Tax Update - CPDlive · This paper represents the opinion of the author(s) and not necessarily...

Tax UpdatePeriod Ending 09 February 2017

Chartered Accountants Australia and New Zealand

Tax Update

Period ending 09 February 2017

Presented by:

Chartered Accountants Australia and New Zealand Tax Trainers. This package

covers developments for the period 12 January to 09 February 2017.

Tax Update February 2017

Copyright © 2017 Chartered Accountants Australia and New Zealand 2

Disclaimer

This paper represents the opinion of the author(s) and not necessarily those of Chartered Accountants Australia and New Zealand or its members. The contents are for general information only. They are not intended as professional advice - for that you should consult a Chartered Accountant or other suitably qualified professional. Chartered Accountants Australia and New Zealand expressly disclaims all liability for any loss or damage arising from rel iance upon any information in these papers.

Items indicated as having first appeared in Reuters Thomson Weekly Tax Bulletin or Reuters Thomson Latest Tax News are copyright Reuters Thomson and may not be further reproduced or communicated.



© Chartered Accountants Australia + New Zealand 2016

Session Outline

• Legislation

• Income

• Deductions

• CGT

• Indirect tax

• Taxation of superannuation

• Tax administration

• International tax

• Tax controversy

• State Taxes

• Tax reform

LEGISLATION ..........................................................................8

ASICATO information sharing: exposure draft legislation released 11

Increasing penalties for significant global entities 13

Increase in unincorporated small business tax discount 15

Bills proposed for introduction 16

Financial advisers' education & training standards – Bill passed 17

DPT, increased penalties, transfer pricing guidelines 19

Tax Bill (No 2) 2016 awaits Royal Assent 21



INCOME

© Chartered Accountants Australia + New Zealand 2017© Chartered Accountants Australia + New Zealand 2017

ACNC releases Interpretation Statement on PBIs

• ACNC Interpretation Statement on meaning of “public benevolent institution”

• ACNC-registered PBIs can seek endorsement from ATO as:

‒ tax concession charities (income tax and FBT exemptions, GST concessions)

‒ deductible gift recipients.

Income

CIS 2016/03 – Public Benevolent Institutions

................................................................................................ 22

ACNC releases Interpretation Statement on PBIs 22

High Court: Industry severance scheme not a unit trust for Div 6 purposes 24

Taxpayer held resident of Australia under Aust/Malaysia DTA 27

No disclaimer of interest in trust: assessments increasing taxable income by $13m stand 29

DEDUCTIONS........................................................................ 32

Home office expenses on floor area basis – FCT's method preferred 32

MPs: allowances, reimbursements, donations, deductions, etc 33

Deduction for bad debts: beneficiary of a trust and UPEs 35

Work-related travel expenses not deductible – taxpayer fails burden of proof 36

Commercial website deductibility 38

Depreciating assets – composite items 41

Draft effective lives: Data centre assets; coal seam gas industry. 44

Deduction for cost of tools rejected 45

Overtime meal expenses disallowed 47

No deduction or capital loss for guarantee "obligation" 49



Taxpayer denied deduction for work expenses of $60,000 51

CGT......................................................................................... 53

Intangible capital improvements made to a pre-CGT asset - a separate asset 53

INDIRECT TAXES ................................................................. 54

GST: determining if a recipient is an Australian consumer 54

GST: no recovery for margin scheme increasing adjustment 58

GST cross-border law changes and currency conversion – draft determination released 60

GST on home care and residential care – ATO seeks views on guidance material 61

TAXATION OF SUPERANNUATION................................... 63

ATO guidance on concessional contributions and constitutionally protected super funds 63

ATO releases 2014-15 SMSF statistical overview 65

SMSFs: LRBAs and non-arm's length income 66

Superannuation objective - draft reg released 67

Super reforms: total superannuation balance 68

Super reforms: $1.6m pension cap; commutations; actuarial certificates 71

Super trustee rollover obligations amid ATO website outage 74

Super reforms: Defined benefit income streams – life expectancy and market-linked pensions 75

ATO SuperSeeker service decommissioned 77

TAX ADMINISTRATION ....................................................... 78

ATO corporate tax transparency report for 2014-15 released 78

Backpackers tax registration deadline extended for employers 81

SMSF trustees (and LRBA trustees): garnishee notices invalid for group payroll tax 82

Court gives judgment for full tax debt of $1.1 million 84

Taxpayers' Rights & Obligations – IGT releases report 86

Default assessments upheld - burden of proof not satisfied re unexplained deposits and cash 88

No summary judgment for DPN liability - unresolved facts re whether director took "reasonable

steps" 90



Reminder of easier GST reporting for new small businesses from 19 Jan 2017 92

Review of tax and corporate whistleblower provisions in Australia 93

Ride sourcing providers 95

Simplifying income recognition for NFPs 96

Summary judgment against taxpayers for $30.5m upheld – no conscious maladministration 98

TPB Information sheet on payroll service providers 100

Current ATO data-matching activities 102

Incorrect PAYG instalment variations and GIC 103

ATO explains what caused systems outage 104

No grounds to set aside DPO order 106

Exemptions from registering with ATO re foreign ownership of water or agricultural land. 108

ATO releases Guide to Reportable Tax Positions 2017 110

Tax risk management and governance review guide 111

Extension of time for AAT review granted 113

Alternate assessments not tentative 115

Tax practitioners, cloud computing and the Code of Professional Conduct – TPB Practice Note 118

ATO warns of criminal activity targeting AUSkeys 120

Enhanced ATO record-keeping tool for sole traders 121

Tax Inspector-General announces his 2017 work program 122

Tax Office Website updates 125

Application to give evidence in Nudie Juice tax case by video link refused 127

FCT refutes media reports re ATO systems and Tax Time 2017 129

ATO help for agents having lodgment problems after ATO systems outages 131

Appeals update 132

Appeals update: Bai (onus of proof) 133

INTERNATIONAL TAX ....................................................... 134

Exchange of information by the ATO with foreign revenue authorities about indirect taxes 134

ATO releases Country-by-Country reporting Q&As 136



Australia's adoption of BEPS Multilateral Instrument – consultation paper released 138

OECD releases further BEPS guidance on Country-by-Country reporting 142

Interaction between tax treaty provisions of BEPS Action 6 report and treaty entitlement of non -

CIV funds 145

More than 1,300 bilateral relationships now in place across the globe re CRS 147

Revised Australia-Germany DTA enters into force 148

FCT wins appeal: taxpayer failed onus of proving payments "loans" 150

ATO compliance approach to transfer pricing issues related to marketing and other hubs –

Guideline released 153

Overseas income not exempt 159

TAX CONTROVERSY ......................................................... 161

Personal services income diverted to SMSFs: ATO offer to remit penalties extended 161

Re-characterisation of income from trading businesses 164

R&D claims in building and construction industry – ATO Taxpayer Alerts warn of issues of concern

165

STATE TAXES..................................................................... 168

NSW duty: not so happy days 168

TAX REFORM...................................................................... 170

Extending AML / CTF regime to accountants, lawyers, etc 170

MYEFO flags changes re franking credit distributions, chasing tax debts, etc 172

Income products for retirement – Govt releases discussion paper 174



LEGISLATION

Progress of Legislation

Bill Introduction

to the House

Passed

House

Introduction

to the Senate

Passed

Senate

Date of

Royal

Assent

Tax and

Superannuation Laws

Amendment (2016

Measures No 1) Bill

2016

10 Feb 2016 3 Mar 2016 16 Mar 2016 4 May 2016 5 May 2016

Tax Laws Amendment

(New Tax System for

Managed Investment

Trusts) Bill 2015

3 Dec 2015 10 Feb 2016 22 Feb 2016 4 May 2016 5 May 2016

Income Tax Rates

Amendment

(Managed Investment

Trusts) Bill 2015


Medicare Levy

Amendment

(Attribution Managed

Investment Trusts) Bill

2015


Income Tax

(Attribution Managed

Investment Trusts -

Offsets) Bill 2015


Tax Laws Amendment

(Tax Incentives for

Innovation) Bill 2016

16 Mar 2016 2 May 2016 3 May 2016 4 May 2016 5 May 2016

Tax and

Superannuation Laws

Amendment

(Medicare Levy and

Medicare Levy

Surcharge) Bill 2016

2 May 2016 2 May 2016 2 May 2016 3 May 2016 4 May 2016

Treasury Laws

Amendment (Income

Tax Relief) Bill 2016

1 Sep 2016 10 Oct 2016 10 Oct 2016 12 Oct 2016 20 Oct 2016

International Tax

Agreements

Amendment Bill 2016

1 Sep 2016 12 Oct 2016 13 Oct 2016 13 Oct 2016 20 Oct 2016

http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;page=0;query=BillId%3Ar5536%20Recstruct%3Abillhome







































Bill Introduction

to the House

Passed

House

Introduction

to the Senate

Passed

Senate

Date of

Royal

Assent

Treasury Laws

Amendment

(Enterprise Tax Plan)

Bill 2016

1 Sep 2016

Budget Savings

(Omnibus) Bill 2016 31 Aug 2016 14 Sep 2016 14 Sep 2016 15 Sep 2016 16 Sep 2016

Income Tax Rates

Amendment (Working

Holiday Maker

Reform) Bill 2016

12 Oct 2016 17 Oct 2017 07 Nov 2016

Treasury Laws

Amendment (Working

Holiday Maker

Reform) Bill 2016

12 Oct 2016 17 Oct 2016 07 Nov 2016 24 Nov 2016 02 Dec 2016

Superannuation

(Departing Australia

Superannuation

Payments Tax)

Amendment Bill 2016


Passenger Movement

Charge Amendment

Bill 2016


Treasury Laws

Amendment (2017

Measures No 1) Bill

2017

01 Dec 2017

Treasury Laws

Amendment (GST

Low Value Goods) Bill

2017

Treasury Laws

Amendment

(Enterprise Incentives

No 1) Bill 2017

Corporations

Amendment

(Professional

Standards of Financial

Advisers) Bill 2016

23 Nov 2017 07 Feb 2017 08 Feb 2017 09 Feb 2017























http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr5768%22







Bill Introduction

to the House

Passed

House

Introduction

to the Senate

Passed

Senate

Date of

Royal

Assent

Treasury Laws

Amendment

(Combating

Multinational Tax

Avoidance) Bill 2017









ASIC-ATO information sharing

• Exposure draft released

• Proposed amendment to Australian Securities and Investments Commission

Act 2001 to allow ASIC to more readily disclose confidential information to

ATO.

Legislation

Draft TLA (2017 Measures No 1) Bill 2017: ASIC

ASICATO information sharing: exposure draft legislation released

The government has released exposure draft legislation proposing to amend s 127(2A) of the

Australian Securities and Investments Commission Act 2001 to enable ASIC to share information

with the FCT. The proposed amendment to s 127(2A) of the ASIC Act would enable ASIC to more

readily share confidential information with the ATO without involving the ASIC Chairperson or their

delegate. This would mirror the existing arrangements for sharing information between ASIC and the

Reserve Bank and APRA.

Currently, there are strict confidentiality rules around the use and disclosure of the information ASIC

obtains. Under s 127 of the Act, ASIC must take all reasonable measures to protect confidential

information it receives as part of its statutory functions from unauthorised use or disclosure.

ASIC is authorised to share confidential information it obtains with certa in prescribed individuals and

entities, including the relevant Minister, the Reserve Bank and APRA: s 127(2A) of the ASIC Act.

However, at present, in order for ASIC to share information with the ATO, the ASIC Chairperson, or

their delegate, must be satisfied that doing so would enable or assist the FCT to perform or exercise

their functions or powers. This causes inefficiencies and hinders effective collaboration between the

agencies in ensuring compliance and investigating potential illegal activity.

The amendment proposed by the Exposure Draft - Treasury Laws Amendment (2017 Measures No

1) Bill 2017 would add the FCT to the entities listed in s 127(2A) of the ASIC Act to which disclosure

of confidential information is authorised. As a result, the amendment would authorise ASIC to

provide the FCT with information it holds that is protected or that is given to it in confidence in

connection with the performance of its functions or exercise of its powers. This seeks to simplify the

process and create efficiencies by allowing information to be shared without the Chairperson's, or

their delegate's, involvement.

http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2016/ASIC-ATO-information-sharing



Date of effect

The proposed amendment would commence the day after the Bill receives the Royal Assent. The

application provisions authorise ASIC to disclose information to the FCT following the

commencement of the Bill, including disclosure of any information held by ASIC at that time,

regardless of whether it was obtained before or after the amendment commences.

Submissions

Submissions are due by 13 January 2017 to: Manager, Corporations and Schemes Unit, Financial

System Division, Treasury - Tel: (02) 6263 2804; Email: [email protected].

12/01/2017

mailto:[email protected]




Increasing penalties for significant global entities

• Draft legislation on 2016-17 Budget measure to increase penalties imposed

on companies with global revenue of $1bn or more who breach tax disclosure

obligations

• Maximum penalty to be increased from $4,500 to $450,000

• Proposed date of effect: 1 July 2017.

Taxation of Legislation

Draft legislation released

Increasing penalties for significant global entities

Draft legislation released

The government has released draft legislation to implement its 2016-17 Budget measure that would

increase administrative penalties imposed on companies with global revenue of $1 billion or more

(significant global entities) who fail to adhere to tax disclosure obligations. Schedule 1 to the TAA is

to be amended to implement this.

From 1 July 2017, penalties relating to the lodgment of tax documents to the ATO will be increased

by a factor of 100 (in reference to the maximum penalty for large entities under the existing law) .

This will raise the maximum penalty from $4,500 to $450,000, which is designed to encourage

multinational companies to meet their reporting obligations. Under the proposed changes, the base

penalty amount would be multiplied by 500 if the entity concerned is a significant global entity at the

relevant time. This would result in a maximum penalty of $450,000, which would apply where the

lodgment is more than 16 weeks late.

From 1 July 2017, penalties for significant global entities relating to making false and misleading

statements to the ATO will be doubled, which is aimed at discouraging multinational companies from

being reckless or careless in their tax affairs.

http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2016/Increasing-administrative-penalties-for-significant-global-entities



An entity's status as a significant global entity for the purposes of the proposed provisio ns will be

determined on the basis of the most recent income year, for which the FCT has made an income tax

assessment for the entity. This determination is to be made by reference to the day on which the

relevant approved form is due to be provided to the FCT. The FCT makes an assessment following

lodgment of the entity's income tax return or if the entity has not lodged a tax return, the

FCT may have issued a default assessment. However, if the FCT is satisfied that the entity is not, or

will not be, a significant global entity for the income year during which the relevant approved form is

due to be provided to the FCT, then the FCT may remit the higher penalty amount.

It is also proposed that significant global entities that have not already provided a ge neral purpose

financial statement to ASIC must give a general purpose financial statement to the FCT in the

approved form. An entity that fails to provide such a statement to the FCT by the due date or in the

manner specified by the FCT would be liable for an administrative penalty.

Comments

Comments are due by 13 January 2017.

12/01/2017




Increase in unincorporated small business tax discount

• Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 (still in House of

Reps) seeks to lift unincorporated small business tax offset threshold to $5m

and incrementally increase offset rate

• From 1 July 2016, tax offset will rise from 5% to 8%

• ATO will accept tax returns as lodged while Bill before Parliament

• Taxpayers can then seek amendment if measure enacted & they didn’t claim

offset, or if measure not enacted.

Taxation of Legislation

ATO admin treatment

Increase in unincorporated small business tax discount

In the 2016-17 Budget, the government announced an increase to the tax discount for

unincorporated small businesses incrementally over 10 years from 5% to 16%. From 1 July 2016, it

is proposed that the tax discount will increase to 8%, remain constant at 8% for 8 years, then

increase to 10% in 2024-25, 13% in 2025-26 and reach a new permanent discount of 16% in 2026-

27. The Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 , introduced on

1 September 2016 to implement this, is still before the House of Reps.

The increases are designed to coincide with staggered cuts in the corporate tax rate to 25%, also

included in that Bill. The current cap of $1,000 per individual for each income year will be retained.

ATO admin treatment

The ATO says it will accept all tax returns as lodged during the period up until the law change is

passed by Parliament. If the new law is enacted as expected, taxpayers who did not claim the offset

will need to review their positions for the 2016-17 income year and seek amendments. If a reduction

in liability results, interest on overpayment will be paid.

If the new law is not enacted as expected, those taxpayers who incorrectly claimed the offset will

need to seek amendments. The ATO says no tax shortfall penalties will be applied and any interest

accrued will be remitted to the base interest rate up to the date of enactment of the law change. In

addition, any interest in excess of the base rate accruing after the date of enactment will be remitted

where taxpayers actively seek to amend assessments within a reasonable timeframe after

enactment.

26/01/2016

http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5684

https://www.ato.gov.au/General/New-legislation/In-detail/Direct-taxes/Income-tax-for-businesses/Increase-the-unincorporated-small-business-tax-discount/




2017 Autumn Sittings

• Treasury Laws Amendment (GST Low Value Goods) Bill 2017:

– GST will apply to low value goods (up to $1,000) supplied to Australian

consumers by offshore businesses

• Treasury Laws Amendment (Enterprise Incentives No 1) Bill 2017:

– Gives taxpayers option to self-assess effective life of certain intangible assets

– Amends tax incentives for early stage investors.

Bills proposed for introduction

Legislation

Bills proposed for introduction

2017 Autumn Sittings

Federal Parliament's 2017 Autumn Sittings run from 7 February to 30 March 2017. Legislation proposed for introduction in those sittings includes the following Bills. Bills marked # are proposed for introduction and passage in the Autumn sittings.

Treasury Laws Amendment (GST Low Value Goods) Bill 2017 # - would impose the obligation to charge and remit GST on offshore businesses that import goods to Australian consumers where the imported goods have a value of $1,000 or less. Would apply from 1 July 2017. Would implement a 2016-17 Budget measure.

Treasury Laws Amendment (Enterprise Incentives No 1) Bill 2017 - would (i) provide taxpayers with the new option, for certain intangible assets acquired on or after 1 July 2016, to self-assess the tax effective life of the asset or use the existing statutory effective life; and (ii) amend the tax incentives for early stage investors, to ensure that investors who access the tax concessions for early stage investors through an interposed trust are not subject to a subsequent capital gain equal to the amount of the exempt gain in the early stage innovation company. Would implement a 2015-16 MYEFO decision.

9/02/2017




Corporations Amt (Professional Standards of Financial Advisers) Bill 2016

• Passed both Houses without amendment:

– Awaits Royal Assent

• Amends Corporations Act 2001 to require certain financial advisers to meet

specified education and training standards, comply with ethics code

• Amends Tax Agent Services Act 2009 to enable information sharing.

Financial advisers' education & training standards – Bill passed

Legislation

Financial advisers' education & training standards – Bill passed

The Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 has

now passed all stages without amendment and awaits Royal Assent.

The Bill amends the Corporations Act 2001 to:

Require that certain financial advisers meet specified education and training standards and

comply with a code of ethics; apply transitional arrangements to existing financial advisers;

Impose an obligation on an Australian financial services licensee to ensure that its financial

advisers comply with the education standards and are covered by a compliance scheme;

Restrict the use of the titles "financial adviser" and "financial planner";

Amend the content requirements for the register of financial advisers;

Provide for sanctions where a financial adviser or licensee fails to comply with the new

obligations; and

Establish a standards body which will approve foreign qualifications and develop and set the

education standards, an examination and a uniform code of ethics.

The Bill also amends the Tax Agent Services Act 2009 to provide for the Tax Practitioners Board

and monitoring bodies to share information.




Date of effect

The new requirements will commence on 1 January 2019. From this date, new advisers will be

required to hold a relevant degree before they are eligible to commence the supervision year and to

sit the exam. Existing advisers will have two years, until 1 January 2021, to pass the exam and five

years, until 1 January 2024, to reach a standard equivalent to a degree. The transition period

recognises that existing advisers may need to complete the education requirements on a part-time

basis while continuing to service their existing clients. The Code of Ethics will commence on

1 January 2020, with all advisers being required to adhere to the code from that day forward. Once

the reforms are bedded down, the government said it will turn its attention to developing and

implementing an industry funding model for the standards body.

9/02/2017




Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill

• Bill introduced into Parliament

• Expands Pt IVA to include 40% diverted profits tax for significant global

entities – from 1 July 2017

– Tax imposed by Diverted Profits Tax Bill 2017

• Increases admin penalties for significant global entities that fail to lodge

returns, certain other documents – from 1 July 2017

• Updates transfer pricing rules to include 2016 OECD BEPS amendments to

OECD Transfer Pricing Guidelines – from 1 July 2016.

DPT, increased penalties, transfer pricing guidelines

Legislation

DPT, increased penalties, transfer pricing guidelines

Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill

The Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 was

introduced in the House of Reps on 9 February 2017. It proposes to make the following

amendments:

Diverted Profits Tax: The Bill would amend the ITAA 1936, the Taxation Administration Act

1953 and associated Acts to introduce a new diverted profits tax (DPT). This would be done

by expanding the scope of Pt IVA. The Treasurer says the DPT would target multinationals

that enter into arrangements to divert their Australian profits to offshore related parties in

order to avoid paying Australian tax. If the DPT applies, the Diverted Profits Tax Bill 2017,

also introduced on 9 February 2017, would impose tax on the amount of the diverted profit at

a rate of 40%. The DPT aims to ensure that the tax paid by significant global entities (annual

global income of $1 billion or more and Australian income of more than $25 million) properly

reflects the economic substance of their activities in Australia and aims to prevent the

diversion of profits offshore through contrived arrangements. The DPT will not apply to

managed investment trusts or similar foreign entities, sovereign wealth funds and foreign

pension funds. The government expects the DPT to raise $100 million in revenue a year from

2018-19. Approximately 1,600 taxpayers potentially fall within the scope of the new law. Date

of effect: This measure will apply in relation to tax benefits for an income year that starts on

or after 1 July 2017 (whether or not the tax benefits arise in connection with a scheme that

was entered into, or was commenced to be carried out, before 1 July 2017).





Increasing penalties for significant global entities: The Bill proposes to increase the

administrative penalties that can be applied by the FCT to significant global entities to

encourage them to better comply with their taxation obligations, including lodging tax

documents on time and taking reasonable care when making statements. Under the

changes, the amount of administrative penalty that applies for significant global entities that

do not lodge a return, notice, statement or other approved form with the FCT on time would

be increased by 100 times. The base penalty amount will be multiplied by 500 if an entity is a

significant global entity at the relevant time. At the current $180 value of a penalty unit, this

would result in a maximum penalty of $450,000 (currently $4,500), which would apply where

the lodgment is more than 16 weeks late. [Note that in the 2016-17 Mid-Year Economic and

Fiscal Outlook, the government announced an increase in the value of a Commonwealth

penalty unit to $210, with effect from 1 July 2017. That would take the maximum penalty to

$525,000.] Date of effect: The amendments would generally apply from 1 July 2017.

Transfer pricing rules updated: The Bill proposes to amend the ITAA 1997 to update the

reference to OECD transfer pricing guidelines in Australia's transfer pricing rules in Division

815 to include the 2016 OECD BEPS amendments to the guidelines. Date of effect: The

amendments would apply to income years commencing on or after 1 July 2016.

9/02/2017




Tax and Superannuation Laws Amendment (2016 Measures No 2) Bill 2016

• Passed both Houses without amendment

• Measures include:

– Remedial power for FCT to modify law by legislative instrument to ensure

intended purpose of law achieved – will apply from Royal Assent

– Primary producer income averaging: replaces permanent choice to opt out of

averaging with 10-year opt-out period – will apply from 1 July 2016

– LCT exemption for certain public institutions that import or acquire luxury cars for

public display – will apply from Royal Assent.

Tax Bill (No 2) 2016 awaits Royal Assent

Legislation

Tax Bill (No 2) 2016 awaits Royal Assent

Tax and Superannuation Laws Amendment (2016 Measures No 2) Bill 2016

The Tax and Superannuation Laws Amendment (2016 Measures No 2) Bill 2016 has now

passed all stages without amendment and awaits Royal Assent.

The Bill amends the:

ITAA 1997 and Taxation Administration Act 1953 to establish a remedial power so the FCT can make a disallowable legislative instrument to modify the operation of a taxation law in certain circumstances. Before exercising the power, the FCT must be satisfied that any appropriate and reasonably practicable consultation has been undertaken. Date of effect: This measure would commence on the day after Royal Assent. This would allow the FCT to make legislative instruments from that date to modify the operation of a taxation law.

ITAA 1997 to enable primary producers to access income tax averaging 10 income years or more after choosing to opt out, instead of that opt-out choice being permanent. Date of effect: This change would apply to the 2016-17 income year and later income years.

A New Tax System (Luxury Car Tax) Act 1999 to provide an exemption from luxury car tax (LCT) to certain public institutions that import or acquire luxury cars for the sole purpose of public display. The changes would apply to public museums, galleries, and libraries that are registered for goods and services tax and that have been endorsed as deductible gift recipients. Date of effect: These amendments would apply to luxury cars that are imported or acquired from the day after the Bill receives Royal Assent.

9/02/2017




INCOME



• ACNC Interpretation Statement on meaning of “public benevolent institution”

• ACNC-registered PBIs can seek endorsement from ATO as:

‒ tax concession charities (income tax and FBT exemptions, GST concessions)

‒ deductible gift recipients.

Income

CIS 2016/03 – Public Benevolent Institutions


The Australian Charities and Not-for-profits Commission (ACNC) has published a new

Commissioner's Interpretation Statement on Public Benevolent Institutions (PBIs). It outlines the

ACNC's current understanding of the law concerning PBIs and how organisations may fit the charity

subtype. The statement is binding on ACNC staff during the decision-making process. Registered

charities with PBI status are granted Deductible Gift Recipient status by the ATO.

The release of the statement follows consultation with the public, charity sector members and

professional advisors on an Exposure Draft Statement issued earlier in 2016.

Previously, the ATO determined whether an organisation was a PBI for Commonwealth taxation

purposes. Entities can now apply to the ACNC to be registered under the charity subtype, PBI.

The ATO administers the taxation concessions available to registered charities and registered PBIs,

including the "in Australia" condition for deductible gift recipient status.

For ACNC purposes, the Interpretation Statement says a PBI is a charitable institution with a main

purpose of providing benevolent relief to people in need. While the phrase PBI is a compound

expression, the ACNC says it is nevertheless appropriate to define each word in the phrase.

Accordingly, the ACNC says a PBI must be:

"Public" in the required sense;

Benevolent; and

An institution.

https://www.acnc.gov.au/ACNC/Comms/Med_R/MR_195.aspx

https://www.acnc.gov.au/ACNC/Comms/Med_R/MR_195.aspx



Additionally, to be eligible for registration as a PBI subtype of charity, an entity must also be eligible

for registration as a "charity" under the Australian Charities and Not-for-profits Commission Act

2012. To be registered as a charity, an entity must: (i) meet the definition of a "charity" in s 5 of the

Charities Act 2013 (Cth) and therefore must have a "charitable purpose" as set out in s 12 of the

Charities Act; and (ii) meet all of the entitlement criteria in s 25-5 of the ACNC Act.

12/01/2017




High Court: Industry severance scheme not a unit trust for Div

6C purposes

• FCT wins High Court case

• Industry severance scheme not a unit trust for tax purposes

• Workers didn’t have “units” in scheme.

Income

ElecNet (Aust) Pty Ltd v FCT [2016] HCA 51

High Court: Industry severance scheme not a unit trust for Div 6

purposes

ElecNet (Aust) Pty Ltd (Trustee) v FCT

The High Court has unanimously dismissed the taxpayer's appeal from the Full Federal Court

decision in ElecNet (Aust) Pty Ltd (Trustee) v FCT [2015] FCAFC 178 and confirmed that the

Electrical Industry Severance Scheme was not a "unit trust" within the meaning of Div 6C of Pt III of

the ITAA 1936 and therefore was not entitled to be taxed like a company. It did so on the basis of

finding that the interests of the electrical industry workers in the scheme could not be characterised

as "units". In arriving at its decision, the High Court also indicated that the workers' interests were

"discretionary" in nature which was contrary to the concept of a "unit" interest: ElecNet (Aust) Pty Ltd

v FCT [2016] HCA 51 (High Court, Kiefel, Gageler, Keane, Nettle and Gordon JJ,

21 December 2016).

Background

The taxpayer was the trustee of the Electrical Industry Severance Scheme (EISS) which provided

benefits to "workers" (as defined) who left or changed their employment in circumstances set out in

the Industry Severance Scheme.

The EISS was established to provide portability and security of termination and redundancy benefits

to workers in the electrical contracting industry. Employers within the relevant industry become

members of EISS and were required to make weekly contributions to it in respect of their workers

pursuant to obligations under industrial awards. When a worker's employment was terminated, EISS

was required to make a severance or redundancy payment to the worker, dependant on the

category of the worker.

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCAFC/2015/178.html

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/HCA/2016/51.html




In December 2012, the taxpayer applied to the FCT for a private ruling that it was a "unit trust" (ie a

"public unit trust" and a "public trading trust" for the purposes of Div 6C), so that it could be taxed like

a company. The FCT ruled that the EISS was not a "unit trust" for these purposes, and therefore not

a "public unit trust" or a "public trading trust". The taxpayer appealed against the FCT's disallowance

of its objection against the private ruling and, in doing so, raised the issue of whether workers have

"a beneficial interest in any property" of the trust estate within the statutory def inition of "unit" in

s 102M.

The question for determination was whether the trust terms of the EISS trust deed supported the

characterisation of the EISS as a "unit trust" for Div 6C purposes.

At first instance, in ElecNet (Aust) Pty Ltd (Trustee) v FCT [2015] FCA 456, the Federal Court

allowed the taxpayer's appeal and held that the industry severance scheme was a unit trust for the

purposes of Div 6C. In doing so, the Court noted that where a worker becomes entitled to a

severance payment, the trustee had to deal with the worker's entitlement to the amount standing to

the credit of that worker in that worker's account as prescribed by the trust deed which it also fou nd

conferred on workers an interest of a proprietary nature in the trust fund. This was the case even

though the entitlement is a right to a payment in the future was conditional upon the happening of a

prescribed severance event. The Federal Court also noted as a matter of general principle (in

accordance with the High Court's decision in CPT Custodian v Comr of State Revenue (Vic) [2005]

HCA 53; (2005) 224 CLR 98) that the term "unit trust" does not, in the absence of an applicable

statutory definition, have a constant fixed normative meaning and that otherwise the key features of

a unit trust were present in this case.

However, the Full Federal Court in FCT v ElecNet (Aust) Pty Ltd (Trustee) [2015] FCAFC 178

unanimously allowed the FCT's appeal and held that the EISS was not a "unit trust" for the purposes

of Div 6C. In doing so, the Court essentially found that in terms of the relevant trust deed, the

beneficiaries did not have a "beneficial" interest in any of the income or property of the trust, and that

their interests in the trust were not, in effect, divided into units or "unitized" as required for the

existence of a "unit trust".

Before the High Court, the FCT argued that the EISS was not a unit trust within the meaning of

Div 6C because the beneficial interest in the trust "was not divided into units (however described)"

and because the various rights and entitlements created in members were disparate in nature and

quantity and for the most part they were dependent upon the exercise of a discretion by ElecNet in

favour of a particular identified individual worker". Likewise, the FCT submitted that by reason of the

broad discretions conferred upon ElecNet by the deed, any given worker did not have a beneficial

interest in any of the income or property of the trust estate within the meaning of the definition of

"unit" in s 102M.

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCA/2015/456.html






Decision

In unanimously finding for the FCT, the High Court held that on any view of the interest created by

the trust deed in favour of a worker, the effect of the deed was such that the interest so created was

"not cognisable as a unit in a unit trust for the purposes of Div 6C". In short, the High Court held that

the EISS was not a unit trust for the purposes of Div 6C because any interest created by the deed in

favour of employees could not be characterised as a "unit". In arriving at its conclusion , the Court

noted the following matters:

The broad discretions conferred upon ElecNet to determine which workers should benefit under the

scheme, and the extent of any such benefit, supported the contention that no worker had a

beneficial interest in any of the income or property of the trust estate and that it could not be said

that the beneficial interests of workers have been divided into units.

There is no reported case, in Australia or elsewhere, in which the expression "unit trust" has been

applied other than in circumstances where, under the applicable trust deed, the beneficial interest in

the trust fund is divided into units, which when created or issued are to be held by the persons for

whom the trustee maintains and administers the trust estate.

The purpose of Div 6C is to treat unit trusts for tax purposes as analogous to the relationship

between companies and shareholders, but, in this case, the relationship established by the deed

between ElecNet and a worker is not analogous to that between a company and a shareholder.

A payment to a worker by ElecNet was not even tenuously analogous to a dividend paid to a

shareholder in a company because both the making of a payment to a worker, and the quantum of

any such payment, depend on the exercise of a discretion by the trustee having regard to

circumstances personal to the worker.

It was to strain the language of the deed to describe that what occurred when a payment is made to

a worker as the "cancellation, extinguishment or redemption of an interest" in a prescribed trust

estate because no "right" was "held" by a worker to be cancelled, extinguished or redeemed.

In a separate judgment, Nettle J concluded that what was determinative of the issue in this case was

that the beneficial interest in the EISS was not divided into units and that instead the EISS provided

for different amounts of the trust estate to be credited to each individual worker's account, which

were then held on trust to make payments to that worker upon the occurrence of a severance event

- and in an amount to be determined by ElecNet up to the amount standing to the credit of that

worker's account. Moreover, Nettle J said this was "more akin to a defined benefits superannuation

scheme fund which [was] held on trust for the payment of retirement, death or total disability benefits

to members or their dependants".

Finally, the High Court concluded that this inclusive definition of "unit" in Div 6C did not expand the

meaning of "unit trust" for the purposes of that Division.

12/01/2017




Taxpayer resident of Australia under Aust/Malaysia DTA

• Taxpayer: born in Malaysia, Australian citizenship and passport

• Self-employed as software development consultant

• For 2014-15, in Australia 279 days, in Malaysia 88 days

• From 1 April 2015, leased room in Malaysia from mother-in-law

• AAT found taxpayer resident of Australia – Malaysian source PSI and

business profits taxable in Australia.

Income

Re Tan and FCT [2016] AATA 1062

Taxpayer held resident of Australia under Aust/Malaysia DTA

Re Tan and FCT [2016] AATA 1062

The AAT has upheld the FCT's decision that a taxpayer was a resident of Australia for the whole of

the income year ended 30 June 2015. Therefore, his Malaysian source personal services income

and business profits were taxable in Australia: Re Tan and FCT [2016] AATA 1062 (AAT, Walsh SM,

AAT File No: 2016/2243, 21 December 2016).

Background

The taxpayer was born in Malaysia, but has lived in Australia since 1998. He is an Australian citizen

and holds an Australian passport. He married a Malaysian citizen in 2011 (she is an Australian

permanent resident). The couple had a child early in 2016. The Tribunal said that du ring the income

year ended 30 June 2015, the taxpayer was self-employed as a professional software development

consultant and received income from a US company, pursuant to a contract for professional

software development and consultancy services, and from worldwide customers who accessed his

website and purchased his mobile app. In a private binding ruling, the FCT stated that all of the

taxpayer's above income was assessable in Australia. The taxpayer's objection to his 2015

assessment was disallowed.

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/AATA/2016/1062.html



The issue in this case was whether the application of the Australia/Malaysia double tax agreement

(DTA) meant that the taxpayer is a tax resident of Australia or Malaysia for the year ended

30 June 2015. While in Australia, the taxpayer and his wife lived at his parents' home in WA and

while in Malaysia, they lived at his wife's parent's home. The FCT contended that the taxpayer was

to be treated as a tax resident of Australia for the entirety of the income year ended 30 June 2015.

The taxpayer accepted that for the period 1 July 2014 to 31 December 2014, he is to be treated as a

tax resident of Australia, and that, for the period 1 January 2015 to 31 March 2015, he is to be

treated as a tax resident of Australia, by reason of the operation of the DTA. However , for the period

1 April 2015 to 30 June 2015, the taxpayer contended that he should be treated a tax resident of

Malaysia. On 1 April 2015, the taxpayer entered into a 12 month lease agreement with his wife's

mother to rent a room at the Malaysian address, with an option to renew. The taxpayer said he paid

a monthly rental from 1 April 2015 until at least 1 June 2016 (although the Tribunal noted that he did

not provide any bank statements evidencing payment of these amounts).

The Tribunal said that, during the income year ended 30 June 2015, the taxpayer: (i) was in

Australia for a total of 279 days, and in Malaysia for a total of 88 days; (ii) had a bank account in

Australia containing about $200,000; (iii) owned a car stored in Australia; (iii) maintained a private

health policy with HCF: (iv) held a WA driver's licence; (v) was registered on the Australian electoral

roll; and (vi) was entitled to Medicare benefits.

Decision

After reviewing the matter, the Tribunal said "it must be concluded that [the taxpayer's] remuneration

for his services, whether performed in Australia or Malaysia, may be taxed in Australia. Even though

[the taxpayer] has performed some of his personal services in Malaysia, Article 14 of the

Australia/Malaysia DTA does not prevent Australia from taxing this income. Although

Malaysia may also tax remuneration from personal services performed in Malaysia by an Australian

resident, nothing in the Australia/Malaysia DTA prevents Australia from also taxing this income." The

Tribunal considered that applying Article 7(1) of the DTA to the taxpayer, his business income,

whether derived in Australia or Malaysia, will be taxable Australia. The Tribunal also considered that

the taxpayer's "personal and economic relations" with Australia "are far closer than his 'personal and

economic relations' with Malaysia". His "centre of vital interests" is in Australia, the Tribunal said.

The Tribunal therefore found that the taxpayer was a resident solely of Australia pursuant to the

"tiebreaker" test in Article 4(2)(c) of the Australia/Malaysia DTA.

12/01/2017




No disclaimer of interest in trust

• Following audits:

‒ Trusts denied carried forward losses

‒ Beneficiary’s income increased by over $12m

• Before AAT, beneficiary said she disclaimed trust interests (this wasn’t raised

in her objection)

• AAT didn’t allow objection to be amended to rely on disclaimers – FCT would

be prejudiced.

Income

Re TVKS and FCT [2016] AATA 1010

No disclaimer of interest in trust: assessments increasing taxable

income by $13m stand

Re TVKS and FCT [2016] AATA 1010

A beneficiary of two trusts whose assessable income was increased from some $70,000 to some

$13m in respect of her entitlement to distributions from the trusts has been unsuccessful before the

AAT in arguing that she had "disclaimed her interests" in the trusts: Re TVKS and FCT [2016] AATA

1010 (AAT, Ref No: 2015/4655- 4656, Forgie DP, 9 December 2016).

Background

The taxpayer was a beneficiary of two trusts, one of which ("Archer") was involved in investments in

residential complexes in partnership, or as "syndicate member", with another entity. Following an

audit of the trusts (and an earlier settlement arrangement), Archer was denied deductions for

significant "syndication" costs it had previously incurred while the other trust ("Shee") was likewise

denied significant deductions. The effect of these adjustments was to substantially reduce the

deductible carried forward losses of the trusts.

As a result, in May 2013 amended assessments for the 2006 and the 2007 income years also

issued to the taxpayer as the beneficiary of the trusts who was entit led to 100% of the trust income

from them. These amended assessments increased her taxable income from $9,000 to $10m in the

2006 income year and from $60,000 to $3m in the 2007 income year. In addition, shortfall interest

charge (SIC) of $3.2m was imposed (as reduced by the FCT over certain periods of the audit and

assessment process).

http://www.austlii.edu.au/au/cases/cth/AATA/2016/1010.html




The taxpayer unsuccessfully objected to the amended assessments, and before the AAT argued the

following:

A "disclaimer of trust interests" entered into in December 2015 was effective to disclaim any

entitlement to the trust distributions;

The Archer trust resolution to distribute "income" of the trust to the taxpayer was not valid in

terms of the Archer trust deed;

"Default" resolutions made by both trusts to distribute the trust income to another party in the

event that their deductions were denied by the ATO were valid and effective;

The amended assessments were issued out of time;

The denied carried forward losses were in fact available to Archer; and

The SIC should be remitted.

Decision

In dismissing the taxpayer's application on all grounds, the AAT found as follows.

Disclaimer of trust interest

The AAT ruled that because the taxpayer had not specifically raised the disclaimer issue in her

grounds of objection, it would not be permissible to raise it in the application before the AAT. In

arriving at its decision, the AAT also noted, among other things, that the relevant parties had had the

benefit of the distributions, the significant passage of time between the distributions and the making

of the disclaimer, and that her husband (who managed the affairs of the trusts) could have arranged

for the otherwise "retrospective" disclaimers to be made before the amended assessments had

issued. Furthermore, the AAT found that it would not be in the interests of justice to give her leave to

extend the grounds of her objection given that the objection never touched on the issue of

disclaimer.

Validity of Archer trust resolution

The AAT concluded that the resolution made by the Archer trust to distribute the "income" of the

trust to the taxpayer was not an invalid exercise of its power merely because it referred to "income"

and not "net income" of the trust. Likewise, the AAT found that leave should not be granted to the

taxpayer to expand the grounds of her objection to include that the Archer resolution was ineffective

to distribute income to her. This was because the AAT said that the FCT would be "prejudiced"by

such leave in that he could have instead issued an assessment to Archer making it liable for the tax

on the trust income under s 99A of the ITAA 1936.



Validity of the default resolutions

The AAT also found that the "default" resolutions were not effective because neither they, nor the

"initial" resolutions, were technically subject to a "contingency" and because the initial resolutions

clearly intended, and had the effect of, making the taxpayer entitled (both in "interest" and

"possession") to the whole of the income of the trusts - and which, furthermore, was the "practical

effect" of the resolutions. In addition, the AAT noted that the effect of initial resolutions meant that

there was nothing left to be distributed under the default resolutions.

Assessments out of time

The AAT found that the amended assessments had not been issued out of time to the taxpayer as

she had, in terms of s 170(7), Item 4 of the ITAA 1936, consented to a relevant extension to the

limitation period per the FCT's request for such an extension that he made during the audit process

involving her tax affairs.

Carried forward losses

The AAT confirmed that the carried forward losses had been correctly denied by the FCT. This was

because the evidence indicated that deductions had been appropriately reduced for the amounts

"actually incurred" in the relevant year by Archer in respect of the purchase of property by the

syndicate, and for which it was claiming a deduction for its share of the outgoings as a syndicate

member.

SIC remission

Finally, the AAT found that there was no ground for further remission of the SIC imposed by the

FCT. In doing so it dismissed her arguments that she was unaware of the trust distributions or of the

trusts themselves. The AAT also noted that she had placed entire responsibility for her taxation and

financial affairs in her husband who was also her tax agent.

12/01/2017



DEDUCTIONS


Home office expenses on floor area basis – FCT's method

preferred

• Taxpayer – employee electrician

• Applied for private ruling on home office expenses

• AAT agreed with FCT that apportionment on “floor area” basis appropriate.

Deductions

Re HWZG and FCT [2016] AATA 1017

Home office expenses on floor area basis – FCT's method preferred

Re HWZG and FCT [2016] AATA 1017

The AAT has affirmed the FCT's decision on the deductibility of a taxpayer's home office expenses

on a "fair and reasonable" apportionment on a floor area basis.

The taxpayer sought review of the FCT's decision to disallow his objection to a private ruling in

relation to the deductibility of home office expenses under s 8-1 of the ITAA 1997 in respect of the

income tax years ended 30 June 2016, 30 June 2017 and 30 June 2018. The taxpayer is a full-time

employed electrician. It was not in dispute that the taxpayer uses part of his home for business

purposes (namely, an inside office, the "right hand side" driveway (the RHS driveway) a nd an

adjoining secure garage). The dispute concerned the appropriate method of calculating the

deduction.

After reviewing the matter, the Tribunal considered the FCT's approach to be a "fair and reasonable"

approach to apportionment in the particular circumstances of the taxpayer's case. The FCT

considered that a "fair and reasonable" methodology would treat the areas in question (ie the RHS

driveway and corresponding secure garage and the LHS driveway and open carport) equally, either

by including, or excluding, both equivalent areas.

Re HWZG and FCT [2016] AATA 1017, AAT, Walsh SM, AAT File No: 2016/3278-3280,

6 December 2016

12/01/2017





MPs: allowances, reimbursements, donations, deductions, etc

• Substantial amendments made to Ruling TR 99/10

• Amendments clarity tax treatment of allowances and expenses incurred in

financing, holding and maintaining accommodation that MPs purchase or

lease and stay in when travelling.

Deductions

Addendum to TR 1999/10

MPs: allowances, reimbursements, donations, deductions, etc

Addendum to TR 1999/10

The ATO has released an Addendum to TR 1999/10 (Income tax and FBT: Members of Parliament

– allowances, reimbursements, donations and gifts, benefits, deductions and recoupme nts). The

Addendum is dated 15 December 2016, the date it was intended for release but for the ATO's

systems problems.

It makes substantial amendments to TR 99/10 to provide greater clarity around the tax treatment of

allowances and accommodation expenses incurred in financing, holding and maintaining

accommodation that a Member of Parliament purchases or leases and stays in when travelling away

from home for work.



Some of the amendments made to the Ruling include:

Because of a Withholding Variation, most domestic travel allowances for accommodation,

food, drink or incidentals or overseas travel allowances for food, drink or incidentals will not

be shown on a Member's payment summary. Travel allowances not shown on a Member's

payment summary are not required to be returned as assessable income on their tax return

if:

o The travel allowance received is a bona fide travel allowance; and

o The travel allowance is used for travel related expenses; and

o The travel allowance received does not exceed the amounts considered reasonable

by the FCT for substantiation purposes; and

o The Member chooses not to claim deductions for relevant expenses in his or her

income tax return.

A deduction is allowable for revenue expenses incurred in financing, holding and maintaining

an additional property purchased or rented by a Member where certain conditions are met eg

if it is used by the Member for accommodation when he or she is undertaking work-related

travel away from home. However, the Addendum says if the Member's revenue expenses in

relation to the property are disproportionate to what the member would have paid for suitable

commercial accommodation for the period of the travel, a deduction is not allowable to the

extent that the expenses are incurred in the pursuit of another ob ject unrelated to the earning

of the Member's assessable income.

Notwithstanding the substantiation exception in relation to overseas travel allowance expenses

referred to in para 52 of TR 1999/10, travel records for overseas travel must still be kept if t he

travel involves the Member being away from their ordinary residence for six or more nights in

a row.

The receipt of an allowance does not automatically entitle a Member to a deduction for travel

expenses. Travel expenses covered by a travel allowance for accommodation, food, drink

and incidentals, but not fares, constitute "travel allowance expenses" for substantiation

purposes. This means a deduction is not allowable unless written evidence of the expense

has been obtained and retained by the Member.

Date of effect

The Addendum applies to years commencing both before and after its date of issue.

12/01/2017




Deduction for bad debt: beneficiary of a trust and UPEs

• Beneficiary not entitled to bad debt deduction for unpaid present entitlement

• ATO gives two reasons:

‒ Trustee’s equitable obligation to pay UPE not a debt at common law

‒ UPE not “included” in beneficiary’s assessable income under Div 6 ITAA 1936, as

required by s 25-35(1)(a) ITAA 1997.

Deductions

Taxation Determination TD 2016/19

Deduction for bad debts: beneficiary of a trust and UPEs


The ATO has issued Taxation Determination TD 2016/19 which states that a beneficiary is not

entitled to a deduction under s 25-35 of the ITAA 1997 for an amount of unpaid present entitlement

(UPE) that the beneficiary purports to write off as a bad debt. It says this is because the amount of

UPE is not included in the beneficiary's assessable income, rather the entitlement is used to

determine the amount of net income of the trust included in the beneficiary's assessable income

under Div 6 of Pt III of the ITAA 1936.

Consequently, according to the Determination, the requirement in s 25-35(1)(a) of the ITAA 1997 (ie

it requires the relevant debt to be included in the taxpayer's income in that year or in an earlier

income year) cannot be met. It includes two examples outlining a simple unpaid entitlement and

where an entitlement is treated as a loan.

The TD was previously released as Draft TD 2015/D5.

Date of effect

Applies to years of income commencing both before and after its date issue.

12/01/2017




Work-related travel expenses not deductible – taxpayer fails

burden of proof

• Test engineer worked for offshore division of Indian company

• Deductions for travel to India, medical insurance disallowed

• Private expenditure.

Deductions

Re Thambiannan and FCT [2016] AATA 1004

Work-related travel expenses not deductible – taxpayer fails burden of

proof

Re Thambiannan and FCT [2016] AATA 1004

The AAT has held that a taxpayer was not entitled to deductions for work-related travel expenses

and medical insurance as they were of a private nature.

The taxpayer, a senior test engineer, worked for an offshore division of a company based in India.

He generally worked in Australia but sometimes overseas on client projects. He claimed work-

related travel expenses totalling $6,200 for a trip to India that he said he undertook for work

purposes, and a deduction for medical insurance of $1,321. The claims were made for the year

ended 30 June 2013. The ATO audited the taxpayer and disallowed the claims.

The taxpayer's tax agent said his client provided information that he was required to work on a client

project in India for about 25 days during 2013. The FCT received information from the taxpayer's

employer that he had not travelled officially to "any other location/state/county during his

employment".

The Tribunal said it was not satisfied that the claimed travel expenses were incurred "in the course

of" gaining or producing assessable income or that the travel had any nexus with the taxpayer's

employment. "None of the documents produced by [the taxpayer] or by [his] employer support his

assertion that his travel to India was for a work related purpose", the Tribunal said. In addition, the

AAT said payment summaries indicated the taxpayer took paid annual leave and unpaid personal

leave in June 2013 being the time when he was in India. In other words, the Tribunal said the

payment summaries showed the taxpayer was in India on his own time and not on his employer's

time.



In relation to the deduction claimed for the medical insurance premium, the taxpayer's tax agent

argued that the taxpayer was entitled to claim the deduction because his employer had made an

allowance for this in his salary package. However, the Tribunal said that, regardless of whether his

employer had paid him an allowance for the expense, it was not deductible as medical insurance "is

inherently private in nature". The fact that the taxpayer needed to incur the expense to be able to

obtain a sub-class 457 visa in the relevant year and to commence work in Australia did not, in the

Tribunal's view, change the essential character or nature of the expenditure, which was that it was

private in nature and, therefore, not deductible. That is, even if it was a prerequisite to him working

and earning assessable income, it was not deductible, the Tribunal said.

The Tribunal therefore found the taxpayer failed to discharge the burden of proof. Specifically, it said

the limited information and documents he provided, through his tax agent, did not support the

deductibility of the deductions claimed. On the evidence available, the Tribunal considered the

expenses claimed by the taxpayer were of a private nature and not deductible.

Re Thambiannan and FCT [2016] AATA 1004 , AAT, Lazanas SM, AAT Ref: 2015/5072,

8 December 2016

12/01/2017





Commercial website deductibility

• Detailed ruling on expenditure on websites used for carrying on business

• Covers deductions for acquiring, developing, maintaining or modifying

website.

Deductions

Taxation Ruling TR 2016/3

Commercial website deductibility

Taxation Ruling TR 2016/3

The ATO has issued Taxation Ruling TR 2016/3 which sets out the deductibility of expenditure

incurred in acquiring, developing, maintaining, or modifying a website for use in carry on a business.

It covers expenditure in acquiring, developing, maintaining and modifying a website. The Ruling also

covers the deductibility of content migration, development of microsites, social media accounts,

domain names and copyright. However, it notes that assets such as hardware, the right to use the

domain name, and content that has independent value to the business are identified separately and

are not considered a part of a commercial website.

According to the ATO, expenditure in relation to commercial websites includes labour, off -the-shelf

software products, registration, licensing and other periodic usage fees. Generally, it st ates that

where the expenditure (labour, software, registration etc) is directly referable to the enhancement of

the profit-yielding structure of the business, it would be considered to be capital. Specifically in

relation to off-the-shelf software products that are licensed periodically, or where a website is leased

from a web developer and the business does not have a right to become the owner of the website,

any expenses incurred are likely to be of a revenue nature, the Ruling states.



The Ruling indicates that acquiring or developing a commercial website for a new or existing

business is considered to be capital, and that maintaining a website is a revenue expense, including

remedying of software faults. It notes that any modification to a website that adds new functionality

to both back-end and front-end (ie interactivity available directly to the website or management of

background operations) or materially expands existing functionality is capital. However, the Ruling

says that expenditure on regularly upgrading existing website software to allow web pages to appear

correctly with new mobile devices, browsers, or operating systems is generally considered to be

deductible, as it is considered to be operational and directed at facilitating continued acce ss. It

further notes that similar principles apply to determining whether expenditure incurred in acquiring or

developing a microsite is of a capital or revenue nature, however, expenditure on a temporary

microsite is more likely to be of a revenue nature where it is set up for a transient marketing purpose.

In some instances, the Ruling says, the modifications to websites may be piecemeal but may result

in a significant improvement to the website. It states that some indicators that a piecemeal

modification is a part of a program of work for improving the website (and thus capital) include

documentation for a program of work, extent to which the end-state is planned and the importance of

incremental enhancements to achieving the end-state, and casual or temporal links with other

modifications.

In relation to content migration, the Ruling indicates that if the content is migrated as part of

establishing a new website, the cost is capital. However, it says if the content is migrated as a part of

a website upgrade, the cost is capital if the upgrade itself is capital, otherwise it is a revenue

expense. Further, the Ruling states that the migration of content due to replacement of hardware

without a material change to the commercial website is a revenue expense.

According to the Ruling, establishing a presence on a social media website is a capital asset that is

separate from the website and is not "in-house software" as it resides on the social media platform.

Expenditure incurred on the profile may be treated as a revenue expense where the cost of setting

up the profile is trivial and the profile is maintained for marketing purposes, the Ruling states.

Where the website costs are not otherwise deductible under s 8-1 of the ITAA 1997, the

expenditure may be classed as "in-house software" and deductible under the capital allowances

regime, the Ruling states:

Expenditure may be deducted over five years from the time the software is first installed or

ready for use;

The expenditure may be allocated to a software development pool; or

Small business entities may choose to use simplified depreciation rules in Subdiv 328-D (ie

immediate write off where asset is under threshold or depreciated in accordance with general

small business pool rules).



In-house software

Note that the Ruling defines in-house software to include: software in a commercial website that

enables the website owner to interact with the user, where any independent benefit to the user is no

more than incidental to the interaction; software provided on a commercial website for installation on

the user's device if its purpose is solely to provide a user interface with the business; and content on

a website which is incidental to the website and not an asset having value separate from the

website. The Ruling also outlines what is considers is not "in-house software".

CGT issues

Where the website costs are neither deductible under s 8-1 or under the capital allowances regime,

the CGT regime will recognise the expenditure as a part of the cost base of a CGT asset , the Ruling

states. It also states that s 40-880 will generally not apply (as it is a provision of last resort) since

commercial websites will usually be "in-house software" or if not, it is likely to be part of the cost

base of a CGT asset.

In relation to domain names, an amount paid once-and-for-all to secure the right to use a domain

name is capital expenditure and the right to use a domain name is a CGT asset, thus, the right to

use a domain name forms part of the cost base of that asset. However, it notes that periodic

registration fees for a domain name including the initial registration fee are revenue expenses and

are deductible when paid, unless the fees relate to a period greater than 13 months, in which case

the expenditure is deductible over the period to which the fee relates.

Copyright

The Ruling notes that copyright can subsist in parts of a website but not in a website as a whole.

Hence, it states where a website owner holds copyright in a component of the website held for

taxable purposes, the decline in value of the copyright may be deducted. If the component is both

copyright and a part of an in-house software asset, the Ruling states the most appropriate treatment

will be to deduct the decline in value of the in-house software asset. It also says that copyright in

software or content is not considered a part of the website and whether the copyright is able to be

depreciated will depend on whether the commercial website expenditure is able to be depreciated.

Previous draft

The Ruling was previously issued as Draft Taxation Ruling TR 2016/D1 and contains significant

changes. It contains 25 examples to illustrate the deductibility of various scenarios (note the

examples have also significantly changed from the Draft).

Date of effect

Applies to income years commencing before and after its date of issue.

12/01/2017




Depreciating assets - composite items

• Draft ruling on whether composite item is single depreciating asset

• Component parts may be separate depreciating assets if they can be

separately identified or recognised as having commercial and economic

value.

Deductions

Draft Taxation Ruling TR 2017/D1

Depreciating assets – composite items

Draft Taxation Ruling TR 2017/D1

The ATO has released Draft Ruling TR 2017/D1, which sets out the FCT’s views on how to

determine whether a composite item is itself a depreciating asset or whether the component parts

are separate depreciating assets.

A “composite item” is an item that is made up of a number of components that are capable of

separate existence. Whether a particular composite item is itself a depreciating asset or whether one

or more of its components are separate depreciating assets is a question of fact and degree to be

determined in the circumstances of the particular case.

For a component (or more than one component) of a composite item to be considered to be a

depreciating asset, it is necessary that the component (or components) is capable of being

separately identified or recognised as having commercial and economic value. Purpose or function

is generally a useful guide to the identification of an item.

https://www.ato.gov.au/law/view/document?DocID=DTR/TR2017D1/NAT/ATO/00001



The draft ruling lists the main principles to be taken into account in determining whether a compos ite

item is a single depreciating asset or consists of more than one depreciating asset. These include:

Identifiable function – the depreciating asset will tend to be the item that performs a separate

identifiable function, having regard to the purpose or function it serves in its business context;

Use – a depreciating asset will tend to be an item that performs a discrete function. However,

the item need not be self contained or able to be used on a stand alone basis;

Degree of integration – the depreciating asset will tend to be the composite item where there is

a high degree of physical integration of the components;

Effect of attachment – the item, when attached to another asset having its own independent

function, varies the performance of that asset; and

System – a depreciating asset will tend to be the multiple components that are purchased as a

system to function together as a whole and which are necessarily connected in their

operation. However, where an element of a system is purchased or installed at a different

time to the system and has a separate identifiable function, that element may be a separate

depreciating asset.

The mere fact that an item cannot operate on its own and has no commercial utility unless linked or

connected to another item or items tends to indicate that it will form part of a composite item, rather

than being a separate depreciating asset. An item that is designed to be functionally

interchangeable, or is used in this way, with other items may indicate there are separate

depreciating assets.

Other issues considered in the draft ruling include:

Whether a modification or alteration to an existing depreciating asset can itself be a

depreciating asset;

Intangible depreciating assets; and

Jointly held tangible assets.

The draft ruling contains 14 examples, covering items such as industrial storage racking, a desktop

computer package, a mainframe computer, a local area network, a car GPS, rail transport

infrastructure, a solar power system and photographic lighting equipment.



The draft ruling replaces TD 2002/5 What is a “distribution line” in the electricity distribution industry

for the expression “depreciating assets” in s 40-100 of the ITAA 1997? which is withdrawn with effect

from 18 January 2017. The ATO has also withdrawn the following seven ATO IDs with effect from 18

January 2017, as they have been replaced by Draft TR 2017/D1:

ATO ID 2002/751 Depreciating asset – photovoltaic solar system;

ATO ID 2002/930 Depreciating assets – photographic lighting equipment;

ATO ID 2003/489 Capital Allowances: rail transport trackwork – depreciating asset;

ATO ID 2004/612 Capital Allowances: depreciating asset – car global positioning system

device;

ATO ID 2007/119 Capital Allowances: depreciating asset – composite item;

ATO ID 2011/1 Capital allowances: depreciating asset – jointly held – composite asset; and

ATO ID 2011/2 Capital allowances: depreciating asset - segments of a fibre optic cable

system.

When the final ruling is issued, it is proposed to apply both before and after its date o f issue.

Comments are due by 17 February 2017 and should be sent to: Darryl Palmer: Tel: (08) 8208 1917;

email: [email protected].

19/01/2016

../../19%20January/Word/[email protected]




Effective life of assets – drafts released

• Draft effective lives of assets used in electronic information storage services

(data centre) industry released

• Draft effective lives of assets used in coal seam gas industry released

• Proposed date of effect for both: 1 July 2017.

Deductions

Draft lists released

Draft effective lives: Data centre assets; coal seam gas industry.

The ATO is seeking comments on a draft list of effective lives for assets used in the electronic

information storage services (data centre) industry. The ATO proposes to add a new list of effective

life determinations to the FCT's schedule to apply to assets purchased (or otherwise first used or

installed ready to use) on or after 1 July 2017. The list includes items such as data centre control

systems, data centre cooling assets, fire protection systems, and modular data centre.

Comments due by 28 February 2017.

Coal seam gas industry

The ATO is also seeking comments on a draft list of effective lives for assets used in the mineral

mining support services industry, specifically the coal seam gas extraction industry. The ATO

proposes to add a new list of effective life determinations to the FCT's schedule to apply to assets

purchased (or otherwise first used or installed ready to use) on or after 1 July 2017. The list includes

items such as Blasting assets, mobile processing units, dewatering pumps, and surface drill rigs.

Comments due by 24 February 2017.

26/01/2016

https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/In-detail/Effective-life/Draft-effective-life-determinations/Capital-allowances--draft-effective-life-of-assets-used-in-the-electronic-information-storage-services-industry/

https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/In-detail/Effective-life/Draft-effective-life-determinations/Capital-allowances--draft-effective-life-of-assets-used-in-the-mining-support-services-industry/

https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/In-detail/Effective-life/Draft-effective-life-determinations/Capital-allowances--draft-effective-life-of-assets-used-in-the-mining-support-services-industry/




Deduction for cost of tools rejected

• Taxpayer claimed he bought $24,750 worth of tools online, paid vendor in

cash from gambling winnings, had handwritten "tax invoice" for "87 hand tools

and/or power tools"

• FCT denied deduction, imposed 25% shortfall penalty

• AAT agreed with FCT – no tools purchased, vendor non-existent, fake tax

invoice.

Deductions

Re Ishaq and FCT [2017] AATA 35

Deduction for cost of tools rejected

Re Ishaq and FCT [2017] AATA 35

A taxpayer has failed to convince the AAT that he spent over $24,000 buying work tools and

therefore failed to discharge the burden of proving that an amended assessment was excessi ve.

The taxpayer was an aircraft maintenance engineer with an airline. After finishing his apprenticeship

he decided to buy his own tools as he considered those provided by his employer to be inadequate.

He allegedly bought 87 tools online for $24,750, together with two tool boxes. He claimed a

deduction for that amount, but it was eventually disallowed following an audit of his tax affairs. An

amended assessment was issued increasing his taxable income substantially, along with a notice of

assessment of a 25% shortfall penalty.

Before the AAT, the taxpayer alleged that the vendor (a Mr Shaw) had delivered the tools to his

home and he had paid Mr Shaw in cash from gambling winnings he kept at home. The taxpayer

produced a hand-written document purporting to be a "tax invoice". The document contained a date,

Mr Shaw's name, address and phone number and a statement which read "87 hand tools and/or

power tools". The document also stated a total price of $24,750. The signature was in Mr Shaw's

name. There was no reference in the document to the tool boxes.

http://www.austlii.edu.au/au/cases/cth/FCAFC/2016/163.html



The AAT dismissed the taxpayer's challenges to the amended assessment and shortfall penalty.

The AAT considered that the taxpayer had not purchased the tools and that the "tax invoice" was a

false document. The following matters were relied on in support of this conclusion: the ATO had

been unable to trace Mr Shaw despite extensive inquiries; there was no independent evidence as to

the existence of the tools (eg photographs and witness statements); there was no evidence the

taxpayer was a successful gambler who kept a large amount of cash at home; and the taxpayer's

girlfriend, who apparently witnessed the transaction with Mr Shaw, did not appear at the hearing to

confirm that.

Re Ishaq and FCT [2017] AATA 35, AAT, Ref No 2015/6214, Lazanas SM, 17 January 2017

26/01/2016





Overtime meal expenses disallowed

• Deduction for overtime meal expenses disallowed – 25% shortfall penalty

affirmed

• Taxpayer not paid allowance under industrial agreement (as required by s 32-

50 ITAA 1997)

• Paid same amount each week, regardless of how much overtime he worked.

Deductions

Re Kael and FCT [2017] AATA 38

Overtime meal expenses disallowed

Re Kael and FCT [2017] AATA 38

A taxpayer has failed in his claim for deductions for overtime meal expenses as he was not paid an

allowance under an industrial agreement: Re Kael and FCT [2017] AATA 38 (AAT, Ref Nos

2016/0299 and 2016/0300, Dr Popple SM, 20 January 2017).

Background

The taxpayer worked for a building company. His responsibilities included project management,

building construction supervision, quantity surveying and occupational health and safety. He worked

during the day on building sites and would do paperwork in the evenings. He would often work on

weekends.

His pay was set at the start of each income year and included amounts to cover regular overtime,

work performed at home and out-of-pocket expenses. For 2011-12, there was an additional amount

to cover work-related car expenses. He was paid a fixed amount weekly and did not receive regular

payslips. The taxpayer also received a profit share bonus on the completion of each project.

The taxpayer claimed deductions for work-related travel expenses (for 2012-13 only) and for other

work-related expenses, including overtime meal expenses (for both 2011-12 and 2012-13). The

deductions totalled $6,636. Following an audit of the taxpayer's tax affairs, amended assessments

were issued for both 2011-12 and 2012-13 reducing the amounts claimed as deductions. In addition,

an administrative penalty of 25% of the shortfall amount was imposed.




Ultimately, the only issues for the AAT to determine were whether the taxpayer was entitled to claim

deductions in both 2011-12 and 2012-13 for overtime meal expenses ($376 in total), whether the

FCT was correct to impose a 25% administrative penalty and whether it should be remitted.

Decision

Whether overtime meal expenses were deductible depended on whether the taxpayer had received

a food or drink allowance under an industrial instrument, in terms of s 32-5 ITAA 1997. The AAT

agreed with the FCT that the taxpayer had not received such an allowance. Indeed, the taxpayer

had not received any allowance at all.

Ruling TR 92/15 (which explains the difference between an allowance and a reimbursement) states

that a payment is an allowance "when a person is paid a definite predetermined amount to cover an

estimated expense". In this case, there were no estimated overtime meal expenses. The taxpayer

was paid the same amount each week, regardless of how much overtime he worked during that

week, and was even paid that same weekly amount in relation to times when he was on leave and

could not possibly have worked overtime. Accordingly, the AAT agreed with the FCT that "it is

illogical to suggest that you can predetermine an amount of allowance without having reference to

when the employee works overtime".

Turning to the administrative penalty, the AAT concluded that the 25% penalty was the minimum

amount that should be imposed, commenting that a 50% penalty for recklessness, or even a 75%

penalty for intentional disregard of the law, may possibly have been appropriate.

The AAT also rejected an argument that, in terms of s 284-225 in Sch 1 to the TAA, the taxpayer

had voluntarily disclosed information to the FCT that would have saved a significant amount of time

or resources in the audit. That was not the case as the taxpayer had in fact increased the amounts

claimed as deductions during the course of the audit.

Finally, the AAT decided that there were no grounds to remit the 25% penalty.

26/01/2016




No deduction or capital loss for guarantee "obligation"

• Taxpayers (controllers of trusts) involved in property development

• Income of 2 family trusts increased by $4.3m after capital loss of associated

unit trust disallowed

• Taxpayers claimed they were entitled to $4.3m deduction or capital loss as

trusts guaranteed business loan which lender (another related entity) had

called on guarantors to meet

• AAT found insufficient evidence to support existence of guarantee.

Deductions

Re Carioti and FCT [2017] AATA 62

No deduction or capital loss for guarantee "obligation"

Re Carioti and FCT [2017] AATA 62

The AAT has affirmed that two family trusts that were involved in a building and construction

business with other related entities were not entitled to a deduction or a capital loss for $4.3m. It did

so on the basis that both the documentary evidence and the oral evidence of the relevant controllers

of the trusts was not sufficiently credible to support the "bona-fides" of the alleged guarantee

arrangement: Re Carioti and FCT [2017] AATA 62 (AAT, File Nos: 2014/1471, 1474, 1484 & 1485,

Frost DP, 25 January 2017).

Background

Following the audit of the applicants and their associated entities who were involved in a building

business, an amended assessment was made in relation to a unit trust for the 2007 income year.

The amended assessment reflected the disallowance of a $4.3m cap ital loss which the FCT

concluded, and the applicants accepted, was not incurred by the unit trust. As a consequence, the

unit trust had an additional $4.3m available for distribution to its unit holders. That amount was

distributed as to 50% to one discretionary trust (controlled by the first and second applicants), and

as to 50% to another discretionary trust (controlled by the third and fourth applicants). From those

discretionary trusts, distributions flowed to each of the applicants personally.




The FCT then amended the applicants' assessments for the 2007 income year to take account of

those additional distributions. Each of the applicants objected against their amended assessment

and against the assessment of 50% shortfall penalties for recklessness. They claimed their

respective discretionary trusts were entitled either to a deduction, or to a capital loss, equal to the

amount of additional income attributed to it. Specifically, the applicants claimed that each of their

trusts guaranteed a loan which the borrower became unable to service and that, as a result, the

lender (a related entity) had called on the guarantors to meet the debt.

Decision

In affirming the FCT's decision to disallow the taxpayers' objections to their amended assessments,

the AAT found that both the documentary evidence and the oral evidence of the relevant controllers

of the trusts was not sufficiently credible to support the existence of the alleged "deeds of

guarantee". Specifically, the AAT found that there were unusual features of the guarantee deed in

evidence that put into question whether the trusts were genuinely subject to a guarantee obligation.

The AAT also expressed concerns about the evidence of the amount of the loan in question, but

found it sufficient to decide the matter on the evidence as to the existence of the guarantee.

In this regard, the AAT noted that the guarantee deed made no reference to what was involved in

the guarantors "securing" the debt and did not, as would normally be expected, record an

undertaking by the guarantors to perform the obligations of the debtor under the loan agreement in

the event of default by the debtor. Likewise, the AAT noted that the deed said nothing about the

process to be undertaken by the lender to recover from the guarantors in the event of default.

Furthermore, the AAT stated that the only director of the debtor on the date the deed of guarantee

was made (apart from another party who was not at arm's length from the applicants) said he knew

nothing about a guarantee.

In these circumstances, the AAT said there must be considerable doubt as to whether the applicants

"truly did expose themselves to any guarantee obligation under the document in question". In doing

so, the AAT also noted the well-settled principle that "the evidence of witnesses who have an

interest in the outcome of litigation needs to be approached critically".

The AAT also affirmed the 50% shortfall penalties for recklessness. In this respect, the AAT said the

immediate cause of the applicants' failure to include the distributions in their assessable income was

"not only an error of attribution but one of fundamental entitlement as well" that was due to "extreme

sloppiness". Moreover, it stated that "putting aside the attribution error and focusing on the question

of fundamental entitlement ...the error was caused by gross carelessness". The AAT also found

there were no grounds to remit the penalties in these circumstances.

3/02/2017




Taxpayer denied deduction for work expenses of $60,000

• AAT found that mechanical engineer not entitled to deductions for:

‒ Car expenses – not work related

‒ Self-education costs – no nexus with income-producing activities

‒ Other “work” expenses – not substantiated

• AAT also affirmed 25% shortfall penalty for lack of reasonable care.

Deductions

Re Vakiloroaya and FCT [2017] AATA 95

Taxpayer denied deduction for work expenses of $60,000

Re Vakiloroaya and FCT [2017] AATA 95

The AAT has confirmed that a mechanical engineer with a PhD qualification was not entitled to

deductions for various work related expenses of approximately $60,000 claimed by him in the 2014

tax year - subject to certain minor deductions conceded by the FCT and several further ones allowed

by the AAT. The expenses in question were motor vehicle expenses (around $3,000), self-education

expenses (approx $48,000) and other work expenses (about $7,000): Re Vakiloroaya and FCT

[2017] AATA 95 (AAT, Ref No 2015/6422, Lazanas SM, 31 January 2017).

Motor vehicle expenses

In relation to the motor vehicle expenses, the taxpayer claimed he was required to use his car to

travel to meetings with clients and visit sites and continue with his work duties at home. He also

claimed that he was required to carry "confidential and sensitive documents" to and from a work and

therefore was entitled to a deduction on this basis as well. However, the AAT found the taxpayer did

not prove that his expenses were work-related and were not private in nature. In this regard, the

AAT noted that his employer did not "'reference" any requirement for him to attend any work -related

client meetings or site visits.

In respect of his claim for motor vehicle expenses on the basis that he was carrying "confidential information", the AAT found that, in fact, the information related to patents and other trade secret information which belonged to him and which had nothing to do with his employment or where he was studying. Furthermore, the AAT stated that even if he was carrying confidential information relating to his employer between home and work, he would not be entitled to claim a deduction for his motor vehicle expenses on that basis alone.





Self-education expenses

In relation to the self-education expenses claimed, the taxpayer argued that the expenses (for

physical products such as instrumentation equipment) related to an invention he was working on to

license to another company that was his own business or "industry". In disallowing this claim, the

AAT found the expenses had nothing to do with his employment or his university course and

therefore there was no requisite connection with any income-producing activity. In this regard, the

AAT also noted that an engineer engaged in developing a device was not engaged in a business.

The AAT also noted there was a failure to substantiate certain of the expenses.

Other work-related expenses

In relation to a range of miscellaneous work-related expenses claimed (including mobile phone

charges, internet, professional membership fees, conference fees and depreciation), the AAT found

that virtually all the deductions claimed were not properly substantiated in any way. It further stated

that both the FCT and the AAT itself were not satisfied that a deduction should be allowed on the

basis of the "nature and quality" of any other evidence regarding the incurrence of the expense

pursuant to s 900-195 of the ITAA 1997.

Shortfall penalty

Finally, the AAT said it was not satisfied that the decision by the FCT to impose 25% shortfall

penalties for failing to take reasonable care by was not incorrect - in view of, among other things,

that the taxpayer was a very knowledgeable and highly credentialed professional and academic, and

that the deductions claimed were "significant" in contrast to his assessable income for the relevant

year. Likewise, the Tribunal found there were no grounds for the AAT to exercise its discretion to

remit any part of the penalty.

3/02/2017



CGT


Intangible capital improvements made to a pre-CGT asset - a

separate asset

• Intangible capital improvement to pre-CGT asset can be separate CGT asset

• Example provided of pre-CGT land being rezoned and subdivided – ATO says

improvements to land may be separate CGT assets.

CGT


Intangible capital improvements made to a pre-CGT asset - a separate

asset


The ATO issued Taxation Determination TD 2017/1. It provides that for the purposes of the

"separate asset" rules in ss 108-70(2) or (3) of the ITAA 1997, intangible capital improvements can

be a separate CGT asset from the pre-CGT asset to which those improvements are made if the

relevant thresholds are satisfied. (These are that the improvement's cost base is more than the

improvement threshold for the income year in which the CGT event happened to the original asset,

and that the improvement's cost base is more than 5% of the capital proceeds from the event.)

The TD also provides the following example: A farmer, holding pre-CGT land, obtains council

approval to rezone and subdivide the land. Those improvements may be separate CGT assets from

the land.

Note : The Determination was originally issued as CGT Determination Number 5 in relation to the

CGT provisions in the ITAA 1936. The current TD updates the ruling for the purposes of the

equivalent ITAA 1997 provisions, without any change in substance.

Date of effect

The Determination applies to years of income commencing both before and after its date of issue.

26/01/2017



INDIRECT TAXES


GST: determining if a recipient is an Australian consumer

• Draft ruling on Netflix tax

• Explains when suppliers can rely on automated systems and when they need

to take extra measures to determine customer’s GST status

• Netflix tax applies from 1 July 2017, transitional rules started on

1 July 2016.

Indirect Taxes

Draft GST Ruling GSTR 2016/D1

GST: determining if a recipient is an Australian consumer

Draft GST Ruling GSTR 2016/D1

From 1 July 2017, the supply of services, digital products or rights will be connected with Australia

(and so potentially liable to GST) if made to an Australian consumer by an overseas-based supplier.

This is referred to as the digital import or "Netflix tax" rules.

The ATO has released Draft GST Ruling GSTR 2016/D1, which explains how suppliers can decide

whether a recipient of a supply is an Australian consumer. It explains what evidence suppliers

should have, or what steps they should take to collect evidence, in establishing if the supply is not

made to an Australian consumer.

Meaning of "Australian consumer"

There are two limbs that must be satisfied for an entity to qualify as an Australian consumer. First,

an entity must be an Australian resident for income tax purposes (although there is an exception for

residents of external Territories). This is referred to in the Draft as the "residency element".

Second, the recipient must either:

Not be registered for GST; or

If registered, not acquire the thing solely or partly for their enterprise.



This second limb is referred to as the "consumer element" in the Draft. Both these limbs are

discussed under the headings below.



Overseas suppliers can treat the supply as having not been made to an Australian consumer (and

so not liable for GST) if they:

Have satisfied particular evidentiary requirements; and

Reasonably believe that the recipient is not an Australian consumer.

The supplier can satisfy the evidentiary requirements by using either the supplier's usual business

systems and processes (the "business systems approach") or by using what the Draft terms the

"reasonable steps" approach, ie where the supplier has taken steps to obtain information about

whether the recipient is an Australian consumer.

The reasonable belief requirement can be based on a belief that the recipient does not satisfy either

the residency element or the consumer element.

Residency element

The meaning of "non-resident" for GST purposes is considered in GST Ruling GSTR 2004/7.

Although that Ruling considers the definition of non-resident for the purposes of the export rules (in

s 38-190(1)), the Draft states that the FCT will adopt it for the purposes of the Australian consumer

rules.

In terms of the business systems approach for evidentiary requirements, the Draft provides the

following examples of information that the FCT will accept to support a conclusion about whether the

recipient satisfies the residency element:

The recipient's billing address;

The recipient's mailing address;

The recipient's banking or credit card details, including the location of the bank or credit card

issuer;

Location-related data from third party payment intermediaries;

Mobile phone SIM or landline country code;

Recipient's country selection;

Tracking/geolocation software;

Internet protocol (IP) address

Place of establishment of the recipient (for non-individual recipients);

Representations and warranties given by the recipient;

The origin of correspondence; and

Locations, such as a Wi-Fi spot, where the physical presence of the person receiving the

service at that location is needed.



In terms of the reasonable steps approach for evidentiary requirements as it applies to the residency

element of the Australian consumer test, the Draft states relevant circumstances to be considered in

determining what steps are reasonable include:

The level of interaction the supplier has with the recipient in making the supply or in

maintaining the commercial relationship;

The type of personal information that a recipient will usually share, or usually be willing to

share with the supplier in the course of making a supply or in maintaining the commercial

relationship, taking into account the type of supply, the value of the supply, and the nature of

the commercial relationship between the supplier and the recipient;

The difficulty and costs involved for the supplier in taking steps to obtain information about

whether an entity is an Australian consumer of a supply (including both direct and indirect

costs); and

The expected reliability of the information about whether an entity is an Australian consumer.

The ATO will also accept that the evidentiary and reasonable belief requirements have been

satisfied if an overseas-based supplier sets up its systems to comply with an overseas jurisdiction's

requirements and such systems indicate that the recipient's residency is outside Australia. This

applies to suppliers operating in countries from the EU, as well as New Zealand and Norway.

The Draft also examines what should be done where there is inconsistent evidence or other

uncertainty. It provides many examples to illustrate the FCT's views.

Consumer element

It is reasonable for overseas suppliers to believe that a customer is not an Australian consumer if the

customer provides an ABN and a declaration or statement indicating that it is registered for GST.

The ATO expects suppliers to take reasonable steps to ensure that the ABNs are likely to be valid

and belong to the customer. These steps may include:

Using the ABN Lookup website and tool;

Ensuring the ABN provided is in the correct format; and

Ensuring that there are no duplicate ABN entries for different recipients.

Date of effect

The Netflix tax changes come into effect from 1 July 2017. However, there are transitional rules that

commenced on 1 July 2016. For this reason, when the final Ruling is issued, it will apply to

arrangements begun to be carried out from 1 July 2016.

Comments

Comments are due by 17 February 2017. ATO contact: Jo Drum; Tel: 03 8792 1469; email:

[email protected].

12/01/2017





GST: no recovery for margin scheme increasing adjustment

• Developer sold land to local council

• Subject to margin scheme

• Council required to pay GST on the supply

• Court held council not required to pay increasing adjustment in developer’s

BAS.

Indirect Taxes

McEwans Australia Pty Ltd v Brisbane City Council [2016] QDC 347

GST: no recovery for margin scheme increasing adjustment

McEwans Australia Pty Ltd v Brisbane City Council

A developer has been unsuccessful in recovering the GST liability from a purchaser which arose as

a result of it making an increasing adjustment: McEwans Australia Pty Ltd v Brisbane City Council

[2016] QDC 347 (District Court of Queensland, McGill SC DCJ, 21 December 2016).

Background

An entity ("Developer") had purchased two blocks of land, one of which was subject to the margin

scheme ("Block 1") while the other was subject to the normal rules ("Block 2"). It claimed an input tax

credit for the GST paid on the acquisition of Block 2. No input tax credit could be claimed for Block 1

as it had been subject to the margin scheme.

Developer then entered into an agreement with the local council ("Council") for the subdivision and

development of the two blocks. The contract provided for Council to acquire part of the land for use

as a sports park. This parcel of land consisted of part of Block 1 and part of Block 2. The contract

specified a value of $7.3m, less the "community purpose infrastructure contribution" that Developer

was otherwise required to pay. The contract specified that, in addition to this "agreed balance",

Council would pay Developer "an amount equal to the GST that [Developer] will have to pay on

account of GST associated with the receipt of the Agreed Balance". The parties agreed in writing

that the margin scheme would apply. In other words, Council would pay the agreed balance (ie

$7,003,024) and the amount of GST referable to this supply, which was to be calculated using the

margin scheme (ie $250,881). These amounts were not disputed and were paid by Council.

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/qld/QDC/2016/347.html

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/qld/QDC/2016/347.html



However, Developer was required to make an increasing adjustment in its BAS for the input tax

credit it claimed on Block 2. This is a statutory requirement which applies where some but not all of

the land supplied under the margin scheme has been purchased as part of a taxable supply

calculated under the normal rules: s 75-22(1) of the GST Act. Developer sought reimbursement from

Council for this increasing adjustment amount as well. That is, it argued that the increasing

adjustment was part of the GST payable on the supply of the land to Council. This meant that it

sought an additional amount of $161,116 from Council.

Developer argued that the term "GST" as used in the contract carried the same meaning as in th e

GST Act, which referred to the net amount calculated under that Act – which included increasing

adjustments. Further, it argued that the increasing adjustment was associated with the receipt of the

agreed balance, because it flowed automatically from the application of the margin scheme to the

transaction.

Decision

The District Court of Queensland dismissed Developer's application and held that Council had no

further amount to pay.

The "ordinary and natural" meaning of the words used in the relevant clause meant that what

constituted "GST" was the GST imposed on the transfer of the sports park land, which was

calculated by reference to s 75-10(1) of the GST Act. Whether and to what extent the transfer of the

land produced an increasing adjustment under s 75-22(1) was solely within the knowledge of

Developer and did not form part of this calculation. The Court considered that, in effect, Developer

was seeking to be insulated by Council from the operation of s 75-22(1), as well as have Council pay

the GST levied immediately on the transaction under the margin scheme. There was nothing in the

contract itself which indicated an intention for the indemnity to extend that far.

12/01/2017




GST cross-border law changes and currency conversion

• Draft determination provides currency conversion options for businesses

impacted by GST cross-border changes

• Includes method to convert foreign consideration into Australian currency.

Indirect Taxes

Draft FOREX 2016/D1 GST: Foreign Currency Conversion Determination

GST cross-border law changes and currency conversion – draft

determination released

The ATO has released Draft FOREX 2016/D1 GST: Foreign Currency Conversion Determination

(No xx) 2016. It contains currency conversion options for businesses impacted by the GST cross-

border law changes and sets out the method to convert amounts of consideration that are expressed

in foreign currency into Australian currency for the purposes of working out the value of a taxable

supply.

When final, it will replace the A New Tax System (Goods and Services Tax) Act Foreign Currency

Conversion Determination (No 30) 2016.

Comments are due by 31 January 2017.

19/01/2016

http://info-anz.thomson.com/t/25142522/139413508/271384/0/




GST on home care and residential care

• ATO draft guidance documents to help home & residential care suppliers work

out if their services are GST-free

• Also explains how GST applies to sub-contracted services.

Indirect Taxes

ATO seeks views on guidance material

GST on home care and residential care – ATO seeks views on guidance

material

The ATO has prepared two draft guidance documents to help home care and residential care

suppliers work out when the services they supply are GST-free, and how GST applies to

subcontracted services. The two documents are:

GST and home care – consultation. The purpose of the guidance is to assist home care

service providers: (i) working out when (and to what extent) supplies of care and related

services are GST-free, and (ii) to understand how GST applies to subcontracted services.

This draft guide looks at government funded care, consumer directed care, additional

services a care recipient pays for, non-government funded home care services. The guide

says home care services are generally only GST-free where the contractual recipient of the

supply is an individual who receives the services. If someone contracts with another entity to

deliver home care for them, the supply to that entity is not generally GST-free. However, the

supply is GST-free to the extent that the underlying service to the care recipient is GST-free

where the supply is made to, for example, an insurer settling a claim under an insurance

policy or an operator of a statutory compensation scheme.

https://www.ato.gov.au/Newsroom/smallbusiness/GST-and-excise/GST-on-home-care-and-residential-care/?sbnews20170124



GST and residential care – consultation. Covers government funded residential care

services, non-government funded residential care services other than in a retirement village,

non-government funded residential care services in a retirement village, accommodation,

subcontracting services. The draft guide explains when the supply of residential care

services to an aged or disabled person is GST-free where the supplier does not receive any

funding directly from government for its residential care services and does not operate a

retirement village and, in the alternative, where it does operate a retirement village.

Accommodation is GST-free if it is supplied in the course of supplying GST-free residential

care services. To be supplied "in the course of supplying GST-free residential care services",

the guide says the accommodation must be integral to the supply of the care, and the

resident is accommodated at the facility so that they can receive the care services which they

require.

The ATO is seeking the views of suppliers or interested parties on the draft guidance documents.

Comments on the documents are due by 5pm Friday, 17 February 2017.

3/02/2017



TAXATION OF SUPERANNUATION


ATO guidance on concessional contributions and

constitutionally protected super funds

• Draft guidance on calculating concessional contributions for defined benefit

interests and constitutionally protected funds

• Under super reforms, extra amount included in concessional contributions

from 1 July 2017 to reflect full amount of accrued benefits for defined benefit

interests.

Taxation of Superannuation

Draft Law Companion Guideline LCG 2016/D11

ATO guidance on concessional contributions and constitutionally

protected super funds

This ATO Draft Law Companion Guideline LCG 2016/D11 explains how concessional contributions

will be calculated for defined benefit interests and constitutionally protected funds (CPFs) from

1 July 2017.

As part of the super reforms legislation that received Assent on 29 November 2016, the exclusions

for contributions and amounts from concessional contributions for interests in CPFs will be removed

from 1 July 2017. Contributions made and amounts allocated after 1 July 2017 in respect of interests

in a CPF will be included in a taxpayer's concessional contributions under s 291-25 of the ITAA

1997. However, such contributions and allocated amounts on their own will not result in excess

concessional contributions but will instead limit an individual's ability to make further concessional

contributions to other funds.

Under the super reforms, an additional amount will be included in an individual's concessional

contributions from 1 July 2017 to reflect the full amount of accrued benefits (funded and unfunded)

for defined benefit interests. The ATO says this additional amount of concessional contributions will

be the amount by which the "defined benefit contributions" for the interest exceed the "notional taxed

contributions" for the interest. Note that the grandfathering transitional rules that apply to defined

benefit interests held on 5 September 2006 or 12 May 2009 will not apply to defined benefit interests

in a CPF.

Defined benefit contributions will be calculated via the modified rules used for Div 293 purposes in

s 293-115 and Sch 1A to the ITA Regs. However, these modifications do not apply to the calculation

https://www.ato.gov.au/law/view/document?DocID=COG/LCG201611/NAT/ATO/00001



of defined benefit contributions when working out the excess to be included in a taxpayer's

concessional contributions. The draft guideline sets out seven examples to illustrate the operation of

the provisions.

Example

Kayla has a defined benefit interest in a CPF. During 2016-17, Kayla has no notional taxed

contributions for the CPF as there are no notional taxed contributions for CPFs for that financial

year. Kayla makes a salary sacrifice contribution of $15,000 to another superannuation fund which is

not a CPF. For 2016-17, Kayla's amount of concessional contributions is $15,000.

During 2017-18, on the advice of an actuary, the trustee of the CPF calculates Kayla's notional taxed

contributions as $30,000 and her defined benefit contributions as $35,000 for that financial year.

(Note that the grandfathering transitional rules that limit the amount of notional taxed contributions to

the amount of an individual's cap do not apply to interests in CPFs). Kayla also makes a deductible

personal superannuation contribution of $15,000 to another superannuation fund (which is not a

CPF) for which she has claimed a deduction. Subject to the modification explained below, Kayla's

amount of concessional contributions for 2017-18 would be $50,000 ($15,000 + $30,000 + ($35,000

- $30,000).

Kayla's concessional contributions cap for 2017-18 is $25,000. As the amount of concessional

contributions in relation to Kayla's interest in the CPF of $35,000 ($30,000 + ($35,000 - $30,000))

cannot create an excess and is greater than Kayla's concessional contributions cap for the financial

year, the amount of those concessional contributions is equal to her concessional contributions cap.

Therefore, Kayla has excess concessional contributions of $15,000 ($40,000 modified concessional

contributions - $25,000 concessional contributions cap) for 2017-18.

Comments

Comments are due by 23 January 2017 to: Grahame Hager (ATO contact officer) - Tel: (02) 9374

8762; Email: [email protected].

12/01/2017





ATO releases 2014-15 SMSF statistical overview

• 99.6% of super funds are SMSFs

• 29% of super assets (totalling $622 billion) in SMSFs

• 6% of SMSFs held assets under LRBAs with > 90% of LRBA investments in

real estate

• 31% growth in number of SMSFs over five years.


ATO releases 2014-15 SMSF statistical overview

The ATO has released the annual Self-Managed Superannuation Funds: A Statistical Overview

2014-15 Report and the September 2016 edition of the quarterly Self-Managed Superannuation

Funds Statistical Report.

Assistant Commissioner Kasey Macfarlane said SMSFs account for 99.6% of all superannuation

funds and 29% of the $2.1 trillion in total superannuation assets in Australia. She said that in the five

years to 2015-16, the number of SMSFs has grown by 31% to 577,000, with total assets worth $622

billion. Other points from the reports include:

In 2014-15, SMSFs experienced a positive return on assets of 6.2%.

In 2014-15, some 6% of SMSFs held assets under Limited recourse borrowing arrangements

(LRBAs), similar to the prior year of 5.7%.

The value of estimated assets held under LRBAs as a proportion of total SMSF assets

remained relatively low in 2014-15 at approximately 3.4%.

Real property assets make up over 90% of the total value of LRBA investments by SMSFs.

There continues to be a decrease in the median age of new members in newly established

funds. In 2015, the median age was 48 years compared with 55 years in 2011.

At June 2015, the estimated value of total SMSF borrowings was equivalent to 2.8% of total

SMSF assets.

12/01/2017

https://www.ato.gov.au/Media-centre/Media-releases/ATO-releases-2014-15-SMSF-statistical-overview/




SMSFs: LRBAs and non-arm's length income

• ATO says two-step process to determine if non-arm’s length income rules

apply to SMSF limited recourse borrowing arrangement:

‒ Are terms of LRBA consistent with safe harbours in PCG 2016/5?

‒ Can SMSF trustee otherwise show that LRBA on arm’s length terms?

• If yes, don’t consider TD 2016/16 (non-arm’s length LRBAs).


ATO info re interaction and application of PCG 2016/5 and TD 2016/16

SMSFs: LRBAs and non-arm's length income

ATO info re interaction and application of PCG 2016/5 and TD 2016/16

The ATO has released information about the interaction and application of PCG 2016/5 and TD

2016/16.

The ATO recently published PCG 2016/5 and TD 2016/16 which provide guidance to self-managed

super fund (SMSF) trustees and their advisers on when the non-arm's length income (NALI)

provisions apply to an SMSF's limited recourse borrowing arrangements (LRBA). The ATO says it is

important to recognise that it is a two-step process to determine whether the NALI provisions apply,

based on the terms of the borrowing arrangement.

First, it must be determined whether:

The terms of the LRBA are consistent with the safe harbours the ATO has provided in PCG

2016/5;

The SMSF trustee can otherwise demonstrate that they are arm's length.

If the answer is yes, then trustees do not have to consider TD 2016/16 and are assured that the

ATO will not seek to apply the NALI provisions on the basis of the borrowing terms under the

arrangement. The ATO says TD 2016/16 only needs to be considered if an SMSF has an LRBA on

terms that are non-arm's length.

12/01/2017

https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/News/Limited-recourse-borrowing-arrangements-and-Non-arm-s-length-income/




Superannuation objective - draft reg released

• Draft reg sets out subsidiary objectives of super system , eg:

‒ Managing risks in retirement

‒ Being invested in best interests of fund members

‒ Alleviating fiscal pressures on government.


Draft Superannuation (Objective) Regulation

Superannuation objective - draft reg released

The government has released for consultation the Exposure Draft - Superannuation (Objective)

Regulation 2016 setting out the subsidiary objectives of the superannuation system to support the

primary objective proposed in the Superannuation (Objective) Bill 2016 (which is still before

Parliament). The draft reg proposes that the subsidiary objectives would include:

Facilitating consumption smoothing over the course of an individual's life;

Managing risks in retirement;

Being invested in the best interests of fund members;

Alleviating fiscal pressures on the government; and

Being simple and efficient with appropriate safeguards.

Date of effect

When finalised, the regulation will commence immediately after the Superannuation (Objective) Bill

2016 (which will commence from the start of the first quarter following Royal Assent).

Comments

Submissions of the draft reg are due by 10 February 2017 to: Manager, Superannuation Tax

Reform, Retirement Income Policy Division, Treasury via the Consultation Hub. Enquiries to Jessica

Carew - Tel: +61 2 6263 2548.

12/01/2017

https://consult.treasury.gov.au/retirement-income-policy-division/superannuation-reform-package-regulations/


https://consult.treasury.gov.au/




Superannuation reform: total superannuation balance

• Explains how individual's total superannuation balance is calculated from 30

June 2017.



Super reforms: total superannuation balance


The ATO has released Draft Law Companion Guideline LCG 2016/D12 providing guidance on how

an individual's "total superannuation balance" will be calculated from 30 June 2017.

As part of the super reform legislation, the concept of an individual's "total superannuation balance"

(s 307-230 of the ITAA 1997) will apply from 1 July 2017 as a method for valuing an individual's total

superannuation interests. An individual's total superannuation balance will be used to determine

eligibility for various super measures, including the non-concessional contributions cap and bring-

forward rule, government co-contributions, the spouse contributions tax offset, carry forward of

unused concessional contributions and the SMSF segregation method.

Total superannuation balance

An individual's total superannuation balance at a particular time (ie 30 June) is broadly the sum of:

The accumulation phase value of the individual's superannuation interests that are not in the

retirement phase. The accumulation phase value covers transition to retirement income

streams (TRIS), non-commutable allocated pensions or annuities, and deferred

superannuation income streams that have not yet become payable. The ATO notes that the

time that a contribution is made to a superannuation fund may be relevant for calculating an

individual's total superannuation balance. For example, a transfer of money initiated on

29 June 2018 but not "received" by the superannuation fund until 1 July 2018 would not be

included in the individual's total superannuation balance at the end of 30 June 2018;

https://www.ato.gov.au/law/view/view.htm?docid=%22cog%2Flcg201612%2Fnat%2Fato%2F00001%22



If an individual has a transfer balance account, their transfer balance or modified transfer

balance (but not less than nil). If an individual is the recipient of certain account -based

income streams in the retirement phase and/or has made any structured settlement

contributions, their transfer balance is subject to modifications for the purpose of calculating

their total superannuation balance. Credits that have arisen in an individual's transfer balance

account from becoming a retirement phase recipient of an account-based income stream are

disregarded. Similarly, debits are disregarded if they have arisen from a commutation, a

family law payment split, an income stream that fails to comply with the standards, a fund

failing to comply with a commutation authority, or an event that results in the superannuation

interest being reduced (eg for fraud, dishonesty or bankruptcy). However, a credit in an

individual's transfer balance account that has arisen from excess transfer balance earnings is

not disregarded. A debit is also not disregarded where it has arisen in relation to a n on-

commutable excess transfer balance. The individual's transfer balance is then increased by

the total amount of superannuation lump sums that would become payable if the individual

voluntarily caused the superannuation interest to cease at that time; and

The amount of any roll-over superannuation benefit not already reflected in the individual's

accumulation phase value of their superannuation interests or their transfer balance. This

component captures any roll-over superannuation benefits paid at or before 30 June, but not

received by the complying superannuation plan until after that time,

reduced by the sum of any structured settlement contributions (covered by s 292-95 of the ITAA

1997 about structured settlements or court-ordered personal injury payments).

Example

The draft guideline sets out examples to illustrate the calculation of an individual's total

superannuation balance in various scenarios, including the following example involving an individual

with an account-based pension and a defined benefit lifetime pension.

Shane commenced both an account-based pension ($500,000) and a defined benefit lifetime

pension ($500,000) on 1 December 2017. He has no remaining superannuation interests in

accumulation phase. Shane's transfer balance account commenced on 1 December 2017. At the

end of 30 June 2018, the amount that would be paid to Shane if he voluntarily ceased the account -

based pension is $400,000. Shane's total superannuation balance at the end of 30 June 2018 is the

sum of:

Step 1: Accumulation phase value = zero

Step 2: Modified transfer balance



Shane's transfer balance at the end of 30 June 2018 is $1,000,000:

Credit Balance

1 Dec 2017 Account-based pension $500,000 $500,000

1 Dec 2017 Defined benefit lifetime pension $500,000 $1,000,000

Disregard the amount of the credit that has arisen in respect of the account -based pension

($500,000).

Increase the balance by the amount that would become payable if the account -based pension

was voluntarily ceased at the end of 30 June 2018 ($400,000).

Credits and debits to Shane's transfer balance account that are relevant to his defined benefit

lifetime pension are not disregarded.

Modified transfer balance is $1,000,000 – $500,000 + $400,000 = $900,000.

Step 3: Rollover superannuation benefits = zero

Step 4: Structured settlement contributions = zero

Shane's total superannuation balance at the end of 30 June 2018 is $900,000 (Steps 1, 2, 3 and 4).

Comments

Comments are due by 6 February 2017 to: Grahame Hager (ATO contact officer) - tel: (02) 9374

8762; email: [email protected].

12/01/2017





Super reforms: $1.6m pension cap; commutations; actuarial

certificates

• Draft regs to complement super reforms & $1.6m transfer balance cap

released

• Allow commutation of certain super income streams to reduce excess transfer

balance

• Actuarial certificate exemption re income stream benefits in retirement phase

• Broader range of death benefits to be treated as roll-over benefits.


Draft Treasury Laws Amendment (Fair and Sustainable Super) Regulation

Super reforms: $1.6m pension cap; commutations; actuarial certificates

Draft regulation released

The government has released for consultation the Exposure Draft - Treasury Laws Amendment

(Fair and Sustainable Superannuation) Regulation 2016 to complement its super reforms

legislation.

The draft regulation will amend the ITA Regs, SIS Regs, RSA Regs and Corporations Regulations

2001 to support the $1.6m transfer balance cap that will apply from 1 July 2017 to limit the amount

of superannuation an individual can transfer into retirement phase. The proposed amendments

include:

Commutations - the existing exceptions to the restrictions on commutations will be

expanded to permit the commutation of certain superannuation income streams that are

done for the purpose of reducing or avoiding an excess transfer balance. This means that an

individual will be able to advise their fund to commute or partially commute such a pension or

annuity to reduce an excess transfer balance. While the amendments will permit

commutations of certain pensions and annuities, the amount of a commutation will be limited

to the greater of the amount of the individual's excess transfer balance and the "crystallised

reduction amount" stated in the excess transfer balance determination issued by the FCT;

Actuary's certificates - superannuation income stream benefits that are in "retirement

phase" will be exempt from the requirement to obtain an actuary's certificate in applying the

proportionate method, if they are payable from allocated pensions, market linked pensions,

or account-based pensions (or a death benefit pension). However, a fund will not be eligible

for the exemption if any part of its currently payable liabilities relate to another type of income

stream;





Minimum draw-downs - the pension and annuity standards will be amended so that

payments that are made by way of commutation cannot satisfy the minimum draw-down

requirements. This more general requirement will cover commutations that are done to

remove a lump sum amount from the superannuation system and will continue to exclude

roll-overs (which are initiated by way of a commutation of an existing interest);

"Fund-capped contribution" limit - will be repealed for non-concessional contributions.

According to the government, the changes to the non-concessional contributions cap, and

the eligibility conditions based on an individual's total superannuation balance, mean that

setting a value limit on the amount a fund can accept as a contribution is no longer practical;

Deducting personal contributions - the draft reg will prescribe the superannuation funds in

which a member holds a defined benefit interest that will not qualify for a deduction in respect

of certain personal contributions. The prescribed superannuation funds in which a member

holds such a defined benefit interest will be able to choose for either all contributions to the

fund, or contributions to defined benefit interests in the fund, to be non-deductible;

Roll-over of death benefits - benefits that are treated as "roll-over superannuation benefits"

will be expanded to include a broader range of superannuation death benefits. From

1 July 2017, it will be possible to roll over a superannuation death benefit provided that it is

paid to a dependent beneficiary covered by reg 6.21(2A) of the SIS Regs (eg a spouse, child

under 18 years, financially dependent child under 25 years, or a child with a disability). While

it will be possible to roll over a death benefit income stream for a dependant beneficiary, the

income stream must be in retirement phase;

Death benefit pensions - a death benefit that is cashed as one or more pensions or

annuities will need to be a superannuation income stream that is in retirement phase. This

will mean that the only income streams that can be paid to a dependant beneficiary of a

deceased member are those in retirement phase;

Other - when a fund creates a new accumulation phase interest when complying with a

commutation authority, the time limit for providing a product disclosure statement (PDS) will

be deferred for 3 months and the general application form requirements will not apply. Minor

amendments will also support the concept of a "total superannuation balance" for the

purposes of valuing superannuation interests. Consequential amendments to the conditions

of release will reflect the simplified release authority regime that will apply from 1 July 2018.



Date of effect

When finalised, the regulation will generally commence the day after it is registered, applicable from

1 July 2017. The commutation exceptions will apply from registration of the regulation to enable

individuals to use the exceptions to avoid an excess transfer balance when the transfer balance cap

comes into effect on 1 July 2017. The amendments to simplify the release authority regime will apply

from 1 July 2018.

Submissions

Submissions are due by 10 February 2017 to: Manager, Superannuation Tax Reform, Retirement

Income Policy Division, Treasury via the Consultation Hub. Enquiries to Jessica Carew - Tel: +61 2

6263 2548.

Further draft regulations to support retirement income stream products and valuation rules for the

transfer balance cap will be released in early 2017, the government said.

12/01/2017

https://consult.treasury.gov.au/




Super trustee rollover obligations amid ATO website outage

• APRA advised RSE licensees in December 2016:

‒ It won’t take action for breaches directly related to ATO website outage

‒ RSE licensees not required to give APRA formal notice of such breaches.


Super trustee rollover obligations amid ATO website outage

APRA on 16 December 2016 wrote to RSE licensees acknowledging that the Tax Office website

outage has affected ATO web-based services used by RSE licensees to process roll-over

superannuation benefits and verify the details of RSEs and individuals.

APRA Deputy Chairman Helen Rowell said that during the period of the outage, and potentially for

some days afterwards, it may be impossible for RSE licensees to meet regulatory time limits to

process rollovers within three days. APRA notes the importance of the 3-day rollover rule (reg 6.34A

of the SIS Regs) but recognises that there may be occasions where, for reasons outside the control

of the trustee, 100% compliance may not be possible. Accordingly, APRA said it will take no action

for breaches directly related to the ATO website outage, and RSE licensees are not required to

provide APRA with formal notification of such breaches. The ATO itself addressed the impact of its

Website outage on trustee obligations along similar lines in CRT Alert 049/2016.

12/01/2017

http://www.apra.gov.au/Super/Publications/Documents/APRA-Letter-to-RSE-Licensees-ATO-IT-outage.pdf

http://www.apra.gov.au/Super/Publications/Documents/ATOLettertotrustees-ATOsystemoutage-15Dec2016.pdf




Super reforms: Defined benefit income streams life

expectancy and market-linked pensions

• Draft Guideline on defined benefit income cap rules and income stream

pensions/annuities paid from non-commutable, life expectancy and market-

linked products

• From 1 July 2017, capped defined benefit income streams:

‒ Will count towards $1.6 million transfer balance cap

‒ Won’t, of themselves, lead to excess transfer balance.



Super reforms: Defined benefit income streams – life expectancy and

market-linked pensions


The ATO has released Draft Law Companion Guideline LCG 2017/D1 on how the defined benefit

income cap rules will apply to non-commutable life expectancy pensions and market-linked products,

as part of the super reform legislation.

The Draft Guideline seeks to clarify how the defined benefit income cap will apply from 1 July 2017

to superannuation income stream benefits that are paid from a non-commutable life expectancy

pension or annuity, or a market-linked pension or annuity (also known as a market linked income

stream (MLIS). Note that non-commutable lifetime pensions and annuities were covered in Draft

Guideline LCG 2016/D10.

As with other types of superannuation income streams, the value of “capped defined benefit income

streams” will count towards an individual’s transfer balance cap of $1.6 million from 1 July 2017. The

transfer balance cap regime is designed to limit the amount of an individual’s superannuation that

can be moved into the retirement phase, where it benefits from the fund earnings tax exemption.

Capped defined benefit income streams cannot, of themselves, result in an excess transfer balance

for an individual. This is because capped defined benefit income streams generally cannot be

commuted and cashed as a lump sum. Therefore, the modified rules apply to achieve an equivalent

tax outcome for defined benefits.




Instead of excess capped defined benefit income streams causing a breach of the transfer balance

cap that needs to be remedied by removing the excess, modified rules apply for capped defined

benefit income streams to:

Give rise to a credit in an individual’s transfer balance account for a “special value” (worked

out under a statutory formula) of the defined benefit interest; and

Result in certain amounts being included in the recipient’s assessable income and adjustments

to the availability of tax offsets.

Special value for MLIS and life expectancy pensions

Where an individual receives a pension or annuity, from a life expectancy or market -linked product, a

credit arises in their transfer balance account equal to the “special value” of the superannuation

interest that supports the income stream. The special value of a superannuation interest that

supports a life expectancy or market-linked pension or annuity is calculated by multiplying the

“annual entitlement” by the product’s “remaining term”, ie number of years remaining in the period

that superannuation income stream benefits are payable under a product (rounded up to the next

whole number).

For superannuation income streams that are in the retirement phase prior to 1 July 2017, the credit

is equal to the special value just before 1 July 2017 of the superannuation interest that supports that

income stream. This will be calculated based on the first superannuation income stream benefit that

you are entitled to receive on or after 1 July 2017.

Example

Victoria is 62 and purchases a market-linked pension on 1 April 2017 with a 10-year term. The

pension has an annual entitlement of $60,000 just before 1 July 2017. The remaining term in

Victoria’s pension just before 1 July 2017 is 9.75 years, but this is rounded up to 10 years (being the

next whole number) when determining the pension’s special value. The special value of her pension

just before 1 July 2017 is $600,000. A credit arises in Victoria’s transfe r balance account on 1 July

2017 equal to this amount.

Additional income tax

The Draft Guideline also explains the additional income tax consequences for an individual with

defined benefit pension income that exceeds the defined benefit income cap ($100,000 per annum)

for a financial year. In a taxed fund, 50% of the excess capped defined benefit income stream

payments will be included in the recipient’s assessable income and taxed at the marginal rates to

the extent they exceed $100,000 per annum. For untaxed defined benefit arrangements, the 10%

tax offset will be limited to the first $100,000 per annum of defined benefit income the individual

receives from 1 July 2017. PAYG withholding obligations will also apply to these amounts that will be

subject to taxation from 1 July 2017.

Comments

Comments are due by 17 February 2017 to: Grahame Hager (ATO contact officer) – Tel: (02) 9374

8762; Email: [email protected].

19/01/2016

../../19%20January/Word/[email protected]




ATO SuperSeeker

• SuperSeeker online service for individuals now decommissioned

• Individuals can find/manage super via myGov


Service decommissioned

ATO SuperSeeker service decommissioned

The ATO has decommissioned its SuperSeeker online service for individuals. The service previously

enabled individuals to conduct an online search for superannuation on the ATO's Lost Members

Register. The ATO had originally planned to decommission SuperSeeker from April 2017 but due to

its recent system outages, which began on 12 December 2016, it has now decided that

SuperSeeker will not be revived.

The ATO has suggested replacing any links to SuperSeeker with links to the ATO's Check your

super using myGov page. According to the ATO, individuals can find and manage their super using

the secure ATO online services through myGov.

3/02/2017

https://www.ato.gov.au/Super/APRA-regulated-funds/In-detail/News/Monthly-communiques/January-2017/

https://www.ato.gov.au/calculators-and-tools/check-your-super/

https://www.ato.gov.au/calculators-and-tools/check-your-super/



TAX ADMINISTRATION


ATO corporate tax transparency report for 2014-15

• Second annual report on corporate tax transparency released

• Data from 2015 tax returns of large corporates operating in Australia

• Once third of listed taxpayers reported no tax payable – FCT said don’t

assume tax avoidance

• Of top 100 public or foreign companies, six in highest risk quadrant.

Tax Administration

2014-15 Report of Entity Tax Information

ATO corporate tax transparency report for 2014-15 released

The ATO has published its second annual report on corporate tax transparency. This report for

2014-15 includes tax information for 1904 companies, including:

1579 Australian public and foreign-owned companies with an income of $100 million or more;

and

325 Australian-owned resident private companies with an income of $200 million or more.

The report is based on the 2014-15 financial year tax returns of some of the largest corporate

entities operating in Australia. It also describes changes that have occurred since 2013 -14. As

required by law, the figures in the report are taken directly from tax returns lodged and processed, or

amendments advised by taxpayers themselves, by 1 September 2016. It also doesn't include any

figures resulting from ATO initiated assurance and risk assessment activities. It is important to note

that the aggregate figures cannot reflect the complexity of the tax system, the relationships between

entities, the calculations behind the numbers or the extent and nature of any ATO activity.

The name and ABN of each company is listed, as well as information taken from three labels of their

tax returns: (i) total income; (ii) taxable income; and (iii) income tax payable. It also includes those

entities with Petroleum Resource Rent tax (PRRT) payable.

The ATO noted that about a third of the taxpayers in this reported nil tax payable for the reporting

period. However, no tax paid does not necessarily mean tax avoidance, and assumptions about an

entity's compliance with their tax obligations, or those of their associated groups, cannot be made

solely on the basis of this data.

https://www.ato.gov.au/Business/Large-business/In-detail/Tax-transparency/Corporate-tax-transparency-report-for-the-2014-15-income-year/



In order to support company tax compliance, the ATO said it will continue to have real-time

engagement with large taxpayers, including access to a wide range of data, including tax return and

accounting records, and third party data. (Source: ATO media release, 9 December 2016.)

FCT's comments

In releasing the report, FCT Chris Jordan said the companies covered in the transparency report

account for $42 billion (around 63%) of total company income tax payable for 2014-15. The law

requires the ATO to publish three labels of a company tax return as part of this transparency

measure. "No more, no less", Mr Jordan said. Therefore, the figures alone do not tell the complete

story of a company's tax affairs or their level of engagement with the ATO, he said.

In terms of the data, the FCT said there are no surprises. This is because the information in the

report provides transparency on the operations of these entities, but it does not change the level of

transparency they have with the ATO. While the FCT cannot talk about specific taxpayers, he said

the ATO already has access to far more detailed information and regularly engages with these

entities to assure their tax behaviour.

He also noted that the data is historical and doesn't reflect recent changes to the administratio n of

the tax system. This includes the recently introduced Multinational Anti-Avoidance Law (MAAL),

work undertaken through the Tax Avoidance Taskforce or any ATO interventions undertaken with

these taxpayers over the last two years.

While about one-third of taxpayers on the list reported no tax payable, the FCT said that no tax paid

does not necessarily mean tax avoidance. Even companies with very high total income sometimes

make losses and there are many legitimate reasons why this might be the case, Mr Jordan said.

These companies may have incurred an accounting and tax loss in the current year or in prior years,

and are now using those to reduce current taxable income. The FCT also said that many companies

are now publishing information describing any losses or other economic factors that contribute to

their taxable position.

Although the numbers in the 2014-15 report are in many ways similar to the previous release, the

FCT expects this to change over time as the data doesn't include any figures resulting from ATO-

initiated audit activities. For example, Mr Jordan said that many companies subject to the MAAL that

took effect earlier in 2016 are still restructuring their affairs and identifying the value of the services

conducted in Australia. As more value is attributed to sales forces in Australia, the ATO expects

more companies to be reporting over the thresholds in future reports.

The FCT encouraged companies to be more transparent about their tax status by adopting the

Board of Taxation's Voluntary Tax Transparency code. Mr Jordan said 56 companies have agreed to

adopt the code, with about 15 reports already publicly available. For example, BHP, Crown and

Singtel have already been on the public record themselves where the ATO has issued amended

assessments involving disputes.

https://www.ato.gov.au/Media-centre/Media-releases/Corporate-tax-transparency-report-for-2014-15/

https://www.ato.gov.au/Media-centre/Media-releases/Commissioner-of-Taxation,-Chris-Jordan-AO-on-corporate-tax-transparency-2015-16/



Compliance approach

In terms of compliance, Mr Jordan said the focus remains on "prevention before correction" with

tailored engagements across all markets based on taxpayer choices, behaviours, size, complexity,

risk and engagement attributes. In this respect, Mr Jordan said the ATO continually engages with

the top 100 public or foreign companies and have categorised six of these in the highest risk

quadrant. These 100 companies alone paid $30 billion in tax, with the next 1,100 paying a further

$10 billion, he said.

For private businesses, the FCT said that the ATO takes a group approach and engages one-to-one

with the top 320 groups which pay about $3 billion in tax each year. The ATO also collects, on

average, about $2 billion from compliance activities with these large and private companies each

year, which is not reflected in the report.

The FCT also flagged the establishment of the Tax Avoidance Taskforce as part of the 2016 -17

Budget in terms of bolstering its efforts in ensuring multinational and large public and private groups

pay the right amount of tax. The ATO has also renewed its focus on providing early warnings to

taxpayers and their advisers to set out the ATO's expectations and allow them to make more

informed tax planning decisions. To this end, the ATO has issued nine Taxpayer Alerts in the past

eight months. These are now happening in real time. In one instance, the FCT issued a Taxpayer

Alert on the MAAL within 16 days of learning about a scheme to circumvent it.

Outlook statement

When the ATO releases the 2015-16 transparency report, Mr Jordan said he expects to see a

further drop in profitability of the energy and natural resources sector, and a reduction in tax paid by

that sector, partially offset by strengthening in other industries such as the banking and finance

sectors.

12/01/2017




Backpackers tax registration deadline extended for employers

• From 1 Jan 2017, working holiday maker WHT rate of 15%

• Employers can withhold 15% even if unregistered

• Unregistered employers won’t be penalised if they register by 31 Jan 2017.

Tax Administration

Backpackers tax registration deadline extended for employers

The ATO has advised that employer registration re working holiday makers has been extended to 31

January 2017. Employers employing working holiday makers will not be penalised as long as they

register by 31 January 2017. They can still use the new withholding tax rate of 15% from 1 January

2017.

Anybody can hire a working holiday maker, especially where there is a need for labour for a short

period of time. Agriculture, hospitality, construction and domestic services often use working holiday

makers, or backpackers, to meet this demand. Working holiday makers hold a visa subclass 417 or

462 that allows them to work while in Australia.

From 1 January 2017, the working holiday maker tax rate of 15% applies from the first dollar earned.

They cannot claim the tax-free-threshold regardless of their residency status and must provide a

TFN, otherwise the employer needs to withhold at the top rate of tax.

Once employers register, a withholding rate of 15% applies to the first $37,000 of a working holiday

maker's income. From $37,001, normal foreign resident withholding rates apply. If employers do not

register, they must withhold tax at 32.5% for the first $37,000 of a working holiday maker's income.

From $37,001, normal foreign resident withholding rates apply. Penalties may apply for failing to

register.

12/01/2017

https://www.ato.gov.au/Business/Registration/Work-out-which-registrations-you-need/Taxation-registrations/Employer-registration--Working-Holiday-Makers/




SMSF trustees (and LRBA trustees): garnishee notices invalid

for group payroll tax

• Custodian company & SMSF/LRBA trustees had payroll tax liability under

grouping rules

• Custodian sold property held on trust for SMSF trustees

• Garnishee notices issued to purchasers invalid

• Garnishee notice can’t be used to recover tax from trust property to satisfy

trustee’s tax debt if debt incurred in another capacity.

Tax Administration

Comr of State Revenue v Can Barz Pty Ltd & Anor [2016] QCA 323

SMSF trustees (and LRBA trustees): garnishee notices invalid for group

payroll tax

Comr of State Revenue v Can Barz Pty Ltd & Anor [2016] QCA 323

The Queensland Court of Appeal has dismissed the Commissioner of State Revenue's appeal and

confirmed that garnishee notices issued to the purchasers of real estate held on trust for SMSF

trustees were invalid: Comr of State Revenue v Can Barz Pty Ltd & Anor [2016] QCA 323 (Qld Court

of Appeal, Morrison, Philippides and Robert McMurdo JJA, 2 December 2016).

Facts

The taxpayers, a custodian company and two individual trustees of a self-managed superannuation

fund, had a $2.6m payroll tax liability by virtue of the grouping provisions of the Payroll Tax Act

1971. The custodian held two investment properties on trust for the SMSF trustees, who were

members of the SMSF.

The custodian entered into a contract to sell one of the properties. Before settlement, the

Commissioner of State Revenue issued garnishee notices under s 50 of the Taxation Administration

Act 2001 to the purchasers and to the real estate agents who held the deposit. Section 50 applies

where the Commissioner of State Revenue reasonably believes a person "is liable or may become

liable to pay an amount to the taxpayer." The taxpayers challenged the validity of the garnishee

notices. Their chief argument was that s 50 does not permit a garnishee notice to be issued in

respect of money that a taxpayer has the right to receive in their capacity as a trustee because the

money does not "belong" to the taxpayer.

http://www.austlii.edu.au/au/cases/qld/QCA/2016/323.html



Supreme Court decision

The Supreme Court (in Can Barz Pty Ltd & Anor v Comr of State Revenue & Ors [2016] QSC 59)

stated that s 50 should only apply where the right to payment from the garnishee is legally and

beneficially held by the taxpayer and the taxpayer is free to use that right in the taxpayer's own

interest. In the Court's view, it could not have been intended that the Commissioner "should be paid

tax out of property which the Commissioner must have reasonably believed in equity did not belong

to the taxpayer at the time of receipt of the relevant notice".

Court of Appeal decision

On appeal, the Commissioner argued that the language of s 50 was such as to render it

unnecessary to inquire into the nature of the taxpayer's entitlement to the garnishee amo unt. Section

50 permitted the Commissioner to issue a garnishee notice on the basis of a reasonable belief as to

the position between the garnishee and the taxpayer, rather than upon the basis of the fact of that

position. From this, the Commissioner submitted that there is an evident legislative intention "that the

precise circumstances in which the garnishee is to pay amounts to the taxpayer are not critical", and

that the legislature did not intend to compel close analysis of the technical legal arrangements

concerning the taxpayer.

In rejecting this argument, the Court observed that it suggested that …"s 50 called for less precision

in the engagement of the provision. Precision is required in that the power under s 50, affecting as it

does the recipient of a notice with potential civil and criminal consequences, ought not to be

exercised except by a strict adherence to the conditions of that power specified in the section".

The Court also rejected the Commissioner's alternative argument that the relevant inquiry, in so far

as equitable interests were concerned, was restricted to whether there has been a disposition of an

interest in the moneys including by way of an equitable assignment or charge, but did not extend to

exclude from the application of the garnishee provisions moneys which were the subject of a trust.

12/01/2017




Court gives judgment for full tax debt of $1.1m

• Taxpayer with $1.1m tax debt

• During recovery proceedings, taxpayer produced $600,000 bank cheque,

reducing tax debt to $500,000

• Court gave judgment against taxpayer for $1.1m – said cheque is conditional

payment, could be dishonoured.

Tax Administration

DCT v Dukes [2016] NSWSC 1759

Court gives judgment for full tax debt of $1.1 million

DCT v Dukes

The NSW Supreme Court has given judgment against a taxpayer for tax debts of some $1.1 million

despite the taxpayer during the middle of the proceedings leaving the Court and obtaining a cheque

from his bank for $600,000 to reduce the debt owed so that judgment would only be given for some

$500,000. In this regard, the Court agreed that a cheque is only a conditional payment, and that

there was always a possibility that it could be dishonoured. The Court also noted that, in any event,

once the FCT came into funds on the presentation of the cheque, he would not be looking to

execute the judgment for any balance.

At the same time, the Court dismissed the taxpayer's claims that he had not been served with the

notices of assessment that gave rise to the debt and, therefore he had also had been denied the

opportunity to object to them. In this regard, the Court noted that the assessments were sent by

prepaid ordinary post to the taxpayer's last known address, and that such service by prepaid

registered post was effective service in accordance with s 174 of the ITAA 1936. It also noted that

the taxpayer had been in possession of the amended assessments since the commencement of the

proceedings and that he had not objected to them.



Finally, the Court confirmed that the two components of the judgment debt (namely, assessments for

some $290,000 including penalties and interest, and unpaid quarterly instalment demands of some

$800,000) were properly "verified" as debts due and owing to the FCT. This occurred by way of

(respectively) the assessments being conclusive evidence of their due making and correctness, and

the RBA instalment printout together with a signed and dated certificate under s 8AAZJ of the TAA,

which gave prima facie evidential effect to its contents.

DCT v Dukes [2016] NSWSC 1759, NSW Supreme Court, Fagan J, 2 December 2016

12/01/2017

http://www.austlii.edu.au/au/cases/nsw/NSWSC/2016/1759.html




Taxpayers’ rights and obligations

• IGT recommends ATO implement measures to ensure:

‒ Taxpayers’ Charter at forefront of ATO’s interactions with community

‒ ATO’s performance against Charter principles measured and publicly reported

• If stakeholder concerns persist, IGT may undertake follow-up review and

make recommendations to government.

Tax Administration

IGT Review into the Taxpayers' Charter and Taxpayer Protections released

Taxpayers' Rights & Obligations – IGT releases report

Inspector-General of Taxation (IGT), Ali Noroozi, has his report into the Review into the Taxpayers'

Charter and Taxpayer Protections. The IGT's review was undertaken to examine concerns raised in

relation to the ATO's adherence to the Charter, its currency and effectiveness. Specifically, the IGT

said stakeholders consider there are limited avenues for enforcement of the Charter principles,

diminishing its effectiveness in affording protection to taxpayers.

The IGT has formed the view that, before any further enforceable remedies are considered, there

are administrative measures which the ATO could implement to realise significant improvements.

Such improvements include ensuring that the Charter is at the forefront of the ATO's interactions

with the community and its performance against the Charter principles is appropriately measured

and publicly reported.

The 325-page report made four recommendations with which the ATO has either agreed in full, in

part or in principle. They include:

In respect of the Taxpayers' Charter, that the ATO:

o Promote and educate taxpayers and tax practitioners about the Charter and in

particular draw their attention to its principles at the outset of interactions which are

likely to generate dispute or disagreement, such as reviews, audits, objections and

litigation;

o Treat allegations of any breaches transparently and address them independently of

the substantive issues;

o Enhance ATO staff awareness and understanding of their obligations under the

Charter through more practical training and guidance.

http://igt.gov.au/news-and-media/igt-review-into-the-taxpayers-charter-and-taxpayer-protections-release/

http://igt.gov.au/news-and-media/igt-review-into-the-taxpayers-charter-and-taxpayer-protections-release/



That the ATO improve the currency of its website to provide more up-to-date public

information about its administration of the Scheme for Compensation for Detriment caused

by Defective Administration, including its decision-making and review procedures to enhance

public confidence.

That the ATO improve its public communication and guidance on the nature of the Model

Litigant Obligation and the limitations including that only the Attorney-General may enforce

the rules, and that it improve its investigation process for alleged Model Litigant Obligation

breaches.

That the ATO centrally publish information on all aspects of exchange of information (EOI)

including: (i) its guidelines for requesting and responding to EOI; (ii) safeguards for protecting

taxpayer information; (iii) avenues through which taxpayers may raise concerns; and (iv)

when taxpayers would be informed of an EOI request being made in relation to their affairs

and, where appropriate, have an opportunity to review the information obtained.

However, the report noted that the ATO's level of agreement and its accompanying commentary

"create a level of uncertainty as to how and to what extent the recommendations would be

implemented". Accordingly, to the extent that stakeholder concerns persist, the IGT sa ys

he may undertake a follow-up review to assess the effectiveness of resulting ATO actions and, if

necessary, make recommendations for government to consider mandatory reporting of the ATO's

compliance with the Charter and additional enforceable remedies.

The IGT noted there are two significant documents attached to his report as appendices: (i) a report

by UNSW, that the IGT commissioned, into the current status of taxpayer rights in Australia; and (ii)

a report the IGT prepared for the IBFD on the protection of taxpayer rights in Australia.

12/01/2017




Default assessments upheld - burden of proof not satisfied

• Unexplained deposits to bank accounts controlled by taxpayer

• Significant gambling at casinos

• AAT affirmed default assessments

• Taxpayer’s claims that money came from family gifts, loans from friends,

gambling wins rejected.

Tax Administration

Re Nguyen and FCT [2016] AATA 1041

Default assessments upheld - burden of proof not satisfied re

unexplained deposits and cash

Re Nguyen and FCT [2016] AATA 1041

The AAT has affirmed default assessments issued to a taxpayer after concluding she did not satisfy

the burden of proof that the assessments were excessive: Re Nguyen and FCT [2016] AATA 1041

(AAT, O'Loughlin SM, AAT File Nos: 2015/1862-1866, 19 December 2016).

Background

For the 2008 to 2012 income years, the FCT issued default income tax assessments to the taxpayer

to include various unexplained deposits to bank accounts she controlled and unexplained cash

presented by her at casinos totalling $2,471,789. The FCT imposed penalty at the rate of 75% for

intentional disregard of a taxation law for the first year, and increased the rate to 90% under s 284-

220(1)(c) of Sch 1 to the Taxation Administration Act 1953 for each of the 2009 to 2012 income

years. The 2008 to 2010 income years' amended assessments were made after the FCT formed an

opinion there had been fraud or evasion for the purposes of item 5 of the table in s 170(1) of the

ITAA 1936. Following the FCT's decision on the taxpayer's objections to the amended assessments

and penalties, the Tribunal said that only the 2008, 2010 to 2012 income years remained in dispute.

In brief, the taxpayer claimed the deposits in her bank accounts and any cash she held were

attributable to: (i) significant gifts from family members; (ii) significant loans from her friend; (iii)

occasional wins from betting at various casinos; and (iv) income from working as a beauty therapist

as an employee, and a sole trader.

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/AATA/2016/1041.html



Among other things, the taxpayer claimed to have borrowed $2.555 million from a fr iend. The friend

provided a statutory declaration stating that he lent the taxpayer large sums on various occasions.

The Tribunal said the taxpayer relied on these loans to explain the majority of the funds either

deposited by her to her bank accounts and/or presented by her at various casinos. The Tribunal said

there were a number of criticisms of the statutory declaration, including that: (i) there were no

records or documentation concerning the loans between parties who claim to be unrelated; (ii) no

security was provided for the alleged loans; (iii) no repayments appeared to have been made; (iv)

the entries in the bank statements identified by the friend as supporting the cash advances he said

were handed to the taxpayer "make those statements implausible".

Decision

The Tribunal concluded that "in circumstances where [the friend's] statutory declaration is relied on

heavily by the [taxpayer], and where it appears inherently improbable that the statutory declaration is

true, and [the friend] is not able to be scrutinized in respect of his statutory declaration, none of the

content of that statutory declaration can be accepted as proven or true".

Upon review of the evidence, the Tribunal concluded the taxpayer had failed to demonstrate the

character of the sources of money available to her. The taxpayer was held not to have satisfied the

burden of proof that the assessments were excessive.

12/01/2017




No summary judgment for DPN liability - unresolved facts re

whether director took "reasonable steps"

• Summary judgment in respect of $167,000 director penalty notice not granted

• Unresolved question of fact – whether director took reasonable steps to

ensure company complied with ATO payment arrangement.

Tax Administration

DCT v Pedley [2016] WADC 166

No summary judgment for DPN liability - unresolved facts re whether

director took "reasonable steps"

DCT v Pedley [2016] WADC 166

The District Court of Western Australia has refused a DCT's application for summary judgment in

respect a director penalty notice (DPN) liability of some $167,000. It did so on the basis that such an

application should only be granted where there is no real question to be tried and where there is a

high degree of certainty about the ultimate outcome of the proceedings if it went to trial, and that this

was not the case in these proceedings.

Rather, the Court found that it was not clear whether the actions that the directo r took amounted

to "reasonable steps" to cause the company to comply with its obligations pursuant to s 269-

35(2)(a)(i) of the TAA. This uncertainty related to the taxpayer's sworn evidence that he had

complied with relevant payment arrangements with the DCT as required, and had secured

guarantees for the balance of the payment to be made under the arrangement.

Specifically, the director deposed that he had entered into an arrangement with the ATO to

discharge the DPN liability (and an income tax liability) by instalments and that significant payments

had been made pursuant to that arrangement. He further claimed that at the time of his resignation

as a director, he reasonably berlieved that the balance of the payments would be forthcoming as the

company was owed some $900,000 by the Department of Housing (and the company's accounts

reflected such "receivables due").



The director gave further sworn evidence that another director of the company had diverted

payments from the Department of Housing to that director's personal bank account (but made some

payments to the company to give the appearance that the Department of Housing was remitting

funds). The director also claimed that under an agreement he entered into for the sale of his shares

in the company to that other director he had obtained a guarantee that the current DPN payment

arrangements with the ATO would continue to be met.

In these circumstances, the Court found that it was not appropriate to grant the DCT's application for

summary judgment given that it remained opened whether or not the director had sufficiently

ensured compliance with the payment arrangement with the ATO and whether, upon finding out

there had been non-compliance, he had reasonably considered taking other steps. Moreover, the

Court said that as this was a question of fact it would not be proper to determine these unresolved

factual issues in a summary manner.

DCT v Pedley [2016] WADC 166, District Court of Western Australia, Registrar Kingsley,

1 December 2016

12/01/2017

http://www.austlii.edu.au/au/cases/wa/WADC/2016/166.html




Reminder of easier GST reporting for new small businesses

from 19 Jan 2017

• Newly registered SMEs can lodge simpler BAS from 19 January 2017

‒ Quarterly reporters select "Option 2: Calculate GST quarterly and report

annually"

‒ Monthly reports insert "0" at labels G2, G3, G10 and G11

‒ Annual reporters leave labels G2, G3, G10 and G11 blank.

Tax Administration

Reminder of easier GST reporting for new small businesses from 19 Jan

2017

Newly registered small businesses can lodge a simpler BAS from 19 January 2017. The ATO has

reminded tax professionals that from that date, newly registered small businesses have the option to

report less GST information on their BAS. SMEs that plan to register for GST after 19 January 2017

can access the reporting benefits of the simpler BAS early.

To take advantage, the ATO says they need to do the following based on the reporting cycle they

elect when registering for GST:

Quarterly - select "Option 2: Calculate GST quarterly and report annually" on their first BAS.

The ATO says it will not seek the additional GST information or lodgment of the Annual GST

information report. This will provide SMEs with a simpler BAS reporting solution.

Monthly - insert "0" at labels G2, G3, G10 and G11 on their BAS.

Annual - they can leave labels G2, G3, G10 and G11 blank on their Annual GST return.

12/01/2017

https://www.ato.gov.au/Tax-professionals/Newsroom/Activity-statements/Easier-GST-reporting-for-new-small-businesses/




Review of tax and corporate whistleblower provisions in

Australia

• 2016-17 Federal Budget plan to better protect tax whistleblowers

• Government now seeks public comments on proposed tax whistleblower

protection.

Tax Administration

Consultation paper released

Review of tax and corporate whistleblower provisions in Australia


The government has released a consultation paper on the Review of tax and corporate

whistleblower protections in Australia. It seeks public comments to assist the government with the

introduction of appropriate protections for tax whistleblowers and in assessing the adequacy of

existing whistleblower protections in the corporate sector. The paper also looks at protections in

other jurisdictions – the UK, Canada, US and New Zealand.

In respect of tax whistleblowers, the paper proposes that the identity of a tax whistleblower and the

disclosure of any information which is capable of revealing their identity be subject to an absolute

requirement of confidentiality (ie prohibiting the release of any information by anyone to anyone,

including to a court or tribunal), unless:

The whistleblower gives informed consent to the release of their identity; or

The revelation is necessary to avert imminent danger to public health or safety, to prevent

imminent violation of any criminal law, or to enable whistleblowers to secure compensation

for reprisals.

http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2016/Review-of-whistleblower-protections



In the 2016-17 Federal Budget, the government announced the introduction of new arrangements to

better protect tax whistleblowers as part of its commitment to tackling tax misconduct. In addition, as

part of the Open Government National Action Plan, the government says it has committed to

ensuring appropriate protections are in place for people who report corruption, fraud, tax evasion or

avoidance, and misconduct within the corporate sector.

Comments

Comments are due by 10 February 2017.

12/01/2017




Ride sourcing providers

• ATO to identify ride sourcing drivers who don’t meet tax obligations

(registration, reporting, lodgment, payment)

• Data from financial institutions for 2016-17 and 2017-18

• ATO wants details of payments from ride sourcing facilitator to ride sourcing

provider

• Records relating to up to 60,000 individuals to be collected.

Tax Administration

ATO data matching

Ride sourcing providers

The ATO will acquire data to identify individuals that may be engaged in providing ride sourcing

services during the 2016-17 and 2017-18 financial years. Details of all payments made to ride

sourcing providers from accounts held by a ride sourcing facilitator will be requested from the

facilitator's financial institution for the 2016-17 and 2017-18 financial years. Ride sourcing facilitators

provide an electronic platform enabling members of the public to engage the services of a ride

sourcing provider (a driver). The ATO estimates that up to 74,000 individuals (ie ride sourcing

drivers) offer, or have offered, the service.

The ATO will match the data provided by the facilitator's financial institution against AT O records.

This is designed to identify ride sourcing drivers that may not be meeting their registration, reporting,

lodgment and/or payment obligations. Where the ATO is unable to match a driver's details against

ATO records, it will obtain further information from the financial institution where the driver's account

is held.

12/01/2017

https://www.ato.gov.au/General/Gen/Ride-sourcing-2016-18-data-matching-protocol/




Simplifying income recognition for NFPs

• New standards to apply from 1 January 2019:

‒ AASB 1058 Income of Not-for-Profit Entities

‒ AASB 2016-7 Amendments to Australian Accounting Standards – Deferral of

AASB 15 for Not-for-Profit Entities

‒ AASB 2016-8 Amendments to Australian Accounting Standards – Australian

Implementation Guidance for Not-for-Profit Entities.

Tax Administration

New standards coming

Simplifying income recognition for NFPs

New standards coming

The ATO says the Australian Accounting Standards Board (AASB) has released details of changes

to financial reporting for not-for-profit (NFP) entities. The Board says financial reporting for NFP

entities will now more closely reflect economic reality.

Revenue from grants and donations will be recognised when any associated performance obligation

to provide goods or services is satisfied, and not immediately upon receipt as usually occurs with

current standards. More assets will also be recorded on the balance sheet under the new

requirements, including leases with significantly below-market terms and conditions. Currently, only

assets acquired by NFP entities at nil or nominal consideration must be recognised at fair value.

The new requirements will broaden this to assets where entities pay significantly less than fair value

principally to let them further their objectives (ie not trade discounts or distress sales).

The requirements will be effective from 1 January 2019, with earlier application permitted.

https://www.ato.gov.au/Non-profit/Non-profit-News-Service/In-detail/Articles/Non-profit-News-Service---Simplifying-income-recognition/



The new standards are:

AASB 1058 Income of Not-for-Profit Entities;

AASB 2016-7 Amendments to Australian Accounting Standards – Deferral of AASB 15 for Not-

for-Profit Entities; and

AASB 2016-8 Amendments to Australian Accounting Standards – Australian Implementation

Guidance for Not-for-Profit Entities.

The AASB will release a webcast covering the new requirements early in 2017, as well as further

education materials later on.

Further details are on the AASB website.

12/01/2017

http://www.aasb.gov.au/Media-Releases/Simplifying-Income-Recognition-of-Not-for-Profit-Entities?newsID=202472




Summary judgment against taxpayers for $30.5m upheld –

taxpayers lose appeal re ATO use of Cayman Islands info

• $30.5m summary judgment against Vanda Gould and company he controlled

• Assessments based on info from Cayman Islands tax authority

• Taxpayers alleged ATO obtained info unlawfully

• Held: assessments valid.

Tax Administration

Gould & Anor v DCT [2017] FCAFC 1

Summary judgment against taxpayers for $30.5m upheld – no conscious

maladministration

Gould & Anor v DCT [2017] FCAFC 1

Two taxpayers (an individual and a company) have lost their appeals against Federal Court

decisions for summary judgment totalling over $30.5m, failing to establish conscious

maladministration in the assessment process: Gould & Anor v DCT [2017] FCAFC 1 (Full Federal

Court, Gilmour, Logan and Robertson JJ, 9 January 2017).

Background

The Federal Court (Perram J) had granted the DCT summary judgment against both Vanda Russell

Gould and Russell Associates Limited for debts totalling over $30.5m under assessments and

amended assessments ($15.213m in the case of Mr Gould and $15.342m in the case of Russell

Associates): see DCT v Leaver & Ors [2015] FCA 1454. The circumstances relied upon by the

taxpayers to challenge the assessments and amended assessments in question concerned the

obtaining and use of information by the DCT from the Cayman Islands Tax Information Authority,

pursuant to an agreement between the Federal government and the Cayman Islands for the

exchange of information with respect to taxes ("the information exchange agreement").

Under cross-claims brought under s 39B of the Judiciary Act 1903 (Cth), the taxpayers alleged that

various documents were unlawfully obtained by the DCT and were unlawfully used in raising the

assessments or amended assessments in question. As a result, they argued, the assessments an d

amended assessments did not attract the protection of s 175 of the ITAA 1936 and s 350-10 of Sch

1 to the TAA and were invalid.


http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCA/2015/1454.html



Perram J found that the pleadings in the proceedings were inadequate and ordered that they be

struck out as failing to disclose a reasonable cause of action or defence to the DCT’s action. The

Court then granted summary judgment to the DCT.

In seeking leave to appeal against that decision, the taxpayers contended that his Honour should

have allowed them to re-plead rather than granting summary judgment. In essence, the taxpayers

submitted that the assessments and amended assessments in question were invalid on the basis

that there was conscious maladministration in the collection of information, which formed part of the

assessment process.

The taxpayers did not allege that the ATO officer(s) who raised the assessments or amended

assessments knew of any illegality, nor that they relied upon information that had been obtained with

conscious impropriety. Nor did the taxpayers challenge Perram J’s finding that there were no

material facts in the pleadings to support the allegation that the ATO officers deliberately made

assessments that they knew to be incorrect or arbitrary, or which were based upon inaccurate

information or which intentionally misrepresented the information used to make the assessments or

amended assessments.

Decision

The Full Federal Court granted the taxpayers leave to appeal (and in doing so granted an extension

of time) but then dismissed their appeals.

Robertson J (Gilmour J agreeing) held that the primary judge was correct to conclude that the

taxpayers’ pleading did not properly plead jurisdictional er ror outside the scope of s 175.

Robertson J said that the taxpayers sought to emphasise the "process of assessment" and to reason

therefrom that any improper purpose, in administrative law terms, would vitiate the assessment. In

His Honour’s opinion, the High Court’s decision in FCT v Futuris Corporation Ltd [2008] HCA 32 "is

not authority for the proposition that conscious maladministration is established where, as here,

each applicant accepts that the ATO officers did not deliberately make assessments that they knew

to be incorrect or arbitrary, or which were based upon inaccurate information, or which intentionally

misrepresented the information in the officer’s possession that was used to make the assessments;

and where the ATO officers did not use the information provided by the Cayman Islands Authority for

any purpose other than, or alien to, the fulfilment of their duty under s 166 of the ITAA 1936 to make

an assessment from the returns and from other information in their possession".

Logan J also dismissed the taxpayers’ appeals, albeit for reasons that were "not completely

congruent with those of Robertson J".

12/01/2017





TPB Information sheet on payroll service providers

• Information Sheet gives examples to help payroll service providers determine

if they must register with TPB.

Tax Administration

TPB(I) 31/2016 - Payroll service providers

TPB Information sheet on payroll service providers

The Tax Practitioners Board has released TPB Information sheet TPB(I) 31/2016 - Payroll service

providers. It seeks to assist payroll service providers understand operation of tax agent services

regime and their responsibilities in relation to registration. It was released in draft form on

11 July 2014 and then on 18 August 2016.

The Information Sheet contains information on:

Background about the tax agent services regime;

Examples of circumstances where a payroll service provider does not need to register as a tax

agent or BAS agent;

Examples of circumstances where a payroll service provider must register as a tax agent or

BAS agent.

Registration required

The Information Sheet provides several examples of services that may be provided by a payroll

service provider, which the TPB considers to be covered by the definition of a tax agent service

(including a BAS service) and therefore would require the payroll service provider to be

registered eg:

A client outsources their entire payroll and accounts work to a payroll service provider - In the

provision of this service, the payroll service provider interprets and applies a taxation law, which

includes a BAS provision, and/or represents the client in their dealings with the FCT and it would be

reasonable to expect that their client will rely on those services.

https://www.tpb.gov.au/payroll-service-providers-tpb-information-sheet-tpbi-312016



A payroll service provider offers a help desk which provides customised advice to assist their client

to meet a specific tax outcome - For advice to constitute a tax agent service, the advice would need

to relate to the client's particular circumstances and would require the interpretation of taxation laws.

It must also be reasonable for the client to rely on the advice. If these conditions are met, such

advice will be a tax agent service.

A payroll service provider undertakes a payroll compliance review for their client to ensure

compliance with taxation obligations - For the payroll compliance review to constitute a tax agent

service, it would need to involve the payroll service provider providing an assessment and/or opinion

as to whether their client is compliant with their taxation obligations under one or more taxation laws.

Registration not needed

The Information Sheet says a payroll service provider does not need to register as a tax agent or

BAS agent if, for example:

The services provided are considered to be "in-house services". This includes arrangements

where there may be a cost recovery and/or shared services arrangement in place for the

provision of the services by entities regarded as in-house service providers;

The services are not provided for a fee or other reward;

The services provided do not meet the definition of tax agent service.

12/01/2017




Current ATO data-matching activities

• ATO collecting data from banks on:

‒ Credit and debit card payments received by businesses

‒ Payments to ride-sourcing drivers

• Also collecting data from on-selling sites about sellers who sold at least

$12,000 worth of goods or services.

Tax Administration

Credit and debit card, online selling, ride-sourcing data-matching

Current ATO data-matching activities

The ATO has reminded tax professionals that it is collecting data from financial institutions and

online selling sites to use in its credit and debit card, online selling, and ride-sourcing data-matching

programs. These data-matching exercises were announced in 2016.

The data will include:

The total amount of credit and debit card payments businesses received;

Online sellers who have sold at least $12,000 worth of goods or services during the 2015–16,

2016–17 and 2017–18 financial years;

Payments made to ride-sourcing drivers from accounts held by the ride-sourcing facilitator –

covers the 2016–17 and 2017–18 financial years.

19/01/2016

https://www.ato.gov.au/Tax-professionals/Newsroom/Your-practice/Credit-and-debit-card,-online-selling,-and-ride-sourcing-data-matching/




Incorrect PAYG instalment variations and GIC

• ATO says some taxpayers incorrectly varying PAYG instalment rate or

amount

• Liable to penalty, GIC if variation significantly incorrect

• ATO may contact tax agents to discuss clients’ variations.

Tax Administration

Incorrect PAYG instalment variations and GIC

The ATO warns that some taxpayers are incorrectly varying their PAYG instalment rate or amount.

This may result in a debt at the end of the financial year and attract GIC if the variation was

significantly incorrect.

If instalments are more than 15% under the actual tax payable at the end of the year, the taxpayer

may be subject to GIC on the difference. However, the ATO says taxpayers may ask it to reduce or

waive the interest by writing to the ATO about the circumstances that led them to underestimate their

instalment rate or amount.

Taxpayers may have to pay GIC if they vary an instalment rate or amount to less than 85% of the:

Actual tax payable on their business and/or investment income for the income year; or

Instalment rate that should have applied for the income year.

The ATO has advised tax professionals that it may contact them to discuss their clients’ PAYG

instalment variations and how to help them get it right.

19/01/2016

https://www.ato.gov.au/Tax-professionals/Newsroom/Income-tax/Incorrect-PAYG-instalment-variations-and-GIC/




ATO explains what caused system outage

• Cause of ATO’s Dec 2016 system outage: major malfunction of data storage

infrastructure in central computing system

• ATO insists taxpayer data not lost or compromised

• PwC to independently review system outage (has expertise with ICT storage

at heart of incident)

• ATO also conducting internal review: focus on key stakeholders.

Tax Administration

Announces independent review

ATO explains what caused systems outage

The ATO has advised that it has appointed PwC to conduct an independent review into the

unplanned system outage which began on 12 December last year. PwC was appointed because of

its specific expertise with the ICT storage that is at the centre of the incident, the ATO said. The PwC

review will address questions such as

What caused the outage?

Why was there such a significant impact?

Was the ATO response appropriate?

What are the residual risks - if any?

What actions can be taken to mitigate further or future issues?

According to the ATO, the review will help it fully understand what happened and why, and what

needs to be done to ensure it is not exposed to this type of incident in future. The PwC review is due

to be finalised in March 2017. At the same time, the ATO says it is also conducting its own internal

review which will focus on key stakeholders, including tax professionals and software developers.

At the same time, the ATO has published a letter to Tax Practitioners from Ramez Katf (ATO Chief

Information Officer) in relation to the December 2016 System Outage. The letter explained what

caused the problem, additional measures to assist tax agents, and provided other information.

https://www.ato.gov.au/Media-centre/Media-releases/ATO-systems-update/

https://www.ato.gov.au/Tax-professionals/Newsroom/Your-practice/December-2016-System-Outage---Letter-to-Tax-Practitioners/



Additional measures to assist Tax Agents

Mr Katf said the ATO took action to defer due dates in December as well as the 15 January income

tax due date. The ATO said if tax agents lodged within the deferred period, they will not be

penalised and their Lodgment Program "85% on time requirement" will not be affected.

If agents have been affected by the outage and require additional deferrals, the ATO said they can:

Send a secure message through the portal;

Call the Registered Agent phone line (13 72 86) - A special fast key code will soon be

available to help route these enquiries.

Mr Katf said ATO staff that review these requests "will consider them in light of the impacts of the

outage".

He went on: "While the availability of deferrals should assist you in managing your lodgment

program, we understand that as a consequence of the outage some agents may not be able to meet

the '85% on time' Lodgment Program requirement. Where this is the case we will not apply sanctions

this year."

26/01/2016




No grounds to set aside DPO

• Dubai resident served with amended assessments, departure prohibition

order (DPO) while going through customs

• Federal Court dismissed application to set aside DPO:

– DPO not issued for improper purpose given taxpayer’s significant tax liability

($4.5m) & poor compliance record

– Australian tax debt not enforceable in UAE.

Tax Administration

Bakri v DCT [2017] FCA 20

No grounds to set aside DPO order

Bakri v DCT [2017] FCA 20

The Federal Court has dismissed a taxpayer's application to set aside a departure prohibition order

(DPO) following the issue of amended assessments to him for some $4.5m. In doing so, the Court

dismissed the taxpayer's claims that the DPO was issued for an "improper purpose". At the same

time, it found the FCT had "reasonable grounds" as required to prevent the taxpayer from leaving

Australia in the circumstances: Bakri v DCT [2017] FCA 20 (Federal Court, Burley J,

23 January 2017).

Background

The taxpayer was involved in the construction industry both in Australia and Dubai. From 2013, he

had lived and worked in Dubai, although he regarded Australia as his permanent place of residence.

On 6 January 2017, the taxpayer returned to Australia and, when passing through customs, was

served with notices of amended assessment of his tax liabilities for the years 2011 to 2015 resulting

in a tax liability of some $4.5m. The amended assessments arose from a "covert audit" of the

taxpayer which revealed that he was listed as a director and shareholder of five Australian

companies and that he had a history of remitting and receiving funds of over several million dollars

from Dubai either personally or through various businesses.


http://www.austlii.edu.au/au/cases/cth/FCA/2017/20.html



In seeking to have the DPO set aside, the taxpayer argued that it was issued for an "improper

purpose" in that it was used to detain him in Australia in order to gather information from him

concerning his domestic and international financial position, and not for the collection of tax as

required under s 14S of the TAA. He also claimed that the FCT did not have "reasonable grounds"

for the required belief under s 14S that the tax liability would not be met or that appropriate

arrangements would not be made to discharge it. The taxpayer also argued that if he did not return

to Dubai, then he would lose his job and his accommodation, and that the health of his wife would

suffer on view of the stress of the situation.

Decision

In dismissing the taxpayer's application, the Court found that the decision to issue the DPO did not

suggest an "improper purpose" in view of the FCT's stated reasons for issuing the DPO - namely,

the taxpayer's "significant tax liability", his "poor compliance record" and the fact that he had "limited

links" to Australia. In relation to the taxpayer's claim that the DPO was improperly issued to gather

information about his financial affairs, the Court found that the FCT was authorised under the

relevant provision of the TAA to gather such information to facilitate in the recovery of a taxpayer's

tax liability and therefore, the DPO could not be regarded as having been issued for an improper

purpose on this basis.

In relation to the taxpayer's claims that the FCT did not have "reasonable grounds" for issuing the

DPO, the Court found that the FCT had formed the requisite belief that it was "desirable" to prevent

him from leaving Australia before discharging the liability or coming to an arrangement to do so. In

this regard, the Court noted that the taxpayer apparently did not have assets in Australia to meet the

liability, there was no ability to enforce the debt in the UAE where the taxpayer apparently had

significant assets (eg moneys transferred to Dubai and real estate), he was a "flight risk" as he

clearly intended to leave Australia and, contrary to his claims, the taxpayer did have the opportunity

to discuss the assessments with the ATO, lodge objections and seek legal advice.

26/01/2016




Exemptions from registering with ATO re foreign ownership of

water or agricultural land

• Draft rules to support Register of Foreign Ownership of Water or Agricultural

Land Act 2015 released

• Water Register from 1 July 2017

• Draft rules provide reporting exemptions for:

– Harvestable rights

– Irrigation infrastructure operators

– Foreign persons re security held under money lending agreement.

Tax Administration

Exemptions from registering with ATO re foreign ownership of water or

agricultural land.

The government released for consultation draft rules to support the Register of Foreign Ownership

of Water or Agricultural Land Act 2015 and a draft Water Registration Form which outlines the

proposed data fields for water registration.

As part of the foreign investment framework reform package, the government agreed to introduce

legislation to establish a Water Register before 1 December 2016. Following consultation, the 2016-

17 Budget provided that the government would implement the Water Register by requiring foreign

persons to notify and update their interests in water entitlements with the ATO.

The legislation to give effect to the Water Register passed Parliament on 1 December 2016. Water

entitlements will not need to be registered before 1 July 2017.

http://treasury.gov.au/ConsultationsandReviews/Consultations/2017/Register-of-Foreign-Ownership-of-Water-or-Agricultural-Land-Rules-2017



The Act provides that Rules may exempt kinds of water rights from the definition of "registrable

water entitlement" or that certain foreign persons do not need to register. Broadly, the draft rules

propose that the following exemptions will apply to the requirement to register with the ATO:

"Harvestable rights" will be exempt from the definition of "registrable water entitlement". The

term "harvestable right" takes a different meaning in different jurisdictions but for the

purposes of the Water Register, it will be a right which allows water harvested from rainfall to

be used for stock and domestic purposes.

Irrigation infrastructure operators will not need to register the water they hold for the

purposes of meeting their requirements under an irrigation right with a customer, or

conveyance water, which is the additional water which may be lost in transit or as a result of

seepage or evaporation.

Foreign persons will not need to register registrable water entitlements or contractual water

rights which are obtained through the enforcement of a security held for the purposes of a

money lending agreement.

COMMENTS are due by 10 February 2017.

26/01/2016




ATO releases Guide to Reportable Tax Positions 2017

• ATO guide to help companies complete:

• Reportable tax position schedule 2017 (NAT 74066)

• Reportable tax position early disclosure form 2017 (NAT 74067)

• RTP Category C (reportable transactions or events) expanded to cover issues

of concern to ATO (eg those in recent taxpayer alerts)

• Category C questions must be answered if company’s income year ends on

or after 30 June 2017.

Tax Administration

ATO releases Guide to Reportable Tax Positions 2017

The ATO has released its Guide to Reportable Tax Positions 2017. It provides information to help

companies understand and identify reportable tax positions and to help them to complet e the

Reportable tax position schedule 2017 (NAT 74066) and Reportable tax position early disclosure

form 2017 (NAT 74067).

The ATO says it has made substantial changes to RTP Category C (Reportable transactions or

events) this year. RTP Category C now covers a number of specific issues that the ATO says it finds

concerning. Taxpayers with income years ending on or after 30 June 2017 are required to answer

the new Category C questions. There are no materiality thresholds for Category C RTPs.

Next year, the ATO says it is extending the RTP requirements to companies in economic groups

with turnovers above $250 million. This change will come into effect for the year ending on or after

30 June 2018. For companies covered by the extension, the ATO will notify them in writing

(including by email) that they must complete the RTP Schedule with their tax return.

26/01/2016

https://www.ato.gov.au/Forms/Guide-to-Reportable-Tax-Positions-2017/




Tax risk management and governance review guide

• Businesses can use ATO’s Tax risk management and governance review

guide to:

‒ Develop/improve their tax governance & internal control framework

‒ Test their framework against ATO best practice benchmarks

‒ Show reviewers & stakeholders effectiveness of internal controls.

Tax Administration

ATO guide updated

Tax risk management and governance review guide

The ATO has released a tax risk management and governance review guide to help businesses

develop and test their governance and internal control frameworks (as they relate to tax), and

demonstrate the effectiveness of their internal controls to reviewers and stakeholders.

The guide sets out principles for board-level and managerial-level responsibilities, and examples of

evidence that entities can provide to demonstrate the design and operational effectiveness of their

control framework for tax risk.

It was developed primarily for large and complex corporations, tax consolidated groups and foreign

multinational corporations conducting business in Australia. The principles outlined can be applied to

a corporation of any size if tailored appropriately, the ATO says. When appropriate, the ATO

assesses the tax governance processes of large business entities that it has under review, however,

it says the aim of this guide is to help businesses understand what the ATO believes better tax

corporate governance practices look like, so a business can:

Develop or improve its own tax governance and internal control framework;

Test the robustness of the design of its framework against ATO best practice benchmarks;

Understand how to demonstrate the operational effectiveness of its key internal controls to its

stakeholders, including the ATO.

https://www.ato.gov.au/Business/Large-business/In-detail/Key-products-and-resources/Tax-risk-management-and-governance-review-guide/



For directors, the guide covers areas such as: Corporate governance and risk management; Justified trust and key controls (eg periodic internal control testing, document control frameworks); Three lines of defence; Board-level controls; Internal controls testing; Managerial-level controls; Directorship responsibilities and liability.

The guide also discusses board and managerial-level responsibilities, and tax control frameworks for

medium and small corporations.

3/02/2017




Extension of time for AAT review granted

• Company granted extension for review of GST objection decision

• Applied for extension nearly 1 year late. However, AAT satisfied that:

‒ Acceptable explanation for delay (controller had “lack of understanding”, hard to

get lawyer due to financial problems)

‒ No prejudice to FCT

‒ Amount of tax payable is in dispute.

Tax Administration

Re New Access Investment Group Pty Ltd and FCT [2017] AATA 63

Extension of time for AAT review granted

Re New Access Investment Group Pty Ltd and FCT [2017] AATA 63

The AAT has granted a company an extension of time to apply for review of objection decisions.

Objections to GST assessments and administrative penalties were lodged in March 2015. The

objections were disallowed in September 2015. The time for applying to the AAT for a review of

those decisions expired towards the end of November 2015. It was not until 22 September 2016 that

the company applied for an extension of time.

Initially an application was not made because of a lack of understanding on the part of the person

who controlled the company (Mr Y) and because the company's financial situation made it difficult to

obtain legal representation. In addition, Mr Y gave evidence that he did not remember seeing a fact

sheet sent by the ATO to the company's previous tax representatives outlining the company's review

rights. Once the company was able to engage a solicitor, there was a further four-month delay

because the solicitor believed that the ATO would consent to an extension of time, having notified

the ATO that the company would challenge the objection decision if debt recovery proceedings were

commenced.




The AAT decided to grant an extension of time on the basis that:

There was an acceptable explanation for the delay in applying for review. In reaching this

conclusion, the AAT accepted Mr Y's evidence;

The ATO conceded that there was no prejudice caused by the delay; and

There were complex issues between the parties as to the amount of tax that was properly

payable - the AAT accepted the evidence of the company's solicitor on this point, noting that

she had experience working in the ATO.

The AAT commented that it was unwise to assume that the ATO would automatically consent to an

extension of time or that the AAT would grant an extension.

3/02/2017




Alternate assessments not tentative

• FCT gave trustee 2 sets of assessments re same income:

‒ “Primary” assessment on basis that beneficiaries (including minor) presently

entitled to net income of trust

‒ “Alternative” assessment on basis of no present entitlement

• Total tax shortfall – $23.5m

• Federal Court held assessments valid – alternative assessments can be

issued to trustee re same income (1 amount is recoverable).

Tax Administration

Whitby Land Company Pty Ltd (Trustee) v DCT [2017] FCA 28

Alternate assessments not tentative

Whitby Land Company Pty Ltd (Trustee) v DCT

The Federal Court has found that assessments were not tentative and provisional and therefore

were valid: Whitby Land Company Pty Ltd (Trustee) v DCT [2017] FCA 28 (Federal Court, Jagot J,

30 January 2017).

Background

The taxpayer was a company which was the trustee of a discretionary trust (the Whitby Trust). The

beneficiaries were the five children of the company’s director. One of the children was a minor and

thus under a legal disability.

For the 2011 to 2014 income years, the DCT notified the taxpayer that it was liable to pay tax

assessed in two different amounts, calculated by two different methods.

The “primary assessments” for each year were calculated on the basis that the four adult

beneficiaries were each presently entitled to equal shares tota lling 80% of the net income of the

Whitby Trust (relying on s 99A ITAA 1936) and the beneficiary who was a minor was presently

entitled to a 20% share of the net income of the trust, but was subject to a legal disability (relying on

s 98 ITAA 1936). The primary assessments were issued in April 2014 following an audit of

transactions undertaken by the Whitby Trust.




The “alternative assessments” were made by reference to the same 80% and 20% proportions, but were on the basis that none of the beneficiaries were presently entitled to a share of the net income of the trust for each relevant year. The alternative assessments were issued in October 2015. The total tax shortfall over the four income years was just over $23.5 million. The DCT also imposed administrative penalties.

When issuing the alternative assessments, the DCT explained in a letter to the taxpayer that if the

primary assessments were invalid then the alternative assessments were original assessments, but

if the primary assessments were valid then the alternative assessments affirmed or amended the

primary assessments. The DCT asserted in the letter that “on any view, these are valid

assessments”.

The DCT sent further letters to the taxpayer stating that he would apply Law Administration Practice

Statement 2006/7 which deals with the collection of tax where there are primary and alternative

assessments.

The taxpayer sought relief under s 39B of the Judiciary Act 1903 (Cth) on the basis that the primary

and alternative assessments were invalid as they were tentative and provisional. The taxpayer

argued that the assessments were tentative because, for each year, they imposed two separate and

different liabilities to income tax in its single capacity as a trustee. As a result, the taxpayer owed

different debts in each relevant year in circumstances where payment of one did not abate the other,

and each debt was an independent debt owed to the Commonwealth and was payable to the DCT

(with interest accruing on each debt).

The DCT, on the other hand, argued that a trustee’s liability to pay income tax is of a “representative

character” and the relevant provisions in the ITAA 1936 (in this case ss 98 and 99A) envisage that a

trustee might be liable to multiple assessments in respect of different beneficiaries ’ entitlements to a

share of the net income of the trust. As such, the primary and alternative assessments were

comparable to assessments to two or more taxpayers in relation to the same income in the same

income year, which are not liable to be set aside as tentative or provisional.



Decision

Jagot J considered the interaction between the provisions of the ITAA 1936 dealing with the taxation

of trusts (in particular ss 98 and 99A) and the provisions of the ITAA 1936 concerning assessments

and amended assessments (in particular ss 166 and 169). In finding for the DCT, her Honour

advanced various propositions.

1. Section 166 ITAA 1936 is concerned with the making of an assessment on the “taxable

income” of any taxpayer. Under ss 4-10(4) and 9-5 item 6 of the ITAA 1997, however, the

liability of a trustee in that capacity to income tax is not worked out by reference to the net

income of the trust for the income year, under the process established by ss 98, 99 and 99A

ITAA 1936, and not by reference to taxable income. Accordingly, in making the assessments

in this case, the DCT was not exercising his power under s 166.

2. Sections 98, 99 and 99A ITAA 1936 contemplate that a trustee will be assessed and liable to

pay tax in respect of the different beneficiaries depending on the status of the beneficiary. As

a result, the position of a trustee in this context is different from that of an individual or

corporate taxpayer who is liable to be assessed and pay income tax on their taxable income

for the year.

3. The assessments specified the amount of tax income assessed and the amount of tax payable

thereon. Nothing in the evidence otherwise undermined the definite character of the liability

imposed. It was merely that one set of assessments assumed a present entitlement of the

beneficiaries and the other set assumed no such present entitlement.

4. The DCT has taken a view of the facts and made assessments for each year based on that

view (the primary assessments). The alternative assessments were not issued for the

purpose of double recovery, but performed a protective function lest the DCT’s view about

the operation of the trust be incorrect. The difficulties to which such concurrent

liabilities may give rise were not seen as a sufficient reason to lead to a different result

in DCT v Richard Walter Pty Ltd (1995) 29 ATR 644 and the same conclusion applied in this

case.

In conclusion, Jagot J was not persuaded that “the statutory scheme precludes the approach the

DCT has taken or, of necessity, renders that approach tentative or provisional in the sense that the

assessments are no assessments at all”.

3/02/2017




Cloud computing & Code of Professional Conduct

• Code of Conduct may be breached if cloud arrangements inadequate & client

info unprotected

• TPB says registered agents may wish to consider:

‒ Details of limitation of liability arrangements

‒ Whether provider can unilaterally change terms of agreement

‒ How data integrity is maintained.

Tax Administration

Tax Practitioners Board Practice Note TPB (PN) 1/2017

Tax practitioners, cloud computing and the Code of Professional

Conduct – TPB Practice Note

The Tax Practitioners Board (TPB) has released its Practice Note TPB (PN) 1/2017 - Cloud

computing and the Code of Professional Conduct. Cloud computing, at a broad level, is the provision

of information technology resources as a service through a network (including storing, managing and

processing data), typically over the internet, instead of using a local server or a personal computer.

The Board says that when entering into cloud arrangements, various factor s will need to be

considered, depending on the nature of the particular cloud arrangement and also the circumstances

of the registered tax practitioner. However, as a starting point, the Practice Note says registered tax

practitioners may wish to consider a number of general factors including:

What are the details of any limitation of liability arrangements (eg clauses contained in the

terms and conditions of the cloud provider agreement(s) or terms of use)?

Whether the provider is allowed to unilaterally change relevant terms of the agreement (that is,

without input from the registered practitioner), including in relation to how or where data is

stored or managed?

How is the information being transferred between systems and data integrity being

maintained?

How is the information being stored?

Whether information is being held offshore (that is, information that is stored or processed in

equipment not located in Australia) and, if so, the consequences (including relevant

additional legislative and regulatory requirements that the information may be subject to)?

What processes does the cloud provider have in place in relation to the backup and archiving

of information (such as multiple backup servers)?

https://www.tpb.gov.au/tpbpn-012017-cloud-computing-and-code-professional-conduct



Concerning the Code of Professional Conduct, the Practice Note says practitioners need to be

mindful of Code Item 6 which provides that a registered practitioner must not disclose any

information relating to a client's affairs to a third party without the client's permission, unless there is

a legal duty to do so. A third party is any entity other than the client and the registered practitioner.

This includes entities that maintain offsite data storage systems (including "cloud storage"),

recognising that there is a distinction between data storage that a third party cannot effectively

access (for instance, through the use of encryption) and disclosure to a third party. It is only

necessary that the information relates to the affairs of a client. Therefore, the information does not

have to belong to the client, or have been directly provided by the client to the registered

practitioner.

The Practice Note says registered practitioners must obtain permission from each client prior to

divulging client information to a third party (including cloud service providers).

The Practice Note was originally in draft form on 13 October 2016, based on the Tax Agent Services

Act 2009 as at 5 March 2016.

3/02/2017




ATO warns of criminal activity targeting AUSkeys

• ATO has detected identity theft re AUSkeys linked to businesses

• AUSkeys used to access portals, lodge BASs, change account details for

refunds

• ATO took quick preventative action – affected AUSkeys cancelled

• Tax practitioners asked to check Access Manager permissions to shield

practice from identity theft.

Tax Administration

ATO warns of criminal activity targeting AUSkeys

The ATO has advised that it has detected criminal activity where identity thieves have fraudulently

obtained AUSkeys linked to businesses. They have used these to access the portals, lodge activity

statements and change account details for refunds. The ATO said it was able to take preventative

action quickly and the affected AUSkeys have been cancelled.

The ATO has warned tax practitioners to check their Access Manager permiss ions to protect their

practice from identity theft.

3/02/2017

https://www.ato.gov.au/Tax-professionals/Newsroom/Your-practice/Check-your-Access-Manager-permissions/




Enhanced ATO record-keeping tool for sole traders

• ATO announces record-keeping enhancements to myDeductions

• Sole traders with simple tax affairs can now record business income,

expenses & vehicle trips on smart phone or device

• Ability to upload data directly into tax return will be available in later release.

Tax Administration

Enhanced ATO record-keeping tool for sole traders

Sole traders can get a head start on tax this year with new record-keeping functionality

enhancements to myDeductions in the free ATO app, Small Business Minister Michael

McCormack has announced. He said the improvements mean sole traders with simple tax affairs

can now record business income, expenses, and vehicle trips on their smart phone or device in

addition to employee work-related expenses.

Mr McCormack said the record-keeping tool is the quick and easy way for sole traders to get into

good record keeping habits by capturing transactions “on the go”. This also means sole traders won't

have the hassle of lost and faded receipts at tax time. The Minister said sole traders can easily email

their detailed records to their tax agent or enter the data straight into myTax at tax time. The ability to

upload data directly into a tax return will be made available in a later release, he said.

More details are on the ATO app myDeductions webpage.

3/02/2017

http://mfm.ministers.treasury.gov.au/media-release/005-2017/

https://www.ato.gov.au/General/Online-services/In-detail/myDeductions/myDeductions/




Tax Inspector-General

• Planned reviews:

‒ GST refunds – taxpayers concerned about refund delays

‒ PAYGI – interaction with income tax system

‒ Future role of tax professionals in tax system.

Tax Administration

2017 work program announced

Tax Inspector-General announces his 2017 work program

The Inspector-General of Taxation (IGT), Ali Noroozi, has released details of his 2017 work program.

The IGT intends to commence at least three reviews in the 2017 calendar year:

Future of the Tax Profession - The IGT said he is conducting this review in response to a

request from the FCT. The IGT has, in recent years, examined the state of the ATO's

services and support for tax practitioners. This new review will be forward-looking and will

examine the future role of tax professionals in the tax system particularly in light of increased

use of digital technology and ATO service delivery initiatives. In doing so, the IGT will also

examine concerns raised by tax practitioners with the IGT on issues affecting their industry.

The IGT will consult extensively with the tax profession, the ATO and the TPB to identify

opportunities to improve the tax system as a whole.

Delayed GST refunds – Since 2012, the ATOs discretion to withhold GST refunds for

verification has been governed by s 8AAZLGA of the Taxation Administration Act 1953. The

provision allows the ATO to retain a refund until it is no longer reasonable to require

verification. The IGT said complaints data and submissions to the work program have

indicated that the ATO's administration of this provision may, in some instances, result in

inappropriate and unfair delays in GST refunds being issued. This rev iew will examine the

ATO's administrative approaches, the impact on taxpayers and the need for any

administrative or policy improvements.

PAYG Instalments system – The IGT said submissions and complaints received suggest the

system is generating confusion and misunderstanding for certain taxpayers who are required

to make these payments. The interactions between the PAYGI and income tax systems as

well as the related correspondence will be explored to identify potential opportunities for

improvement.

http://igt.gov.au/our-reviews/our-work-program/



Further potential reviews

The IGT has also identified four additional reviews which may also commence in the 2017 calendar

year depending on time and resourcing considerations as well as competing priorities:

ATO Advice and Guidance - The IGT said stakeholders have raised concerns regarding the

ATO's approach to providing advice and guidance. In particular, they have noted fewer public

rulings being issued and the ATO's use of practical compliance guidelines and website

materials both of which provide less certainty for taxpayers. The ATO's use of Taxpayer

Alerts was also identified as another area of concern, especially when and how these will be

issued and the uncertainty they create when there is no subsequent ATO guidance or action.

In relation to private rulings, the concerns related to timeliness, the ATO's unwillingness to

rule on certain issues and, in some instances, issuing "letters of comfort", which do not

provide the same level of certainty. The ATO has informed the IGT that it has more recently

undertaken an internal review of its public advice and guidance processes. The IGT will

monitor these issues and if concerns persist, a review in this area may be conducted.

Fraud or evasion opinions - The IGT said stakeholders have raised concerns about the

ATO's use of fraud or evasion opinions based on which the ATO may examine and amend

assessments outside of standard periods of review (typically four years). Significant

compliance and evidentiary burdens may be imposed on taxpayers wishing to dispute such

amended assessments because of the considerable time that may have elapsed since those

assessments were initially made, the IGT said. Complaints and concerns raised with the IGT

have claimed that the ATO's processes for forming fraud or evasion opinions are not

sufficiently robust and may lead to unfair outcomes. The IGT's review would examine the

ATO's administrative processes, evidence gathering and engagement with taxpayers. The

IGT has been advised that the ATO is currently undertaking an internal review of its use of

fraud or evasion opinions across all business lines. The IGT will consider any improvements

resulting from such a review and determine whether to commence his own investigation.

Research & Development - The IGT said stakeholders have raised concerns about the

ATO's approach to R&D Tax Incentive claims. The major concerns relate to the interactions

between the ATO and AusIndustry and, in particular, the eligibility of R&D activities being

questioned during ATO compliance activities where the taxpayer believed that AusIndustry

had, at least, tacitly approved such eligibility in the past. The IGT noted there has been a

recent review of the R&D Tax Incentive which was completed in 2016. Moreover, in

considering these issues, the IGT would only be empowered to examine the relevant actions

of the ATO and not that of AusIndustry. Accordingly, to the extent that concerns persist, the

IGT said he may either consider the issue within the constraints of his jurisdiction or,

alternatively, may engage with other agencies, such as the Commonwealth Ombudsman, to

examine the issue holistically.

Influencing willing participation in the tax and super systems - The FCT has also requested

that the IGT undertake a review to identify strategies and opportunities for the ATO to work

with others to encourage willing participation in the tax and superannuation systems. The

review would focus particularly on youth and school programs.



Areas not included

The IGT also noted areas not included in his 2017 work program eg debt collection and super

guarantee; settlements and litigation; transfer pricing (re the MAAL and proposed DPT – the IGT

said it seemed appropriate to allow the ATO time to consult and implement its administrative

approach); compliance approach to large business; digital by default.

3/02/2017




ATO advice under development

• ATO website lists advice under development for:

– income tax

– CGT

– international issues

– GST

– FBT.

Tax Office Website updates

Tax Administration

Tax Office Website updates

From the ATO website:

Advice under development - income tax issues - New items include a proposed Draft

Ruling on corporate residency and CM&C in Australia in response to Bywater Investments

Limited & Ors v FCT; and a consultation paper on scholarships (Comments due by

31 March 2017). Updated topics include: capital allowances (composite items);

environmental protection activities; corporate limited partnership "credits"; deductions for

mining and petroleum exploration; deductibility of legal expenses; withholding provisions

relating to natural resource income; deduction for work-related travel expenses; personal

services income (meaning of personal services business; attribution and deductions); non -

share dividends paid by ADIs; and meaning of "alteration, extension or improvement" in

Div 43 of the ITAA1997.

Advice under development - international issues - Updated topics include: distributions

from foreign companies; foreign hybrid limited partnership; direct contro l interests

(partnerships and trusts); transfer pricing rules and debt/equity tests; transfer pricing benefit

from an outbound/inbound interest free loan; thin capitalisation (arm's length debt test);

internal derivatives by multinational banks; thin capitalisation attribution of ADI equity capital

and controlled foreign entity equity; transfer pricing safe harbours; and significant global

entities lodging general purpose financial statements.

https://www.ato.gov.au/General/ATO-advice-and-guidance/Advice-under-development-program/Advice-under-development---income-tax-issues/

https://www.ato.gov.au/general/consultation/what-we-are-consulting-about/matters-under-consultation/matters/?anchor=I201665#I201665

https://www.ato.gov.au/General/ATO-advice-and-guidance/Advice-under-development-program/Advice-under-development---international-issues/



Advice under development - capital gains tax issues - Topics include: trust capital gains; capital

gains from a non-resident beneficiary on a non-fixed trust; capital gain or loss - residency

assumption; capital gains - discount or capital loss offset.

Advice under development - GST issues - Updated topics include: Australian consumers;

GST cross border supplies - supplies of online advertising; GST and prepared meals;

proposed amendments to Ruling GSTR 2006/9 following FCT v MBI Properties Pty Ltd

[2014] HCA 49; and GST on digital products and services - electronic distribution platforms.

Advice under development - FBT issues - Safe harbours for FBT and remuneration. The

minor use of exempt vehicles proposal and minor benefits and entertainment proposal are

still in progress. The expected completion date for the safe harbours has been extended

to June 2017 to allow further time to develop and implement the concepts identified by the

working group.

Advice under development - superannuation issues - Updated topics include: deductions

for superannuation funds (proposed Addendum to Ruling TR 93/17 yet to be completed); and

the 6 Draft Law Compliance Guidelines in response to the major superannuation reforms

from 1 July 2017.

Advice under development - petroleum resource rent tax issues - Updated PRRT topics

include: deductibility of social infrastructure expenditure; closing down expenditure; and

reversion of licence.

2016 completed issues - Unpaid present entitlement (bad debts) in Determination TD

2016/19; and deductibility of expenditure on commercial website in Ruling TR 2016/3.

Consolidation rulings under Project Refresh - The ATO says it is considering

consolidating a number of rulings under its Project Refresh.

Ruling rewrites under Project Refresh - Lists the Rulings being considered for rewriting

under Project Refresh.

Ruling updates under Project Refresh - Lists the Rulings being considered for updating

under Project Refresh.

Public ruling withdrawals under Project Refresh - The ATO says a number of public

rulings might be withdrawn under its Project Refresh.

9/02/2017

https://www.ato.gov.au/General/ATO-advice-and-guidance/Advice-under-development-program/Advice-under-development---capital-gains-tax-issues/

https://www.ato.gov.au/General/ATO-advice-and-guidance/Advice-under-development-program/Advice-under-development---GST-issues/

https://www.ato.gov.au/General/ATO-advice-and-guidance/Advice-under-development-program/Advice-under-development---FBT-issues/

https://www.ato.gov.au/General/ATO-advice-and-guidance/Advice-under-development-program/Advice-under-development---superannuation-issues/

https://www.ato.gov.au/General/ATO-advice-and-guidance/Advice-under-development-program/Advice-under-development---petroleum-resource-rent-tax-issues/

https://www.ato.gov.au/General/ATO-advice-and-guidance/Advice-under-development-program/2016-completed-issues/

https://www.ato.gov.au/General/ATO-advice-and-guidance/Advice-under-development-program/Project-Refresh/Consolidations---Project-Refresh/

https://www.ato.gov.au/General/ATO-advice-and-guidance/Advice-under-development-program/Project-Refresh/Rewrites---Project-Refresh/

https://www.ato.gov.au/General/ATO-advice-and-guidance/Advice-under-development-program/Project-Refresh/Updates---Project-Refresh/

https://www.ato.gov.au/General/ATO-advice-and-guidance/Advice-under-development-program/Project-Refresh/Withdrawals---Project-Refresh/




DCT v Binetter [2017] FCA 69

• Case involved Nudie Juice entities

• Federal Court refused application for taxpayer (Nudie co-founder and CEO)

to give evidence from USA via video link

• Concluded there was no impediment to taxpayer travelling to Australia to give

evidence, even though liquidators could exercise their legal rights to stop him

returning to USA.

Application for evidence in tax case by video link refused

Tax Administration

Application to give evidence in Nudie Juice tax case by video link

refused

DCT v Binetter

The Federal Court has held there was no evidence of any impediment to a taxpayer (Mr

Andrew John Binetter) travelling to Australia and then returning to the United States after giving

evidence in a complex tax proceeding.

Mr Binetter lives in New York with his family. The substantive issue in the case concerns tax issues

arising from the sale of the Nudie Juice business. The companies in the substantive proceeding (the

"Nudie entities") seek their costs in the proceedings and compensation for what is said to be loss

and damage suffered by them by reason of freezing orders obtained by the FCT on

29 January 2015. The proceedings had been commenced by the FCT to recover monies said to be

owed under certain income tax assessments for part of the year of income ended 30 January 2015

but objections to the assessments were subsequently allowed by the FCT in March 2016. On

29 January 2015, however, the FCT had obtained freezing orders in respect of $45.2 million of funds

of the Nudie entities. Those freezing orders continued until 29 March 2016 when they were

discharged by order of the Court. The proposed evidence to be given by Mr Binetter in support of the

claims by the Nudie entities in support of the substantive application concerned matters such as: (i)

the background to the proceedings; (ii) the sale of the Nudie Juice business for $82 million plus GST

on 30 January 2015 and the disbursements of the sale proceeds; (iii) the working capital adjustment

made to the sale price of the Nudie Juice business some time after completion; (iv) the freezing

orders granted. The FCT opposed the application for Mr Binetter's evidence to be given by video link

because he wished to cross-examine him on a number of matters.



The Court observed that the evidence of Mr Binetter would be "of central importance to the

determination of the claims by the Nudie entities although much will be relatively uncontroversial".

Mr Binetter claimed that a number of factors would prevent him from travelling to Australia to give

evidence eg (i) the medical situation of his wife and son, (ii) his significant responsibility for

managing a US business of which he is CEO, (iii) the fact that when he was last in Australia, the

liquidators of a number of corporations obtained orders against him requiring him to surrender his

passport, and as a result he was unable to leave the country for a number of months until his

passport was returned, (iv) those liquidators are continuing legal proceedings in Australia, and Mr

Binetter was concerned that if he returned to Australia to give evidence, he may be the subject of

similar steps being taken by the liquidators to prevent him from leaving Australia. The Court however

said that such factors did not justify an order that Mr Binetter give evidence by video link from New

York.

DCT v Binetter [2017] FCA 69, Federal Court, Pagone J, 8 February 2017

9/02/2017





Says ATO systems will be ready for Tax Time 2017

• FCT denies reports Tax Time 2017 under threat due to recent system

outages

• ATO “absolutely confident” taxpayers can lodge returns and receive refunds

on time from 1 July 2017.

FCT refutes media reports

Tax Administration

FCT refutes media reports re ATO systems and Tax Time 2017

The FCT issued a statement saying that claims made in the media on 8 February 2017 that Tax

Time 2017 is under threat due to the ATO's recent system outages "are completely without

foundation". Mr Jordan said the ATO is "absolutely confident" that taxpayers will be able to lodge

their returns and receive refunds on time from 1 July.

The FCT said: "Initial indications are there has been a failure by Hewlett Packard Enterprise (HPE)

to provide contracted services in a reliable way and ensure stability of our systems. The cause of the

failures will be informed by the review led by PwC that I commissioned after the first outage

in December 2016. As I said at that time, I want to know what happened in forensic detail so that we

can assure the community they will not face this kind of disruption in their dealings with us, that

businesses who rely on our services can go about running their business without interruption."

https://www.ato.gov.au/Media-centre/Commissioners-online-updates/Commissioner-s-statement---ATO-systems/



The FCT assured the community that the ATO is taking this seriously and it has the highest priority.

He went on:

"I have already met a number of times with the most senior HPE representatives in the region and

corresponded with their CEO to ensure they are aware of the disruption and damage this kind of

event causes and remind them of their contractual arrangements.

Our immediate priority is to provide stable services to the community, business, our key

stakeholders and government.

Our ATO technicians are working with HPE's global team of experts to fully replace the affected

hardware. …

We are committed to offering contemporary and reliable services to the community. The

development and release of many new service offerings under our Reinvention program have not

contributed to these system outages. Initial indications are that the outages have been caused by

faulty hardware.

I commit to you we will get to the bottom of this, fix it for the longer term and maintain contemporary

and reliable services to the community."

9/02/2017




ATO help

• 21 December 2016 and 15 January 2017 due dates deferred

• Tax agents can apply for additional deferrals

• Clients not penalised, 85% on-time lodgment requirement not affected if

agents lodge within deferred periods

• ATO “will not apply sanctions this year” if less than 85% lodged on time “as a

consequence of the outages”.

Tax agent lodgment problems following ATO systems outages

Tax Administration

ATO help for agents having lodgment problems after ATO systems

outages

The ATO has advised tax agents that if they need help meeting their lodgment program after the

unplanned systems outages in December 2016 and February 2017, additional services and support

are available.

The ATO said it understands that the outages created lodgment backlogs for some practitioners, so

it deferred the 21 December 2016 and 15 January 2017 due dates to help. If practitioners lodged

within these deferred periods, the ATO said their clients will not be penalised and agents' 85% on -

time lodgment requirement will not be affected.

If agents require additional deferrals, they can:

Submit an ATO assessed deferral application;

Phone 13 72 86 Fast Key Code 5.

The ATO said it will review deferral requests in light of the impacts of the outages.

The ATO said it understands that as a consequence of the outages, some agents may not be able to

meet the 85% on-time lodgment requirement. Where this is the case, the ATO said it "will not apply

sanctions this year".

9/02/2017

https://www.ato.gov.au/tax-professionals/newsroom/your-practice/support-services-are-available/?tpissue-04-2017




Appeals update

• FCT discontinues Full Federal Court appeal

• Case arose from private ruling that profit from land sale was ordinary income

• AAT found taxpayer ran property development business

• Court held AAT engaged in fact-finding exercise – can’t do this in ruling

review – based on facts in ruling, profit not ordinary income

• Federal Court decision now stands matter remitted to AAT.

Income

Rosgoe Pty Ltd v FCT [2015] FCA 1231

Appeals update

FCT v Bai (NSD 1276 of 2015)

The taxpayer has sought special leave to appeal to the High Court against the Full Federal Court

decision in FCT v Bai [2015] FCA 973 - which was one of four related cases heard by the Full

Federal Court in Binetter & Ors v FCT [2016] FCAFC 163. In the Bai matter, the Full Court

unanimously confirmed that the onus was on the taxpayer to show the absence of fraud or evasion

where an amended assessment had been issued out of time on that basis. It also unanimously held

that the AAT had not wrongly applied the criminal standard of proof when originally deciding the

matter against the taxpayer. Finally, the majority held that the taxpayer had not be en denied

“procedural fairness” in not having access to certain seized documents in attempting to discharge

the onus of proof that the amended assessment was excessive.

Rosgoe Pty Ltd v FCT [2015] FCA 1231

The FCT has withdrawn his notice of appeal to the Full Federal Court against the decision in Rosgoe

Pty Ltd v FCT [2015] FCA 1231. In that decision, which now stands, the Federal Court allowed the

taxpayer’s appeal, holding that the profit from the sale of land was not ordinary income. The Federal

Court held that, on the facts as set out in a private binding ruling, the profit from the sale of the land

was not ordinary income because the sale was not part of the taxpayer ’s profit-making scheme,

which later came to be abandoned. As the land was a capital asset, the Court remitted the matter to

the AAT to determine the second part of the ruling request concerning the application of the GST

provisions.

19/01/2016








Appeals update

• One of the taxpayers (Tao Bai, NSD 1276 of 2015) seeks special leave to

appeal to High Court

• Full Federal Court held that taxpayer:

– Had burden of proving absence of fraud or evasion for amended assessment

issued out of time on that basis

– Was not denied procedural fairness in not having access to certain seized

documents.

Tax Administration

Binetter & Ors v FCT [2016] FCAFC 163

Appeals update: Bai (onus of proof)

Binetter v FCT [2016] FCAF 163

The taxpayer has sought special leave to appeal to the High Court against the Full Federal

Court decision in FCT v Bai (NSD 1276 of 2015) - which was one of 4 related cases heard by the

Full Federal Court in Binetter & Ors v FCT [2016] FCAFC 163. In the Bai matter, the Full Court

unanimously confirmed that the onus was on the taxpayer to show the absence of fraud or evasion

where an amended assessment had been issued out of time on that basis. It also unanimously held

that the AAT had not wrongly applied the criminal standard of proof when originally deciding the

matter against the taxpayer. Finally, the majority held that the taxpayer had not been denied

"procedural fairness" in not having access to certain seized documents in attempting to discharge

the onus of proof that the amended assessment was excessive.

26/01/2016






INTERNATIONAL TAX


Exchange of info with foreign revenue authorities on indirect

taxes

• Practice Statement guides ATO staff on exchanging information about indirect

taxes under international tax agreements

• ATO shares publicly available information without restriction

• Taxpayer-specific info can only be exchanged if authorised by legal

instrument.

International Tax

Practice Statement PS LA 2016/6

Exchange of information by the ATO with foreign revenue authorities

about indirect taxes

The ATO released Practice Statement PS LA 2016/6 (Exchange of information with foreign

revenue authorities about indirect taxes) on 9 December 2016. It provides guidance for ATO officers

on the exchange of information with foreign revenue authorities about indirect taxes under

international tax agreements.

The Practice Statement says the way requests for information from foreign revenue authorities are

handled depends on whether the information requested is publicly available or specific to an

individual or entity:

Publicly available information, such as that in Taxation Statistics, on www.ato.gov.au, Report

of Entity Tax Information or from business' public websites, can be shared without restriction.

Taxpayer specific information - Information specific to a taxpayer, either an individual or an

entity such as a company, can only be exchanged if it is authorised by a legal instrument as

set out in section 2 of the Practice Statement eg under the Mutual Convention on the Mutual

Administrative Assistance in Tax Matters, bilateral tax treaties, Tax Information Exchange

Agreements.

https://www.ato.gov.au/law/view/view.htm?docid=%22PSR%2FPS20166%2FNAT%2FATO%2F00001%22



As a consequence, the following Practice Statements were withdrawn on 9 December 2016 as they

have been replaced by PS LA 2016/6:

PS LA 2007/13 - Exchange of Information with foreign revenue authorities in relation to GST,

under international tax agreements.

PS LA 2007/14 - Gathering and use of information from foreign agencies or sources in

relation to GST, wine tax and luxury car tax administration.

12/01/2017






ATO releases Country-by-Country info

• Q&As represent ATO’s transitional admin practice

• Q&As cover:

‒ General issues and eligibility

‒ CbC report

‒ Master file

‒ Local file.

International Tax

Q&As on CbC reporting and transfer pricing documentation

ATO releases Country-by-Country reporting Q&As

The ATO has released a list of Q&As on its website regarding Country-by-Country (CbC) reporting

and transfer pricing documentation. The ATO says this guidance represents its transitional

administrative practice until the planned 2020 review of CbC Reporting.

The development of the Q&As is in response to practical questions taxpayers have as they work

through their CbC reporting obligations. The ATO expects to update and enhance the Q&As on an

ongoing basis.

The Q&As cover:

General issues and eligibility – The ATO says that where a global parent entity (GPE) files

a CbC report in a foreign jurisdiction using a different reporting period to the local entity, that

local entity can rely on that CbC report to satisfy its obligation in Australia. A local entity

intending to rely on the filing of the CbC report by the GPE as satisfying the local entity's

filing obligation would need to know that this has occurred by the time it is obliged to file

locally. In addition, the ATO says a local entity will have CbC reporting obligations where an

extraordinary transaction results in its annual global income (or that of its GPE) exceeding

the $1 billion annual global income threshold for one year only.

https://www.ato.gov.au/Business/International-tax-for-business/In-detail/Transfer-pricing/Country-by-country-reporting-and-transfer-pricing-documentation/Country-by-Country-reporting--Questions-and-Answers/



The CbC report. The ATO says the amounts reported in the CbC report are not required to

reconcile or be reconciled to the amounts in the global financial statements for the group. To

the extent the CbC report contains information on entities other than the Australian entity or

members of its Australian tax consolidated group or MEC group, the ATO says it will not

generally disclose the CbC report to the local entity. If, on the date on which a CbC report is

due to be filed, all of the following conditions are met or are expected to be met, the ATO

says a local entity with a foreign GPE will not be required to file the CbC report. The

conditions are:

o The foreign GPE is obligated to file a CbC report in its jurisdiction of tax residence;

o The jurisdiction in which the foreign GPE is resident for tax purposes has a CbC

automatic exchange arrangement with Australia including a Competent Authority

Agreement that covers the automatic exchange of CbC reports; and

o Neither jurisdiction that is a party to the Agreement has notified the other of

suspension of automatic exchange.

The Master file. Some foreign parent entities, such as those located in the United States,

are not currently required to prepare or file a master file. While the ATO will not generally

grant an Australian resident entity with such a parent an exemption from filing the master file,

it does recognise that Australian resident entities with foreign GPEs may have transitional

issues in meeting their CbC reporting obligations. As a concession for the first reporting

period, the ATO says it will not seek the master file for the entity's first reporting period from it

or other Australian resident entities in respect of which the master file is to be lodged, if

certain conditions are met.

The Local file. The ATO says that transactions between an offshore branch of an Australian

legal entity and a subsidiary incorporated in that jurisdiction are required to be included in the

local file. However, the local file excludes transactions within a legal entity. For example,

amounts attributed by an Australian resident entity to its offshore branch would not meet the

"cross border test".

12/01/2017




Australia's adoption of BEPS Multilateral Instrument

• Consultation paper on potential impacts of Australia becoming Party to OECD

Multilateral Convention to Implement Tax Treaty Related Measures to Prevent

Base Erosion and Profit Shifting released.

International Tax


Australia's adoption of BEPS Multilateral Instrument – consultation paper

released

The government has released a consultation paper on the potential impacts of Australia becoming a

Party to the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent

Base Erosion and Profit Shifting (the Multilateral Instrument or MLI). The paper poses a number of

consultation focus questions.

The Multilateral Instrument, which was released by the OECD on 24 November 2016, is a

multilateral treaty that will enable jurisdictions to swiftly modify their bilateral tax treaties to implement

measures designed to better address multinational tax avoidance. These measures were developed

as part of the OECD/G20 BEPS project.

The paper notes that although the Australian government is yet to make a final decision on adopting

the MLI, signing and adopting it to the widest possible extent possible "would be consistent with

Australia's strong track record on tackling multinational tax avoidance".

Adopting jurisdictions will be required to identify which of their bilateral tax treaties they want the MLI

to apply to and modify. By omission, jurisdictions can exclude particular treaties from the scope of

the MLI. While some of the MLI articles are mandatory, most are optional. Jurisdictions can, for

example, choose to adopt the minimum standards only, or they can choose to also adopt some, or

all, of the optional articles.

http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2016/Australias-adoption-of-the-OECD-Multilateral-Instrument



The initial approaches outlined in the paper have been formulated using the following principles:

Apply the MLI to all bilateral tax treaties that do not already incorporate BEPS rules

(which would exclude the 2015 German treaty - which incorporates most of the BEPS treaty-

related measures).

Adopt the minimum standards and as many optional MLI articles as possible. Broad

adoption of the MLI articles would enable the full range of tax integrity measures

recommended under the BEPS Action Plan to be applied across Australia's tax treaty

network (subject to the agreement of the relevant treaty partner).

Make limited use of the MLI reservation system. Australia might consider entering a

reservation if Australia's existing treaty practice already meets or exceeds the new standard,

or it is necessary to avoid any significant unintended impacts. For instance, it would be

appropriate to enter a reservation if adopting the MLI article could create technical difficulties

or if adopting the MLI article would inadvertently override existing integrity provisions that

Australia should retain.

Unlike an amending DTA Protocol which directly amends the text of the existing bilateral treaty, the

MLI sits side by side with, and modifies the existing bilateral treaty provisions to create new

(modified) provisions.

At the time of signing and ratifying, jurisdictions will lodge their choices with the Depository (the

OECD). By comparing the relevant Party's sets of choices, stakeholders will be able to identify the

affected treaties and provisions and the specific MLI articles that each jurisdiction has chosen to

adopt. Where these match, the MLI will modify the relevant bilateral clauses. The paper notes that

this will potentially increase the complexity of interpreting modified treaties. If adopted, the ATO

expects to develop guidance.

Australia's approach to various MLI Articles

Australia's approach to some of the MLI articles is noted below.

MLI Article 3 (Transparent entities) corresponds to and implements BEPS Action 2 on hybrid

mismatches and BEPS Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate

Circumstances). The paper says Article 3 is consistent with Australia's preferred treaty practice of

including provisions in its bilateral treaties to ensure that treaty benefits are available for income

derived by or through fiscally transparent entities (FTEs) (see, for example, Article 1(2) of the 2015

Australia-Germany treaty). On this basis, Australia's initial approach would be to adopt Article 3 of

the MLI across all of its covered tax agreements and possibly enter the reservation permi tted by

Article 3(5)(d) ie Adopt Article 3 but not for treaties that already have a detailed FTE provision.



MLI Article 4 (Dual resident entities) implements recommendations outlined in the BEPS Action 6.

Australia's treaty practice has varied (with most of Australia's bilateral treaties prescribing the POEM

as the determinative test) but has not previously permitted the Competent Authorities (CAs) to

decide on the extent of treaty benefits to be granted if the CAs are unable to agree on a single

jurisdiction of residence. The paper says that, as adopting the expanded criteria will generally

improve the integrity of the current tie-breaker rules, Australia's initial approach would be to adopt

Article 4 across all of its covered tax agreements (CTAs) and enter the reservation permitted by

Article 4(3)(e) ie adopt Article 4 but exclude the rule that allows the CAs to allow treaty benefits in

the absence of reaching an agreement on the country of residence of the entity. In such cases,

treaty benefits would be denied.

MLI Article 5 (Application of methods for elimination of double taxation) implements

recommendations outlined in the BEPS Action 2 (Neutralising the Effects of Hybrid Mismatch

Arrangements). All of Australia's treaties apply the "credit method" for relieving double taxation for

Australian residents. On this basis, the paper says Australia's initial approach would be to not adopt

Article 5 and also not to prevent other Parties from applying their chosen options.

MLI Article 6 (Purpose of a Covered Tax agreement) implements BEPS Action 6. Article 6 is

consistent with Australia's view that the object and purpose of tax treaties is to eliminate double

taxation without facilitating double non-taxation or tax avoidance or evasion. The 2015 Australia-

Germany treaty includes both the new and additional preamble text. On this basis, Australia's

preliminary approach would be to adopt Article 6 across all of its covered tax agreements, including

the additional preamble text.

MLI Article 7 (Prevention of treaty abuse) implements BEPS Action 6. Article 7 would modify

jurisdictions' bilateral treaties to include a general anti-avoidance rule (the Principal Purpose Test

(PPT)) and a supplementary (and optional) rule - the Simplified Limitation on Benefits rule (S-LOB

rule). The PPT is consistent with Australia's preferred treaty practice of including provisions in its

bilateral treaties that deny treaty benefits where a main purpose of a transaction or arrangement is

to obtain a treaty benefit (see, for example, Article 10(9) of the 2009 Australia-New Zealand treaty).

Article 23 of the 2015 Australia-Germany treaty includes the PPT rule but not the optional PPT

consultation rule. On this basis, Australia's initial approach would be to adopt the PPT, but not the

optional PPT consultation rule, in Article 7 across all of its covered tax agreements. In addition,

Australia would not wish to adopt the S-LOB in relation to treaties that already contain a detailed

LOB rule (for example, the 2008 Australia-Japan treaty). However, Australia would not need to enter

the reservation permitted by Article 7(15)(c) unless Australia chooses to apply Article 7(7)(a) or (b).

MLI Article 8 (Dividend transfer transactions) implements BEPS Action 6. A number of Australia's

tax treaties already include holding periods to access the concessional rates (see the 2015

Australia-Germany treaty which includes a 12-month holding period for the nil rate for non-portfolio

intercorporate dividends and a 6-month holding period for the 5% rate for non-portfolio

intercorporate dividends). The existing 12-month holding period provisions require that the period be

satisfied at the time the dividend is declared whereas the MLI provides that the 365 day period

includes the day of the payment of the dividends (and therefore the holding period does not have to

be in advance of the dividend payment date). Australia's initial approach would be to adopt Article 8

without reservation across all of its covered tax agreements. This would standardise the holding

period rules for non-portfolio intercorporate dividends in Australia's treaties.



Likely date of effect for Australia

In Australia's case, the MLI would need to be legislated and then formally ratified. As a result, if

adopted, it is expected that the MLI could potentially take effect in Australia from 1 January 2019 (for

rules relating to withholding taxes) and 1 July 2019 (for rules relating to other taxes), subject to its

ratification by Australia's treaty partners. It is expected that some jurisdictions will take longer to

complete their domestic processes than others and that as a result the date of effect for different

treaties is likely to be staggered.

Comments


12/01/2017




OECD releases further BEPS guidance

• OECD releases:

‒ Key details of jurisdictions' domestic legal frameworks for CbC reporting

‒ Additional interpretative guidance on CbC reporting standard

• If notice to tax administrator required to identify reporting entity within MNE

Group, notification due date can be extended (particularly relevant in

transition period).

International Tax

Country-by-Country reporting

OECD releases further BEPS guidance on Country-by-Country reporting

The OECD has released two new documents and guidance to support the global implementation of

Country-by-Country (CbC) reporting (BEPS Action 13):

Key details of jurisdictions' domestic legal frameworks for CbC reporting; and

Additional interpretive guidance on the CbC reporting standard.

The OECD also released a database containing information on CbC reporting implementation by

various countries to date.

These documents provide essential information that will give certainty to tax administrations and

MNE Groups alike on implementation of CbC reporting.

Parent surrogate filings

The 5 December guidance adds China, Hong Kong, and Nigeria to the countries that intend to have

parent surrogate filing available for fiscal periods that begin on or from 1 January 2016. The previous

12 October guidance listed the following countries that will allow parent surrogate filings for

2016: Japan; Liechtenstein; Russia; Switzerland; US.

http://www.oecd.org/tax/oecd-releases-further-beps-guidance-on-country-by-country-reporting-and-country-specific-information-on-implementation.htm?utm_source=Adestra&utm_medium=email&utm_content=Read%20the%20full%20press%20release&utm_campaign=Tax%20News%20Alert%2005-12-2016&utm_term=demo



The final BEPS Action 13 report recommended that countries implement a legal requirement for CbC

reporting with respect to MNEs' fiscal periods commencing on or after 1 January 2016. Where

jurisdictions will not be able to implement CbC reporting with respect to the fiscal period

commencing from 1 January 2016, this gives rise to a transition issue. In these situations,

jurisdictions may be able to accommodate voluntary filing for Ultimate Parent Entities resident in

their jurisdiction. This would allow the Ultimate Parent Entities of an MNE Group resident in those

jurisdictions to voluntarily file their CbC report for the fiscal period commencing on or from

1 January 2016 in their jurisdiction of tax residence. This is referred to as "parent surrogate filing."

Where surrogate filing (including parent surrogate filing) is available, there are no local filing

obligations for the particular MNE in any jurisdiction which otherwise would require local filing in

which the MNE has a Constituent Entity (referred to as the Local Jurisdiction), under the following

conditions:

The Ultimate Parent Entity has made available a CbC report conforming to the requirements

of the final Action 13 report to the tax authority of its jurisdiction of tax residence by the filing

deadline (ie 12 months after the last day of the Reporting Fiscal Year of the MNE Group).

By the first filing deadline of the CbC report, the jurisdiction of tax residence of the Ultimate

Parent Entity must have its laws in place to require CbC reporting (even if filing of a CbC

report for the Reporting Fiscal Year in question is not required under those laws).

CbC Reporting Notifications

The 5 December guidance also includes a new section on CbC reporting notification requirements,

which addresses whether countries can still meet the BEPS Action 13 minimum standard on CbC

reporting by extending the notification deadline for fiscal year 2016. The guidance says that

countries can extend the notification deadline because MNE groups may not know which entity

should be the appropriate CbC reporting entity by 31 December 2016.

The model CbC reporting legislation included in the final BEPS Action 13 report does not provide a

specific CbC reporting notification deadline for fiscal year 2016, and countries may extend the 2016

deadline to another date, such as the deadline for filing corporate tax returns.

CbC Reporting Database

The CbC reporting database released on 5 December 2016 lists implementation information for

various countries:

Whether the country has primary CbC reporting law in effect.

Whether the country has secondary CbC reporting law in effect.

First fiscal year for CbC reporting rules in effect.

Whether local CbC reporting filings are required, and if so, the first fiscal year for which they

are required.

Whether the country allows surrogate CbC reporting filings.



Whether the country allows parent surrogate filings (countries listed above, as of 5

December).

The 12 October 2016 guidance says that the OECD intends to also include information in the CbC

reporting database on agreements for each country that allow for exchang e of CbC report

information. One option is exchange of CbC information via the OECD Multilateral Competent

Authority Agreement for the automatic exchange of CbC reports ("CbC MCAA"). Under the CbC

MCAA, signatories may exchange CbC reports with other signatories if they have CbC reporting

requirements in place and are a party to the OECD Convention on Mutual Administrative Assistance

in Tax Matters.

Among other things, the CbC MCAA provides that CbC report information will be used to assess

high-level transfer pricing and other BEPS-related risks, but not as a substitute for a detailed transfer

pricing analysis of individual transactions and prices based on a full functional analysis and full

comparability analysis. The information may be used as a basis for further inquiring into the

multinational's transfer pricing arrangements in the course of a tax audit. If an adjustment resulting

from further inquiries based on the CbC report leads to undesirable economic outcomes, the tax

authorities of the jurisdictions of residence of the affected entities must consult each other in

attempting to resolve the case.

Other

The details on jurisdictions' legal frameworks for CbC reporting include the status of the legislation,

first reporting periods, availability of surrogate filing and voluntary filing, and whether local filing can

be required. The OECD said this will be updated as Inclusive Framework members continue to

finalise their legal frameworks. Information will also be published in the coming months as to the

Qualifying Competent Authority Agreements (QCAA) being put in place to facilitate the international

exchange of CbC reports between tax administrations.

The additional guidance relates to the case where a notification to the tax administration may be

required to identify the reporting entity within a MNE Group (as provided in Article 3 of the Model

Legislation in the BEPS Action 13 Report). The guidance confirms that if such notifications are

required, jurisdictions have flexibility as to the due date for such notifications. This may be

particularly relevant during the transition period where jurisdictions are still completing their

implementation of CbC reporting, as MNE Groups may not yet have the necessary information to

submit their notifications. The guidance also confirms that jurisdictions may wish to consider other

transitional relief for MNE Groups with respect to these notifications, which would also be consistent

with the minimum standard.

12/01/2017




Interaction between tax treaty provisions of BEPS Action 6

report and treaty entitlement of non-CIV funds

• Discussion draft released by OECD

• Three draft examples on follow-up work on interaction between:

‒ Treaty provisions of BEPS Action 6 report

‒ Treaty entitlement of non-CIV funds.

International Tax

Interaction between tax treaty provisions of BEPS Action 6 report and

treaty entitlement of non-CIV funds

The OECD has released for comment a discussion draft containing draft examples on the follow-up

work on the interaction between the treaty provisions of the report on BEPS Action 6 and the treaty

entitlement of non-CIV funds.

Paragraph 14 of the final version of the BEPS report on Action 6 (Preventing the Granting of Treaty

Benefits in Inappropriate Circumstances) indicated that the OECD would continue to examine issues

related to the treaty entitlement of non-CIV funds to ensure that the new treaty provisions included in

the Report on Action 6 address adequately the treaty entitlement of these funds.

As part of the follow-up work on this issue, on 24 March 2016, the OECD published a consultation

document on the treaty entitlement of non-CIV funds which included a number of specific questions

related to concerns, identified in the comments received on previous discussion drafts related to the

Report on Action 6, as to how the new provisions included in that Report could affect the treaty

entitlement of non-CIV funds as well as possible ways of addressing these concerns. The comments

received in response to that consultation document were published on the OECD websi te on 22

April 2016.

The discussion draft now released has been prepared to provide stakeholders with information on

the subsequent developments in the work on the interaction between the treaty provisions of the

report on BEPS Action 6 and the treaty entitlement of non-CIV funds, including the conclusions

reached at the May 2016 meeting of Working Party 1 and the subsequent work on the development

of examples related to the application of the principal purposes test (PPT) rule included in the Report

on Action 6 with respect to some common transactions involving non-CIV funds. The discussion

draft invites comments on three draft examples under consideration by the Working Party for

inclusion in the Commentary on the PPT rule.



The three draft examples in the discussion draft cover:

Regional investment platform – RCo operates as a regional investment platform. A decision

to establish the regional investment platform in State R was mainly driven by factors such as

the availability of directors with knowledge of regional business practices and regulations, the

existence of a skilled multilingual workforce, State R’s membership of a regional grouping.

Under the DTA between State R and State S, the withholding tax rate on dividends is

reduced from 30% to 5%. The draft example concludes that it would not be reasonable to

deny the benefit of the State R-State S tax convention to RCo.

Securitisation company – RCo, a securitisation company resident of State R, was

established by a bank which sold to RCo a portfolio of loans and other receivables owed by

debtors located in a number of jurisdictions. In establishing RCo, the bank took into account

a large number of issues, including State R's robust securitisation framework, its

securitisation and other relevant legislation, the availability of skilled and experienced

personnel and support services in State R and the existence of tax benefits provided under

State R's extensive tax convention network. The draft example concludes that it would not be

reasonable to deny the benefit of the State R-State S tax convention to RCo.

Immovable property non-CIV fund – the draft says that, in this example, whilst the decision

to locate RCo in State R is taken in light of the existence of benefits under the tax

conventions between State R and the States within the specific geographic area targeted for

investment, it is clear that RCo's immovable property investments are made for commercial

purposes consistent with the investment mandate of the fund. It concludes that it would not

be reasonable to deny the benefit of the tax treaties between RCo and the States in which

RCo's immovable property investments are located.

Comments


12/01/2017




More than 1,300 bilateral relationships now in place across the

globe re CRS

• Over 1,300 bilateral relationships now in place, most based on CRS MCAA

• List of automatic exchange relationships on OECD's Automatic Exchange

Portal.

International Tax

More than 1,300 bilateral relationships now in place across the globe re

CRS

The OECD has advised that on 22 December 2016, another important step to implement the OECD

Common Reporting Standard (CRS) was taken, with a further 350 bilateral automatic exchange

relationships being established between over 50 jurisdictions committed to exchanging information

automatically pursuant to the CRS, starting in 2017.

The OECD says there are now more than 1,300 bilateral rela tionships in place across the globe,

most of them based on the Multilateral Competent Authority Agreement on Automatic Exchange of

Financial Account Information (the CRS MCAA). The full list of automatic exchange relationships

that are currently in place under the CRS MCAA and other legal instruments can be accessed on the

OECD's Automatic Exchange Portal. That list includes Australia which bilateral exchange

relationships in place with 41 countries. With respect to the jurisdictions exchanging as of 2017,

1,133 out of the 1,459 possible bilateral exchange relationships are now established. The 326 non

activated exchange relationships are mainly due to the fact that six jurisdictions were not yet in a

position to provide a full set of notifications.

Two more rounds of activations are scheduled to take place in March and June 2017 which will allow

the remaining 2017 and 2018 jurisdictions to nominate the partners with which they will undertake

automatic exchanges in the coming months. The OECD says the next update on the latest bilateral

exchange relationships will be published before the end of March 2017, with updates to follow on a

periodic basis. In total, 101 jurisdictions have agreed to start automatically exchanging financial

account information in September 2017 and 2018, under the CRS.

12/01/2017

http://www.oecd.org/tax/over-1300-relationships-now-in-place-to-automatically-exchange-information-between-tax-authorities.htm

http://www.oecd.org/tax/automatic-exchange/international-framework-for-the-crs/exchange-relationships/




Revised Australia-Germany DTA

• Replaces 1972 DTA

• Several BEPS recommended treaty provisions form part of new minimum

standards on treaty shopping and effective mutual agreement procedures

• Takes effect in Australia from: 1 January 2017 – withholding taxes; 1 April

2017 – FBT; 1 July 2017 – income tax.

International Tax

Entry into force on 7 December 2016

Revised Australia-Germany DTA enters into force

The Minister for Revenue has announced that Australia-Germany double tax agreement (DTA)

entered into force. It replaces the 1972 DTA between the 2 countries. The DTA was given the force

of law in Australia by the International Tax Agreements Amendment Bill 2016 which passed all

stages without amendment and received Royal Assent on 20 October 2016 as Act No 64 of 2016.

Dividends, interest and royalties may generally be taxed in both countries, but there are limits on the

tax that the country in which they are sourced may charge on such income flowing to residents of

the other country who are the beneficial owners of the income. Those tax limitations range fro m 0%

to 15% for dividends, 10% for interest, and 5% for royalties.

Several of the BEPS recommended treaty provisions form part of the new minimum standards in the

DTA on treaty shopping (intended to put an end to the use of conduit companies to channel

investments) and effective mutual agreement procedures (intended to ensure that the fight against

double non-taxation does not result in double taxation) to which OECD and G20 countries have

committed.

The DTA includes the treaty provisions which form part of the minimum standards for protecting

against treaty shopping (included in the BEPS Action 6 2015 Final Report) and ensuring effective

mutual agreement procedures (included in the Action 14 2015 Final Report), as well as many of the

other treaty provisions recommended in the 2015 BEPS Final Reports on Actions 2 (Neutralising the

Effects of Hybrid Mismatch Arrangements), 6 (Preventing the Granting of Treaty Benefits in

Inappropriate Circumstances), 7 (Preventing the Artificial Avoidance of Permanent Establishment

Status) and 14 (Making Dispute Resolution Mechanisms More Effective).

http://kmo.ministers.treasury.gov.au/media-release/112-2016/

http://treasury.gov.au/Policy-Topics/Taxation/Tax-Treaties/HTML/Income-Tax-Treaties



Date of effect

The DTA takes effect in Australia as follows:

In respect of withholding tax on income that is derived by a non-resident, in relation to

income derived on or after 1 January 2017;

In respect of FBT, in relation to fringe benefits provided on or after 1 April 2017;

In respect of other Australian tax, in relation to income, profits or gains of any year of income

beginning on or after 1 July 2017.

12/01/2017




Loans v "shams" - Payments from overseas company

• FCT wins appeal from decision that $3.8m in payments from foreign company

to Australian subsidiary and other related companies were genuine loans

• Lenders owned by company controlled by Vanda Gould

• Majority held that primary judge’s conclusion – that agreements were shams

for limited purpose of convincing third parties that borrowers were at arm’s

length from lenders – not open on facts.

International Tax

FCT v Normandy Finance and Investments Asia Pty Ltd [2016] FCAFC 180

FCT wins appeal: taxpayer failed onus of proving payments "loans"

FCT v Normandy Finance and Investments Asia Pty Ltd & Ors [2016] FCAFC 180

In a majority decision, the Full Federal Court has allowed the FCT's appeal and found that it was not

open to the judge at first instance to find that payments of around $4m made from a foreign

company to its Australian subsidiary and other related companies were genuine loans (and not

"shams"). In particular, the majority found it was not appropriate to find that the taxpayers had

discharged the onus of proving that assessments were excessive in circumstances where the

taxpayers had made inconsistent (or "alternative") arguments about the nature of the payments: FCT

v Normandy Finance and Investments Asia Pty Ltd & Ors [2016] FCAFC 180 (Full Federal Court,

Logan, Jagot and Davies JJ, 16 December 2016).

Background

The case involved assessments and amended assessments made to several taxpayer companies

covering the 1994 to 2009 income years n which the Commissioner claimed that payments from

several overseas companies (ie Normandy Finance and Investments Asia Ltd, Normandy Finance

and Investments Limited and Hua Wang Bank Berhad) to the taxpayers were not loans, but "sham"

transactions. Mr Henry George Townsing was the directing mind and will of each of these taxpayer

companies, and the "lender" companies were owned by a company controlled by Mr Vanda Gould.

The Commissioner assessed the taxpayers on the basis that the payments were shams and that the

amounts were ordinary income of the taxpayers and assessable under s 6-5 of the ITAA 1997, while

Normandy Finance claimed that some $3.8m it received from Normandy Asia was by way of loans or

financing.





At first instance, in Normandy Finance Pty Ltd v FCT [2015] FCA, the Federal Court held that the

payments were genuine loans, and not "shams". It did so on the basis of finding that while the

written agreements were shams or largely shams, this sham was only implemented for the limited

purpose of making third parties believe that the borrowers were at arm's length from the lenders.

However, otherwise, the Court at first instance found that the advance and repayment obligat ions

(whether in the loan agreements or from some oral agreement) were "genuine".

On appeal, the FCT argued that it was not open to the primary judge to make this finding as it was

contrary to the case the taxpayers had put for the purpose of discharging their onus of proving that

the assessments were excessive. In particular, the FCT claimed that the Court at first instance could

not find that the payments were "loans" when the taxpayers had inconsistently argued that, on one

hand, the loans were "wholly genuine" while on the other (their "alternative" argument) the loans

involved at least some pretence for the limited purpose of making third parties believe that the

borrowers were at arm's length from the lenders.

Note also that following the decision of the Court at first instance, Edmonds J, sitting as a

Presidential Member of the AAT also ordered that a number of the assessments of income tax and

penalty tax issued to the relevant parties should be accordingly reduced. (See Re Pilmora Pty Ltd as

Trustee of the Townsing Family Trust and FCT[2015] AATA 976 , AAT, Edmonds J, File Nos

2013/6548-6552, 2013/6560-6562, 2013/6563-6571, 2013/6572-6580, 2013/6581, 2013/6582,

2014/3353-3354, 17 December 2015).

Decision

The Full Federal Court majority agreed with the FCT that it was not open to the Court at first

instance to make the finding that the loans were genuine as it was "impermissible for the primary

judge to determine the case on a basis inconsistent" with the manner in which the taxpayers had

argued the matter – namely, that on one hand the loans were genuine but on the other hand, they

were shams for a different purpose (ie for the purposes of their "alternative" case).

In short, the majority found that by arguing its case in this manner, it "necessarily meant that only

one outcome was open – the taxpayers had not discharged their onus of proof that the assessments

were excessive because they had not proved the moneys advanced were loans".

Specifically, the majority considered the conclusion of the Court at first instance was "not only

inconsistent with the evidence of the directing mind and will of the borrowers, but was incapable of

any form of rational reconciliation with that evidence". Furthermore, the majority said it was a

conclusion "made in circumstances where all of the lenders had been cross-examined on the basis

of a different case before the alternative case was first raised by the primary judge (which may not

be fatal of itself, given that their evidence was of marginal significance), but also where the evidence

of the key witness, Mr Townsing, precluded any possibility of the credibility of the alternative case

being explored in cross-examination (which is fatal in and of itself, given that Mr Townsing was the

directing mind and will of the taxpayers)".

Logan J, in dissent, was of the view there was no basis for disturbing the conclusions reached by the

Court at first instance, and at the same time rejected the Commissioner's contention that the primary

judge delivered inadequate reasons.



However, in relation to dealings between Normandy Asia and Normandy Australia involving loans,

the majority accepted that it would have been open to the primary judge, on the case which the

taxpayers ran, to conclude that the taxpayers had discharged their burden of proof with respect to

the dealings between Normandy Asia and Normandy Australia involving loans. The majority

considered that this aspect of the appeal "must be remitted for further hearing and cannot be dealt

with as part of the appeal".

Note also that in light of its decision, the majority of the Full Federal Court also ordered the setting

aside of the accompanying decisions originally made by Edmonds J (sitting as a Presidential

Member of the AAT) in which he had ruled that a number of related assessments issued to the

parties be reduced. (See Re Pilmora Pty Ltd as Trustee of the Townsing Family Trust and FCT

[2015] AATA 976.)

12/01/2017




ATO compliance approach to transfer pricing issues related to

marketing and other hubs – Guideline released

• Guideline to help businesses manage compliance risk associated with

offshore hubs

• Businesses can self-assess transfer pricing outcomes using ATO's hub risk

framework

• Date of effect: 1 January 2017 – applicable to new and existing hubs.

International Tax

Practical Compliance Guideline PCG 2017/1

ATO compliance approach to transfer pricing issues related to marketing

and other hubs – Guideline released

The ATO has released Practical Compliance Guideline PCG 2017/1 ATO compliance approach to

transfer pricing issues related to centralised operating models involving procurement, marketing,

sales and distribution functions.

The ATO on 16 January 2017 released Practical Compliance Guideline PCG 2017/1 - ATO

compliance approach to transfer pricing issues related to centralised operating models involvin g

procurement, marketing, sales and distribution functions. This final PCG contains changes from its

draft form that was released in August 2016.

The Guideline sets out the ATO’s compliance approach to transfer pricing issues related to the

location and relocation of certain business activities and operating risks into a centralised operating

model (referred to as “hubs”). The type of activities commonly centralised include marketing, sales

and distribution functions although centralised operating models are not necessarily limited to these

functions.

The ATO says it understands that the overall structure of hubs, the transactions that flow in and out

and the diversity and sophistication of a hub’s dealings contribute to increased complexity and

higher costs for tax compliance. It says the Guideline is designed to help businesses manage the

compliance risk and therefore the compliance costs associated with their hub.

At this stage, a risk benchmark has been included for offshore marketing hubs only. The ATO says it

is intended that risk benchmarks will be added for other types of hubs at a later stage.




Structure of Guideline

The Guideline is structured as follows:

Part A sets out the general indicators and principles of the hub risk framework. These

principles are relevant to all types of offshore hubs and apply to both outbound and inbound

goods and commodity flows;

Part B provides guidance to assist businesses when preparing their transfer pricing analysis if

they are outside the so-called “green zone” (ie low risk) – a business will be in the green

zone if either: (i) hub profit is less than or equal to 100% mark-up of hub costs: or (ii) full

attribution of hub profit; and

Schedules attached to the Guideline set out specific indicators relevant to particular types of

hubs.

The ATO says a business can use the framework set out in the Guideline to:

Assess the compliance risk of the transfer pricing outcomes of its hubs in accordance with the

ATO’s risk framework;

Understand the compliance approach the ATO will likely adopt having regard to the risk profile

of the businesses’ hub;

Work with the ATO to mitigate the transfer pricing risk in relation to the hub and be confident

the business has reduced its risk exposure; and

Understand the type of analysis and evidence the ATO would require when testing the

outcomes of the hub.

Risk zones

The Guideline provides a self-assessment risk framework that allows businesses to assess their

transfer pricing outcomes using the ATO’s risk framework. The hub risk framework is made up of six

risk zones:

White zone – self-assessment of risk rating unnecessary (see below);

Green zone – low risk – hub profit less than 100% mark-up of hub costs;

Blue zone – low to moderate risk – hub profit is greater than 100% mark-up of hub costs; net

tax impact below $5 million per annum;

Yellow zone – moderate to high risk – hub profit is greater than 100% mark-up of hub costs;

net tax impact between $5 million and $50 million per annum;

Amber zone – high risk – hub profit is greater than 100% mark-up of hub costs; net tax

impact above $50 million per annum; and

Red zone – very high risk – hub profit is greater than 100% mark-up of hub costs; unable/or

choose not to (i) apply risk methodology, or (ii) calculate tax impact.



A business works out its risk rating for its hub having regard to a number of factors including pricing

indicators, possible tax at risk and the quality of its transfer pricing documentation.

The ATO says an offshore marketing hub will be assessed as being in the green zone if it satisfies

the low risk benchmark. The low risk benchmark is based on the cost plus methodology (the “cost

plus indicator”). The “cost plus” indicator is less than or equal to 100% mark -up of hub costs. [The

draft guidance referred to a second indicator of low risk, ie the “commercial realism” indicator (that

the profit outcomes of the hub are commercially realistic), but that is not mentioned in PCG 2017/1.]

In certain circumstances, the ATO says a business does not need to self -assess the risk rating of its

hub. Generally speaking, this will be the case where the ATO has already reviewed the hub and the

transfer pricing outcomes have been agreed, are considered low risk or are otherwise resolved.

More specifically, it will not be necessary to self-assess the risk rating of a hub if in relation to the

hub, one of the following applies:

The business has an Advance Pricing Arrangement (APA) that applies to the current year, or

There is a settlement agreement between the business and the ATO that applies to the current

year, or

A court decision was handed down within the last two years dealing with the transfer pricing

outcomes of the hub, or

The ATO has conducted a review of the hub in the last two years and provided the business

with a “low risk” rating,

and

There has not been a material change in pricing, comparability factors and/or the functions, assets

and risks of the hub since the period reflected in the agreement, decision or review.

The ATO says its engagement with a business will be tailored having regard to its hub’s risk rating.

Risk and ATO compliance activity

The Guideline says there is no presumption that because a hub is outside the low risk zone that the

transfer pricing outcomes for the business are incorrect, but rather, it means that the ATO con siders

that the business is at risk of obtaining a transfer pricing benefit and therefore the ATO may conduct

further compliance activity to test the outcomes of the hub. In these circumstances, the ATO

suggests businesses should ensure they have transfer pricing documentation and supporting

evidence commensurate to the risk profile of their hub . As a general proposition, the ATO says the

higher the risk rating, the more detailed and comprehensive the ATO would expect the transfer

pricing documentation and supporting evidence to be.



Pricing hub arrangements

The ATO says the transfer pricing methods used in the risk framework in the Guideline are for risk

assessment purposes only and there is no requirement that a business use these methodologies

when pricing its hub arrangements. Consistent with the OECD Transfer Pricing Guidelines for

Multinational Enterprises and Tax Administrations 2010 , the ATO says when a business prices its

arrangements, it should use the transfer pricing methodology (or combination of methodologies) that

is most appropriate and reliable for its circumstances. The Guideline warns that if a hub is subject to

further ATO review, the business can expect the ATO will test the actual pricing outcomes of its

arrangement and will apply the “most appropriate transfer pricing methodology for its particular

circumstances” (which may be different from the methodologies used as the risk benchmarks in the

Guideline). The ATO says it is not limited by this risk framework when testing the actual condit ions

and pricing of the hub.

ATO compliance approach – Guideline not a “safe harbour”

The ATO says it intends to concentrate its efforts on international related party dealings “that pose

the highest risk of not complying with the transfer pricing rules”.

The Guideline identifies and describes the features and attributes (scenarios) of hubs that are

considered by the ATO as low risk of not complying with the transfer pricing rules. Following the

Guideline does not limit or waive the operation of the law, bu t the ATO says it “acknowledges that

should you choose to follow the Guideline and align your hub, or your hub already aligns, with the

specific low risk indicators set out in this Guideline and associated schedules, then we will generally

not allocate compliance resources to examine the transfer pricing outcomes of your hub”.

Factors and issues ATO will consider in reviewing hubs

In reviewing a hub, the ATO says it will consider a range of issues, eg:

What are the arm’s length commercial and financial rela tions with respect to the particular hub

arrangement?

In arrangements between independent parties dealing wholly independently, how is the pricing

determined, say on a cargo-by-cargo basis for marketing hubs, or on a product by product

basis for procurement hubs?

What is the economic substance and commercial purpose of a separate and/or centralised hub

(that is, an entity separated from the principal production entity or the manufacturer as a user

of hub procured goods)?

What evidence is there to substantiate that key decision making is occurring in the hub?

Where functions have been transferred from Australia to an offshore hub, what is the evidence

that those functions are no longer physically performed in Australia?

What is the evidence that supports which risks are economically significant to the value chain?

What is the nature of the risk borne in substance by the hub?



What evidence is there to substantiate the cost and consequence of the risk, together with the

ability of the hub to control or manage as well as bear the financial consequences of the risk?

Based on the analysis of the legal form and the economic substance, does the profit accruing

in the hub reflect the true economic contribution made by this part of the global business?

If there is evidence of “market conduct” that resembles the structure of the arrangement

between the associated enterprises, is there other evidence that demonstrates the profit

outcomes are appropriate in the specific circumstances of the associated enterprises?

When profits in the hub are measured, can they be reconciled with reference to profit

outcomes observed in other similar independent entities with reference to a range of profit

level indicators (that is, those based on sales; operating costs; operating assets)?

Current transfer pricing compliance hotspots

The Guideline also provides background of some areas of dispute between taxpayers and the ATO

that have arisen in some (but not all) cases. The ATO has included this information to assist

businesses to understand possible areas of difference when dealing with the ATO and to enable

them to make informed choices and decisions. The ATO cites issues that arose from cases related

to offshore marketing hub arrangements in the energy and resource sector, noting that they could be

informative for other types of hubs and industries. They include:

Use of third party commission rates. The ATO’s concern has been the absence of

supporting information – in particular, information that addresses the OECD “factors

determining comparability” – to establish the market indicators relied upon by taxpayers as

representing reliable CUP information.

Testing transfer prices – using alternative profit level indicators. In certain scenarios, the

ATO has found that the results implied by a taxpayer’s transfer pricing method vary

significantly depending on which profit level indicator is applied.

Failure to revisit the price setting mechanism in response to significant changes in the

external environment.

ATO offers amnesty re penalties and inte rest

The FCT says he recognises that the publication of the Guideline may cause taxpayers to review

their hubs with the effect that some taxpayers may adjust the pricing of their hub dealings going

forward to come within the green zone.

If taxpayers have an existing arrangement and they intend to adjust their pricing to move within the

green zone going forward, the ATO says the FCT is willing to resolve the “back years” in a “co -

operative and practical manner”.



In recognition that this is the first time the FCT has publicly released guidance in relation to hubs and

to encourage willing and co-operative compliance going forward, the FCT, for a limited time, is

willing to remit penalties and interest if certain pre-conditions are met. Specifically, the

Commissioner undertakes that if a taxpayer makes a voluntary disclosure in relation to the back

years and adjust its pricing to come within the green zone, the FCT will exercise his discretion to

remit:

Penalties arising under Div 284 of Sch 1 of the TAA to nil; and

Shortfall interest charges arising under Div 280 of Sch 1 of the TAA to base rate.

The ATO says this undertaking is conditional on:

The taxpayer’s hub having commercial and economic substance and not otherwise coming

within the exceptions in para 19 of PCG 2017/1. Paragraph 19 says the Guideline is

premised on the basis that the taxpayer’s hub has commercial and economic substance. The

comments and guidance provided by Taxation Ruling TR 2014/6 ( Income tax: transfer pricing

- the application of s 815-130 of the ITAA 1997) are of assistance in this regard. In particular,

para 19 says taxpayers should pay close attention to whether any of the exceptions to the

basic rule apply to their circumstances and consider adjusting their arrangement as

appropriate (refer to paras 44 to 61 of TR 2014/6). [Note that para 20 of the Guideline says

that if the arrangement “is one that independent entities would not have entered into or one

that would have been entered on different commercial or financial relations, then this

Guideline will not apply to your circumstances”.]; and

The taxpayer making a full and true disclosure of the arm’s length conditions based on the

commercial or financial relations in connection with which the actual conditions of its

arrangement operate.

In recognition of the complexity of these arrangements, the FCT’s undertaking will remain in place

for 12 months from the date of publication of the relevant schedule in the Guideline ie until 16

January 2018.

Date of effect

The Guideline has effect from 1 January 2017 and applies to existing and newly created hubs. The

schedules will have effect from the date of effect stated in each schedule. The ATO says the use

and application of the Guideline will be under continuous review over the next three year s.

19/01/2016




Re Wilson and FCT [2017] AATA 119

• In 2010-11, electrician sub-contracted to US Army

• Worked in Afghanistan for 4 months

• Claimed earnings exempt under s 23AF ITAA 1936

• Key issue: did taxpayer work on “approved project”?

• AAT said no:

– Although it was eligible project, not approved in writing by Minister (as required

by s 23AF(11)).

Overseas income not exempt

International Tax

Overseas income not exempt

Re Wilson and FCT

Income earned by a taxpayer working for the US Army in Afghanistan has been held by the AAT not

to be exempt under s 23AF of the ITAA 1936.

The taxpayer was an electrician and mechanic who, during the 2010-11 income year, was

subcontracted by his American employer to work for the US Army in Afghanistan. He travelled there

on at least four occasions, including for one period of at least four months. He had a role in "outside

plant construction" that was a critical part of the future power distribution network.

The taxpayer claimed that his 2010-11 earnings were exempt from income tax under s 23AF. That

section exempts personal services income (including salary and wages) that is attributable to a

period of qualifying service on an "approved project". The period must be continuous for 91 days or

more.

An "approved project" is an "eligible project" which the Trade Minister, being satisfied that the project

is or will be in the national interest, has approved in writing. There are various categories of "eligible

project", including for (a) the design, supply or installation of any equipment or facilities, (b) the

construction of works or (c) the development of an urban or regional area.



The AAT decided that the s 23AF exemption did not apply because the taxpayer had not worked on

an approved project. Although the particular project satisfied both (a) and (b) of the definition of

eligible project, it was not an approved project. This was because the Trade Minister (or their

delegate) had not approved the project in writing for the purposes of s 23AF. In this context, the AAT

pointed out that although the Trade Minister has a discretion whether to approve an eligible project,

the approval must be in writing.

The AAT also commented that there was no evidence indicating the Trade Minister (or their

delegate) considered the project the taxpayer worked on to be in the national interest.

Re Wilson and FCT [2017] AATA 119, AAT, Ref No 2016/3489, Tavoularis SM, 1 February 2017

9/02/2017




TAX CONTROVERSY


Diverting personal services income to an SMSF

• TA 2016/6 (issued in April 2016) warns about arrangements to divert PSI to

SMSF to avoid paying tax at personal marginal rates

• ATO’s voluntary disclosure offer (to remit penalties) extended to 30 April

2017.

Tax Controversy

ATO extends voluntary disclosure offer

Personal services income diverted to SMSFs: ATO offer to remit

penalties extended

The ATO's offer to remit penalties in relation to arrangements involving the diversion of personal

services income to SMSFs has been extended from 31 January to 30 April 2017.

Since April 2016, the ATO has been reviewing arrangements where individuals purport to divert

personal services income (PSI) to a SMSF. The arrangements, described in Taxpayer Ale rt TA

2016/6, involve individuals (typically SMSF members at or approaching retirement age) performing

services for a client but do not directly receive any (or adequate) consideration for the services.

Instead, the client remits the consideration for the services to a company, trust or other non-

individual entity. That entity then distributes the income to the individual's SMSF, purportedly as a

return on an investment in the entity (including an unrelated third party). The SMSF treats the

income as subject to concessional tax (15%) or as exempt current pension income.

https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/News/Diverting-personal-services-income-to-an-SMSF/



Other variations of the arrangement include the income being remitted by the entity to the SMSF via

a written or oral agreement between the entity and SMSF, instead of as a return on an investment.

The SMSF may also record the income from multiple entities or through a chain of entities.

Alternatively, the entity may distribute the income to more than one SMSF of which the individual or

associates are members.

ATO view

The FCT considers that such arrangements may be ineffective at alienating income such that it

remains the assessable income of the individual under s 6-5 of the ITAA 1997 or as PSI. The ATO

also warns that the amounts received by the SMSF may constitute non-arm's length income of the

SMSF under s 295-550 of the ITAA 1997 (taxable at 47%).

Other compliance issues include:

The amounts received by the SMSF may be a contribution and generate excess contributions

tax consequences for the individual; and

Superannuation regulatory issues - the arrangement may breach the sole purpose test under

s 62 of the SIS Act. Such breaches of the SIS Act may lead to the SMSF being made non-

complying or the disqualification of an individual as a trustee.



ATO offer to remit penalties extended to 30 April 2017

The ATO has now extended the due date to contact it in relation to TA 2016/6 from 31 January to

30 April 2017. With all the superannuation changes taking place, including the super reforms

legislated in November 2016 and review of non-arm's length LRBAs (due by 31 January 2017), the

ATO has acknowledged that people may not have had sufficient time to consider its voluntary

disclosure offer.

Individuals and trustees who are not currently subject to ATO compliance action, and who come

forward before 30 April 2017, will have administrative penalties remitted in full. However, shortfall

interest charges still apply.

Where individuals and trustees come forward to work with it to resolve issues, the ATO anticipates

that in most cases the PSI distributed to the SMSF by the non-individual entity would be taxed to the

individual at their marginal tax rate. The ATO says issues affecting the SMSF will be addressed on a

case-by-case basis, but it will take the individual's co-operation into account when determining the

final outcome.

3/02/2017




Re-characterisation of income from trading businesses

• ATO reviewing arrangements where trading company divided in contrived way

to re-characterise trading income as passive income

• Income artificially diverted into trust – no tax or lower rate than corporate tax

rate paid on distribution

• Arrangements typically involve stapled structures, are promoted to overseas

investors

• Pt IVA may apply.

Tax Controversy

Taxpayer Alert TA 2017/1

Re-characterisation of income from trading businesses

The ATO on 31 January 2017 released Taxpayer Alert TA 2017/1 - Re-characterisation of income

from trading businesses.

The ATO said it is reviewing arrangements that attempt to fragment integrated trading businesses in

order to re-characterise trading income into more favourably taxed passive income. Its concern

arises where a single business is divided in a contrived way into separate businesses. The income

that might be expected to be subject to company tax is artificially diverted into a trust where, on

distribution from the trust, that income is ultimately subject to no tax or a lesser rate than the

corporate rate of tax. Stapled structures are one mechanism being used in these arrangements, but

the ATO said its concerns are not limited to arrangements involving stapled structures.

The ATO said it is engaging more closely with taxpayers who have proposed these arrangements to

explore the issues of concern and ensure that arrangements of the type outlined in the Alert do not

seek to avoid the payment of corporate tax. Taxpayers and advisors who implement these types of

arrangements will be subject to increased scrutiny. The ATO said it is continuing to develop its

technical position on these arrangements and expects to issue further guidance in respect of its

concerns.

3/02/2017

https://www.ato.gov.au/law/view/view.htm?docid=%22TPA%2FTA20171%2FNAT%2FATO%2F00001%22




Taxpayer Alerts TA 2017/2 and TA 2017/3

• ATO and AusIndustry reviewing arrangements where R&D tax offset claimed

for:

– Building and construction activities (TA 2017/2)

– Ordinary business activities (TA 2017/3).

R&D claims in building and construction industry

Tax Controversy

R&D claims in building and construction industry – ATO Taxpayer Alerts

warn of issues of concern

The ATO and the Department of Industry, Innovation and Science (DIIS) have released two new

Taxpayer Alerts - TA 2017/2 (Claiming the R&D Tax Incentive for construction activities) and TA

2017/3 (Claiming the R&D Tax Incentive for ordinary business activities) - as a warning to those not

being careful enough in their claims or seeking to deliberately exploit the R&D Tax Incentive

program.

The R&D tax incentive encourages companies to engage in R&D benefiting Australia, by providing a

tax offset for eligible R&D activities. ATO DCT Michael Cranston said the Alerts relate to particular

issues identified in the building and construction industry where specifically excluded expenditure is

being claimed as R&D expenses. The alerts provide clarification for a wide range of businesses who

had been incorrectly claiming ordinary business activities against the R&D tax incentive.

The Alerts are designed to clarify what can and cannot be claimed, and help businesses to avoid

mistakes such as ordinary business activities being self-assessed as R&D activities, Mr Cranston

said. He said that while "most do the right thing, we are seeing some businesses in these industries

and their advisors improperly applying for the tax incentive where the activities and expenditure

claimed don't match with legislative requirements".

https://www.ato.gov.au/Media-centre/Media-releases/Early-warning-for-taxpayers-making-R-D-claims/

https://www.ato.gov.au/Media-centre/Media-releases/Early-warning-for-taxpayers-making-R-D-claims/



For example, Mr Cranston said the ATO has seen an increase in claims for ordinary business

activity expenses, or for large parts of projects that do not correspond to the scale or scope of

experimental activities. Ordinary business activities are not generally carried out with a purpose of

generating new knowledge. He said the ATO often sees issues including claims that encompass

whole of projects (where project, management, environmental and commercial risks are mistaken for

technical risks) and where the activities use existing knowledge and expertise.

Mr Cranston warned that the ATO is undertaking "a range of compliance activities to address

businesses and advisors deliberately doing the wrong thing and will take legal action ag ainst those

who wilfully misuse the R&D Tax Incentive".

TA 2017/2

TA 2017/2 deals with claiming the R&D Tax Incentive for construction activities. The Alert says the

arrangements under review concern claimants of the R&D Tax Incentive who are involved in either:

acquiring buildings, or extensions, alterations or improvements thereto (the acquirer); or whose

business it is to construct, extend, alter or improve buildings (the builder).

These types of arrangements exhibit a number of features, including:

A contract is entered into between the acquirer and the builder to construct, extend, alter or

improve a building or buildings (construction).

The contract is a standard construction contract and is not for the provision of R&D services

and does not specify that R&D will be carried out by the builder.

The acquirer or the builder registers one or more activities associated with the construction of

the building for the R&D Tax Incentive, identifying the structure or construction techniques as

purportedly involving untested or novel elements.

Some or all of the activities registered are broadly described and non-specific. For example,

whole construction projects may be registered rather than the specific activities which are

being undertaken.




TA 2017/3

TA 2017/3 deals with claiming the R&D Tax Incentive for ordinary business activities. The ATO says

the types of arrangements under review exhibit some or all of the following features:

A company registers one or more activities for the R&D Tax Incentive.

Some or all of the activities registered are broadly described and non-specific. For example,

projects may be registered instead of the specific activities undertaken.

Some or all of the activities registered are ordinary business activities that are not eligible for

the R&D Tax Incentive.

Some or all of the activities were undertaken in the course of their ordinary business activities

and recharacterised as R&D activities at a later time.

The company claims the R&D Tax Incentive for expenditure that is not on eligible R&D

activities.

The ATO says it has observed a number of cases where the company's ineligible ordinary business

activities have not been distinguished from any eligible R&D activities. It also observed that often,

some of the expenses included in the calculation of the R&D Tax Incentive claim are not for amounts

that relate to eligible R&D activities, eg ordinary production costs of products sold to the market in

the ordinary course of business.

The ATO says it will be contacting companies directly to advise them of its concerns with their

registered activities and/or their R&D Tax Incentive claims if:

"Advisors who may apply high risk practices" are involved in the preparation of the

registration application and/or claim.

The registration of R&D activities continues with the use of broad descriptions that fail to

distinguish them from ordinary operational business activities.

The level of expenditure claimed for the R&D Tax Incentive is high for the industry or stage of

business.

9/02/2017




STATE TAXES


NSW duty: not so happy days

• Property bought by private company as custody trustee for SMSF

• Bank insisted that non-trading company be custodian

• Purchase completed when property transferred to new company

• Late substitution of custody trustee exposed SMSF to double duty (on

contract of sale & transfer)

• Exemption didn’t apply as transferee didn’t exist when contract made.

State Taxes

Happy Days Property Pty Ltd v CSR [2016] NSWCATAD 289

NSW duty: not so happy days

Happy Days Property Pty Ltd v Chief Comr of State Revenue [2016] NSWCATAD 289

The late substitution of a custody trustee has exposed an SMSF to double duty on its acquisition of

a property: Happy Days Property Pty Ltd v Chief Comr of State Revenue [2016] NSWCATAD 289

(NSW Civil and Administrative Tribunal, N S Isenberg SM), 8 December 2016.

Background

On 17 March 2015, FP Transitions Pty Ltd ("Transitions") entered into a contract (the Contract) to

purchase a property at Mosman for $610,000. It was intended that Transitions would be the "custody

trustee", ie it would hold the property in trust for Happy Days Management Pty Ltd (HDM) which was

the trustee of a self-managed super fund for Mr Anthony Dickin.

However, the bank financing the purchase rejected Transitions (of which Mr Dickin was sole director,

secretary and shareholder) as custody trustee, insisting that a non-trading corporate entity act as

custodian. On 7 April 2015, Happy Days Property Pty Ltd (HDP) was registered and appointed as

custodian.

On 28 April 2015, the purchase of the property was completed in accordance with an undated Real

Property Act transfer (the Transfer).

On 30 April 2015, the Contract was stamped with duty of $22,940 and the Transfer was stamped at

$10 on a concessional basis under s 18(3) of the Duties Act 1997.

http://www.austlii.edu.au/au/cases/nsw/NSWCATAD/2016/289.html



On 15 July 2015, the Office of State Revenue advised that it had concluded that s 18(3) did not

apply and that it had reassessed duty on the Transfer as being payable on an ad valorem basis (ie

another $22,940).

Decision

The key issue before the NSW Civil and Administrative Tribunal was whether the Transfer qualified

for s 18(3) relief from double duty applicable in circumstances where a transfer of property is not

made in conformity with the contract for the sale of the property (in this case the "non-conformity"

being the substitution of HDP for Transitions). In particular, s 18(3) requires that, when the

agreement was entered into and at settlement, the purchaser and the transferee are related

persons.

The Tribunal found that, as HDP did not exist at the time the agreement was entered into

(17 March 2015) and there was no evidence or submission that HDP could, prior to coming into

existence, be related to Transitions, s 18(3) could not be satisfied.

12/01/2017



TAX REFORM


Extending AML/CTF regime to accountants, lawyers etc

• A-G's Department consulting on regulatory models for accountants, lawyers

etc under Anti-Money Laundering and Counter-Terrorism Financing Act 2006

• Five sector-specific consultation papers released for comment.

Tax Reform

A-G consultation

Extending AML / CTF regime to accountants, lawyers, etc

A-G consultation

The Federal Attorney-General's Department has advised it is conducting a consultation on

regulatory models for lawyers, conveyancers, accountants, high-value dealers, real estate agents,

trust and company service providers under the Anti-Money Laundering and Counter-Terrorism

Financing Act 2006 (AML/CTF Act).

The Department has released five sector-specific consultation papers for comment. They cover

accountants, high-value dealers, legal practitioners and conveyancers, real estate professionals,

and trust and company service providers.

The purpose of the consultation paper dealing with accountants is to obtain feedback about options

for regulating accountants under the AML/CTF regime. The consultation paper says the regulation of

accountants under the AML/CTF regime would deliver a number of benefits. These include

spreading the regulatory burden associated with combating ML/TF, closing a regulatory and

intelligence gap, enhancing national security, and enhancing the reputation of the Australian

financial system.

The paper says the AML/CTF regulation of accountants would also further enhance the profession's

awareness of ML/TF risks and harden the sector against criminal exploitation. According to the

paper, accountants are vulnerable to risk and misuse for ML/TF purposes because many are likely

to be unaware that their services are being exploited by criminals to establish opaque business

structures and conduct transactions that disguise and launder proceeds of crime. AML/CTF

obligations would prompt accountants to fully consider and better understand the identity of their

https://www.ag.gov.au/CONSULTATIONS/Pages/amlctf-statutory-review-implementation.aspx



client, the source of funds used by a client for a transaction and the nature of the intended business

relationship with the client.

The paper says an obligation to conduct customer due diligence (CDD) would assist accounting

professionals to identify "red flags" that may be early indicators of criminality or potential misconduct.

Red flags can relate to the client, the source of the client's funds and the choice of accountant.

These indicators, the paper says, should not automatically be considered as a basis for a suspicion

of ML/TF, as a client may be able to provide a reasonable explanation for the circumstances

surrounding the way in which a transaction is being conducted. However, where there are a number

of indicators, it is more likely that an accountant should have a suspicion that ML or TF (and the

underlying predicate crimes) is occurring. For example, the legal structure of the client company has

been altered numerous times, the activities of the company are unclear, and the company is seeking

or engaging in transactions that involve sending funds to a country with weak AML/CTF regulation. If

an accountant is aware of ML/TF risks but does not conduct sufficient CDD, the accountant will not

be able to meaningfully identify these indicators or conduct an appropriate assessment of the extent

to which the client exposes the business or practice to ML/TF risks.

Comments

Submissions are due by 31 January 2017.

12/01/2017




MYEFO flags changes

• Tax announcements made:

‒ ATO to give Credit Reporting Bureaus info on businesses with > $10,000

tax debts – 1 July 2017

‒ No franking credits if special dividend funded by capital raising activities

that result in issue of new equity interests – 19 December 2016

‒ Penalty unit increase from $180 to $210 – 1 July 2017.

Tax Reform

2016-17 Mid-Year Economic and Fiscal Outlook released

MYEFO flags changes re franking credit distributions, chasing tax debts,

etc

The Treasurer has released the 2016-17 Mid-Year Economic and Fiscal Outlook (MYEFO). He said

it confirms that the Budget is projected to return to balance in 2020-21. Mr Morrison said the

underlying cash deficit is now expected to narrow from $36.5 billion or 2.1% of GDP in 2016 -17

(down on the $37.1 billion reported in the Budget and PEFO) down to $10 .0 billion (0.5% of GDP) in

2019-20. He said that since PEFO (the 2016 Pre election Economic and Fiscal Outlook), the total

effect of parameter and other variations – but not policy decisions – has been to negatively impact

the Budget by $12.8 billion. This includes a $30.5 billion downward revision of revenue, driven

principally by weaker wage and profits growth and weaker collections, offset by $16.5 billion in

reduced payment estimates.

Looking ahead, MYEFO announced:

Tax debts and credit reports: From 1 July 2017, the government will allow the ATO to

disclose to Credit Reporting Bureaus the tax debt information of businesses "that have not

effectively engaged with the ATO to manage these debts". The ATO does not currently

provide this information. This measure will initially only apply to businesses with ABNs and

tax debt of more than $10,000 that is at least 90 days overdue.

http://www.budget.gov.au/2016-17/content/myefo/html/



Franking credit distributions: The government will introduce a specific measure preventing

the distribution of franking credits where a distribution to shareholders is funded by particular

capital raising activities. The measure will apply to distributions declared by a company to its

shareholders outside or additional to the company's normal dividend cycle (a special

dividend), to the extent it is funded directly or indirectly by capital raising activities which

result in the issue of new equity interests. Examples of capital raising activities include an

underwritten dividend reinvestment plan, a placement or an underwritten rights issue. Where

such arrangements are entered into, the corporation will be prevented from attaching

franking credits to shareholder distributions. This measure is intended to address the issues

raised in Taxpayer Alert TA 2015/2: Franked distributions funded by raising capital to release

credits to shareholders. Date of effect: This measure will apply to distributions made after

12:00pm (AEDT) on 19 December 2016.

Penalty unit: The government will increase the value of the Commonwealth penalty unit from

$180 to $210, with effect from 1 July 2017. The value will be indexed every 3 years in line

with the CPI with the first indexation occurring on 1 July 2020 (this will supersede the

indexation arrangements announced in the 2015-16 Budget).

ASIC: Following an evaluation process, the government has decided not to proceed with the

commercialisation of the ASIC Registry functions given final bids received did not deliver a

net financial benefit for the Commonwealth.

12/01/2017




Income products for retirement

• Discussion paper on developing framework for “MyRetirement products”

released

• Views sought on structure of retirement income products, framework for

regulating products.

Tax Reform

Government releases discussion paper

Income products for retirement – Govt releases discussion paper

The government has released for public consultation a discussion paper that explores the key issues

in developing a framework for Comprehensive Income Products for Retirement, or MyRetirement

products. Views are sought from interested stakeholders, in particular on:

The structure and minimum requirements of these products;

The framework for regulating these products; and

The offering of these products.

In its response to the Financial System Inquiry, the government agreed to support the development

of more efficient retirement income products and to facilitate trustees offering these products to

members. These products were labelled by the Inquiry as "Comprehensive Income Products for

Retirement", or CIPRs; however, the government proposes to use "MyRetirement products" as a

more consumer-friendly and meaningful label.

The MyRetirement framework is intended to increase individuals' standard o f living in retirement,

increase the range of retirement income products available, and empower trustees to provide

members with an easier transition into retirement. Through this framework, the government is aiming

to increase the efficiency of the superannuation system so it can better achieve the proposed

objective of superannuation, which is to provide income in retirement to substitute or supplement the

Age Pension.

COMMENTS are due by 28 April 2017.

12/01/2017

https://consult.treasury.gov.au/retirement-income-policy-division/comprehensive-income-products-for-retirement/

Tax Update - CPDlive · This paper represents the opinion of the author(s) and not necessarily...

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