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1. Report of the Review of Australia’s National Innovation System released
On 9 September, the Minister for Innovation, Industry, Science and Research, the Hon Kim Carr MP, released the report of the Review of Australia’s National Innovation System, Venturous Australia – building strength in innovation (Report). This follows the Minister’s announcement in February of this year that an expert panel, chaired by Dr Terry Cutler, would be conducting a wide-ranging Review of Australia’s National Innovation System. Members will recall that this announcement was reported in Edition 3/2008 of the Tax Bulletin and the Institute lodged a submission in this regard on 30 April this year.
The Report makes 72 recommendations ranging across the components of an effective system, focusing on innovation in business, strengthening people and skills, excellence in national research, information and market design, and taxation. The Institute is pleased with the tax recommendations made which included:
- The existing R&D Tax Concession (the 125 per cent R&D Tax Concession, the 175 per cent Premium, the R&D Tax Offset and the International Premium) be replaced with a Tax Credit. A 40 per cent Tax Credit should be available to large firms, with a refundable Tax Credit of 50 per cent available to smaller firms with turnover under $50 million.
- R&D expenditure undertaken in Australia by foreign owned firms be eligible for the 40 per cent Tax Credit, but excluded from the refundable Tax Credit.
Further details about the Review, including its terms of reference, go here.
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2. Commissioner’s speech to the Australian Institute of Company Directors
On 11 September, the Commissioner of Taxation gave an address to the Board of the Australian Institute of Company Directors (AICD), entitled ‘Matters of common interest’. He said that the ATO seeks an open dialogue with large business on how the tax system is working in practice, with the aim of co-designing administrative improvements or raising policy matters with Treasury. In his speech, the Commissioner also examined a number of tax topics that have been in the spotlight.
One of these topics is taxation on executive and director’s remuneration. The Commissioner said that recent amendments to the election requirement necessitate that, from 2008-09, taxpayers who elect to be taxed upfront on the discount must now include the election and the amount of the discount in their tax return in the year they acquire the shares or rights. If an election is not made in the tax return, assessment of the discount will be automatically deferred.
The Commissioner also raised the issue addressed in the AICD’s Position Paper No.7 - Solvency based test for payment of dividends, released in February 2008. Namely, what, if any, amendments would need to be made to the tax law if the solvency based test was accepted. The Commissioner said that ultimately this is a matter for the Treasury and Government, not the ATO.
Carbon Pollution Reduction Scheme (CPRS) is another key topic of the Commissioner’s speech. He said a White Paper is expected to be released in December 2008 which will set out the administrative design of the CPRS and include the exposure drafts of the CPRS and consequential taxation legislation. The Commissioner noted that the ATO is working to be in a good position to provide guidance on the tax consequences of the CPRS after passage of the appropriate legislation.
Other topics talked about included:
- Compliance program for large businesses
- Promoting good corporate governance and greater certainty
- Delivering Government’s policy agenda
- Expanding coverage of income tax compliance
- Alignment of tax and economic performance
- Capital markets, including mergers and acquisitions
- International issues
- Boards and tax risk management and
- Public binding ruling systems and the private binding and reviewable rulings system.
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3. Carbon Pollution Reduction Scheme Green Paper – Institute submission
On 10 September, the Institute lodged a detailed submission on the tax issues of the proposed Carbon Pollution Reduction Scheme (CPRS) in response to the Government's Green Paper that was released on 16 July. The Institute also lodged a submission on the three key areas of taxation (summarising some key points from the detailed submission), accounting & reporting and assurance.
Some of the key tax summary submission points include the following:
- The Institute supports the Government’s proposal to develop discrete provisions of the income tax law to govern the tax treatment of permits which should provide increased certainty, reduced complexity and equitable outcomes.
- We do not agree with the proposition that free permits and cash grants be assessable up front on receipt, as this would create timing and/or permanent disadvantages. We submit that the simplest mechanism, in relation to free permits and cash grants, is for these to be expressly exempted from taxation.
- The Institute considers that it is imperative that the tax policy in relation to CPRS should include a tax loss carry-back mechanism which will be applicable to the parties which are affected by the constraints on free permits and thus have an adverse impact on their business values arising from this policy.
- The rolling balance method as currently proposed does not achieve a matching of revenue and expenditure. If it is to be used as the underlying calculation mechanism, it needs to be augmented by an express rule that the permits on hand at the end of the taxpayer’s balance date should be reduced by the permits which will be acquitted after year end in relation to emissions identified as occurring before the taxpayer’s year end and a nil value should be given to free permits.
- The tax implications under proposed stages 3 and 4 of the Taxation of Financial Arrangements should be considered.
- In regard to the GST, the Institute’s recommendations include the adoption of a stand-alone GST-free (or non-supply) model for core trades and dealings in permits and similar emissions rights. In particular, a specific provision should be inserted into the GST Act to achieve this.
- Consideration should be given to appropriate climate change tax incentives as part of the design and implementation of the CPRS.
Full details, including further important submission points, can be found in the Institute's detailed submission.
The Institute thanks its Taxation Treatment of Emission Trading Committee for its work in preparing the submission.
The Green Paper can be downloaded from this webpage (also chapter by chapter). Importantly, Chapter 11 concerns tax and accounting issues associated with the scheme.
Following consideration of submissions and further consultation, the Government intends to issue a White Paper and Exposure Draft by December 2008.
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4. Institute meets with the Board of Taxation
On 12 September, the Institute Tax Counsel, Ali Noroozi, along with a number of other external stakeholders, met with the Board of Taxation. Set out below are the reviews discussed together with their current status:
- Small business tax compliance costs study - completed and submitted to Government.
- Taxation treatment of off-market share buy-backs - completed and submitted to Government.
- Anti-tax deferral regimes - due to be completed and submitted to Government in next the few weeks.
- The legal framework for the administration of the GST - submissions are due on 15 September and completion and submission to Government expected by calendar year end.
- Tax arrangements applying to managed investment funds - consultation paper is likely to be issued in October with submissions being sought by calendar year end.
Members requiring further information may e-mail us at Tax Group.
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5. Failure to establish that making of assessments was not bona fide - Marijancevic v Mann [2008] FCAFC 161
The Full Federal Court (Ryan, Kenny and Stone JJ) has dismissed the taxpayer’s appeal, finding that the appellant failed to establish that, in making the default assessments under s 167 of the ITAA36, the Commissioner (via Neil Mann, Deputy Commissioner of Taxation) had engaged in deliberate or conscious maladministration of the ITAA36, or deliberately or consciously acted in excess of his powers.
The Court stated that ‘It was common ground on this appeal that, leaving aside discretionary considerations, to attract a grant of relief under s 39B of the Judiciary Act, Mr Marijancevic had to establish that, having regard to the evidence before the Court, on the balance of probabilities, the making of the default assessments was not bona fide in the sense explained in Futuris. There is no evidence of deliberate maladministration on the part of the Commissioner. The failure of the Commissioner to adduce evidence from his officers concerning the assessment process or otherwise could not “provide positive evidence, nor … fill up any gap in evidence”: see Kordan Pty Limited v Federal Commissioner of Taxation (2000) 46 ATR 191 at [48] per Hill, Dowsett and Hely JJ.’ (at para 25)
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6. Amended assessments to medical practitioner – Commissioner’s decisions affirmed – Ho v Commissioner of Taxation [2008] AATA 783
The Tribunal has affirmed the decisions of the Commissioner in regard to amended income assessments for the 1993-1998 years issued to the applicant, the total amount arising being almost $1.5m.
The applicant was a medical practitioner who practised at medical clinics where the costs of most of the patients were covered by payments made by the Health Insurance Commission (HIC) (now Medicare). She contended that she was an employee but there was no evidence to support this.
The Tribunal considered that the clinic operators were not providing the type of service contemplated by s 20A of the Health Insurance Act 1973 as only a medical practitioner could assign payment to a third party. It followed that the income generated by the applicant from these sources was derived income, even though it was directed to the clinic operators and 'shared' under an arrangement. The Tribunal was also satisfied that the applicant ‘arranged her affairs that in addition to the relatively modest amount she claimed to have received as salary, her income was augmented by other sums paid in cash to her at her direction’.
The Tribunal was satisfied that a penalty under s 226J of the ITAA 1936 of 75% of the shortfall was appropriate due to intentional disregard of the tax law by the applicant and saw no reason to exercise the discretion granted in s 177A(1) of the ITAA 1936 to reduce that amount.
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7. Bonuses to be taken into account when calculating superannuation guarantee contributions - Prushka Fast Debt Recovery Pty Ltd v Commissioner of Taxation [2008] AATA 762
The Tribunal has found that that bonuses paid to employees of Prushka Fast Debt Recovery Pty Ltd (‘Prushka’) under the company’s profit-share bonus scheme were paid in respect of ordinary hours of work by those employees. Therefore, the bonuses formed part of those employees’ salary and wages and as such, should have been taken into account when calculating the superannuation guarantee contribution.
The Tribunal then stated ‘As they were not taken into account by Prushka, there must necessarily have been a superannuation guarantee shortfall and the Commissioner was correct in imposing a charge on that shortfall under the Superannuation Guarantee Charge Act 1992.'
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8. Draft Self Managed Superannuation Fund Determination
SMSFD 2008/D1 - Self Managed Superannuation Funds: is there any restriction in the Superannuation Industry (Supervision) Act 1993 on a fund trustee accepting from a member a binding nomination of the recipients of any benefits payable in the event of the member's death?
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9. Goods and Services Tax Ruling - Addendum
GSTR 2003/5A1 - Addendum - Goods and services tax: vouchers
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10. Taxation Determination - Erratum
TD 2008/23ER - Erratum - Income tax: are the active assets of a partnership, in which a foreign company is a partner, active foreign business assets of the foreign company for the purposes of the capital gains tax participation exemption provisions contained in Subdivision 768-G of the Income Tax Assessment Act 1997?
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11. Class Rulings
CR 2008/56 - Income tax: Westpac Banking Corporation: Westpac Stapled Preferred Securities
CR 2008/57 - Income tax: Suncorp-Metway Limited - allotment of Converting Preference Shares
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12. Product Rulings
PR 2008/62 - Income tax: tax consequences of changing the portfolio structure, contributing to and partially redeeming an investment in a unit in Perpetual's Investor Choice Fund
PR 2008/63 - Income tax: 2009 Timbercorp Forestry Project
Addenda
PR 2008/39A1 - Addendum - Income tax: Great Southern 2008 Renewable Fibre Project
PR 2008/45A1 - Addendum - Income tax: Great Southern 2008 Wine Grape Income Project - 2008 Growers
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13. ATO Interpretative Decisions
ATO ID 2008/120 - Deferred capital loss or deduction: asset transferred between non-residents
ATO ID 2008/121 - Employee share scheme: voluntary undertaking not to dispose of a share
Withdrawals
ATO ID 2003/264 (Withdrawn) - Deferred capital loss or deduction - asset transferred to a non-resident company
ATO ID 2003/266 (Withdrawn) - Deferred capital loss or deduction - asset transfer from resident to non-resident
ATO ID 2003/267 (Withdrawn) - Deferred capital loss or deduction - asset transfer from non-resident to resident
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14. Senate’s draft legislation program – 2008 Spring sittings week 3
The Senate has released its draft legislation program for the period 15 to 18 September and it is expected to resume debate on the following tax related Bills:
- Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill – 15 September
- Tax Laws Amendment (Luxury Car Tax) Bill – 17 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
- First Home Saver Accounts (Further Provisions) Amendment; First Home Saver Account Providers Supervisory Levy Imposition – 17 September
- International Tax Agreement Amendment Bill (No.1) – 18 September
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15. Recent ATO publications
Booklets and publications
Matters of ATO interest - Presentation by Michael D'Ascenzo, Commissioner of Taxation, Australian Institute of Company Directors, Board Dinner, Sydney, 11 September 2008
What is trustee beneficiary non-disclosure tax? - Information for tax agents regarding trustee beneficiary non-disclosure tax.
Four and a half year jail term for diesel fuel rebate fraud - A Northern Tasmanian man was jailed for four and a half years in the Tasmanian Supreme Court in Launceston yesterday for diesel fuel rebate fraud totalling $564,563,
Supporting document requirements for private rulings - determining or confirming the value of a thing - Provides details of the information you should provide to us when you apply for a private ruling about the value of a thing.
Tax information exchange agreements - overview - Discusses the role of tax information exchange agreements whereby participating partners can commit to eliminate harmful tax practices.
Shortfall interest charge (SIC) rates - Update to include shortfall interest charge (SIC) rates announced for the second quarter of the 2008-09 income year.
Administration
Tax agent request for additional time to lodge - If you are a tax agent and need additional time to lodge you can complete your requests on the Lodgmnet deferral form and submit them via the Tax Agent Portal. Consider using the self assessment process when completing your request.Information updated for 2008-09.
Capital allowance
Capital allowances: low-cost assets - threshold rule for small business - The threshold rule is available to businesses that are not in the Simplified Tax System (STS). STS businesses are able to claim an immediate deduction for expenditure on assets of less than $1,000.
Superannuation
Feedback about self-managed super funds - You can provide feedback on the SMSF website by sending us an email.
Lost members register - for super providers - This information gives super providers basic information to meet their lost member reporting obligations.
Using ECI to submit clients' payment summary, superannuation and TFN declaration reports - Tax agents can use the electronic commerce interface (ECI) to lodge their clients' pay as you go (PAYG) payment summary annual reports, superannuation reports, and tax file number (TFN) declaration reports.
Non-profits
Non-Profit News Service No. 0218 - Upcoming international agreements on superannuation - Sep 2008. Australia has entered into bilateral social security agreements with Korea, Greece and Germany that start on 1 October 2008. Non-profit organisations with employees working overseas can apply for certain exemptions under these agreements.
Non-Profit News Service No. 0216 - GST tips for non-profit organisations - Sep 2008. The Tax Office has released a new guide to provide non-profit organisations, charities and gift-deductible entities with information to help them meet their GST obligations.
Non-Profit News Service No. 0217 - Superannuation standard choice form has been revised - Sep 2008. A revised version of Choosing a super fund - How to complete your Standard choice form (NAT 13080) is now available.
Capital gains tax
Capital gains tax update 2008-09 income year - Update on CGT developments for the 2008-09 income year. Current as at 31 August 2008.
Minutes of meeting
ATO Tax Pratitioner Forum draft minutes - 8 August 2008 - The draft minutes of the ATO Tax Practitioner Forum meeting held on 8 August 2008.
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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 Tax Update for Business
Throughout November 2008 and March 2009 in Sydney, Melbourne, Adelaide, Perth and Brisbane. In just 3 hours, explore the current and impending legislative changes across all areas of taxation relative to business.
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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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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