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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  • Royalty withholding tax for software distributor upheld on appeal

    The full Federal Court dismissed the taxpayer's appeal in this case. It held that annual fees paid by the Australian distributor of software to its Canadian developer were royalties for the purposes of Article 12(3)(a) of Australia's double tax agreement with Canada and liable for withholding tax accordingly. In particular, an exclusion under the treaty for payments for source code in computer software, where ‘the right to use the source code is limited to such use as is necessary to enable effective operation of the program by the user’ (Article 12(7)), did not apply. (Task Technology Pty Ltd v FC of T [2014] FCAFC 113).
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    24 Sep 2014

    Topic: Income Tax

  • Settlement of action constituted a CGT event

    In a recent AAT case, an amount of $350,000 received by the taxpayer in settlement of a claim by she and her husband was held to constitute the capital proceeds from CGT event C2. Further, the taxpayer was held not to have satisfied the onus on her to show that legal costs incurred in prosecuting the claim should be included in the cost base of the relevant CGT asset, the cause of action against the defendant. And to make matters worse, the Tribunal upheld a 50% penalty for recklessness.

    The CGT principles involved in this case may be uncontroversial, but it is a good reminder. The income tax, CGT and GST implications of settlements can be notoriously difficult. Further, the course of negotiations and settlement documentation usually has a substantial bearing on tax outcomes, so it is often made even more difficult if taxes are not addressed at a very early stage. (Coshott v FC of T [2014] AATA 622)
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    24 Sep 2014

    Topic: CGT

  • Compliance assessment by the ATO for professional firms

    The big news of late that potentially affects all practitioners is the release by the Commissioner of draft guidelines on how the ATO will assess the risk of Part IVA potentially applying to the allocation of profits from a professional firm carried on through a partnership, trusts or companies (see the link at the end of this item). This risk assessment is to apply for the 2015 and future years of income.

    Individual principals of such firms will be regarded as low risk and not subject to compliance action if they meet at least one of the following criteria:
    • they receive a level of income equivalent to the highest band of professional employees providing equivalent services in the firm or, if there are no such employees in the firm, employed by comparable firms or determined from industry benchmarks;
    • at least 50% of the income to which the principal and all associated entities become entitled is assessed in the hands of the principal; or
    • the principal and their associated entities have an effective tax rate of at least 30% on the income from the firm – from examples provided, this seems to imply an average tax rate of at least 30%.
    Of course, these criteria have not the slightest basis in law (the High Court in Everett's case in 1980 rejected the Commissioner's submission that the income of partners in the firm of lawyers involved in that case constituted income from personal exertion). Plainly, the aim is to achieve greater adherence to benchmarks that the Commissioner believes appropriate through the threat of, at the very least, the waste of time and costs that will be involved in dealing with ATO audit activity.

    All our professional bodies should be protesting loudly!
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    24 Sep 2014

    Topic: Income Tax