Tax and Superannuation Laws Amendment (2015 Measures No 6) Bill 2016 – CGT treatment of ‘earn-out rights’ and a 10% non-final withholding for CGT on certain sales by non-residents

The Tax and Superannuation Laws Amendment (2015 Measures No 6) Bill 2015 was passed by the House of Reps on Thursday 4.2.2016 without amendment and now moves to the Senate. The Bill proposes the following amendments: Will amend the ITAA 1997 to change the CGT treatment of the sale and purchase of businesses involving certain earn-out rights –…

Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016 and Explanatory Memorandum (4 Feb 2016)

The Bill and Explanatory Memorandum for the Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016 (in the House of Reps on Thur 4.2.2016) are attached. Bill (4.2.16) EM (4.2.16) The Bill effectively seeks to allow small businesses to change the legal structure of their business and have the CGT liability disregarded and deferred until eventual disposal. It will allow…

Tax Laws Amendment (Small Business Restructure Rollover) Bill 2016 – any entity type to any entity type, any active asset and income tax neutral

The Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016 was introduced in the House of Reps on Thur 4.2.2016. It was passed in the House of Representatives on 22 February 2016 and finally passed both houses on 29 February 2016. The Bill will amend the ITAA 1997 to provide greater flexibility for small businesses to change their legal…

CR 2016/7 & 8 – tax treatment of fishing licence compensation and an early retirement scheme

On Wed 3.2.2016, the ATO released the following Class Rulings: CR 2016/7: treatment of compensation payments received under Div 5 of Pt 8 of the Fisheries Act 1995 (Vic) relating to phasing out commercial net fishing in Port Phillip Bay. The Ruling explains the tax treatment of various compensation payments to commercial fishing licensees whose licences…

Re Lau and FCT – Hardship relief denied to taxpayers with substantial assets, failure to report cash income and paying other creditors before the ATO

The AAT has affirmed the Commissioner’s decision to refuse to release 2 taxpayers from their tax liabilities, after finding they owned considerable assets and would not suffer serious hardship. The AAT heard that the taxpayers, Ms L and Mr P, had outstanding tax debts of $2.26m and $676,285, respectively, and had a history of failing…

Update on Multi-National Enterprise tax avoidance measures – ‘permanent establishment’ avoidance; thin capitalisation; OECD BEPS measures; and new ‘tax taskforce’

Whilst speaking at the Press Club in Canberra, on the importance of ‘free-enterprise, the Assistant Treasurer: the Honourable Kelly O’Dwyer reprised the Government’s actions to deal with avoidance of tax by ‘multi-national enterprises’ and also elaborated about progress in some of those areas. Saying that it was a matter of ‘fairness’, she said the following.…

NFF lobbies against ‘backpackers’ tax – un-legislated 2015 Budget measure imposing minimum 32.5% tax through denying ‘resident’ status

The National Farmers’ Federation (NFF), along with its member organisations, on Tuesday 2.2.2016, launched a campaign encouraging the Federal Government not to proceed with the proposed so-called “backpacker tax” which the NFF says will erode the agriculture workforce and the prosperity of regional communities. The campaign has been supported by the Tourism & Transport Forum Australia.…

The taxpayer has appealed to the Full Federal Court against the decision in Thomas v FCT [2015] FCA 968. In that case, the Federal Court held that a discretionary trust could not distribute franking credits to an individual beneficiary differently from the manner in which the net income of the trust was resolved to be distributed.

At the same time, the Commissioner has also cross-appealed to the Full Federal Court against the Court’s decision.

[LTN 20, 2/2/16]

Catchwords from [2015] FCA 968

TAXATION – consideration of the construction and operation of Division 207 (“Effect of receiving a franked distribution”) of Part 36 of the Income Tax Assessment Act 1997 (Cth) (the “1997 Act”) – (“The imputation system”).

TAXATION – consideration particularly of when a franked distribution flows indirectly to a beneficiary of a trust – s 207-50(3) – consideration of the notion of a “share amount” – s 207-50(3)(b) – consideration of the four integers of s 207-35(3) giving rise to a requirement to include in the beneficiary’s assessable income so much of the franking credit amount on franked dividends made to the trustee as equals the beneficiary’s “share of the franking credit on the distribution” – consideration of s 207-55 and particularly Item 3 of the table at s 207-55(3) – consideration of s 207-57 and the formula in that section and s 207-45.

TAXATION – consideration of the nature of franking credits – consideration of whether franking credits are regarded as “ordinary income” or receipts “in the nature of ordinary income” – consideration of whether franking credits could be regarded as income under the provisions of the relevant trust deed as “categories of income” under that deed – consideration of whether franking credits, if not income according to the terms of the deed or income otherwise, represent something of significant potential commercial value to a beneficiary – consideration of whether the trustee has a duty to consider the way in which franked distributions might need to be addressed so as to enable a beneficiary to properly take advantage of tax offsets according to the integrated operation of Div 207 of the 1997 Act.

TAXATION – consideration of the concepts of a “franked distribution” made to the trustee of a trust, distributions by the trustee to or amongst beneficiaries and whether franked dividends might be “separately streamed” to or amongst beneficiaries.

TAXATION – consideration of whether a resolution which purports to distribute “franking credits” operates as a proxy for a distribution of the franked dividends to which the franking credits are attached – consideration of the relationship between franked dividends and franking credits – consideration of the notion that franking credits are stapled to franked dividends – consideration of whether resolutions which might purport to allocate the benefits of potential “tax offset entitlements” are to be regarded as a proxy for the distribution of franking credits which in turn operate as a proxy for distribution to the relevant beneficiaries of the franked dividends to which the franking credits are necessarily linked or stapled.

TAXATION – consideration of the relationship between s 97(1)(a) of the Income Tax Assessment Act 1936 (Cth) (the “1936 Act”) and s 95(1) of the 1936 Act – consideration of the s 95(1) notion of net income of the trust estate and the proportionate relationship required between s 97(1)(a) and s 95(1) – consideration of s 99A of the 1936 Act and the notion of whether a beneficiary is presently entitled by operation of s 101 of the 1936 Act for the purposes of s 97(1)(a) of the 1936 Act – consideration of the principles derived fromCommissioner of Taxation v Bamford [2010] HCA 10;  (2010) 240 CLR 481 and Federal Commissioner of Taxation v Totledge Pty Ltd [1982] FCA 64;  (1992) 60 FLR 149 and related authorities.

TAXATION – consideration of whether estoppel by convention operates so as to attribute a construction to the operation of a trust deed which is inconsistent with the terms of the trust.

TAXATION – consideration of the principles deriving from Cridland v Federal Commissioner of Taxation [1977] HCA 61;  (1997) 140 CLR 330 and particularly at 341 and Federal Commissioner of Taxation v Noza Holdings Pty Ltd [2012] FCAFC 43;  (2012) 201 FCR 445 at  [68] having regard to the discussion at [57] to [67].

TAXATION – consideration of whether the Commissioner is bound to accept facts found by reason of orders made and reasons for judgment given in proceedings in the Supreme Court of Queensland in relation to the construction of resolutions made by the trustee and the terms of the trust deed in issue in the proceedings in the Federal Court of Australia – consideration of the nature of proceedings in which the trustee sought directions and declarations under s 96 of the Trusts Act 1973 (Qld) as to the construction of the resolutions passed by the trustee – consideration of the orders made by the Supreme Court of Queensland which give directions and constitute declarations as to the construction of the resolutions by reference to “the proper construction of the Income Tax Assessment Act 1997 (Cth)” – consideration of whether the Commissioner is bound by such orders – consideration of whether the Commissioner charged with a statutory responsibility for the administration and operation of the income tax laws of the Commonwealth is entitled to call into question matters the subject of orders and determinations of the Supreme Court of Queensland – consideration of the principles identified in Executor Trustee and Agency Co v Deputy Federal Commissioner of Taxes (South Australia) [1939] HCA 35;  (1938) 62 CLR 545)and in particular the observations of Lathan CJ at pp 561 and 562, Dixon J at pp 569 and 570 and McTiernan J at p 572 and related authorities.

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Normandy Finance Pty Ltd v FCT – Commissioner appeals against decision that receipts from overseas company were genuine loans not income

The Commissioner has appealed to the Full Federal Court against the decision in Normandy Finance Pty Ltd v FCT [2015] FCA 1420. The Federal Court had held that payments of around $4m made from a foreign company to its Australian subsidiary and another related company over several years were genuine loans, and not “shams”.

[LTN 19, 1/2/16]

Re Ogden and FCT – Large home office and work-related deduction claims significantly reduced – largely used or consumed by family

A professional sales commission agent has been largely unsuccessful before the AAT in claiming deductions for work-related expenses, including home office expenses, various grocery items and overtime meal allowances. The taxpayer had similar deductions disallowed by the AAT in Re Odgen and FCT [2014] AATA 385 in respect of a different income year. In the current proceedings,…