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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  • division 7A proposed amendments - consultation paper released by treasury

    In brief:    Treasury this week released a Consultation Paper on the Division 7A amendments proposed to commence on 1 July 2019. There are some significant changes from what has previously been mooted, with some of the main points now proposed including:

    •   a single 10 year model for complying loans, with equal annual principal repayments and interest at a Reserve Bank published indicator rate for small business overdrafts (currently 10.3%, compared to the current Division 7A rate of 5.2%)
    •   except for the initial year of the advance, loan interest will be calculated for a full year regardless of when any repayment is made during the year
    •   25 year loans existing on 30 June 2019 must adopt the new interest rate immediately, but the new 10 year loan rules will not apply until 30 June 2021
    •   7 year loans existing on 30 June 2019 will retain their existing outstanding term, but must otherwise comply with the new loan model
    •   loans made before 4/12/97 must adopt the 10 year repayment model from 30 June 2021
    •   the concept of ‘distributable surplus’ will be removed, so that Division 7A will always apply to the whole value of any loan or other benefit extracted from a private company
    •   all outstanding UPEs after 15/12/09 will effectively be subject to the 10 year repayment model from 1 July 2019, although no decision has yet been made to also bring in UPEs from before 16/12/09.

    More:    The Consultation Paper also outlines some further amendments that the Government proposes. Perhaps the most significant is the proposal of a 14 year review period during which assessments can be amended in respect of Division 7A matters. In addition, a self-correction mechanism is proposed for taxpayers to rectify inadvertent breaches of Division 7A. Taxpayers will be permitted to self-assess their eligibility for this relief, under which they will be obligated to convert any relevant benefit into a complying loan agreement. Affected taxpayers will also need to make catch-up payments of both principal and interest (on a compound basis) that would have been required, had they properly complied with Division 7A in the first place.

    Other proposed amendments include a safe harbour formula that may be adopted in the case of an asset (other than a motor vehicle) provided by a company for use by a shareholder or their associate, confinement of the exclusion for loans made in the ordinary course of an entity’s business to loans made in the ordinary course of a moneylending business, and a ‘but for’ test for the application of s 109T to loans, payments or other benefits provided to a taxpayer indirectly from a private company. (Targeted amendments to the Division 7A integrity rules: Consultation Paper, October 2018)

    ... Read More




    24 Oct 2018

    Topic: Income tax/Trusts

  • Beware the email trail - evidence from revealing correspondence

    In brief:    A recent ex parte application in the Federal Court for freezing orders and other interlocutory relief against several taxpayers starkly illustrates the importance that email correspondence may play in disputes. Evidence supporting the application included an affidavit from ‘a computer forensics officer employed in the Forensics and Investigations team of the ATO.’ The evidence of that ATO officer was that documents purportedly made in 2003 had actually been created in 2015, subsequent to the commencement of an ATO audit and associated notice issued to the taxpayers’ accountant to provide information under (former) s 264 ITAA36. Further evidence based on email correspondence involving personnel from the taxpayers’ accountants was alleged to support the fact that the relevant documents ‘were created in February 2015 and backdated to give the appearance that the documents came into existence in May 2003.’

    More:    This case involved fairly extreme circumstances, where total tax and penalties at issue exceeded $34M and documents had ultimately been seized from premises associated with the relevant accounting firm under search warrants executed by the Federal Police. However, the point is that email correspondence does not have the confidentiality that we intuitively attribute to it. Best practice is to approach the writing of any document or correspondence with the attitude that it may ultimately be viewed by a range of people, including regulatory authorities.

    Such incriminating evidence sometimes becomes unveiled from unrelated circumstances. For example, there have been reported cases where a taxpayer has been practically obliged to produce financial evidence, showing much greater business income than what has been reported to the ATO, to defend against an allegation of misrepresentation by a subsequent purchaser of the taxpayer's business. And the discovery process in proceedings for professional negligence against a professional advisor may also throw up incriminating evidence about an understatement of taxable income, perhaps even involving criminal acts. Whether or not the primary matter before the court involves taxation, the Judge will usually make orders for it to be passed on to the ATO. (DC of T v Advanced Holdings Pty Ltd [2018] FCA 1263)

    ... Read More




    24 Oct 2018

    Topic: Income tax/State taxes/Other news

  • Important for 2018 company tax returns & dividends - new rules about 27.5% rate

    In brief:    Parliament has finally passed the new rules about which companies qualify for the 27.5% tax rate. And these rules operate retrospectively from 1 July 2017, so apply to 2018 company tax returns and franked dividends paid in the 2018 year of income. It is no longer relevant whether or not a company carries on business – the only 2 criteria are that the company’s aggregated turnover is below the threshold ($25M for the 2018 year and $50M for 2019) and that no more than 80% of the company’s assessable income comprises ‘passive income’.

    More:    Passive income for this purpose is defined as:

    • distributions by corporate tax entities (but not dividends to a company holding voting rights of 10% or more in the company paying the dividend);
    • franking credits on those distributions;
    • non-share dividends from companies;
    • interest income (but not for banks and other specified financial institutions), royalties and rent;
    • gains on qualifying securities;
    • net capital gains; and
    • to the extent referable to any of the above, amounts included in the assessable income of a partner from a partnership or beneficiary from a trust.

    The test must be applied for each income year, so the tax rate for a company may change from year to year.

    So too for the tax rate used to calculate the maximum franking credits that may be applied to dividends. However, the tax rate for that calculation must be determined on the assumption that the aggregated turnover, passive income and assessable income are all the same as for the previous year of income. And, if the company did not exist in the previous year, then maximum franking credits must be based on the 27.5% rate.

    For the ATO’s draft guidance, see Draft Law Companion Ruling LCR 2018/D7 and Draft Practical Compliance Guideline PCG 2018/D5. (Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2018)

    ... Read More




    31 Aug 2018

    Topic: Income tax

  • Further concession for Division 7A sub-trust arrangements maturing in 2019

    In brief:    Presumably because of the deferral of proposed amendments to Division 7A, now aimed to commence from 1 July 2019, the Commissioner has extended the additional concession for maturing sub-trust arrangements to those maturing in the 2019 year of income. So those using the 7 year term under Option 1 in PS LA 2010/4, and which term expires in the 2019 year of income, will be able to effectively extend repayment by putting in place a complying 7 year loan ‘between the sub-trust and the private company beneficiary prior to the private company’s lodgement day’ for the 2019 year.

    More:    This extension has been incorporated into Practical Compliance Guideline PCG 2017/13, which now applies to sub-trust arrangements maturing in the 2017, 2018 and 2019 years of income. That is, the amended Guideline applies to Option 1 arrangements entered into prior to 1 July 2012.

    The proposed amendments to Division 7A stem from the Board of Taxation’s post-implementation review of Division 7A, provided to the Government in November 2014. They were announced in the 2016-17 Federal Budget, but full details have not yet been released. (Practical Compliance Guideline PCG 2017/13)

    ... Read More




    31 Aug 2018

    Topic: Income tax

  • Thomas' case - Commissioner successful in the High Court

    In brief:    In a unanimous decision from all 7 Justices of the High Court yesterday, the Commissioner has ultimately succeeded on the main, substantive issues in Thomas’ case. The trustee of a discretionary trust had purported to distribute franking credits to beneficiaries independently from, and in different proportions to, the relevant franked dividends. It is a complex case, but the controversies for the purposes of the appeal were mainly whether the court was bound by directions from the Supreme Court of Queensland to the trustee of the trust under s 96 of the Trusts Act 1973 (Qld) about the effect of the trust distributions and, if the court was not so bound, the proper application of the imputation provisions to the distributions. It was held that the directions from the Supreme Court did not bind the court (nor the Commissioner) in the proper application of tax laws.

    More:    The decision makes it plain ‘that the statutory notional allocation of franking credits to beneficiaries follows the proportions which have been established with respect to their notional sharing in franked distributions’ [para 16] – that is, franking credits cannot be distributed separately from the franked dividends to which they are attached.

    The High Court appears also to have finally laid to rest the notion that franking credits represent a species of property able to be dealt with as such by a trustee. The trust deed in this case did not have provisions attempting to facilitate separate dealings in franking credits but, in statements apparently intended to be of general principle, the members of the Court said that ‘… franking credits – exist[s] neither in nature nor under the general law’ (Gageler J [97]) and ‘The [assumption that franking credits can be dealt with separately] involves the notion that franking credits are discrete items of income that may be dealt with or disposed of as if they were property under the general law. That notion is contrary to the proper understanding of [the imputation provisions]. Franking credits are a creature of its provisions; their existence and significance depend on those provisions.’ (joint reasons of the other 6 Justices [9])

    The Commissioner will no doubt regard those statements as supporting his views in Draft Ruling TR 2012/D1 relating to ‘notional amounts’ of trust income (see, particularly, para 112-115 in relation to franking credits). If franking credits do not constitute property under the general law, then they cannot form part of a trust fund and nor can a trustee be liable to account to beneficiaries for franking credits (although trustees in a sense do have indirect obligations, needing to take into account the impact of distributions on franking credit entitlements under the tax law). This makes income equalisation clauses in trust deeds even more problematic (those clauses will in many cases not work effectively anyway). And practitioners who include franking credits in the financial statements of trusts need to think carefully about the risks that doing so potentially create for getting the numbers wrong in the proper recording of the distributable income of the trust, beneficiaries’ entitlements to that income and consequent proportional franking credit implications. (FC of T v Thomas [2018] HCA 31)

    ... Read More




    09 Aug 2018

    Topic: Income tax/Trusts

  • A fatal lack of evidence about purported loans

    In brief:    A tax practitioner has failed to overturn the assessment of funds received over several years from companies of which he was the sole director or otherwise controlling mind. His contention was that the Administrative Appeals Tribunal had found that he genuinely believed that the receipts constituted loans from the companies, and that that belief should be imputed to those companies, given his control of them. The taxpayer submitted that such common belief was sufficient to establish the character of the receipts as loans. The Federal Court, however, dismissed his appeal, finding no error of law by the Administrative Appeals Tribunal in upholding the Commissioner’s assessments.

    More:    The law has long recognised that a director (including a sole director) may contract with their company, although necessarily doing so as agent for their company. However, this case is a salutary lesson – perhaps counterintuitively to what some practitioners would regard as the effect – that the subjective intentions of the director may not be sufficient to stamp any transaction between them with the character desired. The taxpayer failed because he had not proved that the receipts were the proceeds under loan contracts, thus failing to discharge his onus of showing that the Commissioner’s assessments were excessive. Rather than evidence merely of the taxpayer’s state of mind, it was an objective assessment of all the circumstances surrounding the receipts that was determinative. No interest was paid on the purported loans or recorded in any books or tax returns and there was a lack of other documentary evidence, apart from loan agreements entered into well after the receipts. (Rowntree v C of T [2018] FCA 182)

    ... Read More




    07 Mar 2018

    Topic: Income Tax

  • Market value of shares not reduced for lack of control

    In brief:    In an important win for the Commissioner, the Federal Court has held that there was error by the AAT in valuing a 1/3rd holding of shares in a private company by discounting the sale price for a ‘lack of control’. The taxpayer was one of 3 equal shareholders in the company who together contracted to sell all the shares for a total price of $17.7M, with each shareholder receiving $5.9M. The market value of the taxpayer’s shares was critical in determining whether he satisfied the $6M net asset value test and was entitled to the small business CGT concessions.

    More:    This case involves 2 issues. The first is the precise identification of the relevant CGT asset or assets involved and the second is the determination of the market values of those assets for the purposes of s152-20. So that latter question necessarily involves principles of valuation law, in the context of the Income Tax Assessment Act 1997. And the case is very important, given the significance of market values in many areas of tax law.

    Although commencing with the price actually received by the taxpayer, the AAT had discounted that price in recognition of the relative lack of control of a minority shareholder. It had done so on the basis that the contemporaneous sale of all shares owned by the other shareholders were ‘special circumstances’ that should be recognised in the valuation process. The Court disagreed and held in any case that the AAT had erred by not having regard to market realities and the recognition in valuation principles of a buyer willing to pay more for an asset than others ‘because they are in a better position to exploit the particular attributes or potentialities of the asset’. (FC of T v Miley [2017] FCA 1396)

    ... Read More




    12 Dec 2017

    Topic: CGT/Income Tax

  • No tax cut for 'passive' companies

    In brief:    The reduced 27.5% corporate tax rate has applied since 1 July 2016 to companies that carry on business and have an aggregated turnover of less than $10M ($25M for the 2018 year of income). Exposure draft legislation has now been released to reduce the confusion about which companies would be taken to be carrying on business. However, rather than address that question, the draft legislation will apply the lower tax rate to companies that have aggregated turnover less than the specified threshold for the year and whose total assessable income comprises less than 80% of ‘passive income’.

    More:    Passive income for this purpose is to be defined as:

    •     dividends (but not those from holdings with voting rights of 10% or more); 
    •     non-share dividends by companies; 
    •     interest income, royalties and rent; 
    •     gains on qualifying securities; 
    •     capital gains; and 
    •     to the extent attributable to any of the above, amounts included in assessable income from a partnership or trust.

    The 80% passive income test is an annual one so must be determined each year. The threshold is arbitrary so some odd results are possible. For example, a corporate beneficiary may be eligible for the reduced rate on trust distributions attributable mainly to business income in the trust, provided that it carries on business itself and satisfies the 80% test overall. But a company carrying on business managing the rental of its commercial or residential properties would not. What constitutes carrying on business is still not defined. (Exposure Draft: Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017)

    ... Read More




    21 Sep 2017

    Topic: Income Tax

  • 'Lucky' error in trust distribution resolutions avoids tax on $13M

    In brief:    In addition to distribution resolutions by 2 trusts in this case, variation resolutions for each provided for additional distributions ‘should the Commissioner of Taxation disallow any amount as a deduction or include any amount in the assessable income of the trust …’ Assuming each variation provision was authorised by the relevant trust deed, the Full Federal Court held that it made the trust distribution contingent (on whether the Commissioner disallowed a trust deduction or included an additional amount in assessable income). Consequently, the beneficiary taxpayer who had been assessed on adjustments to the net (taxable) trust income was not presently entitled to a share of trust income by the end of the relevant income year and was not liable for tax on amended assessments following audit by the ATO.

    More:    There were a number of issues in this complex case, which arose from ATO amendments made a number of years after the relevant income years. But the big takeaway is the impact of variation clauses relating to trust distributions. They typically serve no real purpose but create very significant potential problems. It was beneficial in this case that the beneficiary assessed had no present entitlement to the trust income, but ordinarily the result of that is a liability on the trustee for tax at the maximum individual rate. Variation clauses should consequently be avoided. (Lewski v Commissioner of Taxation [2017] FCAFC 145)

    ... Read More




    21 Sep 2017

    Topic: Trusts/Income Tax

  • No small business CGT concessions because of fuel reimbursements

    In brief:    The Full Federal Court has held that there was no error by the AAT in concluding that the $2M turnover test had not been satisfied and that, consequently, no small business CGT concessions applied on the sale of mining tenements. The case turned on whether disbursements totalling $55,106 for fuel costs under 2 contracts constituted ‘*ordinary income that the entity *derives in the income year in the ordinary course of carrying on a *business.’ (s 328-120(1)). The AAT had held that receipts from fuel disbursements were ordinary income, despite the normal practice that customers of the drilling contractor provided fuel and the initial contracts for the 2 relevant drilling jobs required the customers to provide fuel.

    More:    The taxpayer’s drilling company was a ‘connected entity’ and had undertaken drilling exploration on the mining tenements from which the taxpayer derived the capital gain. And the Commissioner had accepted that the basic conditions for the small business CGT concessions would have been satisfied if the drilling company’s annual turnover had been less than $2M for the previous year of income. This case continues the steady stream relating to the small business CGT concessions and illustrates how important it is to step through each of the relevant tests for the concessions in fine detail. (Doutch v Commissioner of Taxation [2016] FCAFC 166)

    ... Read More




    15 Dec 2016

    Topic: CGT/Income Tax

  • Breaches of directors' duties used for tax collection

    In brief:    Company liquidators have successfully argued that the participation by directors (including a de facto director) in a tax evasion scheme breached various directors’ duties. The scheme involved back-to-back loans into Australia with untaxed offshore funds accumulated by the brothers who built the Nudie juice business. Tax debts owing by the companies were held to be part of the losses caused by such breaches and were consequently recoverable from the directors by the liquidators.

    More:    This case is the latest in a number involving the Binetter family, arising from Project Wickenby. It illustrates a relatively novel approach to the collection of tax debts owing by presumably insolvent companies, establishing a pathway for liquidators direct to the directors. The case is also a good reminder that it is a mistake to focus solely on tax laws, including in relation to legitimate tax planning arrangements – many arrangements are undone not by failings necessarily related to tax, but instead related to aspects of the general law. (BCI Finances Pty Ltd (in liq) v Binetter (No 4) [2016] FCA 1351)

    ... Read More




    15 Dec 2016

    Topic: Income Tax

  • Draft LCGs issued for new super reforms

    In brief:    The Commissioner has issued several draft Law Companion Guidelines in relation to the super reforms commencing on 1 July 2017. Two relate to defined benefit interests but the other 2 are particularly relevant to SMSFs. LCG 2016/D8 covers the transitional CGT relief for assets supporting exempt income streams and which are affected by the $1.6M transfer balance cap or loss of exemption relating to TRIS pensions. LCG 2016/D9 provides guidance about how the $1.6M transfer balance cap operates for account based income streams.

    More:    These LCGs will be useful in helping practitioners digest the new reforms and their implications for clients in various circumstances. That will include potential impacts on estate planning, particularly where reversionary pensions will cause the $1.6M cap to be exceeded after the death of a primary pensioner (although there will be a 12 month window to adjust benefits for the reversionary pensioner in that case). In addition to decisions about potential rearrangements relating to existing income streams and adopting the transitional CGT relief, planning prior to 1 July 2017 should also include maximising both concessional and non-concessional contributions where appropriate.

    ... Read More




    15 Dec 2016

    Topic: SMSFs/CGT/Income Tax

  • Changed threshold intended for "small business entities" from 1 July 2016

    In brief:    A Bill has been introduced to increase the small business entity turnover threshold from $2M to $10M for most purposes (but not for the small business income tax offset, for which the turnover threshold is proposed to be $5M). The change is intended to apply from 1 July 2016 and will have a number of implications for small businesses, including imputation changes for companies that qualify as small business entities.

    More:    The proposed $10M turnover threshold is not to apply for accessing the small business CGT concessions – the existing $2M threshold will continue for that purpose. However, it is the new $10M threshold that will apply for the new small business restructure roll-over. In relation to the associated proposed reduction of the corporate tax rate to 27.5% for small business companies from 1 July 2016, it will no longer be possible to attach franking credits based on the 30% corporate rate. Instead, maximum franking is to be based on the particular company’s tax rate for the income year in which the distribution is paid, assuming that its turnover is the same as for the previous year.

    As set out in the Explanatory Memorandum to the Bill, the $10M small business entity threshold is intended to apply for a number of other small business concessions, including immediate deductibility for start-up expenses, simpler depreciation rules, simplified trading stock rules, immediate deductions for certain prepaid business expenses, accounting for GST on a cash basis, etc. [Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016]

    ... Read More




    05 Oct 2016

    Topic: Income Tax/CGT/GST

  • Building & development group succeeds in having $40M gain taxed as a discount capital gain

    In brief:    A family group with substantial building, property development and investment activities has successfully argued in the AAT that its $40M profit from the sale of a property was not a revenue gain. Rather, it was held to be a capital gain with the general 50% CGT discount consequently available. This was despite the sale having occurred within months of completion of the site’s redevelopment.

    More:    This decision emphasises the importance of properly characterising the activities from which any profit has arisen. The Tribunal accepted that, separately from the group’s building and development businesses, one of its discrete activities was the acquisition of commercial properties to hold for rental as capital assets. It was held that the relevant profit was derived from this activity and consequently was capital. This was supported by evidence from family members that was accepted by the Tribunal. (FLZY v Commissioner of Taxation [2016] AATA 348)

    ... Read More




    05 Oct 2016

    Topic: Income Tax/CGT

  • non-resident CGT withholding commences on 1 July 2016

    In brief:    The new non-resident withholding tax regime on purchases from foreign residents commences on 1 July, for contracts entered into on or after that date. It has very substantial potential implications for both purchasers and vendors. Purchases affected are those of both direct and indirect interests in Australian real property or mining rights, as well as options or other rights to acquire such property. But no withholding is required unless at least one of the vendors is taken to be a foreign resident or, for real property interests in any case, if the purchase price is less than $2M. The tax is a non-final withholding and affected vendors will be entitled to credit the amount withheld from their actual income tax liabilities.

    More:    The default position under the new withholding regime is that it is assumed to apply (even if the vendor is in fact an Australian resident), unless a particular exclusion applies. This raises issues for conveyancing lawyers, but all advisers need an awareness of the rules – a failure to withhold will not affect the purchaser's obligation to pay 10% of the price to the Commissioner and there might be difficulty recovering that amount then from the vendor. Although the withholding regime partially aligns with the assets to which CGT applies for non-residents (since the Commissioner has had difficulties in the past recovering tax from foreign residents on CGT events), it also applies to relevant assets that constitute trading stock or revenue assets – both capital and revenue assets are CGT assets. One of the exclusion mechanisms is for vendors to obtain a clearance certificate from the Commissioner – an online system for obtaining those certificates is being established by the ATO.

    ... Read More




    26 May 2016

    Topic: CGT/Income Tax

  • New Taxpayer Alert on the diversion of personal services income to SMSF

    In brief:    The Commissioner says in Taxpayer Alert TA 2016/6 that the ATO is reviewing certain arrangements where an individual receives little or no remuneration for services provided to an unrelated party. Instead, income is channelled through another entity to an SMSF in which the individual or their associates are members. The income may be received by the SMSF purportedly as a return on investment in the other entity or on some contractual basis. Apart from the question of whether the income remains assessable to the individual in spite the arrangements, the Commissioner believes that amounts received by the SMSF may constitute contributions to which contributions caps accordingly apply or non-arm's length income to which the highest marginal tax rate applies.

    More:    The arrangements appear somewhat naive and very unlikely to succeed, at least on the basis of the brief description provided in the Alert. Arrangements to attempt to achieve the sorts of aims involved in such circumstances will always be controversial and anyone contemplating them would be well advised to act cautiously and seek specialist advice.

    ... Read More




    26 May 2016

    Topic: SMSFs/Income Tax

  • "Tax Incentives for innovation" Bill has been enacted to apply from 1 July 2016

    In brief:    The new incentives to encourage innovation will commence from 1 July 2016. For ‘early stage investors’, these comprise a non-refundable, carry-forward tax offset of 20% of their investment (subject to a maximum annual offset cap of $200,000 and a total annual investment limit of $50,000 for retail investors) plus CGT concessions on sales of shares that have been held for at least one year in qualifying innovation companies. An investor may disregard a capital gain from qualifying shares held for between 1 and 10 years. For shares held longer than 10 years, the cost base and reduced cost base will be deemed to be the market value on the 10th anniversary of acquisition, so that only incremental gains or losses after that time will have effect for CGT purposes.

    More:    The trade-off for investors in early stage innovation companies is that capital losses on qualifying shares will effectively be disregarded, irrespective of how long the shares are owned. Other amendments in the amending act are aimed to improve access to capital and make existing tax regimes for venture capital limited partnerships more attractive to investors.

    ... Read More




    26 May 2016

    Topic: Income Tax/CGT

  • AAT Matter Remitted so the Commissioner could request ruling applicants to apply for another ruling

    In brief:    This case in the Administrative Appeals Tribunal concerned unfavourable decisions by the Commissioner on objections lodged against private rulings issued to each of the taxpayers. Although the Tribunal agreed with the Commissioner, no order was made and the applications were instead remitted to the Commissioner to request the applicants to make another ruling application. The reason for this unusual outcome was that, in the course of the AAT hearing, additional information provided was ‘materially different’ from the factual scheme on which the rulings were based. The Tribunal referred to the recent case of Rosgoe Pty Ltd v FC of T [2015] FCA 1231 (currently subject to the Commissioner's appeal to the Full Federal Court), in which it was held that the AAT in such a case is confined to the facts stated by the Commissioner in the private ruling.

    More:    This case emphasises the importance of the scope and accuracy of the factual information provided to the Commissioner in an application for a private ruling. The present law is that the AAT is not free to make its own findings of fact in a review relating to a private ruling – it is confined to the facts stated by the Commissioner in the ruling.

    In this case, the issue was whether a $500,000 superannuation death benefit would be exempt from tax. The married taxpayers who received the death benefit had unsuccessfully sought private rulings that they each had an interdependency relationship with their 22 year old son, who was killed in a motorcycle accident. On the basis of the facts contained in the private ruling, the Tribunal agreed that there was no interdependency relationship – but materially different additional facts were provided at the AAT hearing. (Case 2/2016 [2016] AATA 264)

    ... Read More




    26 May 2016

    Topic: Income Tax

  • ATO's draft Law Companion Guidelines on the Small Business Restructure Roll-over

    In brief:    The new Small Business Restructure Roll-over has been enacted and will commence on 1 July 2016. It will be a very useful concession in the right circumstances but, as is typically the case, requires very careful thought as to the best way in which it should be applied. That is particularly the case in relation to the price (if any) for which assets are transferred. These 2 draft Law Companion Guidelines from the ATO about the operation of the new roll-over are helpful aids and very worthwhile reading.

    More:    It is particularly important that note be taken of the Commissioner's views in LCG 2016/D3 about what amounts to ‘a genuine restructure of an ongoing business’ for the new roll-over. That is an essential element to engage the concession and it is evident that it will be a potential attack point if the ATO views a restructure as overly aggressive. It is also noted in the LCG that the general anti-avoidance provisions in Part IVA may still apply in appropriate circumstances, even if the 3 year ‘safe harbour’ rule for a genuine restructure is satisfied. (LCG 2016/D2 & LCG 2016/D3)

    ... Read More




    28 Apr 2016

    Topic: CGT/Income Tax/Trusts

  • Losses allowed for luxury yacht charter business

    In brief:    The Commissioner has failed in his bid to quarantine losses (including costs of a captain and crew) incurred by two companies successively carrying on a business of chartering luxury yachts. At issue was whether each company used its vessel (only one yacht was used at any time by each company) ‘mainly for letting it on hire in the ordinary course of a business’ carried on by each respective taxpayer company (s26-47(3)(b)). Although chartered from time to time by the high wealth person who controlled both companies, it was observed that he was scrupulous in ensuring that commercial charter rates were paid for his use. Also, the yachts were available publicly for charter, charters from unrelated parties were entered into and each corporate taxpayer presented themselves publicly as carrying on a business and were administered internally in that way. Despite the substantial losses incurred from the charter operations, Logan J held that the respective operations amounted to the conduct of a business ‘with an expectation and purpose of profit’.

    More:    This case largely turned on factual considerations relating to the yachting operations. From that perspective, it is a good illustration of the need for careful documentation and execution of arrangements in order to achieve the tax outcomes anticipated. And it was particularly important that oral evidence from the controller of the companies about the background circumstances and charter activities was accepted by the judge as reliable and candid. (Lee Group Charters Pty Ltd v FC of T [2016] FCA 322)

    ... Read More




    28 Apr 2016

    Topic: Income Tax