Here’s what we’ve been talking about in this week’s H&W Talking Tax.

Legislation

The Income Tax Regulations 1936 have been repealed and replaced by the Income Tax Assessment (1936 Act) Regulation 2015.

The new regulations have been drafted with simpler language to make them easier to read. The regulations will apply from 1 July 2015.

Among other things, the new regulations make rules regarding the following:

  • attribution of income of controlled foreign companies; and
  • the Commissioner’s amendment powers for the purposes of section 170(1) of ITAA 1936.

Part 8 of the Regulations deal with controlled foreign companies and feature the new section 17, which rewrites sections 152A, 152B and Schedule 9 of the Income Tax Regulations 1936. Section 17 defines ‘ordinary capital gains’, ‘permanent establishment’ and ‘passive income’. The former section 152A of the Income Tax Regulations 1936 contained a definition in relation to ‘capital gains’, which occasionally caused confusion with the definition of ‘capital gain’ in theIncome Tax Assessment Act 1997.

The amendments to section 170(1) update the language with which the provision is expressed and are not intended to change the policy or administration of the provision.

ATO updates

Administrative penalties for incorrect valuations

The ATO has warned taxpayers that they could be liable to administrative penalties if they use valuations by underqualified people or if they undertake their own valuations. Taxpayers who use valuations completed by a qualified valuer or equivalent taxation profession will generally be immune from liability for administrative penalties, so long as the valuer is provided with full, accurate and truthful information.

Result of ATO consultation on reporting corporate tax entity information

The ATO will publish a final report in late November or early December disclosing the total income, taxable income and income tax payable by corporate tax entities with a total gross income of $100 million or more in the 2013/14 income tax year.

The ATO has consulted with stakeholders and agreed to confirm a taxpayer’s information before it is published and has allowed taxpayers four weeks to contact the ATO regarding the accuracy of information published. Separate tables will be published with information on income tax, minerals resources rent tax and petroleum resources rent tax. The report will not be categorised into industry groups and will not allow users to search via taxpayer.

Case law

EHL Burgess Properties Pty Ltd v Comr of State Revenue

The Commissioner of State Revenue has announced that an application for leave to appeal has been lodged with the Victorian Court of Appeal with respect to the Supreme Court’s decision in EHL Burgess Properties Pty Ltd v Comr of State Revenue.

Under section 65 of the Land Tax Act 2005, land which is used primarily for primary production and is outside of ‘greater Melbourne’ is exempt from land tax. The taxpayer owned land located in Whittlesea, Kilmore and Bulla and used the land primarily for primary production. The taxpayer claimed an exemption from land tax on the basis that those properties were outside of ‘greater Melbourne’. The exemption was denied and the taxpayer was assessed as having a $2.1 million land tax liability for the 2013 land tax year. The land tax assessment was made on the basis that those properties were actually within “greater Melbourne”.

The taxpayer submitted that the definition of “greater Melbourne” in the legislation prior to 2015 was flawed because the area was defined by reference to local government councils, most of which have been abolished. The Commissioner submitted that the reference to the local councils was intended to specify a physical area and although the municipal boundaries no longer exist, the physical boundaries are still ascertainable.

The Supreme Court accepted the taxpayer’s submissions, with the practical effect that the size of “greater Melbourne” is substantially reduced.

Thomas v FC of T

The Administrative Appeal Tribunal decided that a taxpayer could not claim a deduction under section 8-1(1)(a) of the Income Tax Assessment Act 1997 for course fees of a Master of Business Administration, because the fees were paid after the taxpayer was made redundant.

The course fees were to be paid in instalments with the first instalment, as well as a flight to the tertiary institution in Paris, being paid for before the taxpayer was made redundant. The Commissioner allowed those deductions. The dispute related to the second and third instalments of the course fees, amounting to approximately $38,000, which were paid after the taxpayer was made redundant.

The taxpayer argued his claimed deduction satisfied section 8-1(1)(a) because he ‘incurred’ the fees under that section when he committed to pay them, before being made redundant.

The Commissioner said the fees were ‘incurred’ when they were paid, not when the expense was committed to, and therefore under section 8-1(1)(a) the required nexus between the incurring of the outgoing and the making or producing of assessable income had been broken when the taxpayer was made redundant.

Sedgwick v Commissioner of Taxation [2015] AATA 690

The Administrative Appeals Tribunal decided that a taxpayer was not entitled to input tax credits which were claimed through business activity statements outside of the four year time limit imposed by Division 3 of the GST Act.

The taxpayer had lodged business activity statements but subsequently revised them, claiming further input tax credits in the revised statements. The taxpayer said the revised business activity statements were lodged because she believed the tax agent who initially prepared and lodged the business activity statements on her behalf had potentially acted fraudulently and engaged in misconduct. However, when the revised business activity statements were submitted, the four-year period had expired.

The Tribunal noted that the operation of Division 93 of the GST Act was unambiguous and though it operated in an unfortunate way in this case, there were policy reasons underpinning the imposition of a decisive cut off date.