Extension of time allowed to lodge out of time objections

The Federal Court (the Court), in Commissioner of Taxation v Primary Health Care Limited [2017] FCAFC 131, dismissed the Commissioner’s appeal and affirmed the decision of the Administrative Appeals Tribunal (the Tribunal) that objections against income tax assessments were taken to have been lodged within the required time frame.

The Court found there were no errors of law made by the Tribunal in setting aside the Commissioner’s decision to refuse the extension of time for lodgement of objections. The Court rejected the contention that the Tribunal had reasoned irrationally in accepting the taxpayer had an acceptable reason for its delay in lodging the objections. The Court distinguished the taxpayer’s situation from cases where a taxpayer deliberately delayed lodging an objection ‘to game the tax system’. For a summary of the Tribunal’s decision, refer to the May edition of TaxTalk Monthly.

Taxpayer denied deduction for purchase of sequestered carbon

The Federal Court (the Court), in Academy Cleaning & Security Pty Ltd v Deputy Commissioner of Taxation [2017] FCA 875, has held that the taxpayer was not entitled to a deduction for the purchase of sequestered carbon under section 8- 1 of the Income Tax Assessment Act 1997 (ITAA 1997).

The taxpayer entered into an agreement to buy carbon and paid a non-refundable deposit. An outright deduction was claimed for the total purchase price under the contract, including the balance to be paid at an uncertain future date.

The Court held that the amount was not deductible because the taxpayer had not incurred a loss or outgoing in relation to the balance of the purchase price (within the meaning of section 8-1(1)(a) of the ITAA 1997). The Court was not satisfied that any part of the amount was necessarily incurred in carrying on a business (within the meaning of section 8-1(1)(b) of the ITAA 1997), and rejected the taxpayer’s contention that the Commissioner’s Part IVA assessment was incorrect and excessive.

Commissioner exercises statutory remedial power on foreign resident CGT withholding

Taxation Administration (Remedial Power – Foreign Resident Capital Gains Withholding) Determination 2017 modifies the operation of the Taxation Administration Act 1953 (Cth).

The determination aims to ensure an entity’s credit entitlement for amounts paid to the Commissioner of Taxation (the Commissioner) under Foreign Resident Capital Gains Withholding (FRCGW) legislation is available in the income year the underlying transaction is recognised for tax purposes. The determination is substantially the same as the draft determination issued on 10 April 2017.

The determination also seeks to ensure that an entity’s credit entitlement for amounts paid to the Commissioner under the FRCGW legislation is made available in the most appropriate income year in relation to contracts that straddle income years. The simplest straddling cases, and the most common to arise, are where contracts entered into in May or June settle in July or August of the same calendar year. This gives rise to a capital gain for the vendor in the year in which the CGT event occurred (i.e. the year the contract was entered into).

According to the explanatory statement accompanying the determination, the issue where settlement occurs in an income year subsequent to the year the contract is entered into does not appear to have been considered by Parliament in creating the FRCGW provisions. The crediting misalignment produced in straddling cases results in unintended compliance costs and adverse cash flow impacts for affected entities.

In light of the intended purpose of the FRCGW and crediting provisions, the Commissioner considers it reasonable to exercise his discretion to use his remedial power for this issue. The determination applies retrospectively to align with the commencement date of the FRCGW legislation, being 1 July 2016.

Opposition’s proposed reform to the taxation of discretionary trusts

The Australian Labor Party has announced details on plans to reform the taxation of trusts, including introducing a standard minimum 30 per cent tax rate for discretionary trust distributions to adult beneficiaries. Under the proposal, fixed trusts, special disability trusts, deceased estates, farm trusts and charitable trusts will not be affected. For further information, refer to PwC Australia’s TaxTalk Alert.

Draft tax administration regulations

The Treasury has released exposure draft Taxation Administration Regulations 2017 which will remake and improve the Taxation Administration Regulations 1976 (due to sunset on 1 October 2017) by repealing redundant provisions, restructuring provisions and simplifying language. These changes are not intended to affect the substantive meaning or operation of the provisions or the regulations. Submissions were due by 18 August 2017. For further information, refer to the media release issued by the Minister for Revenue and Financial Services.

Update on Black Economy Taskforce activity

The Black Economy Taskforce has released a consultation paper outlining a number of additional policy ideas which draw on recent public and stakeholder consultations. The 54 ideas outlined in the consultation paper (including a number of tax related proposals such as reform of the Australian Business Number and establishment of specialist tax tribunals) are intended for public comment and reaction. Feedback received by the taskforce as part of the consultation will inform its final report, due in October 2017. For further information, refer to the media release issued by the Minister for Revenue and Financial Services.

Modernising Government business registers

The Australian Government has announced the release of a discussion paper on modernising business registers. The discussion paper considers options to improve the 31 registers (including the Companies Register and the Business Names Register) managed by the Australian Securities and Investment Commission, and the Australian Business Register (ABR). Submissions are due by 1 September 2017.

Transforming Australia’s visa system

The Federal Minister for Immigration and Border Protection, The Hon Peter Dutton MP, has announced the Australian Government will undertake public consultation on transforming Australia’s visa system to simplify it and better align it with Australia’s long-term economic and social priorities. A policy consultation paper has been released to help inform the various reform options, including elements of a new visa system. The consultation will consider:

  • The scope for reducing the number of visa types from 99 to around 10.
  • The delineation between temporary entry and long-term or permanent residence.
  • The role a period of provisional residence could play in enhancing the integrity of the visa system and easing the burden on taxpayers.
  • Options to ensure sufficient flexibility within the reformed visa system to enable Australia to remain a competitive destination for temporary and longer-term visitors.

Amendments to Singapore – Australia Free Trade Agreement

The Parliamentary Joint Standing Committee on Treaties (the Committee) has handed down its report on amendments to the Singapore - Australia Free Trade Agreement (FTA), recommending binding treaty action be taken. The proposed amendments focus on incorporating service and regulatory provisions from recent free trade agreements, including a new Investor State Dispute Settlement provision that will protect states from cases where the state has regulated in the public interest.