TAX TRAINING NOTES
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1 Cases.......................................................................................................................................... 4
- NR Allsopp Holdings – no limited partnership............................................................................. 4
- Thomas – franking credits.......................................................................................................... 6
- Kafataris – trust created over CGT asset by declaration or settlement.......................................... 7
- Breakwell – Maximum Net Asset Value....................................................................................... 8
- Rio Tinto – no GST input tax credits on subsidised housing....................................................... 10
- Rossi – Commissioner's decision to issue garnishee notices are not reviewable......................... 11
- Headwear – payroll tax grouping.............................................................................................. 13
2 Legislation................................................................................................................................ 16
- Progress of legislation............................................................................................................. 16
- Exposure draft – Superannuation Guarantee Legislation Amendment (Simplification).................. 16
- Exemption of income earned in overseas employment ...................... Error! Bookmark not defined.
3 Interpretative decisions............................................................................................................. 19
- Superannuation guarantee payments to workers outside Australia.............................................. 19
4 ATO materials........................................................................................................................... 20
- Notice of intent to claim a deduction for a super contribution..................................................... 20
- ATO App................................................................................................................................. 20
- Application of general anti-avoidance rules draft PS LA 2005/24................................................ 21
- ATO revises practice for wealthy individuals.............................................................................. 22
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This paper has been prepared for the purposes of general training and information only. It should not be taken to be specific advice purposes or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained within.
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These materials represent the law as it stood on 7 September 2015. Copyright © Brown Wright Stein Lawyers 2015.
Liability limited by a scheme approved under Professional Standards Legislation
In May 2003 a limited partnership was formed by way of deed, referred to here as the Q Uniform Partnership. The trustee for the Uniform General Trust was the general partner, and the trustee of the Uniform Trust was the limited partner. A term of the deed included that the liability of the limited partner was limited.
The partnership was formed under the Partnership (Limited Liability) Act 1988 (Qld). Under the Queensland law, to be a limited liability partnership you need to be a partnership generally, where a partnership is defined to mean:
Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.
The partnership was registered under the Act on 5 June 2013 and a certificate of registration was issued. The partnership was then registered under equivalent legislation in Victoria in August 2004, and its
Queensland registration was cancelled. Under the Victorian Act to have limited liability a limited liability
partnership also needs to be a partnership as defined, and in Victoria the definition is:
Partnership is the relation which subsists between persons carrying on a business in common with a view of profit and includes an incorporated limited partnership with the meaning of Part 5.
In June 2004 NR Allsopp Holdings Pty Ltd as trustee for the Uniform General Trust on behalf of the Q Uniform Partnership subscribed for 10 Z class shares in NK Products Pty Ltd and Quality Powdercoating Pty Ltd. It appears that dividends were paid by the companies to the Q Uniform Partnership.
The terms of the Z class shares provided that:
Each share shall be redeemable at the direction of the directors, at any time, for the issue price, and, at the end of 47 months following its issue, shall be automatically redeemed at its issue price and cease to exist at the expiration of that time, whether or not its redemption price has been paid.
In 2005 NK Products paid money to the Q Uniform Partnership that was on-lent to NR Allsopp Holdings Pty Ltd as trustee for the NK Sheetmetal Trust. It is not clear from the case whether these payments were dividends, although they appear to have been in part dividends, and in part loans.
The ATO attacked the arrangements on three bases:
The effect of the ATO positions would be that:
The affected parties objected to the ATO position and assessments, and the objections were disallowed in August 2013. The objection decisions were appealed in the AAT.
Were the ATO positions in relation to the arrangements correct?
The AAT found that the ATO had correctly applied the law.
The AAT considered that to be a limited liability partnership, defined for tax purposes as ‘a) an association of persons (other than a company) carrying on business as partners or in receipt of ordinary income or statutory income jointly, where the liability of at least one of those persons is limited’, it was necessary that the limited liability be found in a statute rather than the document forming the partnership. That is, the liability should be limited as against third parties, and not against the other partners in the partnership as the deed in this case provided.
The Tribunal set out that they were not satisfied that the ATO’s position that the partnership did not carry on a business was incorrect. The reasoning in the AAT did not set out what arguments were put in relation to the carrying on of a business.
While it appears that the partners argued that once a limited partnership is registered it is a limited liability partnership (as this was argued in an analogous case identified below), the AAT considered that to be a limited liability partnership a partnership first had to satisfy the definition of partnership under the relevant act, which required the carrying on of a business.
In relation to the second point about the Z class shares being debt interests, the arrangement would result in a debt interest if it was substantially more likely than not that the value provided by the company to the shareholder would be at least equal to the value the company received from the shareholder. Although the shares were clearly equity under the definition of equity interests (as they were shares) under the tie-breaker test if the shares also satisfied the criteria to be treated as a debt interest they would be debt.
The AAT was satisfied that on the terms of the shares, the company was under an effectively non- contingent obligation to provide a financial benefit back to the shareholder (the issue price) that was at least the same as the financial benefit provided to the company by the shareholder (the issue price), which meant that the share was a debt interest.
In relation to the interposed entity issue, the AAT did not set out the detailed contentions of the affected taxpayers as to why the interposed entity provisions should not apply, and instead accepted the ATO position that a reasonable person (as is required by the interposed entity provisions) would conclude that NK products made the payments solely or mainly as part of an arrangement involving a payment to the target entity.
TRAP – the NSW Partnership Act 1892 also requires that to be a limited partnership, the arrangement must be a partnership, which involves the carrying on of a business.
COMMENT – an identical decision for a different taxpayer on similar facts was decided by the AAT in August - D Marks Partnership and Commissioner of Taxation (Taxation)  AATA 651.
Citation NR Allsop Holdings Pty Ltd as General Partner of Q Uniform Partnership and Commissioner of Taxation (Taxation)  AATA 654 (DP Molloy IP, Brisbane)
Thomas Nominees Pty Ltd was the trustee of the Thomas Investment Trust, established by deed in 1979.
In the 2006 – 2009 financial years distributions were made to Martin Thomas, Martin Andrew Pty Ltd (‘MAPL’).
In each year the trustee resolved to distribute separately the ‘net income’ and the ‘franking credits’. The “net income distribution resolution” for the income year ending 30 June 2006 was in these terms (the other years were similar):
TRUST INCOME Resolved [by Martin Thomas and Carmel Thomas – Mr Martin Thomas’s mother] pursuant to
DISTRIBUTION: the powers vested in the trustee under the Deed of Settlement establishing the abovenamed trust fund [Thomas Investment Trust] that the net income of the trust fund for the financial year ended 30 JUNE 2006 be applied for the benefit of the beneficiaries listed hereunder by credit to accounts maintained by the trustee for them.
MARTIN A THOMAS THE FIRST $21,600 [MAPL] THE BALANCE
Should the Commissioner of Taxation disallow any amount as a deduction or take any action that would have the effect of creating undistributed net income in the trust as at 30 JUNE 2006 then such net income shall be deemed to be distributed on 30 JUNE 2006 to the abovenamed beneficiaries in proportions as stated above, except where there is a remainder nomination then this amount shall be distributed to that person.
The “franking credit distribution resolution” for the income year ending 30 June 2006 was in these terms: TRUST INCOME Resolved pursuant to the powers vested in the trustee under the Deed DISTRIBUTION: of Settlement establishing the abovenamed trust fund that the net income of the
trust fund for the financial year ended 30 JUNE 2006 be applied for the benefit of the beneficiaries listed hereunder by credit to accounts maintained by the trustee for them.
MARTIN A THOMAS FRANKING CREDITS $2,416,217.92 TFN WITHHELD $17,502.00
[MAPL] FRANKING CREDITS $228,900.38 FOREIGN TAX CREDITS $4,267.42
Should the Commissioner of Taxation ...
Under the terms of the trust deed the trustee was allowed to treat as a class of income, income which ‘has or gives rise to any other separately identifiable taxation consequence or benefit’ and also income ‘having, or in respect of which there is attached, individual or unique characteristics’.
The deed did not explicitly equate the income of the trust with tax law income, instead providing that income included amounts which were assessable for tax purposes.
The ATO reviewed the arrangements and for 2006 assessed all the income to both Mr Thomas and the trustee (under an alternative assessment). The ATO did not press the alternative assessments on appeal.
In August 2010 the trustee commenced proceedings in the Supreme Court of Queensland that culminated in a decision Thomas Nominees Pty Ltd v Thomas and Ors  QSC 417 which held that the franking credits could be distributed separately to the dividend income generating those franking credits. The ATO was not a party to the proceedings.
Was the Commissioner bound to accept the decision of the Queensland Supreme Court that the trustee could distribute the franking credits separately from the dividends that generated the income?
Were the franking credits able to be distributed separately from the dividends that generated them?
There were 20 propositions advanced for Mr Thomas and MAPL as to why the franking credits should flow in the manner the trustee asserted, while the Commissioner advanced 19 propositions as to why they should not.
In relation to whether the Commissioner was bound by the Court decision the Federal Court considered that as the order of the Supreme Court was made under the Trusts Act 1973 (Qld), as the proceedings were non-adversarial so that evidence was untested, as the Commissioner was not party to those proceedings, as the decision concerned Commonwealth taxation law in which the Commissioner has a real interest, the Commissioner is not bound to accept the facts found by the Supreme Court.
The Court did not consider that the franking credits could be streamed as a separate class of income from the distributions to which they were attached, holding ‘What cannot occur if the tax offset is to be preserved and available in conformity with the tax legislation is an allocation of the s 95 net income amongst beneficiaries on a particular basis and a distribution of the franking credits otherwise attached or stapled to the franked dividends on an entirely unrelated basis, amongst the same beneficiaries. That is what has occurred in each income year in this case.’
Citation Thomas v Commissioner of Taxation  FCA 968 (Greenwood J, Brisbane) w http://www.austlii.edu.au/au/cases/cth/FCA/2015/968.html
In September 2008 in Kafataris v Deputy Commissioner of Taxation (No 1)  FCA 1454 Mr and Mrs Kafataris sought to argue that their transfer of real estate acquired in 1987 to two new complying superannuation funds in 2002 did not result in CGT event E1 occurring as they remained absolutely entitled to the real estate and the relevant absolutely entitled exception applied. CGT event E1 occurs where a trust is created over an asset by declaration or settlement, but does not occur if you are the sole beneficiary and you are absolutely entitled to the asset as against the trustee.
In the 2008 decision Lindgren J found that the complying superannuation funds were unlike a bare trust and that the fully vested interest of the sole member of each fund did not amount to absolute entitlement to the real estate held on trust for various reasons in line with High Court's decision in CPT Custodian Pty Ltd v. Commissioner of State Revenue (Vic)  HCA 53.
The efforts of Mr and Mrs Kafataris to have the capital gains made on the sale of property assessed to the new superannuation funds soon after their transfer to the funds failed.
In 2007 Mr and Mrs Kafataris realised more real estate acquired in the late 1980s. The real estate was let to tenants. Although the wider intents are not clear, Mr and Mrs K sought to apply a Division 122 roll-over (transfer of an asset in exchange for shares in a company wholly owned by the transferors) to real estate
transferred to a company, Thorium Pty Ltd on the basis of an offer in a letter from Thorium which stated that Thorium:
… offers to acquire from Peter Kafataris and Helen Kafataris an equitable estate in [the property].
Pursuant to this offer Thorium Pty Limited hereby tenders to Peter Kafataris and Helen Kafataris
a promissory note in the sum of $9,000,000 an application for shares in the company.
A Division 122 rollover allows you to disregard the effect of CGT event A1 (an ordinary disposal) but not either of CGT events E1 and E2 (transfer to an existing trust). To avoid there being a capital gain on transfer Mr and Mrs Kafataris needed CGT event A1 to apply to the exclusion of CGT event E1.
Mr and Mrs Kafataris contended that CGT event A1 occurred and that CGT events E1 did not occur. If both CGT event A1 and CGT events E1 occurred, then the CGT legislation would deem the most relevant event to have occurred. While it was clear that CGT event A1 had occurred, as the property was disposed of, an argument against CGT event E1 having occurred was that rather than there being a trust created by declaration or settlement, the trust that was created was by mere operation of law (a constructive trust).
Did CGT event A1 or E1 occur?
Davies J considered that the words and actions of the parties sufficiently evidenced an intention to create a trust, so that there was a ‘declaration of trust’ over the CGT asset using the approach of the High Court in Korda v Australian Executor Trustees (SA) Ltd  HCA 6. In Korda French CJ stated:
The question whether an express trust exists must always be answered by reference to intention. An express trust cannot be created unless the person or persons creating it can be taken to have intended to do so. Absent, as in this case, an explicit declaration of such an intention, the court must determine whether intention is to be imputed. It does so by reference to the language of the documents or oral dealings having regard to the nature of the transactions and the circumstances attending the relationship between the parties.
Davies J was also satisfied that the acquisition was a ‘settlement’ over the CGT asset, giving further reason for CGT event E1 to apply.
It followed that Davies J confirmed that CGT event E1 and CGT event A1 applied to the transfer of the CGT asset but, as CGT event E1 was the more specific CGT event, CGT event E1 applied so that the Division 122 roll-over was unavailable to Mr and Mrs Kafataris.
COMMENT – the authorities on ‘settlement’ are not clear the finding by Davies J that there was a settlement in this instance could be debated (although whether there was one is unimportant in this case as there was held to be a declaration). For there to be a settlement there may have needed to be a limitation on the estate Thorium obtained in the real estate, but there was no such limitation. Thorium seemingly acquired an unlimited equitable interest which is comparable to that of a purchaser of the fee simple for value under a contract of sale who is yet to obtain legal title, which is not considered to be a ‘settlement’.
Citation Kafataris v DCT  FCA 874 (Davies J, Melbourne) w http://www.austlii.edu.au/au/cases/cth/FCA/2015/874.html
East Terrace Unit Trust operated a finance broking business. The Unit Trust sold the business in July 2007 for $500,000. The Allan Breakwell Family Trust was a beneficiary of the Unit Trust, and Mr Breakwell and Breakwell Investments Pty Ltd were beneficiaries of the Family Trust.
The Unit Trust disregarded the capital gain from the sale of the business, by applying the small business concessions in relation to the 2008 year of income.
Mr Breakwell and his related entities were the subject of a comprehensive risk review by the ATO in early 2012, and, in mid-2013, the ATO issued a position paper concluding that Unit Trust was ineligible for any small business concessions in relation to the gain arising from the sale of the business on the basis that it did not satisfy the maximum net asset value test. In November 2013, amended assessments were issued to Mr Breakwell. In January 2014, Mr Breakwell lodged an objection against his amended assessment.
The maximum net asset value test provides:
You satisfy the maximum net asset value test if, just before the CGT event, the sum of the following amounts does not exceed $6,000,000:
- the net value of the CGT assets of yours;
- the net value of the CGT assets of any entities connected with you;
- the net value of the CGT assets of any affiliates of yours or entities connected with your affiliates (not counting any assets already counted under paragraph (b)).
The assets comprising the maximum net asset value test were largely agreed between Mr Breakwell and the ATO. The ATO, however, included a loan from the Family Trust to Mr Breakwell as an asset of the trust without there being a corresponding liability for this amount in the net asset position of Mr Breakwell. Mr Breakwell was taken to be connected to the Unit Trust so that his net assets were included in the maximum net asset value test. In the AAT Mr Breakwell was recorded as having a property valued at
$165,000 as his asset, with no offsetting liabilities.
This loan totalled $2,374,562, and comprised: 1. A pre-1998 loan of $1,144,934; and
2. A post-1998 loan of $1,229,628.
Mr Breakwell made two separate contentions about the pre-1998 component of the loan, claiming it:
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He had no evidence to show the pre-1998 component of the loan was used for business purposes. Mr Breakwell also argued that the pre-1998 loan was statute-barred, and therefore had no value, and
should not be included in the calculations for the purposes of the test.
Was the Unit Trust able to pass the maximum net asset value test?
The AAT considered that the Unit Trust failed the maximum net asset value test.
The AAT found that as Mr Breakwell did not have any records in relation to the pre-1998 loan, and was unable to demonstrate that the pre-1998 loan was used for business purposes, the pre-1998 loan would be included in the calculations for the purposes of the test without being a liability to be counted for him.
As to whether the pre-1998 debt was statute barred, the Tribunal looked at numerous cases, and said that the first step is look at when the cause of action that was statute barred arose. In the case of Brooker v Pridham (1986) 41 SASR 380, it was said that:
The essential question is whether the claims of the shareholders’ deposit account creditors, whom the appellant represents, were statute barred on 15th September, 1972, the date upon which the company went into voluntary liquidation.
The first stage in answering that question is to determine when the cause of action which is said to have been barred, arose. Section 35 of the Limitation of Actions Act provides that an action founded upon any simple contract shall be commenced ‘within six years next after the cause of action accrued and not after’. It is trite to say that where there is a simple loan of money, the debt is due and payable immediately and from day to day from the time of the making of the loan, and that the cause of action therefore arises immediately upon the loan of the money.
The Tribunal found that, by signing the balance sheet in each of the financial years from 2003 to 2008, Mr Breakwell acknowledged that the pre-1998 loan was an asset of the trust, and continued to be an asset of the trust. Therefore, the loan was not statute barred, and was properly included in the MNAV test.
TIP – the small business CGT concessions maximum net asset value test changed from 1 July 2007 so that an entity’s negative net asset position can be added to the position of other entities within a group to determine the overall net asset position.
In NSW acknowledgement of a debt can extend the period in which action can be taken to recover the debt.
COMMENT – even if Mr Breakwell had been able to show that the pre-1998 loan was used for business purposes, for it to count as a liability, he would need to show that it was ‘related to’ an asset that was counted for the purpose of the maximum net asset value test for it to reduce the overall net asset position.
It is also unclear whether on the facts in this case Mr Breakwell did in fact acknowledge that he was indebted to the Family Trust when he signed the financial statements. It was not considered in the case whether the act as signing the accounts for the trust should constitute acknowledgement by him as an individual.
Citation Re Breakwell and FCT  AATA 628 (SM Dunne RW, Adelaide) w http://www.austlii.edu.au/au/cases/cth/AATA/2015/628.html
Rio Tinto Services Ltd is the representative member of the Rio Tinto Ltd GST group that includes Hamersley Iron Pty Ltd and Pilbara Iron Company (Services) Pty Ltd.
Rio Tinto and the ATO ran a test case concerning the input tax credit entitlements of the GST group in relation to residential property supplied to workers at various mine sites in remote areas of Western Australia’s Pilbara region. The case was covered in our March 2015 notes. Rio Tinto lost the first round of the case before the Federal Court.
Hamersley owns approximately 2,295 houses and apartments of various sizes in remote towns, most of which were established by Hamersley. Hamersley provides subsidised accommodation to workers and makes a loss each year on rental of the premises. The unchallenged evidence was that the cost of accommodation in the towns would be very high, and that it would be difficult to attract and retain people in the Pilbara region, without the subsidy.
For the year ended 30 June 2010, Rio Tinto’s revenue from the sales of iron ore produced in Mount Tom Price and Greater Paraburdoo (including Channar & Eastern Range), and from the provision of remote housing at Tom Price, Paraburdoo, Dampier and Karratha showed that the supplies made by the group were predominantly of iron ore (99.88%) and that the accommodation part of the business was effectively run at a loss (of approximately $32 million).
Rio Tinto argued that it should be entitled to 99.88% of the input tax credits related to the supply of residential accommodation because it was not provided to derive rent, it was to make taxable or tax-free (export) supplies of iron ore.
Should Rio Tinto be entitled to credits for the GST paid on the acquisitions in relation to the supply of residential accommodation to employees, contractors and ancillary services providers as a result of being connected to the making of taxable or tax-free supplies?
The Full Federal Court dismissed Rio Tinto's appeal and unanimously held that the input tax credits were denied on the basis that the acquisitions were not made for a creditable purpose.
The Full Court rejected Rio Tinto's argument that the GST law entitled it to a credit to the full extent that its acquisitions related to the carrying on of its enterprise which involved making taxable and tax-free supplies without the denial of credit as a result of the direct supplies being input taxed supplies, holding that the direct and immediate connection between the acquisitions and the provision of the leased accommodation fully engaged the provision identifying the class of acquisitions excluded from allowance of a credit.
The Court considered that in determining whether credits are denied as a result of being linked to the making of input taxed supplies, the relevant inquiry called for is not into the relationship between the acquisition and the enterprise more broadly, saying:
An acquisition will not be for a creditable purpose to the extent that the facts disclose that the acquisition relates to the making by the enterprise of supplies that would be input taxed. Some acquisitions may relate to the making of supplies that would be capable of distinct and separate apportionment as between an input taxed supply and an otherwise taxable supply. In that case it may be possible to divide the creditable purpose between the two. Other acquisitions may be indifferently both for supplies that would be both input taxed and otherwise taxable generally. In that case some fair and reasonable assessment of the extent of the relationship between the two may need to be made. But, as is the case here, an acquisition which relates wholly to the making of supplies that would be input taxed is not to be apportioned merely because that supply may also serve some broader commercial objective of the supplier.
Citation: Rio Tinto Services Limited v FCT  FCAFC 117 (Middleton, Logan and Pagone JJ) w http://www.austlii.edu.au/au/cases/cth/FCAFC/2015/117.html
In May 2015, the ATO wrote to Giuseppe Rossi advising him that garnishee notices had been issued to the Bank of Queensland and to Computershare Investor Services Pty Limited under subdivision 260-A of the TAA 1953. Under subdivision 260-A that ATO are empowered to collect tax-related liabilities from third parties.
The ATO's records showed that $6,422.00 remained unpaid by Mr Rossi, despite previous requests for the unpaid amount.
On 1 June 2015, Rossi lodged an application with the AAT for a review of the decision, providing reasons in support of his submission that the Tribunal had jurisdiction to consider the application. A telephone hearing was listed for 10:00AM on 10 July 2015 by Deputy President S A Forgie to consider the matter and notice of the listing was sent by email to Rossi and the Commissioner on 1 July 2015. At the time of the scheduled hearing, Rossi did not answer his telephone and no voicemail could be left. A second attempt was also unsuccessful and Deputy President S A Forgie contacted Ms Bui, who represented the Commissioner. Rossi's application was dismissed on the basis that the Tribunal did not have jurisdiction
to review the decision to issue garnishee notices to third parties. Written reasons were provided on 21 July 2015.
Rossi's submissions in support of the Tribunal's jurisdiction to consider the application included that the AAT was bound to apply the laws of Australia, citing citing clause 5 of the Commonwealth of Australia Constitution Act 1900 (UK) and that the AAT is bound by section 13(4) of the Public Service Act 1999 to apply all applicable Australia laws, and so further that the AAT Act allowed the review, the ADJR Act did not mean there was no right of review.
DP Forgie considered that although Section 10 of the ADJR Act provides that rights given to a person to apply to the Federal Court or the Federal Circuit Court for review of a decision under the ADJR Act are not diminished in any way by the fact that the person may have other avenues to seek review of the decision, the fact that Rossi could have chosen to go to the Federal Court or the Federal Circuit Court for review of the Commissioners decision was held to have no effect on the Tribunal’s powers to review the decision. Section 10 is relevant only in determining the powers of the Court and not those of the Tribunal.
Under the AAT Act applications may be made to the Tribunal for review of certain decisions. The question was therefore whether the Act provides for applications to the Tribunal for review of the Commissioner's decision to issue a garnishee notice. Section 14ZZ(1) of the TAA provides:
If the person is dissatisfied with the Commissioner’s objection decision…..the person may:
(a) if the decision is a reviewable objection decision – either:
(i) apply to the Tribunal for review of the decision; ...
A ‘reviewable objection decision’ is an ‘objection decision that is not an ‘ineligible income tax remission decision.’ An ‘objection decision’ is a decision made by the Commissioner when a person has objected against a taxation decision. A person may only object if Part IVC of the TAA or a provision of an Act or regulation provides that a person who is dissatisfied with an assessment, determination, notice or decision can object against it in the manner set out in that Part.
For example, s175A of the ITAA36 provides for a person to make an objection against an income tax assessment in accordance with Part IVC. The Commissioner is required to decide taxation objections, and these decisions are objection decisions.
An ineligible income tax remission decision is an objection decision that generally relates to the remission of additional tax payable by a taxpayer under ITAA36 unless the additional tax is payable under certain provisions of ITAA36 set out in s 14ZS(1). If an objection decisions comes within this description, it is not a reviewable objection decision.
As the Commissioner’s decision to issue a garnishee notice to a third party is not a decision relating to the remission of additional taxation, it can only be a reviewable objection decision if it is an objection decision.
The AAT noted that there is nothing in Subdivision 260-A which entitles the liable entity (Mr Rossi in this case) to object to the decision to issue the notice to the third party. There being no provision making the garnishee notice something against which a person could object, the Commissioner’s failure to withdraw the notice was not a reviewable objection decision, and there were no grounds of appeal to the AAT.
The AAT noted that Rossi may have been entitled to object to earlier decisions made by the Commissioner in assessing the amount of tax that he was liable to pay. The Commissioner would have then made an objection decision on this objection, and providing it was not an ineligible income tax remission decision, it would have been a reviewable objection decision and Rossi would have been entitled to apply for its review in the Tribunal. That would have been the opportunity to consider whether the Commissioner had properly assessed his tax-related liability.
TIP – if a tax liability is outstanding and unpaid, there is the risk that it can affect your debtors, and therefore your business standing – your debtors may not be happy dealing with a business that does not pay the ATO. Although there is no right to have this decision reviewed in the AAT, you can apply for a review in the Federal Court under the ADJR. The issue is that the AAT is a ‘no costs’ jurisdiction, while in the Federal Court, if you lose, you can be responsible for the ATO’s costs.
Citation Re Rossi and FCT  AATA 601 (DP Forgie SA, Melbourne) w http://www.austlii.edu.au/au/cases/cth/AATA/2015/601.html
Headwear Pty Ltd was the trustee for a partnership which carried on a business in NSW (‘NSW business’). The NSW business was grouped with three other companies for payroll tax purposes, each of whom conducted business in different States, being:
The Headwear Stockists Group carried on the business of importing and selling headwear (caps and hats) manufactured in China by the same factory. The group specialised in providing customised headwear for corporate, sporting, licensed and retail customers.
During the relevant years, Peter and Suzanne Barblett owned and controlled the WA business and through trusts associated with them, were the majority equity owners in each of the NSW, Queensland and Victoria businesses.
It was accepted by the parties that the four businesses were grouped for payroll tax purposes for the 2008 to 2011 tax years, but the NSW business applied to the Chief Commissioner for his exercise of the discretion in section 79 to exclude it from the group on the basis that its business is carried on independently of and is not connected with the business of any of the other group members.
The application for exclusion was disallowed by the Chief Commissioner. The NSW business objected to the disallowance decision, which was also disallowed. The NSW business applied to the Tribunal for a review of the objection decision.
Headwear Pty Ltd argued in the NCAT that partnership should be ‘de-grouped’ as the NSW Business was a small business that independently operated with separate staff, premises, banking facilities, lease arrangements, infrastructure and customers and, except for common ownership they have no economic dependence on each other.
The OSR considered that it was correct that the NSW business be grouped on the basis that there was/were:
- substantial commonality of ownership;
- intra-group loans;
- same place of business;
- intra-group provision of administrative services;
- the nature of the business.
- the businesses of all group members used the same:
- bookkeeping and stock ordering functions;
- internal stock codes;
- invoicing format;
- "Headwear Professionals" branding;
- contact person for stock orders from China (Peter Barblett); and
- external accountants and registered office;
- the WA business financed the businesses of the other group members through substantial loans and retained earnings and received significant interest, distribution and consulting payments from
- the Applicant and the WA business shared the same WA postal address;
- the Applicant's contact person for FBT purposes was Peter Barblett; and
- Peter Barblett signed the Applicant's FBT returns as "employer".
Should the NSW business have been excluded from the group?
The Tribunal noted section 79 requires consideration of the nature of interconnections between the group members, the nature of the businesses and other relevant matters. The Tribunal also noted that in order to be relevant to section 79, the interconnection must affect the group members' business in some real or practical sense, and that for a group member to be disentitled from exclusion from the payroll tax group, there must be a real or meaningful connection, in a commercial sense and not an immaterial, inconsequential or passing connection between the carrying on of the businesses.
The Tribunal found that the NSW business failed to discharge the onus of proving that it was carried on independently of and was not connected with the carrying on of each other group businesses.
In particular, the Tribunal considered the following relevant matters:
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Citation Headwear Pty Ltd v Chief Commissioner of State Revenue  NSWCATAD 166 (SM NS Isenberg)
Tax and Superannuation Laws
Amendment (2015 Measures
No 2) 2015
Tax and Superannuation Laws
Amendment (2015 Measures
No 3) 2015
Tax and Superannuation Laws
Amendment (2015 Measures
No 4) 2015
Tax and Superannuation Laws
Amendment (Better Targeting the Income Tax Transparency Laws) 2015
Tax Laws Amendment (Small
Business Measures No 3) 2015
Tax Laws Amendment (Tax
This exposure draft bill was released by Treasury on 21 August 2015 following the announcement on 20 January 2015 by the Government of changes to apply from 1 July 2016 addressing overly punitive and inequitable aspects of the Superannuation Guarantee Charge (‘SGC’).
The non-tax deductible SGC and its associated penalties have been in place since the introduction of compulsory superannuation in Australia in 1992. They are designed to deter employers from late payment of compulsory superannuation for their employees. Compulsory superannuation contributions are both:
- tax deductible; and
- free of SGC penalties and interest;
so long as compulsory employer contributions are made on time. A contribution needs to be made by the day that is 28 days after the end of the relevant quarter.
There are currently some anomalies in the SGC system that look to be rectified by the exposure draft, one of those is in relation to interest, and one in relation to the contribution base (there are others).
For instance, interest penalties apply to outstanding compulsory superannuation caught by the SGC even for periods following payment into superannuation when these amounts are no longer outstanding.
At present, if a contribution due on 28 July 2013 were to be paid on 29 July 2013, and the SGC liability recognised on 7 September 2015, then interest would be calculated from 1 April 2013 to 7 September 2015, despite the contribution having been in the fund on 29 July 2015.
The proposed change in relation to notional interest is that it will be imposed from the 29th day of the month following the end of the quarter until the time that the contribution is made, or if the contribution is not made, until the time that the charge is paid.
Another anomaly is that the principal on which the SGC is determined, salary and wages, differs from contributions actually due which are based on ordinary time earnings. This is to be rectified by making SGC payable on ordinary time earnings.
The changes in the exposure draft bill are intended to apply from 1 July 2016.
On 20 August 2015 the Assistant Treasurer introduced to Parliament the Tax and Superannuation Laws Amendment (2015 Measures No 4) Bill 2015 which will make several amendments to the tax laws.
Overseas employment income
Among the amendments is the removal of the foreign employment income exemption for employees of Australian government agencies.
Currently, Australian residents who work overseas for 91 or more continuous days delivering Official Development Assistance (ODA) are exempt from income tax on the income they earn while overseas.
The amendment will render all employees of Australian government agencies subject to income tax on the overseas income they earn in the delivery of ODA.
Employees of employers other than Australian government agencies will be unaffected. If enacted, the amendment will apply from the 2017 income year onwards.
Scrip for scrip Rollover
The purpose of the scrip for scrip rollover provisions is to prevent tax considerations from being an impediment to takeovers or mergers involving companies or trusts. When scrip (i.e. shares, trust interests, options/similar rights over shares or trust interests) is exchanged for similar interests in another entity in a takeover or merger, the capital gain on disposal is deferred until the disposal of the replacement scrip. The acquiring entity does not need to compensate the holders of scrip for the tax they would otherwise have paid on exchange.
Integrity rules within the scrip-for-scrip provisions are designed to prevent potentially indefinite capital gains tax deferral opportunities when the same person or group has influence over both the acquired entity and the acquiring entity. For example, if an acquiring entity receives shares in the original company in exchange for shares in itself and the acquirer on-sells the original company the original shareholder can get a tax deferral, which the acquirer that on-sells the shares may not need to recognise any income.
Special cost base rules apply so that the cost base for the acquiring entity of interests in the acquired entity (i.e. the original company) reflects the original interest holder's cost base (and not the market value of the interests) in certain circumstances.
The threshold levels of influence to attract the rollover of cost base rules are:
Changes to Scrip for Scrip
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The amendments will apply in relation to CGT events that occur after 7:30pm (AEST) on 8 May 2012 – the date of the original Budget announcement.
In 2012 the ATO released an Interpretative Decision in relation to whether payments made to a non- resident employee who was working outside Australia, but at sea, was subject to superannuation guarantee obligations: ATO ID 2012/75.
On 1 July 2015 the definition of Australia in the SGAA changed and expanded what is considered part of Australia.
ATO ID 2015/24 now sets out the position for someone, not a resident of Australia, who is not employed by an Australian resident company, where work is done at sea, and the place of that work is:
- the Coral Sea Islands Territory
- the Territory of Ashmore and Cartier Islands
- the Territory of Christmas Island
- the Territory of Cocos (Keeling) Islands, and
- the Territory of Heard Island and the McDonald Islands.
Sea Treaty) Act 2003) or an offshore area for the purpose of the Offshore Petroleum and Greenhouse Gas Storage Act 2006.
The ID also notes that the salary or wages paid to the employee do not relate to employment covered by a certificate under section 15C of the SGAA (concerning International Social Security Agreements).
Is the employer required to provide superannuation guarantee support?
Decision and reasons
Salary or wages paid to an employee not a resident of Australia for work done outside Australia is not subject to superannuation guarantee (unless the salary or wages relate to employment covered by a certificate under section 15C of the SGAA).
The ATO view is that the phrase 'work done outside Australia' as used the SGAA, 'Australia' is used in a geographical sense and extends to the outer limits of Australia's 'coastal sea'. Further, 'Australia' in that phrase also includes the territories of Norfolk Island, the Coral Sea Territory, the Territory of Ashmore and Cartier Islands, the Territory of Cocos (Keeling) Islands, the Territory of Christmas Island, the Territory of Heard Island and the McDonald Islands and the 'coastal sea' of each of those Territories. It also includes the offshore areas.
ATO Reference ATO ID 2015/24
In August 2015 the ATO published a fact sheet on claiming deductions for superannuation contributions. You are eligible to claim a deduction for personal super contributions if:
Notice of intent to claim or vary a deduction for personal super contributions
To claim a tax deduction for personal super contributions, you must first notify your super fund or RSA that they intend to make such a claim. You can validly give notice in any of the following ways:
- completing a 'Notice of intent to claim or vary a deduction for personal super contributions form' (NAT 71121), which is available on the ATO website;
- using the super fund's own form;
- the taxpayer can write to their super fund stating that they wish to claim a tax deduction for the taxpayer's super contributions. Such a form of notice needs to include at least the following information in respect of the taxpayer:
- first name;
- family name;
- date of birth;
- super fund name;
- super fund member account number;
- the financial year in which the personal contributions were made;
- the total amount of personal contributions made to the super fund or RSA;
- the amount of these personal contributions the taxpayer intends to claim as a tax deduction;
- declaration that the taxpayer is lodging this notice by the due date;
- a statement that the information contained in the notice is true and correct;
- the taxpayer's signature; and
- the date (day, month and year).
You must lodge a notice of intent to claim a deduction with your super fund or RSA provider by the earlier of the following:
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In our August 2015 notes we highlighted that the ATO had released an app for use by individual taxpayers. The app has apparently been updated so that it can be used by small business owners and trustees of self-managed superannuation funds. The app now features the ATO's business performance check tool for small business clients. This tool provides clients with a quick snapshot of the financial health of their business and compares it to similar businesses in their industry. It allows you to save results and monitor performance so you can use the tool and then discuss their performance results with their accountant.
The performance check tool can be used to:
On 13 August 2015, the ATO released a draft updating Practice Statement Law Administration, PS LA 2005/24 ‘Application of General Anti-Avoidance Rules’.
The original PS LA 2005/24 provides instruction and practical guidance to ATO officers on applying General Anti-Avoidance Rules ('GAARs') comprising Pt IVA and other anti-avoidance rules. PSLA 2005/24 discusses the cancellation of tax benefits (section 177F) and deemed tax benefits related to the stripping of company profits (s177E); the creation of franking debits or cancellation of franking credits (s177EA(5)) and cancellation of franking credits of a consolidated group (s177EB(5));arrangements to avoid or reduce FBT (s67(1)); and declarations by the Commissioner to negate a tax avoider's GST benefits (s165-40).
PS LA 2005/24 also outlines the role and operation of the GAAR Panel of the ATO. Briefly stated the GAAR Panel, which comprises senior ATO officers and external consultants, currently including former judges, takes submissions from the relevant taxpayer and the ATO and advises the Commissioner of Taxation on how a GAAR should be applied when the ATO seeks to apply a GAAR to an alleged avoidance scheme. Where the ATO proposes to apply a GAAR to a scheme identified in a position paper, the ATO will take the advice of the GAAR Panel. However where a private ruling is sought on how a GAAR might be applied by the ATO, it is not referred to the protracted GAAR Panel process unless the applicant for the ruling so requests it.
The updated PSLA 2005/24 provides guidance on the alternative postulate and the determination of a tax benefit under Pt IVA.
Tax Benefits and the Alternative Postulate
The alternative postulate is what would have happened or might be expected to have happened if the particular scheme had not been entered into or carried out. It also forms the background against which objective ascertainment of the dominant purpose of a person occurs.
In 2013, an amendment ('tax bases for identifying tax benefit':s177CB) was introduced to alter the parameters of the 'alternative postulate' test impacting how a 'tax benefit' under Pt IVA is determined. This amendment applies to schemes entered into, commenced or carried out from 16 November 2012.
The PSLA discussion provides a summary of the case law principles which determine how the alternative postulate is established (i.e. for the period from 2005 up until 15 November 2012). It also provides guidance as to the Commissioner's views on establishing the alternative postulate following the introduction of s177CB.
Guidance on the Commissioner's views on Alternative Postulate following s177CB introduction
The Commissioner acknowledges the lack of case law dealing with the interpretation of s177CB and provides the following guidance as to how the Commissioner will view the impact of s177CB in determining the alternative postulate:
- Section 177CB so significantly alters the tax benefit test that Federal Commissioner of Taxation v RCI Pty Ltd  FCAFC 105 and Federal Commissioner of Taxation v Futuris Corporation Ltd 
FCAFC 32 can no longer be regarded as representing the law so far as the concept of tax benefit is concerned.
- Section 177CB(2) and (3) replace the 'prediction' approach which previous case law established as the correct approach to the interpretation of s177C.
- The amended tax benefit test is not a two step process (i.e. find a postulate under s177CB, then feed that postulate into s177C). S177CB clarifies the test that the ordinary meaning of 'would or might reasonably be expected' in s 177C might otherwise require. If you identify a postulate that meets the requirements of s177CB(3) and (4), a tax benefit can be immediately calculated (i.e. you don't place this postulate back into a separate test of reasonable expectation as per previous cases).
- There may be more than one reasonable postulate that satisfies sections 177CB(3) and (4) in a given case.
o Section 177CB does not require taxpayers to pay the highest possible amount of tax they could have incurred had a scheme not been carried out (notwithstanding it could result in this outcome). Pre- 2013, you had to work out which alternative it was more reasonable to use as a predictor for what would have happened without the scheme. Post-2013, you just have to identify a reasonable alternative without comparing the hypothetical tax effects or giving weight to their relative tax costs.
The ATO invites comments on the draft update. The closing date for submissions is 25 September 2015.
TRAP – Ultimately, the post-2013 law gives the Commissioner more discretion to apply a worst case scenario as the alternative postulate (notwithstanding the PSLA 2005/24's suggestions that the Commissioner will still need to be reasonable and utilise s177F(3), i.e. Commissioner can cancel part of a tax benefit where appropriate).
On 4 August 2015, the ATO issued a statement concerning the issuing of Private Group Structure Questionnaires/Forms ('Questionnaire') to wealthy individuals. Going forward, the ATO will cease its automatic issuing of Questionnaires and instead opt for direct and early engagement.
A wealthy individual is a resident individual who (together with their business associates) effectively controls net wealth of between $5 million and $30 million dollars. In August 2014, the ATO's records indicated that 114,870 Australians were wealthy individuals. The majority of these were located within the finance, rental/hiring, construction, agriculture and professional/scientific industries.
Previously, it was the ATO's practice to issue a 16-page Questionnaire to wealthy individuals prior to undertaking a risk review. The Questionnaire required detailed information of the individual's association with unlisted companies, private trusts, partnerships, corporate limited partnerships, joint ventures, super funds and financial information of the wealthy individual's and their spouse's assets and liabilities.
ATO officers will now seek to engage with wealthy individuals and their agents, exercising their professional judgment to obtain an understanding of group structure. This approach is consistent with the ATO's ongoing reinvention program for 2015-16.
TIP – In practice, if you receive a Questionnaire for your client, you can contact the ATO and refer to their new practice in this area.
TRAP – The ATO's new approach of direct and early engagement means that any conversation with an ATO officer must still be approached with professional caution, as statements or omissions made casually during the course of a phone call with the ATO may still be considered misleading statements for the purposes of the penalty provisions.