Treasury Measures (No 2) Bill 2019 - Changes and impacts

The Treasury Laws Amendment (2019 Measures No 2) Bill 2019 (Bill) was passed by the Senate and House of Representatives without amendment and it now awaits Royal Assent.

The Bill amends various legislation, impacting the age limit for genuine redundancy payments, luxury car tax (LCT) refund entitlements and interest on ATO superannuation payments.

In particular, schedules one, two and five of the Bill cover the following amendments:

Pension age limit for genuine redundancy payments (Schedule one)

The Bill amends the Income Tax Assessment Act 1997 (Cth) to align the existing age limit of 65 with the pension age for genuine redundancy and early retirement scheme payments.  This means the concessional tax treatment will only be accessible to employees who retire or are made redundant before they reach their pension age.

The current pension age is 66 years.  It will progressively rise to 66 years and 6 months in 2021 and 67 years in .  This amendment will apply to payments received by employees who are dismissed or retire on or after 1 July 2019.

LCT refund entitlements (Schedule two)

The Bill amends the A New Tax System (Luxury Car Tax) Act 1999 (Cth) to provide a full refund of up to $10,000 for eligible primary producers and tourism operators who have borne luxury car tax on the supply or importation of a refund-eligible vehicle. 

The amendment will apply to refund-eligible cars supplied or imported on or after 1 July 2019.

Interest on ATO superannuation payments (Schedule five)

The Bill amends the Superannuation (Unclaimed Money and Lost Members) Act 1999 (Cth) to ensure that if the ATO makes a payment to an active fund under section 24NA(2), the ATO must also pay the relevant amount of interest (if any) worked out in accordance with the regulations.

The amendment will take effect the day after the Royal Assent.

Capital gains excluded from FITO limit

Recently released Draft Taxation Determination TD 2019/D10 (Draft TD) expresses the Commissioner of Taxation’s (Commissioner) view that capital gains are not included when calculating the foreign income tax offset (FITO) limit under section 770-75 of the Income Tax Assessment Act 1997 (Cth) (1997 Act).

This will produce a lower FITO limit for a taxpayer where they had capital gains in the income year that are derived from a source other than an Australian source.  This is based on the Commissioner’s view that a net capital gain (in contrast to the individual capital gains it may comprise) cannot have a source other than an Australian source.

A FITO may be available to reduce or eliminate a taxpayer’s Australian income tax that would otherwise be payable on amounts included in their assessable income, where foreign income tax has also been paid on the same amounts.

The FITO limit is calculated as the amount of income tax payable by the taxpayer in that year less the amount of income tax that would be payable by the taxpayer in that year on the assumption that:

  • the taxpayer’s assessable income did not include any amount on which they paid foreign income tax, or any other amount of ordinary income or statutory income from a source other than an Australian source; and
  • they are not entitled to certain deductions, including those relating to income on which they paid foreign income tax.

A taxpayer’s tax liability for an income year will be reduced by the amount of foreign income tax they have paid for the year.  However, this offset is capped at the taxpayer’s FITO limit for that year.  The FITO limit is equal to the amount of tax that would have been paid by the taxpayer for that year if the income on which they paid foreign income tax, was earned in Australia rather than overseas.

In the Draft TD, the Commissioner states that capital gains are not included when calculating a taxpayer’s FITO limit because:

  • A net capital gain does not have a source, and therefore cannot be determined to be from a source other than an Australian source. It is merely a product of individual capital gains and losses made during the income year from Australian and non-Australian sources, and the application of unapplied net capital losses from earlier income years and applicable discounts.
  • A net capital gain is an amount of statutory income. While each individual capital gain may have a source other than an Australian source, these individual gains are not amounts of statutory income.  Taxpayers are not allowed to disaggregate a net capital gain (the singular amount of 'statutory income') to identify the individual capital gains that have been included in working out the net capital gain, for the purposes of including these amounts in determining the taxpayer’s FITO limit.

The final Taxation Determination is proposed to have retrospective effect once it is issued.  Comments on the Draft TD are due by 8 November 2019.

Taxpayer fails to prove excessive assessments

In Ke and FCT [2019] AATA 4057, the Administrative Appeals Tribunal (Tribunal) found that the Taxpayer (a registered tax agent and chartered accountant) had not discharged her burden of proof in demonstrating, on the balance of probabilities, that certain of the ATO’s assessments were excessive.

This case serves as a reminder that in order for a court or tribunal to overturn an amended or default assessment issued by the ATO, the onus is on the taxpayer to:

  • demonstrate that the assessment is excessive or otherwise incorrect; and
  • positively show what correction should be made to the assessment.

The Taxpayer was a registered tax agent who carried on the business of providing tax agent services.  For the 2013 and 2014 income years, the Taxpayer reported nil taxable income.  

Following an audit of her tax affairs, the ATO issued amended assessments increasing the Taxpayer’s taxable income by $110,116 for 2013 and $162,742 for 2014.  In doing so, the ATO asserted that certain unexplained deposits into the Taxpayer’s bank account constituted assessable income.

The ATO also issued the Taxpayer with GST assessments totalling $13,096.  The ATO determined that the Taxpayer should have been registered for GST (and accordingly, collected and remitted GST) as her income exceeded the GST registration turnover threshold of $75,000. 

On appeal, the Taxpayer argued that the bank deposits in question were from other sources including gifts, loan repayments and financial support from family members.  

The Tribunal determined that the Taxpayer had not satisfied her burden of proof in relation to most of her claims and largely upheld the amended assessments, with a minor variation.  The Tribunal found that there was a lack of evidence to support the Taxpayer’s claims, stating that some documentary evidence provided was a ‘fiction’.

Significant penalties were levied against the Taxpayer for acting with intentional disregard of the taxation laws, particularly given her position as a registered tax agent and chartered accountant.