Tax Month – July 2018

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

– July 2018 Developments –

This is a collection of developments in Australian tax law and practice that occurred in July 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.

• Tax Related Bills still outstanding – including: $20k ‘write-off’; corporate tax cuts; Hybrid Mismatch Rules; Multi-Lateral Instrument; Black Economy Bill; and non-resident ‘main residence’ abolition
• Unexplained Wealth Legislation Amendment Bill 2018 – relies on States referring powers for National Co-operative Scheme on the Proceeds of Crime
• Black Economy Budget Measure – Removing tax deductibility of wages and the cost of making non-cash benefits in phoenixing situations (no PAYGw payments made to the ATO)
• Reportable payment system to be extended to road freight, IT and security providers – to Implement the balance of the ‘Black Economy’ Taskforce’s Final Report recommendations – draft legislation released
• Stapled structures & other measures: revised draft legislation released – extending measures to agricultural land, changing Thin Cap laws on MIT Staples, limiting foreign super and government concessions, leaving MIT concessions for ‘affordable housing’

Announcements

• R&D Tax Incentive – R&D proposed changes released – $150m threshold, offset at corporate rate plus 13.5% points, $4m cap, higher intensity
• Budget ‘thin cap’ measure: ending valuations outside financial accounts – Treasury fills the ‘gap’ in the transitional rule – the ‘average’ asset value will be frozen at the last complying valuation pre-Budget Night
• Reforming ABN system – Treasury releases Consultation Paper exploring the role of ABNs in light of Black Economy Taskforce’s suggestions to limit period of ABN registration and charge a fee for renewal

Cases

High Court

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Full Federal Court

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Federal Court

• Harding v FCT – Taxed on Saudi employment income as a ‘resident’ despite long history of Middle Eastern work because he retained an Australian ‘domicile’ and his serviced apartment was not sufficiently ‘permanent’
• Newmont Canada FN Holdings ULC v FCT – Commissioner refused stay of proceedings pending outcome of Resource Capital Fund IV case – Div 855 ‘land rich’ decision
• DCT v Donoghue – Summary judgment for tax debt correctly entered for $48m – service effective and formalities established the statutory presumption that the debt was due and payable
• Greig v FCT – Deduction for share losses and legal fees denied – not acquired as part of a profit making undertaking or scheme (just ordinary investment)
• FCT v Chen – Asset freezing order granted over Australian and international assets to protect expected judgement for $7.5m tax debts

Administrative Appeals Tribunal

• Rus and FCT – 16 hectare vacant land with 10% office not an ‘active asset’ for Small Business CGT Concession purposes – objection to private ruling fails and new facts not allowed
• TZSX v CofT – AAT upholds Commissioner’s decision to not issue a further ‘departure authorisation certificate’ – security offered was too little and uncertain compared with the $33m tax debt (in dispute)

Other Courts & Tribunals

• Hampshire Assets and Services v Blackman: tax advice alleged to be ‘misleading or deceptive’ – case against accountant fails as he was entitled to rely on 3rd party expert advice

Appeals

• Harding v FCT – Taxpayer appeals Federal Court decision he was a ‘resident’ and taxable on his Saudi Arabia income despite not intending to return to Australia to live

Rulings

Decision Impact statements

• —

Rulings

• TR 2018/D1 – draft ruling on the meaning of the phrase “in Australia” requirements for the Div 30 ‘Deductible Gift Recipients (DGR); Div 50 ‘tax exemption’ provisions for charities etc. and Div 207 Franking Credit refunds
• TR 2018/5 and PCG 2018/D3 – ATO’s guidance on Company ‘residency’ tests after the Bywater case – has ‘nothing changed’?

Determinations

• TD 2018/12 – Scope of MAAL: when related party ‘activities’ are “directly in connection with” the foreign entity ‘supply’ (viz: ‘permanent establishment’ avoidance)
• TD 2018/13 – Div 7A: ordinary commercial payments or loans, to interposed entities can still trigger the s109T anti-avoidance provision (but not necessarily trigger Div 7A)
• TD 2018/14 – Div 7A ‘benchmark’ interest rate for 2018-19 is 5.2% (down from 5.3% last year) – to avoid loans to shareholders/associates being deemed dividends

Law Companion Rulings

• —

Class Rulings & Product Rulings

• CR 2018/30 & CR 2018/31 – restructure of IFM Infrastructure Funds; Westfield sale of Unibail-Rodamco stapled securities
• PR 2018/7 – Tax consequences of investing in PTrackERS – Portfolio Tracking Exchangable Redeemable Securities

ATO Interpretative Decisions

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Practice Statements

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Practical Compliance Guides

• PCG 2017/2 updated – Simplified transfer pricing record keeping options – including $50m in-bound and out-bound loan totals but 7% interest expense and 4% interest income limits
• PCG 2018/3 – when employers can let employees drive ordinary vehicles home without FBT under s47(6) of the FBT Act – ATO guidance for allocation of audit resources
• PCG 2018/D5 – Commissioner addresses confusion over ‘corporate tax rate’ changes in 2016 & 2017 years – no audit of ‘carrying on a business’ and allowing companies to issue statements correcting the franking rate

Tax Alerts

• —

Other ATO news or statements

• Allocation of Profits in Professional Firms – ATO advice to Working Group as of 28 June 2018 – definition of ‘professsionals’ (gateway) – factors in achieving structure neutral guidance focussing on economic outcomes
• Individuals’ tax gap analysis for 2014 & 2015 years released – $8.7b v’s $2.5b for corporates (but 6.4% of total v’s 5.5%) – more agent prepared returns adjusted (wake up call)
• Independent review of ATO audit position to be available to the ‘small end of town’ too – ATO announces small business pilot for income tax disputes in South Australia and Victoria
• Car expenses: cents per km rate from 1 July 2018 – 68c/km (up from 66c/km)
• HELP and SFSS repayment thresholds and rates 2018-19 – nil% up to $51,957 rising to 8% above $107,214 of ‘repayment income’
• Draft Property and Construction Website Guidance – ATO identifies the factors it looks at for capital v’s revenue account treatment and seeks feedback
• Top 1000 Tax Performance Program (streamlined assurance reviews): timing set to minimise duplication of effort – particularly when APAs are in place or being negotiated
• Inbound supply chain (ICS) strategy to counter ‘transfer pricing risk’ – starting with 4 industries and developing a PCG
• ATO’s ’10 top MYTHS’ about deductions that taxpayers can claim – $150 for clothing and laundry, $300 for work related expenses, 5,000 km of car travel, etc.

GST 

Legislation & Announcements (GST)

• GST Turnover – Offshore travel agents, etc. will have to include the value of Australian hotel bookings, like Australian suppliers – affecting their Australian GST liability – draft legislation introduced

Cases (GST)

• Travelex Limited v FCT – interest on overpaid GST held to be payable from 14 days after the ‘surplus arose’ under s12AD of the Overpayments Act (not from notice of refund amount)
• MSAUS v CofT – ATO explains why it didn’t appeal an AAT decision on the effectiveness of a GST clause (to apply the ‘margin scheme’) which contradicts the Full Federal Court conclusion on the same clause in the South Steyne case

Rulings, Etc. (GST)

• —

Superannuation

Legislation etc. (Super)

• Three year audit cycle for SMSFs with 3 years of clear audit reports and timely lodgement of returns – Treasury Discussion Paper (for 2018 Federal Budget announcement)
• Three-yearly SMSF audits ‘problematic’ – Auditors worried about reality of ‘cost savings’, self-assessment and the details

Cases (Super)

• Cam & Bear Pty Ltd v McGoldrick – SMSF auditor found negligent for failing to detect an unsecured loan was not ‘cash’ as recorded (when borrower later became insolvent and was wound up)

Rulings, other etc. (Super)

• Standard form SMSF documents – the problems of going to a non-lawyer
• Productivity Commission findings on SMSF costs and minimum $1m size are “flawed” – according to the SMSF Association

State Taxes

Legislation & Announcements (State)

• NSW Payroll Tax: Tax Free Wages Threshold increased from $750k to $1m over 4 years – relevant Bill becomes law
• Tas Payroll Tax & Duty: new Act reduces payroll tax rate to 4%, imposes additional 3% point duty surcharge on foreigners, and gives a 50% duty concession to certain first home buyers and ‘downsizers’

Cases (State)

• NSW Duty – Rubino Investments Pty Ltd v Chief Commissioner of State Revenue (NSW) – transfer of land not exempt as transfer to new trustee or transfer to rectify fraud
• NSW land tax: Australia Avenue Developments Pty Ltd v Chief Commissioner of State Revenue (NSW) – ‘Construction Lease’, supporting a Development Agreement, still found to be a ‘lease’ and the lessee was liable to land tax as a deemed ‘owner’
• NSW Land Tax – Carberry v Chief Comr of State Revenue – land owner not entitled to exemption for land intended to be his principal place of residence – buildings occupied by tenants paying rent

Rulings & Other (State)

• NSW: Foreign person Duty and Land Tax ‘surcharges’ as applied to discretionary trusts – foreign beneficiaries must be removed irrevocably or the surcharge will apply

Other Developments

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

• —

Board of Taxation

• Board of Taxations Report on Australian individual tax residency rules – modernise and include ‘bright line’ (count the days) tests to avoid growing and invasive disputation
• Board of Taxation – July Update from CEO – ‘earn-outs’ review; Small Business Concessions review; FBT compliance costs; Residency Rules review; aligning tax and accounting treatments; Tax Transparency Code; not-for-profits review

Inspector General; National Audit Office; External Supervision

• IGT will not seek third term – in his 10 years his office has conducted 30 reviews into ‘systemic’ ATO problems and taken over the Ombudsman’s ‘individual’ complaints function (allowing one to inform the other)

OECD & Global taxes – BEPS etc.

• OECD launches public database of macro-economic tax data – showing tax as a % of GDP broken down by tax type and correlated to per capital income etc.
• Common Reporting Standard (CRS) Automatic exchange of offshore account information – OECD reports over 100 jurisdictions exchanging under 3,200+ bilateral relationships
• OECD releases BEPS discussion draft on the transfer pricing aspects of financial transactions
• Europeans press for digital tax turnover tax, at the July Buenos Aires G20 meeting, as an interim measure – Australian Treasurer not moved by ‘digital advertising sales tax’ approach

Miscellaneous

• ASX Corporate Governance Council’s Principles and Recommendations – consultation on whether an entity’s board must consider the views and interests of other stakeholders, such as customers, suppliers, consumers, tax payers and others
• Australia joins new ‘J5’ Enforcement Group to fight global tax and other crime – with Canada, the US, UK and Netherlands
• Becoming a philanthropist has its benefits – consider ‘Private Ancillary Funds’

Tax Practitioners Board

• Beckett and Tax Practitioners Board – Tax agent’s registration terminated for not a ‘fit and proper person’ person – multiple dishonesties including unexpired suspended custodial sentences inconsistent with relevant standard

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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; ‘Vine’: The Tax Institute’s ‘Tax Vine’.