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1. Appointment of Federal Shadow Ministry
On 22 September, the leader of the Opposition, the Hon. Malcolm Turnbull MP, announced his new Shadow Ministry. The particular appointments included:
- Deputy Opposition leader and shadow Treasurer – Hon. Julie Bishop MP
- Shadow Minister for Financial Services, Superannuation and Corporate Law – Hon. Chris Pearce MP
- Shadow Assistant Treasurer: Hon. Tony Smith MP
- Shadow Minister for Innovation, Industry, Science and Research – Hon Eric Abetz
- Shadow Minister for Finance, Competition Policy and Deregulation – Hon Joe Hockey MP.
The related press release is available here.
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2. Australia's Future Tax System - feedback sought
As reported in Edition 30/2008 of the Tax Bulletin, on 6 August, the Department of Treasury released the Paper entitled "Architecture of Australia's tax and transfer system" in connection with the Australia's Future Tax System Review (the "Review"). This was followed by a call for submissions on 19 August, by the Review Panel as reported in Edition 32/2008 of the Tax Bulletin.
Members will recall that in the latter issue of the Tax Bulletin, we invited members to provide input to assist us to prepare the Institute’s submission which has to be lodged by the due date of 17 October. At this stage of the consultation process, it seems that the Review Panel is seeking very high-level input based on four main questions. It is our understanding that in December, having reviewed the initial submissions, the Review Panel will release a more detailed consultation paper on which more comprehensive submissions will be sought.
Given the high-level input sought at this stage and the departure of our Tax Counsel, the Institute has decided to do a joint submission with KPMG for this initial stage of the consultation process. Currently, we are working very hard with KPMG to meet the deadline. We are taking into account all feedback provided by members and would be grateful to receive more comments via Tax Group until close of business Friday, 3 October.
Following the release of the consultation paper by the Review Panel, it is anticipated that the Institute will hold a number of feedback sessions around the country in February 2009 to assist us to prepare a much more detailed submission for that stage of the consultation process. Once again, members will be invited to provide comments at this time via the Tax Bulletin.
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3. Rail access agreement dutiable - Asciano Services Pty Ltd v Chief Commissioner of State Revenue [2008] HCA 46
The High Court (Gummow, Kirby, Hayne, Crennan and Kiefel JJ) has held that duty was payable in NSW on a lease instrument as it gave the appellant the right to use land occupied by the railways.
The appellant, a rail freight operator, entered into a rail access agreement with Rail Access Corporation giving it access rights to rail lines and rail infrastructure facilities. Broadly, the Court concluded that it was not correct to describe the relevant statute, the Transport Administration Act 1988 (NSW) – (‘TA Act’) as the "legal source" of the right to use land and that this diverted attention away from the question of the appeal. The Court concluded that the access agreement, and the grant of permission under it, was dutiable as an agreement "by which" a right to use land under the TA Act was conferred on or acquired by a person.
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4. CGT Event E1 applied to creation of trusts - Kafataris v The Deputy Commissioner of Taxation [2008] FCA 1454
The Federal Court (Lindgren J) has dismissed the taxpayers’ appeals, finding that in each case the spouse was not the sole beneficiary of the trust and was not absolutely entitled to the asset as against the trustees.
The applicants were a married couple who owned a property in Kings Cross, Sydney as joint tenants. On 28 June 2002, the applicants executed two trust deeds in identical form (establishing superannuation funds) to settle the property upon themselves as trustees as to a one half interest. Six days later, the property was sold for $4 million.
The court considered that CGT event E1 (which happens if you create a trust over a CGT asset by declaration or settlement) in s 104-55 of Income Tax Assessment Act 1997 was the relevant section, despite CGT Event E2 (s 104-60) also being put forward. The court then turned its attention to whether the exclusion in s 104-55(5) applied, i.e., where there is a sole beneficiary of the trust who is absolutely entitled to the asset as against the trustee. In finding that it did not, the court came to the conclusion that neither spouse was the “sole beneficiary” of the trust establishing his or her superannuation fund, nor were they “absolutely entitled” to the fund as against themselves as trustees for the purposes of s 106-50. It followed that the applicants were caught by the primary provision of CGT Event E1.
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5. Amended assessment stands, 25 per cent penalty appropriate - Li v Commissioner of Taxation [2008] AATA 849
The Tribunal has affirmed the decision of the Commissioner in respect of undeclared wages to be included in the applicant’s income tax return.
The applicant worked as a cook at a Chinese restaurant. Following an audit of his employer, the Commissioner issued an amended assessment to Mr Li increasing his income to take account of wages paid to him by the restaurant but not declared. The Tribunal found that the applicant failed to discharge the burden of proving that the amount was excessive.
As to penalty, the Tribunal agreed with the respondent in that ‘a false statement in a tax return would normally qualify for a penalty at the 50 per cent rate for recklessness, at least, but that because of his immigrant status and lack of familiarity with Australian tax law, the 25 per cent rate for lack of reasonable care is appropriate’.
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6. Allowance not a living-away-from-home allowance - The Compass Group (Vic) Pty Ltd as Trustee for White Roche and Associates Hybrid Trust v Commissioner of Taxation [2008] AATA 845
The Tribunal has affirmed the decision of the Commissioner to disallow the applicant’s objection to its private ruling that an allowance it paid to one of its employees, a Mr Brown, was not a living-away-from-home allowance within the meaning of s 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).
The Tribunal rejected the applicant’s arguments, advanced by Mr Brown, that the allowance had been paid ‘as compensation for additional expenses he incurred by reason that he was required to live away from his usual place of residence in order to perform the duties of his employment with The Compass Group. He had been required to do that, he submitted, by virtue of the increase in the hours he was required to attend his place of work which was located some 60 kilometres from the place where he had lived while working fewer hours’.
The Tribunal found that ‘a reasonable person would conclude that Mr Brown chose to reside in accommodation that was closer to his place of work during the week but that he was not required to do so in order to perform the duties of his employment with The Compass Group’ (para 70). Therefore, the amount did not fall within the meaning of s 30(1) of the FBTAA.
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7. Draft Determination
TD 2008/D13 - Income tax: when is ‘foreign income tax … imposed … on the partners, not the partnership’ under paragraph 830 10(1)(b) of the Income Tax Assessment Act 1997 for the purpose of determining whether a foreign limited partnership is a foreign hybrid limited partnership under Division 830 of that Act?
The Institute will be preparing or co-ordinating the preparation of a submission to the ATO in respect of this Draft Tax Determination. If you have any comments please e-mail them to us at Tax Group by 14 October 2008.
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8. ATO Interpretative Decisions
ATO ID 2008/122 Consolidations: a company interposed between the shareholders and the head companies of two separate consolidated groups
ATO ID 2008/123 GST: interaction of the financial acquisitions threshold and Division 72
ATO ID 2008/124 GST and cremated remains
ATO ID 2008/125 Application of section 121 of the Income Tax Assessment Act 1936 to a company formed for purpose of providing a financial assurance to a government authority
ATO ID 2008/126 Employee share options: assessability of an unrealised gain by an Australian resident taxpayer from share options granted to the taxpayer when they were working in the UK
Withdrawals
ATO ID 2001/631 (Withdrawn) GST and export services provided by crematoriums to an Australia resident
ATO ID 2001/632 (Withdrawn) GST and export services provided by crematoriums to a non-resident entity
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9. Legislation update
On 24 September, the International Tax Agreements Amendment Act (No. 2) 2008 was passed by the House of Representatives without amendment. It was introduced into the Senate the next day.
On 24 September, the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008 was rejected by the Senate. The Bill was introduced into Parliament on 27 May 2008. It amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge-Fringe Benefits) Act 1999 to increase the Medicare levy surcharge threshold for individuals from $50,000 to $100,000, and for families from $100,000 to $150,000.
Subsequent to the rejection of Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008, on the same day the Government introduced into Parliament Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No.2) 2008. The Bill seeks to:
- increase the Medicare levy surcharge threshold for individuals from $50,000 to $75,000, and going forward this threshold will be annually indexed to wages and increase in $1,000 increments (rounding down)
- increase the Medicare levy surcharge threshold for families from $100,000 to $150,000, and going forward will be double the single threshold
- introduce transitional arrangements so that individuals who obtain appropriate private health cover before 1 January 2009 will avoid the Medicare levy surcharge for the period 1 July 2008 through to 31 December 2008.
The increased Medicare levy surcharge thresholds apply from the 2008-09 year of income and later years of income.
The Explanatory Memorandum is available here.
The First Home Saver Accounts (Further Provisions) Amendment Bill 2008 and First Home Saver Account Providers Supervisory Levy Imposition Bill 2008 were passed by the Senate without amendment. The Bills now await Royal Assent.
A package of four Luxury Car Tax Bills was passed by the Senate on 24 September. The Bills were introduced to amend the luxury car tax legislation to increase the luxury car tax rate from 25% to 33%, with effect from 1 July 2008.
A New Tax System (Luxury Car Tax Imposition – Customs) Amendment Bill; A New Tax System (Luxury Car Tax Imposition – Excise) Amendment Bill and A New Tax System (Luxury Car Tax Imposition – General) Amendment Bill were passed without amendment. The principal Bill, Tax Laws Amendment (Luxury Car Tax) Bill was passed with four amendments. The Bills now await Royal Assent.
A copy of the Government’s amendments is available here.
A copy of the Government’s supplementary Explanatory Memorandum is available here.
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10. Tax Laws Amendment (2008 Measures No. 5) Bill 2008
The Government has introduced into Parliament Tax Laws Amendment (2008 Measures No. 5) Bill 2008 on 25 September. The Bill contains the following measures:
Schedule 1 – Goods and services tax and real property: amends the GST Act to maintain the integrity of the GST tax base by ensuring that the interaction between the margin scheme provisions and the going concern, farmland and associates provisions does not allow property sales to be structured in a way that results in GST not applying to the value added to real property on or after 1 July 2000 by an entity registered or required to be registered for GST.
On 22 May, the Institute lodged a confidential submission on the first exposure draft of the Bill and Explanatory Memorandum which were also confidential.
Schedule 2 – Thin capitalisation and international financial reporting standards: modifies the thin capitalisation regime contained within Division 820 of the ITAA 1997 in relation to the use of accounting standards for identifying and valuing an entity’s assets, liabilities and equity capital.
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 (see Edition 33/2008 of the Tax Bulletin).
Schedule 3 – Interest withholding tax and state government: amends section 128F of the ITAA 1936 to allow bonds issued in Australia by state and territory central borrowing authorities to be eligible for exemption from interest withholding tax.
Schedule 4 – Fringe benefits tax: amends the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) to ensure that where a fringe benefit is provided jointly to an employee and their associate, the employer’s FBT liability on the taxable value of the fringe benefit will only be reduced to the extent the employee’s share of the fringe benefit is used for income producing purposes.
Schedule 5 – Eligible investment business rules: amends Division 6C of the ITAA 1936 to streamline and modernise the eligible investment business rules for managed funds. These amendments will:
- clarify the scope and meaning of investing in land for the purpose of deriving rent
- introduce a 25 per cent safe harbour allowance for non-rental, non-trading income from
investments in land
- expand the range of financial instruments that a managed fund may invest in or trade
- provide a 2 per cent safe harbour allowance at the whole of trust level for non-trading income.
The Institute lodged a submission on the draft legislation on 14 August, as reported in Edition 31/2008 of the Tax Bulletin.
These measures have effect from the date of Royal Assent.
The Explanatory Memorandum is available here.
The Treasury's media release is available here.
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11. Tax Laws Amendment (Education Refund) Bill 2008
The Government has introduced into Parliament Tax Laws Amendment (Education Refund) Bill 2008 on 25 September. The Bill amends the ITAA 1997 by introducing a 50 per cent refundable tax offset for eligible education expenses (the Education Tax Refund) up to a maximum of $750 for children undertaking primary studies and $1,500 for children undertaking secondary studies.
The Act commences on the day on which it receives the Royal Assent.
The Explanatory Memorandum is available here.
Related media release go here.
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12. Bills referred to Senate Committees
The following Bills have been referred to the Senate Economics Committee:
- Tax Laws Amendment (2008 Measures No 5) Bill 2008 – report to the Senate by 13 October 2008
- Tax Laws Amendment (Education Refund) Bill 2008 – report to the Senate by 13 October 2008
- Tax Laws Amendment (Political Contribution and Gifts) Bill – report to the Senate by 15 November 2008.
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13. Recent ATO publications
Booklets and publications
Queensland men jailed for four years for customs and excise fraud - Two Queensland men will serve four year jail terms after failing to pay a $13.8 million fine for customs and excise duty frauds.
Administration
The Tax Agent magazine - issue 41 - September 2008 - Download a PDF version of the September 2008 edition of the Tax Agent magazine.
The Tax Agent magazine index of articles December 2007 - September 2008 - Index of articles in the The Tax Agent magazines from December 2007 until September 2008.
How changes to your ABN will impact your digital certificate/s – If you are making any changes to your tax agent registration that lead to a change in your Australian business number (ABN), then you will need to apply for new digital certificate/s to match the new registration.
Keydates for tax agents October - December 2008 - A list of key dates for tax agents for the period October - December 2008.
Activity statement processing statistics - Statistics on processing of activity statements for the current financial year.
Summary of lodgment changes to ATO Receivables Policy - Describes the changes made to the lodgment and lodgment penalty chapters in version 5 of the ATO Receivables Policy which was published on 28 August 2008.
Superannuation
Self-managed super fund quarterly statistics methodology - Information summarises the methodology we use to produce quarterly statistics for self-managed super funds (SMSFs).
Self-managed super fund statistical report - Current statistical reports for the self-managed super fund market.
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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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One member writes - Cancellation of ABN
Recently, a client received a letter from the ATO stating that as they had not included any business income in their 2007 income tax return, their ABN would be cancelled if they did not fill in a form and return it within 28 days. The reason I am writing this email is because the client did not register for the ABN until 2008, which I think should explain why there was no business income in 2007. I have spoken with the ATO and they said they are trying to clean up the Australian Business Register and this letter is to be sent to entities that didn't have any business income reported in 2007 or 2008 income tax returns. (2008 by the way is not due for lodgement). When I asked whether the ATO had thought of the cash flow implications for the business if 46.5% is withheld from an invoice, because their details on the Australian Business Register showed a deregistered ABN, I was basically just told to hurry up and get the form in.
It appears that the data parameters setup for the automatic letter are not correct, in other words the horse and cart may be around the wrong way, again.
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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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