Liability limited by a scheme approved under Professional Standards Legislation
1.1 Alderton – trust beneficiary assessable despite disclaimer Facts
In 2000, eighteen-year-old Ms Alderton commenced a relationship with Mr Trapperton, a medical professional who was twenty-five years her senior.
Throughout the relationship, Ms Alderton was entirely dependent on Mr Trapperton for financial support. Initially, Mr Trapperton had provided this support to Ms Alderton by transferring money from his bank account to Ms Alderton's bank account.
In 2006, these arrangements changed. Mr Trapperton set up the Vo Vo Discretionary Trust with himself as trustee and with he and Ms Alderton named as the beneficiaries. A trust bank account was set up in Mr Trapperton's name in his capacity as trustee of the trust.
Ms Alderton was provided with a debit card in the name of the trust and was able to access funds in the account and via internet banking but was otherwise not involved in any of the Trust's affairs.
In May 2010, shortly after the relationship ended, the Trust lodged a tax return disclosing net income of
$79,880 for the 2009 income year indicating that this amount was distributed to Ms Alderton.
In June 2014, the Commissioner made a default assessment of Ms Alderton's income for the 2009 income year. The trust distribution of $79,880 comprised the major component of the default assessment, and without it, Ms Alderton's taxable income would have been well below the tax-free threshold. In addition to this, the Commissioner assessed Ms Alderton for an administrative penalty for failure to lodge a return at a rate of 75% of the assessed tax liability.
In November 2014, Ms Alderton attempted to disclaim her interest in the Trust. A letter from Ms Alderton's solicitors to Mr Trapperton as Trustee stated:
…our client disputes the lawfulness of any distribution by you to our client via the Trust. Our client also herewith immediately disclaims the entirety of any interest accrued by her in the past or which may accrue in the future in the income or corpus of the trust fund. So as to be clear, this disclaimer is to take effect from the date of settlement of the trust.
In January 2015, Ms Alderton's solicitors made an objection to the default assessment (but not the penalty assessment). The Commissioner disallowed the objection on 10 March 2015.
Ms Alderton sought a review of the objection decision at the AAT.
Issue
Was Ms Alderton presently entitled to the $79,880 despite having no knowledge of the Trust's affairs? If so, was Ms Alderton's disclaimer effective?
Decision
The Tribunal found that the facts, whilst unusual, established that Ms Alderton was presently entitled to the net income of the Trust shown by the Trust's return to have been distributed to her (i.e. $79,880).
Ms Alderton was named as one of two beneficiaries of the Trust. Under the Trust Deed, the Trustee was empowered to distribute the income of the trust or accumulate it. The Trustee could make a determination to distribute income by documenting the determination in writing and signing it or simply by paying cash to or for the benefit of the beneficiary. The Trust's bank statements demonstrated that amounts in excess of $80,000 had been transferred into the Trust's bank account to which Ms Alderton had access and that she withdrew those amounts.
As a beneficiary with an interest in the income which was both vested in interest and vested in possession, Ms Alderton was presently entitled to a share of the income of the trust estate.
The Tribunal noted that its finding could not be altered by Ms Alderton's lack of knowledge concerning the Trust's affairs. Whilst the Tribunal accepted that Ms Alderton knew nothing of the Trust's financial affairs or dealings beyond using a debit card in the Trust's name to access funds provided by the Trustee, it made reference to the proposition established in Commissioner of Taxation v Vegners (1989) 20 ATR 1645:
Until disclaimer, a beneficiary's entitlement to income under a trust is operative for the purpose of s97 of ITAA 1936 from the moment it arises notwithstanding that the beneficiary has no knowledge of it.
The Tribunal also found that Ms Alderton's attempt to disclaim the interest was not effective. The Tribunal noted, citing Federal Commissioner of Taxation v Ramsden [2005] FCAFC 39 as authority for the proposition, that to be effective, a disclaimer must constitute an absolute rejection of the gift. Ms Alderton could not reject the gift because, having accepted the benefit of it, it could no longer be disclaimed. Ms Alderton had the use and benefit of the distribution.
TIP – for a disclaimer to be effective it needs to be made within a reasonable amount of time after becoming aware of a distribution, and it will not be effective if the beneficiary has already taken the benefit of the distribution.
Citation Alderton v Commissioner of Taxation [2015] AATA 807 FCA 973 (Prof Hack SC DP, Brisbane ) w http://www.austlii.edu.au/au/cases/cth/AATA/2015/807.html
1.2 Roche – director penalty notices Facts
Mr Roche was a director of Fuel Tank & Pipe Pty Ltd (FTP) from its incorporation in September 2006 until it was put into administration on 23 August 2013.
Between 1 June 2011 and 28 February 2013 FTP failed to pay the ATO amounts of PAYGW totalling
$3,454,437, and this was discovered between April 2013 and July 2013 when its business activity statements were filed late.
On 2 August 2013, the ATO gave Mr Roche a Director Penalty Notice DPN. The penalty notice required him to pay a penalty equal in amount to the amount of PAYGW the company had not remitted to the ATO.
Having received the notice Mr Roche caused the company to be put into administration.
The ATO sought summary judgement against Mr Roche to recover the penalty amount recorded on the DPN in the Supreme Court of Western Australia and Mr Roche advanced two defences to the ATO's claim.
Mr Roche's first defence was that he took all reasonable steps (within the meaning of section 269-35 of Schedule 1 to the TAA1953) to ensure that the directors caused FTP to comply with its obligations to remit the tax to the Commissioner on time and he was therefore not liable to a penalty.
Section 269-35(2) provides that a director is not liable to penalty if:
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- the directors caused the company to comply with its obligations; or
- the directors caused an administrator to be appointed; or
- the directors caused the company to begin to be wound up, or
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Mr Roche's affidavit noted that as he had attended university from 2011, he did not attend FTP's premises or to FTP's affairs on a 'day to day' basis but he did have regular discussions with his father and FTP's financial controller about the company's affairs. He stated his recollection of being shown cash flow projections and stated that these seemed to indicate that FTP would earn enough money to pay all of its liabilities.
In 2013, FTP's financial controller had told him of FTP's cost overruns and required an equity injection to meet these. The affidavit of Mr Roche senior noted that an agreement had been reached in early 2013 with a 3rd party to purchase FTP shares in 2013 but this was no longer to proceed by mid-2013.
In the Supreme Court the master found Mr Roche's evidence so lacking in detail that it provided no evidence to suggest Mr Roche had taken any steps to cause FTP to meet its obligations. The evidence did not suggest that Mr Roche lacked access to FTP's books or that Mr Roche was misled as to FTP's state of affairs.
Mr Roche's second defence related to the automatic remission of penalties to which he became liable prior to 30 June 2012 (i.e. $1,166,069 of the total $3,454,437).
Before 30 June 2012, section 269-30 provided for an automatic remission of penalties if an administrator was appointed within 21 days of the service of the DPN.
However, section 269-30 was amended (effective 30 June 2012) so that in order to obtain a remission of penalties, a director had to
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Mr Roche's argued that the amendment was not intended to apply to PAYGW not remitted for periods before 29 June 2012. The master also rejected this argument.
Mr Roche appealed to the Supreme Court of Western Australia's Court of Appeal.
Issue
There were two issues:
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Decision
"Reasonable steps" defence
Mr Roche did not take reasonable steps to ensure that one of the three events in section 269-35(2)(a) occurred.
To establish a defence under section 269-35(2), Mr Roche was required to prove that from the time he came under the obligation in section 269-15, he took all reasonable steps to ensure that one of the section 269-35(2)(a) events occurred or that there were no reasonable steps that he could have taken to ensure that any of those events happened.
The cash flow projections, which Mr Roche stated he had relied upon as an indicator that FTP would earn enough money to pay all of its liabilities, could not have enabled a person to establish whether FTP was in fact meeting its obligations to the Commissioner.
Mr Roche was required to ascertain what FTP's duties in relation to tax instalments deducted from employees’ wages were and to ensure that some system was in place to ensure compliance. There was no evidence Mr Roche even ever turned his mind to the matter.
There was no evidence that Mr Roche ever took any steps to satisfy himself there was a system or process in place to ensure that FTP's obligations to the Commissioner were complied with. There was nothing to suggest that the he ever turned his mind to the matter.
Mr Roche did not suggest that he had been misled or inadequately informed by the financial controller with respect to FTP's outstanding liabilities and if he was adequately informed, he would have been aware that for a period of eighteen months, FTP was continuously failing to meet its obligations.
Application of section 269-30 defence
The relevant question is whether the directors stopped being under the relevant obligation under section 269-15 on or after 30 June 2012 (i.e. it was not correct to focus on when the directors became liable for the penalty on or after 30 June 2012).
A director stops being under section 269-15 if one of the three section 269-15(2)(a) events occurs (i.e. the tax is paid or an administrator is appointed to the company or the company begins to be wound up). As Mr Roche did not stop being under the obligation until 23 August 2013 (i.e. when an administrator was appointed), the amendment still applied to penalties for which Mr Roche became liable prior to 30 June 2012.
TRAP – non-executive directors should be wary that if they are served with a DPN and want to attempt to establish that reasonable steps have been taken make sure PAYGW amounts have been remitted. They will need to establish that they have specifically turned their mind to how the company would meet its particular debts to the ATO (i.e. projected cash flows would not be enough, a failure to ascertain that there was a system in place to ensure obligations are met would be detrimental, and failure to follow up and continuously monitor the situation will also be detrimental).
Citation Roche v Deputy Commissioner of Taxation [2015] WASCA 196 (Buss JA, Newnes JA, Murphy JA, Perth)
w http://www.austlii.edu.au/au/cases/wa/W ASCA/2015/196.html
1.3 Amies – departure authorisation certificate granted Facts
In February 2015, Ms Amies received amended assessments for the 2003 to 2007 income tax years. With penalties and general interest charge, Ms Amies owed the Commonwealth an amount in excess of
$3 million and proceedings were commenced by the Commissioner in the Supreme Court of Queensland to recover the outstanding debt.
It was contended that Ms Amies had been involved with a cross-jurisdictional network of companies and trusts located in tax havens to disguise her interests in funds obtained from the mortgage or sale of real property and that these funds were invested in Australian financial assets which yielded taxable income. Ms Amies objected to the assessments but the objections were disallowed and she commenced proceedings in the AAT to have the AAT review the Commissioner's objection decisions. A hearing is listed for February and March 2016.
The Commissioner made a decision on or around 1 June 2015, to make and serve on Ms Amies a departure prohibition order, under section 14S of the TAA1953, prohibiting Ms Amies from departing Australia for a foreign country. Her solicitors requested the Commissioner to issue a departure
authorisation certificate to allow her to attend a close friend's wedding in Italy but this was refused on 4 September 2015. Ms Amies sought a review of the 4 September 2015 decision.
Under section 14S(1), the Commissioner can make a departure prohibition order against a person where the person is subject to a tax liability and where:
- the Commissioner believes on reasonable grounds that it is desirable to do so for the purpose of ensuring that the person does not depart from Australia for a foreign country without:
- wholly discharging the tax liability; or
- making arrangements satisfactory to the Commissioner for the tax liability to be wholly discharged;
An application may be made to the Commissioner to revoke the order or to a court to set it aside, and the Commissioner must revoke the order when satisfied that existing and known future liabilities have been or will be wholly discharged or completely irrecoverable. Otherwise the Commissioner has a wide discretion to revoke or vary a prohibition order, which without doing so, the order remains in force.
Under section 14U, the Commissioner can issue a certificate authorising the person's departure from Australia where the Commissioner is satisfied that it is likely that:
(A) the person will depart from Australia and will return to Australia within such period as the Commissioner considers to be appropriate in relation to the person; and
…
- the person has given security under subsection (2) to the satisfaction of the Commissioner for the person’s return to Australia; or
- if the person is unable to give such security, the Commissioner is satisfied that:
- a departure authorization certificate should be issued in respect of the person on humanitarian grounds; or
- a refusal to issue a departure authorization certificate in respect of the person would be detrimental to the interests of Australia;
In connection with the recovery proceedings commenced by the Commissioner against Ms Amies in the Supreme Court of Queensland, on 16 July 2015, a judge of that Court made interim freezing orders preventing Ms Amies from dealing with or disposing of assets in Australia or overseas. Ms Amies indicated willingness to the extension of that order until after the hearing and determination of substantive proceedings in the Tribunal. Ms Amies had sworn the required affidavit of a list of all assets, giving their value, location and encumbrances, and the extent of her interest in them. There had also been extensive negotiations between the parties.
Issue
Should the Commissioner have made the decision not to issue a departure authorisation certificate?
Decision
The Tribunal considered the circumstances under which a person subject to a departure prohibition order may be authorised to leave Australia, and counsel for Ms Amies focused on sections 14U(1)(b)(i) and 14U(1)(b)(ii) above.
The Tribunal first turned to the question under s14U(1)(b)(i) of whether Ms Amies had given or was able to give security to the satisfaction of the Tribunal, standing in the shoes of the Commissioner, for her return to Australia. The Commissioner had previously requested security for the whole of the tax in dispute, but the Tribunal found that to be unrealistic. Rather, it was stated that what is required is security for Ms Amies return to Australia, as is accepted in PSLA 2011/18 at paragraph 157. DP Hack stated that
it is a consideration of great signification to have regard to evidence that deals with the likelihood of Ms Amies' returning in accordance with the terms of any departure authorisation certificate.
Hack regarded the risk that Ms Amies may not return to Australia as very slight, as evidence demonstrated her considerable family and emotional ties in Brisbane as well as a new business and considerable real property. Ms Amies has no family ties overseas and a failure or refusal to return would cause Ms Amies considerable prejudice in proceedings at the Supreme Court and the Tribunal. She had "everything to lose and nothing to gain" by not returning to Australia.
Part IVC proceedings were also on foot in the Tribunal, to which DP Hack was only able to say that Ms Amies advanced a case that is apparently arguable, as a Statement of Facts, Issues and Contentions had not yet been filed. Ms Amies is the registered proprietor of two properties in South Brisbane, and in one she has equity in excess of $330,000. Though the claimed debt is $3.2 million, Hack is satisfied that it is highly unlikely that Ms Amies would fail to return and proposed that Ms Amies be required to give security in the amount of $200,000, by way of bank deposit, bank guarantee or mortgage in registrable form over the properties at North Quay and Noosaville.
In the event she is unable to give security in the form proposed, Ms Amies argued that a departure authorisation certificate should be issued on humanitarian grounds. Hack did not believe that her circumstances intuitively would constitute humanitarian grounds, and in the event Ms Amies was not able to give security on the terms proposed by Hack, he would not have been satisfied with a departure certificate being issued on humanitarian grounds.
The departure authorisation certificate was also be conditional upon Ms Amies giving an unqualified consent to the freezing order of 16 July 2015 remaining in force until the hearing and determination of the Part IVC proceedings in the Tribunal.
COMMENT – the Commissioner is able to make and serve departure prohibition orders where a taxpayer has a tax liability that has not been wholly discharged. The Commissioner has the discretion to revoke it or set it aside, and has a wide discretion to do so. Where a taxpayer is seeking to obtain a departure authorisation certificate, it must be demonstrated that the defaulting taxpayer can provide sufficient security for the taxpayer's return to Australia, and should be supported by there being sufficient incentive to return. It is not necessary for security to be provided for the whole debt.
Citation Amies and Commissioner of Taxation (Taxation) [2015] AATA 777 (Prof Hack SC DP, Brisbane) w http://www.austlii.edu.au/au/cases/cth/AATA/2015/777.html
1.4 Millar – sham loan transaction Facts
The AAT decision in this case, reported as Morrison, was covered in our March 2015 training notes.
Mr and Mrs Millar wanted to buy an apartment in Queensland. To finance the purchase they borrowed
$600,000.00 from St George Bank but required a further funding in the amount of $600,000.00.
They sought advice from their trusted long-term accountant and financial advisor, Mr Vanda Gould. Mr Gould advised that they could borrow $600,000.00 from a Samoan Bank, Hua Wang Bank Berhad and at a lower interest rate than the Australian banks on the condition that they deposit an equivalent amount of
$600,000.00 with the bank. Significantly, Mr Gould advised the taxpayers that they could use money from their Australian superannuation fund to make the deposit. In addition, he advised that the Millars would not need to provide any security in respect of the loan from the banks but they would need to provide a personal guarantee to secure the loan.
On October 2000, $600,000.00 was transferred from the Millars’ Australian superannuation fund to the bank.
On 14 October 2000, the bank transferred $600,000.00 to the trust account of the solicitors who were acting for the Millars on the property purchase.
Although there was a loan facility agreement in place with an effective date of 1 July 2000, as at the date of the hearing in the AAT, the Millars had not paid any interest on the loan and all of the unpaid interest had been capitalised over the life of the loan. In addition, on 1 July 2005 (shortly before the repayment date of the loan) the bank offered to roll-over the loan and increase the facility amount to $1,000,000.00 with this new loan repayable on 30 June 2010. The Millars accepted this offer.
The taxpayers had no direct contact with the bank and all communication was through Mr Gould. Further, the bank was authorized to deal only with clients of Mr Gould.
The ATO had treated the loan arrangements as a sham, treating the arrangement as one where the Millars improperly accessed their superannuation moneys. The amount accessed of $600,000 was attributed 50/50 to Mr and Mrs Millar and taxable to them under former section 26AFB of ITAA1936 (similar provisions still exist).
The AAT upheld the ATO view that the loan arrangement was a sham and that the documents disguised the truth of the matter, which was that the Millars had impermissibly accessed their Australian superannuation fund moneys.
Notwithstanding that the Millars may have not been aware at the time that the arrangement was in fact a sham, the AAT held that:
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The MIllars appealed the AAT decision in the Federal Court.
Issue
Whether the loan transaction was a genuine loan arrangement between the Millars and the bank or whether it was a sham by which the taxpayers could impermissibly access their Australian superannuation fund.
Decision
In the Federal Court the Millars argued that the determination whether a transaction or a document is a sham is an inquiry into the subjective intentions of the people who were parties to the transaction or document. The taxpayers argued that they believed they were entering into a normal borrowing arrangement and accordingly that the Loan Agreement was legally binding and they should not be affected by the subjective intentions of Mr Gould.
The Federal Court dismissed the taxpayers' appeal and held that:
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COMMENT – as part of their appeal the Millars also argued that they had been denied procedural fairness as the rule in Browne v Dunn was not applied. The AAT did not accept the evidence of Mr and Mrs Millar that the loan must have been a real loan because some of it was repaid. This was not
however something put to them by way of cross examination. The Court held that the rule is inapplicable in the AAT, as the rule is one of evidence, and the rules of evidence do not apply in the AAT.
Citation Millar v FCT [2015] FCA 1104 (Griffiths J, Sydney)
w http://www.austlii.edu.au/au/cases/cth/FCA/2015/1104.html
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Title |
Introduced House |
Passed House |
Introduced Senate |
Passed Senate |
Assented |
|
Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) 2015 |
21/10 |
||||
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Superannuation Legislation Amendment (Trustee Governance) 2015 |
16/9 |
20/10 |
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Tax and Superannuation Laws Amendment (2015 Measures No 3) 2015 |
27/5 |
17/6 |
18/6 |
||
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Tax and Superannuation Laws Amendment (2015 Measures No 4) 2015 |
20/8 |
14/9 |
14/9 |
16/9 |
13/10 |
|
Tax and Superannuation Laws Amendment (2015 Measures No 5) 2015 |
15/10 |
||||
|
Tax and Superannuation Laws Amendment (Better Targeting the Income Tax Transparency Laws) 2015 |
20/8 |
14/9 |
15/9 |
15/10 |
|
|
Tax Laws Amendment (Combating Multinational Tax Avoidance) 2015 |
16/9 |
19/10 |
|||
|
Tax Laws Amendment (Tax Transparency) 2014 |
24/11 |
The Tax and Superannuation Laws Amendment (2015 Measures No 4) 2015 Bill was introduced into Parliament on 15 October 2015. The Bill includes the previously announced measures to:
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Reference http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome% 2Fr5536%22
2.3 Restructuring Family Tax Benefit payments - amending Bill introduced
A Bill was introduced in October 2015 to restructure Family Tax Benefit Part A and Part B payments. The main measures are:
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- for families with a youngest child aged under one, the standard rate will increase by
$1,000.10 per year;
- for single parent families with a youngest child aged 13 to 16, the rate will be reduced from $2,737.50 to $1,000.10. The $1,000.10 will be extended to couple grandparents caring for a youngest child in this age range;
- for couple families (excluding grandparents) the Family Tax Benefit Part B will be removed.
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- the fortnightly rates for Family Tax Benefit Part A will be increased by $10.08 for each FTB child in the family up to age 19;
- youth allowance and disability support pension recipients who are living at home and are aged under 18 will have their rate increased by $10.44 per fortnight;
The Family Tax Benefit Part A and the Family Tax Benefit Part B supplements will be phased out, with reductions on 1 July 2016 and 1 July 2017, and with the supplements being withdrawn from 1 July 2018.
w http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome% 2Fr5557%22
2.4 GST- Margin Scheme Valuation Requirements
In September 2015 the ATO made a legislative instrument concerning an ongoing ability to use the ‘cost to complete’ method for determining market value as at 1 July 2000, but only in relation to supplies of property contracted prior to 1 July 2005.
Under Division 75 of the GST Act, the margin scheme may be applied to work out the GST on certain supplies of real property.
GST under the margin scheme is 1/11th of the 'margin' for the supply. However, in some circumstances the margin for the supply is the amount by which the consideration for the supply exceeds a valuation of the relevant freehold interest, stratum unit or long-term lease at the valuation date (commonly 1 July 2000).
The valuation must comply with any requirements determined in writing by the Commissioner for making valuations and this Legislative Instrument specifies further requirements for making valuations under paragraph 75-10(3)(b) of the GST Act.
The Legislative Instrument extends the use of the cost of completion valuation method contained in A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination (No.2) 2000 in circumstances where supplier entered into the contract before 1 July 2005, but the supply under the contract did not occur until after 1 July 2005.
The determination extends the availability of the costs completion method to supplies made after 1 July 2005 where:
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- the supplier would have been able to use the costs of completion method in accordance with the A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination (No.2) but for the supply being made after 1 July 2005.
TIP – a common mistake made by property vendors who are one-off developers is to not choose to apply the margin scheme on the sale of a property (usually because they are not registered). The ATO do have the power to allow a late margin scheme agreement to be entered into – see PSLA 2005/15 and
https://www.ato.gov.au/General/Property/In-detail/GST/GST-and-the-margin- scheme/?page=18#Deciding_when_to_use_the_margin_scheme_and_the_written_agreement
Reference Legislative instrument GST: Margin Scheme Valuation Requirements Determination MSV (No 53) 2015
w https://www.comlaw.gov.au/Details/F2015L01584
3.1 Administrative penalties- voluntary disclosures
On 14 October 2015 the ATO released an addendum to Miscellaneous Taxation Ruling MT 2012/3 “Administrative penalties: voluntary disclosures”.
The addendum amends the ruling to provide further clarification and guidance, including:
- whether Annual Compliance Arrangements and Advance Pricing Arrangements are “examinations of an entity’s affairs”;
- whether an entity will be taken to have been told that an audit is to be conducted where there is a delay between a risk review being finalised and notification of an audit; and
- to provide another example of when the Commissioner will generally exercise the discretion in s 284-225(5) of Schedule 1 to the Taxation Administration Act 1953.
In relation to point 2 above, the MT Ruling 2012/3 now provides that if a voluntary disclosure is made after the Commissioner has notified the entity that the examination has been completed, the examination will cease to be relevant for the purposes of section 284-225 of Schedule 1 of the TAA1953 and the entity will be taken to have made the disclosure before the notification of a relevant examination. Examples include a voluntary disclosure made after the completion of audit or after completion of a risk review but before notification of a resulting audit (however generally the Commissioner will commence an audit immediately on closure of a risk review and advise the taxpayer this is occurring).
Example 4 of the Ruling provides that if a taxpayer is notified that a risk review is to be undertaken and then that risk review is completed and the taxpayer makes a voluntary disclosure before receiving a notice of a resulting audit, then the disclosure is regarded as having been made before the notification of a relevant examination and will therefore be considered as giving rise to an 80% reduction under subsection 284-225(2).
Whether a communication amounts to a notice of examination or audit requires that it be clear on the face of the communication that an examination is to be conducted in respect of the entity's affairs. An entity will not have been told that an examination is to be conducted if the Commissioner's actions create no more than a suspicion that such an examination is to be conducted. The use of the word 'examination' is not necessary, terms such as 'under review', 'under audit' or 'checking this information' would suffice. The new Example 6A in the Ruling provides that a communication which states that a risk review has been completed and that the taxpayer will be advised in due course if they are selected for an audit creates no more than a suspicion that an audit may be conducted and is insufficient for the taxpayer to be taken to have been told that an audit is to be conducted for the purposes of section 284-225.
The addendum inserts a new paragraph 104A which provides that an entity must have made a false and misleading statement and/or have a shortfall in order to make a voluntary disclosure about it under section 285-225. Accordingly, a voluntary disclosure cannot be made before the relevant statement is made or before the relevant scheme is entered into or carried out.
TIP – before the ATO commence a review or audit it is always worth considering whether to make a voluntary disclosure. Note that a voluntary disclosure does not need to admit liability, it need only bring a matter to the ATO’s attention – see paragraph 108 of MT 2012/3.
Reference Addendum to MT 2012/3
w
https://www.ato.gov.au/law/view/view.htm?docid=%22MXR%2FMT20123A3%2FNAT%2FATO%2F00001
4.1 Destination outside the indirect tax zone
The ATO has released a determination which applies both before and after its 7 October 2015 date of issue. However the determination will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute which was agreed to before the date of issue of this determination.
Under subsection 38-355(1) of the GST Act certain supplies of transport are GST free. In particular, under item 1(a) transport from or to a destination outside the indirect tax zone is GST free.
The ATO consider that a destination outside the indirect tax zone refers to a specific physical location outside the indirect tax zone that is stopped at by a ship, where this location is objectively significant to the passenger when the transport is purchased having regard to all the facts and circumstances.
The ATO view is that a passenger doesn’t have to participate in any particular activities at the specific physical location for it to be a passenger's destination outside the indirect tax zone, and the location can be objectively significant to the passenger where:
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If the transport of a passenger includes within its itinerary a stop that is a destination outside the indirect tax zone, but then circumstances prevent the ship going to the location, its status as such is not denied. The following are examples from the GSTD:
Example 1 – Cruise to an island outside the indirect tax zone – destination outside the indirect tax zone Vincent books a cruise from Sydney to a Coral Sea Island (an External Territory) that offers a view of the island’s exclusive bird life. The island is a specific physical location that is stopped at by the ship to provide Vincent with an opportunity to bird watch from the ship. Vincent is transported from Sydney to a ‘destination outside the indirect tax zone’ for the purposes of item 1(a). On the return journey from the island, Vincent has come ‘from’ a place outside the indirect tax zone for the purposes of item 1(b).
Vincent’s friend, Deanna, who purchased her ticket merely to enjoy the ship’s on-board facilities, similarly satisfies the requirements of item 1(a) and item 1(b) because Deanna agrees to be transported to the location.
However the mere fact that a ship passes by or travels through a region outside the indirect tax zone is not sufficient to establish that the transport of a passenger is to a destination outside the indirect tax zone.
Example 3 – Cruise through international waters – no destination outside the indirect tax zone Hannah books a 3 night cruise that is marketed as an opportunity for passengers to view whales. The ship may travel to a number of areas endeavouring to ‘follow the whales’ wherever they happen to be. The location of the whales is not known at the time of planning the cruise and at the time the cruise is booked. Once found, the ship may occasionally stop at sea for the passengers to see the whales.
Hannah boards the cruise in Sydney and disembarks the ship when it returns to Sydney. Hannah has not been transported to a ‘destination outside the indirect tax zone’ for the purposes of item 1(a). Hannah’s destination is Sydney. Additionally, for the purposes of item 1(b), Hannah has not come ‘from’ a place outside the indirect tax zone as Hannah has not come from a particular place. Hannah came from Sydney where she boarded the ship. Item 1(b) is not satisfied.
Items 1(a) and 4 don't require that the destination be a final destination, and once it is established that the supply of sea transport to a passenger includes a destination outside the indirect tax zone, then the supply of that sea transport of the passenger on domestic legs of the journey may also be GST-free under item 4. Where the transport is part of a journey by sea from the indirect tax zone to a destination outside the indirect tax zone, or from a destination outside the indirect tax zone to the indirect tax zone, then any sea transport within the indirect tax zone prior to the place of departure by the same supplier,
will also be GST-free under item 4 as this travel forms part of a journey to a destination outside the indirect tax zone.
Example 4 – Cruise to Indonesia and New Zealand
Zoe books a cruise that includes stops at ports in Indonesia and New Zealand. The itinerary is: Brisbane
- Darwin – Broome – Lombok (Indonesia) – Perth – Melbourne – Wellington (NZ) – Auckland (NZ) – Brisbane. For Zoe, Lombok, Wellington and Auckland are all places and destinations outside the indirect tax zone.
The supply of the cruise to Zoe is entirely GST-free under subsection 38-355(1) of the GST Act because:
- the Broome to Lombok and Melbourne to Wellington legs are GST-free under item 1(a)
- the Lombok to Perth and Auckland to Brisbane legs are GST-free under item 1(b)
- the Wellington to Auckland leg is GST-free under item 1(c), and
- the Brisbane to Darwin, Darwin to Broome and Perth to Melbourne legs are GST-free under item 4.
Zoe’s friend Felicity books the same cruise as Zoe but only purchases the legs from Perth to Melbourne. Felicity’s transportation supply by sea does not include a destination outside the indirect tax zone. The supply to Felicity is not GST-free under section 38-355.
Reference GSTD 2015/2
w https://www.ato.gov.au/law/view/document?docid=%22GSD%2FGSTD20152%2FNAT%2FATO%2F0000 1%22
4.2 Individual interest of retiring partner
The ATO released TD 2015/19 on 7 October 2015 confirming that all interest of a retiring partner in the net income of the partnership is included in their assessable income under section 92 of the ITAA 1936, regardless of:
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This is subject to the proviso that if the interest is attributable to both:
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the partner is not assessable under section 92. The example from the TD is as follows:
ABC is a professional partnership carrying on business in Australia. Paul was a partner in ABC but retired from the partnership with effect from 1 January, year 1. Paul was a resident of Australia throughout year
Paul received a payment of $500,000 from ABC on 30 July, year 2.
ABC's accounting profit for year 1 was $200,000,000. Of this amount, $500,000 (0.25%) was allocated to Paul. Both the profit and its allocation were determined in accordance with the terms of the ABC partnership agreement.
ABC's working papers indicate that Paul's 0.25% interest comprised:
- Paul's base profit share for year 1, apportioned to reflect his retirement before 30 June
- an additional amount expressed to be in respect of unused leave, and
- an additional amount described as a 'retiring allowance', calculated by reference to the number of years Paul served as a partner in the firm.
The calculation of these components was consistent with the terms of the ABC partnership agreement.
ABC's Statement of Distribution indicates that ABC's net income was $205,000,000, of which $512,500 (0.25%) was allocated to Paul. A review of ABC's operations in year 1 indicates that ABC's net income was correctly calculated.
In Paul's Retirement Deed, the $500,000 payment is described as being in respect of Paul disposing of his interest in the partnership.
$512,500 is included in Paul's assessable income for year 1 under section 92. This represents Paul's individual interest in the net income of ABC for year 1. It does not matter that the amount Paul is entitled to is expressed to be in respect of Paul disposing of his interest in the partnership or is, in part, calculated by reference to his past service.
Any capital gain which Paul might otherwise make as a result of a CGT event happening to his interest in ABC is reduced to the extent that it is reflected in the amount which is assessable under section 92.
The ATO will not disturb assessments made before 3 June 2015 in relation to the issue covered by TD 2015/19.
COMMENT – this TD arose from the potential for a mismatch between a partner wanting to treat the payment for the end of their interest in a partnership as a capital sum (where concessions could be applied to reduce a capital gain) and a partnership’s desire to categorise the payment as a distribution of taxable income.
Reference TD 2015/19
w
https://www.ato.gov.au/law/view/document?docid=%22TXD%2FTD201519%2FNAT%2FATO%2F00001
5.1 SMSFs – Changes to return not necessary
All SMSFs registered on or after 1 January 2015 must now lodge an annual return for their first year,
regardless of the assets they holdsor it a nil assessment is expected.
If the SMSF was registered before 1 January 2015 and does not have assets, you can ask the ATO to either:
- cancel the registration or
- flag the record as "return not necessary" provided the SMSF meets all of the following conditions
and confirms in writing:
- that although registered, it had no assets and did not receive contributions or rollovers in the first financial year;
- the date the SMSF first held assets and commenced operating; and
- that it will be lodging future returns.
The ATO noted that notifiying them that a return is not necessary can only generally occur for SMSF's first year of registration
Failure to lodge a SMSF annual return by the due date can result in penalties and the loss of SMSF tax concessions.
w https://www.ato.gov.au/Super/Self-managed-super-funds/Administering-and-reporting/Lodge-SMSF- annual-returns/
5.2 SMSFs – Actuarial certificate for segregated methods
Earlier this year, the ATO made the statement that when a self-managed superfund used the segregated method and had commenced an account based pension part way through an income year (i.e. not on 1 July), the trustee was required to obtain an actuarial certificate to report exempt current pension income (ECPI) using the segregated method.
This statement was contrary to the general industry practice and the ATO has since reconsidered its view.
Now, where a SMSF is paying only a pension prescribed by the superannuation regulations (most commonly an account based pension), including a transition to retirement income stream from segregated assets, an actuarial certificate is not required.
This exemption applies to a SMSF even where it commences to pay an account based pension during the year (i.e. not on 1 July).
The only exception is where a SMSF is also paying pensions not prescribed by the regulations, where the fund can still have segregated assets but will be required to get an actuarial certificate.
This change will be reflected in a soon to be published addendum to Taxation Determination TD 2014/7. w https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/News/Actuarial-certificate-for-
5.3 SuperStream compliance – deadline has lapsed for medium and large employers
The ATO previously announced that it would allow employers with 20 or more employees an additional four months to adopt SuperStream, following the 30 June deadline. The timeframe for SuperStream compliance ran out on 31 October.
If employers have provided sufficient information and a revised start date that has been accepted by the ATO, the ATO will not undertake any compliance activity relating to this employer prior to the nominated date.
If employers have not provided sufficient information and a revised start date is not accepted by the ATO, the ATO will contact the employer to discuss their implementation plans.
To obtain a revised start date the ATO need to be provided with:
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The employer notification template can be requested by sending an email to complyingwithsuperstream@ato.gov.au.
Employers with 20 or more employees, but less than 200 that have not complied with SuperStream by 31 October 2015 need to have a documented SuperStream implementation plan that can be provided to the ATO if requested.
If employers are not making a genuine attempt to implement SuperStream, penalties may be applied.
COMMENT if your client has not provided sufficient information to the ATO, it would be worthwhile requesting an employer notification template by sending an email to complyingwithsuperstream@ato.gov.au.
Small employers (with 19 or fewer employers) have until 30 June 2016 to finalise their SuperStream implementation.
w https://www.ato.gov.au/Media-centre/Media-releases/ATO-reminds-employers--SuperStream- compliance-runs-out-on-31-October/
5.4 R&D offset claims – broadacre farmers
On 15 October, the ATO released a Taxpayer Alert 2015/3 cautioning primary producers in the broadacre farming sector against claiming the R&D tax incentive for the cost of fertilisers and soil improvers, which do not relate to R&D activities, but rather relate to business-as-usual farming activities.
In a typical arrangement:
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A recent review by Innovation Australia raised concerns that entities involved in such arrangements are attempting to access the R&D Tax Incentive for normal business expenditure (and not eligible R&D activities).
Innovation Australia reviewed several registered activities and some of these were found to be ineligible for the purposes of claiming the R&D Tax Incentive for the following reasons:
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The ATO and AusIndustry will continue to monitor the registrations for activities that are similar to those described in the Alert and conduct compliance activities where appropriate.
Reference TA 2015/3
w https://www.ato.gov.au/law/view/view.htm?docid=%22TPA%2FTA20153%2FNAT%2FATO%2F00001%2 2
5.5 Data matching program - online selling
The ATO has given notice of its program to acquire online selling data relating to registrants who sold goods and services to a value of $10,000 or more during the period from 1 July 2014 to 30 June 2015. The purpose of the program is to ensure that taxpayers are meeting their taxation obligations in relation to business sales through online selling sites.
The ATO is focused on data providers and their subsidiaries who:
- operate a business in Australia governed by Australian law;
- provide an online market place for businesses/individuals to buy and sell goods and services;
- track activity of registered sellers;
- have clients whose annual trading activity is $10,000 or more; and
- have trading activity for the year in focus
but the ATO will exclude data providers where the client base doesn't present an omitted or unreported income risk or where the administrative cost of collecting the date exceeds the benefit the data may provide.
The ATO has named eBay Australia and New Zealand Pty Ltd, a subsidiary of eBay International AG, which owns and operates www.ebay.com.au, as a data provider from which information will be sought.
The data requested will enable the ATO to match online selling accounts to a taxpayer (i.e. name, address, contact information, number and value of transactions processed for each selling account).
The ATO estimates it will match records relating to between 15,000 and 25,000 individuals.
Reference Gazette - C2015G01628
w https://www.comlaw.gov.au/Details/C2015G01628
5.6 Data matching program - ride sourcing
The ATO has given notice of its intention to acquire data to identify individuals that may be engaged in providing ride-sourcing services during the years ended 30 June 2014, 2015 and 2016.
Ride-sourcing facilitators provide an electronic platform enabling members of the public to engage the services of a ride-sourcing provider (i.e. driver). The ATO will obtain details of all payments made to drivers from identified facilitators' accounts held with financial institutions.
The details sought by the ATO include payee account names, BSBs and account numbers, dates and amounts of payment to payees.
It is estimated that the records of between 10,000 and 15,000 individuals will be matched.
TIP – Drivers who have derived income from provided ride-sourcing services (e.g. drivers for Uber etc.) should seek advice in relation to their tax compliance obligations.
Reference Gazette- C2015G01623
w https://www.comlaw.gov.au/Details/C2015G01623
