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1. TOFA: Exposure Draft Bill and related Explanatory Memorandum released
On 1 October, the Exposure Draft Bill and related Explanatory Memorandum dealing with Taxation of Financial Arrangements (TOFA) Stages 3 & 4 were released. In a press release issued on that day, the Assistant Treasurer, the Hon Chris Bowen MP, said that since the 2007 TOFA Bill lapsed due to the 2007 federal election, the draft legislation has undergone a number of technical amendments, including the addition of consolidation interaction rules and also incorporates integrity rules to address value shifting and non-arm’s length dealing in relation to financial arragements.
Treasury is inviting submissions by 17 October 2008. The Institute has been taking a leading role in this area. We were involved in Treasury’s confidential consultation on consolidation interactions and lodged a confidential submission on Treasury’s discussion paper. Last week, the Institute met with Treasury to discuss the TOFA/consolidation interaction measures contained in the Exposure Draft Bill. We will be lodging a submission on the Exposure Draft Bill. Members' comments are welcomed by 10 October by e-mailing us at Tax Group.
The Exposure Draft Bill and related Explanatory Material are available here.
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2. Commissioner appeared before Public Accounts and Audit Committee
On 3 October, the Commissioner of Taxation appeared before Federal Parliament’s Public Accounts and Audit Committee to explain how Australia’s tax system is being administered. Some issues that may be investigated further include:
- the US Senate Committee report in July about the use of Liechtenstein banks to support tax evasion;
- the Auditor-General’s report on tax havens;
- the Inspector-General of Taxation’s report on GST audits of large taxpayers; and
- delays in implementing the ATO’s major IT upgrade, the Change Program.
The Commissioner noted in his opening statement that since the last hearing the Committee has published its Report 410 on Tax Administration. He said that the ATO appreciated the positive and supportive approach taken in the Report and that the ATO is currently finalising a formal response to the Report.
The Committee holds public hearings with the Commissioner twice a year to discuss developments in tax administration. As reported in Edition 16/2008, the last hearing was held in April this year.
For further information on the hearing, including related media alert and the hearing program, go here.
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3. Commissioner’s speech to the KPMG Boardroom Leadership Series: Perspectives of Regulators
On 30 September, the Commissioner of Taxation gave a speech entitled, A ‘joined-up’ future, at the KPMG Boardroom Leadership Series. The Commissioner said that as the Australian economy expanded and the social fabric changed, so did the role of the ATO. He continued that, since 2000, the ATO has expanded its functions to areas such as superannuation, excise and more recently to administration of the Fuel Tax Credit System, the Baby Bonus and the First Home Saver Account initiative. Other topics discussed include:
- Working with large businesses: the ATO will work with industry to co-design a new program, including issues such as the entry, criteria, project management and capability development.
- Feedback from large business clients: highlights of the responses to the ATO’s latest Client Feedback Questionnaires include:
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- 94% overall client satisfaction for the 2007-08 year
- 29 of 44 products delivered achieved 100% client satisfaction
- results for all cases are significantly above the benchmark of 70%.
- Managing tax risk in the large corporate sector: the ATO identified income characterisation (capital versus revenue and exempt income) and capital gains tax and R&D tax concessions as the main areas of risk.
- Meeting challenges: the ATO has been implementing a range of initiatives to overhaul its IT systems and business processes since 2004. The Commissioner said that the ATO is currently in the most complex and difficult phase of this work and has had to re-draft plans and schedules to mitigate the risks associated with the scale and number of systems involved, and the impact of intervening priorities.
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4. Submission on the Cutler Report, ‘Venturous Australia – building strength in innovation’
As reported in Edition 35/2008 of the Tax Bulletin, the expert panel chaired by Dr Terry Cutler (the Panel) released a report on the Review of the National Innovation System (the Report).
The object of the Review was to identify gaps and weaknesses in the innovation system and develop proposals to address them, with a view to building a stronger national innovation system and delivering economic growth.
On 3 October, the Institute lodged a submission with the Review Secretariat in response to the Report. In our submission, the Institute encourages simplification of the R&D incentive and the removal of existing complexities and inefficiencies. Our key recommendations address a number of broad issues including:
- the proposed R&D tax credit and, in particular, the availability of the refundable tax credit for SMEs
- the “on own behalf” test
- the breadth of eligible R&D activities
- the scope of eligible entities, and
- enhanced incentives for climate change mitigation or adaptation technologies.
The Institute wishes to thank the members of its Working Group on Tax & Innovation for their significant contribution to the preparation of this submission.
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5. Metlife Insurance Ltd v Commissioner of Taxation [2008] FCAFC 167
The Full Federal Court has allowed the taxpayer’s appeal, finding that the Commissioner did not have an unlimited power to amend assessment under s 170 (10AA) of the Income Tax Assessment Act 1936. The case summary of the decision will be provided in next week’s Tax Bulletin.
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6. Penalty reduced in respect of omitted invoice - Tavco Group Pty Ltd v Commissioner of Taxation [2008] AATA 843
The applicant objected to the imposition of a penalty following an audit by the Commissioner which revealed a tax shortfall totaling approximately $80K, as a result of omission of one invoice. The penalty amounted to 50 per cent of the shortfall amount on the basis of the taxpayer’s recklessness as to the application of a taxation law.
The applicant submitted that it was not reckless as the omission was but one out of 20,000 invoices. However, the Tribunal observed that TR 94/4 and PSLA 2006/2 show that the focus of the analysis must be on the particular act or omission in question. The applicant had not produced any evidence as to the circumstances of the omission to refute the assertion that it was reckless.
The Tribunal concluded that the omission was an isolated error so that the applicant was eligible for remission (i.e. meeting the criteria in paragraph 139 of PSLA 2006/2). While the Commissioner revised his position shortly before the hearing, conceding that the there should that a reduction in the base penalty amount by 20 per cent, the Tribunal concluded that a further reduction of 10 per cent was warranted.
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7. Superannuation guarantee charge (SGC) applied to total salary and wages, penalty remitted - Weston v Commissioner of Taxation [2008] AATA 869
The applicant was a nut farmer employing a number of people. He thought that he would meet the employee superannuation contribution requirement by paying an additional 10 per cent to the employee on top of the hourly rate. However, the Tribunal observed that the Superannuation Guarantee (Administration) Act 1992 places the obligation on the employer to make contributions to a complying fund directly and that there is no discretion to ignore the failure of the employer to make such contributions. Further, all of the records showed the total amount paid to the employees was salary or wages. Therefore, the Tribunal found that there was no reason for reducing the amount paid to an employee by this 10 per cent for determining the SGC.
In regard to amounts paid for the casual labour of Korean nationals, the applicant contended that he believed that the payments were made under a head contracting arrangement. The Tribunal, however, considered that the applicant had not discharged the onus of proof that the payments were not salary or wages to which the SGC applied.
Lastly, the Tribunal found it appropriate to remit the penalty imposed of 10 per cent in full.
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8. GST – Purchase of a residence – Sunchen Pty Ltd as Trustee of the Sunchen Family Trust v Commissioner of Taxation [2008] AATA 838
The applicant Trust completed the purchase of a property at Port Macquarie (the Property) on 20 September 2006. In its Business Activity Statement (BAS) for the quarter ending 30 September 2006, the Trust claimed an input tax credit of $47,727 in respect of the purchase of the Property on the basis that it had the intention of redeveloping the Property. The Commissioner disallowed the claim arguing that the sale to the Trust was an input taxed supply of residential premises such that no input tax credit arose. The answer turned on whether the residence was “to be used predominantly for residential accommodation”.
The Tribunal agreed with the Commissioner holding that the premises were residential premises to be used predominantly for residential accommodation. This was so even though the Property was purchased together with a Development Application (DA) approval for a 10 unit development.
The Tribunal considered that the key facts were that the Property was tenanted at the time of completion, it was sold with specific inclusions to make it suitable as a residence, was not in a deteriorated state, and it was not reasonably likely that the residence would be demolished for redevelopment (Toyama was distinguished on all of these facts). Facts both before and after settlement were considered to be relevant, including the lack of any subsequent steps by the Trust to obtain financing or a construction certificate and the fact that the Property remained tenanted.
The Tribunal noted that the outcome would be the same whether it applied the test in Marana Holdings (objective test based on the characteristics property) or the test in Toyama (subjective test having regard to all objective facts of the transaction).
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9. Draft Determination
TD 2008/D14 - Income tax: does subsection 974-135(1) of the Income Tax Assessment Act 1997 only apply to a legally enforceable obligation?
The Institute will be preparing or co-ordinating the preparation of a submission to the ATO in respect of this Draft Goods and Services Tax Determination. If you have any comments please e-mail them to Tax Group by 21 October 2008.
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10. Class Ruling
CR 2008/60 - Income tax: assessable income: Australian Rules umpires: Hills Football League
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11. Product Ruling - Withdrawal
PR 2007/88W - Withdrawal - Income tax: Ginseng Australia Project No. 1 (Late Growers)
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12. ATO Interpretative Decisions
ATO ID 2008/127 - Exempt Benefits: work related items - primarily for use in the employee's employment
ATO ID 2008/128 - Excise: Energy Grants (Cleaner Fuels) Scheme Act and fuel standards
ATO ID 2008/129 - Excise: Fuel Tax Act and fuel standards
ATO ID 2008/130 - Income tax treatment of securitisation of leases
ATO ID 2008/131 - Energy Grants Credit Scheme: off-road credit - use of diesel fuel at a home for aged persons
ATO ID 2008/132 - GST and pizza/Italian rolls
ATO ID 2008/133 - Exempt Benefits: work related items - a portable electronic device
ATO ID 2008/134 - Transitional redundancy payments
ATO ID 2008/135 - Foreign income tax offset: New Zealand National Provident Fund pension
Withdrawals
ATO ID 2003/894 (Withdrawn) - FBT- Exempt Benefits: mobile phones
ATO ID 2003/1091 (Withdrawn) - Capital Allowances: first element of cost - paying an amount - issue of shares
ATO ID 2003/1092 (Withdrawn) - Capital Allowances: first element of cost - provision of a non-cash benefit - issue of shares
ATO ID 2003/1093 (Withdrawn) - Capital Allowances: first element of cost - incurring a liability to pay or provide - future share issue
ATO ID 2004/14 (Withdrawn) - Exempt benefits: Personal Digital Assistants (PDA's) - handheld and palm sized organisers
ATO ID 2006/44 (Withdrawn) - Exempt Benefits: work related item - notebook computer, laptop computer or similar portable computer
ATO ID 2006/115 (Withdrawn) - Excise: refusal to grant a licence on the basis that refusal is necessary to protect the revenue
ATO ID 2006/236 (Withdrawn) - Exempt benefits: work related items - laptop computer or similar portable computer - computer software
ATO ID 2006/256 (Withdrawn) - Energy Grants (Credits) Scheme: off-road credit - use of diesel fuel at a home for aged persons
ATO ID 2006/264 (Withdrawn) - Assessability of employment income received by a dual resident of Australia and Finland
ATO ID 2007/102 (Withdrawn) - Assessability of income derived by a resident of Finland from providing services in Australia as a contractor
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13. House of Representatives’ draft legislation program – 2008 Spring sittings week 5
The House of Representatives has released its draft legislation program for the period 13 to 16 October. It is expected to resume debate on the following tax related Bills:
- Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No.2)
- Tax Laws Amendment (Education Refund)
- Tax Laws Amendment (2008 Measures No.5)
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14. Recent ATO publications
Booklets and publications
Foreign exchange rates - List of daily, monthly and annual foreign exchange rates. Updated to include monthly and daily rates for September 2008.
Bilateral social security agreement with the Republic of Korea - Expalins the bilateral agreements between Australia and the Republic of Korea.
Bilateral social security agreement with the Hellenic Republic (Greece) - Explains the bilateral agreements between Australia and the Hellenic Republic (Greece).
Bilateral social security agreement with the Federal Republic of Germany - Explains the bilateral agreements between Australia and the Federal Republic of Germany.
Workforce education news: Issue 5 - This fifth issue of Workforce education news covers a range of topics affecting employers and professional associations, and their employees and members, including tax time information. Issued on September 24 2008.
eLink 38/08 - Bulletin to inform tax practitioners of the most recent updates to ato.gov.au including a lead article titled 'Have you seen our tax practitioner webcasts?'. Issued 1 October 2008
Administration
Fuel tax credit - How to complete your business activity statement - This guide will help you complete the fuel tax credit labels on your business activity statement. It also provides information about making mistakes or adjustments, lodging and paying, and a checklist. NAT 15531
GST and indirect taxes: refunds and amendment time limits - On 29 May 2008 the Government introduced legislation into Parliament to make changes to refunds and amendment time limits of GST and indirect taxes. This legislation was passed on 20 September 2008.
Lodgment program - frequently asked questions - Frequently asked lodgment questions and responses to assist tax agents manage their lodgment program.
Superannuation
Legal responsibilities for self-managed super funds - As a trustee of a self-managed super fund, you must operate your fund within the super and income tax laws.
Non-profit
Non-Profit News Service No. 0219 - New version of Fundraising guide - Oct 2008. We have released a new version of our Fundraising guide for non-profit organisations. The guide explains the tax treatment of fundraising activities and concessions available. It also outlines state, territory and local government requirements.
Minutes of meetings and related matters
Tasmanian Regional Tax Practitioner Working Group minutes - 29 April 2008 - Minutes from the meeting of the Tasmanian Tax Practitioner Working Group (RTPWG) held on 29 April 2008 in Hobart.
Commissioner's Small Business Consultative Group minutes - 2 June 2008 - Minutes of the Commissioner's Small Business Consultative Group meeting held on 2 June 2008.
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15. One month left to lodge your tax return
On 29 September, the Commissioner of Taxation reminded taxpayers that the 31 October deadline to lodge income tax returns is fast approaching with only one month to go.
The Commissioner advised that one of the easiest ways to lodge tax return is using e-tax which is available to download from the ATO website. He also reminded those using tax agents to lodge their tax returns to contact their tax agents by 31 October.
The press release is available here.
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16. National system for registering business names approved
On 2 October, the Prime Minister, Kevin Rudd, and the Minister for Small Business, the Hon Craig Emerson MP, announced in their joint press release that prospective business will be able to apply and pay for a national business name online through a single application under a new system approved by the Council of Australian Government (COAG).
To register a business name nationally at present, businesses have to apply separately in eight States and Territories and pay a fee eight times at a total cost of around $900. The new system will establish a one-stop online shop for businesses to interact with Government. It will save businesses time and money, with the single application covering both a business name and an Australian Business Number. For those businesses that want to register a name in a single State or Territory will still be able to do so within the national system.
The new system will be established by 2011.
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17. Financial centres become more transparent, but information exchange remains a problem for some: OECD report
Greater transparency to financial centres around the world are being achieved, but progress on exchange of information on tax issues is more limited, according to the Organisation for Economic Co-operation and Development’s (OECD) latest report. The 2008 Assessment by the Global Forum on Taxation notes that a number of countries have improved the availability of ownership information and access to bank information for tax purposes, however, only a small number of offshore financial centres have expanded their network of exchange-of-information agreements. It has also found that 11 of the 83 economies still do not have tax information exchange agreements in the form of Double Tax Conventions (DTCs) or Tax Information Exchange Agreements (TIEAs) that are either signed or in force.
According to OECD’s media release of 29 September, significant restrictions on access to bank information for tax purposes remain in three OECD countries – Austria, Luxembourg and Switzerland, and in a number of offshore financial centres, including Liechtenstein, Panama and Singapore. Further, a number of offshore financial centres that committed to implement the standards on transparency and the effective exchange of information developed by the OECD’s Global Forum on Taxation have failed to follow through.
The relevant media release is available here.
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18. First Home Saver Accounts starting 1 October
On 1 October, the Minister for Housing and Minister for the Status of Women, the Hon Tanya Plibersek MP, jointly with the Treasurer, the Hon Wayne Swan MP, issued a press release to mark the start of the First Home Saver Accounts.
The Accounts will be open for those aged between 18 and 65 and family members can contribute as well. The Government will provide a 17 per cent contribution on the first $5,000 of individual contributions made each year. This means that anyone who contributes $5,000 to their account will receive an $850 deposit from the Government.
Combined with a low tax rate of 15 per cent that is equivalent to superannuation, a couple both earning average incomes, putting 10 per cent of their income into individual First Home Saver Accounts, will be able to save more than $88,000 after five years depending on returns. This is almost $13,000 more than they would have saved in a standard savings account, according to the press release.
From 1 October, the Accounts will be offered by major financial institutions across the country – including ANZ, Commonwealth Bank, AMP, Members Equity and several credit unions.
Further details on First Home Saver Accounts are published on the ATO website.
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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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