beyond four years arising from the reclassification of a previously taxable supply as GST free - This Taxpayer Alert describes a situation where a taxpayer seeks to claim a refund four years or more after the end of a tax period on the basis that they incorrectly classified a supply as a taxable supply and they now contend it is GST free.
GST tips for non-profit organisations - This guide is designed to provide non-profit organisations, charities and gift-deductible entities with information to help them meet their GST obligations.
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Chartered Accountants Buying and Selling a Business
Throughout September in Sydney and Melbourne. Minimise risk and optimise the benefit for your business or your clients with this 3 hour seminar on Buying & Selling a Business.
Chartered Accountants Tax Seminars for Practice
Seminar one - GST, CGT and Income Tax for Property Transactions
Seminar two - Buying and Selling a Business
Throughout September in Brisbane, Adelaide and Perth. Attend one seminar or both with GST, CGT and Income Tax for Property Transactions and Buying & Selling a Business scheduled on the same day for your convenience.
Chartered Accountants Technical Conference
Throughout October in Sydney and Melbourne. Addresses the latest legislation changes and technical details in separate streams for business and practice. The need–to–know updates that will make a difference to your growth.
Chartered Accountants Managing the Payroll Function Workshop
Throughout November in Sydney, Melbourne, Adelaide, Perth and Brisbane. Legislative changes resulting from the Federal Budget have impacted payroll, be able to confidently deal with the myriad of issues affecting you.
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One member writes:
We varied a client's 4th quarter IAS. It was lodged on time and the varied amount of tax was paid. The decrease due to the variation was greater than $40,000. There was no refund due.
The client received a notice from the ATO stating that the client owed over $40,000 and GIC is being charged. A call to the ATO revealed that, due to integrity measures designed to reduce losses to revenue, the variation has not been processed.
Why was my client not informed of the integrity measure and yet was demanded to make payment? Is the ATO lacking funding in this area, or have they become predominantly focused on debt collection, regardless of whether or not the tax debt is valid? It has been 3 days since I left my voice message and there is still no response. Glad I'm not holding my breath!
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Help us to improve the bulletin by sharing your tax issues and experiences that might be of interest to other members. Responses should be emailed to taxgroup@charteredaccountants.com.au
Disclaimer
The Institute has created and maintains this tax bulletin as a service to its members and the community. While some of the information provided is about legal issues and legislation, it is not legal advice. The Institute does not expect or invite any person to act or rely on any statement, view or opinion expressed in this bulletin, and readers should make and rely on their own inquiries in making any decisions or giving any advice.
The Institute accepts no responsibility for any errors or omissions contained in this bulletin, and disclaims all warranties with regard to the information at this bulletin, including all implied warranties of merchantability and fitness for a particular purpose. In no event shall the Institute be liable for any loss or damage arising out of or in connection with the use of this bulletin or the information contained in it, including special, indirect or consequential loss or damage, and whether such loss or damage arises in contract, negligence, tort, under statute, or otherwise.
The material provided in this bulletin is protected by copyright. Apart from any use permitted under the Copyright Act 1968, no part of any material may be reproduced or provided to the public or to any person, in any form or by any means, without written permission from the Institute or the relevant copyright owner.
Any information provided to the Institute in connection with this bulletin shall be provided by the submitter and received by the Institute on a non-confidential basis. The Institute shall be free to reproduce, use, disclose and distribute this information to others without limitation.
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