Edition 17/2008
12 May 2008
HEADLINES
- Treasurer's pre-budget tax reform announcements on the Sunday Program
- Amending law to address anomalies in GST refunds and time limits
- Special coverage of Federal Budget
INSTITUTE NEWS
- Institute meets with the Inspector-General of Taxation
- NTLG FBT sub-committee meeting
- NTLG F&I sub-group minutes of meeting
- Joint submission on draft determination
CASES
- Premium rebates paid to taxpayer after retirement held assessable as ordinary income - Mews v Commissioner of Taxation [2008] AATA 357
- No entitlement to off-road credits, penalty appropriate - Rebmik Contractors Pty Ltd and Commissioner of Taxation [2008] AATA 335
- Decision Impact Statement - KAP Motors Pty Ltd v Commissioner of Taxation
RULINGS
- Taxation Determinations
- Goods and Services Tax Ruling
- Draft Taxation Ruling
- Class Ruling
- Product Rulings - Addenda
- ATO Interpretative Decisions
- Practice Statement
- Taxpayer alert
LEGISLATION
- Legislation proposed for introduction in the 2008 winter sittings
- House of Representatives' draft legislation program
- Senate's revised draft legislation program
ATO PUBLICATIONS
- Recent ATO publications
OTHER NEWS
- Transcript of the third biannual hearing with the Commissioner of Taxation
- Report on the review of ATO's information security released
- Commissioner issued tax alert warn against tax evasion arrangements in Vanuatu
- Minister for Superannuation and Corporate Law meets IOSCO Secretary General
TRAINING AND DEVELOPMENT
HEADLINES
1. Treasurer's pre-budget tax reform announcements on the Sunday Program
Speaking at an interview on Channel Nine's Sunday program yesterday, the Treasurer, the Hon Wayne Swan MP, has provided further details on the "root and branch" review of the Australian taxation system which was first announced by Prime Minister, Kevin Rudd following the 2020 summit. Mr Swan confirmed that it will be a comprehensive review, looking at Federal, Local and State Government taxes.
"We will look at personal taxation, we'll look at the transfer payment system ... we'll look at the company tax system, and we'll also look at all of the implications, say, of an emissions trading system", said the Treasurer.
The Treasurer reiterated that the GST base will not be broadened and neither will the GST rate increase as a result of this review. Any changes to the "tax-free super" were also ruled out.
Mr Swan has also announced the composition of the review panel. It will be chaired by the Treasury Secretary, Dr Ken Henry, who will be assisted by Professor John Piggott from the University of New South Wales. Other panel members will be Heather Ridout from the Australian Industry Group, Mr Greg Smith who is a former Department Treasury executive and Mr Jeff Harmer from the Department of Families, Housing, Community Services and Indigenous Affairs.
Other budget measures that were foreshadowed during the interview include an increase in the luxury car tax from 25 per cent to 33 per cent.
The transcript of the interview is available here.
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2. Amending law to address anomalies in GST refunds and time limits
In a media release issued on 6 May, the Treasurer, the Hon Wayne Swan MP, announced that the Government will seek to amend the tax law "to overcome an anomaly limiting the scope of the restriction on refunds to taxpayers if GST is overpaid". The proposed amendment is in response to the Federal Court decision in KAP Motors Pty Ltd v Commissioner of Taxation [2008] FCA 159 which allowed a refund to be made on motor dealership holdback payments that were overpaid because of a mistaken belief that the holdback payments were subject to GST.
The Minister said that the decision is inconsistent with the general operation of the refund provisions and it also highlighted an anomaly in the operation of the four-year limit on the payment and refund of indirect taxes. He said that the Government will seek to amend the tax law to ensure that business must generally reimburse a corresponding amount to their customers even if the transactions for which the tax was paid are found not to be supplies. Also, the Government will seek to ensure a consistent four-year time limit applies to refunds and liabilities for indirect taxes.
These proposed amendments apply to refunds on overpayments for tax periods starting on or after 1 July 2008 and address the anomaly for the four-year limits for GST, wine equalisation tax, luxury car tax and fuel tax credits notified on or after 1 July 2008.
Note that on the same day the ATO released a Decision Impact Statement (DIS) on KAP Motors. The Commissioner is not appealing the Court's decision and the DIS sets out the ATO's administrative treatment, in particular, in relation to claims for a refund (refer item 10).
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3. Special coverage Federal Budget 2008-09
A comprehensive analysis of Federal Budget 2008-09 will be captured in an exclusive "Special Edition Tax Bulletin: Federal Budget 2008" prepared by CCH and emailed to members on Budget night, Tuesday 13 May 2008. This special bulletin, along with the Institute's media release on the Federal Budget, will be available on the Institute's website as well.
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INSTITUTE NEWS
4. Institute meets with the Inspector-General of Taxation
On 9 May the Institute's Tax Counsel, Ali Noroozi, Susan Cantamessa from the Institute and representatives of a number of other organisations attended a formal luncheon meeting hosted by the Inspector-General of Taxation (IGOT), David Vos, and his team. The IGOT provided participants with an update on his current work program and an opportunity to comment on potential issues for future review and other matters of mutual interest.
Members who would like more information about the meeting are welcome to e-mail us at Tax Group.
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5. NTLG FBT sub-committee meeting
On 8 May, Paul Ellis (Ernst & Young) and Norman Kang, attended the National Tax Liaison Group (NTLG) FBT Subcommittee meeting on behalf of the Institute. Issues discussed included the following:
- FBT publications, cases, rulings, etc issued since the February meeting
- FBT audit/compliance activities on car projects and meal cards research
- Infrequent and irregular benefits under section 58P of the FBTAA
- Revoking a 50/50 split method election in respect of meal entertainment
- The various scenarios of living away from home and how it is to be treated
- Car fringe benefits and per kilometre reimbursements
- When an in-house expense payment fringe benefit is provided
- Application and updating of MT 2024 - Dual cab eligibility for exemption where private use is limited to certain work travel.
For more details on the above issues or other topics discussed, please refer to the agenda for the meeting.
The ATO's response will be available once the draft minutes of the meetings are approved. They will be published on the ATO website and a link provided in the Tax Bulletin.
The next meeting will be on 14 August 2008. If members have any issues they would like to raise please email us at Tax Group.
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6. NTLG F&I sub-group minutes of meeting
Minutes of the NTLG F&I subgroup meeting on 27 February 2008 have been finalised and a copy is available here. The minutes will also be available on the ATO website in due course.
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7. Joint submission on draft determination
The Institute has lodged a joint submission, available on the Institute website, on the following draft determination:
TD 2008/D7 - Income tax: is an exceptional circumstances relief payment paid to a farmer under the Farm Household Support Act 1992 'assessable primary production income' under subsection 392-80(2) of the Income Tax Assessment Act 1997?
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CASES
8. Premium rebates paid to taxpayer after retirement held assessable as ordinary income - Mews v Commissioner of Taxation [2008] AATA 357
The taxpayer, a retired partner of PW Australia and also a retired partner of PwC after the merger with Coopers & Lybrand in June 1998, received an amount of $195,800 on 19 January 2000 when he was retired. The payment was in the nature of premium rebates returned to the participating PW firms worldwide from WDB Insurance Ltd, the PW's insurance company prior to the merger. Only those PwC partners who were partners of PW as at 30 June 1998 were entitled to the amount.
In addition, at all material times, the taxpayer was an absolute assignor in relation to 40% of his interest in PW, and following the merger, in the partnership of PwC. The assignee was the trustee of the Mews Family Trust.
The Commissioner included the entire $195,800 in the assessable income of the taxpayer for the income year ended 30 June 2000. The taxpayer contended that the amount was not assessable income and, even if it was, the assignment effected by the taxpayer operated to reduce his assessable income by 40%.
The taxpayer argued that the amount was not assessable because:
- The payment was not from a venture or business between the applicant and PwC
- The taxpayer did not enter into any transactions which later generated the payment
- The amount was not a regular or periodic payment
- The taxpayer owned no asset, right or other property which enabled him to claim, recover or enforce any claim against PwC in relation to the amount
- The amount was voluntarily paid to the taxpayer.
In relation to the assignment of income, the taxpayer argued that the assignment deed, by its terms, specified that it related to a present and future assignment of all income, profits or gains from any source which would otherwise be payable to the taxpayer by the PwC partnership.
The Tribunal rejected all of the taxpayer's arguments and held that the amount of $195,800 was assessable pursuant to section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). It found that the payment was not made to the taxpayer in his capacity as a partner of PW and/or PwC but rather in his capacity as a former partner who was a partner of PW as at 30 June 1998 and who had subsequently retired prior to the payment being made. Thus, the payment was not made pursuant to a right to receive any share of the profits of the partnership to which the taxpayer would otherwise be entitled and is not caught by the assignment deed.
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9. No entitlement to off-road credits, penalty appropriate - Rebmik Contractors Pty Ltd and Commissioner of Taxation [2008] AATA 335
The Tribunal has affirmed the Commissioner's decision, that the diesel fuel purchased by Rebmik Contractors Pty Ltd (Redmik) and used in its excavation activities for constructing an aged-care facility and a medical school did not create an entitlement to off-road credits under s 53(4)(c) of the Energy Grants (Credits) Scheme Act 2003.
The Commissioner imposed a penalty on Rebmik of 25 per cent of the shortfall amount on the basis that it resulted from the failure of the taxpayer or its agent to take reasonable care in complying with the taxation law. The Tribunal agreed stating that:
'In my view, prior to making a claim for off-road diesel fuel credits, Rebmik failed to take reasonable care as it did not seek advice from the ATO nor did it seek any legal advice regarding the interpretation of the relevant sections of the Energy Grants Act. The letterhead of Anthony Richards Consulting indicates that its principals are not lawyers but accountants. In those circumstances, I am satisfied that Rebmik failed to take reasonable care to comply with the Energy Grants Act when making its off-road diesel fuel claim and, accordingly, the administrative penalty of 25 per cent should be applied'.
The Institute plans to raise its concerns about these comments at the next NTLG meeting in June.
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10. Decision Impact Statement - KAP Motors Pty Ltd v Commissioner of Taxation
On 6 May, the ATO released a DIS on KAP Motors Pty Ltd v Commissioner of Taxation [2008] FCA 159, where the Federal Court allowed a refund of GST overpaid on motor dealership holdback payments (that motor vehicle dealers receive from distributors) because of a mistaken belief that the holdback payments were subject to GST.
The court held that section 105-65 of Schedule 1 to the Taxation Administration Act 1953 did not operate to preclude the taxpayers from being entitled to a refund of the GST paid by them. Nor was the entitlement to a refund precluded by the general law in the absence of the applicants refunding the GST to the payers of the holdback payments.
The case was reported in Edition 8/2008 of the Tax Bulletin. The Commissioner is not appealing the Court's decision and the DIS sets out the ATO's administrative treatment, in particular, in relation to claims for a refund.
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RULINGS
11. Taxation Determinations
TD 2008/12 - Fringe benefits tax: for the purposes of section 39A of the Fringe Benefits Tax Assessment Act 1986 what is the car parking threshold for the fringe benefits tax year commencing on 1 April 2008?
This ruling was not previously issued as a draft.
Withdrawals
TD 93/77W - Income tax: is interest paid by an Australian resident to a non-resident government savings bank exempt from withholding tax under paragraph 128B(3)(a) of the Income Tax Assessment Act 1936?
TD 94/37W - Income tax: how does the receipt of a share of the net income or loss from a partnership affect the calculation of the rebate for personal superannuation contributions under section 159SZ of the Income Tax Assessment Act 1936?
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12. Goods and Services Tax Ruling
GSTR 2008/2 - Goods and services tax: development lease arrangements with government agencies
This ruling was released in draft form as GSTR 2007/D2
The joint submission lodged by the Institute and various other professional bodies on the draft ruling, and the ATO's response, is available on the Institute website.
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13. Draft Taxation Ruling
TR 2008/D4 - Petroleum resource rent tax: application of Petroleum Resource Rent Tax Assessment Regulations 2005 to an integrated gas-to-liquid operation
The Institute will be preparing or co-ordinating the preparation of a submission to the ATO in respect of this Draft Taxation Ruling. If you have any comments please e-mail them to us at taxgroup@charteredaccountants.com.au by 10 June 2008.
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14. Class Ruling
CR 2008/34 - Income tax: return of capital: Hansen Technologies Ltd
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15. Product Rulings - Addenda
PR 2008/21A - Addendum - Income tax: Barossa Vines Project 2007 - Applicant Group 2
PR 2008/22A - Addendum - Income tax: Barossa Vines Project 2007 - Applicant Group 2 (using finance from Barossa Vines Limited)
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16. ATO Interpretative Decisions
ATO ID 2008/64 - Fuel Sales Grants Scheme: eligibility
ATO ID 2008/65 - Fuel Tax Credit: electricity generation - fuel purchased between 1 July 2008 and 30 June 2012
ATO ID 2008/66 - Fuel Tax Credits: Fuel used in a generator to power a refrigerated container (Reefer)
ATO ID 2008/67 - Fuel Tax Credits: Fuel used to power a refrigerated container (Reefer) - road user charge
ATO ID 2008/68 - GST and supply of services performed on an island which is part of the Commonwealth of Australia
ATO ID 2008/69 - GST and whether a resident company incorporated overseas is in Australia in relation to a supply of services
Withdrawals
ATO ID 2001/16 (Withdrawn) - Superannuation: Bona Fide Redundancy (Lump Sum on Completion of Fixed Term Contract)
ATO ID 2001/19 (Withdrawn) - Superannuation: Bona Fide Redundancy (Completed Employment Contract)
ATO ID 2001/430 (Withdrawn) - Division 7A - Loan not repaid at the end of the year
ATO ID 2002/153 (Withdrawn) - Superannuation, retirement & employment termination: Eligible termination payments (ETPs). Employee replaced. Not a bona fide redundancy payment.
ATO ID 2002/1043 (Withdrawn) - GST and supply by resident insurance broker to a non-resident underwriter
ATO ID 2002/1044 (Withdrawn) - GST and brokerage fee from resident insured
ATO ID 2002/1045 (Withdrawn) - GST and supply by resident insurance broker to a non-resident insurance broker
ATO ID 2003/681 (Withdrawn) - Assessability of Australian sourced superannuation lump sum payment received by a resident of France
ATO ID 2004/31 (Withdrawn) - GST and adjustments for cancellation of compulsory third party insurance
ATO ID 2004/33 (Withdrawn) - GST and the treatment of compulsory third party insurance following a transfer of registration
ATO ID 2004/551 (Withdrawn) - Assessability of lump sum payment paid from South African superannuation fund to an Australian resident
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17. Practice Statement
PS LA 2008/9 - GST 'revenue neutral' corrections
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18. Taxpayer alert
TA 2008/8 - Australian resident entities creating false deductions and/or concealing income through arrangements with promoters based in Vanuatu.
LEGISLATION
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LEGISLATION
19. Legislation proposed for introduction in the 2008 winter sittings
The following tax-related Bills are proposed for introduction in the 2008 winter sitting which commences next Tuesday, 13 May. Bills marked # are proposed for introduction and passage in the winter sittings:
- Tax Laws Amendment (Election Commitments) Bill #: introduce certain 2007 election commitments
- Tax Laws Amendment (First Home Saver Accounts) Bill #: implement the 2007 election commitment concerning First Home Saver Accounts
- Tax Laws Amendment (2008 Measures No. 3) Bill: amend various tax Acts
- Tax Laws Amendment (2008 Measures No. 4) Bill: amend various tax Acts, including to amend capital gains tax for demutualisation of health Insurers
- International Tax Agreements Amendment Bill: implement revised tax treaty with Japan
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20. House of Representatives' draft legislation program
Federal Parliament will resume sitting next Tuesday, 13 May. The House of Representatives has released its Draft Program of Legislation for Debate for the period 13 to 15 May. Tax Laws Amendment (2008 Measures No. 2 Bill) is due to be debated on 13 May. In addition, Budget related bills will also be introduced on that day.
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21. Senate's revised draft legislation program
The Senate has released its Revised Draft Legislation Program for the period 13 to 15 May. Tax Laws Amendment (Personal Income Tax Reduction) Bill 2008 is due to be debated on 13 May. Tax Laws Amendment (2008 Measures No. 2) Bill 2008 is due to be debated on 15 May, subject to its passage by the House of Representatives.
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ATO PUBLICATIONS
22. Recent ATO publications
Booklets and publications
Higher Education Loan Programme (HELP) indexation rates - Indexation figure applied to accumulated HELP debts which have remained unpaid for 11 months or more.
Student Financial Supplement Scheme (SFSS) indexation rates - Indexation is applied to the part of accumulated Financial Supplement debts which have remained unpaid for 12 months or more.
Review of Tax Office information security - On 5 December 2007 the Commissioner of Taxation announced a review of the Tax Office's information security practices. The review was performed between December 2007 and March 2008.
Tax Office welcomes results of information security review - The Tax Office today released the review into its information security practices conducted by PricewaterhouseCoopers (PwC).
Register for fuel tax credits using the phone - This information explains how a new or existing business can register for fuel tax credits by phone.
Beware of tax refund email scam - An email fraudulently claiming to be from the Tax Office is currently circulating.
Large Business
Large business online bulletin: March 2008 - This issue includes a feature article on the Inspector General of Taxation's review of potential revenue bias - as well as an update for business and organisations on changes to the superannuation guarantee, Change program, and fringe benefits tax.
Superannuation
Super for your new employees - This information helps employers check their super obligations.
Business Real Property draft ruling is now available - We have published a draft ruling SMSFR 2008/D3 that explains the meaning and practical application of the term business real property as used in the superannuation laws.
Using ordinary time earnings to calculate the super guarantee - The superannuation guarantee legislation has been amended to simplify an employee's earnings base for calculating the superannuation guarantee.
Non-profit
Non-Profit News Service No. 0199 - Donations to assist cyclone victims in Burma - May 2008. Information for individuals and organisations wanting to collect funds or make donations to assist victims of cyclone Nargis in Burma.
Minutes of meeting
NTLG GST Sub-group minutes - Current and previous minutes of the National Tax Liaison Group (NTLG) GST Sub-group meetings.
Tax Administration
Pre-filling - making it easier for your investors to prepare their tax returns - This article is about encouraging bodies to lodge their Annual Investment income report early so the information can be pre-filled in investors tax returns.
PBI, HPC and rebatable calculator - This calculator will help you work out the fringe benefits tax (FBT) for public benevolent institutions (PBI), health promotion charities (HPC) and rebatable employers from 1 April 2007.
The BAS service provider - edition 14, May 2008 - The BAS service provider edition 14, issued 30 April 2008. This newsletter gives BAS service providers relevant website updates, news and direct links. This edition includes information about upcoming BSP seminars, fuel tax credits changes and key dates for BSPs and their clients.
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OTHER NEWS
23. Transcript of the third biannual hearing with the Commissioner of Taxation
Last week, the Federal Parliament's Accounts and Audit Committee held its third Biannual Public Hearing with the Commissioner of Taxation, as reported in Edition 16/2008 of the Tax Bulletin.
The transcript of the meeting was released on the website of the Joint Standing Committee on Public Accounts and Audit on 8 May.
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24. Report on the review of ATO's information security released
Last December, the Commissioner, Michael D'Ascenzo, commissioned PwC to conduct an independent review into the ATO's information security practices. Areas to be reviewed included the ATO's protections, policies, practices and assurance processes; how the office compares with industry best practice; classification of information and protocols for the movement and exchange of information. The review has now been finalised and a report is available on the ATO website (refer to item 22).
In a press release on 8 May, the Commissioner said that he was pleased that the ATO compares favourably against other large organisations in terms of security consciousness. Also, overall the ATO was found to have a clear corporate position on information security, sound governance structures, well defined security classifications, and effective education and awareness programs for staff.
The report made 21 recommendations in four different categories. The Commissioner said that the ATO will implement the priority recommendations over the next two years. In addition, it will introduce encrypted laptop computers for staff who need greater mobility and encrypted USB devices for secure data.
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25. Commissioner issued tax alert warn against tax evasion arrangements in Vanuatu
Following a joint media release issued by the ATO and Treasury last week announcing that various government agencies and international agencies had begun operations to attack abusive tax haven schemes linked to Vanuatu, the ATO has issued a taxpayer alert TA 2008/8 (refer item 18), warning people against using arrangements in Vanuatu or any other jurisdiction to claim false deductions or hide income offshore.
In a press release on 7 May, the Commissioner Michael D'Ascenzo said that the ATO is closing the net on taxpayers who are trying to use tax havens to hide income. The ATO is currently conducting 80 audits linked to Vanuatu with over $90 million in allegedly false deductions, and will write to another 500 Australians with apparent links to Vanuatu seeking more information on their tax affairs.
Mr D'Ascenzo was pleased to announce that the ATO has received, to date, 661 voluntary disclosures in relation to the abusive use of tax havens generally and added that people who contact the ATO before they are the subject of an audit may be entitled to substantial reductions in shortfall penalties under the ATO's offshore voluntary disclosure initiative.
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26. Minister for Superannuation and Corporate Law meets IOSCO Secretary General
On 7 May, the Hon Nick Sherry met with the Secretary General of the International Organisation for Securities Commissions (IOSCO), Mr Greg Tanzer, in Madrid, Spain. The Minister and the Secretary General discussed a wide range of issues currently faced by market regulators world-wide and the important role being played by Australia in multilateral responses. Among these issues, IOSCO's approach to tax haven arrangements, including the ongoing Vanuatu tax avoidance investigation and Project Wickenby was also discussed.
A press release issued by the Minister following his meeting is available here.
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TRAINING AND DEVELOPMENT
Chartered Accountants Business Forum 2008
Throughout May and June in Melbourne, Sydney, and Canberra. What's your strategy for the year ahead? Join industry leaders and your peers as vital topics are addressed, key technical updates explored, and new ideas and options examined.
Chartered Accountants Technical Forum
Throughout May and June in Tamworth, Wagga Wagga, Orange, Lismore, Port Macquarie and Albury. Complete and essential update on tax, audit, accounting and superannuation for year-end.
Chartered Accountants Tax Seminars for Practice
Throughout June in Brisbane, Melbourne, Sydney, Adelaide and Perth. Complete guide to Small business CGT concessions, GST and 'Supply of a going concern', GST and 'Margin scheme issues' and more.
Chartered Accountants Corporate Tax Conference
Sydney, 12 - 13 June 2008. Join industry experts as they discuss practical solutions and strategies across a number of key tax areas fundamental to business. The very latest on Division 250, a wrap up on TOFA, and much more.
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