Case law

Appeal dismissed against the AAT’s decision to grant an extension of time

In the recent case of Commissioner of Taxation v Primary Health Care Limited [2017] FCAFC 131 (24 August 2017) the Full Federal Court dismissed the Commissioner’s appeal of a decision of the Administrative Appeals Tribunal (Tribunal) to treat five objections to assessments for the financial years 2003 to 2007 as having been lodged in time. The main issue in dispute arose because the Commissioner changed his mind about the correct tax treatment of a long-standing business model.

The Commissioner’s grounds prescribed that the Tribunal had not taken into account relevant considerations and that its conclusions were led by irrational errors not apparent on the facts which were ultimately rejected.

Please refer to Re Primary Health Care Limited and Commissioner of Taxation [2017] AATA 393 for the Tribunal decision. The Tribunal’s original decision was previously discussed in Talking Tax – Issue 72 (7 April 2017).

Charitable organisation exemption unavailable

In the recent case of South Australian Employers’ Chamber Of Commerce & Industry Incorporated v Commissioner of State Taxation [2017] SASC 127 (31 August 2017) the South Australian Supreme Court dismissed an appeal by the South Australian Employers’ Chamber of Commerce (Taxpayer) against a disallowance of an objection which refused to recognise the Taxpayer as exempt from payroll tax as a charitable organisation under section 48 of the Payroll Tax Act 2009 (SA) (PTA).

The main issue in dispute was whether the Taxpayer had a charitable purpose within section 48 of the PTA, which the Taxpayer contended was for the purpose of ‘promoting trade and commerce in South Australia’.

The Commissioner took the view that none of the wages were paid to persons engaged exclusively in charitable purposes and for work of the kind ordinarily performed in connection with its charitable purpose as wages were only paid to persons engaged in policy advocacy activity.

The Supreme Court dismissed the Taxpayer’s appeal and held, amongst other things, that:

  • Under general law and to satisfy section 48 of the PTA, a charitable purpose must be to provide a public benefit that must fall within a recognised category of charitable purpose by reference to principle and authority.
  • The purpose of an institution governed by a board of directors is to be established by reference to the institution’s objective, activities, communication to members and topics at board meetings, rather than the internal state of mind of individual directors.
  • A charitable institution can have a non-charitable purpose provided that it is incidental to its charitable purpose. The non-charitable purpose must be so minor that the charitable purpose remains the ruling, prevailing or most influential purpose.

In this appeal, the Taxpayer failed to prove that, on a stand-alone basis, its policy advocacy, member services or commercial services activities are undertaken for the purpose of advancing trade and commerce in South Australia. Therefore, the Taxpayer failed to prove that its dominant purpose is to advance trade and commerce in South Australia and the appeal was dismissed. This case highlights the importance of proving charitable purpose, and that it is not only actions, but also the benefit provided to the public more broadly.

ATO updates

Corporate tax data to be published again this year

The ATO is required to publish certain information taken directly from tax returns about corporate entities under tax transparency measures if the entity is:

  • an Australian public or foreign owned entity with a total income of $100 million or more
  • an Australia resident private company with a total income of $200 million or more or
  • an entity reporting Petroleum Resource Rent Tax (PRRT) payable.

All required entities will receive a letter in mid-September 2017 advising of the details to be published.

The report will be inclusive of entities whose tax returns were either lodged or processed after 1 September 2016, for the 2013-14 and/or 2014-15 years and have not been previously published.

Legislation and government policy

Power up! Proposed Bill to make electricity GST-free

A Bill has been introduced to amend the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to make the supply of electricity GST-free. The A New Tax System (Goods and Services Tax) Amendment (Make Electricity GST Free) Act 2017 (Proposed Bill) will make electricity GST Free unless it is supplied in a battery. A supply of equipment for the generation of storage of electricity is not GST-free under the Proposed Bill.

The Explanatory memorandum for the Proposed Bill (EM) noted that States and Territories will not be compensated for the reduction in GST revenue collections. According to the Second Reading speech by Senator Leyonhjelm, water is an ‘essential service’ and should be made GST-free.

The Proposed Bill will operate so that electricity would be GST-free from the start of the quarter following Royal Assent.

According to the EM Electricity prices in Australia have been rising be an average of 8 per cent per year over the last decade and the Proposed Bill will provide immediate relief to the rising prices, particularly to low-income households, saving the average household around $200 per year. The EM further outlines the parliamentary Budget Office estimates which provide that, by making GST-free:

  • GST revenues granted to the State and Territory Governments would fall by around $2 billion each year
  • Electricity prices to households would fall 9.1 per cent
  • The Consumer Price Index (CPI) would fall by 0.18 percent and
  • Government spending on welfare payments indexed to the CPI would fall.

Will this change the way we use power at home? Will we still look to turn the light off before going to work? We think it is unlikely that attitudes will change much. However, if the Proposed Bill passes, it will be a change welcomed by those overseeing the household budget.

New NSW Payroll Tax Revenue Ruling

Under the new version of Revenue Ruling PTA 003 (v3) (Ruling), a number of issues regarding fringe benefits tax have been addressed. The Ruling has been redrafted to:

  • explain how the Commissioner will calculate the value of fringe benefits for payroll tax purposes
  • clarify the treatment of fringe benefits with a nil taxable value and exempt benefits (where such benefits fall within another part of the definition of wages)
  • explain the requirements of the alternative method of declaring fringe benefits
  • explain the method of calculating the NSW component of fringe benefits when they are not readily identifiable and
  • adopt the ATO’s fringe benefit tax rulings for consistency.

While the definition of ‘wages’ in Part 3 of the Payroll Tax Act 2007 (PTA) includes ‘fringe benefits’ as defined in the Fringe Benefits Tax Assessment Act 1986 (FBT Act), it does not include tax exempt body entertainment fringe benefits. For clarity, fringe benefits which have a nil taxable value under the FBT Act will also have a nil taxable value for payroll tax purposes.

Under the FBT Act there are two categories depending on their GST implications, being:

  • Type 1 fringe benefits when the employer can claim a GST input tax credit grossed up by a higher type 1 factor (2.0647) and
  • Type 2 fringe benefits when the employer cannot claim a GST input tax credit and are grossed up by a lower type 2 factor (1.8692).

Each month, employers are required to declare the actual value of total fringe benefits in their monthly returns grossed up by the Type 2 factor. The PTA allows employers to make a formal election to adopt an alternative method whereby the amounts declared are based on the FBT return.

An employer can only be afforded the advantage of the formal election under the PTA where:

  • the employer was liable to pay FBT for a period of not less than 15 months prior to the commencement of the relevant tax year and
  • the Chief Commissioner is notified of the election in the approved form.

Further, when an employer employs in one or more states, the NSW component of the fringe benefit amount may be declared on an apportionment basis, calculated in accordance with the approved method.

An employer who does not meet these requirements must return the actual value of the fringe benefits paid during the relevant return period or make a written request or another method for declaring the fringe benefits.

Victorian Treasury’s Corporate Plan for 2017-21 released

  • On 30 August 2017, the Victorian Department of Treasury and Finance released the Treasury’s Corporate Plan 2017-21highlighting its purpose, actions and outcomes for the next four years.
  • Part of the Treasury’s role is to provide leadership across resource, financial and economic management in support of the Treasurer’s portfolio’s and the Minister for Finance.
  • Among other things, the Treasury plans to be influential, responsive and respectful while strengthening Victoria’s economic performance, optimising Victoria’s fiscal strategy and budget position.

Criminal activity poses a risk to not-for-profit organisations

After evaluating approximately 257,000 registered not-for-profit organisations, the Australian Transaction Reports and Analysis Centre (AUSTRAC) has found ­evidence that Australian charities are being targeted by criminals and have deemed the sector a ‘medium’ risk in regards to money laundering for terrorism financing involving charities that funnel donations overseas.

The not-for-profit organisations attract $134 billion in contributions each year and the Minister for Justice Michael Keenan said that the greatest criminal threats relate to fraud and theft of resources.

Charities and not-for-profit institutions should ensure that appropriate governance and risk controls are put in place to reduce the risk of criminal activity involving financial transactions in Australia and abroad.