Monthly tax training notes – October 2015

1         Cases.......................................................................................................................................... 4

1. Sedgwick – time limit for input tax credit claims.......................................................................... 4
2. Aquatic Air - representations in relation to GST Liability............................................................... 6
3. Bai – onus of proof where fraud or evasion................................................................................ 8
4. Thomas – self education expenses............................................................................................. 9
5. Kelly- tax agent failure to lodge ............................................................................................... 11
6. Ryan – SMSF unauthorized withdrawals .................................................................................... 12
7. Bell Group – Garnishee notice void .......................................................................................... 14
8. Sunraysia Harvesting – Sham ................................................................................................... 16

2         Legislation ............................................................................................................................... 19

1. Progress of legislation ............................................................................................................. 19
2. Superannuation – Trustee Governance ...................................................................................... 19
3. Treasury draft legislation – Spring Repeal Day .......................................................................... 19

3         Determinations ......................................................................................................................... 20

1. Sale of commercial premises subject to lease ........................................................................... 20
2. Division 7A – lodgement day for private company that is a member of consolidated group ........ 20

4         Interpretative decisions ............................................................................................................. 22

1. Fitness class not exempt ......................................................................................................... 22

5         ATO materials ........................................................................................................................... 22

1. Employee share scheme – timing of valuation of discount ........................................................ 23
2. Valuations for tax purposes ..................................................................................................... 23
3. ATO help for NFP administrators .............................................................................................. 24

w w w . b ws l a w ye r s . c o m . a u

 

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 7 October 2015. Copyright © Brown Wright Stein Lawyers 2015.

Liability limited by a scheme approved under Professional Standards Legislation

1       Cases

1.1            Sedgwick – time limit for input tax credit claims Facts

The S.E. Sedgwick & Y.E. Sedgwick partnership was registered for GST effective 1 July 2005 to 30 June 2006. It accounted for GST on a cash basis and lodged its BASs on a quarterly basis.

During the relevant period, the partnership operated a restaurant and traded as ‘New York Style Pizza and Hot Dogs’.

On 5 June 2008, the Partnership lodged, through its tax agent, BASs for each of the quarterly tax periods in the relevant period. The reported amounts at labels 1A and 1B were as follows:

Tax period ending	1A - GST on sales	1B - GST on purchases
30 September 2005	5,543	2,906
31 December 2005	4,825	1,809
31 March 2006	4,567	1,484
30 June 2006	4,978	444

The Partnership paid the liabilities resulting from the lodged BASs.

Ms Sedgwick asserted that in around 2012 she became aware of potential misconduct on the part of the tax agent. Ms Sedgwick alleged that the tax agent had completed and lodged BASs without the partners’ consent and used the Freedom of Information Act 1982 to obtain information from the Commissioner.

On 9 November 2012, the partnership, through a new tax agent revised the amounts reported as follows:

Tax period ending	1A - GST on Sales	1B - GST on purchases
30 September 2005	4,059	4,188
31 December 2005	3,940	3,846
31 March 2006	3,420	3,626
30 June 2006	2,017	2,840

As a result of this revision, the amount of credits increased by $7,857 and the amount of GST payable by the partnership reduced by $6,477. The ATO processed the revised BASs and issued refunds to the partnership totalling $14,334 on 15 January 2013.

On 22 January 2013, the ATO indicated that the BASs for the relevant period had been reviewed and revised. As a result of review, the ATO revised the BASs to the original amounts. The disallowal was on the basis that the credits claimed were out of time (i.e. more than four years after the end of the period for which such claims were allowed under the GST Act). On 25 January 2013, the ATO issued Notices of Assessment for each of the quarterly tax periods in the relevant period.

The partnership lodged an objection on 28 October 2013 and the ATO disallowed the objection in full on 8 November 2013.

The partnership applied to the Tribunal for a review of the Objection decision.

Issues

Whether the partnership could claim credits when the claim was made out of time?

Decision

The AAT considered that the operation of Section 93-5 of the GST Act was clear and left no room for discretion. The partnership could not claim credits as the claims were made beyond the four year period allowed for such claims.

Section 93-5 of the GST Act concerning time limits on entitlements to credits provided at the time (it has since been changed):

1. You cease to be entitled to an ITC for a creditable acquisition to the extent that you have not taken it into account in working out your net amount for:

1. the tax period to which the input tax credit would be attributable under subsection 29- 10(1) or (2); or

1. any other tax period for which you give to the Commissioner a GST return during the period of four (4) years after the day on which you were required to give to the Commissioner a GST return for the tax period referred to in paragraph (a).

Section 29-10(2) of the GST Act contains the attribution rules for creditable acquisitions which are accounted for on a cash basis. It provides that the credits that are attributable to a tax period are only attributable to the extent that consideration for the creditable acquisition was provided in the tax period.

Section 31-8 of the GST Act specifies the date you must give a GST return to the ATO. These dates determine the four-year period referred to in section 93-5(1)(b) of the GST Act.

In summary, these sections of the GST Act operate to provide the following relevant GST return due dates for each tax period and the four (4) year period which applied to each quarterly tax period:

s29-10(2) GST Act Tax periods to which relevant ITCs would be attributable	s31-8(1)(a) GST Act Relevant GST Return due date	S93-5 GST Act Four (4) year period to take into account relevant ITCs
For tax period ended 30 September 2005	28 October 2005	28 October 2009
For tax period ended 31 December 2005	28 February 2006	28 February 2010
For tax period ended 31 March 2006	28 April 2006	28 April 2010
For tax period ended 30 June 2006	28 July 2006	28 July 2010

The Tribunal considered that there were important policy reasons for maintaining a decisive cut-off date and the partnership's circumstances did not change the decisiveness of the provision.

In relation to the partnership's submission that there were errors in the original BASs lodged due to the tax agent's alleged fraudulent activity, the Tribunal reiterated that the partnership had to show that the relevant assessments that are being challenged were excessive under s14ZZK of the Taxation Administration Act 1953.

The Tribunal noted that virtually no contemporaneous documentation was provided to indicate that the taxable supplies initially reported were not accurate. If the partnership had genuinely believed that fraudulent activity was involved, it would be expected that the matter would be referred to the police for

investigation. If the allegation had culminated in a successful police investigation and specific information regarding the amount and nature of the fraudulently included supplies, it would have assisted the partnership to establish its case. Given the absence of evidence, the Tribunal had no alternative but to ignore the assertions regarding fraudulent activity.

COMMENT – section 93-5 of the GST Act has been slightly re-written and now provides ‘You cease to be entitled to an input tax credit for a *creditable acquisition to the extent that the input tax credit has not been taken into account, in an *assessment of a *net amount of yours, during the period of 4 years after the day on which you were required to give to the Commissioner a *GST return for the tax period to which the input tax credit would be attributable under subsection 29‑10(1) or (2).’

Note that the date that credits cease to be available is based on the statutory deadline and not the extended due date for tax agents. Also be aware that you can extend the period where credits are available by notifying the ATO of your potential credit claims.

Citation S.E. Sedgwick & Y.E. Sedgwick and Commissioner of Taxation [2015] AATA 690 (Prof Deutsch DP, Sydney)

w     http://www.austlii.edu.au/au/cases/cth/AATA/2015/690.html

1.2            Aquatic Air - representations in relation to GST Liability Facts

The Siewarts owned all shares in Wingaway Air P/L, Heron Airlines P/L and Avtex Air Services P/L. Mr Siewart conducted various aviation operations through these companies, including the provision of air ambulance services. The fees charged for air ambulance services were considered to be GST-free.

On 22 July 2011, the Siewarts and Aquatic Air made an agreement for the sale of all of the Siewarts’ shares in Wingaway and Heron to Aquatic Air (‘Main Share Sale Agreement’).

Aquatic Air's assertion was that the Siewarts sold all their shares in Wingaway while representing that Wingaway had no GST liability when Wingaway instead had a GST liability in the amount of $2 million. Aquatic Air was a company indirectly owned and controlled by Mr Ross Seller, an experienced tax lawyer with an interest in aviation.

Aquatic Air argued that the fact that there was no GST liability was conveyed by various warranties contained in Clause 6.1 and Schedule 3 of the Share Sale Agreement.

Clause 6.1 of the Share Sale Agreement provided:

The Vendor warrants and represents to the Purchaser (for itself and as trustee for the Company) in accordance with the warranties and representations set out in Schedule 3.

Schedule 3 warranted, among other things, that the accounts:

…give a true and fair view of the financial position…of the Company at the balance sheet date in the Accounts and of the results for the period to which they relate…

contain full provision for all liabilities, Taxes and capital commitments of the Company at the balance sheet date in the Accounts and a full and fair disclosure of all contingent liabilities (whether unquantified; disputed or otherwise).

‘Accounts’ was defined to mean ‘the accounts of the Company contained in Schedule 2’. Schedule 2  then said ‘Accounts as at 30 June 2011 of Wingaway and Heron, as prepared by PJ Russell & Associates and provided to the Purchaser.’ At this date there were such accounts in existence, only draft financials. Unsigned and unaudited financial statements as at 30 June 2011 for Heron were first provided by Mr Rodionov of P J Russell & Co to Mr Seller on 2 August 2011. Although they were not at the time  described as ‘draft’, adjusted accounts were provided later, on 27 September 2011. The only accounts of Wingaway for that period that are revealed by the evidence did not provide for any GST liability; when

they were provided to Mr Seller was unclear, though it may have been on 2 August 2011; in any event, it was not before 2 August 2011.

Aquatic Air argued that the 30 June 2011 accounts which were supplied after 22 July 2011 and disclosed that the group did not have a GST liability arising out of the provision of air ambulance services under contracts with regional hospitals and an area health service at that date were accurate.

On 23 July 2012 the Commissioner raised a GST assessment on the group, which had, by then, come under the control of the Aquatic Air, on the basis that the GST exemption did not apply to the supplies made by the business. The assessment was based on:

• the inadequacy of certifications held by the group to carry on an air ambulance service under civil aviation law: and
• the finding by the Commissioner that the group made supplies to regional hospitals and area health services and not to patients as was required by the exemption provision.

The group objected to the assessment. The objection was disallowed and the group (under Aquatic Air’s control) did not further appeal the assessment. Instead civil action was taken against the vendor, for breach of the warranty that the accounts of the group as at 30 June 2011 were accurate.

Issue

Did the Siewarts make the GST liability representations? If so, did Wingaway have a GST liability (of $2 million or some other amount)?

Decision

The Court held that Aquatic Air could not have relied upon any representation about the June 2011 accounts when it entered into the agreement on 22 July 2011 because the accounts had not been produced at that date.

The Court considered that the warranties did not operate on accounts that were eventually provided because the parties could not have intended to warrant the accuracy of accounts that had not yet been produced, such that their contents were unknown.

As a result, no such representation or warranty was made.

While acknowledging that the production of an assessment by the ATO was conclusive evidence of a  debt to the ATO, the court went on to re-consider whether there was a debt in existence as at 30 June 2011. This was on the basis that as the assessment was not raised until July 2012 in the court’s view the assessment was not evidence in itself of a liability at 30 June 2011 in breach of the warranty given by Aquatic Air.

The court then considered the position adopted by the ATO in raising its assessment and found by contrast to the ATO position that the GST law did not require that a supplier of GST free air ambulance services hold certain licences and permits under civil aviation law (albeit that an ATO ID expressed this view). The court also considered who the air ambulance services of the group were provided to. The  court identified that patients were ordinarily the recipients of the services of the group. Patients are transported and received the benefit of the ambulance service. Although Air Aquatic may have contracted with regional hospitals and area health services, patients were thus the recipients of the service. The  court noted that a recipient of a supply need not be the person who pays for the supply (subsection 9- 15(2) of the GST Act).

The court held that even if the representation that there was no GST liability had been made, there was no misrepresentation or breach or warranty because Wingaway had no GST liability.

TIP – lawyers often defer to accountants when clients sell businesses or shares in relation to warranties based on accounts and tax. Such warranties are usually ‘backwards looking’ in that you are asserting that up to the date of the warranty (and sometimes up to the date of settlement or completion)

that the position in relation to the accounts or tax is correct. It is important that if you are advising your client whether such a warranty is factually correct that you think about ‘what could have happened to make this warranty incorrect?’. In this case the company’s GST liability relied on its provision of services being GST-free – in advising on a GST warranty you might ask yourself ‘what could have happened to make there be GST payable when we think there isn’t GST payable’.

Citation Aquatic Air Pty Limited v Siewert & anor [2015] NSWSC 928 (Brereton J, Sydney ) w      https://www.caselaw.nsw.gov.au/decision/55a4600ee4b06e6e9f0f78e8

1.3            Bai – onus of proof where fraud or evasion Facts

Ms Bai was audited for the 2003 to the 2006 income years. In the 2005 income year, she had returned income of $13,790 but the audit found:

• $1,169,608 in unexplained bank deposits; and
• private expenses and acquisitions of real estate assets well in excess of income returned.

The ATO raised an amended assessment in relation to the 2005 year premised on there being fraud or evasion, as the amended assessment issued outside of the two year period or review extended to the Commissioner to amend the original assessment for 2005 under subsection 170(1) of the ITAA1936.

In the AAT Ms Bai and witnesses attempted to explain the bank deposits in evidence. The AAT accepted some of the evidence but found other aspects of the evidence unreliable and illogical. The AAT concluded that the inadequacies in the evidence justified:

• refusal of the appeal in relation to inclusion of some of unexplained bank deposits in taxable income in the amended assessment; and
• support for the finding of evasion; and
• the amended assessment for 2005, otherwise out of time, being affirmed.

In finding that Ms Bai was unable to discharge his burden of proof that particular unexplained deposits were not income, the AAT member stated ‘…there is no satisfactory explanation for these deposits. It follows that I cannot exclude the possibility that these are receipts of income that Ms Bai knowingly failed to declare.’

On appeal two of the points raised for Ms Bai were that the AAT was required to form its own opinion that there was fraud or evasion in order to uphold the amended assessments, and that the Tribunal did not apply the required onus of proof (balance of probabilities).

Issues

Was the AAT decision wrongly decided if the AAT did not form its own opinion on fraud or evasion, and did the AAT apply the wrong level of onus?

Decision

The court considered that the AAT did not need to form its own opinion that there was fraud or evasion. If Ms Bai could not prove her case, that on the balance of probabilities there was not fraud or evasion, then the AAT was entitled to proceed to consider whether the assessment was otherwise excessive, without needing to reform the view as to whether there was fraud or evasion.

In relation to the burden of proof, the court considered that although administrative tribunals such as the AAT are to be given some latitude if their decisions are poorly expressed, the court nevertheless agreed with Ms Bai that the AAT misstated the standards of evidence by which it should decide whether there had been fraud or evasion. Nowhere in its reasons did the AAT refer to Ms Bai needing to prove her case on the balance of probabilities. The court observed that although the onus to prove evasion is not on the

Commissioner, that does not mean that the Tribunal can find that there has been evasion because the taxpayer cannot, by evidence, eliminate the possibility that evasion had occurred, saying:

There is a substantive difference in requiring the exclusion of a possibility and the conventional civil onus of proof of establishing a matter on the balance of probabilities. It is one thing not to be satisfied about a matter because, weighing all the evidence, the decision-maker is not persuaded that it is more likely than not that a fact existed or did not exist, and quite another thing to require the proof of that matter by excluding all other possibilities. The latter is akin to applying the criminal onus of proof beyond reasonable doubt.

Rares J found that the test the AAT should have applied was whether the taxpayer had shown that there had not been evasion on the balance of probabilities, the civil evidence test.

The matter was referred back by the court to the AAT.

COMMENT – this case would have been more interesting if Ms Bai had succeeded in arguing that the AAT had to form its own view on whether there was fraud or evasion, which would require the Commissioner to tender evidence of fraud or evasion, rather than a taxpayer needing to prove that there was no fraud or evasion and lead positive evidence that there was no fraud or evasion.

Citation Bai v Commissioner of Taxation [2015] FCA 973 (Rares J, Sydney) w     http://www.austlii.edu.au/au/cases/cth/FCA/2015/973.html

1.4            Thomas – self education expenses Facts

In April 2010, Mr Thomas commenced employment as an Associate Director in National Australia Bank's private equity investment team. After eighteen (18) months in the role, Mr Thomas decided to undertake further study. He was accepted at the Ecole des Hautes Etudes Commerciales de Paris ('HEC Paris') in July 2012. The MBA was due to commence in January 2013.

On 16 November 2013, before Mr Thomas could make a formal application for leave, Mr Thomas was made redundant.

Prior to his being made redundant, Mr Thomas paid for a flight to Paris and a visa to enable him to do the course. Mr Thomas also paid for the first instalment of the course of $7,433.

Mr Thomas had to sign a 'payment agreement' with HEC Paris accepting his liability to pay the course fees. The 'payment agreement' included the following declaration:

I declare that I am aware of the HEC-MBA tuition fees, which amount to Euros 48,000 (forty- eight thousand Euros) payable in 3 instalments (a first Euros 6,000 non refundable pre-enrolment down payment, Euros 24,000 payable by December 3rd, 2012 at the latest, Euros 18,000 payable by March, 2013) and commit to paying them.

Mr Thomas' father ('Mr Thomas Senior) had signed a 'Guarantor's Contract' on 14 November 2012 guaranteeing the payment of those fees and in which he declared:

…that I have read the payment commitment and that I am aware of the tuition fees payment terms signed on 14 November 2012 by Mark Thomas and hereby accept to act as joint guarantor for the amounts and under the conditions specified…

Mr Thomas paid the second course instalment of $30,138 on 28 November 2012 and the third course instalment of $8,096 on or about March 2013.

Following Mr Thomas' redundancy, he did not earn salary or wages for the remainder of the 2013 income year or during the 2014 income year.

The Commissioner argued that as the second and third instalments were paid and incurred after Mr Thomas was made redundant, the necessary nexus between the incurring of the outgoing and Mr Thomas' gaining or producing assessable income had been broken.

Mr Thomas argued that although the second and third instalments were paid after he was made redundant, he had actually committed to them before he was made redundant and so he incurred the expenses while he was still employed. In the alternative, Mr Thomas submitted that even if they were not incurred until they were paid, there was still the required nexus with the gaining or production of assessable income.

Issue

Were the second and third instalments deductible?

Decision

The Tribunal noted that a loss or outgoing can be 'incurred' by a taxpayer even if the money has not yet been paid out citing the case of W Nevill and Company Limited v Federal Commissioner of Taxation (1937) HCA 9, where Latham CJ stated:

… the word used [in the Act] is 'incurred' and not 'made' or 'paid'. the language lends colour to the suggestion that, if a liability to pay money as an outgoing comes into existence, the quoted words of the section are satisfied even though the liability has not yet actually been discharged at the relevant time…[i]t is only the incurring of the outgoing that must be actual; the section does not say in terms that there must be an actual outgoing- a payment out.

Incurring a loss or outgoing

In relation to whether the second and third payments were incurred, the Tribunal distinguished between amounts which had to be paid or were described as non-refundable and those which were not.

The first instalment, described in the course documentation as 'non-refundable', flagged to prospective students that once the payment was made there would be no prospect of getting the money back.

The second and third instalments were not similarly described and it was not clear what the position  would be if Mr Thomas had decided not to go ahead with the course. It was not clear that the commitment Mr Thomas and Mr Thomas Senior were making was anything more than a commitment to pay the fees should Mr Thomas decide to continue with his study. As the Tribunal could not be satisfied that Mr Thomas was committed to paying the fees no matter what, it was not clear that Mr Thomas was 'definitely committed' on 14 November 2012 and it could not be satisfied that the amounts were incurred while Mr Thomas was still employed with NAB.

Are the second and third instalment deductible?

The phrase 'incurred in gaining or producing’ your assessable income has been construed to mean 'incurred in the course of gaining or producing' your income: Commissioner of Taxation v Cooper [1991] FCA 164

The 'assessable income' referred to in is not restricted to the assessable income you gain or produce in the income year in which the loss or outgoing is concerned: FCT v Finn [1961] HCA 61.

If Mr Thomas had remained in employment with NAB and had incurred the expenditure on the MBA course while he remained an employee, the expenditure would have been deductible. The factors referred to in Finn's case were present:

• increased knowledge obtained from the course would have made advancement in his job more likely;
• advancement in his job formed a real and substantial element in the motive for doing the course;

• the employer would likely have regarded his increased knowledge to be a distinct advantage to his work; and
• the course would have been done while he was in NAB's employment, earning his salary and acting in accordance with the conditions of his service

However, having failed to establish that he incurred the disputed amounts before his employment ceased, Mr Thomas is unable to show that the outgoing was incurred in the course of gaining or producing his assessable income.

TIP – if asked by a client in similar circumstances whether the course fees are deductible, you will need to review the contractual arrangement with the education provider to determine whether they are committed to pay the fees prior to ceasing employment.

Citation Thomas and Commissioner of Taxation [2015] AATA 687 (Frost DP, Sydney) w    www.austlii.edu.au/au/cases/cth/AATA/2015/687.html

1.5            Kelly- tax agent failure to lodge Facts

On 4 June 2014, the Tax Practitioners Board found that Mr Kelly had breached the Code of Professional Conduct in the Tax Agents Services Act 2009.

The Code requires tax agents to:

…comply with the taxation laws in the conduct of (their)personal affairs.

Mr Kelly had failed to lodge his and his associated entities outstanding income tax returns for the years ended 30 June 2006 to 30 June 2013 (i.e. 44 tax returns in all).

As a result, the Board ordered Mr Kelly to do the following things:

• Complete a Board-approved course of education in relation to the Code; and
• Comply with an undertaking to lodge the outstanding returns for the years ended 30 June 2006 to 30 June 2013 by 30 September 2014 (subject to any arrangement with the ATO to extend the time for lodgement).

On 10 December 2014, the Board found that Mr Kelly had failed to even partially comply with any of the requirements. The Board determined that Mr Kelly had ceased to meet the tax practitioner’s registration requirement to be a fit and proper person and Mr Kelly’s tax agent registration was terminated.

Mr Kelly applied for a review of the Tax Practitioners Board’s decision.

The day before the Tribunal hearing, Mr Kelly caused 42 of the 44 outstanding returns to be lodged and had also enrolled in an appropriate tax course as required.

Mr Kelly argued that the reason he failed to lodge his own tax returns on a timely basis was due to the nature of his clients’ complex affairs, the associated workload in addressing these issues and his personal ill health.

Issue

Whether Mr Kelly was a fit and proper person to be registered as a tax agent?

Decision

In relation to the client workload argument, the Tribunal cited Dr Hughes’ comments in Re Adam and Tax Agents Board of Victoria [2005] AATA 913:

It is insufficient for the Applicant to state that he disregarded his own obligations because he was giving priority to his clients…this explanation…evinces either severe personal disorganisation (which is in turn likely to impact adversely on his professional duties) or a severe lack of regard for the very legal framework within which he practises his profession.

In response to Mr Kelly’s negative response to further training (i.e. Mr Kelly’s comments were to the effect that the Course suggested by the Board would be a waste of time), the Tribunal noted this demonstrated complacency towards the legal framework within which Mr Kelly practiced his profession.

In relation to Mr Kelly’s argument based on ill health, the Tribunal noted that as Mr Kelly’s health issues were not sufficiently significant to prevent him from turning his mind to his clients’ complex affairs, it could not be assumed that Mr Kelly’s medical situation was what prevented him from lodging his own returns within time.

Whilst the Tribunal suggested that someone in Mr Kelly’s position could be given some ‘leeway’, the sheer volume of overdue returns, the substantial timeframe and Mr Kelly’s attitude did not warrant that leeway being granted in the present case.

TIP – Although practitioners are often slow in dealing with their own tax affairs, the potential to be struck off from being a registered tax agent means that you should be diligent with your personal returns, even to the extent of giving those returns to another accountant to process.

Citation Kelly and Tax Practitioners Board [2015] AATA 712 (Prof Deutsch DP, Sydney) w     http://www.austlii.edu.au/au/cases/cth/AATA/2015/712.html

1.6            Ryan – SMSF unauthorized withdrawals Facts

From January 1999 until January 2014 Mr and Mrs Ryan were trustees and the only members of a SMSF, the Lawryan Family Superannuation Fund.

Prior to 2007, the Ryans owned and operated a dry-cleaning business. The business was not successful and in 2007 they sold it. By 2009, the Ryans were unable to meet their everyday personal expenses so they started making withdrawals from the Fund to enable them to meet their expenses.

The withdrawals occurred from 12 June 2009 until June 2012. Over this period some of the withdrawals were made as loans, and repaid. But the loans were unsecured, had no interest rate and no repayment term. Other withdrawals were not repaid. The total net amount withdrawn was $181,364 ($209,677 with repayments of around $28,313).

Between August and December 2012 the Fund lodged income tax returns and auditor reports for the financial years ending 30 June 2009, 30 June 2010, 30 June 2011, and 30 June 2012. The authors of the income tax returns and the auditor reports raised the possibility of contraventions of the SIS Act for those four financial years.

On 16 October 2013, the Commissioner wrote to the Ryans asking each of them to show cause why they should not be disqualified from being trustees of superannuation entities.

On 19 November 2013, both Mr and Mrs Ryan wrote to the Commissioner acknowledging the contraventions, apologising for their actions, and offering to rectify the contraventions and then roll-over the superannuation benefits in the Fund and close the Fund.

On 14 January 2014, the Commissioner disqualified each of the Ryans from being a trustee of a superannuation entity, under s 126A of the Act.

Mr and Mrs Ryan did not rectify the contraventions. As a result of the contraventions, and the accountants’ fees related to the Fund, at 1 June 2015, their superannuation benefits in the Fund have been reduced to $6,034.20.

On 22 May 2015, the Commissioner wrote to the Ryans advising that proceedings would be commenced for contraventions of the SIS Act. The Ryans had committed contraventions previously between 2001 – 2004 which were rectified in 2008 but the ATO had not taken them to court.

On 1 June 2015, the Ryans transferred their superannuation benefits in the Fund to a public fund.

Issue

Did Mr and Mrs Ryan's management of the Fund contravene the SIS Act?

Decision

The Federal Court focused on the object of the SIS Act in s 3(1) includes making provision for the prudent management of certain superannuation funds. Such funds may also become eligible for concessional tax treatment (s 3(2)).

The Ryans admitted that they contravened ss62(1), 65(1), 84(1) and 109(1):

• Section 62(1) being the ‘sole purpose test’
• Section 65(1) prohibits a trustee of a regulated superannuation fund lending money of the fund to a member of the fund or a relative of a member of the fund or giving any other financial assistance using the resources of the fund to a member of the fund or a relative of a member of

the fund.

• Section 84(1) provides, amongst other things, that each trustee of a regulated superannuation fund must take all reasonable steps to ensure that the in-house asset ratio is reduced to the required level.
• Section 109(1) prohibits a trustee from investing unless the trustee and the other party to the relevant transaction are dealing with each other at arm’s length in respect of the transaction or, if not, the terms and conditions of the transaction are no more favourable to the other party than those which it is reasonable to expect would apply if the trustee were dealing at arm’s length.

Under section 193 of the SIS Act, contravention of the above sections results in a civil penalty. The Court is permitted to impose a monetary penalty if the Court is satisfied that the contravention is a serious one.

The Court held that there was no doubt that the contraventions in this case were serious and referred to Vivian (Deputy Commissioner of Taxation (Superannuation)) v Fitzgeralds [2007] FCA 1602 where Logan J stated:

the long-term object envisaged by the Parliament, to my mind, is to encourage Australians that they must make provision for their retirement, and to do that by the conferring of taxation benefits in return for responsible management of funds.

The contraventions in this case, amounting to almost the entire value of the Fund, put the savings of the Ryans at risk and did so in circumstances in which their contraventions were deliberate, repeated over a period of three years and were not first contraventions.

The Court then reviewed a number of cases which revealed that the general run of pecuniary penalties for a single individual who commits a series of related contraventions varies between $10,000 and

$35,000 with the following factors (as set out by Gordon J in Olesen v Parker [73]) considered relevant:

• the nature and extent of the contravening conduct;

• the amount of any loss or damage caused;
• the size of the organisation;
• the deliberateness or otherwise of the contravention(s);
• the period over which the contravention(s) extended;
• the degree of co-operation of the person concerned, either in the investigation or the subsequent hearing;
• the past record of the person;
• the person’s financial position;
• any amounts already paid by way of compensation or legal costs;
• contrition; and
• any applicable public policy position.

After taking all circumstances into account, the Court held that the appropriate pecuniary penalty was

$20,000 for each of Mr and Mrs Ryan (a combined total of $40,000) and in light of the financial circumstances of Mr and Mrs Ryan, the penalties were ordered to be paid over 3 years with monthly repayments of $555.55 each.

COMMENT – despite the ATO now being able to impose administrative penalties the penalty provisions in the SIS Act still exist. It will be useful to monitor in later cases (realising that the administrative penalty provisions only came in from 1 July 2014 for breaches on or after that date) to determine whether the ATO seek penalties from the court in cases where they also impose administrative penalties.

Citation Deputy Commissioner of Taxation (Superannuation) v Ryan [2015] FCA 1037 (Edelman J, Brisbane)

w     http://www.austlii.edu.au/au/cases/cth/FCA/2015/1037.html

1.1            Bell Group – Garnishee notice void Facts

On 24 July 1991, a liquidator was appointed to The Bell Group Limited and a number of related entities pursuant to orders made by the Supreme Court of Western Australia. Mr Woodings was appointed as an additional liquidator to those companies and later became sole liquidator of the companies.

Bell Group and its related entities commenced proceedings in the Supreme Court of WA against a number of Australian and overseas banks resulting in the banks being ordered to pay monetary relief. On appeal to the Court of Appeal the monetary relief was increased to over $2 billion. The banks appealed to the High Court but the parties entered into a deed of settlement before the matter was heard.

Under the deed of settlement, the bank was ordered to pay a settlement sum of $981,865,342.12 plus adjustments relating to interest to Mr Woodings to be held on trust for Bell Group and its related entities in certain specified proportions, to be distributed to the relevant parties.

At the time of the hearing, Mr Woodings held $300,000,000 paid pursuant to the deed of settlement in a NAB term deposit account in the name ‘ALJ Woodings as Trustee for the Bell Judgment Creditors’ which matured on 2 October 2015.

On 5 August 2015 Mr Woodings (as liquidator of Bell Group) caused Bell Group to elect to form an income tax consolidated group with its related entities. A tax sharing agreement was entered into by the relevant members of the group.

On 10 August 2015 the Commissioner issued a notice of assessment to Bell Group for the 2014 year as the head company of the consolidated group in respect of its assessable income of $1,029,080,683 with tax payable in the amount of $308,724,204.90. As a result of a calculation error, the Commissioner issued an amended assessment on 18 August 2015 to Bell Group in respect of its assessable income of

$993,967,829 with tax payable in the amount of $298,190,348.70.

The Commissioner also issued a corresponding notice to the 18 August 2015 amended assessment to Mr Woodings in his capacity as liquidator of Bell Group.

On 14 August 2015, the Commissioner issued a garnishee notice to NAB under section 260-5 of the TAA in respect of the debt owing by Bell Group, which was later varied to reflect the amended assessment  due to the calculation error. The Commissioner also issued a garnishee notice to NAB in respect of the debt owing by Mr Woodings in his capacity as liquidator of Bell Group.

The High Court in Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation, made clear that a garnishee notice under section 260-5 of the TAA is an attachment for the purposes of section 500(1) of the Corporations Act. Section 500(1) provides that any attachment put in force against the property of a company after the passing of a resolution for voluntary winding up is void, and therefore any garnishee notice given in respect of the company's pre-liquidation tax liabilities will be void.

However, the Commissioner relied on section 254(1)(h) of the ITAA 1936, which provides that for the purpose of insuring the payment of tax the Commissioner shall have the same remedies against attachable property of any kind vested in or under the control or management or in the possession of any agent or trustee, as the Commissioner would have against the property of any other taxpayer in respect of tax. That is, the Commissioner argued that the Commissioner have the same remedies against property under the control of a liquidator as the remedies he has against the property of any other taxpayer.

Further, the Commissioner argued that while a garnishee notice is an attachment for the purposes of section 468(4) of the Corporations Act, the section did not operate to render a garnishee notice void if it related to post-liquidation tax related liabilities, on the basis that section 254(1)(h) of the ITAA 1936 trumped section 468(4), or alternatively section 468(4) should be read down to permit garnishes notices in this narrow class of case.

Issue

Are the two garnishee notices issued to NAB, which related to post-liquidation tax liabilities, void?

Decision

Wigney J followed the reasoning in Bruton Holdings and held that both notices in this case are void for two reasons:

• each notice is an attachment against the property of Bell Group and therefore void by operation of 468(4) of the Corporations Act (which provides that any attachment put in force against the property of a company after the commencement of winding up by the Court is void);

• the power conferred on the Commissioner under section 260-5 is not available where the relevant debtor is a company which is being wound up or its liquidator, even where the relevant debt relates to post-liquidation tax liabilities.

Wigney J rejected the Commissioner's contention that section 254(1)(h) of the ITAA 1936 trumped section 468(4) of the Corporations Act and held that the remedies against property conferred on the Commissioner by section 254(1)(h) are expressly limited to remedies against ‘attachable’ property. As property of a company being wound up that is in the control or possession of a liquidator is not ‘attachable property’ because sections 468(4) and 500(1) of the Corporations Act provides that any attachment against such property is void, section 254(1)(h) does not specifically enable the Commissioner to issue garnishee notices to a company being wound up or its liquidator.

The Commissioner's second contention that section 468(4) should be read down so as to permit an attachment by way of a garnishee notice in respect of post-liquidation tax related liabilities was also rejected, as Wigney J could not find any basis for reading down section 468(4).

Wigney J further went on to discuss whether, in the event that the notices were not void by reason of section 468(4) of the Corporations Act, the notices will be invalid because of capacity issues. Specifically,

the funds held in the NAB account were owed to Mr Woodings in his capacity as trustee for the Bell Judgment Creditors while the notices were issued to Mr Woodings in his capacity as liquidator, and Bell Group.

It was held that Mr Woodings should be taken to be different entities when acting as trustee and liquidator by reason of section 960-100(3) of the ITAA 1997 and as NAB did not and is not deemed to have owed money to Mr Woodings in his capacity as liquidator, the notice in relation to him in his capacity as liquidation was invalid. However, the garnishee notice in relation to the Bell Group would be valid as section 260-5(3)(c) of Schedule 1 to the TAA would appear to operate so that NAB is taken to owe money to Bell Group as the relevant debtor as the money was held on account of ‘some other entity’ (i.e. Mr Woodings in his capacity as trustee) for payment to Bell Group as the relevant debtor.

COMMENT – the effect of this decision is that the ATO cannot use a garnishee notice to improve their position from being an unsecured creditor once a liquidator has been appointed.

Citation Bell Group Limited (in liq) v Deputy Commissioner of Taxation [2015] FCA 1056 (Wigney J, Sydney)

w     http://www.austlii.edu.au/au/cases/cth/FCA/2015/1056.html

1.2            Sunraysia Harvesting – Sham Facts

Mr Erdogan has been operating a business of supplying casual labour to meet seasonal demands of orchardists and vignerons through a company Alper Harvesting Contractors Pty Ltd for a number of years. Alper contracted with growers to provide casual labour and in turn engaged employees to perform the work, paid wages to the employees and was required to meet PAYG withholding obligations as well as payroll tax liabilities.

In June 2011 a new structure was put in place. Sunraysia Harvesting Contractors Pty Ltd as trustee of the Sunraysia Harvesting Contractors Trust took over the role from Alper. The trust was a discretionary trust of which Mr Erdogan was the appointor and the only named beneficiary who would receive trust income  in default of a determination by the trustee. Alper was placed into voluntary winding up on 11 October 2011.

It was also alleged that Sunraysia no longer engaged employees directly (like Alper did), but rather contracted successively with three other companies, Danood Pty Ltd, Jameron Pty Ltd and Kigra Pty Ltd, each of whom engaged and paid employees and were responsible for PAYG deductions and payroll tax if applicable.

At the time of incorporation, the sole director and shareholder of Sunraysia was Mr Erdogan's brother in law, Mr Keles. Mr Keles was replaced by Mr Erdogan both as a director and shareholder in Sunraysia on 1 July 2013. Sunraysia's registered office and principal place of business was the address of an entity called ‘SME's R US’, who was Mr Erdogan's advisor. Mr Erdogan dealt with Ms Toffoletti, who was described as a ‘consultant’ at SME's R Us.

All three companies had a sole director and shareholder (Mr Danny Woods for Danood, Mr James Cameron for Jameron and Ms Kim Graco for Kigra), and used the address of SME's R Us as their registered office and principal place of business. Each of the companies also opened a bank account with NAB. For Danood and Jameron the accounts were opened in the name of the respective company as trustee of a trust, although no evidence was adduced to show that any such trusts were in existence.

Mr Erdogan was the sole signatory of the Jameron bank account, as well as being co-signatory for the Danood and Kigra bank accounts together with the sole director of those companies. Bank statements of the Danood and Jameron bank accounts were addressed to Mr Erdogan's residential address while statements for the Kigra account were sent to SME's R US. Mr Erdogan had a cheque book for the Danood account and a debit card linked to the Kigra bank account which he used frequently.

‘Services Agreements’ were purportedly entered into between Sunraysia and each of Danood and Jameron for the provision of services to Sunraysia. However, all items in the schedule, which included the services provided, fee, commencement and expiry date and the payment terms had been left blank. Mr Woods and Mr Cameron gave evidence that what were purported to be their signatures on the services agreement for Danood and Jameron respectively were not theirs, and neither of them knew of Sunraysia. Both of them also gave evidence that they were paid by Ms Toffolettit initially to sign documents   (including the opening of Danood's bank account) to assist her set up other companies, but did not use or authorise anyone else to use the company's bank account.

The Commissioner conducted an audit on Sunraysia's affairs and concluded that the arrangements between Sunraysia and the three companies were a sham. As a result of the audit, the Commissioner:

• disallowed input tax credits claimed by Sunraysia on supplies said to have been made by those companies to it between 1 July 2011 and 31 December 2013;
• imposed GST shortfall penalties;
• imposed penalty on failure to deduct and remit PAYG amounts;
• denied Sunraysai deductions referable to amounts paid to the three companies, and instead allowed the deduction of an amount calculated by reference to industry standards.

Following the audit, the net income of the trust in the 2012 and 2013 income year increased. The increase was attributed equally to Mr and Mrs Erdogan as beneficiaries of the Trust, which increased their taxable incomes and shortfall penalties were imposed for those years.

There were two documents that appeared to be minutes of a meeting of Sunraysia in its capacity as trustee of the Trust held on 25 June 2012 and 29 June 2013 respectively and apparently signed by Mr Keles resolving to distribute the net income of the trust equally between Mr and Mrs Erdogan for the 2012 and 2013 income years. Income tax returns were lodged for Mr and Mrs Erdogan by their accountant disclosing trust distributions from the trust.

There was also a deed of disclaimer purported to be signed by Mrs Erdogan on 12 August 2014 under which she unconditionally and irrevocably disclaimed any and all benefit in, and entitlement to, income of the trust for the 2012 and 2013 income year.

Sunraysia, Mr and Mrs Erdogan objected to their respective assessments but the objections were disallowed in the main. They appealed the objection decision in the AAT.

Issue

Was the arrangement between Sunraysia and each of the three companies a sham?

Decision

The Tribunal member found that there was never any intention to create any legally enforceable obligation between Sunraysia and the three companies and affirmed the Commissioners' objection decision.

The Tribunal member rejected Sunraysia's claim that each of the three companies were controlled by Ms Toffoletti and not by Mr Erdogan. Specifically, the Tribunal member found that the directors of each of the companies were straw men paid to assume a role as member and director in their particular companies, while Mr Erdogan had a level of control over the financial affairs of the company that suggests that those companies did not operate at arm's length to Sunraysia and Mr Erdogan.

The documents purporting to be ‘Services Agreement’ were signed by someone who pretended to be, but was not, the director of the relevant companies, and the critical details of the contract are not completed.

Further, evidence suggested that Mr Erdogan exercised financial control for the companies, in particular:

• Mr Erdogan had control over the bank accounts and the bank statements of two companies were sent to his residential address;

• Mr Erodgan drew cheques on the accounts of Danood and Jameron, and used the debit card linked to Kigra's bank account;
• the coincidence in times when Sunraysia made its wage payments electronically and when Kigra made its similar payments, which occurred on the same day. The Tribunal concluded that one person, being Mr Erdogan, undertook all transactions;

The Tribunal member also found that even after Sunraysia purported to engage the three companies, it was ‘business as usual’ as Mr Erdogan informed the employees of the new arrangement, and Sunraysia acted as if it was the employer of the workers in circumstances where one would expect the subcontracting company would be the employer, such as paying for the worker's various expenses and being identified as the employer for compensation medical certificates.

Given the Tribunal's conclusion that the arrangement between Sunraysia and the three companies was a sham, it concluded that there was no taxable supply from the three companies to Sunraysia, nor were they carrying on an enterprise as they were merely players in an elaborate charade. Accordingly, the Commissioner's decision to deny Sunraysia input tax credits in respect of those dealings was affirmed, and similarly the denial of deductions was affirmed as the payments made by Sunraysia to the three companies were not incurred in gaining or producing assessable income.

The Tribunal member then considered the issue of the assessments against Mr and Mrs Erdogan. It was found that the purported disclaimer by Mrs Erdogan was legally ineffective, as firstly, there was no evidence before the Tribunal that the signature on the disclaimer document was that of Mrs Erdogan and secondly, as Mrs Erdogan acknowledged receipt of the distribution in her 2012 and 2013 tax return, that indicated the acceptance of the distribution by positive conduct. In the absence of evidence from Mrs Erdogan explaining why the distributions were disclosed in her tax return, and why she did nothing for 7 months after the returns were lodged and then made the disclaimer, the Tribunal found that Mr and Mrs Erdogan had not shown that the assessments were excessive.

The Tribunal also rejected the submission that Mrs Erdogan could rely on the ‘safe harbour’ provisions in the TAA as it was not satisfied that Mrs Erdogan gave to her tax agent all relevant taxation information since it was obvious that her accountant was not aware of the true nature of the arrangement between Sunraysia and the three companies.

Citation Sunraysia Harvesting Contractors Pty Ltd as trustee of the Sunraysia Harvesting Contractors Trust and Commissioner of Taxation [2015] AATA 764 (Hack DP, Brisbane)

w     http://www.austlii.edu.au/au/cases/cth/AATA/2015/764.html

2       Legislation

2.1            Progress of legislation

Title	Introduced House	Passed House	Introduced Senate	Passed Senate	Assented
Superannuation Legislation Amendment (Trustee Governance) 2015	16/9
Tax and Superannuation Laws Amendment (2015 Measures No 2) 2015	24/6	19/8	19/8	7/9	16/9
Tax and Superannuation Laws Amendment (2015 Measures No 3) 2015	27/5	17/6	18/6
Tax and Superannuation Laws Amendment (2015 Measures No 4) 2015	20/8	14/8	14/9	16/9
Tax and Superannuation Laws Amendment (Better Targeting the Income Tax Transparency Laws) 2015	20/8	14/9	15/9
Tax Laws Amendment (Combating Multinational Tax Avoidance) 2015	16/9
Tax Laws Amendment (Tax Transparency) 2014	24/11

1. Superannuation – Trustee Governance

A Bill was introduced in September 2015 to require corporate trustees of registrable superannuation entities to have at least one-third of their directors be independent directors and for the Chair to be one of those independent directors.

This requirement will replace the requirement in place for there to be equal representation of employer and member representatives on the boards of standard employer-sponsored funds with five or more members. The Bill provides for a 3-year transition period from the date or Royal Assent.

w http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome% 2Fr5548%22

2.3            Treasury draft legislation – Spring Repeal Day

On 28 August 2015 Treasury released a draft bill Treasury Legislation Amendment (Spring Repeal Day) Bill 2015. The draft bill’s main practical impact will be the proposal that from 1 July 2016 a newly incorporated company will not be issued with an ACN by ASIC and instead that it will be issued with an ABN. This means that ASIC will only be able to register a company if an application for registration in the ABR has been lodged and the Registrar has allocated an ABN to the company. A company registered before 1 July 2016 will still be able to use its ACN.

The bill also proposes that in a situation where no-TFN withholding might otherwise apply, quoting an ABN will satisfy the requirement to provide a TFN.

Consultation closed in relation to these measures on 28 September 2015.

w        http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2015/Treasury-Legislation- Amendment-Bill-2015

3       Determinations

3.1            Sale of commercial premises subject to lease

The ATO released an addendum to their GSTD 2012/2 on the GST consequences of the sale of premises subject of a leas to include what was previously in ATO ID 2013/30 dealtin with pre-paid rent.

The ATO view is that where a landlord receives pre-paid rent, they are liable for GST on the full amount received even if the rent that relates to the period after sale is adjusted against the sale price.

The example from the GSTD is as follows:

Example 2 - Sale of leased commercial premises where rent has been pre-paid

Bench Pty Ltd accounts for GST on a non-cash basis and has leased an office block to Press Pty Ltd for a monthly GST inclusive rent of $110,000. Bench will sell the office block to Squat Ltd with the lease in place. Settlement will occur on 16 April. The sale contract lets Bench keep any rent paid before settlement, but requires a purchase price reduction to reflect the GST exclusive amount of any prepaid rent Bench receives that relates to the days in the month following settlement.

On 1 April, Bench invoices Press for $110,000, which it pays in full on the same day. Bench is liable for GST of $10,000 on this prepaid rent. The purchase price is reduced by $50,000 at settlement for the prepaid rent Bench has received that relates to the days in the month following the sale (that is, a

$50,000 adjustment for 16 to 30 April).

The ATO considers that the purchase price decrease is a decrease in the consideration paid for the premises, and not a payment to the new landlord for renting the premises to the tenant.

Reference GSTD 2012/2A1 w

http://law.ato.gov.au/atolaw/view.htm?docid=%22GSD%2FGSTD20122A1%2FNAT%2FATO%2F00001

%22

3.2            Division 7A – lodgement day for private company that is a member of consolidated group

The ATO released a final determination in September, TD 2015/18 confirming that their view is that the lodgement day for Division 7A purposes for a company that is part of a tax consolidated group is the due date for lodgement of the head entity’s tax return.

The TD is necessary because without it, there would be no public ATO view opposing the alternative view, that because a company member of a tax consolidated group is not required to lodge a return there is no lodgement day for the company so that Division 7A might not operate as expected.

Under Division 7A it is necessary for loans to be repaid or brought under a complying loan agreement by the company’s lodgement time, being the earlier of the time of lodgement and the due date for lodgement of the company’s tax return. As a subsidiary member of a tax consolidated group does not lodge returns the argument could be made that you have until it actually lodges a return for the year (which it is not required to do) to repay a Division 7A loan and therefore avoid there being a deemed dividend.

The ATO include the following examples in the TD:

Example 1

On 1 July 2012, Head Co Pty Ltd (HCo) formed a consolidated group, of which Sub Co Pty Ltd (SCo) is a subsidiary member. The due date for lodgment by HCo of the consolidated income tax return was 15 January 2014. HCo was diligent and lodged the consolidated income tax return on 31 October 2013.

On 1 May 2013, SCo lent $5,000 to Alfred. The loan was not made under a written agreement and was not repaid by 31 October 2013 and no other exception or exclusion to section 109D applied. At all relevant times, Alfred was a shareholder in HCo and, therefore, an associate of a shareholder of SCo.

The lodgment day for SCo, for the purposes of subsection 109D(6), is the date of lodgment of the consolidated income tax return of HCo (31 October). Therefore, SCo is taken under subsection 109D(1) to have paid a dividend of $5,000 to Alfred at the end of the 2012-13 income year.

Example 2

Assume the same facts as in Example 1. However SCo left the consolidated group on 1 June 2013.

The lodgment day for the purposes of subsection 109D(6), is the earlier of the due date for lodgment or the actual date of lodgment of the income tax return of SCo. This is because SCo has left the consolidated group and now has to meet its own lodgment obligations.

Reference TD 2015/18

w        http://ato.gov.au/law/view/document?DocID=TXD/TD201518/NAT/ATO/00001&PiT=99991231235958

4       Interpretative decisions

4.1            Fitness class not exempt Background

An employer’s business premises include a large room which contains fitness equipment and a carpeted open space.

The employer enters into an agreement with a fitness instructor to run a weekly fitness class for employees.

As part of the class the fitness equipement is used.

Issue

Is the benefit provided to employees an exempt benefit?

Decision and reasons

No, the benefit is not exempt.

Under subsection 47(2) of the FBTAA a residual fringe benefit that consists of the provision or use of a recreational facility located on the business premises of an employer (or if the employer is a company, a company that is related to the employer) will be an exempt fringe benefit.

The definition of recreational facility is ‘a facility for recreation, but does not include a facility for accommodation or a facility for drinking or dining.’

The ATO accepts that the room containing the equipment is a recreational facility.

The ATO consider however that the benefit that is being provided to an employee in the above factual scenario is not the benefit of the facilities, but the benefit of the class, so that the benefit is taxable and not exempt.

Reference ATO ID 2015/25

w       http://ato.gov.au/law/view/document?DocID=AID/AID201525/00001&PiT=99991231235958

1. ATO materials

5.1            Employee share scheme – timing of valuation of discount

The ATO have accepted the decision in Davies v Commissioner of Taxation [2015] FCA 773 as meaning that when rights or shares are agreed to be issued subject to shareholder approval that this means that the time that the rights or shares need to be valued is the time of the agreement, and not the time of shareholder approval.

This view only applies to conditional agreements to offer rights or shares on or after 1 July 2009 when the current employee share scheme rules came into effect.

Example

Tom is granted shares in X Co Ltd for no consideration, subject to shareholder approval. The grant occurs on 15 July 2015. The shareholders do not approve the grant until a general meeting is held on 1

October 2015. The time that Tom needs to value the shares to determine how much is included in his assessable income (and therefore what will go onto an employee share scheme statement) is 15 July 2015.

Decision Impact Statement: Davies v Commissioner of Taxation [2015] FCA 773

w        http://law.ato.gov.au/atolaw/view.htm?docid=%22LIT%2FICD%2FNSD696of2014%2F00001%22

5.2            Valuations for tax purposes

The ATO released guidance in September 2015 setting out their practice in relation to people who have relied on a valuation by a qualified valuer or equivalent professional where that valuation ultimately  proves to be ‘deficient’. The ATO say that where someone has relied in good faith on advice is consistent with taking reasonable care so that no penalties would be applied even if the valuation is ultimately not agreed with by the ATO.

The ATO will however look to impose penalties in cases where:

• You have not given the valuer correct information;
• You or your tax agent should reasonably have know that the valuation was incorrect; or
• The methodology or valuation hypothesis is based on an unsettled interpretation of a tax provision or unclear facts.

The ATO then give examples of valuations for margin scheme and market value substitution. For margin scheme the ATO give an example where a valuation is commissioned, but the valuation does not comply with the provisions of the GST Act. In such a case the ATO say they would not seek to impose penalties. Their example of market value substitution is:

Example

Helen Green obtains a valuation from Tom Green & Associates (Real Estate Agents) for her property. Tom Green is Helen’s husband. Tom Green & Associates value Helen’s property at $1,800,000.

Helen sells the property for $1,800,000 to a related party, Property Trading Pty Ltd. Tom Green is the director and major shareholder.

On transfer, the State Revenue Office determines the market value of the property to be $2,300,000 and assesses stamp duty payable accordingly. Property Trading Pty Ltd does not seek review of the assessment for the additional stamp duty.

Helen’s tax agent, when told about the additional stamp duty, pointed out to her that income tax is levied based on the market value of assets transferred to related parties, not necessarily the contract price. Helen instructs her tax agent to complete her income tax return based on the $1,800,000 valuation, as she has the valuation.

Helen knows that the property is undervalued, and that the gain on disposal is understated by $500,000. A penalty for making a false or misleading statement and intentionally disregarding is applicable.

COMMENT – the ATO do not address the point, but it is to be hoped that the penalties in the above case result from a low valuation from a related party, rather than their being a different view on value than that taken by the OSR. In the above example Helen’s tax agent is correct, and it is possible that the market value was $1,800,000 and in the case of market value substitution it is the market value and not the sale price that is important.

w       https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Penalties-and-valuations/

5.3            ATO help for NFP administrators

The ATO has released three products aimed to assist administrators of not-for-profit (‘NFP’) organisations with the tax administration of their organisation. The products include:

• Induction package:
  • The package lists the information and services available to administrators and includes an overview of NFP tax issues and links to the ATO website.
• Handover Checklist:
  • The checklist is designed to ensure that an incoming administrator is briefed on matters which relate to the NFP’s tax registrations with the ATO, the legal structure of the NFP, the tax concessions to which the NFP is entitled to, the workers an NFP  has and the tax obligations with respect to these, details of reporting and paying tax,

details of record-keeping and the document includes supplementary information.

• Self-governance checklist:
  • The checklist will assist administrators to undertake a risk review of the organisation’s status as an NFP organisation and provide a self-check on how well the organisation understands it tax and super obligations.

COMMENT – despite being aimed at not-for-profits, the handover checklist, barring the section on tax concession entitlements, would be useful for other entity types when there is a change of internal management of the finance function.

w        https://www.ato.gov.au/Non-profit/Non-profit-News-Service/In-detail/Articles--2015-16/Non-Profit-News- Service-No--0433---help-for-NFP-administrators/