High Court grants taxpayers special leave to appeal in Bywater Investments Limited & Ors v FC of T
The High Court has granted the taxpayers special leave to appeal against the Full Federal Court decision in Bywater Investments Ltd & Ors v FCT  FCAFC 176. The Full Federal Court had previously dismissed the taxpayers’ appeals regarding two related matters, finding that the taxpayers were residents of Australia for tax purposes and were accordingly liable to pay income tax on the profits from share sales made in Australia.
Please refer to Talking Tax – Issue 23 for further details of the Full Federal Court decision.
Taxpayer wins on appeal – ‘de facto’ possession sufficient to deem the purchaser the owner of the land
The Victorian Supreme Court of Appeal allowed the taxpayer’s appeal in Kameel Pty Ltd v Comr of State Revenue  VSCA 83. The taxpayer was the vendor of a commercial property. The Supreme Court initially held at first instance that the taxpayer was liable for land tax from 2010-2012 on the basis that it was the owner of the land under an uncompleted contract of sale. The contract of sale in question was initially entered into between the taxpayer and the purchaser in April 2006 and eventually terminated in either November 2012 or April 2013.
The critical issue was the interpretation of section 15 of the Land Tax Act 2005 (Vic) (Land Tax Act), which provides that the purchaser under a contract for the sale of land is deemed to be the owner of the land if he/she has taken possession of the land, regardless of whether the contract has been completed by the actual transfer of the land.
The Court of Appeal found that the Supreme Court at first instance had incorrectly applied the test in section 15 of the Land Tax Act. The Court of Appeal held that ‘de facto possession’ of the land, without a specific legal right to possession under the contract, is sufficient to satisfy section 15 of the Land Tax Act. That is, the purchaser must be in possession of the land and that possession must be referable to, or in the intended performance of, an agreement for the sale of the land.
In the current circumstances, the purchaser had taken possession of the land pursuant to the heads of agreement for the purposes of building on the land, constructing a restaurant from that building and renting that restaurant to a third party. Accordingly, the purchaser had ‘de facto possession’ of the land at these times even though the contract was incomplete. Given these events took place prior to the relevant land tax assessment dates, the purchaser was deemed to be the owner of the land and liable to pay the land tax liability in question.
Legislation and government policy
GST ‘Netflix” tax Bill receives Royal Assent
On 5 May 2016, the Tax and Superannuation Laws Amendment (2016 Measures No.1) Bill 2016 received Royal Assent. This Bill contains amendments which extend the application of goods and services tax (GST) to imported digital goods and services such as software subscriptions, professional or consultancy services, applications and media content. The purpose of the rules is to ensure that GST is applied equally to domestic and overseas providers of digital content through an expansion of the test to determine whether the supply of goods or services is ‘connected with Australia’. Please refer to Talking Tax – Issue 28 for further details of the amendments made by this Bill.
Tax incentives for innovation Bill receives Royal Assent
On 5 May 2016, the Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016 received Royal Assent and the changes will take effect from 1 July 2016. This Bill contains amendments relating to the tax incentives for early stage investors in innovative and venture capital investments. The main changes are:
- A 10 year capital gains tax exemption for investments held for three years.
- A 20% non-refundable tax offset on investments. This is capped at $200,000 per investor, per annum.
- Certain eligibility requirements must be met before an investor can access these incentives.
Attribution Managed Investments Trust Rules
On 5 May 2016, the following Bills received Royal Assent:
- Tax Laws Amendment (New Tax System for Managed Investment Trusts) Bill 2016
- Income Tax (Attribution Managed Investment Trusts-Offsets) Bill 2016
- Income Tax Rates Amendment (Managed Investment Trusts) Bill 2016
- Medicare Levy Amendment (Attribution Managed Investment Trusts) Bill 2016
These Bills were passed without amendment and give effect to a new system for taxing managed investment trusts which qualify as Attribution Managed Investment Trusts (AMIT).
The AMIT rules are an alternative to the ‘present entitlement’ model of distributing trust income and create a more streamlined ‘attribution model’. The rules also provide qualifying AMITs with deemed fixed trust treatment and codified ‘over and under’ rules. To qualify as an AMIT, the trust must be a managed investment trust, members must have ‘clearly defined interests’ in the trust’s income and capital and the trust must elect to be treated as an AMIT.
These changes have been discussed in detail in our earlier publication, New AMIT Rules. Please contact one of our tax lawyers if you have any questions about the AMIT rules or would like assistance with entering your fund into the AMIT regime.
Law Companion Guidelines
On 10 May 2016, the Australian Taxation Office (ATO) finalised 13 Law Companion Guidelines (LCG) with respect to the new AMIT regime. These were initially issued in draft form when the above AMIT Bills were introduced into Parliament and provide taxpayers with the ATO’s view on how the legislation applies. These LCG’s cover issues including:
- Interpretation of legislative terms and phrases such as ‘clearly defined rights’, attribution on a ‘fair and reasonable’ basis, ‘fund payments’ and ‘carry-forward trust component deficit’.
- How certain rules will be applied, including the character flow through for attributed amounts and the allocation of deductions.
- Administrative penalties for the reckless or intentional disregard of the rules.
- The relevant LCGs are LCG 2015/4-15 and LCG 2016/4 and can be found on the ATO’s legal database.
Victorian State Taxation and Other Acts Amendment Bill introduced
The State Taxation and Other Acts Amendment Bill 2016 (Vic) was introduced in the Victorian Legislative Assembly on 27 April 2016. The Bill implements a number of state taxation measures announced in the 2016-17 Victorian State Budget, including:
- increasing the payroll tax-free threshold;
- introducing a payroll tax exemption for wages payable to a displaced apprentice or trainee;
- increasing the foreign purchasers stamp duty surcharge;
- increasing the absentee landowner surcharge; and
- extending the primary production land tax exemption.
Please refer to Talking Tax – Issue 33 for further details of the State Budget announcements.