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1. Treasury discussion paper, Abolishing the capital gains tax trust cloning exception released
As reported in last week’s Tax Bulletin, 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, applying to CGT events happening after 31 October 2008.
It was indicated that the legislation giving effect to this measure would be introduced as soon as practicable and initial consultation would be undertaken on the design of these amendments, to be followed by Exposure Draft legislation.
Following the press release, on 5 November, a discussion paper on these proposed changes was released by the Treasury, to provide interested parties with an opportunity to provide comments on the policy design of the changes. The due date for submissions is 3 December 2008.
For more information, go here.
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2. Tax Treaties Advisory Panel meeting
Christian Holle (PwC) and Karen Smith of the Institute participated in the Treasury’s Tax Treaties Advisory Panel meeting held on 6 November. Most of the discussions were confidential but included:
- An overview of some of the changes in the 2008 update of the OECD Model Tax Convention
- A report on the United Nations Committee of Experts on International Cooperation in Tax Matters – this committee has a broad mandate to encourage international co-operation in tax matters, with special emphasis on the needs of developing countries and countries with economies in transition. This is in addition to updating the UN model double tax convention. More on this committee is here
- Discussion of the review of the United Kingdom tax treaty as announced by the Assistant Treasurer in October – in the Notes to the Convention, there is an undertaking made by both governments to agree that at intervals of not more than 5 years, they will review the terms, operation and application of the Convention to ensure that it continues to meet its purpose
- NZ update
- Treasury currently has no mandate from the Government to pursue any other treaties apart from NZ and UK and therefore there is no progress on this front (even on the MFN countries where negotiations had already begun)
- The Japanese treaty will take effect from 1 January 2009
- The French treaty will not enter into force in 2008
- ATO update on recent cases and rulings
- Various technical issues.
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3. ATO Tax Practitioner Forum meeting
On Friday 7 November, Norman Kang and Donna Bagnall attended the ATO Tax Practitioner Forum (ATPF) on behalf of the Institute. Key issues discussed at the meeting included:
- Presentation on the Cash Economy Benchmark Program
- Update on the Small Business Assistance Program
- Centrelink issues that impact on tax practitioners
- Current application of penalties imposed on unregistered agents
- The purpose and methodology of the ATO Tax Agent Technology Survey
- Update on the partnership and trust distribution project
- Current ATO protocols in the way calls are redirected by the Tax Agents’ Information Services telephone lines
- A presentation on the new service delivery model for tax practitioners
- TFN applications service standards.
For more details on the above issues or other topics discussed, please refer to the agenda for the meeting, with draft ATO responses, which is available here, and/or email the Tax Group.
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4. NTLG – Foreign Source Income Subgroup – call for agenda items
The next meeting of the ATO’s NTLG – Foreign Source Income Subgroup is planned for 25 November. The Institute’s representative on this subgroup is Ann Previtera (PwC).
Broadly, the subgroup provides a forum for raising and discussing issues associated with foreign source income, including matters concerning controlled foreign companies, foreign investment funds, transferor trusts, foreign tax credits/offsets (including transitional provisions, also in regard to losses), foreign income exemptions, foreign hybrid entities and the interaction of the foreign source income measures with other provisions of the tax legislation (eg consolidation, CGT).
The focus of the subgroup is on seeking out administrative and interpretative solutions, not on addressing legislative or policy problems.
Members with issues to raise in this forum should email them to the Tax Group by Monday, 17 November.
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5. No extension to appeal cancelled tax agent registration – Christou v The Tax Agents’ Board of Western Australia [2008] FCA 1625
The Federal Court (Gilmour J) has dismissed an application seeking an extension of time to appeal from a decision of the Administrative Appeals Tribunal (the Tribunal). In that case, the Tribunal had affirmed a decision of the Tax Agent’s Board of Western Australia (TABWA) to cancel the applicant’s registration as a tax agent under section 251K(2) of the Income tax Assessment Act 1936. The registration was cancelled on the basis of the applicant’s failure to lodge income tax returns from 2001-2005, history of non-compliance and conviction for serious tax offences.
In dismissing the application, Justice Gilmour held that the finding that the applicant was not a fit and proper person to prepare returns on behalf of taxpayers, which followed automatically because of his conviction, was itself sufficient grounds for exercising the discretion to cancel the registration where there were no mitigating circumstances. As the appeal had no prospect of success on its merits, his Honour refused to grant the extension to appeal.
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6. Disallowance of deductions for various expenses, level of penalties imposed - Saleh v Commissioner of Taxation [2008] AATA 979
As a result of an audit covering the 2000-2004 years, the Commissioner disallowed deductions claimed by the applicant for self-education expenses, car (travel) expenses, uniform/laundry expenses and ‘other’ expenses. In addition, omitted income was discovered.
In regard to the self-education expenses, the taxpayer could not establish how any of the courses related to his employment or how the amounts had been calculated. The applicant also had no evidence of the fees or other costs for books and the like. The Tribunal therefore upheld the Commissioner’s objection decision.
The Tribunal accepted the methodology of the Commissioner in relation to car travel and laundry expenses and made various decisions in regard to the ‘other’ expenses. Included in ‘other’ expenses was an amount of $13,850 described as an ‘initial customers’ fee related to the purchase of a cleaning franchise in 2003. The Tribunal was unable to establish a connection between the fee and any of the terms in the Franchise Agreement, or any of the amounts specified as payable under that agreement so the decision to disallow a deduction was affirmed.
The taxpayer was liable to additional tax of 50 per cent of the shortfall for ‘failure to take reasonable care’ or ‘recklessness’ in respect of the omitted income and the self-education expenses. The appropriate penalty for the remaining categories was 25 per cent for failure to take reasonable care.
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7. Decision Impact Statement
On 7 November, the ATO issued a Decision Impact Statement on the Tribunal’s decision in Lenten v Commissioner of Taxation [2008] AATA 281. As reported in Edition 14/2008 of the Tax Bulletin, travel expenses for an overseas study tour and magazines/newspapers incurred by an employee teacher were held to be deductible in part under section 8-1 of the Income Tax Assessment Act 1997. The DIS includes the statement, ‘The Commissioner considers that the decision is able to be viewed as being consistent with established general principles of deductibility under section 8-1 in relation to expenses incurred by employees’ but goes on to say, ‘The Tribunal noted that 'each case must be considered on its own peculiar facts'’.
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8. Appeals update
The following appeals to the Full Federal Court have been made:
- The Commissioner has lodged an appeal against the decision of Edmonds J in Virgin Holdings SA v Commissioner of Taxation [2008] FCA 1503. As reported in Edition 40/2008 of the Tax Bulletin, in that decision the Federal Court held that Australia was denied the right to tax the gain on a sale of shares in an Australian subsidiary under the ‘pre-CGT’ Swiss tax treaty.
- The taxpayer has lodged an appeal against the decision of Edmonds J in 3D Scaffolding Pty Ltd v Commissioner of Taxation [2008] FCA 1477 where the Federal Court held that there was no error in the decision of the Tribunal to disallow deductions for alleged scaffolding hire, as reported in Edition 38/2008 of the Tax Bulletin.
- The taxpayer has lodged an appeal against the decision of Jessup J in Lawrence v Commissioner of Taxation [2008] FCA 1497. In that decision, the Federal Court found that the relevant scheme had substantially the same effect as a dividend stripping scheme such that Part IVA applied (based upon s 177E(1) of the Income Tax Assessment Act 1936). A summary of that decision is here.
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9. Draft Self Managed Superannuation Funds Ruling
SMSFR 2008/D5 - Self Managed Superannuation Funds: The meaning of ‘asset’, ‘loan’, ‘investment in’, ‘lease’ and ‘lease arrangement’ in the definition of an ‘in house asset’ in the Superannuation Industry (Supervision) Act 1993
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10. Draft Superannuation Guarantee Ruling
SGR 2008/D2 - Superannuation guarantee: meaning of the terms ‘ordinary time earnings’ and ‘salary or wages’
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11. Class Rulings
CR 2008/67 - Income tax: share buy back: Santos Limited
CR 2008/68 - Income tax: capital gains tax: conversion of Swan Taxis Co operative Limited to Swan Taxis Limited, an unlisted public company registered under the Corporations Act 2001
CR 2008/69 - Income tax: return of capital: MYOB Limited
CR 2008/70 - Income tax: assessable income: Australian Federal Police deployed to the Solomon Islands
CR 2008/71 - Income tax: assessable income: Australian Federal Police deployed to Timor-Leste
CR 2008/72 - Income tax: Skilled Group Limited Executive Share Option Plan
Withdrawals
CR 2003/61 - Income tax: Assessability of income: Australian Federal Police (AFP) and Australian Protective Service (APS) employees deployed to the Solomon Islands
CR 2006/89 - Income tax: assessable income: Australian Federal Police deployed to Timor-Leste in accordance with the arrangement dated 26 May 2006
CR 2006/108 - Income tax: assessable income: Australian Federal Police personnel on long term, non-diplomatic posting to East Timor (Timor-Leste) under the auspices of the Timor-Leste Police Development Program
CR 2006/109 - Income tax: assessable income: Australian Federal Police personnel on long term, non-diplomatic posting to Solomon Islands under the auspices of the Regional Assistance Mission to the Solomon Islands
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12. Product Rulings
PR 2008/71 - Income tax: tax consequences of investing in Next Financial Instalments – Series NF 330
Withdrawal
PR 2008/13 - Income tax: tax consequences of investing in Next Financial Instalments – Series NF 330
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13. Legislation update
The following tax-related Bills received Royal Assent on 31 October:
- Tax Laws Amendment (Medicare Levy Surcharge Thresholds)(No.2) 2008
- International Tax Agreements Amendment (No.2) 2008.
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14. Senate’s draft legislation program – 2008 Spring sittings week 7
The Senate has released its draft legislation program for the period 10 to 13 November. It is expected to resume debate on Tax Laws Amendment (Political Contributions and Gifts) Bill on 12 November, subject to Committee reporting.
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15. Recent ATO publications
Booklets and publications
Schools - December monthly activity statement deferral - Schools and associated bodies have been granted a deferral of lodgment of their December 2008, December 2009 and December 2010 monthly activity statements.
Foreign exchange rates - List of daily, monthly and annual foreign exchange rates. Updated to include monthly and daily rates for October 2008.
Response to a number of reports regarding Project Wickenby investigations - Letter by Tax Commissioner Michael D'Ascenzo about recent media reports suggesting the Tax Office leaked information about investigations relating to the Project Wickenby Taskforce.
Administration
Tax Agent Portal eligibility - The Tax Agent Portal provides convenient access to your client's information and allows you to conduct transactions with us in a secure online environment.
Superannuation
Superannuation and insolvency administrations - The following information sets out how superannuation affects various Insolvency administrations. Updated to include the maximum superannuation guarantee charge amount afforded priority in bankruptcy situations, in respect of the year beginning 2008.
Allocating funds earned in self-managed super funds - Information to help you work out how to allocate funds earned in your self-managed super fund (SMSF)
Superannuation Consultative Committee minutes - 2 September 2008 - Issues discussed include standard business reporting, the Compliance program 2008-09, and updates on new measures, ordinary time earnings and simpler super.
CGT
Demutualisation of health insurers - This measure amends the income tax laws to provide capital gains tax (CGT) certainty to policy holders of health insurers who receive shares or cash as part of their health insurer's demutualisation.
GST
GST annual compliance arrangements - Explains GST annual compliance arrangements
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.
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16. Treasury discussion paper, Demutualisation of friendly societies and capital gains tax released
As reported in Edition 41/2008 of the Tax Bulletin, on 24 October, the Assistant Treasurer, the Hon Chris Bowen MP, announced that with effect from 1 July 2008, the Government will provide relief from CGT for policyholders of friendly societies, including joint health and life insurers, which demutualise to for profit entities. He indicated that consultation will be undertaken on the design of these amendments and a discussion paper will be released shortly.
On 7 November, a discussion paper entitled Demutualisation of friendly societies and capital gains tax was released. It forms the basis for consultation on the proposal and sets out, in broad terms, the way it may be implemented. Treasury is inviting submissions by 5 December 2008.
For more details, go here.
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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 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 Sunshine Coast, 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 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.
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