Change in capacity held to be a change in beneficial ownership
On 12 May 2017 in Rakmy Pty Ltd v Commissioner of State Revenue  VSC 237, the Victorian Supreme Court held that a change in beneficial ownership of dutiable property had occurred where there was a change in the capacity in which the taxpayer held the land.
The taxpayer had initially held land as trustee for a unit trust. The unit holders of the unit trust then passed a special resolution, vesting the land in a superannuation fund, of which the taxpayer was trustee. The main issue in the case was whether there was a ‘change in beneficial ownership of dutiable property’ within the meaning of sub-sections 7(1)(b)(vi) and 7(4) of the Duties Act 2000 (Vic) (Act), despite the land being held by the same legal entity.
The taxpayer claimed that there was no change in beneficial ownership as:
- the taxpayer was the trustee of both the unit trust and the superannuation fund and
- as the superannuation fund was the sole unit holder of the unit trust, the unit trust was superfluous and the members of the superannuation fund were the beneficial owners prior to the transfer.
The Court looked to the definitions of ‘beneficial ownership’ and ‘change in beneficial ownership’ in section 7(4) of Duties Act 2000 (Vic), in deciding that duty should be applied to the transfer of the land between the two different trusts despite the trustee of each trust being the same legal person.
The Court held that a change in the capacity in which the property was held by the taxpayer was a change in beneficial ownership and stamp duty was therefore chargeable. In determining this, the Court stated that, ordinarily, a transfer of dutiable property between the trustees of two different trusts would give rise to a dutiable transaction and there was no reason why this would change simply because the trustee of each trust was the same legal entity. The fact that the transferor and transferee are the same legal entity was held to be of no consequence.
The Court also held that the interests to which the land was subject had changed due to the transaction. The Court looked to the significant differences in the rights, obligations and character of the ownership interests of the trustee and unit holders or members under each trust deed in determining that the character of the interests under the trusts was markedly different. The Court held that the proposition that the superannuation fund or its members were the beneficial owner(s) of the land prior to the transfer was incorrect, as was any suggestion that the unit trust can be ignored as superfluous once the superannuation fund became the sole unit holder.
Commonwealth grant to establish wind farms held to be an assessable recoupment
The Federal Court in Denmark Community Windfarm Ltd v Commissioner of Taxation  FCA 478 has held that a Commonwealth grant for the establishment of wind farms under the Renewable Remote Power Generation Program was an ‘assessable recoupment’ for the purposes of sub-sections 20-20(2) and 20-20(3) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).
In this case, a Commonwealth grant of $2,487,800 was received by the taxpayer in respect of certain capital costs incurred by the taxpayer in the establishment of a Western Australia wind farm. In 2012, the Commissioner issued a private ruling setting out his view that the grant would be an assessable recoupment under section 20-20(2) of the ITAA 1997. The taxpayer lodged income tax returns in line with this ruling but subsequently objected to these assessments. In disallowing the objection, the Commissioner contended that the grant was an assessable recoupment:
- under section 20-20(2) as it was received as an indemnity or
- under section 20-20(3) as it was received in respect of a deductible loss or outgoing incurred by the taxpayer, notwithstanding the grant was received in respect of non-deductible capital costs of construction.
On appeal, the Federal Court held that even though the payment was treated as being on capital account, it was an assessable recoupment under s 20-20(2) and 20-20(3) of the ITAA 1997.
The Court held that while ‘indemnity’ was not defined in the ITAA 1997, it bore its ordinary meaning and was to be given a wide construction. An indemnity will typically include ‘a sum of money paid to a person in respect of an outgoing incurred by the person’. As the grant was compensation for an expense incurred by the taxpayer it comes within this meaning.
In addition, it was held that despite not being immediately deductible, the wind turbine construction costs are deductible over time under Division 40 or Subdivision 328-D of the ITAA 1997.
Legislation and government policy
Treasury Laws Amendment (Enterprise Tax Plan) Bill passes House of Reps
On 19 May 2017, the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 became law (as the Treasury Laws Amendment (Enterprise Tax Plan) Act 2017). The Act seeks to:
- amend the Income Tax Rates Act 1986 to reduce the corporate tax rate for small business, increase the small business turnover thresholds, progressively extend the lower tax rate to all corporate tax entities and further reduce the corporate tax rate in stages
- amend the Income Tax Assessment Act 1997 to increase the small business income tax offset and enable small businesses tax concessions or offset for eligible small businesses; and
- make consequential amendments to the Income Tax Assessment Act 1936 and Income Tax Assessment Act 1997.
The measures to be contained within this Act have been discussed in our earlier publication Talking Tax Issue 53.