1 Cases .....................................................................................................................................................4 1.2 Whitby options and margin scheme ...............................................................................................8 1.3 Northwestern failure to lodge business activity statements .........................................................10 1.4 Primary Health Care extension of time to lodge objection ...........................................................13 1.5 Walker deductions for iterant workers and living away from home..............................................16 1.6 Davy work-related travel allowance deductions ...........................................................................18 1.7 Mills excess contributions tax.......................................................................................................20 1.8 Sydney Flooring payroll tax and relevant contracts .....................................................................23 1.9 Triston land tax primary production exemption: meaning of 'rural land'.......................................27 2 Legislation...........................................................................................................................................30 2.1 Progress of legislation .....................................................................................................................30 2.2 2017 Enterprise Incentives..............................................................................................................30 2.3 Australia-Singapore agreement on exchange of financial account information in force .................31 3 Rulings.................................................................................................................................................32 3.1 Residency test for companies: CM&C ............................................................................................32 3.2 Foreign Person Surcharge for land tax and duty ............................................................................32 4 Determinations ...................................................................................................................................34 4.1 Particular Attribution Rules - drafts .................................................................................................34 4.2 Costs incurred after a CGT event ...................................................................................................34 5 ATO materials .....................................................................................................................................35 5.1 Commissioner announces new fast objection processing ..............................................................35 5.2 Treatment of lump sum payments received by healthcare practitioners ........................................35 5.3 ATO contacts 160 taxpayers in relation to Panama papers............................................................36 5.4 ATO consulting on UPEs and Division 7A ......................................................................................37 5.5 GST and scrap gold schemes .........................................................................................................37 5.6 ATO compliance approach to CGT .................................................................................................37

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About Brown Wright Stein

Brown Wright Stein is a medium-sized commercial law firm based in Sydney. We provide legal advice in the following areas:

Tax Dispute Resolution Corporate & Commercial Franchising Property Employment Estate Planning Elder Law Intellectual Property Corporate Governance Insolvency & Bankruptcy Our lawyers specialise in working with business owners and their business advisors, such as accountants, financial consultants, property consultants and IT consultants what we see as our clients' 'business family'. We develop long-term relationships which give our lawyers a deep understanding of our clients' business and personal needs. Over the years we have gained a unique insight into the nature of operating owner-managed businesses and the outcome is that we provide practical commercial solutions to business issues. At Brown Wright Stein, we believe in excellence in everything we do for our clients. It's this commitment that enables us to develop creative, innovative solutions that lead to positive outcomes.

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. All rights reserved. No part of these notes may be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording, or by information storage or retrieval system, without prior written permission from Brown Wright Stein Lawyers. These materials represent the law as it stood on 5 April 2017. Copyright Brown Wright Stein Lawyers 2017.

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1 Cases

1.1 Sandini marriage or relationship CGT breakdown roll-over

Facts

Mr and Ms Ellison were married on 15 February 1992. In 2008 Mrs Ellison commenced proceedings in the Family Court for a divorce and alteration of property interests. On 23 September 2009 the Family Court ordered Mr Ellison to transfer shares in Mineral Resources Ltd to the value of $2,500,000 to Ms Ellison if he did not pay a cash settlement amount to her in full by 1 December 2011.

Mr and Ms Ellison were formally divorced on 9 May 2010.

On 21 September 2010 the Family Court made orders setting aside the 23 September 2009 orders and requiring Sandini Pty Ltd as trustee for the Ellison Family Trust to transfer 2,115,000 shares in Mineral Resources to Ms Ellison. The orders contained an error in that Sandini had not ever been the trustee for the Ellison Family Trust but instead held the shares as trustee for the Karratha Rigging Unit Trust.

On 28 September 2010 Mr Ellison sent an email to Ms Ellison requesting her particulars for the transfer of Mineral Resources shares. On 29 September 2010, an email was sent from Ms Ellison's email account to Mr Ellison directing that the transferee for the transfer be Wavefront Asset Pty Ltd as trustee for the Felstead Family Trust.

On 30 September 2010 a Standard Transfer Form for the transfer of 2,115,000 shares in Mineral Resources from Sandini as trustee for the Karratha Rigging Unit Trust to Wavefront of the Felstead Family Trust was prepared. Ms Ellison was the sole director and shareholder of Wavefront and she executed the transfer and on 4 October 2010 the transfer of the shares was registered.

Mr Ellison claimed the CGT marriage breakdown rollover for the transfer in Subdivision 126-A of the ITAA 1997 applied to prevent there from being a capital gain on the sale of the shares. The relevant provisions of Subdivision 126-A are as follows:

126-5 CGT event involving spouses (1) There is a rollover if a *CGT event (the trigger event) happens involving an individual (the transferor) and his or her *spouse (the transferee), or a former *spouse (also the transferee), because of: (a) a court order under the Family Law Act 1975 or under a *State law, *Territory law or *foreign law relating to breakdowns of relationships between spouses; or (b) a maintenance agreement approved by a court under section 87 of the Family Law Act 1975 or a corresponding agreement approved by a court under a corresponding *foreign law; or (c) [repealed] (d) something done under:

(i) a financial agreement made under Part VIIIA of the Family Law Act 1975 that is binding because of section 90G of that Act; or (ii) a corresponding written agreement that is binding because of a corresponding foreign law; or (da) something done under: (i) a Part VIIIAB financial agreement (within the meaning of the Family Law Act 1975) that is binding because of section 90UJ of that Act; or (ii) a corresponding written agreement that is binding because of a corresponding foreign law; or (e) something done under: (i) an award made in an arbitration referred to in section 13H of the Family Law Act 1975; or (ii) a corresponding award made in an arbitration under a corresponding State law, Territory law or foreign law; or (f) something done under a written agreement: (i) that is binding because of a State law, Territory law or foreign law relating to breakdowns of relationships between spouses; and (ii) that, because of such a law, prevents a court making an order about matters to which the agreement applies, or that is inconsistent with the terms of the agreement in relation to those

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matters, unless the agreement is varied or set aside. ...

126-15 CGT event involving company or trustee (1) There are the rollover consequences in section 126-5 if the trigger event involves a company (the transferor) or a trustee (also the transferor) and a *spouse or former spouse (the transferee) of another individual because of: (a) a court order under the Family Law Act 1975 or under a *State law, *Territory law or *foreign law relating to breakdowns of relationships between spouses; or (b) a maintenance agreement approved by a court under section 87 of the Family Law Act 1975 or a corresponding agreement approved by a court under a corresponding *foreign law; or (c) [repealed] (d) something done under:

The rollover only applies if the CGT event that occurs is A1, B1, D1, D2, D3 or F1.

On 20 August 2015 the Commissioner commenced an audit of Mr Ellison and Sandini for the year ended 30 June 2011 regarding the risk of unreported capital gains from the transfer of the Mineral Resources shares from Sandini. On 13 October 2015, in response to the Commissioner's position paper, RSM Bird Cameron wrote to the Commissioner on behalf of Mr Ellison claiming that Sandini was entitled to apply the marriage breakdown CGT rollover.

The Commissioner remained of the view that marriage breakdown rollover did not apply.

Sandini commenced proceedings in the Federal Court of Australia seeking a declaration that the transfer of the shares from Sandini as trustee for the Karratha Rigging Unit Trust to Waverton as trustee for the Felstead Family Trust was entitled to the marriage breakdown rollover. The Commissioner and Ms Ellison were also parties to the proceedings.

Sandini's arguments

Sandini's arguments can be summarised as follows:

1. that Ms Ellison became owner of the shares prior to 30 September 2010 such there was a disposal (CGT event A1) either because: (a) the effect of the family court order on 21 September 2010 was that Ms Ellison became the beneficial owner of the shares; or (b) she constructively received the shares or she was deemed to have received the shares under section 103-10 of the ITAA 1997 as it provides that Part 3-3 of the ITAA 1997 applies to a person if the person receives money or other property if it has been applied for their benefit, including discharging all or part of a debt they may owe, or as they direct.

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Accordingly, as the shares were transferred to Mr Ellison's spouse, the marriage breakdown was available to Sandini; and 2. that it was not necessary under the marriage breakdown roll-over that Ms Ellison be the actual transferee of the shares, as long as she was sufficiently involved in the transfer.

In relation to a change of beneficial ownership being sufficient for CGT even A1, Sandini referred to comments of the Full Federal Court in Brooks v Commissioner of Taxation [2000] FCA 721 (Hill, RD Nicholson and Sundberg JJ) as follows:

The key concepts of acquisition and disposal are defined, or expanded upon in s 160M of the Act. It is not necessary here to consider whether s 160M contains a conclusive code of what constitutes acquisition and disposal. That it does was conceded by counsel for the Commissioner. What s 160M(1) makes clear is that both words are not to be given a narrow interpretation. Anything which involves a change in the beneficial ownership of an asset is treated as a disposal and as giving rise to an acquisition. Further, it is irrelevant how that change in ownership is brought about: s 160M(2), whether it be by a transaction, by an instrument, by operation of law, by the doing of some act or thing, or the occurrence of an event. Section 160M(3) expands upon the circumstances that are to be taken to give rise to a change in ownership. Relevant to the facts of the present case is par (b) which provides that a change shall be taken to have occurred in ownership of an asset by: `(b) in the case of an asset being a debt, a chose in action or any other right, or an interest or right in or over property - the cancellation, release, discharge, satisfaction, surrender, forfeiture, expiry or abandonment, at law or in equity, of the asset.' (emphasis added)

The Commissioner's position

The Commissioner contended that there was no relevant change of ownership as a result of the Family Court order on 21 September 2010 for the following reasons:

1. a change of ownership for the purpose of section 104-10 of the ITAA 1997 requires a transfer of the both the legal ownership and beneficial ownership. This is because generally `ownership' means `the entire dominion of the thing said to be owned' see Bellinz Pty Ltd v Commissioner of Taxation (Cth) [1998] FCA 615 per Hill, Sundberg and Goldberg JJ (at 161) and this was the sense in which the term was used in section 104-10 of the ITAA 1997;

2. even if the transfer of beneficial ownership on its own was sufficient for the purpose of section 104-10(2), on its terms, the Family Court order did not effect such a transfer as the order merely required Sandini, within 7 days, to `do all acts and things and sign all documents necessary to transfer' the shares to Ms Ellison;

3. in relation to Sandini's argument that, regardless, the requirements for the marriage breakdown rollover were satisfied because Ms Ellison was sufficiently involved in the transfer, this was not consistent with the statutory provisions which require a transfer from an individual, company or trustee to the individual's spouse. That is, the rollover is not available where the CGT is transferred to a company or a trustee; and

4. that section 103-10 does not operate to broaden the scope of Subdivision 126-A.

Ms Ellison's arguments

Ms Ellison largely adopted the Commissioner's position. She contended that there could have been no change in the beneficial ownership of any shares in Mineral Resources prior to 30 September 2010 as the Family Court order did not identify the relevant parcel of shares to be transferred. She also made the following further contentions:

1. the transfer of the shares to Wavefront did not happen `because of' the Family Court order but, rather, because of Ms Ellison's email of 29 September 2010. Therefore the requirements for the marriage breakdown rollover were not satisfied; and

2. that because of the misdescription in the Family Court order, namely the reference to Sandini holding the shares as trustee for the Ellison Family Trust rather than the Karratha Rigging Unit Trust, the transfer was not made pursuant to the Family Court order.

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Issues

1. Whether a change in beneficial ownership is sufficient for a disposal under CGT event A1? 2. Whether the effect of the Family Court order was that Ms Ellison became the beneficial owner of the

shares? 3. If there was no change in beneficial ownership, whether the effect of 103-10 of the ITAA 1997 was to treat

the transfer to Waverton as a transfer to Ms Ellison for the purpose of Subdivision 126-A of the ITAA 1997 because it was made at her direction? 4. If there was no change in beneficial ownership and section 103-10 of the ITAA 1997 did not deem the transfer to be to Ms Ellison for the purpose of Subdivision 126-A, whether the rollover was still available as Ms Ellison had been involved in the transfer although not as transferee? 5. Whether the transfer to Waverton was because of the Family Court order?

Decision

McKerracher J held that Sandini was entitled to the Subdivision 126-A rollover for the transfer for the shares.

Change of beneficial ownership sufficient for CGT event A1

McKerracher J held that a change of beneficial ownership is sufficient for CGT event A1 for the following reasons:

1. a person can be an owner of property which is a CGT asset with equitable title only; 2. if beneficial ownership changing was not sufficient for CGT event A1, the consequence would be that

whenever there is a disposition of equitable ownership without legal ownership (that is, not by way of a declaration or settlement, which is a CGT event E1) there would be no CGT event and no tax payable by the transferor; and 3. the statutory context of section 104-10 of the ITAA 1997 and its incorporation of section 106-50 (absolutely entitled beneficiaries being treated as the relevant taxpayers for CGT) dictates a construction focused on beneficial ownership and this was consistent with the Full Court authorities.

Whether there a change in beneficial ownership

McKerracher J considered that the way in which the Family Court order was crafted, requiring Sandini to do all acts and things necessary to transfer the shares within seven days to Ms Ellison, gave Ms Ellison an absolute right vested in possession to be owner of the shares within seven days. From that time, the only interest that Sandini had in the requisite number of shares was as bare legal owner with the beneficial interest transferred to Ms Ellison.

In relation to Ms Ellison's argument that there could not be a change in beneficial ownership given that it was not possible to identify the particular shares held by Sandini that had been transferred to Ms Ellison, McKerracher J noted that the test of validity of a trust is not dependent on being able to identify a particular piece of property that is held on trust. The effect of the order was that Ms Ellison was granted an interest in either 2,115,000 of the Mineral Resources shares held by Sandini or in all of the shares held by Sandini but only partly for the benefit of Ms Ellison.

Whether there was constructive receipt under section 103-10

McKerracher J also found that there was constructive receipt by Ms Ellison under section 103-10 of the ITAA 1997 and that this was sufficient to be a transfer to her for the purpose of subdivision 126-A. The shares had been applied for Ms Ellison's benefit at her direction. McKerracher J noted that there was nothing in the ITAA 1997 that suggested section 103-10 did not apply to Subdivision 126-A. Transfer of shares to a trust controlled by a person with dispositive power over those shares is clearly an application of property for that person's benefit.

Whether Ms Ellison needed to be the transferee?

McKerracher J rejected the contention that section 126-15 of the ITAA 1997 required Ms Ellison to be the `transferee' of the shares. The section required that the individual have sufficient involvement in the transfer, not that they be the transferee. Whilst the term `transferee' is used to describe the individual in section 126-15, it is not used to prescribe the capacity in which the individual is involved in the transfer.

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McKerracher J accepted that:

... an important consideration not to be lost in the proper construction to be given to s 126-15 is that it is an ameliorating provision that relieves taxpayers from taxation burdens that would otherwise arise. Accordingly, and consistently with the text, context and policy of the statute (per Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 (at [69]-[70])), to the extent that there are construction options within these parameters, those that allow a liberal and not restrictive construction ought to be preferred to those that do not: see Burt v Commissioner of Taxation [1912] HCA 74; (1912) 15 CLR 469, WA Trustee Executor & Agency Co Ltd v Commissioner of State Taxation (WA) [1980] HCA 50; (1980) 147 CLR 119, being sales tax exemption cases; and see also Shell's Self Service Pty Ltd v Deputy Commissioner of Taxation (Cth) [1989] FCA 51; (1989) 98 ALR 165 per Ryan J and Bons (t/a Scale Aviation Australia) v Commissioner of Taxation (Cth) [1994] FCA 1108; (1994) 28 ATR 239 per Beazley J.

Whether the transfer was `because of' the Family Court orders

McKerracher J also rejected Ms Ellison's argument that the shares had not been transferred `because of' the Family Court orders merely because the shares were transferred to Waverton and not to her personally and that the Family Court orders incorrectly referred to Sandini holding the shares as trustee for the Ellison Family Trust. McKerrarcher J considered such arguments to not be realistic as there was no prospect of the transfer occurring but for the Family Court order. The transfer to Waverton occurred at the direction of Ms Ellison and was undertaken by Sandini to comply with the court order.

COMMENT in this case, presumably, the ATO wanted the tax arising from the transfer, and Ms Ellison

did not want to inherit the cost base of the transferor. From the decision it would appear that a transfer to Ms Ellison, a transfer to her with the property ending up in her trust, and a transfer direct to the trust would all be eligible for the marriage breakdown rollover relief in this instance.

Citation Sandini Pty Ltd v Commissioner of Taxation [2017] FCA 287 (McKerracher J, Perth) w http://www.austlii.edu.au/au/cases/cth/FCA/2017/287.html

1.2 Whitby options and margin scheme

Facts

On 7 December 2005 Whitby Land Company Pty Ltd as trustee for the Whitby Trust entered into a deed of option for a call option to purchase a lot of land for $28,000,000, inclusive of a non-refundable option fee of $2,000,000 which was payable in tranches.

On 15 November 2007 Whitby exercised this call option, and subsequently developed and subdivided the land into residential lots. In the quarterly GST period ended 30 June 2012 it sold the residential lots.

In 2012 the Commissioner commenced an audit of Whitby and issued GST assessments to it, in its personal capacity and not as trustee of the Whitby Trust, in relation to the residential lots. Whitby objected to the assessments on the basis that it held the land as trustee and not in its personal capacity. The Commissioner accepted this and allowed the objection in full.

On 22 August 2013 the Commissioner advised Whitby that it was commencing an audit of it in relation to both GST and income tax. The Commissioner subsequently issued a series of GST assessments and penalty assessments on Whitby. The penalty assessments imposed:

1. a 75% base penalty for failure to lodge a business activity statement in respect of the GST monthly periods ended 31 May 2011 to 30 June 2012 (inclusive), 31 January 2013 to July 2013 (inclusive) and 31 October 2013 to 31 December 2013 (inclusive);

2. a 50% shortfall penalty for making statements that were false and misleading for the monthly tax periods ending 31 July 2012, 31 August 2012 and 30 September 2012 (inclusive);

3. a 20% increase on the base penalty amounts in each of the periods, apart for the period ended 31 May 2011.

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Whitby objected to the assessments. As part of its objection, Whitby contended that, in calculating the GST payable on the sale of the land under the GST margin scheme, the $2,000,000 option fee should have been included in its acquisition cost for the purpose of determining the margin.

The Commissioner disagreed with this contention. Consistent with the position set out in GSTD 2014/2 the Commissioner considered that a call option fee does not form part of the consideration for the acquisition for the purpose of the margin scheme. In GSTD 2014/2 the Commissioner considers that, where property is acquired under a call option arrangement, there are two GST supplies as follows:

1. a supply of the call option, the consideration of which is the call option fee; and 2. upon exercise of the call option, a supply of the underlying property, the consideration which is any

additional consideration provided. That is, the consideration does not include the call option fee.

The Commissioner noted that this outcome was consistent with sections 75-10(2) and 19-17(2)(a) of the GST Act. Section 75-10(2) provides:

the margin for the supply is the amount by which the *consideration for the supply exceeds the consideration for your acquisition of the interest, unit or lease in question

Section 9-17(2)(a) provides:

the consideration for the supply of the thing on the exercise of the right or option is limited to any additional consideration provided either for the supply or in connection with the exercise of the right or option

Accordingly, the Commissioner disallowed Whitby's objection, following which Whitby applied to the Administrative Appeals Tribunal for review.

Whitby contended that the $2,000,000 paid for the option formed part of the acquisition cost of the property. Whitby argued that Commissioner's ruling in the GSTD 2014/2 was wrong for the following reasons:

1. the words of section 75-10(2) permit the inclusion of the option fee, as the phrase `consideration for your acquisition of the interest' includes an option fee paid prior to the acquisition of real property where the parties have agreed the option is to form part of the purchase price. As the phrase `consideration for your acquisition of the interest' is not defined, it takes its ordinary meaning. The provision requires the identification of a supply, the identification of a payment and the identification of a connection between the supply and payment. The Deed of Option set out what the option fee was paid for and under clause 3(a) of the Deed of Option it that stated `As consideration for the grant of the option, a non-refundable option fee of two million dollars... which forms part of the Purchase Price, shall be payable...';

2. section 9-17(2) does not detract from the operation of section 75-10(2) of the GST Act. Section 9-17(2) of the GST Act merely operates to accelerate the collection of GST payable by the grantor of the grant of an option and section 9-17(1) ensures GST is not levied twice on the consideration paid for the grant of an option. The purpose of the section is not to exclude option fees from the operation of section 75-10(2);

3. it is immaterial that the granting of the option and the exercise of the option may be two separate supplies, because, even if two or more supplies have occurred, each supply must be examined for the purposes of section 75-10(2); and

4. a binding option to purchase a property creates an equitable interest in the property that is the subject of the option, to the benefit of the grantee (Commissioner of Taxes (Queensland) v Camphin [1937] HCA 30). Upon entering Deed of Option Whitby obtained an equitable interest in the land and any consideration paid to obtain that interest must be included for the purposes of section 75-10(2) of the GST Act.

Issue

Whether the option fee of $2,000,000 formed part of the acquisition cost of the lot of land when applying the margin scheme under Division 75 of the GST Act.

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Decision

The Tribunal agreed with the Commissioner's construction of the GST Act, in line with GSTD 2014/2, finding the supply of the option for consideration of $2m was separate to the supply of the underlying asset for the additional consideration of $26m. The Tribunal found the construction in GSTD 2014/2 well founded in terms of the GST Act, common law considerations and a common sense approach.

In terms of the GST Act, the Tribunal reasoned that the word interest in section 75-10(2) of the GST Act refers to a `freehold interest in land', rather than the broader definition of `real property'. A `freehold interest in land' does not extend to an option to purchase the underlying asset. Therefore, the supply of the underlying asset was separate to the supply of the option to purchase it. The Tribunal also found it noteworthy that section 75-10 was excluded from the provisions which are `affected' by the definition of `consideration' in the dictionary.

The Tribunal recognised that there is the unresolved debate over whether an option is an `irrevocable offer' or `conditional contract' under the common law. Nonetheless, it was found that both theories supported the construction that the option fee is not consideration for the ultimate land purchase, but rather for the bundle of rights embodied in the option itself. This supported the Commissioner's contentions.

Further, the Tribunal found that a practical and common sense interpretation was preferable to an unduly technical or meticulous approach. The Tribunal found the Commissioner's interpretation consistent with that of the Court's approach generally in interpreting the GST Act; that being, that from a practical and business point of view there are two separate and distinct supplied for GST purposes, namely the supply of the option (the bundle of rights) and subsequent supply of the lot (the real property/ land).

The Tribunal also referred to the Explanatory Memorandum to the former section 9-15(3) of the GST Act, being the precursor to 9-17 which provided that `the supply of a right or option will be taxed when it is supplied. The later exercise of that right or option will be another supply'.

The Tribunal noted Whitby's contention with respect to clause 3(a) of the Deed of Option. However, the Tribunal ruled legal drafting could not defeat what was occurring in substance, namely the existence of two supplies. They also referred to sub-clause (h)(ii) of the Deed of Option, which stated: `the owner hereby grants to the option holder the exclusive right to purchase the property', highlighting the bundle of rights attained in consideration for the $2,000,000.

The Tribunal recognised that while it may be the case, as submitted by Whitby, that a call option to purchase land confers an equitable interest in the land, for GST purposes there is no `supply' until there is a change in both the legal and beneficial ownership of the land.

COMMENT the position of the ATO means that it is important for a developer buying with the intention to

sell under the margin scheme, that they keep the option fee as low as possible. Note that it would not matter whether the option fee formed part of the deposit for the acquisition of the property or not.

Citation The Trustee for the Whitby Trust and Commissioner of Taxation (Taxation) [2017] AATA 343 (20 March 2017) (SM Walsh, Perth) w http://www.austlii.edu.au/au/cases/cth/AATA/2017/343.html

1.3 Northwestern failure to lodge business activity statements

Facts

The Norwestern Trust was established on 20 November 2000. The trustees of the Trust are Slava Sokolov and Ludmila Sokolov. The Trust was registered for GST on 1 February 2001.

In late 2002, the Trust purchased two adjacent properties in Mona Vale. The Trust managed the construction of 10 townhouses on the properties, which completed in September 2014. Seven of the 10 townhouses were sold between November 2004 and July 2008.

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The Trust lodged BAS's on time for the periods ended March 2002, June 2002, September 2002, December 2002 and March 2003, each recording nil taxable supplies. The Trust did not lodge any further BAS until the period ended June 2009.

Thirteen lodgment reminder letters were sent by the ATO to the Trust between June 2007 and September 2011. In addition, the Commissioner sent 2 letters in 2008 and 2009 relating to outstanding BASs. A final notice dated 30 September 2009 was sent to the Trust, requiring the overdue activity statements to be lodged immediately.

On 5 July 2010, the Commissioner lodged a default BAS for the Trust, and these were revised by the Trust on 7 July 2011. On 23 March 2010, the Commissioner commenced an audit into the Trust for the tax periods between 1 July 2004 to 30 June 2009. The Commissioner did not receive any requested documentation during the audit. The audit was finalised on 12 July 2010.

The Commissioner found the following during the audit:

1. that a number of townhouses were sold between 1 November 2004 and 31 July 2008; 2. that the Trust had failed to report those sales as taxable supplies; 3. that there had been fraud and evasion on the part of the Trust; and 4. administrative penalties of 75% of the Trust's tax-related liabilities were imposed.

Notices of Assessment of net amounts were issued to the Trust, totalling $531,081. A notice of assessment in respect of penalty tax was also issued for 75% of the liability, being $398,310.

In an undated letter addressed to Trevor Kim of the ATO (which it seems was sent after the audit), the trustees of the Trust stated:

The trust did not have the funds to pay the GST when the sales were made because all the funds had to be paid to the Banks as required by the loans. The trust could not borrow any more funds, as the development did not have the equity for the trust to do so. The trust could not meet its GST obligations because of the change in the housing market and could not make the sales to obtain the funds needed to pay the GST. The trust did not intentionally avoid its GST obligations. The trust has actively over the years tried to sell the units in order to pay all debts. Due to the lack of funds the trust could not afford to have its accounts completed by an agent.

The Trust lodged an objection to both assessments in September 2010. The Commissioner issued its objection decision in December 2011, which did not allow the Trust to use the margin scheme to calculate the GST owing on the sale of the townhouses, and determined that the assessments of administrative penalty were correctly made. Later, the Commissioner accepted that the margin scheme did in fact apply to the sales of the 7 townhouses. As a result the net tax assessed was $371,990.00 and the penalty tax became $278,992.50.

Issues

1. Whether the finding of fraud and evasion was correct. 2. Whether administrative penalties were correctly imposed; and 3. Whether the Tribunal should exercise the discretion, to remit the penalties in whole or in part.

Decision

The Tribunal noted that the Trust had the onus of disproving the evasion finding arising from the audit: Bennett and Commissioner of Taxation [2015] AATA 455; affirmed in Binetter and Commissioner of Taxation [2016] FCAFC 163 per Perram and Davies JJ.

In defining what constitutes evasion, Deutsch DP quoted a number of cases including Dixon J in Denver Chemicals Manufacturing Company v Commissioner of Taxation (NSW) [1949] HCA 25; (1949) 79 CLR 296 (emphasis added):

...it means more than avoid and more than a mere withholding of information or the mere furnishing of misleading information. It is probably safe to say that some blameworthy act or omission on the part of the

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taxpayer or those for whom he is responsible is contemplated. An intention to withhold information lest the Commissioner should consider the taxpayer liable to a greater extent that the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion'

Deutsch DP concluded from his analysis of the case law that:

evasion arises in circumstances where a taxpayer has deliberately withheld information in order to extract some financial advantage through the non-payment of tax.

Deutsch DP found that the finding of evasion was correct for the following reasons:

1. The Trust adduced no evidence in relation to the sale of the townhouses and the failure to lodge BAS, and therefore failed to discharge its onus of disproving any evasion.

2. The apparent reason for the non-lodgment of BASs was to enable the Trust to avoid incurring tax so that it could service its loans, despite being aware of its obligation to do so, as demonstrated from its lodgment history between March 2002 and March 2003.

3. The Trust was clearly aware that the sales of the seven townhouses would incur GST due to the evidence in the undated letter addressed to Trevor Kim of the ATO.

4. By not lodging BAS, the Trust withheld information from the ATO in respect of the taxable supplies and misled the ATO that it had no GST liability. That freed money to service the Trust's loans (the evidence demonstrated that large loan repayments were made soon after the sale of the 7 townhouses).

5. The Trust had a significant amount of time and numerous opportunities to rectify its failure to lodge BAS and disclose its taxable supplies.

6. Disclosure only happened after the audit started, suggesting that the Trust had no intention to report its taxable supplies or meet its GST obligations.

7. There was no evidence before the Tribunal to suggest the non-lodgment of BASs and non-payment of its GST was due to an oversight.

8. The Trust's claim that it did not lodge BAS because of a lack of resources available to engage an accountant, or from a lack of accounting and taxation knowledge, was rejected.

9. The Trust's claim that it had a total lack of knowledge about BAS and GST was unsustainable given its lodgment history in 2002 and 2003.

10. There was no evidence to suggest that the Trust had contacted the Commissioner regarding financial hardship or to request a payment plan.

Deutsch DP confirmed that the administrative penalty of 75% did apply as no BASs had been given to the ATO.

The Commissioner has a discretion to remit all or part of a penalty and the TAA does not specify the circumstances in which the discretion should be exercised. The question for the Tribunal was whether it is satisfied, having regard to the Trust's particular circumstances, that it is appropriate to remit the penalty in whole or in part: Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50; (2013) 212 FCR 483. The Trust bears the onus of proof.

Deutsch DP held that remission was not appropriate either in whole or in part, citing several reasons including that:

1. the Trust did not file any sworn evidence in the Tribunal; 2. the Trust's failure to comply with its obligation to file BAS was consistent and long-term; 3. the failure to lodge occurred despite the Commissioner having sent 13 reminder notices; 4. the failure occurred despite Trust being aware of its obligation to file a BAS, as evidence by its past

actions in lodging BAS between March 2002 and March 2003. 5. the failure to provide necessary information continued during the audit and objection phases; 6. the Trust effectively provided false or misleading information to the Commissioner by failing to lodge BAS

by presenting by omission a misleading account of its tax affairs; 7. the apparent reason for non-lodgment was to enable the Trust to avoid incurring tax so that it could

service its loans; 8. the Trust made no attempt to arrange a payment plan with the ATO, despite being invited to do so in the

reminder notices sent to it;

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9. there was no evidence, and it was implausible that the Trust had insufficient funds to engage an accountant, as it alleged in the Tribunal;

10. the Trust's claim that it did not have accounting and tax knowledge to lodge a BAS was inconsistent with its previous BAS lodgments in 2002 and 2003;

11. no evidence was adduced that the Trust would suffer hardship if the penalties were not remitted.

COMMENT the reason that fraud or evasion was important in this case is that under former section 105-

50 of Schedule 1 to the TAA 1953 the Commissioner could not ask for payment of an amount 4 years after it was due this would have prevented collection in relation to the periods between December 2004 and March 2006.

Citation The Norwestern Trust and Commissioner of Taxation [2017] AATA 361 (Deutsch DP) w http://www.austlii.edu.au/au/cases/cth/AATA/2017/361.html

1.4 Primary Health Care extension of time to lodge objection

Facts

Primary Health Care Limited is a listed public company.

Primary's wholly owned subsidiary, Idameneo (No 123) Pty Ltd, carried on a business of operating medical centres.

Primary's business model involves buying out health practitioners' businesses with the health practitioners then being employed to work in the business. Two agreements would generally be entered into; a Sale of Practice Deed, under which Primary agreed to buy (and the Health Practitioner or their incorporated medical practice agreed to sell) the health practitioner's practice including the goodwill of the practice, and a Provision of Services to Medical Practitioner Contract, under which the health practitioner agreed to pay a service fee to Primary, for the support services provided by Primary, equal to a percentage of the fees which they earned through the medical centre.

Primary incurred costs associated with these agreements, including stamp duty, legal costs, relocation expenses and consultants' fees.

From 2003 to 2007 Primary did not claim the purchase price under the Sale of Practice Deed or the expenses associated with the two arrangements as an income tax deduction but treated such outgoings as being capital in nature.

From 2003 to 2005 Primary lodged objections in relation to its income tax assessment for the years ended 30 June 1999 to 30 June 2004. The objections related to claims of depreciation of copyright in medical records that were purchased from the medical practitioners. The Commissioner disallowed such objections and Primary was ultimately unsuccessful in proceedings in the Federal Court appealing against the objection decisions. The Commissioner's objection decisions had proceeded on the basis that the payments made under the Sale Practice Deed related to the acquisition of goodwill.

In 2012 Ernst & Young suggested to Primary that it was 'possible' to argue that the amount paid as a 'purchase price' under the Sale of Practice Deed was deductible for Primary. This was the first occasion on which Primary had received advice to indicate that the treatment of such payments as capital may not be correct.

On 18 September 2013 Primary became aware that the Commissioner had issued two private ruling to Primary health practitioners which concluded that the payments under the Sale Practice Deed were capital in nature and were not income according to ordinary concepts for the health practitioner.

Between November 2009 and June 2014 the Commissioner had conducted a number of reviews of Primary's tax affairs, including a review specifically targeted to the payments made to the health practitioners. At no time had the Commissioner indicated the payments should be treated as anything other than capital in nature.

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On 8 April 2014 Commissioner issued a section 264 Notice to Primary calling for information on the health practitioners and the payments made to them. This resulted in Primary seeking new advice on the deductibility of the payments made under the Sale Practice Deed.

At around this time the Commissioner issued a private binding ruling to a Primary health practitioner that concluded that the amount paid under the Sale Practice Deed was not a payment for the acquisition of the health practitioner's practice, but to secure the health practitioner's ongoing service and, therefore, was income according to ordinary concepts for the health practitioner, not capital in nature. The Commissioner reasons for this change of position were:

1. the price paid was not for a restrictive covenant of a capital nature ... that restricted a business structure ... and tied it to operate from a new premises;

2. the price paid was not for a restrictive covenant of a capital nature that prevented the health practitioner from conducting a certain business or profession. If that was the case the health practitioner would not have had to work at the new practice but, instead, merely had to cease working at the old practice; and

3. as the restrictive covenant required the health practitioner to provide personal services for a period of five years in the new practice, the restrictive covenant was revenue in nature.

In late 2014 Primary lodged an objection in relation to the year ended 30 June 2010.

On 10 February 2015, Primary had a meeting with the ATO and foreshadowed that, if its objection for the 2010 year was successful, it would lodge objections for the 2011 to 2014 years and out of time objections for the 2003 to 2007 years.

On 5 June 2015, the Commissioner allowed the 2010 Objection in full. This was announced to the ASX on 9 June 2015.

On 23 June 2015, Primary lodged objections for the 2003 to 2007 years and made a request that the Commissioner exercise his discretion under section 14ZW of the TAA 1953 to treat the objections as having been made within time. Section 14ZW provides:

If the period within which an objection by a person is required to be lodged has passed, the person may nevertheless lodge the objection with the Commissioner together with a written request asking the Commissioner to deal with the objection as if it had been lodged within that period.

The Commissioner refused to treat the objections for the 2003 to 2007 years as having been made within time.

Primary applied to the Administrative Appeals Tribunal for review of the decision.

Issue

Was the decision to refuse to treat the objections for the 2003 to 2007 years as having been made within time the correct and preferable decision?

Decision

The Tribunal noted that the approach to exercising the power to extend time to lodge an objection is set out in Brown v Federal Commissioner of Taxation (1999) 99 ATC 4516 (Brown) where Hill J stated as follows:

58. In summary when a taxpayer seeks an extension of time in which to lodge an objection the following matters will require consideration:

1. The taxpayer's explanation for the delay in lodging an objection against the assessment within the time stipulated by Parliament.

2. The circumstances attendant upon that delay.

3. Whether the objection is one which, on its face, is frivolous or which in law must fail, or, to the extent that this is indeed a different test, is one in which the taxpayer has no arguable case. This matter will be considered by reference to the objection itself and such other

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material as the taxpayer puts before the Commissioner. It will seldom, if ever, require the decision maker to consider matters such as credit or endeavour to reconcile the evidence which the taxpayer choses to rely upon with other factual material in the possession of the Commissioner. No doubt the stronger the case the more likely that the discretion would be exercised in favour of a taxpayer even where the explanation for delay was thought not to be strong. Whether the converse is also the case need not here be considered.

4. Such other matters as the circumstances of the particular case make relevant, including, if prejudice to the Commissioner be asserted, such prejudice as is shown to arise.

59. What is required is the balancing of the delay; the explanation for it; the circumstances which gave rise to it and such prejudice if any as may be shown to exist to the Commissioner against the prejudice which may arise to a taxpayer who has by reason of the failure to object in time lost the right to a review of the assessment. In this balancing process the Commissioner or the Tribunal on a review will be guided by what the justice of the case requires. The balancing process should be approached on the basis that while Parliament has stipulated a time in which objections are required to be lodged it has entrusted to the Commissioner a power to extend that time in appropriate circumstances. The decision maker should not lose sight of the fact that s14ZW is an ameliorating provision designed to avoid injustice.

The Tribunal also noted that Practice Statement PSLA 2003/7 outlines how the ATO will treat a taxpayer's request to lodge an objection out time, adopting similar principles as set out in Brown as follows:

1. that, as a general rule, requests for extension of time should be granted, unless there are exceptional circumstances;

2. that the following factors should be taken into account: (a) the explanation for the delay (b) the circumstances of the delay, including whether the ATO was made aware that the taxpayer did not agree with the decision; (c) the merits of the objection; (d) any other relevant matters, such as prejudice to the Commissioner;

PSLA 2003/7 also listed specific examples of where an extension of time would be appropriate. These included that the taxpayer thought that lodging an objection was futile but either:

1. a court decision or a change in legislation or a public ruling, meant that this was no longer the case; or 2. the taxpayer discovered that that they held such belief because the ATO gave them incorrect information.

Reasonable explanation for the delay

The Tribunal accepted that Primary had a reasonable explanation for the delay as its tax treatment was based on a long-standing approach to the characterisation of the priced paid under the Sale of Practice Deed and such approach had been based on extensive advice from experienced practitioners. The change in approach was not a mere change of mind. The Tribunal noted that the Commissioner had also acted on such a misapprehension.

In the circumstances, and although the delay was significant in the case of some of the years, it was understandable and reasonable, albeit not compelling. It was marginally in favour of the discretion being exercised.

The merits of the objection

The Tribunal noted that the Commissioner accepted that Primary's case was not unarguable and that, therefore, this factor weighed in favour of a grant of an extension of time.

Prejudice to the Commissioner

The Tribunal noted that prejudice largely focuses on whether the other party will suffer forensic prejudice whether the delay has affected the evidence available and adversely affect the Commissioner's ability to make decisions properly and fairly in the objection process.

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The Tribunal accepted Primary's evidence that it had retained all relevant records, many of which had already been supplied to the Commissioner. The Tribunal also noted that the Commissioner had benefit that the taxpayer bore the burden of proof under sections 14ZZK and 14ZZO of the TAA 1953.

The Tribunal considered the contention of the Commissioner that there were two clear matters of public interest in the proper administration of the tax legislation, being the importance of finality and certainty, and the need to consider the interests of the protection of the revenue, which would be diminished by the costs of considering the objection and the potential refund of tax. The Tribunal acknowledged the importance of finality and certainty but noted that such values were not absolute and that they must be considered in the context that the Commissioner's role is to ensure that the correct amount of tax is paid.

In relation to the costs of conducting the objection and the potential refund of tax, the Commissioner considered this to be of limited relevance.

The Tribunal concluded that in the circumstances the decision to refuse to treat the objections for the 2003 to 2007 years as having been made within time was incorrect.

Citation Primary Health Care Limited and Commissioner of Taxation [2017] AATA 393 (McCabe DP and Lazanas, SM, Sydney) w http://www.austlii.edu.au/au/cases/cth/AATA/2017/393.html

1.5 Walker deductions for iterant workers and living away from home

Facts

Mr Walker was a farm worker and supervisor, having grown up on a farm, had his own farms and managed farms his whole life. In 2012, he found there was a need for good farm supervisors, in particular to help farmers supervise foreign workers. Mr Walker had primarily worked in strawberry farming prior to 2012; however, in light of the need for good farm supervisors, he sought out opportunities to gain experience in other lines of produce, such as citrus.

Mr Walker claimed he was based in a residential home on the Sunshine Coast owned by his brother-in-law and where his mother-in-law resided. This was his postal address and voting electorate. In the house, Mr Walker and his wife had exclusive use of two rooms; however, they did not pay rent or board, though they helped out with maintenance of the property.

Mr Walker worked for 3 employers in the 2013 and 2014 income years as a sorter and supervisor, generally staying for 2-4 months at a time before continuing onto the next employer on his circuit. His wife accompanied him and worked as a packer for the same employers. The couple lived in a caravan during these periods, only returning to his claimed residential home on the Sunshine Coast once or twice annually for holidays.

Generally, Mr Walker's work with a particular employer came to an end when the particular season finished. An expectation developed between Mr Walker and his 3 employers that work would be available for him around the same time each year and that he would be available to carry it out.

Mr Walker's claimed deductions for the expense of travelling to the work locations where his caravan was parked, travel as necessary between a caravan park and the workplace, travel between different farms at each location, and going to and from town for food and supplies. He also claimed deductions for his accommodation, food and groceries, mobile and internet expenses while on circuit.

Following an audit the ATO disallowed the deductions, issued amended assessments and imposed penalties for failing to take reasonable care. His objection to the assessments was disallowed.

Mr Walker disputed the Commissioner's findings rejecting his deductions on the basis of the following:

1. He claimed the iterant worker exception to the rule in Lunney (home to work travel not being deductible), outlined in Geny's. On this basis, he claimed travel is an inherent part of his work as an iterant farm

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worker, thereby entitling him to deductions for travel, accommodation, meals and groceries while on circuit. 2. Failing the above, Mr Walker claimed his meals and accommodation expenses were deductible on the basis he was living away from home on a temporary basis for work purposes and therefore travel expenses were deductible in respect of travel between work places. 3. Mr Walker deducted his phone and internet expenses on the basis they were incurred for work purposes, including to check when successive employers would be ready for Mr Walker to start work.

Issue

Whether the deductions claimed by Walker were deductible.

Decision

The Tribunal rejected all of Mr Walker's submissions and deductions claimed, thereby reaffirming the Commissioner's objection decision.

Upon considering the factors in TR 95/34 `employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses', the Tribunal found Mr Walker's circumstances did not fall within the 'iterant worker' exception to Lunney's principle outlined in Geny's. As such, he was not entitled to deductible travel expenses. This was made on the basis of the following factors:

1. Mr Walker's travel to the locations was not a requirement of his employer, or employment, but rather a product of his choice to work in other locations to obtain experience and skills with a variety of produce. Therefore this was not a fundamental part of his work.

2. An iterant worker does not have a routine or pattern to their work; in this case, a routine emerged, that being Mr Walker settling on three locations in parts of Queensland, which he referred to as his circuit. Apart from his very first engagements, his employment at each location lasted long durations, usually 3-4 months.

3. The Tribunal did not find that Mr Walker's claimed home formed a base of his operations as since 2012, it was little more than a location to visit occasionally on holiday. Serving as his postal address and voting electorate did not advance Walker's claim

On this basis, the following expenses were deemed non-deductible: travel expenses between his caravan and work-places; travel expenses going into and from town for groceries and supplies; accommodation expenses; and the bulk of his living expenses.

The Tribunal however did note that even if Walker were found to be an 'iterant worker', the expenses may not have been deductible, this point was not expanded on.

In relation to whether his claims could be supported on the basis that he was temporarily away from home on work, the Tribunal said that the headline authority for this proposition was the decision of Hill J in RTA NSW v FCT. The Tribunal distinguished from RTA which involved employees, who in the course of their employment were compelled by their employer, and not by personal choice to spend money on accommodation and other expenses. In contrast, it was Mr Walker's choice to live and work where he did.

Further, the Tribunal found Mr Walker's permanent home to be his caravan, rather than his brother-in-law's property on the Sunshine Coast. Notwithstanding this, even if the Sunshine Coast property was his home, the Tribunal found the absences could not be described as short-term or otherwise in any way within the situation Hill J was describing in RTA.

Walker's claim that his travel between work locations satisfied the exception under s25-100 of the ITAA 1997

The Tribunal rejected the contention that Mr Walker's travel between workplaces was deductible as, at the time of his travel to `the second place', the arrangement under which he gained assessable income at the first place had ceased.

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The Tribunal rejected the claim for phone and internet costs on the basis that even if they were needed to arrange employment, the expenses were not in the course of gaining assessable income, but rather incurred prior to gaining assessable income.

Citation Walker and Commissioner of Taxation (Taxation) [2017] AAT 324 (IR Molloy DP, Brisbane) w http://www.austlii.edu.au/au/cases/cth/AATA/2017/324.html

1.6 Davy work-related travel allowance deductions

Facts

Mr Davy is a truck driver who received travel allowances in the 2011 and 2012 tax years ($7,244 and $3,615 respectively). He did not declare these amounts as income in either year, and the amounts did not appear on his PAYG payment summary. His job as a truck driver required him to be away from home for work overnight, but often did not require that he be away all day and all night. He might, for instance, eat breakfast and lunch at home, and then dinner while he was on the road.

In September 2012 the ATO amended Mr Davy's 2011 assessment to include the travel allowance. In October 2013 he then amended his 2011 return to include claims against the travel allowance of $33,503. He later reduced this claim to $24,736.

In September 2013 the ATO amended Mr Davy's 2012 assessment to include the travel allowance that he again omitted. Mr Davy claimed expenses in 2012 of $17,489.

In November 2013 Mr Davy was audited. The audit reduced the claims for expenses to nil and imposed penalties at 50% because the claims were considered reckless.

Mr Davy produced had no records with which to substantiate his claims. He gave evidence in the TRIBUNAL that the reason for not keeping any records was because a fellow truck driver had told him he did not need to keep records. Mr Davy's tax agent in the Tribunal stated that he simply claimed the daily 'Commissioner's maximum daily reasonable amount' (per TD 2010/19 and TD 2011/17 for the respective years) multiplied by the number of nights communicated to him by the taxpayer.

Mr Davy claimed that he used a diary to record the number of nights he slept away from home, which differed to his employer's records:

Year

2011 2012

Taxpayer Diary

261

206

Employer Records

218

When questioned in the Tribunal about whether his employer's records were more likely to be correct, Mr Davy answered `Yes'.

Mr Davy's tax agent (who represented him in the Tribunal) relied upon the substantiation exemption in section 900-50 of ITAA1997:

(1) You can deduct a *travel allowance expense for travel within Australia without getting written evidence or keeping travel records if the Commissioner considers reasonable the total of the losses or outgoings you claim for travel covered by the allowance.

(2) In deciding whether the total of losses or outgoings you claim is reasonable, the Commissioner must take into account the total of the losses or outgoings of the following kinds that it would be reasonable for you to incur for the travel:

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(a) accommodation;

(b) food or drink;

Mr Davy in a phone call with the ATO, presumably as part of the objection (and as recorded in contemporaneous file notes documented by an ATO officer) confirmed that his actual expenses incurred in respect of travel for work were approximately $37 per day, being comprised of approximately $15 for breakfast, $12 for lunch and a homeprepared meal for dinner which cost about $10 to prepare. These were much less than both the allowance paid to him and less than the claim made.

The ATO on objection allowed Mr Davy a claim of $37 per day.

The tax agent said that each year he met with Mr Davy to go through representative receipts of amounts paid from allowances and log book records showing his nights away from home, but this was ultimately found to be untrue.

The ATO ruling on common applications of the substantiation exemption, TR 2004/6 sets out (Tribunal emphasis):

16. Where a taxpayer receives a bona fide travel allowance or a bona fide overtime meal allowance and incurs deductible expenses in relation to it:

Where the deduction claimed is more than the reasonable amount, the whole claim must be substantiated with written evidence, not just the excess over the reasonable amount.

Where the allowance received is not shown on the employee's payment summary and is not greater than the reasonable amount and it is fully expended on deductible expenses, the allowance received is not required to be shown as assessable income in the employee's tax return. Where it is not shown, a deduction for the expense cannot be claimed in the tax return refer to paragraph 12.

Where the allowance paid by the employer is greater than the reasonable amount the taxpayer may still use the exception from substantiation if the claim for deduction is not greater than the reasonable amount. In that case the allowance must be shown as assessable income and written evidence is not required to support the claim.

Where the deductible expense is less than the allowance received, the taxpayer must show the allowance as assessable income in the tax return, and claim only the amount of the deductible expenses incurred.

Issue

1. Was Mr Davy entitled to deduct overnight meal expenses in respect of which he'd received an allowance? 2. Was the 50% penalty appropriate?

Decision

The Tribunal observed that, for the purposes of the substantiation exemption, what the Commissioner considers reasonable is reflected in TD 2010/19 and TD 2011/17 for the 2011 and 2012 years, respectively. The Tribunal also noted that although the substantiation exemption means that full records do not need to be kept, it is still necessary to be able to show the basis for determining the claim.

As Mr Davy had claimed more than the reasonable amounts, both because of calculation errors, and because his day count was wrong, he put himself in a position where he ordinarily would need to substantiate the whole amount claimed, and not merely the excess.

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The fact that Mr Davy had no substantiation, had claimed for nights he was not away, and had claimed amounts for days where he was in fact eating at home meant that the Tribunal was not satisfied that his assessment was excessive.

The concession allowed by the Commissioner on objection of allowing a claim of $37 per day was allowed to stand.

In relation to penalties the Tribunal maintained the penalties at 50% because of the behaviour of both Mr Davy and his tax agent. Mr Davy's reckless behaviour was in not keeping records because he was advised not to by another truck driver. The tax agent's reckless behaviour was in not understanding the words used in the legislative provisions and in the tax rulings made by the ATO.

TRAP you cannot simply deduct the daily 'reasonable' amounts from the Commissioner's determinations

without first establishing that expenses have actually been expended up to these amounts. Essentially, the daily ATO rates would only be deductible where the estimated expense incurred equals or exceeds the daily ATO rates.

COMMENT the Tribunal Member noted in this case that the reckless behaviour was that of the tax agent

who was `principally responsible for leading Mr Davy to believe that the deduction claimed for his work-related travel expenses was within the statutory provisions'. The Senior Member then said `A responsible registered tax agent would not represent his client in circumstances where the client was in dispute with the ATO. The possibility of there being a conflict of interest is manifest. I cautioned Mr Davy about retaining Mr Fumberger to represent him. However, despite that, he insisted that he was satisfied that Mr Fumberger should represent him.' Representing your client where there is a conflict of interest could lead to action by the Tax Practitioners Board.

Citation Davy and Commissioner of Taxation [2017] AATA 376 (E Fice SM, Melbourne) w http://www.austlii.edu.au/au/cases/cth/AATA/2017/376.html

1.7 Mills excess contributions tax

Mr Mills was assessed for $29,539.90 excess contributions tax in the 2012 financial year, as he exceeded the non-concessional contributions cap in that financial year.

Mr Mills claimed that the decision was unjust, unreasonable or inappropriate and argued that the Commissioner should have exercised his discretion, as there were `special circumstances' pursuant to Division 292 of the ITAA 1997, and that all or part of Mr Mill's non-concessional contributions for the 2012 financial year should be disregarded, or allocated to another financial year.

In particular, he argued that the Commissioner should allocate a rollover of his UK pension account to the 2009 financial year, as a result of the special circumstances.

The Commissioner declined to exercise his discretion.

Mr Mills requested a review of the decision by the Tribunal. Lazanas SM reserved her decision until the appeal in Ward v Commissioner of Taxation [2016] FCAFC 132 was determined. The parties were allowed to file written submissions in respect of the decision in Ward.

In Ward it was found that the Tribunal had erred in holding that special circumstances could not exist if the excess contributions tax was a natural and foreseeable consequence of the action of Mr Ward and his advisers. The Full Court said:

In our opinion, it was open to the Tribunal to find that there were `special circumstances' if it found that the provisions operated on Mr Ward, in his individual circumstances, in an unfair or unjust way because, through a misunderstanding of an adviser by virtue of the misleading notice provided by BT Super for Life, Mr Ward, acting honestly and carefully, accidentally breached the bring forward rule which had consequences disproportionate to the intended operation of the statute.

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Mr Mills lived in the UK from 2005 until 2008/09. He had a UK Pension Fund with Legal & General (UK) and made regular contributions to the fund. He also had a superannuation fund in Australia set up in the 1990s. Upon his return to Australia, he sought advice from PWC regarding transferring his UK pension fund to Australia. He was advised by PWC that he would be required to transfer his balance to Australia within 6 months of his return.

During early 2009 Mr Mills explored options for transferring his UK fund to Australia and on 29 June 2009, Mr Mills sent an email to VicSuper requesting VicSuper to act on his behalf and the transfer of the UK fund. The transfer did not occur until 15 September 2009 (being the 2010 financial year). The majority of the transfer was treated as a non-concessional contribution.

Mr Mills total non-concessional contributions were as follows:

Financial Year Type of Contribution

Amount

2010

Non-Assessable foreign fund transfer

$149,281.77

Personal

$40,950.00

2011

Personal

$141,885.00

2012

Personal

$181,410.00

Total

$513,526.77

While the transfer of the UK funds was to VicSuper, the balance of the contributions were made to the Coniston Private Super Fund which was administered by Perpetual.

As Mr Mills made NCCs of $190,231.77 in 2010 he triggered the bring forward provisions.

Mr Mills received an email from Perpetual in August 2011 (before he made the 2012 contribution), stating that he had not exceeded the NCC Cap in 2010 or 2011 and so had not triggered the bring forward provisions. Perpetual had not taken into account the amount contributed to VicSuper.

As the bring forward had been triggered, the NCC cap ($450,000 at the time) remaining and available to Mr Mills in the 2012 financial year was $117,883.23, which he exceeded, causing the ATO to assess him as liable for excess non-concessional contributions tax.

Mr Mills requested the Commissioner to make a written determination under section 292-465(1)(b) ITAA 1997 to disregard or allocate to another year all or part of his non-concessional contributions for 2012.

Mr Mills submitted to the Tribunal, in response to the decision in Ward:

Like Mr Ward, the transfer here was a few days late by dint of living overseas, otherwise I was acting honestly seeking no tax advantage in circumstances; I prudently sought advice assiduously from two highly reputable advisers only to be slapped and I received a penalty far in excess of any tax advantage I was said to have inadvertently obtained. Thus, there are some uncanny parallels between the two cases for it at least to be open to the Tribunal to exercise the discretion in my favour;

The Commissioner submitted that the decision in Ward was based on the particular facts of that case, and that, more generally, Ward does not stand for the principle that `special circumstances' exist where you have been given incorrect advice.

Issues

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Were there special circumstances which meant the Commissioner should have exercised his discretion?

Decision

The Tribunal quoted the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 which states:

The courts have considered what `special circumstances' means in many different contexts. It is clear from the case law that special circumstances are unusual circumstances, or circumstances out of the ordinary. Whether circumstances are special will vary from case-to-case as the context requires, but in this context they must make it unjust, unreasonable or inappropriate to impose the liability for excess contributions tax.

The two pre-conditions to exercising the discretion are:

1. there are special circumstances; and 2. the determination is consistent with the `object' of Division 292.

Even once these two preconditions are met, it is still open to the Commissioner, or the Tribunal in his stead, to exercise the discretion taking into account whether a contribution would be more appropriately allocated to another year, whether it was reasonable foreseeable that a contribution would lead to an excessive amount, and any other matter considered relevant.

The Tribunal Member set out a number of cases that examined what are `special circumstances', and held that it must be `something unusual or different' and `out of the ordinary course'. If `something unfair, unintended or unjust had occurred', this would be a sign that it was `special circumstances', but these were not necessary preconditions.

The Tribunal Member did not consider that any of the circumstances were to be considered `special circumstances' under the Act. She considered relevant that, even though Mr Mills intended to make the contribution in the 2009 financial year, he knew, by 2012, that it was made in the 2010 financial year. She also viewed that, by Mr Mills only authorising the transfer to be processed on 29 June 2009, it was reasonably foreseeable that the transfer would likely not take place in that financial year.

In addition, Mr Mills was in control of the 2012 contribution, and it was that contribution which triggered the ECT, not the 2010 contribution.

The Tribunal member found that:

1. the lack of knowledge of Mr Mills in relation to the law (and that the transfer from the UK Fund was a nonconcessional contribution) was not `special circumstances' and that he should have sought specific advice in relation to this;

2. the advice received by Mr Mills differed from that obtained by Mr Ward, in that Mr Ward's advice was `authoritative' and `careless';

3. the financial impact of the ECT is not `special circumstances'; 4. the fact Mr Mills did not set out to gain a tax benefit is not relevant and does not make his circumstances

unusual.

Therefore, the Tribunal member found that the pre-conditions for exercise of the discretion were not satisfied.

COMMENT the Ward decision appeared to open the door to cases where an adviser's mistake might

lead to there being special circumstances. This case shows that an adviser mistake combined with other errors might not be enough to allow a contribution to be reallocated. It should be noted that the need for the Commissioner's discretion has been mostly ameliorated by the ability to obtain a refund of excess nonconcessional contributions, which was brought in in relation to the 2013/14 and later year's contributions. As well, the changes to apply from 1 July 2017 where amounts will be immediately released without electing to do so will prevent problems from arising where clients fail to read their mail.

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Citation Mills and Commissioner of Taxation (Taxation) [2017] AATA 362 (23 March 2017) (Ms G Lazanas) w http://www.austlii.edu.au/au/cases/cth/AATA/2017/362.html

1.8 Sydney Flooring payroll tax and relevant contracts

Facts

Sydney Flooring Pty Ltd, carried on a flooring retail business until and including 31 December 2010 and then from 1 January 2011 Sydney Flooring 1959 Pty Ltd, carried on that business from and including 1 January 2011. In this summary, the companies are referred to collectively as Sydney Flooring.

Sydney Flooring regularly engaged 5 service providers (4 individuals and 1 company) to provide flooring installation services to customers and made payments to them. The services providers were generally assisted by one or more persons in providing the installation services.

The service providers were engaged under a contract called a `Period Trade Contract'. The terms of the arrangement included that:

1. where there was any faulty workmanship by the service providers, they were responsible for rectifying the work;

2. the service providers were required to: (a) hold all necessary licenses to provide the floor installation services; (b) provide their own transport, tools, protective clothing and equipment and fastenings to lay the floors; (c) obtain their own insurance cover, (d) have an ABN; and (e) be responsible for their own taxation obligations.

Sydney Flooring provided quotes for customers for the sale and installation of flooring, based either on plans provided to Sydney Flooring or on-site measures that Sydney Flooring obtained. This was provided without consultation with the service provider that would be undertaking the installation.

If the customer accepted a quote, a contract was prepared and executed. Sydney Flooring then made enquiries with its service providers to see who was available to undertake the work. Timing and not price dictated the choice of service provider. Once a service provider was selected, Sydney Flooring sent them an email with details of the engagement.

All of the invoices, apart from one, issued by the service providers specified pricing at a fixed amount per unit and all the invoices show consistent unit pricing for the same kinds of work.

The five service providers were Robert Horn, John Parker, Lee Parker, Alfonsus Meenhuis and Keld Shultz Flooring Pty Limited. The particular circumstances for each service provider were as follows:

1. Robert Horn: (a) no evidence was provided from Mr Horn as to the scope of his business, his customer base or the extent to which he provided his services to customers other than Sydney Flooring; (b) in the 2011 year, Mr Horn was paid $123,452 (excluding GST) or $135,797 (including GST) by Sydney Flooring and his Business Activity Statement indicated a turnover of $136,396 with assessable income of $123,997;

2. John Parker (a) no evidence was provided from Mr Horn as to the scope of his business, his customer base or the extent to which he provided his services to customers other than Sydney Flooring; (b) a comparison of his total turnover compared to payments from Sydney Flooring was as follows:

Sydney Flooring GST

2010 145,886

2011 145,886

2012 145,886

2013 145,886

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inclusive payments to John Parker

Turnover, according to his Business Activity Statements

144,734

128,639

83,502

113,514

Sydney Flooring sourced revenue as a percentage of turnover

85.58%

88.26%

92.10%

81.44%

3. Lee Parker: (a) no evidence was provided from Mr Horn as to the scope of his business, his customer base or the extent to which he provided his services to customers other than Sydney Flooring; (b) a comparison of his total turnover compared to payments from Sydney Flooring was as follows

2010

2011

2012

2013

Sydney Flooring GST inclusive payments to Lee Parker

104,882

110,861

73,769

89,990

Turnover, according to his Business Activity Statements

112,252

123,445

80,252

124,103

Sydney Flooring sourced revenue as a percentage of turnover

93.43%

89.80%

91.92%

72.51%

4. Alfonsus Meenhuis: (a) received $44,395 in 2011 and $55,143 in 2013 from Sydney Flooring; (b) there was no evidence, such as time sheets or daily rates, to determine how many days he worked in the year; (c) records indicated that he took 38 individual jobs in 2011 over a period of 4 months and 51 individual jobs in 2013 over a period of 9 months, but the records did not show the number of days these jobs involved; and (d) there was only limited evidence as to the scope of his activities, his customer base or the extent to which he provided his services to customers other than Sydney Flooring; being (i) a payslip from an employer named Earthpower Tech Syd Pty Limited for a nine month period in 2011 for which he received $25,793.49; (ii) a payslip from NSW TAFE dated 30 June 2011 for which he received $1,117.44; (iii) a payslip from Heartwood Timber Floors and Shutters Pty Limited for the period of 14 June 2013 to 20 June 2013 for which he received $9,350 at 23.4311 per hour; (e) there was evidence to suggest he employed an assistant in the 2011 year and it was reasonably likely he had assistance in the 2013 year; and

5. Keld Schultz - no evidence was provided from Keld Schultz as to the scope of its business, its customer base or the extent to which it provided his services to customers other than Sydney Flooring;

On 21 March 2014 the Chief Commissioner issued payroll tax assessments to Sydney Flooring in respect of the period 1 July 2009 to 30 June 2013. The Chief Commissioner contended that the service providers were engaged under relevant contracts such that the payments to them were taxable wages for the purpose of payroll tax.

Section 32(1) of the Payroll Tax Act provides as follows:

(1) In this Division, a

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`relevant contract' in relation to a financial year is a contract under which a person (the `designated person' ) during that financial year, in the course of a business carried on by the designated person: (a) supplies to another person services for or in relation to the performance of work, or (b) has supplied to the designated person the services of persons for or in relation to the performance of work, or (c) gives out goods to natural persons for work to be performed by those persons in respect of those goods and for re-supply of the goods to the designated person or, where the designated person is a member of a group, to another member of that group.

However, section 32(2) of the PTA then contains a negative limb and provides that a relevant contract does not include contract a contract under which a person:

(a) is supplied with services for or in relation to the performance of work that are ancillary to the supply of goods under the contract by the person by whom the services are supplied or to the use of goods which are the property of that person, or (b) is supplied with services for or in relation to the performance of work where:

(i) those services are of a kind not ordinarily required by the designated person and are performed by a person who ordinarily performs services of that kind to the public generally, or (ii) those services are of a kind ordinarily required by the designated person for less than 180 days in a financial year, or (iii) those services are provided for a period that does not exceed 90 days or for periods that, in the aggregate, do not exceed 90 days in that financial year and are not services:

(A) provided by a person by whom similar services are provided to the designated person, or (B) for or in relation to the performance of work where any of the persons who perform the work also perform similar work for the designated person, for periods that, in the aggregate, exceed 90 days in that financial year, or (iv) those services are supplied under a contract to which subparagraphs (i)-(iii) do not apply and the Chief Commissioner is satisfied that those services are performed by a person who ordinarily performs services of that kind to the public generally in that financial year, or (c) is supplied by a person (the `contractor' ) with services for or in relation to the performance of work under a contract to which paragraphs (a) and (b) do not apply where the work to which the services relate is performed: (i) by two or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor, or (ii) where the contractor is a partnership of two or more natural persons, by one or more of the members of the partnership and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor, or (iii) where the contractor is a natural person, by the contractor and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor, or (d) is supplied with services solely for or ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them.

Penalties, tax and interest were imposed on Sydney Flooring.

On 28 March 2014 Sydney Flooring objected to the assessments. Sydney Flooring contended that:

1. each of the service providers ordinary performed services of the kind they provided to Sydney Flooring to the public generally in the year such that the contract were not relevant contracts under section 32(2)(b)(iv) of the PTA;

2. that, in relation to the individual service providers, one or more persons were employed by or provided services to the service providers in the course of a business it carried on such that the contracts were not relevant contracts under section 32(2)(c)(iii) of the PTA; and

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3. that, in the case of Keld Schultz and Alfonsus Meenhuis, the services were provided for a period that does not exceed 90 days or for periods that, in aggregate, do not exceed 90 days in the financial year such that the were not relevant contracts under section 32(2)(b)(iii) of the PTA;

On 24 October 2014 the Chief Commissioner disallowed the objections and on 19 December 2014 Sydney Flooring applied to the NCAT for review of that decision.

At the hearing, the Chief Commissioner accepted that the amounts paid by Sydney Flooring to Mr Horn and Mr Meenhuis in 2010 and 2012 were excluded from assessment to payroll tax.

Issues

Whether the contracts between Sydney Flooring and each of the service providers were relevant contracts for each of the years?

Decision

The Tribunal concluded as follows in relation to each service provider:

1. Robert Horn - Sydney Flooring had not satisfied its onus that the payments were not taxable wages as: (a) the contract was not exempt from being a relevant contract on the basis that Mr Horn ordinarily performed services of that kind to the general public as there was little or no evidence to suggest what services he provided to persons other than Sydney Flooring; (b) the contract was not exempt from being a relevant contract on the basis that one or more persons were employed by or provided services for Mr Horn in the course of a business carried on by him as: (i) whilst there was a reasonable possibility that Mr Horn had assistance, there was no evidence as to the relationship between Mr Horn and any person providing assistance; and (ii) in any event, the exemption required that such assistance be provided in the course of a business carried on by Mr Horn and there was little or no evidence of such a business;

2. John Parker - Sydney Flooring had not satisfied its onus that the payments were not taxable wages as: (a) the contract was not exempt from being a relevant contract on the basis that Mr Parker ordinarily performed services of that kind to the general public as, although he generated turnover in the year apart from the payments from Sydney Flooring, there was little or no evidence to suggest what services he provided to persons other than Sydney Flooring; (b) the contract was not exempt from being a relevant contract on the basis that one or more persons were employed by or provided services for Mr Parker in the course of a business carried on by him as: (i) whilst there was evidence that Lee Parker, his son, assisted John Parker, there was no evidence that in providing such assistance Lee Parker was employed by John Parker or provided services to him and there not sufficient evidence that any other person provided assistance to him; and (ii) there was little or no evidence of such a business;

3. Lee Parker - Sydney Flooring did not contend that any exception to the contract being a relevant contract applied. The Tribunal satisfied itself that the evidence was not sufficient to enable it to conclude that Lee Parker provided services of the kind he provided to Sydney Flooring to the general public in the financial year;

4. Alfonsus Meenhuis - Sydney Flooring had not satisfied its onus that the payments were not taxable wages as: (a) the contract was not exempt from being a relevant contract on the basis that the services were provided for a period that does not exceed 90 days or for periods that, in aggregate, do not exceed 90 days in the financial year as there was insufficient evidence as to the number of days that Mr Meenhuis worked for Sydney Flooring in the relevant financial years. That the total amounts were paid to Mr Meenhuis in the relevant years were relatively modest in those years was not sufficient to come to a conclusion as to the number of days worked; (b) the contract was not exempt from being a relevant contract on the basis that Mr Parker ordinarily performed services of that kind to the general public as there was little or no evidence to suggest what services he provided to persons other than Sydney Flooring; and

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(c) the contract was not exempt from being a relevant contract on the basis that one or more persons were employed by or provided services for Mr Meenhuis in the course of a business carried on by him as whilst the Tribunal was satisfied that he had received assistance from persons employed by him or providing services to him, there was insufficient evidence that Mr Meenhuis was carrying on a business such that it could be said that the services of the other person(s) were provided in the course of a business that he carried on; and

5. Keld Schultz - Sydney Flooring had not satisfied its onus that the payments were not taxable wages as: (a) the contract was not exempt from being a relevant contract on the basis that the services were provided for a period that does not exceed 90 days or for periods that, in aggregate, do not exceed 90 days in the financial year as there was insufficient evidence as to the number of days that Keld Schultz worked for Sydney Flooring in the relevant financial years. That the total amounts were paid to Keld Schutlz in the relevant years were relatively modest in those years was not sufficient to come to a conclusion as to the number of days worked; and (b) the contract was not exempt from being a relevant contract on the basis that Keld Schultz ordinarily performed services of that kind to the general public as there was little or no evidence to suggest what services it provided to persons other than Sydney Flooring.

Citation Sydney Flooring Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 96 (AR Boxall, SM, Sydney) w http://www.austlii.edu.au/au/cases/nsw/NSWCATAD/2017/96.html

1.9 Triston land tax primary production exemption: meaning of 'rural land'

Facts

Triston Pty Ltd as trustee for the The Ghantous Family Trust owned three contiguous lots of land in Windsor comprising a total area of approximately 3.75 hectares. Each parcel has dual zoning `rural landscape' (RU2) and `low density residential' (R2) under the Hawkesbury Local Environmental Plan 2012. It was estimated that the area of the properties within the RU2 zone is about 95% of the total based on the results of a survey, undertaken by a registered surveyor. The area zoned RU2 is flood prone but the area zoned R2 is higher and is not so affected.

There are five paddocks on the low-lying areas of the properties and a nursery on the higher ground.

The nursery activities conducted on the higher ground spans all three lots. The nursery has been conducted since 1983 but the activities are quite modest and cover only about 5% of the total area of the properties. Plants are grown in the nursery for sale.

Triston's financial statements showed the following income from the nursery activities:

1. 2012 - $6,500; 2. 2013 - $1,525; 3. 2014 - $50; and 4. 2015 - $1,100.

The related expenditure for each of those years, which were presumed to be payments to Mr Ghantous, the director of Triston, for his time in conducting the nursery activities, were as follows:

1. 2012 - nil; 2. 2013 - $27,355; 3. 2014 - $13,501; 4. 2015 - $13,393 .

Mr Ghantous estimated that he spends on average 8 to 14 hours per week on nursery activities, with such activities undertaken outside business hours

Mr Ghantous estimates the value of the nursery stock at mid-2016 as between $50,000 and $60,000.

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For some time between 2010 and 2011 Triston had horses on the paddocks on the lower ground of the properties and the horses were used for horse racing. However, in about 2011 three of the horses were stolen and Mr Ghantous decided that he could no longer keep them on the properties and he kept them elsewhere from that time.

The Chief Commissioner assessed Triston for land tax on the properties for the land tax years 2011 to 2015 (inclusive). Triston objected to such assessments on the basis that the properties were exempt as land used for the dominant purpose of primary production.

Where land is not `rural land' in addition to the dominant use of the land being primary production it also be the case that the business of primary production must:

1. have a significant and substantial commercial purpose or character; and 2. be engaged in for the purpose of profit on a continuous or repetitive basis.

Section 10AA(4) of the LTMA defines rural land as follows:

`rural land' if: (a) the land is zoned rural, rural residential, non-urban or large lot residential under a planning instrument, or (b) the land has another zoning under a planning instrument, and the zone is a type of rural zone under the standard instrument prescribed under section 33A (1) of the Environmental Planning and Assessment Act 1979 , or (c) the land is not within a zone under a planning instrument but the Chief Commissioner is satisfied the land is rural land.

Triston contended that the properties were `rural land' as either:

1. it was sufficient for the definition of rural land that the land had a rural zoning, even if it had another form of zoning that was non-rural; or

2. if this was not correct, then as the overwhelming proportion of the properties was zoned rural, definition disregarded de minimis areas of the land zoned non-rural.

As the properties were rural land Triston contended it did not need to meet the additional requirements. Triston position was that, therefore, the only question was whether the dominant use of the land was for primary production and Triston contended that it was. Triston further argued that, in any event, its use of the land met the additional requirements

The Chief Commissioner contended that, as the properties were dual zoned, and one of those zonings was not a rural land zoning, the properties were not rural land. The definition of rural land was such that dual zoned parcels of land, where one of the zonings is non-rural, could not be rural land.

The Chief Commissioner disallowed Triston's objection and Triston then applied to the NSW Civil and Administrative Tribunal for review.

Issues

1. whether the dominant use of the land was for primary production? 2. whether the properties were 'rural land'? 3. if the dominant use of the land was primary production but the properties were not rural land, whether that

use: (a) had a significant and substantial commercial purpose or character; and (b) was engaged in for the purpose of profit on a continuous or repetitive basis?

Decision

Dominant use for primary production

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For the 2011 land tax year, being prior to the removal of the horse from the properties, the Tribunal concluded that the dominant use of the land was the breeding of the horses for horse racing. As this was not the maintenance of animals, for the purpose of selling them or their natural increase or bodily produce, it was not primary production. Accordingly, in the 2011 land tax year, the dominant use of the land was not primary production.

In relation to the other land tax years, the only use of the properties was nursery activities. The Tribunal considered whether these activities fell within either of following definitions of primary production in section 10AA(3)(e) or (f) as follows:

(e) a commercial plant nursery, but not a nursery at which the principal cultivation is the maintenance of plants pending their sale to the general public, or

(f) the propagation for sale of mushrooms, orchids or flowers.

The Tribunal concluded that the evidence did not establish that there was any actual propagation conducted on the properties during any of the relevant years and, accordingly, the activities did not fall within either section 10AA(3)(e) or section 10AA(3)(f).

Rural land

The Tribunal considered that land needed to be exclusively zoned rural in order for it to be rural land. The Tribunal considered that Parliament would have included some qualifying words such as `principally', or `mainly' if it had been intended that land which was largely zoned rural would still be regarded as rural land.

As the land was not rural land, the additional requirements needed to be satisfied.

Additional requirements

The Tribunal concluded that the nursery activities were not sufficient for it to be said that such use had a significant and substantial commercial purpose or character' and the `purpose of profit on a continuous or repetitive basis.

The activities here were said to be a sideline and not an undertaking of a serious and weighty kind. Accordingly, the additional requirements were not met and the appeal was dismissed.

Citation Triston Pty Ltd atf The Ghantous Family Trust v Chief Commissioner of State Revenue [2017] NSWCATAD 100 (S Frost SM, Sydney) w http://www.austlii.edu.au/au/cases/nsw/NSWCATAD/2017/100.html

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2 Legislation

2.1 Progress of legislation

Title Income Tax Rates Amendment (Working Holiday Maker Reform) 2016 Superannuation (Objective) 2016

Treasury Laws Amendment (2016 Measures No. 1) 2016 Treasury Laws Amendment (2017 Enterprise Incentives No 1) 2017 Treasury Laws Amendment (2017 Measures No. 1) 2017 Treasury Laws Amendment (Combating Multinational Tax Avoidance) 2017 Treasury Laws Amendment (Enterprise Tax Plan) 2016 Treasury Laws Amendment (GST Low Value Goods) 2017 Treasury Laws Amendment (Working Holiday Maker Employer Register) 2017

Introduced House 12/10

9/11 1/12 30/3 16/2 9/2

1/9 16/2 16/2

Passed House 17/10

22/11 13/2

2/3 21/3

27/3

Introduced Senate

7/11

Passed Senate

23/11 14/2

27/3

23/3 27/3 27/3 31/3

Assented 4/4 4/4

2.2 2017 Enterprise Incentives

On 30 March 2017 Government introduced the long awaited bill, Treasury Laws Amendment (2017 Enterprise Incentives No 1) 2017, (the changes were announced on 7 December 2015) dealing with changes to the same business test for companies and changes to depreciation rates for certain intangible assets.

Losses

The Bill introduces a new alternative to the same business test, a `similar business test'. The same business test is retained, and the new test is an alternative way for a company to a company to be able to claim things such as losses and bad debts after the continuity of ownership test is failed. As well the similar business test will apply to listed widely held trusts.

The similar business test will not operate as a way to get out of the income injection test applying. Currently the income injection test allows the Commissioner to disallow losses or deductions to the extent there has been a change in shareholding if income is injected into a company to take advantage of those losses or deductions. The Commissioner cannot disallow a loss or deduction under the income injection test however, where the company fails the continuity of ownership test, but passes the same business test (noting that income injected will likely fail the new transaction test which is part of the same business test).

In working out whether a company is carrying on a similar business, it is necessary to consider the following nonexhaustive factors:

the extent to which the assets (including goodwill) that are used in the current business to generate assessable income were also used in the company's former business to generate assessable income; o The EM states that assets in this instance include physical assets and intangible assets such as goodwill, trade names, trademarks, patents, royalty arrangements, and other intellectual property rights of the company.

the extent to which the activities and operations from which the current business generates assessable income were also the activities and operations from which the former business generated assessable income;

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o The EM gives the following example `if a company ran an Italian restaurant and then opened up a takeaway fish and chips shop, the takeaway fish and chips shop would amount to a new activity or operation that produced the company's assessable income.'

the identity of the current business and the identity of the former business; o identify in this case means listing out the characteristics of the business that have changed and that have stayed the same, e.g. customers, location, suppliers, name, etc.

the extent to which any changes to the former business resulted from the development or commercialisation of assets, products, processes, services, or marketing or organisational methods, of the former business.

The similar business test does not include a new transaction test, and as with the same business test, changes made to a business prior to failing the continuity of ownership test to pass the test will mean the test is failed.

The amendments will apply from 1 July 2015.

Intangible assets

The changes in the bill will allow you to self assess the useful life of the following intangible assets, rather than using a statutory useful life, if they begin to be held on or after 1 July 2016:

a standard patent; an innovation patent; a petty patent; a registered design; a copyright (except copyright in film); a licence (except one relating to a copyright or in house software); a licence relating to a copyright (except copyright in a film); in-house software;

a spectrum licence; a datacasting transmitter licence; and a telecommunications site access right.

w http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr5850 %22

2.3 Australia-Singapore agreement on exchange of financial account information in force

The Competent Authority Agreement between the ATO and the Inland Revenue Authority of Singapore (IRAS) entered into force on 27 February 2017.

The Agreement allows for the automatic exchange of financial account information based on the common Reporting Standard.

Under the agreement, IRAS will automatically exchange financial account information held by Australian tax residents in Singapore with the ATO and the ATO will automatically exchange financial account information held by Singapore tax residents in Australia.

Singapore financial institutions in Singapore will be required to transmit financial account information of accounts held by Australian tax residents to the IRAS. The first submission date is due by 31 May 2018.

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3 Rulings

3.1 Residency test for companies: CM&C

The Commissioner has issued a draft Ruling (TR 2017/D2) on how to apply the 'central management & control (CM&C) test for company residency. At the same time he withdrew the previously binding ruling TR 2004/15. The new ruling is proposed to apply from 15 March 2017.

The ruling has been issued in light of the High Court's decision in Bywater Investments Limited & Ors v. Commissioner of Taxation; Hua Wang Bank Berhad v. Commissioner of Taxation [2016] HCA 45.

A company not incorporated in Australia will be a resident of Australia if it carries on a business in Australia, and either its central management and control is located in Australia or its voting power is controlled by shareholders who are residents of Australia.

In the Federal Court decision in Bywater, Perram J said `... a company is resident where its real business is carried on, and its real business is carried on where the central management and control abides ...'.

The Commissioner's former ruling considered that in relation to the location of where business is carried on:

a company that has major operational activities relative to the whole of its business carries on business wherever those activities take place and not necessarily where its CM&C is likely to be located. Operational activities include major trading, service provision, manufacturing or mining activities. For example, the place of business of a large industrial concern is wherever its offices, factories or mines are situated.

The new ruling resiles from that former view and looks to where central management and control is located in determining where business is in fact carried on.

ATO Reference Draft Taxation Ruling TR 2017/D2 w https://www.ato.gov.au/law/view/document?DocID=DTR/TR2017D2/NAT/ATO/00001

3.2 Foreign Person Surcharge for land tax and duty

On 1 March 2017 the Office of State Revenue issued Revenue Ruling No. G 010 announcing that the Chief Commissioner will adopt an administrative approach to exempt a trustee of a discretionary trust from the foreign person surcharges, on a case by case basis, if the Commissioner is satisfied that the trustee has not been involved in a scheme or arrangement to evade or avoid these taxes. A condition of the grant of the exemption will be that the trust deed be amended within 6 months of the granting of the exemption to the effect that foreign persons are excluded from benefiting under the relevant trust deed.

From 21 June 2016 where a foreign person acquires residential land they will be liable to an extra 4% stamp duty on the acquisition. Similarly, a foreign person that holds residential land in NSW on any 31 December after 21 June 2016 will pay a 0.75% land tax surcharge on the land.

A natural person is a foreign person if they are not:

1. a citizen of Australian, or 2. a permanent resident who has actually been in Australia during 200 or more days of the preceding 12

month period.

A company or the trustee of trust in which a foreign person holds a `substantial interest', being a 20% interest, is also a foreign person. Where the trust is a discretionary trust or a hybrid trust in which a trustee has discretion to appoint income to wide class of beneficiaries, a person who is capable on benefiting under the trust is deemed to have the maximum percentage interest in the income or property that the trustee may exercise discretion to distribute to them. That is, if under the terms of a trust, the trustee could potentially distribute all of the income or capital of the trust to a foreign person, whether or not they actually do so, the foreign person is treated as having a 100% interest in the trust and the trustee is treated as a foreign person.

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Typically discretionary trusts and certain hybrid trusts provide for a broad class of beneficiaries who are defined by reference to their relationship to a principal beneficiary. Such beneficiaries may be relatives of the principal beneficiary, or related companies and trusts. These beneficiaries may be persons who are never intended to benefit under the trust and may include foreign persons.

This can also impact on indirect interests in residential land of a discretionary trust or hybrid trust. For example, if the trustee of a discretionary trust holds 30% of the shares in a company or 30% of the units in a unit trust that owns residential land in NSW, and the trustee of the discretionary trust is a foreign person because of the rules mentioned above, the company or unit trust will also be a foreign person.

Up until the ruling was issued, it was thought that discretionary and certain hybrid trust deeds needed to be amended by no later than 31 December 2016 to ensure that the surcharges would not be imposed on those trusts.

Exemptions granted by the Commissioner will have retrospective effect from 21 June 2016.

Citation Revenue Ruling No. G 010 w http://www.osr.nsw.gov.au/info/legislation/rulings/general/g010

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4 Determinations

4.1 Particular Attribution Rules - drafts

The ATO have released some draft legislative instruments setting out the timing of attribution of supplies and acquisitions in certain circumstances, where the instrument overrides the normal attribution rules. Each of these determinations is to replace existing determinations.

PAR 2017/D1 Cooling Off Periods - This determination modifies the 'normal' GST rules where statutory coolingoff periods apply to only attribute supplies and acquisitions to periods that end after the cooling-off period ends.

w http://law.ato.gov.au/atolaw/view.htm?docid=%22GLD%2FPAR2017D1%2F00001%22 (PAR 2017/D1 Cooling Off Periods)

w http://law.ato.gov.au/atolaw/view.htm?locid='ESG/PAR2017D1'&PiT=99991231235958 (Explanatory Statement Cooling Off Periods)

PAR 2017/D2 Retention Payments - This determination modifies the 'normal' GST rules where there are retention amounts for non-cash GST registered entities being amounts withheld until conditions are met or a period expires to only attribute amounts to periods in which either an invoice is issued or the amount is paid.

The GST or credit attributed to the period is the percentage of the total GST for the supply attributable to the retention amount.

w http://law.ato.gov.au/atolaw/view.htm?docid=%22GLD%2FPAR2017D2%2F00001%22 (PAR 2017/D2 Retention Payments)

w http://law.ato.gov.au/atolaw/view.htm?locid='ESG/PAR2017D2'&PiT=99991231235958 (Explanatory Statement Retention Payments)

PAR 2017/D7 Lay-By Sales - This determination modifies the 'normal' GST rules in respect of lay-by Sales for non-cash GST registered entities so that GST is attributed to the period in which the final instalment of the consideration is received.

w http://law.ato.gov.au/atolaw/view.htm?locid='GLD/PAR2017D7'&PiT=99991231235958 (PAR 2017/D7 Lay-By Sales)

w http://law.ato.gov.au/atolaw/view.htm?locid='ESG/PAR2017D1'&PiT=99991231235958 (Explanatory Statement Lay-By Sales)

4.2 Costs incurred after a CGT event

The Commissioner issued Taxation Determination TD 2017/10 concerning whether costs incurred after a CGT event can be `related to' the CGT event for the purpose of working out incidental costs.

TD 2017/10 notes that in working out the cost base of an asset you include incident costs, being the second element of cost base. Costs must fall within specified categories in section 110-35 in order to be an incidental cost. However, even where the costs fall within the specified categories, an additional requirement for all of the categories apart from borrowing expenses, is that they are costs that were incurred to acquire a CGT asset; or that relate to a CGT event.

In TD 2017/10 the Commissioner says that costs incurred after the event can be related to the CGT event as expression 'relate to' is construed broadly.

ATO reference TD 2017/10 w https://www.ato.gov.au/law/view/view.htm?docid=%22TXD%2FTD201710%2FNAT%2FATO%2F00001%22

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5 ATO materials

5.1 Commissioner announces new fast objection processing

On 16 March 2017, the Commissioner announced in his keynote address at the Tax Institute National Convention that the ATO are implementing a new initiative called the Fast Intensive Triage service in its Review and Dispute Resolution area.

Experienced triage staff will assess all incoming objections and make early, meaningful contact with taxpayers within a few days of receipt.

The service will:

assess each case to determine whether a case appears straight forward, can be resolved relatively quickly, and make that happen; or

if the matter is more involved or complex, they will allocate matters directly to the relevant staff in RDR for resolution.

The triage team will also provide guidance to case officers as to management of the case and timeframes for finalising the dispute.

The Commissioner estimates that the triage service will help resolve 1/3 of all cases quickly.

w https://www.ato.gov.au/Media-centre/Speeches/Commissioner/Commissioner-addresses-the-Tax-Institute--2017/

5.2 Treatment of lump sum payments received by healthcare practitioners

It is becoming more common for healthcare practitioners (such as doctors, dentists, physical therapists, radiologists and pharmacists) to operate from healthcare centres run by third parties without any stated partnership or employment relationship.

The third parties offer practitioners lump sump payments to encourage them to work at their centre. The ATO is concerned that practitioners are treating the lump payment sum incorrectly for tax purposes.

Arrangements the ATO are concerned about

The ATO has issued an alert noting that it is concerned about all arrangements that relate to a lump sum payment for ongoing provision of healthcare services but have identified agreements with the following features to be of particular concern:

1. a healthcare centre operator provides a practitioner with: 1. fully equipped consulting rooms; 2. administrative services; 3. clerical staff and facilities;

2. the agreement states that there is no employment relationship between the practitioner and the operator; 3. in return for the facilities and services, the practitioner is required to pay the operator an agreed percentage of

the receipts for the services provided; 4. the practitioner is required to provide healthcare services from the centre for an agreed minimum period of

time, minimum weekly working hours and working patterns; 5. the practitioner is required to use their best endeavors to grow and promote the interests of the centre; 6. the operator pays the practitioner a lump sum that is:

1. described as being consideration for a restrain imposed, for goodwill, for other terms and conditions or a combination of the three;

2. ordinary made when the practitioner enters into the agreement to start providing the services (or whenever the agreements relating to the provision of healthcare services are renewed).

Brown Wright Stein Lawyers 2017

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Monthly tax training April 2017

Why the ATO is concerned

A number of practitioners are mistakenly treating the payment as a capital gain and then applying the small business CGT concessions to reduce that gain (in some cases to nil).

The ATO are of the view that generally these payments are not capital receipts but are income because the payments are `fundamentally connected to the practitioner's provision of those services' or alternatively, represent `a profit or gain from an isolated transaction in the course of the practitioner providing healthcare services'. Further, the mere fact that the payment is a one-off lump sum (regardless of whether it is expressed as consideration for a restraint or goodwill) does not result in the payment having the character of a capital receipt.

Consequently, the ATO view is that practitioners must include the full amount of the lump sum payment in their assessable income in accordance with section 6-5 of the Income Tax Assessment Act 1997.

What the ATO intend to do

The ATO state that If a practitioner is considering entering into a lump sum arrangement, they should know that the ATO is looking closely at these arrangements

The ATO also caution that some practitioners have been relying on a private ruling that was issued to another practitioner. A private ruling is only binding as between the ATO and the person that applied for the ruling. The ATO state that from 2013, they have consistently treated these payments as assessable ordinary income.

COMMENT the above arrangements are the ones that Primary were looking to treat as revenue

transactions for their payments. Primary reached a settlement with the ATO in relation to doctors they had made payments to see http://www.primaryhealthcare.com.au/irm/PDF/2232_0/ATOSettlementandGuidanceUpdate

ATO reference QC 5151 w https://www.ato.gov.au/General/Tax-planning/In-detail/Lump-sum-payments-received-by-healthcarepractitioners/

5.3 ATO contacts 160 taxpayers in relation to Panama papers

In April 2016, 11.5 million files from Panamanian law firm Mossack Fonseca were leaked. This has led to action by various revenue authorities internationally, including the ATO.

At a Senate Estimates hearing on 1 March 2017, the Commissioner said that, as far as he was aware, no-one had yet been charged in connection with the Panama papers, however he did expect that there would be prosecutions arising from the Panama Papers investigations in due course. Fifteen raids have already taken place, involving 6 accountants and 60 taxpayers.

The Commissioner said that `charges will not be laid there if it is a voluntary disclosure and there is nothing particularly criminal about the activities that give rise to the income and it was just income held offshore.'

At the hearing, the Second Commissioner said that 160 taxpayers have been contacted to date and about 40 of those already made voluntary disclosures.

The Second Commissioner said that the ATO's interest will be focussed on advisors who have connected taxpayers with offshore service providers, and that this is where action at a criminal level is likely to be taken.

w http://www.aph.gov.au/Parliamentary_Business/Hansard/Hansard_Display?bid=committees/estimate/a751a47a432d-4994-9a4b-0d96889ad6d2/&sid=0001

Brown Wright Stein Lawyers 2017

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Monthly tax training April 2017

5.4 ATO consulting on UPEs and Division 7A

The ATO has announced a consultation on unpaid present entitlements and Division 7A, in particular the safe harbour options under PS LA 2010/4. The focus of the consultation is on circumstances where the funds representing the UPE are being held on sub-trust for the private company and the funds are invested as an interest only 7 year loan.

COMMENT the first sub-trust arrangement needed to be put in place by 30 June 2011 and the 7 year

sub-trust term will expire on 30 June 2018. Guidance on what will happen at the end of the term is needed before that time what really needs clarification is whether the principal due needs to be paid in full, or whether a complying Division 7A loan can be entered into at the end of the term.

ATO reference w https://www.ato.gov.au/general/consultation/about-consultation/ato-consultation-arrangements-report/

5.5 GST and scrap gold schemes

The ATO Second Commissioner, Neil Olesen, spoke to the Senate Estimates hearing on 1 March 2017 and told the hearing that the ATO had raised $700 million in connection with the schemes being investigated as part of Operation Nosean.

Broadly, the schemes involved purchasing gold bullion (no GST is payable), melting the gold down, and selling as scrap metal (and charging GST). The GST was not remitted to the ATO, and a 10% profit was made.

In response:

the ATO has undertaken a number of audits (some of which are still ongoing); there are a number of court cases disputing the collection by the ATO; the ATO is withholding refunds from a number of entities; a draft GST determination was released in relation to `second-hand goods' (GSTD 2017/D1); and there are a number of cases being assessed in relation to whether they will be referred to the

Commonwealth DPP.

w http://parlinfo.aph.gov.au/parlInfo/download/committees/estimate/a751a47a-432d-4994-9a4b0d96889ad6d2/toc_pdf/Economics%20Legislation%20Committee_2017_03_01_4800.pdf;fileType=application/pd f

5.6 ATO compliance approach to CGT

Also at the Senate Estimates hearing Mr Olesen told the hearing that the ATO has officers dedicated to focusing on particular risks that the CGT rules may present to the system. Mr Olesen made the following further observations:

1. the data that the ATO gets from third parties, for example, sale-of-property data, land titles offices data, helps it identify potential capital gains, although such data is usually only a starting point;

2. stock exchange information is useful in identifying a shareholder as the shareholder has a "PIN or whatever it is called for the stock exchange, and one of the potentials of this blockchain technology is to identify a person associated with an asset";

3. the ATO has relied heavily on self-reporting by the taxpayer; 4. the ATO focuses on specific things, like "expensive cares, who owns boats, who owns ski lodges" etc.

w http://parlinfo.aph.gov.au/parlInfo/download/committees/estimate/a751a47a-432d-4994-9a4b0d96889ad6d2/toc_pdf/Economics%20Legislation%20Committee_2017_03_01_4800.pdf;fileType=application/pd f

Brown Wright Stein Lawyers 2017

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Brown Wright Stein Lawyers - Andrew Noolan, Geoff Stein, Michael Malanos and Chris Ardagna

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