Legislation

Tax and Superannuation Laws Amendment (2015 Measures No 2) Bill 2015 has passed all stages without amendment and now awaits Royal Assent. 

The Bill:

  • provides tax relief to taxpayers entering into certain arrangements in relation to mining, quarrying and prospecting rights and information;
  • amends the 1997 Tax Act by extending the statutory effective life of in-house software from four to five years to better align with the typical useful life of in-house software for businesses;
  • provides income tax ‘look-through’ treatment for instalment warrants, instalment receipts, and other similar arrangements, and for certain limited recourse borrowing arrangements entered into by regulated superannuation funds; and
  • makes a number of changes to the company loss recoupment rules in the 1997 Act, including:
    • modifying the continuity of ownership test for companies whose shares have unequal rights to dividends, capital distributions or voting power;
    • ensuring that for the purposes of applying this test, the ownership of companies does not have to be traced through various types of entity; and
    • clarifying that the entry history rule does not operate for an entity that becomes a subsidiary member of a consolidated group or multiple entry consolidated group, for the purposes of applying the same business test.

ATO updates

Class Rulings

The following class rulings were issued this week:

CR 2015/69: Capital Gains Tax scrip-for-scrip rollover. This ruling sets out the Commissioner’s opinion on an exchange of shares in Accenture SCA for shares in Accenture plc. It considers the scrip for scrip roll-over provisions in subdivision 124-M of the 1997 Act.

CR 2015/70: How transfer payments to employees are treated in the sale of Home Care Service business. The ruling discusses the tax treatment of transfer payments to employees in connection with the sale of the Home Care Service business. It considers the employment termination payment provisions in sections 82-130 and 82-135 of the 1997 Act.

Other

The report of the Parliamentary Joint Committee on Law Enforcement Inquiry into financial related crime has been tabled in the Senate. One of the recommendations of the report was to designate the ATO as a "criminal law-enforcement agency" under the Telecommunications (Interception and Access) Act 1979, so that it can access intercepted telecommunications information for the purpose of protecting public finances from serious criminal activities such as major tax fraud.

Case law

DCT v McManus

The Federal Court decided that the Commissioner was able to serve a statement of claim on a taxpayer residing in Indonesia in order to recover over $1 million.

The Commissioner satisfied the Court that the requirements for service beyond Australia were met. This is because the Commissioner was able to prove that he had a prima facie case for the relief sought, and that the Court had jurisdiction in the matter.

Thomas v FCT

The Federal Court held that a discretionary trust cannot distribute franking credits to an individual beneficiary in a tax-advantaged way, independently from the way in which the trust’s net income is distributed. The Court held that franking credits are not ordinary income of a trust and therefore cannot be distributed separately from the trust's net income. This is in contrast to fully franked dividends which are viewed as 'dividends' and represent a category of distributable trust income.

The Court decided that there was no 'relevant nexus with net trust income' required by Division 207 of the 1997 Act, regarding the allocation of franking credits to beneficiaries.

The Court said that the intention to allocate franking credits was to maximise inappropriately the beneficiary's refund entitlement, because the franking credits were allocated in different proportions to the rest of the trust's net income.