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1. Review of the tax arrangements applying to managed investment trusts: discussion paper released
On 29 October, the Chairman of the Board of Taxation issued a press release announcing the release of the Board’s discussion paper on the review of the tax arrangements applying to managed investment trusts (the Review). The Board has been asked to provide a final report to the Government around the middle of 2009.
Members may recall that on 22 February this year, the Assistant Treasurer announced that he had asked the Board to undertake a review of the tax arrangements applying to managed funds that operate as managed investment trusts, as was reported in Edition 6/2008 of the Tax Bulletin which contains links to the relevant press release and the Review’s terms of reference.
The objective of the Review is to provide advice on options for introducing a specific tax regime for managed investment trusts which would reduce complexity, increase certainty and minimise compliance costs. In developing the discussion paper, the Board has conducted targeted consultations with key stakeholders. The Board is inviting submissions by 19 December 2008.
The Institute has been an active advocate in this area and will be lodging a submission on the discussion paper. If members have any comments on the discussion paper which they would like to be taken into account in our submission, please email them to the Tax Group, no later than 10 December 2008.
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2. Trust cloning tax concession to be abolished
The Assistant Treasurer, the Hon Chris Bowen MP, issued a press release on 31 October, announcing the Government’s decision to remove the current CGT trust cloning exception to CGT events E1 and E2. Amendments will apply to CGT events happening after 31 October 2008.
Mr Bowen said that removing the trust cloning exception is consistent with the policy principle of taxing capital gains that arise where there is a change in ownership of an asset, as typically occurs on the creation of a trust over a CGT asset (event E1) and on transferring a CGT asset to an existing trust (event E2). However, a mere change of trustee of a single trust will continue not to trigger a CGT taxing point.
Legislation giving effect to this measure will be introduced as soon as practicable. Initial consultation will be undertaken on the design of these amendments, to be followed by an exposure draft legislation which will be published on the Treasury website.
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3. Revised tax treaty negotiations with the UK
On 28 October, the Assistant Treasurer, the Hon Chris Bowen MP, issued a press release announcing the commencement of negotiations on a revised tax treaty with the UK. He said that UK businesses view Australia as an attractive base for regional operations and modernising the existing tax treaty, which was signed in 2003, will ensure that optiomal tax conditions operate for those businesses and individuals with dealings in both countries.
This initiative follows the Government’s recent signing of the tax treaty with Japan, the Protocol with South Africa, and the renegotiation of the Australia-New Zealand tax treaty, where talks commenced earlier this year and are expected to conclude by year end.
Treasury is inviting submissions on the UK tax treaty by 14 November 2008. The Institute is planning to lodge a submission and would welcome comments from members, which can be emailed to the Tax Group by 7 November.
The Institute will also be participating in the Tax Treaties Advisory Panel meeting on 6 November, where matters for consideration in the negotiations can be initially flagged.
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4. Institute attends the NSW Tax Agent’s Board meeting
On 28 August, Donna Bagnall of the Institute, along with representatives of other professional bodies, attended the annual Tax Agent’s Board of New South Wales (the NSW Board) meeting. While a number of broad topics were discussed, the focus of the meeting was very much on the challenges facing the NSW Board and the tax profession during the transition to the ‘new world’ under the proposed regulatory regime governing tax practitioners.
Tax Agent Services Bill
The Tax Agent Services Bill, which contains the framework for the new regime, is schedule to go into Parliament for its first reading in November 2008, with the second reading expected between March and June 2009. It is anticipated that the new law will come into force on 1 January 2010. As reported in Edition 25/2008 of the Tax Bulletin, the Institute lodged a joint submission with CPA Australia and the National Institute of Accountants on the Exposure Draft Tax Agent Services Bill 2008.
The NSW Board should therefore be in place until the end of 2009, until the National Board is created under the new national regime.
New challenges for the National Board include managing:
- National responsibilities
- BAS preparers
- Unregistered agents
- A new Code of Conduct
- A new range of penalties
- Civil penalty regime
- Board independence (from the Australian Taxation Office)
- Expert/specialist registrations
A key strategy for managing the transitional challenges will be early preparation. The NSW Board suggests that this could be assisted through the formation of groups to work with the ‘National Board’ towards developing and implementing the vital policies, procedures and systems that will need to be in place for a seamless transition. This may involve the pooling of resources of the current Boards, the professional bodies, and members of the tax profession. This is a preliminary suggestion by the NSW Board which has no authority from any other Board to make the suggestion. The Institute will continue to offer its strong support to the Boards during this process, and will be heavily involved in assisting with this important collaborative program of work in 2009.
Complaints resolution pilot program
The NSW Board has launched a new pilot program for early intervention and complaints resolution. The pilot program has been running since 1 July 2008 and is proving to be successful at resolving disputes in a timely manner before they escalate. Under the pilot, provided no serious misconduct is alleged, complaints made to the NSW Board are actioned in the first instance by an officer calling the complainant within days, notifying the tax agent concerned, and taking steps towards negotiation and conciliation between the parties. The complaints team field officer may also do field work as part of the process, such as visiting the tax agent. The Board emphasises that any intervention or resolution cannot affect the Board considering the complaint, particularly the more serious complaints. The early intervention program is proving to be effective in relation to complaints which are relatively easy to resolve such as failure by agents to return client calls or correspondence or to hand over documents.
Also, other topics on the agenda included:
- Peak periods, statistics and issues
- Increased co-operation in regulatory matters
- Data sharing & access to data
- Best practice initiatives
- Potential membership of disciplinary committees of new national Board.
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5. BCTR progresses its initiative on State business tax reform
On 30 October, the Institute’s Senior Tax Consultant, Donna Bagnall, participated in a workshop on the reform of State business taxes, held by the Business Coalition for Tax Reform (“BCTR”).
The BCTR invited the Institute, as a member of its coalition of key tax organisations, to attend the workshop to discuss and provide input into its draft report on “State business tax reform”. The draft report was prepared by the Centre for International Economics (“CIE”) on behalf of the BCTR, and is expected to be revised this week to incorporate feedback from workshop participants.
The comprehensive draft report was designed to take a strategic approach in reviewing and recommending large-scale reforms to State taxes, and is backed by economy-wide modelling which assesses the economic impacts of proposed reform packages.
Once finalised, it is intended that the report on “State business tax reform” will be used as the basis for a submission to the Henry review of Australia’s Future Tax System.
The Institute has been actively involved in providing feedback on the draft report, and is excited to have this valuable opportunity to provide submissions on much needed indirect tax reforms.
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6. Joint submissions on draft Taxation Determinations
The Institute has lodged joint submissions, available on the Institute website, on the following draft Taxation Determinations:
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?
TD 2008/D14 - Income tax: does subsection 974-135(1) of the Income Tax Assessment Act 1997 only apply to a legally enforceable obligation?
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7. Financial institution exemption overridden, withholding tax applied under US treaty Deutsche Asia Pacific Finance Inc v Commissioner of Taxation (No. 2) [2008] FCA 1570
The Federal Court (Edmonds J) has held that a distribution of a share of profit by a NSW limited partnership to a US corporation was not relieved from withholding tax in whole or in part.
The applicant, Deutsche Asia Pacific Finance Inc (DAPFI), a subsidiary of Deutsche Bank AG and a US resident, claimed that it was exempt from withholding tax in respect of distributions from a NSW limited partnership under Article 11(3)(b) of the US tax treaty, as amended by the Protocol (the Treaty). However, the Commissioner considered that Article 11(9)(a) of the Treaty, concerning interest that is determined with reference to the profits of the issuer, precluded the operation of the financial institution exemption in Article 11(3)(b).
Although income payments by a limited partnership to a limited partner are generally taxed as dividends, in this case Division 974 of the ITAA97 operated such that payments to DAPFI were treated as a return on a ‘debt interest’ (a non-equity share) and deemed to be interest for the purposes of withholding tax and the Treaty.
In finding for the Commissioner that Article 11(9)(a) of the Treaty applied to override the denial of the right to tax under Article 11(3)(b) of the Treaty, the Court found, inter alia, that the distributions fitted the description of ‘interest that is determined with reference to the profits of’ the limited partnership, with the rate of withholding tax in this case limited to 15%.
The Court also determined that reliance by DAPFI on the public ruling, TR 2005/5, which includes discussion on the right to tax interest paid to US resident financial institutions under the Treaty, was misplaced.
Arguments advanced by the applicant for relief from withholding tax in part were also rejected by the Court.
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8. Amended assessments not invalidated by failure to consider matters - Kocic v Commissioner of Taxation [2008] FCA 1576
The Federal Court (Edmonds J) has dismissed an application for a declaration that assessments issued by the Commissioner were not a proper assessment under the ITAA 1936 and that it should be declared invalid and quashed. The applicant argued that, in raising the amended assessments for the relevant years, the Commissioner had increased gross income, but had not made a ‘bona fide’ attempt to consider whether there were any expenses incurred by the company in gaining or producing the additional income which should be deducted.
His Honour held that sections 175 and 177(1) of the ITAA 1936 made it clear that the validity of assessments were not affected by any failure to comply with a provision of the Act, and as such, the applicant’s contentions did not have “any reasonable prospect of success”.
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9. Departure prohibition order set aside as unlawfully made - Pattenden v Commissioner of Taxation [2008] FCA 1590
The Federal Court (Logan J) has set aside a Departure Prohibition Order (DPO) purportedly issued against the taxpayer by a Deputy Commissioner of Taxation (DCT).
Justice Logan applied the three principal tests developed in Poletti v Commissioner of Taxation (1994) 52 FCR 154for assessing the merits of an appeal against a DPO, namely whether:
- the person is subject to a tax liability;
- the Commissioner held the belief that it was desirable for the taxpayer not to depart Australia until the tax liability was wholly discharged; and
- reasonable grounds existed for forming that belief.
His Honour held that the DPO had been issued unlawfully either because it reflected the decision of persons not authorised to make a DPO. The Court noted that the decision as to the final tax liability amount was made by an unauthorised subordinate, as was the affixing of the DCT’s signature to the DPO. In addition, the evidence showed no reasonable grounds warranting a conclusion that the taxpayer was “flight risk”.
The Federal Court observed that the power to make a DPO is “a serious intrusion on a person’s freedom of movement”, and as such, non-procedural aspects of the decision must be made by the authorised officer.
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10. Taxpayer deemed to have actual knowledge of matters communicated to agent – no effective disclaimer of interest in trust - Confidential v Commissioner of Taxation [2008] AATA 927
In this interlocutory application, the Tribunal has declined to make orders that the taxpayer effectively disclaimed the gift of a beneficial interest in a trust (under a Deed of Disclaimer entered into in April 2007). This was because the taxpayer had not acted reasonably promptly in disclaiming his interest, as his solicitor (agent) knew about that interest some months earlier.
The Commissioner raised a default assessment against the taxpayer because of his failure to disclose trust distributions as part of his assessable income in 2002. The taxpayer had instructed a solicitor to act on his behalf in relation to his taxation affairs, which included discussions with the ATO in 2006. The solicitor became aware of the taxpayer’s interest under the trust in the course of those negotiations, although he never communicated that fact to the taxpayer.
The Tribunal stated that the relevant authorities make it clear that ‘a principal will be deemed to have actual knowledge of matters communicated to an agent “in the course of, and which is material to, a transaction in which the agent is employed on behalf of the principal” … provided the agent is under a duty to communicate that knowledge to the principal.’ That knowledge will be attributed to the principal even if the agent does not pass on the information, as was the case here.
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11. Taxation Determinations
Withdrawals
TD 2006/69 - Income tax: capital gains: small business concessions: must a taxpayer receive actual capital proceeds from a CGT event to qualify for the small business retirement exemption under Subdivision 152 D of the Income Tax Assessment Act 1997?
TD 2006/70 - Income tax: capital gains: is a bank account or cash on hand included in the numerator of the ‘80% test’ calculation in paragraph 152-40(3)(b) of the Income Tax Assessment Act 1997?
Addenda
TD 2006/63A - Income tax: capital gains: is a CGT asset that is leased by a taxpayer to a connected entity for use in the connected entity’s business an active asset under section 152-40 of the Income Tax Assessment Act 1997?
TD 2006/63A2 - Income tax: capital gains: is a CGT asset that is leased by a taxpayer to a connected entity for use in the connected entity's business an active asset under section 152-40 of the Income Tax Assessment Act 1997?
TD 2006/65A - Income tax: capital gains: small business concessions: can a share in a company or an interest in a trust qualify as an active asset under subsection 152-40(3) of the Income Tax Assessment Act 1997 if the company or trust owns interests in another entity that satisfies the ‘80% test’?
TD 2006/71A - Income tax: capital gains: small business concessions: is the part of a payment which is a small business 50% reduction amount a non-assessable part under CGT event E4 in section 104-70 of the Income Tax Assessment Act 1997?
TD 2006/71A2 - Income tax: capital gains: small business concessions: is the part of a payment which is a small business 50% reduction amount a non-assessable part under CGT event E4 in section 104-70 of the Income Tax Assessment Act 1997?
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12. Taxation Ruling – Addendum
TR 2003/4 - Income tax: boat hire arrangements
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13. Draft Goods and Services Tax and Miscellaneous Taxation Rulings
The ATO has issued the following Goods and Services Tax and Miscellaneous Draft Taxation Rulings:
GSTR 2008/D4 - Goods and services tax: cancellation fees
MT 2008/D4 - Miscellaneous taxes: notification requirements for an entity under section 105-55 of Schedule 1 to the Taxation Administration Act 1953
The Institute will be preparing or co-ordinating the preparation of submissions to the ATO in respect of these Draft Goods and Services and Miscellaneous Taxation Rulings. If you have any comments please e-mail them to us at Tax Group by 28 November 2008.
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14. Class Ruling
CR 2008/66 - Income tax: scrip for scrip: acquisition of Just Group Limited by Premier Investments Limited
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15. Product Ruling - Erratum
PR 2008/65 - Income tax: Great Southern 2009 High Value Timber Project
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16. ATO Interpretative Decisions
ATO ID 2008/141 - Division 719: MEC Groups - Special Conversion Event
ATO ID 2008/142 - Excess contributions tax: non-concessional contributions - personal injury payment - contribution to fund within 90 days of receiving a payment from Public Trustee (NSW)
ATO ID 2008/143 - Assessability of allowances received from employment in a foreign country
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17. House of Representative’s draft legislation program – 2008 Spring sittings week 7
The House of Representative has released its draft legislation program for the period 10 to 13 November and it is expected to resume debate on the following tax related Bills:
- Tax Laws Amendment (Education Refund) – 10 November
- Tax Laws Amendment (2008 Measures No.5) - 12 November.
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18. Recent ATO publications
Booklets and publications
Working together to combat tax haven abuse Tax haven abuse is a worldwide problem, and one that has been on the Tax Office's risk radar for many years.
Free tax support Provides information about Tax Office free tax support by phone, on-site visits, local seminars and workshops.
Administration
Digital certificate portability - You are now able to login to the Tax Agent Portal from any computer with an internet connection by copying your digital certificate onto a USB stick.
Portal maintenance schedule - Scheduled downtime for 2008.
eLink 41/08 Bulletin to inform tax practitioners of the most recent updates to ato.gov.au including a lead article titled 'Legal practitioners'. Issued on 22 October 2008.
eLink 42/08 - Bulletin to inform tax practitioners of the most recent updates to ato.gov.au including a lead article titled 'Tax practitioner webcasts'. Issued on 29 October 2008.
Tax practitioner webcasts - Tax practitioner webcasts are short video streaming presentations that cover current and relevant topics of interest to tax practitioners. Updated with new topics 21 October 2008.
GST
Reporting mistakes on GST and property transactions If you are a property owner, developer or are registered for GST and you use your property differently from the way you planned to, you may have to report a GST adjustment. You can do this by completing a Voluntary Disclosure Statement.
Fuel tax credits and GST instalments This fact sheet provides information on how to claim your fuel tax credits if you pay GST by instalments.
Superannuation
Tax and superannuation debt - frequently asked questions Frequently asked tax and superannuation debt questions and responses to assist tax agents manage their clients' tax obligations.
Non-Profit
Non-Profit News Service No. 0221 - Luxury car tax changes From 1 July 2008, a 33% luxury car tax (LCT) rate applies to most vehicles over the luxury car tax threshold of $57,180.
Non-Profit News Service No. 0220 - Time limits on GST refunds A GST budget announcement has recently been enacted which means as of 1 July 2008, a four year time limit will apply to the recovery or refund of certain indirect taxes, including the refund of GST credits.
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19. IGOT’s report into the ATO’s management of major, complex issues released
On 29 October, the Assistant Treasurer, the Hon Chris Bowen MP, released the Inspector-General of Taxation’s (IGOT) report, Improvement to tax administration arising from the Inspector-General’s case study reviews of the Tax Office’s management of major, complex issues. The report is the fourth and final report on major complex issues.
The report, which arose from three case study reviews, covered three topics put forward by community stakeholders as examples of their concern that the ATO takes too long to come to grips with and satisfactorily resolve major, complex issues. The three topics relate to service entity arrangements, living away from home allowances, and research and development syndicates.
The report provides areas for improvement and specific changes agreed for implementation through joint work with the ATO. It also outlines the ATO’s current approaches to the management of major, complex issues.
The relevant press release is available here.
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20. Tax information exchange agreement between Australia and the British Virgin Islands
On 28 October, the Australian Assistant Treasurer, the Hon Chris Bowen MP, and the Premier of the British Virgin Islands (BVI), the Hon Ralph O’Neal OBE, issued a joint press release announcing the signing of a Tax Information Exchange Agreement (TIEA) between the two countries. This is the fourth TIEA signed by Australia and the second signed by the BVI.
Under the TIEA, Australia and the BVI have agreed ‘not to apply prejudicial or restrictive measures based on harmful tax practices to residents and nationals’. Also, the Australian Government will remove any references to the BVI as a ‘tax haven’ and will list the BVI as an ‘information exchange country’ in the Taxation Administration Regulations 1976. This will allow residents of the BVI to access reduced withholding tax rates on distributions of certain income received from Australian managed investment trusts.
Beyond the TIEA, Australia and the BVI have signed a further agreement to allocate taxing rights in respect of certain income of students and Government employees. This will benefit both Australian and BVI residents. Australia and the BVI have also undertaken to discuss and co-operate on other areas of mutual interest, as appropriate.
The relevant agreements are available here, and the joint press release is available here.
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21. ATO and Integral Energy signs Annual Compliance Arrangement
After last week’s signing of Australia’s first Annual Compliance Arrangement (ACA) with ANZ, on 30 October, the ATO signed another ACA, with Integral Energy (IE). The ACA covers Integral Energy’s GST obligations of which there are over 300,000 GST transactions every month.
IE’s CEO Vince Graham said that the ACA built on five years’ work with the ATO on GST compliance. The GST ACA is effective from 1 November and will run for an initial period of three years.
The relevant media release is available here.
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Chartered Accountants Tax Update for Business
Throughout November 2008 and March 2009 in 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.
Chartered Accountants Trusts and Tax for Property Seminars
Throughout November in Cairns, Hobart, Launceston, Canberra, Albury, Moree, Dubbo, Port Macquarie and Lismore. Unlock the tax benefits in trusts. Analyse the key tax attributes of trusts and recent litigation developments and how those tax attributes can be used effectively in a commercial environment.
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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 Tax Group.
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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