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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  • Treasurer's announcement of measures for small business

    In brief:  Foreshadowing the Government's Jobs and Small Business package to be announced in the 2015 Budget next week, the Treasurer yesterday announced several changes to benefit small business owners. One proposal is that, from July 2016, ‘new start-ups’ are to have an immediate deduction for professional costs associated with starting a business (rather than deductions over 5 years under the ‘blackhole’ rules). More significantly, ‘small business owners will also be able to change the legal structure of their business without incurring a CGT liability.’ This is presumably also intended to start from July 2016.

    More:  The ability to change the legal structure will be a welcome benefit if the Government can successfully legislate it. There will presumably be minimum cost to the Revenue, since most small business owners already have access to the small business CGT concessions. But such a change should substantially reduce compliance costs and, for those less than 55 years old, obviate the need to pay the CGT exempt amount under the retirement exemption into a complying super fund. The range of beneficiaries will be limited, unless the Government expands the $2M turnover threshold that currently defines a small business. And it will be interesting to see how narrow the change is – so, for instance, whether it will be possible to pass businesses to children of the proprietors. Since there are times when it is very beneficial to deliberately trigger a CGT event for a small business, some business proprietors wanting to achieve that might ironically try to avoid application of the new concession.

    ... Read More




    07 May 2015

    Topic: CGT/Income Tax

  • No deductions properly allowable for teacher's self-education expenses

    In brief:  The AAT held in this case that no costs relating to the taxpayer's enrolment in a postgraduate business management course were properly allowable. There was no evidence that the course was required in order for the taxpayer to fulfil his role as a teacher or that it would lead to an increase in income from his current role. There was some prospect that the course might assist the taxpayer to gain promotion, but that could only be to a role quite different from the taxpayer's current position. In the words of the Tribunal, that promotion would mean ‘more pay for doing a different job’ – so the self-education expenses had insufficient nexus to that potential increased income.

    More:  The ATO prior to the hearing had conceded that expenses relating to 4 out of the 6 subjects undertaken by the taxpayer should be allowable. The AAT consequently allowed the taxpayer's objection to the extent of the costs of those 4 subjects, despite its finding that none of the expenses relating to the course were deductible. It may be correct in this fact scenario that no deductions should be allowable, but it is objectionable for the ATO to argue about specific subjects in the course if it is accepted that the course overall has sufficient nexus to the derivation of income. (Re Ting v C of T [2015] AATA 166)

    ... Read More




    01 Apr 2015

    Topic: Income tax

  • 11 year prison sentence for tax fraud

    In brief:  A former tax principal at Ernst & Young has been sentenced to 11 years prison, with a non-parole period of 7 years. The charges on which he was convicted related to conspiring to deal with the proceeds of crime and conspiracy to defraud the Commonwealth, the relevant section of the Criminal Code for that latter offence providing that:

    135.4(5) A person is guilty of an offence if:

    1. the person conspires with another person to dishonestly cause a loss, or to dishonestly cause a risk of loss, to a third person; and 
    2. the first-mentioned person knows or believes that the loss will occur or that there is a substantial risk of the loss occurring; and 
    3. the third person is a Commonwealth entity.

    Although such tax prosecutions are relatively rare, it is worthwhile reminding oneself (and some clients) of the conduct that might lead to prosecution. The relevant provisions of the Criminal Code are broadly based and, in principle, potentially apply irrespective of whether the amounts involved are large or small.

    More:  The case involved false depreciation claims ‘of many hundreds of millions of dollars’ which supposedly offset very substantial income from financing arrangements involving several major banks. The resultant potential tax loss for the Commonwealth was approximately $135M and the defendant and his co-conspirator received over $63M. That latter amount represented funds paid to the conspirators’ company, that were paid overseas before being transferred back into Australia for the benefit mainly of the 2 conspirators. The judge remarked on sentencing that, “Having regard to its size, scale, timespan and tactics [the defendant's] offending falls into the worst category of cases under s 135.4(5).” (R v Dickson (No 18) [2015] NSWSC 268)

    ... Read More




    01 Apr 2015

    Topic: Other news

  • Bill to amend employee share scheme rules

    In brief:  A Bill introduced into Parliament last week is intended, from 1 July 2015, to significantly change the taxation of employees’ shares and share rights acquired under employee share schemes. This has been a controversial topic since changes made by the former Government in 2009, which resulted in a sharp drop in such schemes offered by companies. Also, a new concession for start-up companies is to apply.

    More:  A new form of concession is to be provided in relation to eligible start-up companies (broadly, unlisted companies incorporated for less than 10 years and with group turnover not exceeding $50M). The concession is that no upfront tax is to apply to shares or rights in the start-up and the CGT rules are to apply from the time of acquisition. But to be eligible, shares must be issued at a discount of not more than 15% of the market value and the strike price of rights to shares must not be less than the market value of the shares at the time of issue. Also, the shares or rights must generally be held for at least 3 years.

    For other employee share schemes more generally:

    • tax may be deferred even where there is no real risk of forfeiture, if there are genuine restrictions on disposal;
    • the maximum deferral period will be increased from 7 years to 15;
    • the taxing point on share rights will be the time of exercise (rather than the time when an employee may exercise); and
    • the 5% limit of any employee's holdings in the relevant company issuing the shares or rights will be increased to 10%.

    (Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015)

    ... Read More




    01 Apr 2015

    Topic: Income Tax

  • What's the value of franking credits?

    In brief:  A successful plaintiff in an action for negligent tax advice failed to establish that forfeiture of franking credits in the holding company of his group resulted in any damages to him. In one sense, this outcome was the result of specific facts in the case but, in another sense, it is a reminder to question the value of franking credits in a company. Remember that franking credits only come as an attachment to a franked dividend – that can only have a positive impact on the recipient shareholder if their marginal tax payable on the grossed up dividend is less than the franking credit (such as in the case of retired taxpayers with little other assessable income or an SMSF).

    One would always prefer more franking credits rather than less, since more at least gives some prospect of additional benefits. But, on their own, franking credits in a closely held company generally have no inherent value to the extent that they exceed the amount necessary to frank all profits.

    More:  Following an ATO audit, there was a settlement reached under which the plaintiff in this case (the founder of Aussie Home Loans) paid over $7M to the ATO and the holding company of his group forfeited franking credits of over $5M. The plaintiff then successfully sued lawyers, Gadens, in respect of tax advice relating to the corporatisation of his group, being awarded damages of approximately $5M. The NSW Court of Appeal reduced the damages award by approximately $1.3M (plus associated pre-judgement interest), being the amount relating to the loss of franking credits. This amount had been assessed by reference to the additional tax payable by a shareholder on aggregate dividends unfranked to that extent. But, on appeal, it was held that no damages in that respect had been proven – there was no evidence that the reduction in franking credits made any difference to the price paid by the Commonwealth Bank for the subsequent purchase of 80% of the business or that the company's remaining franking credits would not be sufficient to frank all prospective dividends that the plaintiff might receive. (Gadens Lawyers Sydney Pty Ltd v Symond [2015] NSWCA 50)

    ... Read More




    01 Apr 2015

    Topic: Income Tax

  • Another SMSF death benefits case gone wrong

    In brief:  Death benefit nominations for super death benefits are a vitally important matter and it is wrong to treat them glibly. This case is a stark example because the estate of the deceased was very small. So the practical reality was that all the ‘deceased's wealth’ was contained in the SMSF in which he and his second wife were members. Yet his apparent intentions for death benefits from the fund to benefit his 2 daughters from his first marriage, as well as his second wife, were frustrated. It is a very sad and costly saga that could easily have been avoided.

    The outcome in this case would surprise many practitioners, since a purported binding death benefit nomination made by the deceased nominating the "Trustee of Deceased Estate" was held not to comply with the trust deed requirements for a binding nomination or even with the provisions of the SIS Regulations for cashing benefits. It is a good example of why practitioners need to be very careful about death benefit nominations, particularly given limitations under their professional indemnity insurance policies about legal work. The bottom line is that super death benefit nominations are equally important, and warrant the same level of consideration and advice, as the preparation of a person's will.

    More:  The purported binding nomination with the expression, "Trustee of Deceased Estate", was held not to comply with the trust deed requirements or provisions of the SIS Regulations because super death benefits are generally permitted only to dependents of the deceased or the deceased's ‘legal personal representative’, defined to mean the executor of the deceased's will or administrator of his or her estate. Although not commonly appreciated, it is a trite matter of law that the executor of a deceased estate holds an office quite distinct from that of a trustee of estate property (even though the same persons often hold both offices). The failure to address that distinction has resulted in the trustees of the SMSF in this case being left free to exercise discretion about who is to benefit from the deceased's accumulated benefits. That discretion is consequently one exercisable by the deceased's second wife and her daughter, who was appointed as co-trustee after the deceased's death. (Munro v Munro [2015] QSC 61)

    ... Read More




    01 Apr 2015

    Topic: SMSFs

  • Small Business CGT Concession - Entitlements to All Income & Capital

    An entity's small business participation percentage in a trust or company is relevant in determining whether there are significant individuals and CGT concession stakeholders in a company or trust, as well as where the CGT asset to which a CGT event has happened is a share in a company or interest in trust. And for the purposes of determining direct small business participation percentages in trusts under s152-70(1) of ITAA97, there are different tests depending on whether or not entities have entitlements to all the income and capital.

    The Commissioner in Interpretive Decision ATO ID 2015/8 has expressed the view that a trust is capable of being one where entities have entitlements to all the income and capital, even though the trustee has power to accumulate income or capital of the trust. This interpretation is important because, for example (depending on the terms of a particular unit trust deed and, particularly, the way in which income is defined), a trustee may need to accumulate income to the extent that it exceeds the net income under s95(1) of ITAA36 so as to avoid a potential CGT event E4 for unit holders. However, for other contexts, a power to accumulate income will mean that the trust is not a fixed trust, at least without a favourable exercise of discretion by the Commissioner.

    ... Read More




    18 Mar 2015

    Topic: CGT

  • Appeal over SMSF death benefits doomed for failure

    The Court of Appeal in West Australia last week dismissed an appeal by the executors of a deceased SMSF member against a decision by the sole surviving trustee to pay the death benefits from the deceased's account to himself.

    The sole surviving trustee was the deceased's husband and the executors were 2 of the deceased's children from a former marriage. The deceased in her will had purported to give her entitlements in the SMSF to her 4 children (stating specifically that she did not want any of her super entitlements paid to her husband), but the executors accepted that the deceased's SMSF interest did not form part of her estate. That purported gift in the will was also inconsistent with 2 separate binding nominations by the deceased in favour of her husband, although both had lapsed before the death of the member.

    The executors had little to support their case. Their first argument was that their stepfather was obliged by s17A of the SIS Act (the provision that defines an SMSF) to appoint one of the executors as a co-trustee and not to make any decision about payment of the death benefits relating to their deceased mother until after that appointment. The second main argument was that their stepfather's decision to pay the death benefits to himself was vitiated by a lack of bona fides. However, there was simply no evidence in the case to support that latter argument and the Court of Appeal held that the provisions of s17A allowing the appointment as trustee of a deceased's executor are permissive only – not a mandatory requirement.

    So a purported gift of super benefits in a person's will, or an expression of wishes in a person's will about who should receive super benefits, will be very unlikely to have any effect unless the superannuation death benefits are paid into the deceased's estate. The real lesson from this case is that certainty about who will receive super death benefits is not achieved by leaving the decision as a discretionary one for surviving trustees. And that effective estate planning requires alignment of a person's will with control mechanisms and decision-making powers under associated SMSFs, trusts and companies. (Ioppolo & Hesford v Conti [2015] WASCA 45)

    ... Read More




    18 Mar 2015

    Topic: SMSFs

  • sham borrowings from private samoan bank

    A purported loan of $600,000 arranged by the taxpayers’ long term accountant from a private Samoan bank controlled by the same accountant was held by the AAT to be a sham. Consequently, the 2 taxpayers were liable to be assessed under former s26AFB of ITAA36 on $300,000 each as receipts out of or attributable to assets of their SMSF, in breach of SIS rules. As a condition of the purported loan, the taxpayers’ SMSF had been required to lodge a $600,000 deposit with the same Samoan bank, which was sent to the bank 3 days before the same amount was received back in Australia as a loan. Further, no interest or loan repayments were made by the taxpayers and their SMSF received no interest on its deposit for over 10 years. Presumably, the fund also was or will be assessed on the basis that it became a non-complying fund.

    In the circumstances, the Tribunal also held that there had been evasion of tax and the normal time limits by which the Commissioner is empowered to amend assessments did not apply. And for good measure, the Commissioner's assessments of administrative penalties (75% for the first year when the purported loan of $600,000 was received and 90% for each of the following years) were also upheld.

    The finding of a sham is an extreme one, although plainly the facts in this case were quite extreme – particularly the actions of the accountant, which were effectively imputed to the taxpayers. It can be quite different where there has been an innocent mistake, even a mistaken view of the law held innocently by a taxpayer's tax adviser. The Commissioner may not be empowered in that case to issue amended assessments after the relevant limitation periods have expired. (Morrison and FC of T [2015] AATA 114)

    ... Read More




    18 Mar 2015

    Topic: Income Tax/SMSFs

  • No input tax credits for provision of remote accommodation

    The Federal Court has rejected a mining group's claim to input tax credits for acquisitions made by the group in providing and maintaining residential accommodation for its workers in the Pilbara region. This is a test case and an appeal to the Full Federal Court has already been lodged by the taxpayer.

    There was no dispute about the facts involved. The taxpayer group owns approximately 2,300 houses and apartments in towns that it established to support its Pilbara mining operations. The accommodation is provided to workers on a subsidised basis and expenditure on providing the housing substantially exceeds the rental income received from workers. The Commissioner accepted that the acquisitions fell within the basic test for ‘creditable purpose’, being acquisitions in carrying on the enterprise of the taxpayer. However, the Commissioner’s view was that a creditable purpose was nevertheless denied because the acquisitions related ‘to making supplies that would be *input taxed’ (see s11-15(2)(a) of the GST Act). The Court agreed. The taxpayer argued alternatively that there should be an apportionment of input tax credits on the basis of revenue from its operations – the group’s income from iron ore production was 99.88% of the aggregate income from iron ore and from accommodation rental for the year involved, so it was argued that the taxpayer was entitled to 99.88% of the total input tax credits. However, the Court held that the acquisitions related wholly to the provision of accommodation and no apportionment was warranted.

    This sort of matter also arises where tax consequences depend on the purpose or use of something and there is both an immediate and wider purpose and use involved. An example is an accommodation unit provided in a motel or hotel to the manager – that use of that accommodation unit is plainly a business one from the perspective of the owner, but equally plainly is a private use by the manager to the extent that that is the relevant use. But the tests in the matter before the Court were more difficult for the taxpayer – an acquisition by the group in the course of carrying on its enterprise, as opposed to acquisitions that relate to input taxed supplies. (Rio Tinto Services Ltd v FC of T [2015] FCA 94)

    ... Read More




    18 Mar 2015

    Topic: GST

  • Profits from Sale of property were income, not capital

    The relatively brief reasons of the Administrative Appeals Tribunal in a recent case belie the complexity of the underlying tax concepts involved. The AAT agreed with the Commissioner's private ruling that profits derived by a corporate trustee on the sale of 2 adjoining blocks, after obtaining development approval, were ordinary income and taxable accordingly. The reason was a finding that the profits were derived in the course of the business conducted by the taxpayer and, even if the taxpayer's activities did not amount to the conduct of a business, the purchase of the blocks was for the purpose of profit making.

    The directors of the trustee were 2 experienced builders and developers. They had caused the trustee to acquire the blocks for aggregation and redevelopment in a joint venture with a larger, unrelated company. The JV did not proceed, but the directors’ associated development management company was engaged to obtain development approval for the blocks. No other improvements to the blocks were undertaken and the only use of them during the taxpayer's ownership was for rental. The taxpayer had argued that its intention to develop the blocks had been abandoned when it was unsuccessful in concluding the JV and that the blocks from that time began to be held as capital assets rather than trading stock.

    There was an additional difficulty for the taxpayer in this case since, on an appeal or review to the Federal Court or AAT about a private ruling, the matter must be determined according only to the facts contained in the private ruling (the taxpayer complained that the ruling did not include important facts that had been provided to the Commissioner in support of the ruling application). That is consequently an important consideration about whether to object against a ruling or to object against an assessment arising from lodgement of a tax return. (Re WWXY and C of T [2015] AATA 130)

    ... Read More




    18 Mar 2015

    Topic: Income Tax

  • No aggregation of separate transfers for Qld duty

    For Qld duty purposes, s30 of the Duties Act 2001 provides that ‘transactions must be aggregated and treated as a single dutiable transaction’ if they ‘together form, evidence, give effect to or arise from what is, substantially 1 arrangement.’ And the section specifies that all relevant circumstances (including those listed in the section) must be taken into account in determining whether there is substantially 1 arrangement.

    Section 30 creates practical difficulties for taxpayers, particularly since it is difficult to be definitive in various situations as to whether or not aggregation should apply. In a recent decision in the Queensland Civil and Administrative Tribunal, it was held that the Commissioner of State Revenue was wrong to aggregate 2 separate transfers to different groups of beneficiaries under a testamentary trust.

    The decision is noteworthy because the transferor was the same for each of the transfers – namely, the trustees of the trust. And whether any parties to any relevant transactions are the same, is one of the circumstances that must be taken into account for the purposes of s30 (the 2 groups of transferees were also cousins in this case). The Tribunal nevertheless held that there were 2 separate transactions, separately negotiated, not conditional on each other in any way and not with any intention for the properties to be used by the respective transferees for any common purpose. The circumstances were also a bit easier for the taxpayers since there was no relationship between any prices for the separate transactions – the transfers were trust distributions so no negotiations in relation to price had been necessary. (Rawlings v Commissioner of State Revenue [2015] QCAT 10)

    ... Read More




    23 Feb 2015

    Topic: State Taxes

  • Transfer of land for JV was a CGT event

    The Full Federal Court has dismissed the taxpayer's appeal against the assessment of tax on the transfer of land for the purposes of a joint venture, of which the taxpayer was a party. The Full Court agreed with the primary judge that the transfers, to give effect to a deed of trust and joint venture agreement, amounted to a settlement for the benefit of the taxpayer and other parties in the joint venture. Consequently, CGT event E1 happened.

    What occurred in this case proved disastrous for the taxpayers involved. In addition to the adverse tax outcome, the Victorian Court of Appeal previously held that stamp duty applied to the land transfers and the High Court refused to grant special leave to appeal from that decision. It is a good reminder of the complexity and high risks of tripping up (on one or more of income tax, duty and GST) when one tries to alter ownership interests in property, particularly where matters of trusts law are involved. (Taras Nominees Pty Ltd v C of T [2015] FCAFC 4)
    ... Read More




    23 Feb 2015

    Topic: CGT

  • More taxpayer success on personal residency

    Following on from the May 2014 decision of the AAT in Re Dempsey and C of T [2014] AATA 335, a taxpayer has succeeded, in even more stark circumstances than in Dempsey's case, in arguing that he was not a resident of Australia in the 2011 year of income, prior to 29 April 2011 when he permanently returned from working overseas.

    This is an interesting decision since, unlike Mr Dempsey who was a single man, the taxpayer in this case was married with 4 children. And he stayed at the family home with them in Perth for the period of 62 days in aggregate during the 2011 year of income when he was in Australia before returning permanently on 29 April 2011. However, there was evidence from both the taxpayer and his wife that their marriage was strained, the Tribunal referring to the relationship as ‘fractured’.

    This is a further decision against the Commissioner's traditional reliance on a ‘continuity of association’ test in relation to the tax residency of an individual taxpayer. In rejecting the Commissioner's argument that Perth was the taxpayer's base, the Tribunal said that:

    ‘Mr M’s work ties outweighed his family ties, even though he financially supported his family by sending the bulk of his income to the joint bank account held with his wife in Australia. Mr M ordered his lifestyle around his work commitments.'

    (Re The Engineering Manager and C of T [2014] AATA 969)
    ... Read More




    23 Feb 2015

    Topic: Income Tax

  • SMSFs - no "payment" of benefits by journal entries

    In 2 recent interpretive decisions, the Commissioner has expressed the view that the transfer of benefits by journal entry from the account of a deceased member will not amount to the payment of a superannuation death benefit or satisfy the requirement for benefits to be cashed. The hypothetical facts in both interpretive decisions are the same – an intended transfer of benefits in an SMSF by journal entry, from the account of a deceased member to the member's spouse. (ATO Interpretive Decisions 2015/2 and 2015/3)
    ... Read More




    23 Feb 2015

    Topic: SMSFs

  • Part IVA applied to scheme to access CGT concessions

    The AAT has agreed with the Commissioner that Part IVA applied to a scheme carried out to enable access to the small business CGT concessions on the sale of a business. The Tribunal was not satisfied that the steps in the scheme contributed to the taxpayers’ asserted motive of asset protection – saying in the context of considering penalties that it ‘did not come anywhere near "reasonably arguable"’ that Part IVA did not apply.

    The facts are complex but, in very general terms, related to steps taken on 28 June 2005 to enable the net asset value test ($5M at the time) to be satisfied for the sale of the business, which occurred on 1 July 2005 for a price of approximately $8M. The steps on 28 June 2005 included capital distributions to unit holders from accumulated funds in a unit trust forming part of the group and the rearrangement of loans within the taxpayer group. In arguing that there was no ‘tax benefit’ for the purposes of Part IVA, the taxpayers ironically argued – though unsuccessfully – that the scheme had not been effective in enabling the $5M net asset value test to be satisfied. But the taxpayers were partially successful on other aspects – the Commissioner conceded that amended assessments for several of them were out of time and that assessments issued to several corporate beneficiaries could not be supported under Part IVA, since it was unreasonable to expect that discount capital gains would have been distributed to corporate beneficiaries apart from the scheme.

    The circumstances of this case illustrate the importance of continually monitoring the ability of business clients to access the small business CGT concessions on a sale of the business, including on transfer to family members as part of succession arrangements. Access to the concessions is an all or nothing matter and reasonable steps can be taken before the business and wealth of a particular business family grows to a point where it is no longer possible to access the small business concessions. And, plainly, steps taken shortly before a sale will always be subject to more scrutiny and will inevitably create a much higher Part IVA risk. (Track v C of T [2015] AATA 45)
    ... Read More




    23 Feb 2015

    Topic: CGT/Income Tax

  • 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

  • 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)
    ... Read More




    17 Dec 2014

    Topic: State Taxes