ATO updates

Commissioner provides Common Reporting Standard compliance relief

On 30 June 2017 the ATO made a declaration under the Tax Laws Amendment (Implementation of the Common Reporting Standard) Act 2016 (Act) that 25 jurisdictions (including Barbados, China, Hong Kong, Israel, Kuwait and Russia) are ‘committed jurisdictions’ for the purposes of the transitional provisions of the Act (Declaration).

The effect of the Declaration is to temporarily relieve Australian financial institutions from carrying out the required Common Reporting Standard (CRS) due diligence procedures on accounts belonging to foreign residents of the 25 ‘committed jurisdictions’.

The CRS was developed by the OECD and non-OECD G20 Countries, at the request of the G20. In 2016 legislation was passed to implement the CRS in Australia, however it has only become operative since 1 July 2017. The CRS establishes a common international standard for:

  • financial institutions to identify the financial accounts of foreign tax residents
  • financial institutions to report information on those account holders and their financial accounts to their local tax authority and
  • the exchange of that information between relevant tax authorities.

The CRS also sets out the due diligence procedures that financial institutions must apply in identifying account holders who are tax residents of a foreign jurisdiction.

ATO Decision Impact Statement – Security for costs in Vasliades case

On 30 June 2017, the ATO released a Decision Impact Statement (Statement) on the decision of the Full Federal Court in FCT v Vasiliades [2016] FCAFC 170 (Vasiliades).

In Vasiliades, the Full Federal Court found by majority that the Commissioner was entitled to security for costs in respect of the Taxpayer’s appeal under Part IVC of the Taxation Administration Act 1953. In doing so, the Court confirmed that its power to award security for costs under section 56 of the Federal Court of Australia Act 1976 (Act) is a broad judicial discretion and not confined by any rule or strong predilection in respect of any particular factor.

In the Statement, the Commissioner supports the majority’s view that the presence or absence of certain facts will not dictate an outcome one way or the other in the Federal Court’s exercise of its discretion under section 56 of the Act.

In response to proceedings brought by the Taxpayer against the Commissioner, the Commissioner applied for and was granted security for costs by the registrar, on the basis the Taxpayer was a non-resident and there was no evidence that he had assets in Australia. The registrar’s decision was overturned by Justice Davies of the Federal Court, who relied primarily on the “essential defensive nature” of the Taxpayer’s proceedings. The Commissioner was granted leave to appeal this decision.

The majority of the Full Federal Court allowed the appeal and re-exercised the discretion to award security of costs in favour of the Commissioner. Their Honours endorsed a ‘multifactorial approach’ to the discretion and found that there was no rule, or a ‘very strong predilection’, against ordering security for costs against a party bringing a proceeding that was essentially defensive in nature.

The Court noted that:

  • the defensive element of Part IVC proceedings was merely one factor to take into account with other relevant factors and
  • the fact that the taxpayer is an non-resident without apparent assets in Australia is a significant factor in favour of an award of security.

Goods and Services Tax: Foreign Currency Conversion Determination (No.1) 2017

On 21 June 2017 the ATO issued the Goods and Services Tax: Foreign Currency Conversion Determination (No.1) 2017(Determination) in accordance with subsection 9-85(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) The Determination sets out the method an entity must use to convert amounts of foreign currency into Australian dollars for the purpose of working out the value of a taxable supply. It’s a requirement under the GST Act that the value of a taxable supply be expressed in Australian currency. The Determination is taken to have commenced on 1 July 2017.

The formula used for converting any amount of consideration expressed in foreign currency is:

Click here to view the image. 

Where:

  • particular exchange rate is the exchange rate provided by a foreign exchange organisation, the Reserve Bank of Australia rate, or the rate agreed to by the supplier and recipient, whichever the entity has chosen (however, the chosen exchange rate should be used consistently by the entity for GST purposes); and
  • conversion day is the date used when making the conversion. This will vary according to the basis on which GST is accounted for, the type of supply and whether the entity is an Australian resident entity,

TR 2017/3 – The meaning of ‘at the time the distribution is made’ when applying the participation test

On 28 June 2017 the Commissioner released Taxation Ruling TR 2017/3 (Ruling). The Ruling provides guidance on applying the participation test set out in Subdivision 768-A of the Income Tax Assessment Act 1997 (ITAA 1997) when working out whether an equity distribution received by an Australian corporate tax entity from a foreign company is not assessable and not exempt (NANE) income.

The Ruling applies to foreign equity distributions made on or after 17 October 2014. However, it will not apply to the extent that it conflicts with the terms of a settlement of a dispute agreed to before this Ruling was issued.

Subdivision 768-A treats a foreign equity distribution as NANE income if the recipient is an Australian corporate tax entity that holds a participation interest of at least 10% in the foreign company making the distribution at the date the distribution is made.

The Commissioner formed the view that for the purposes of Subdivision 768-A:

  • an entity will hold an interest where they are a registered member (or are absolutely or contingently entitled to be a registered member) of the foreign company;
  • the interest will be held at the date the distribution is made if it is held by the entity at the start of the day the distribution is made;
  • where the distribution is a dividend or non-share dividend, the distribution is made on the day that the foreign company pays or credits the distribution, and
  • where the distribution is a deemed dividend, the distribution is made on the day the Income Tax Assessment Act 1936 or the ITAA 1997 deem the dividend to have been paid.

TR 2017/2 – Effective life of depreciating assets

On 28 June 2017, the Commissioner issued Taxation Ruling TR 2017/2 (Ruling) which:

  • discusses the methodology used by the Commissioner in making a determination of the effective life of depreciating assets; and
  • contains determinations by the Commissioner in respect of the effective life of specified depreciating assets.

In providing the methodology used by the Commissioner, this may assist Taxpayers who make their own estimates of the effective life of depreciating assets. The Ruling applies from 1 July 2017 and replaces Taxation Ruling TR 2016/1.

TD 2017/D3 – Application of section 109T ITAA 1936 to ordinary commercial transactions

The ATO has recently released Draft Taxation Determination TD 2017/D3 which addresses the issue of whether or not section 109T of the Income Tax Assessment Act 1936 (ITAA 1936) can apply to a payment or loan made by a private company to another entity, where that payment or loan is an ordinary commercial transaction.

The Commissioner has determined that:

  • Section 109T of the ITTA 1936 can apply in such circumstances. The fact that the payment or loan may be considered an ordinary commercial transaction does not, of itself, exclude the operation of section 109T.
  • Where the Commissioner considers that a reasonable person would conclude that the payment or loan is made solely or mainly as part of an arrangement involving a payment or loan to a shareholder or shareholder’s associate, the shareholder or associate will be deemed to have been paid a dividend during the relevant year. However, section 109T will not apply if the payment or loan itself gives rise to a deemed dividend.

The draft determination includes a number of contrived examples of where the Commissioner considers section 109T would apply.

When the final determination is issued, it is proposed to apply both before and after its date of issue.

Draft Taxation Ruling TR 2017/D6 – Income tax and fringe benefits tax: when are deductions allowed for employees’ travel expenses?

On 28 June 2017, the ATO released Draft Taxation Ruling TR 2017/D6 (Draft Ruling) that sets out general principles for determining whether an employee can deduct travel expenses under section 8-1 of the ITAA 1997.

Whether travel expense can be deducted depend on the facts of each case, and the Draft Ruling provides examples to show how to determine the deductibility of travel expenses in a range of situations. The Draft Ruling applies to travel between work locations of the same employer as well as to travel between home and a work location.

Legislation and government policy

Government releases draft legislation to remove double taxation of digital currency

The Government has recently released exposure draft legislation (Draft Legislation) to give effect to its recent Budget announcement to remove the double taxation of digital currency.

Currently, consumers can effectively bear GST twice when using digital currencies; once on the purchase of the digital currency and again on its use in exchange for goods and services that are subject to GST.

The proposed amendments would mean that digital currency will receive equivalent GST treatment to supplies of money (which currently receive special treatment) so that:

  • supplies and acquisitions of digital currency would be generally disregarded for the purposes of GST
  • supplies of digital currency would only be recognised for the purposes of GST if the supply is made in exchange for money or other digital currency and
  • supplies of digital currency that are recognised for the purposes of GST would be input taxed.

The Draft Legislation would have a retrospective start date of 1 July 2017.

If you trade in, transact with or otherwise deal with digital currency (such as BitCoin, Litecoin, Digitalcoin, Peercoin, Quark or another form of cryptocurrency) these proposed changes may affect you and it would be beneficial to have a voice on this issue.

Public consultation will run for four weeks and will close on Wednesday 26 July 2017.