Tax Month – August 2018

T a x  T e c h n i c a l  –  M o n t h l y  N e w s

– August 2018 Developments –

This is a collection of developments in Australian tax law and practice that occurred in August 2018
which aims to be relevant to tax practitioners.[i]

Compiled By

F John Morgan
A member of the Victorian Bar (www.FJMtax.com)

Table of Contents

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Legislation

Acts etc.

• Stapled structures: additional integrity rules released for inclusion in the July 2018 draft legislation released
• Thin Cap ‘Integrity’ measure announced in 2018 Budget – draft legislation released – from 1 July 2019: ‘financial statements’ only asset values and ‘consolidated’ groups both inward and outward like other taxpayers
• Treasury Laws Amendment (OECD Multilateral Instrument) Act 2018 – to give force of law to the MLI in Australia, which in turn defines when it comes ‘into force’ and then ‘affects’ the relevant ‘bilateral treaty’
• Draft Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2018 & Insolvency (Related Creditor Voting Rights) Rules – proposed legislation for various ‘anti-phoenixing’ measures announced in 2018 Federal Budget
• Treasury Laws Amendment (Tax Integrity and Other Measures No 2) Act 2018  (becomes law) – Hybrid Mismatch Rules; Film Producer Offset; Tax Exemption for World Twenty20 Cricket; Korean War Memorial DGR (Act No. 84 of 2018)
• Unexplained Wealth Legislation Amendment Bill 2018 – relies on States referring powers for National Co-operative Scheme on the Proceeds of Crime
• Treasury Laws Amendment (Enterprise Tax Plan No 2) Bill 2017 – progressive reduction in corporate tax rate (to 25%) for $50m+ turnover companies, finally ‘scuttled’ in the Senate
• Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2018 now law – lower tax rate (currently 27.5%) available to all companies under the turnover threshold unless they have at least 80% passive income (as defined)

Announcements

• Small Business Ombudsman calls for ‘instant asset write-off’ to be extended from a $20,000 cost cap to $100,000 – public hearing of Lower House Economics Committee on impediments to small business

Cases

High Court

• Commissioner of Taxation v Thomas & others – High Court determines that Qld Supreme Court directions confirming validity of resolutions mismatching the dividend income and the franking credits did not determine the ‘franking’ result under the tax legislation

Full Federal Court

• Aussiegolfa Pty Ltd (Trustee) v CofT – SMSF invested in single property ‘sub-fund’ – leasing property to daughter of SMSF member did not breach the ‘sole purpose test’ but units in the sub-fund were ‘in-house assets’

Federal Court

• Song v FCT – Seized documents covered by legal professional privilege – despite getting advice from China and from in-house legal department
• McGlinn v CofT – Non-commercial loss matter referred back to the ATO – ‘similar’ horse breading ‘business activities’ carried on sequentially confuses Commissioner

Administrative Appeals Tribunal (AAT)

• Mitchell v CofT – Taxpayer’s overtime meal expenses deductions of $8,130 only allowed up to the $1,608 assessable meal allowance
• Fox v CofT – ESS discount assessable despite shares becoming worthless the next year as the taxpayer was not coerced into accepting rights offer
• Mangat v CofT – Doctor’s Options to subscribe for IVF shares not acquired at least 12 months before cancellation – 50% CGT discount not available
• Ford v CofT – 75% shortfall penalties for failure to lodge returns, remitted by the Commissioner to 50% but not further remitted by the AAT

Other Courts & Tribunals

• R v Agius; R v Castagna (No 14) – 70 year old cousins jailed for about 7 years each, for diverting Macquarie fees through Vanuatu without declaring them as income
• Illegal phoenix activity – Coy assets sold for $20k, resold for $176k, spent on private liabilities, $1m deficiency on liquidation – 1 suspended jail term, one good behaviour bond, both banned for 5 years as directors
• Suspected promotion and facilitation of phoenix activities and tax schemes – ‘public examinations’ commenced, in the Federal Court, in relation to a group of entities connected to pre-insolvency advisor Philip Whiteman

Appeals

• —

Rulings

Decision Impact statements

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Rulings

• TR 2018/6 – Trust vesting – taxation effects: too late to extend after vesting; no E1 event (resolved interests not new trusts); no E5 event until beneficiaries entitled to particular assets

Determinations

• TD 2018/D4 and TD 2018/D5 – Thin capitalisation: valuing ‘debt capital’ using accounting standards and identifying non-variable ‘debt deductions’

Law Companion Rulings

• LCR 2018/D7 – Draft ‘Companion Ruling’ for the recently passed 80% passive income cap for ‘base rate entities’ taxed at the new lower corporate tax rate (currently 27.5%)

Class Rulings & Product Rulings

• CR 2018/34-35 – Return of share capital is not a dividend and is a G1 or C2 CGT event; ESS Rights for non-executive directors (when settled with CSL shares)
• CR 2018/36 & 37 – [36] St George channel scheme – receipt of membership interests in Mallawa Irrigation Limited;  [37] FBT: employers using the eROAD System for car log book and odometer records car records
• CR 2018/38 – Metcash Limited – Div 16K treatment of ‘off-market’ share buy-back and various dividend anti-avoidance rules
• PR 2018/8 – Enova Solar Garden Project – electricity credit not assessable to Solar Gardener
• PR 2018/9 & 10 – [9] Tax consequences for an Owner entering into a concurrent lease with Future Rent Pty Ltd;  [10] Tax consequences for a Participant in an urBau joint venture project

ATO Interpretative Decisions

• —

Practice Statements

• —

Practical Compliance Guides

• PCG 2017/13 – Div 7A treatment UPEs – ‘Option 1’ sub-fund loans for 7 years – updated to include relevant dates for UPEs created on 30 June 2011 – due to be repaid by 30 June 2019
• PCG 2018/4 – When an Court appointed Executor or Administrator of a Deceased Estate will be treated as having ‘notice’ of a tax liability – safe harbour guidelines for distribution of the Estate without personal liability for tax
• PCG 2018/D7 – GST: Draft defacto ‘safe-harbour’ guidance for ‘Australian Inbound Tour Operators’ to self assess GST as either an ‘agent’ or as a ‘principal’ (as the results are radically different)

Tax Alerts

• —

Other ATO news or statements

• Tax agents facilitating suspected phoenix activity and avoidance of tax – coordinated strike at 11 sites in Melbourne and Shepparton – 250+ officers and some police exercise access powers without notice

GST 

Legislation & Announcements (GST)

• —

Cases (GST)

• CofT v ACN 154 520 199 Pty Ltd (in Liquidation) – Gold bullion GST case – Federal Court reverses AAT order that the Commissioner produce internal advice on the ‘no refining issue’ on the basis that it ‘relevant’ to the ‘penalties’ issues
• Mango Reef Pty Ltd v CofT – Taxpayer’s claim for $621k of ‘input tax credits’ on alleged purchases of 145kg of gold – failed to prove that the purchases occurred at all and 75% shortfall penalties upheld
• Sunlea Enterprises Pty Ltd v CofT – Input tax credits denied for belatedly invoiced “unrecouped project costs” – as insufficient evidence of any ‘acquisition’, of payment, of the thing supplied being taxable; and the invoice was not a ‘tax invoice’

Rulings, Etc. (GST)

• GSTR 2018/1 – GST: supplies of real property that are ‘connected with’ Australia – including rights to occupy a hotel in Australia, created by a foreign tour operator (via the local hotel operator)

Superannuation

Legislation etc. (Super)

• —

Cases (Super)

• Aussiegolfa Pty Ltd (Trustee) v CofT – SMSF invested in single property ‘sub-fund’ – leasing property to daughter of SMSF member did not breach the ‘sole purpose test’ but units in the sub-fund were ‘in-house assets’
• Re Narumon Pty Ltd – Extension of a superannuation binding death benefit nomination (BDBN) by Powers of Attorney was binding but ‘conflicted’ change slightly benefiting a donee precluded under Attorneys legislation

Rulings etc. (Super)

• —

State Taxes

Legislation & Announcements (State)

• Qld: Revenue and Other Legislation Amendment Bill introduced – charitable institution registration requirements, extend primary production transfer duty concession, Land Tax and deceased estates

Cases (State)

• —

Rulings & Other (State)

• NSW: Duty on transfer of dutiable (real) property remains payable on the ‘purchase price’ – including any amount for GST (even after the new GST withholding system)

Other Developments

Australian Charities & Not-for-Profits Commission (ACNC)

• Gift Deductible Recipients (DGRs) – those not already registered with the ACNC will be required to do so by 1 July 2019 & certain ‘public fund’ requirements will be abolished (consultation paper released)

Base Erosion & Profit Shifting (BEPS)

• —

Board of Taxation

• Board of Taxation review of FBT compliance costs – working group formed and research projects invited
• Board of Tax – August 2018 CEO Update of Adelaide Meeting – small business tax concessions; FBT compliance costs; residency rules for individuals; Tax Transparency developments; Sounding Board – ‘policy lite’, revenue neutral gains

Inspector General; National Audit Office, JCPAA

• IGT Review into GST Refunds – Report recommends improvements in ‘automated risk assessment tools’; notifying commencement of objection rights; awareness of hardship consequences and remedies

Miscellaneous

• Technology boon for FBT on car parking benefits – Technology makes calculating the exact benefit possible (and refunds a possibility)
• ASIC disqualifies former director from managing companies for maximum period of 5 years for engaging in illegal phoenix activity

Tax Practitioners Board

• Tax Practitioners Board welcomes new Secretary/CEO – 30 year public servant lawyer coming from ATO ‘risk officer’ background
• Dadwal v TPB – Tax agent not a fit and proper person in light of 3 indecent assaults, 15 years on sex offenders register; evasiveness or dishonesty before and after conviction

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[i]           Sources – abbreviations: ‘KPMG’: KPMG Daily Tax News; ‘LCA’: Law Council of Australia; ‘LTN’: Latest Tax News (Thomson Reuters); ‘Sievers’: Chris Sievers’ GST post (www. http://chrissievers.com); ‘TBA’: Tax Bar Association Newsletter; ‘TaxVine’: The Tax Institute’s ‘TaxVine’.