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1. Australia’s Future Tax Review Panel calls for submissions
On 19 August, the Australia’s Future Tax System Review Panel (Panel) issued a press release inviting submissions, which are due by 17 October 2008. The Institute intends to lodge a submission by the due date and is currently considering the approach that we might take. Members are encouraged to e-mail any comments or ideas to: mailto:taxgroup@charteredaccountants.com.au as soon as possible by no later than Friday 19 September.
To assist in preparation of submissions, the Panel has suggested that the review’s terms of reference be taken into account and the following questions be used as a guide.
- What major challenges facing Australia need to be addressed through the tax-transfer system?
- What features should the system have in order to respond to these challenges?
- What are the problems with the current system?
- What reforms do we need to address these problems?
The Panel’s call for submissions follows the recent release of the Treasury’s paper, “Architecture of Australia’s tax and transfer system”, and the Pension Review background paper. The submissions and any initial discussions with interested parties will be used in developing a consultation paper that will be prepared and released by the Panel before the end of 2008.
The panel said that the consultation paper will outline the key issues to have emerged and provide a basis for the further review processes conducted by the panel during 2009, including providing further opportunity for submissions, public meetings and direct consultations on issues and options. The panel will also consider commissioning other papers or studies during 2009. The final review report will be delivered to the Treasurer at the end of 2009.
For further information about the review, please go here.
For further information on the Pension Review, including a copy of the Pension Review background paper, go here.
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2. Tax Design Review Panel’s report released
On 22 August, the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen MP, released the Tax Design Review Panel’s report entitled “Better Design and Implementation” (report).
As reported in Edition 4/2008 and 10/2008 of the Tax Bulletin, the Assistant Treasurer announced in February this year the appointment of a Tax Design Review Panel (panel) to examine ways to reduce delays in the enactment of tax legislation and improve the quality of tax law changes. The Institute has been involved in consultations with the panel and lodged a submission on the panel’s consultation paper on 20 March.
The panel has made 26 recommendations in the report and the Assistant Treasurer announced that the Government accepts in principle all of these recommendations. The Institute has welcomed the report and these recommendations. It is particularly pleasing that the majority of the Institute’s recommendations have been adopted which include:
- Pre-announcement consultation on policy design;
- Announcements should include detail of proposed changes;
- The Treasury should seek continuous improvement in its project management techniques and capabilities;
- Adopt the Board of Taxation’s Tax Issues Entry System (TIES) recommendation.
The Assistant Treasurer’s press release is available here.
For further information about the Tax Design Review, including a copy of the “Better Design and Implementation” report, go here.
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3. Commissioner’s speech at the ABA Tax Workshop
On 22 August, in a speech delivered at the Australian Bankers’ Association (ABA) Tax Workshop, the Commissioner of Taxation spoke about tax complexity, corporate governance, structured financial arrangements, abusive use of tax havens, global directions of cooperative relationships, meeting the needs of large corporate, professional relationship and other key compliance issues.
The Commissioner identified the abusive use of tax havens as one of the key compliance issues. He indicated that the ATO will be seeking guidance from the banking sector on ways in which the ATO can better manage the risks posed by the abusive use of tax havens. Other highlights of the Commissioner’s speech include:
- The Commissioner cautions that there is need for care to ensure that new innovation products do not create new and potentially hazardous tax risks.
- The ATO is of the view that they enjoy a positive relationship with large corporates. Reference was made to the new compliance products such as Annual Compliance Arrangements and that increasingly corporates are going to the ATO on their own intiative without their advisors.
- The ATO is looking at financial arrangements that rely heavily on artificially generated tax benefits in Australia, and transactions and arrangements that avoid non-resident withholding tax.
- Recent OECD Forum on Tax Administration focused on the tripartite relationship between revenue bodies, taxpayers and tax intermediaries. The forum concluded that there is significant scope for revenue agencies to influence the demand of large corporate taxpayers for aggressive tax planning and advice.
- The OECD is now conducting a follow-up study applying the enhanced relationship to banks, and Australia together with the UK is leading this work.
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4. Accounting Working Group meeting
On 22 August, Norman Kang from the Institute attended a meeting of the Accounting Working Group. Items discussed included:
- Presentation on the ATO’s experience and learning from the Change Program for the FBT systems;
- Deployment of the ATO’s Change Program on the superannuation system, which will commence on September 2008;
- Pre-filling of income tax returns; and
- Update on the GDP adjustment and ATO’s receivables policy.
Once the draft minutes of the meeting are approved, they will be published on the ATO website and a link provided in the Tax Bulletin.
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5. Amended notice not set aside - Bonnell v Commissioner of Taxation [2008] FCAFC 146
The Full Federal Court (Lindgren, Emmett and Edmonds JJ) has held that the taxpayer was not entitled to an order that an amended notice be set aside in its entirety.
The taxpayer sought judicial review of a decision of the Commissioner of Taxation not to remit additional tax imposed under section 226K of the ITAA 1936. The primary judge had ordered that the proceeding commenced by the taxpayer be dismissed summarily, pursuant to section 31A of the Federal Court of Australia Act 1976, on the basis that the proceeding had no reasonable prospect of success.
The Full Federal Court found that the Commissioner’s decision not to remit any part of the additional tax did not form part of the assessment process and, if invalid, did not invalidate the notice of amended assessment.
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6. Horse breeding activities did not amount to the carrying on of an enterprise - D'Arcy v Commissioner of Taxation [2008] AATA 709
The Tribunal has affirmed the objection decisions of the Commissioner in this case, as it was satisfied that the taxpayer’s horse breeding activities did not amount to the carrying on of an enterprise. Thus, the taxpayer was not entitled to the input tax credits claimed during the period 1 October 2002 to 30 September 2006. Nor was he entitled to an ABN. Furthermore, the activities did not amount to the carrying on of a business for income tax purposes either.
More specifically, the Tribunal was ‘unable to distinguish his activities from those of a person who, with a keen interest in horses and their breeding, chooses to become a part-owner of broodmares for the purpose of pleasure or recreation, or as a hobby’ [at para 26]. The Tribunal also dismissed the taxpayer’s arguments in relation to TR 2008/2 (which deals with the question whether certain racing, training and breeding activities amount to the carrying on of a business) stating that ultimately it comes down to being a question of fact.
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7. Partnership loss allowed to extent of actual cash outlay - De Simone v Commissioner of Taxation [2008] AATA 708
In this Tribunal decision, two taxpayer brothers claimed a share of the loss of a partnership involved in the stage production of Jolson The Musical in the year ended 30 June 1999.
Under the arrangement, the brothers were each to contribute $250,000, of which $200,000 was to be borrowed from a finance company (with recourse only to the income from the production). However, there was no evidence that the financier ever provided any loans (and in any event the loan arrangements were via round robin book entries).
Although the Tribunal accepted the evidence of the De Simone brothers that, at the time they entered into the arrangement, they had the belief and expectation that the venture would be profitable, only $50,000 was an allowable deduction under s 8-1 of the ITAA 1997. If incorrect in this view, the Tribunal considered that Part IVA of the ITAA 1936 would apply to disallow the deduction. "However, in common with many other schemes which have been considered by the Tribunal and the courts, it is appropriate that a compensating adjustment be made under section 177F(3) to allow as a deduction the expenditure actually incurred by the participants."
The Tribunal considered that the appropriate penalty was 25 per cent (reduced from 50 per cent) pursuant to section 226G of the ITAA 1936 as the shortfall was caused by the failure of the taxpayer or of a registered tax agent to take reasonable care.
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8. No jurisdiction where rights of review already exhausted - Cumins v Commissioner of Taxation [2008] AATA 716
The Tribunal has found that the combined effect of its decision of 7 December 2004, affirming the objection decision of 19 December 2001, and the dismissal by the Federal Court of the applicant's appeal, was that the applicant no longer had any right to apply to the Tribunal for review of the objection decision of 19 December 2001.
The Tribunal also found that the applicant was not able to rely upon the Tribunal's powers to allow an amendment to the grounds of the objection under s 14ZZK(a) of the Taxation Administration Act 1953 as these powers can only be exercised "on an application for review of a reviewable objection decision". Here there was no reviewable objection decision.
Therefore the Tribunal concluded that it had no jurisdiction to deal with the present application to extend time to lodge an application for review of the objection decision and the application was dismissed.
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9. Decision Impact Statement (DIS) - Zolsan v Commissioner of Taxation
On 22 August, the ATO issued a DIS on Zolsan v Commissioner of Taxation where the Supreme Court of New South Wales set aside a statutory demand which issued for a RBA debt (based on self-assessed GST and assessments following an audit) where the debt amount was disputed, but no objection had been lodged.
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10. Class Rulings
CR 2008/54 - Income tax: Services for Australian Rural and Remote Allied Health: postgraduate scholarships and assistance payments
Withdrawals
CR 2005/89W - Fringe benefits tax: employer clients of Remunerator (Aust) Pty Ltd that make use of a Salary Packaging Dining Card facility
CR 2006/81W - Fringe benefits tax and income tax: employer clients of Sodexho Australia Pty Ltd or Universal Sodexho Pty Ltd that make use of the Sodexho 'SmartPay' card facility
CR 2008/23W Fringe benefits tax: employer clients of Super Group International (Australia) Pty Limited or SMB Fleet Management Pty Limited who make use of the SMB Cafe Card facility
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11. Product Ruling
PR 2008/61 - Income tax: GlenKara Estate Vineyard Project - Stage 2A
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12. Fuel Tax Ruling - Erratum
FTR 2008/1ER - Erratum - Fuel tax: vehicle's travel on a public road that is incidental to the vehicle's main use and the road user charge
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13. ATO Interpretative Decision
ATO ID 2008/114 - GST and change in extent of creditable purpose where new residential premises are constructed for sale but subsequently rented
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14. Recent ATO publications
Booklets and publications
Online and phone services guide - The online services guide is a overview for large businesses for our Online and phone services.
Changes to the ultimate beneficiary rules - The ultimate beneficiary rules have been simplified. Trustees of closely held trusts will be required to report the details of trustee beneficiaries that are presently entitled to certain income of the trust and tax-preferred amounts.
Capital gains tax update 2008-09 income year - Update on CGT developments for the 2008-09 income year. Current as at 31 July 2008.
Common issues of concern - Product ruling general information, frequently asked questions and new information.
Administration
Lost members statement (LMS) paper forms - Paper versions of the LMS for Lost members register (LMR) reports lodged from 1 July 2008.
Tax practitioner webcast - Compliance program 2008-09 - Broadcast sent on 13 August 2008 to advise tax agents of the availability of the latest tax practitioner webcast featuring the Compliance program 2008-09.
Superannuation
Super income streams - clarification on the use of payment summaries - 'PAYG payment summaries - superannuation income stream' are only needed by individuals who either receive superannuation income stream payments before their 60th birthday or individuals who receive payments that contain an untaxed element.
FBT
FBT processing update - 18 August 2008 - A progress report on fringe benefits tax processing following the deployment of the Tax Office's new processing system.
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15. Registered agricultural managed investment scheme (MIS) projects - test case
Thomson Latest Tax News - 160 has reported that a test case was heard before the Full Federal Court on 14 August 2008. The matter relates to the reconsideration of the ATO's view for registered agricultural managed investment scheme (MIS) projects as announced by the Commissioner on 27 March 2007. This led to Taxation Ruling TR 2007/8 Income tax: registered agricultural managed investment schemes, which was released on 17 October 2007.
Broadly, the ATO considers that the better view is that investor contributions should more properly be characterised according to the substance of the schemes in question but concedes that the matter is not free from doubt. Therefore, they have worked with industry to get the matter tested before the courts. More information is on the ATO website.
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Chartered Accountants Buying and Selling a Business
Throughout September in Sydney and Melbourne. Minimise risk and optimise the benefit for your business or your clients with this 3 hour seminar on Buying & Selling a Business.
Chartered Accountants Tax Seminars for Practice
Seminar one - GST, CGT and Income Tax for Property Transactions
Seminar two - Buying and Selling a Business
Throughout September in Brisbane, Adelaide and Perth. Attend one seminar or both with GST, CGT and Income Tax for Property Transactions and Buying & Selling a Business scheduled on the same day for your convenience.
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 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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Any information provided to the Institute in connection with this bulletin shall be provided by the submitter and received by the Institute on a non-confidential basis. The Institute shall be free to reproduce, use, disclose and distribute this information to others without limitation.
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