Tax Facts

Tax Facts contains news and alerts relating to tax practice, for the benefit of accountants and other professionals in public practice. Please click on the links below for recent issues. You may also like to peruse Tax Facts by topic category - topics are listed below to the right.

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  • High Court applies additional Victorian duty for Docklands

    In a single, joint judgement, the High Court has upheld appeals by the Victorian Commissioner of State Revenue relating to the duty payable on the transfers of land to subsidiaries in the Lend Lease group pursuant to a development agreement for the Docklands area in Melbourne.

    The relevant Victorian duty provision referred to ‘the consideration …. for the dutiable transaction’. Adopting the decision of the Court's majority in Comm of State Revenue (NSW) v Dick Electronics Holdings Pty Ltd, it was held that the consideration referred to is ‘what was received by the Lenders so as to move the transfers to the purchaser as stipulated in the Agreement’. The land transfers under the Docklands development agreement represented a ‘single, integrated and indivisible’ transaction. Consequently, what moved each transfer included the amount payable by Lend Lease for each staged transfer of land, as well as the various other contributions and infrastructure works required of Lend Lease under the development agreement. (Comm of State Revenue (Vic) v Lend Lease Development Pty Ltd [2014] HCA 51)
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    17 Dec 2014

    Topic: State Taxes

  • Interest free loans to SMSFs

    In 2 recent Interpretive Decisions, the Commissioner has concluded that the income derived by SMSFs under limited recourse borrowing arrangements would be non-arm's length income and consequently subject to income tax at the maximum personal rate of 47% (rather than 15%).

    The examples adopted related to the acquisition of both listed shares and real property. In each case, the limited recourse loans were from related parties and were long term (15 years payable by regular instalments and 20 years payable at the end of the loan term). But no interest was payable by the SMSFs to the related party lenders and the LVRs were 80% and 100% respectively.

    Comments from ATO representatives in 2012 (that low or no interest loans from a related party under a limited recourse loan arrangement would not be regarded as resulting in contributions to the relevant SMSF) have fuelled an increase in arrangements with non-arm’s length interest rates. But it is now plain that the ATO will tax the income from such arrangements at 47%. Unless a particular SMSF wants to take issue with the Commissioner on the point, loan terms from related parties (particularly, the interest rate) should be adjusted to the terms that would apply from an unrelated lender and it would be wise for evidence of that to be obtained. (ATO Interpretive Decisions 2014/39 and 2014/40)
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    17 Dec 2014

    Topic: SMSFs

  • Tax Bill No 7 introduced

    The Tax and Superannuation Laws Amendment (2014 Measures No 7) Bill 2014 has been introduced into Parliament. The amendments of most interest are those to enact a less severe regime for excess non-concessional super contributions, to clarify and broaden CGT exemptions relating to personal wrongs, injury, illness and death, and to introduce the exploration development incentive to encourage investments in small exploration companies.

    The super fund amendments will give members the option to withdraw excess non-concessional contributions made from 1 July 2013, together with 85% of associated earnings. No tax will apply to the withdrawn excess contributions, but the associated earnings are to be included in the member's assessable income and taxed at his or her marginal tax rate, with a 15% non-refundable tax offset.

    The exploration development incentive will enable eligible exploration companies to effectively use their tax losses to create exploration credits for investors, giving investors a refundable tax offset (or franking credits in the case of a corporate investor).
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    17 Dec 2014

    Topic: SMSFs/Income Tax

  • No FBT relief for Qantas employee car parking

    The Full Federal Court has held that Qantas was liable to pay FBT in relation to car parking that it provided for employees on its premises at airports. Qantas’ arguments against liability hinged on the definition of a ‘car parking fringe benefit’, an element of which is that there must be a ‘commercial parking station’ within a kilometre of the premises at which the parking spaces are provided. And to be a commercial parking station, car parking spaces must be available in the ordinary course of business to members of the public.

    There was no argument that there are commercially operated parking stations within a kilometre of Qantas’ premises where it provides employee parking at airports. Qantas sought to confine the concept of ‘public’ in this context by reference to the plain rationale of the legislation that car parking fringe benefits are intended to apply in relation to vehicles used by persons commuting between their homes and ordinary places of work, rather than a broader concept of anyone using airport parking stations. However, this argument was rejected – the Court held that ‘there is no rationale for imputing into the definition [of public] a requirement that the commercial parking station be one that employees of the employer commuting to work by car would or could in fact use.’ (C of T v Qantas Airways Ltd [2014] FCAFC 168)
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    17 Dec 2014

    Topic: Other News

  • No deduction for fly-in fly-out employee costs

    In another FBT case, an employer argued that employees would have been entitled to an income tax deduction for their costs of flying to and from remote worksites, had the employees paid such costs. Consequently, so the argument went, the taxable value of the flights that it provided to its employees was nil pursuant to s52 of the Fringe Benefits Tax Assessment Act 1986.

    The taxpayer had a formidable task to distinguish the long-standing authority of Lunney v FC of T [1958] HCA 5, that expenses in travelling from home to work or business and back are not deductible. The judge in this case remarked that she found ‘much in the applicants’ submissions persuasive’, but was bound by authority otherwise. This was despite an important difference in this case – that employees were paid for the time spent travelling to and from the work site.

    It is unlikely that the taxpayer in this case commenced its litigation expecting that the matter would be over after the initial hearing – and this is borne out by the eminent Counsel engaged by both sides. There will be a further instalment! (John Holland Group Pty Ltd v C of T [2014] FCA 1332)
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    17 Dec 2014

    Topic: Income Tax

  • Taxation Ruling on transfer pricing reconstruction power

    The Commissioner has issued Taxation Ruling TR 2014/6 to express his views about the application of s815-130 in the new, overhauled transfer pricing rules that commenced last year. Coincidentally (???), the ruling was issued just before the Brisbane G20 – Australia and other members of that forum have been very vocal about international profit shifting by multinationals.

    Section 815-130 relates to the identification of ‘appropriate’ arm's length conditions by which to determine whether a tax advantage has been obtained. The provision effectively allows the Commissioner to reconstruct transactions to the basis of how independent parties would have dealt with each other and where the form of the actual commercial or financial relations between the parties is inconsistent with the substance. Although the impact of the transfer pricing rules is greatest on larger corporate groups, one sometimes sees potential implications for those SMEs that have inbound funding from an associated entity offshore.
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    05 Dec 2014

    Topic: Income Tax

  • Tax Bill No 6 introduced

    The Tax and Superannuation Laws Amendment (2014 Measures No 6) Bill 2014 has been passed by both Houses.

    The most significant aspect of the Bill is the proposed consolidation of the CGT rollovers in Subdivisions 124-G and 124-H into a new Division 615. Subdivision 124-G applies where shareholders exchange their shares in a company for shares in an interposed company (e.g. a new holding company) and Subdivision 124-H applies where unit holders in a unit trust effectively exchange their units for shares in a company. Significantly, rollovers will also be permitted where the relevant shares or trust units are revenue assets or trading stock.

    The Bill also includes other proposed changes (including the extension of the managed investment trust withholding regime to foreign pension funds) and, because they reflect announcements going back to the 2011-12 Budget and proposed start times in those announcements, will have proposed application dates going back as far as 1 November 2008.
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    05 Dec 2014

    Topic: CGT/Income Tax

  • Land value for WA duty purposes

    Property valuations are an important aspect of both Commonwealth and State taxes and can have a major impact on outcomes. In a recent WA duties case, an apparently aggressive stance by the State Commissioner on valuation principles failed to impress the WA Court of Appeal.

    A subdivision including 44 residential lots had been undertaken but, because of a slow market, only 12 of the lots had been sold after 2 years. The remaining 32 lots were sold under a single contract to the taxpayer, which was a company controlled by 2 individuals with interests in the development company. The price was based on a valuation provided for that purpose. It started with a gross sale price for each lot of $120,000, then deducting allowances for holding costs and marketing costs plus a discount for profit and risk.

    The Commissioner's own advice from the Valuer-General's office was that the valuation was reasonable. Further valuation advice obtained by the Commissioner indicated a higher value, but nevertheless acknowledged the valuation basis that had been used. The Commissioner nevertheless assessed duty more or less on an aggregation of the anticipated gross sale price of $120,000 for each lot, without any deductions.

    The Court readily dismissed the Commissioner's appeal, referring to his grounds as misconceived. The uncontradicted evidence was that the market was slow, the lots could not have been sold separately without incurring holding and marketing costs and no purchaser would acquire all 32 lots at the anticipated gross price of each lot. The sales of individual lots for residential purposes over time was the highest and best use of the land and the ‘sale in one line’ methodology endorsed by all the valuers involved was plainly correct. (Comm of State Revenue (WA) v Hazel Holdings Pty Ltd [2014] WASCA 203)
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    05 Dec 2014

    Topic: State Taxes/Income Tax

  • ATO's Div 7A discretion - corrective action

    The ATO in a recent update on its website indicated its views about taxpayers’ corrective action to be taken into account in exercising the discretion to disregard the operation of Division 7A under s109RB, where a deemed dividend results from honest mistake or inadvertent omission. The Commissioner says that corrective action usually involves entering into a complying loan agreement and making catch up payments of interest (with missed payments compounded) and principal, so as to achieve the same position that would have resulted had there been a complying loan agreement and requisite payments from the outset.

    How quickly corrective action has been taken is also a consideration. However, the update also refers to the prospect of the Commissioner's discretion being exercised subject to a condition that relevant corrective action is taken within a specified future time. Refer also to taxation ruling TR 2010/8.
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    05 Dec 2014

    Topic: Income Tax

  • MBI Properties case - Commissioner wins in the High Court

    In a single, joint judgement, the High Court on Wednesday allowed the Commissioner's appeal in this case. This is a very significant GST decision for the property industry and, at least in an overall and pragmatic sense, restores structure to the relevant provisions of the GST regime.

    The critical point for determination in the case was whether the purchaser of the reversionary estate in land – relevantly, the purchaser of 3 residential apartments subject to a lease to the operator of the serviced apartment business in the relevant building – makes any supplies to the lessee following the purchase. The Full Federal Court had decided in favour of the taxpayer, holding that the supply constituted by the grant of a lease of property did not continue beyond the grant. The High Court disagreed, remarking that ‘[i]n observing and continuing to observe the express or implied covenant of quiet enjoyment under the lease, the lessor is appropriately characterised, for the purposes of the GST Act, as engaging in an "activity" done "on a regular or continuous basis, in the form of a lease".’

    The outcome was that, although each of the sales of the 3 apartments to the purchaser had been held in previous proceedings to be a GST-free supply of a going concern, s135-5 applied and an increasing adjustment resulted, effectively negating the GST-free supply. There was an increasing adjustment because the continuing observance by the purchaser of the apartments, of its obligations under the leases, constituted input-taxed supplies of residential premises. (C of T v MBI Properties Pty Ltd [2014] HCA 49)
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    05 Dec 2014

    Topic: GST