Tax Facts

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  • More tax problems from wide trust beneficiary classes

    In brief:    A recent NSW payroll tax case shows again the potential problems of widely drawn beneficiary classes in discretionary trusts. A company owned and controlled by Michael Gerace had been issued with payroll tax assessments of nearly $2M and was put into liquidation. The Chief Commissioner of State Revenue (NSW) was successful in an appeal to group that insolvent company with a trust controlled by Michael’s brother and one established originally for their parents, despite an apparent lack of commercial connections. Grouping was achieved because Michael was a discretionary beneficiary of both those other trusts, so he was effectively taken to have a controlling interest in each of those trusts (as well as the insolvent company that he owned). And members of a payroll tax group are jointly and severally liable for the tax payable by every group member.

    More:    Having wide trust beneficiary classes is an outdated practice that potentially creates substantial tax disadvantages, yet serves no real purpose – Tax Strategies’ trusts have for several years been created on a different basis without wide beneficiary classes, substantially minimising the risk of such tax disadvantages. There was no doubt about the grouping in this case, but Michael disclaimed his interests under his brother’s and parents’ trusts in an attempt to retrospectively sever his connection with them. However, the Court held that that did not affect payroll tax liabilities that had already arisen, irrespective of its impact as between Michael and the respective trustees. It is traditional drafting practice to have wide beneficiary classes in a discretionary trust, including many family members who are not intended and will never benefit under the trust. But that can give the payroll tax Commissioners a very easy grouping mechanism. It has also caused significant problems in relation to the recently introduced duty and land tax surcharges for foreign purchasers of residential real estate in a number of States. (Chief Commissioner of State Revenue (NSW) v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184)

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    24 Aug 2017

    Topic: Trusts/State taxes

  • Developing rules for super event-based reporting

    In brief:    The ATO has released a Position Paper on its views for the application of the event-based reporting regime to SMSFs from 1 July 2018. This follows a recent draft legislative instrument to lay down the timing framework for the reporting regime. The basic rule proposed is that reporting must be done within 10 business days after the end of the month in which the reporting event occurred, although that will be subject to further concessions (at least for a transitional period).

    More:    The purpose of the event-base reporting regime is to enable the ATO to track and administer the application of super fund members’ $1.6M (initially) transfer balance account cap. The ATO is seeking feedback about the options outlined in its Position Paper. The first option is the basic rule of 10 business days after the end of the month, but 28 days after the end of the quarter in which the reporting event occurs for reporting of the commencement of a retirement phase income stream and relevant repayment events relating to limited recourse borrowing arrangements. Also, extensions will generally not apply in relation to commutations of income streams. The second option proposed by the ATO is 28 days after the end of the relevant quarter in which the reporting event occurs for an initial 2 year period, reverting to the basic rule of 10 business days after the end of the month for all relevant events (again, except in relation to commutations). (ATO Position Paper; Transfer Balance Cap & SMSF ‘Event-Based’ Reporting Framework, 18 August 2017)

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    24 Aug 2017

    Topic: SMSFs