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1. Ali Noroozi appointed Inspector-General of Taxation
On 18 September, the Assistant Treasurer, the Hon Chris Bowen MP, issued a press release, announcing the appointment of Mr Ali Noroozi, the Institute’s current Tax Counsel, to the role of Inspector-General of Taxation, effective November 6, 2008.
"Mr Noroozi is a highly experienced tax professional with approximately 12 years experience at major law and accounting firms both in Australia and the United Kingdom, 5 years as Tax Counsel at the Institute of Chartered Accountants and a Master of Laws from the University of Sydney," Mr Bowen said.
Institute Chief Executive Officer, Mr Graham Meyer, said, “Although we are sad to be losing such a great technical and professional expertise and a key member of our tax team, we congratulate Ali wholeheartedly on his new appointment, which is testament to his achievements here at the Institute”.
During his nearly five-year tenure at the Institute, Ali has led the continuing development of the Institute’s taxation policy and was actively involved in advocating these policies to the Government and its agencies, while communicating important changes to the Institute’s members. The advocacy activities that he has led on behalf of the Institute have helped secure some very worthwhile outcomes which include:
- largely limiting the retrospective application of final ATO ruling on the deductibility of service fees paid by professional partnerships to service entities as well as other improvements on the matters contained in the accompanying guide;
- measures to minimise the adverse tax impact of adopting IFRS, such as the Government actions in relation to the thin capitalisation regime as well as notional disqualifying accounts and share capital tainting rules
- major amendments to Division 7A of the ITAA 1936 to limit the harsh consequences that may result from its application;
- recommendation of the Australian Law Reform Commission to extend legal privilege to advice on tax law provided by independent professional accounting advisers, where that advice is sought by the ATO;
- removal of the $100million total income cap on the same business test;
- the enactment of changes to family trust elections (FTE) and the prevention of their repeal – these changes include measures to allow FTE to be revoked or varied in certain circumstances;
- international tax reform and in particular changes to CGT laws for non-residents;
- inclusion of appropriate measures in the promoter penalties regime such as the reasonably arguable position test and mere advice exemption;
- thought leadership projects relating to alignment of various small business tax relief arrangements (the previous Government enacted legislation to this effect), tax treatment of carbon pollution reduction scheme (the new Government is now ensuring that the tax issues will be addressed – a chapter of the Green paper was devoted to it) and entity flow through taxation regime for small business (referred by the new Government to the Henry Review – Australia’s Future Tax System).
- Numerous other measures relating to new legislative framework for tax agents, taxation treatment of business blackhole expenditure, taxation of financial arrangement stages 3 & 4, CGT concession to small business and tax consolidation issues including relation to modifications to the tax consolidation regime to prevent "inappropriate uplifts" in the tax costs of a joining entity's assets following certain rollovers.
We are very grateful to Mr Noroozi for his dedicated service to members and wish him all the best in his new role. In the meantime, the Institute has commenced actively looking for a replacement and will keep members informed.
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2. Submission on the Review of the Legal Framework for the Administration of the Goods and Services Tax
As reported in Edition 27/2008 of the Tax Bulletin, the Board of Taxation (the Board) released an Issues Paper on the Review of the legal framework for the administration of the GST. The focus of the Review was to streamline and improve the operation of the GST regime, reducing compliance costs, and removing anomalies.
On 22 September, the Institute lodged a submission with the Board in this regard. In its submission, the Institute seeks the practical operation of the GST system to achieve the economic object of neutrality to the extent possible. Our key recommendations address a number of broad areas including:
- International
- Going Concern
- Enterprise and Non-enterprise activities
- Creditable purpose
- Property
- Financial Services
- Adjustments
- Barter transactions
- Incapacity
- Administration.
The Institute wishes to thank the members of its Indirect Tax Committee for their significant contribution to the preparation of this submission.
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3. Feedback sought in relation to trust issues
The ATO has asked for comment on a number of Division 6 issues including:
- the meaning of "income of a trust estate" in subsection 97(1), i.e. distributable income as defined, trust law income or income according to ordinary concepts
- whether income is a gross or net concept
- the proportionate versus the absolute view
- the relevance of the trust deed in determining expenses which may be offset against income.
If you have any comments you wish considered for inclusion in the Institute's submission would you email them to the Tax Group by 26 September 2008.
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4. Trust cloning update
As reported in Edition 34/2008 of the Tax Bulletin, on 3 September 2008, a National Tax Liaison Group (NTLG) meeting was held in Canberra at which the professional bodies raised the issue of the time taken by the Commissioner to process private ruling applications on whether the CGT exception in section 104-55(5)(b) or 104-60(5)(b) of the ITAA 1997 apply to a transfer of assets from one trust to another (commonly referred to as the trust cloning exception). The Tax Counsel Network at the ATO have since provided the following response:
“Due to the complexity of the legal questions involved and the high risk of error, the staff required to process such ruling applications must have specialist expertise in trust law. This is a time consuming process as many of the trust deeds the Commissioner has been asked to consider in the context of the trust cloning exception have been lengthy and complex.
One way practitioners could assist the Commissioner to expedite the processing of ruling applications would be for practitioners to consider confining their applications to specific questions concerning the sameness of particular terms or particular beneficiaries. In this context it would assist if practitioners were able to analyse why, having regard to the deed, they consider it arguable that the effect of particular terms or the identity of particular beneficiaries is the same. In this way the Tax office would be able to rule on whether the particular terms, or the identity of particular beneficiaries are the same for the purpose of the trust cloning exception; or whether there are differences in relation to the particular terms or beneficiaries which would result in a failure to satisfy the trust cloning exception.”
For full details of this agenda item, go here.
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5. Advice Working Group meeting
On 12 June, Linda Wang representing the Institute, attended the ATO’s Advice Working Group meeting. Key matters discussed included:
- ATO web improvements update. The expected time of deployment is mid-November 2008.
- Tax practitioner dashboard concept – incorporating practice management reports.
- A new service (referred to as access to expert) was implemented on 4 August 2008. CGT was the first topic rolled out under the new service with around 250 staff across the ATO receiving supplementary training prior to its implementation. During the first month of change, 2294 calls were answered of which:
- 88.1 per cent were answered within 120 seconds
- 67 per cent were resolved at first contact
- 1.26 per cent were actioned through a booking with senior technical experts through the new booking service
- Edited private bind rulings. These private rulings are not binding and they are not updated or withdrawn when changed.
- Project update on training products, training essentials pathway page, portal education and voluntary disclosures, thus should not be relied on by taxpayers.
- Professional to professional update. Progressive expansion of the service to 500 tax agents in 2008-09. The 500 tax agents are to be drawn from across Australia. The roll out of service will be to all regions in the Umbrella Service Delivery Strategy – North (Qld), West (SA, WA, NT), East (NSW, ACT) and South (VIC, TAS).
Once the draft minutes of the meeting are approved, they will be published on the ATO website and a link provided in the Tax Bulletin.
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6. Commissioner's Small Business Consultative Group meeting
On 22 August, Paul Twohill (Gregory & McCarthy) represented the Institute at Commissioner's Small Business Consultative Group meeting. Key topics discussed at the meeting included:
- Release of the 2008-09 Compliance Program
- The Standard Business Reporting Program
- Broad range of support and assistance which the ATO provide to small businesses
The minutes of the meeting will be published on the ATO website in due course and a link provided in the Tax Bulletin..
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7. ANAO’s performance audit of serious non-compliance
On 18 September, Ali Noroozi, the Institute Tax Counsel, and Linda Wang met with representatives of the Australian National Audit Office (ANAO) in respect of its performance audit of the administrative effectiveness of the ATO’s strategies to address serious non-compliance.
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8. Claim for diesel fuel credits denied - Asciano Services Pty Ltd (formerly Pacific National (ACT) Limited) v Commissioner of Taxation [2008] FCA 1401
The Federal Court (Gordon J) has dismissed the taxpayer’s appeal, finding that the credit scheme found in s 53 of the Energy Grants (Credits) Scheme Act 2003 does not extend to cover diesel fuel purchases for off-rail uses incidental to use in rail transport (for instance, use in operating a crane adjacent to a rail line for loading goods from a truck onto a train), as was contended by Asciano Services Pty Ltd.
Rather, in finding for the Commissioner, the court held that the purchase of off-road diesel fuel for use in equipment not located ‘in or on a rail vehicle’ is not entitled to a credit even if it is used for a purpose incidental to the use of a vehicle in rail transport.
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9. No part of penalty for claim made recklessly should be remitted - Archibald Dixon as trustee for The Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] AATA 825
This Tribunal case followed from a successful appeal and an order of the Full Federal Court that the matter be remitted to the Tribunal ‘for consideration of the question of whether any part of the penalty should be remitted on the basis that the outcome is harsh, having regard to the particular circumstances of the [Fund].’
Briefly, Mr Dixon, in his capacity as trustee of the Fund, had purchased a commercial property in 2003. It was acquired as a going concern so no input tax credit was claimed at the time, but later, on changing tax agents, an amended BAS was lodged incorrectly claiming a refund. However, no refund was made as the Commissioner detected the error. The Commissioner imposed an administrative penalty of 50% of the credit wrongly claimed on the basis that the claim was made recklessly.
The Tribunal was not satisfied that the imposition of the penalty amounted to a harsh outcome having regard to the circumstances of the Fund or its beneficiaries. It therefore considered there was no basis for remission in whole or part. Factual matters advanced in support of the taxpayer’s arguments that were rejected by the Tribunal included the advanced age of Mr Dixon, the fact that the other beneficiary of the Fund played no role in the incorrect claim, it was the recklessness of the tax agent not the Fund, the Fund might have difficulty in seeking to recover the amount from the tax agent, there was no history of non-compliance and that the amount of the penalty was ‘significant’.
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10. Claimed expenses for self-education not deductible - Amuthalan v Commissioner of Taxation [2008] AATA 818
The Tribunal has affirmed the decision of the Commissioner in finding that expenditure claimed for self education was not incurred in gaining or producing the applicant’s assessable income under s 8-1 of the ITAA 1997.
The deductions claimed related to tuition fees paid to TAFE for study for a Diploma of Hospitality Management. (The applicant had previously completed a Bachelor of Hotel Management in India but sought an Australian qualification). He undertook part time employment as a baker’s assistant at a Baker’s Delight franchise to meet the verified industry experience required for the TAFE course.
After consideration of relevant case law and TR 98/9, the Tribunal was not satisfied that the tuition fees paid to TAFE would enable the taxpayer to maintain or improve the skill or knowledge required for his current employment. It followed that the tuition fees could not be regarded as expenditure incurred in gaining or producing his assessable income as a baker's assistant.
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11. GST - tax shortfall reduced - The Trustee of the Amabalad Family Trust v Commissioner of Taxation [2008] AATA 809
The relevant assessments were issued following an audit of the Amabalad Family Trust (Amabalad). Following discussions between the parties, both sides conceded certain issues with the result being a GST shortfall of $443,891. In addition, the Commissioner remitted in full the penalties imposed for the period from 1 October 2001 to 31 December 2003, imposing a penalty of 25 per cent of the shortfall for only the two periods from 1 January 2004 to 30 June 2004.
There were still five amounts in dispute being the subject of this case. One related to a change of accounting method by Amabalad from a cash to accruals basis from 1 January 2004. As stated by the Tribunal ‘The relevant legislation requires that taxable supplies made in the periods prior to the change of accounting but for which payment had not been received are to be accounted for in the first period after the change of the transition period.’ On balance, the Tribunal accepted the applicant’s evidence that the amount in dispute was properly accounted for. The Tribunal also accepted that certain intellectual property was acquired for the purpose of carrying on an enterprise. Two other claims were not allowed, with another one allowed.
The Tribunal varied the tax shortfall by reducing it to $325,225. The matter was remitted to the respondent to issue amended assessments to this effect, including a recalculation of the penalty of 25 per cent mentioned above.
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12. Applicant failed to prove that she was not the beneficial owner - Eao v Commissioner of Taxation [2008] AATA 804
The applicant, Ms Eao, was the registered owner of the property, which was where her de facto partner and a Mr Doolan ran a business. While Ms Eao accepted that she had purchased the property in June 1996, she maintained that it was purchased in trust for her mother, Ms Yu-Lin (a resident of Taiwan). The applicant claimed that the funds were not a loan to her but for the purchase of the property by her mother.
The Commissioner issued amended assessments to the applicant to include rental income derived from the property in the 2000, 2001 and 2002 years.
In affirming the Commissioner’s decision, the Tribunal considered that the applicant had not discharged the required onus of proof that she was not the beneficial owner of the property during the relevant period and that the amended assessments were excessive.
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13. Draft Self Managed Superannuation Fund Ruling
SMSFR 2008/D4 Self Managed Superannuation Funds: the meaning of 'borrow money' or 'maintain an existing borrowing of money' for the purposes of section 67 of the Superannuation Industry (Supervision) Act 1993
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14. Taxation Determination – Erratum
TD 2008/22ER - Erratum - Income tax: capital gains: does CGT event C2 happen as a result of the satisfaction of an investor's rights under a Deferred Purchase Agreement warrant, an investment product offered by financial institutions, by the delivery of the Delivery Assets?
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15. Class Rulings
CR 2008/58 - Income tax: payment of dividend by MediHerb Holdings Limited
CR 2008/59 - Income tax: tax treatment of Commercial Horse Assistance Payments to primary carers of commercial horses affected by the equine influenza quarantine
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16. Product Ruling
PR 2008/64 - Income tax: deductibility of interest incurred on borrowings in relation to Macquarie Fusion Funds - November 2008 Offer
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17. ATO Interpretative Decisions - Withdrawals
ATO ID 2003/117 (Withdrawn) - Deferred capital loss or deduction: greater than 50% interest - further event
ATO ID 2003/118 (Withdrawn) - Deferred capital loss or deduction: greater than 50% interest - realisation event
ATO ID 2003/265 (Withdrawn) - Deferred capital loss or deduction - asset transferred between non-residents
ATO ID 2003/399 (Withdrawn) - Deferred capital loss or deduction: ceases to exist - more than one new event happens - time of new event
ATO ID 2005/224 (Withdrawn) - Distillation and alcohol concentration methods: reverse osmosis
ATO ID 2005/329 (Withdrawn) - Excise: beer spirit used in the manufacture of beer
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18. Legislation update
The International Tax Agreements Amendment Bill (No.1) 2008 was passed by the House of Representatives on 15 September.
The House of Representatives accepted the Senate’s amendments to the Tax Laws Amendment (2008 Measures No.4) Bill 2008. These amendments remove Schedule 2 of the Bill which contains the family trust changes. The Bill now awaits Royal Asset.
First Home Saver Accounts (Further Provisions) Amendment Bill 2008 and First Home Saver Account Providers Supervisory Levy Imposition Bill 2008 were passed by the House of Representatives without amendment. The Bill now proceeds to the Senate.
Tax Laws Amendment (2008 Measures No. 3) 2008 received Royal Assent on 22 September.
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19. International Tax Agreements Amendment Act (No. 2) 2008 introduced
The Government has introduced into Parliament International Tax Agreements Amendment Act (No. 2) 2008 on 17 September. This Bill amends the International Tax Agreements Act 1953 to give the force of law in Australia to a Protocol amending the agreement between Australia and South Africa for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (Protocol), which was signed in South Africa on 31 March 2008.
The provisions of the Protocol will become law from the date of Royal Assent. The Protocol will enter into force after the date of the last notification by diplomatic notes and once the domestic processes to give this protocol the force of law in the respective countries have been completed. In Australia, enactment of this Bill giving the force of law to this Protocol is the prerequisite to such notification.
The Explanatory Memorandum is available here.
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20. House of Representatives’ draft legislation program – 2008 Spring sittings week 4
The House of Representatives has released its draft legislation program for the period 22 to 25 September. It is expected to resume debate on the following tax related Bills:
- International Tax Agreements Amendment Bill (No.1) – 24 September
- Tax Laws Amendment (Political Contributions and Gifts) – 25 September
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21. Senate’s draft legislation program – 2008 Spring sittings week 4
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 (Luxury Car Tax) Bill – 22 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 Bil
- Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill – 22 September
- First Home Saver Accounts (Further Provisions) Amendment; First Home Saver Account Providers Supervisory Levy Imposition – 24 September
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22. Recent ATO publications
Booklets and publications
Large business online bulletin: September 2008 - This issue includes a feature article on the win in the high courts for the Tax Office, in addition to news about the release of the Large Business Online Services guide, while the spotlight is on Capital Gains Tax in this edition.
ATO Industry Benchmarks - Industry endorsed benchmarks for concreting, floor sanding and polishing, painting, roofing and taxis.
Concreting benchmarks and examples - Industry endorsed benchmarks for concreting.
Senate Continuing Order No. 8 - Tables an indexed list of files created in the Tax Office.
eLink 35/08 - Bulletin to inform tax practitioners of the most recent updates to ato.gov.au including a lead article titled 'Revised ATO Receivables Policy available'. Issued on 10 September 2008.
Administration
Change program release 3 - deployment schedule revised - On 15 September 2008 the Tax Office issued this update to members of its consultative forums on the delivery of release 3 of its change program.
Request for amendment of income tax return lodged by tax professionals - Tax professionals can use this form to amend income tax returns on behalf of their clients if they are unable to lodge amendments electronically.
Superannuation
Super co-contributions - Saving now for your future - This booklet will help you to understand how the Super co-contribution works and if you are eligible to receive it
SuperUpdate September 2008 - This edition includes changes to temporary residents' super, balances held in the superannuation holding accounts, LMR reporting, unclaimed super money rollover payments, completing SMSF annual return,SG charge calculator,upcoming international agreements.
Super reporting and lodgment dates 2008-09 - Key lodgment and reporting dates for super funds (including self-managed super funds) for 2008-09.
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23. Australia-New Zealand’s ‘Assistance in Collection of Taxes Article’ entered into force
On 18 September, the Assistant Treasurer, the Hon Chris Bowen MP, issued a media release, announcing the entry into effect of the Assistance in Collection of Taxes Article in Australia’s tax treaty with New Zealand. The Article signifies that the ATO and New Zealand’s tax authorities will work together to collect tax debt.
The Article was inserted by the 2005 amending protocol, which focused on strengthening the integrity aspects of the 1995 tax treaty. The protocol was entered into force in January 2007.
The Assistant Treasurer said that the entry into effect of this Article along with the current renegotiation of other provisions in the treaty will further enhance economic links between the two countries and will strengthen trans-Tasman tax administration.
Australia and New Zealand have now exchanged diplomatic notes and subsequently the Article shall have effect from 8 September 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.
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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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