In this edition of Talking Tax, we discuss the Clough decision impact statement, the OECD’s recent guidance on its suggested reform of the international tax rules, the Treasury’s release of consultation papers regarding the distribution rules for ancillary funds and the Federal Government’s recommendation for the Board of Taxation to review the non-arm’s length expense provisions for superannuation funds.

We also provide a summary of some recent cases, including Hyder v Commissioner of Taxation.

ATO updates

‘Decision Impact Statement: Clough Limited v FCT [2021] FCAFC 197’

In Talking Tax Issue 202 we discussed the Full Federal Court appeal of Clough Limited v Commissioner of Taxation [2021] FCAFC 197.

In the facts of this case, the majority shareholder owned 61.6% of Clough Limited (Clough). The majority shareholder entered a Scheme Implementation Arrangement (SIA) to acquire the remaining 38.4% shares. As part of the SIA, Clough offered to purchase employee’s unvested options and performance rights. After the SIA was implemented, the Taxpayer sought to deduct these payments under section 8-1 of the Income Tax Assessment Act 1997 (Cth) (1997 Act).

The Full Federal Court held the payments were deductible over five years under section 40-880 of the 1997 Act.

The ATO released a decision impact statement on Clough on 10 March 2022 agreeing with the judges reasoning and referencing the principles in Taxation Ruling 2656 Income tax: deductibility of takeover defence costs. The ATO noted the principle that ascertaining whether a payment for the cancellation of employee entitlements in mergers or acquisitions is deductible, is ultimately ‘face and circumstance-specific’.

Legislative and policy updates

Consultation paper: ‘Distribution guidelines for ancillary funds'

Treasury has released a consultation paper seeking feedback on potential policy changes that would increase the flexibility offered to ancillary funds.

Ancillary funds are required to make a minimum distribution each financial year to type 1 deductible gift recipients (DGR). There are also restrictions on the transfer of assets between ancillary funds.

The consultation paper raises three issues and 15 questions for discussion. The alternative options raised by the paper are:

  • allowing ancillary funds to request the Commissioner lower the minimum distribution rate for one or more years to allow accumulating funds to support large projects;
  • increasing the flexibility for assets to be transferred between ancillary funds by:
    • allowing assets to be transferred between ancillary funds where the ancillary fund has already made its minimum distribution during the financial year; or
    • allowing assets to be transferred to another ancillary fund which would count to the fund’s minimum distribution and then a distribution of an equivalent amount must be made to a type 1 DGR within 12 months.

The paper also asks contributors whether there are any other improvements that could be made.

Responses to the consultation paper can be submitted until 6 May 2022.

The release of OECD’s guidance on the second phase of the reform of the international tax rules: ‘Pillar Two’

In December 2021, the OECD published the Global Anti-Base Erosion Rules (GLoBE Rules). The OECD has now published guidance on the GLoBE Rules.

Since 2017, the OECD has been developing a two-pillar approach to manage the digitalisation of the economy and establish rules around base erosion of large multinational enterprises (MNE). This approach will require MNE to pay a minimum rate of income tax in the countries in which they operate.

Member countries are currently not required to implement the GLoBE rules.

Pillar One

Pillar One concerns the allocation of taxing rights of MNEs. Pillar One reallocates the taxing rights of the largest MNEs to the jurisdictions where the MNE undertakes business activities and earns profits.

Pillar Two

Pillar Two implements a global minimum corporate tax rate of 15% which will apply to all MNEs with a revenue of more than EUR 750 million. This will create a ‘top-up tax’ to be applied on profits in any jurisdiction where the effective tax rate (to be determined on a jurisdictional basis) is below the 15% rate.

The OCED has now published the ‘Commentary to the GloBE rules’. This guidance aims to improve understanding of the two pillars, as well as to assist in implementing the rules domestically.

For more information, you can access the relevant on their website.

Cryptocurrency policy framework review

The Federal Government has requested that the Board of Taxation consider an appropriate policy framework for the taxation of digital assets and transactions in Australia.

The Terms of Reference under which the review will be performed are available on the Board’s website. Broadly, these include analysing the tax treatment of digital assets and transactions in comparable jurisdictions and considering whether changes should be implemented in Australia’s tax laws.

The Board will complete its review by 31 December 2022.

Case law

‘Deregistration is the corporate equivalent of death’: Trustee for B & J Chung Trust and FCT [2022] AATA 383

The director of a trustee company attempted to apply to the Administrative Appeals Tribunal (AAT) for a review of the ATO’s decision in disallowing an objection with respect to penalties imposed on the company. However, the company was deregistered by ASIC before the application was heard. Consequently, the AAT could no longer review that objection decision.

This case serves as a reminder that the AAT cannot review a decision made under section 14ZZ of the Tax Administration Act 1953 (Cth) if the taxpayer who lodged the original objection does not exist.

Oppressive conduct by the ATO: Hyder v Federal Commissioner of Taxation [2022] FCA 264

The Federal Court recently held the ATO engaged in oppressive conduct by requiring a taxpayer to pay two alternative assessments before it had been determined which assessment was correct.


In a complex arrangement, a trust distributed its net income to a partnership which was a presently entitled beneficiary. The partnership consisted of an individual taxpayer and a company. The partnership distributed 1% of the partnership income to the Taxpayer and 99% of the partnership income to the company. All income was accounted for on each entity’s tax return and the company and Taxpayer paid its tax liability on the partnership income.

In 2020, the ATO issued amended assessments to the Taxpayer as it believed the partnership was not a legitimate partnership for tax purposes. Two alternative assessments were provided. The ATO requested the Taxpayer pay both assessments in full, or alternatively pay 50% of each assessment and provide security for the remaining 50%, before it had been determined which assessment was correct.

The ATO also denied the Taxpayer’s requests to defer payment of the assessments.


Justice Greenwood did not grant a writ of prohibition under section 39B of the Judiciary Act 1903 (Cth), as sought by the applicants. Rather, the court made a declaration that the ATO acted oppressively by requiring the Taxpayer to pay the full amount of both alternative assessments. The court also held that the decision to reject the deferred date of payment should be reviewed.

Input tax credits claimed and denied: Kais Jewellery (Syd) Pty Ltd v Federal Commissioner of Taxation [2022] AATA 425

The AAT found the Taxpayer was not entitled to claim input tax credits for scrap gold it purchased because there was not enough evidence to prove the suppliers actually supplied the metal.


The Taxpayer was a jewellery business. The Taxpayer claimed it acquired over $2.34 million of scrap gold from two companies and claimed input tax credits for these acquisition.

Neither company disclosed the supply of scrap gold in the GST returns in the relevant periods.

The sole director of one company gave evidence that it did not supply scrap gold and the Taxpayer directed it to provide fabricated tax invoices for the false supply. The sole director of the other company gave a witness statement which supported the claim that scrap gold was supplied. However, the AAT noted the lack of detail in this statement and the witness passed away before the hearing.


After reviewing the evidence, the AAT was not satisfied that the Taxpayer made the acquisition as there was insufficient evidence. The Taxpayer also did not discharge its burden to prove the penalty assessments were excessive.

The AAT reiterated that in these circumstances, the tax invoices and the Taxpayer’s accounting records are not prima facie evidence that the transactions occurred. Ultimately, there was no direct independent evidence which the AAT could give substantial weight to support the Taxpayer’s claims.

This article was written with the assistance of Olivia Gray, Law Graduate, and Gabrielle Terliatan, Paralegal.