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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  • Offshore companies held to be Australian tax residents

    A recent decision of the Federal Court represents a further instalment of the long-running battle by the ATO against a Sydney man, alleged to be the controller of 5 offshore companies. The facts are very complex but, in essence, the Commissioner successfully sought to tax substantial profits made on the purchase and sale of shares in Australian companies by the offshore companies. The basis was that the directors of each company ‘exercised no independent judgement’, merely giving effect in a mechanical way to the wishes of the Sydney controller. The central management and control of each company was consequently in Australia and it had been accepted by the taxpayer companies that their activities in buying and selling listed shares in Australia amounted to carrying on business in Australia. The Court also rejected an argument that the share profits were capital, although it did find that the shares were trading stock and the taxpayers were consequently entitled to make trading stock elections.

    Taxpayers should be aware of the practice of the Federal Court where evidence in a hearing potentially suggests illegality. The final 3 sentences of the Judge's reasons in this case are as follows (it should be noted that any charges that might be brought against those involved must be proven and that criminal charges reportedly brought in 2013 against several people involved were discontinued in May 2014, with the Commonwealth reportedly agreeing to pay substantial legal costs of one or more of those charged):

    ‘I direct the Registrar to forward a copy of these reasons to the Commonwealth Director of Public Prosecutions, the Australian Securities and Investments Commission and the Australian Federal Police. The facts I have found strongly suggest widespread money laundering, tax fraud of the most serious kind and, possibly in some instances, insider trading. The conduct revealed in this case is disgraceful.’

    (Hua Wang Bank Berhad v C of T [2014] FCA 1392)
    ... Read More

    22 Jan 2015

    Topic: Income Tax

  • SMSFs - proposed look through for custodian trusts

    Exposure draft legislation was released this week as part of the implementation of the previous Government's announcement (on 10 March 2010!) to adopt a look through approach for assets of SMSFs held under limited recourse borrowing arrangements. This treatment is also to apply for taxpayers generally, in relation to instalment warrants and receipts relating to listed securities and others in widely held companies.

    For an asset acquired under a limited recourse borrowing arrangement for an SMSF, the custodian trust under which the asset is held will be ignored for most income tax purposes. That is, the income tax regime will operate on the basis that the SMSF is the owner of the asset and acts of the custodian trustee (e.g. sale of the asset) will be taken to be acts of the SMSF. Income and capital gains will consequently be taken to be derived by the SMSF and no tax return will be required for the custodian trust. SMSFs will also be entitled to look through treatment, in the same way as other taxpayers, in relation to eligible instalment receipts not funded by borrowings.

    The draft legislation relates to income tax only – technical GST uncertainties relating to custodian trusts are apparently not to be addressed. Thankfully, the look through approach for income tax is proposed to apply retrospectively back to 1 July 2007 – this recognises that that has been the practice generally adopted anyway.
    ... Read More

    22 Jan 2015

    Topic: SMSFs

  • Payments for Olympic broadcasting rights not royalties

    The Federal Court has upheld the submissions of the Seven Television Network in a case concerning payments of nearly $98M to the International Olympic Committee in Switzerland. The Commissioner's view was that Seven was liable to deduct withholding tax, failing which Seven was liable for penalties and not entitled to income tax deductions for the payments. The Seven Network succeeded because the payments were held not to be royalties for the purposes of Article 12(3) of the double tax agreement between Australian and Switzerland – that is, not ‘consideration for the use of, or the right to use, any copyright …. or other like property or right ….’

    Much of the evidence and judgement was necessarily devoted to technical matters about the transmission of signals and copyright law. Under its agreement with the IOC, the Seven Network became the copyright owner in Australia of all recordings and broadcasts that it produced from the signal supplied to it under the arrangement with the IOC during the period of each Olympic Games. But the Commissioner's case was that the IOC effectively also had copyright or some similar property in the transmission signal initially provided to Seven. The Court disagreed. The transmission signal itself did not comprise images or things or something in which images or things were embodied, although images and sounds could be produced after conversion of the signal in some receiving device. Further, the transmission signal itself could not be stored – it merely represented the flow of data originating from cameras and microphones, to receiving equipment capable of converting the data into pictures and sound. (Seven Network Ltd v C of T [2014] FCA 1411)
    ... Read More

    22 Jan 2015

    Topic: Income Tax