When an amount is ‘credited’ by a Corporate Limited Partnership

On 17 May 2017, the Australian Taxation Office (ATO) issued Draft Taxation Ruling TR 2017/D4 which deals with when an amount is taken to be credited to a limited partner in a corporate limited partnership (CLP). By way of background, an amount which a CLP pays or credits against the profits or anticipated profits of the partnership, or otherwise in anticipation of the profits of the partnership, to a partner will be a deemed dividend paid out of profits.

According to the draft ruling, an amount is credited to a partner when the following conditions are satisfied:

·       a limited partnership applies or appropriates its resources to confer a benefit on the partner,

·       the benefit is not subject to a condition precedent,

·       the benefit is legally enforceable by the partner, and

·       is separate and distinct from the partner’s existing interest in the CLP and its assets.

A mere credit entry in a CLP’s accounts is not a ‘crediting’, unless the above conditions are satisfied. The fact that an amount credited to the partner is repayable or relinquished does not prevent an amount from being credited if the conditions outlined above are satisfied. However, there must be an in substance appropriation or application of the resources of the CLP to confer a benefit on a partner.

Whilst the ATO’s views in TR 2017/D4 provides some guidance on when a ‘crediting’ can occur, it requires an analysis of the relevant partnership documents to determine when and whether a ‘crediting’ occurs.

Submissions on the draft ruling were due to be provided by 30 June 2017. For further information, refer to PwC Australia’s TaxTalk Alert.

Some tax thresholds for 2017-18

The ATO has issued the following updates to certain annual thresholds relevant for the 2017-18 financial year:

·       Luxury Car Tax Determination 2017/1 which sets out the luxury car tax threshold as AUD65,094 and the fuel-efficient car limit as AUD75,526.

·       Taxation Determination 2017/16 which sets the Capital Gains Tax improvement threshold for the 2017-18 income year as AUD147,582.

ATO’s focus areas for privately owned and wealthy groups

The ATO has updated its document, ‘What attracts the ATO's attention for privately owned and wealthy groups?’, which consider the behaviours, characteristics and tax issues that attract its attention for privately owned and wealthy groups.

In addition to the usual areas for focus (such as losses, deemed dividends and profit shifting), the following are worth noting:

·       tax outcomes relating to lifecycle assets,

·       property and construction,

·       Family Trust Distributions Tax,

·       Fringe Benefits Tax and car parking valuation,

·       non-lodgment of the International Dealings Schedule, and

·       foreign resident capital gains withholding.

Potential reforms to Deductible Gift Recipients tax arrangements

The Government has released a discussion paper that considers potential reforms to Deductible Gift Recipient (DGR) tax arrangements. The paper outlines a number of proposals to strengthen the DGR governance arrangements, reduce administrative complexity and ensure that an organisation’s eligibility for DGR status is up to date. Comments can be made until 14 July 2017.

Federal Court finds taxpayer was correctly assessed on trust amounts

The Federal Court in Hart v Commissioner of Taxation (No 4) has affirmed the Commissioner's decision regarding the assessability of amounts received from a trust under section 97, or alternatively under section 101, of the Income Tax Assessment Act 1936 (ITAA 1936). The taxpayer failed to prove that the applicable amounts were received by way of a loan. The Court also held in the alternative, and also in respect of a second amount which was a portion of the income earned by a group of trusts associated with the taxpayer, that the general anti-avoidance provision (Part IVA of the ITAA 1936) applied as the taxpayer had entered into the scheme with the dominant purpose of obtaining a tax benefit, rejecting the taxpayer's argument that the dominant purpose of the scheme was to achieve asset protection.

Distributions to non-beneficiaries of a trust

Draft Taxation Determination TD 2017/D1 considers whether a person who is not a beneficiary of a trust is capable of receiving a distribution. According to TD 2017/D1, where a person who is not a beneficiary receives a benefit from a distribution transaction, that benefit is a distribution to the extent that its amount or value exceeds the amount or value of any consideration given in return. This determination is relevant in the context of family trust distribution tax (FTDT), which is imposed on a trustee of a family trust, or certain interposed entities (including companies or partnerships) that confer a present entitlement on, or distributes income or capital to, an entity that is not a member of the relevant family group. The final Determination will not apply to distribution transactions which have begun to be carried out before 7 June 2017.

Draft tax ruling on employee remuneration trusts

The ATO has released Draft Taxation Ruling TR 2017/D5 which sets out the Commissioner's preliminary views on how the taxation laws apply to employee remuneration trust (ETR) arrangements that operate outside of Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997). An ERT arrangement involves the establishment of a trust to facilitate the provision of payments and/or other benefits to employees of an employer. The trustee provides the benefits at the direction of, or by arrangement with, the employer. TR 2017/D5, which replaces Draft Taxation Ruling TR 2014/D1, covers the income tax, capital gains tax and fringe benefits tax consequences for the employer, employees and the trustee of the ERT trust associated with making a contribution to an ERT, investing the contribution, and providing benefits to employees from the ERT.

Subject to transitional arrangements, when the final Ruling is issued, it is proposed to apply both before and after its date of issue. Since the Commissioner has issued private rulings in the past which evidence a more favourable prior general administrative practice in respect of the deductibility to employers of contributions made to the trustee than some of the views contained in this draft Ruling and the previous TR 2014/D1, the Commissioner will not undertake compliance activities to apply the views expressed in this Draft Ruling in this regard to those contributions made prior to 5 March 2014 that would have been accepted as being deductible under this prior practice.

Comments can be made on the Draft Ruling until 21 July 2017.

IGOT to review the future of the tax profession

The Inspector-General of Taxation (IGOT) has announced a review into the future of the tax profession. The review seeks to raise awareness about the risks, challenges and opportunities presented by technological, social, policy and regulatory changes, and will also look at the inter-relationship between members of the tax profession, the ATO and the Tax Practitioners Board. Refer to the terms of reference for further information. Submissions to the review can be made until 28 July 2017.

IGOT’s report into the review of the ATO’s employer obligations compliance activities

The IGOT has released his report in relation to the Review into the ATO’s employer obligations compliance activities. The IGOT has made various recommendations including:

·       two recommendations for the Government’s consideration which are aimed at reducing compliance costs through a review of the Fringe Benefits Tax regime and expanding the Taxable Payments Reporting System to the engagement of contractors across all industries, and

·       nine recommendations to the ATO which address the compliance burden and a number of other important issues such as the classification of workers as contractors or employees, the ATO’s capability framework and risk identification processes as well as the implementation of the Single Touch Payroll initiative. The ATO has agreed in full or in part with seven of the nine recommendations.

Judicial review of Commissioner’s decision to rule

The Federal Court in Hancon v Commissioner of Taxation has quashed the Commissioner's decision to decline to make a private ruling and ordered that that the matter be remitted to the Commissioner to deal with the ruling application. In considering the taxpayer’s private ruling application, the Commissioner did not request further required information, despite being obligated to do so according to the relevant tax laws. Instead, the Commissioner declined to rule. The Court held that the failure to request the further information resulted in an error of law under the Administrative Decisions (Judicial Review) Act 1977 (Cth) and a jurisdictional error for the purposes of the Judiciary Act 1903 (Cth).

ATO updated data matching program for ride-sourcing

The ATO data matching program has been amended from the original version published in December 2016 to include ride-sourcing facilitators as additional data providers and to extend the financial years included in the program to cover the 2015-16 to 2018-19 financial years.

ATO report on its systems outages

The ATO has released its report into the systems outages experienced in December 2016 and February this year. The report incorporates findings from an ATO internal review and the technical advice and separate report prepared by independent expert reviewers. The report indicates that the ATO is committed to addressing each of the areas identified in the report for improvement.

ATO provides certainty for workers affected by Operation Elbrus

The ATO has issued initial guidance to assist taxpayers who may have been affected by the alleged actions of payroll services companies currently under the joint AFP and ATO investigation, Operation Elbrus. It has indicated that workers will not be penalised when the amount reported as being withheld have not actually paid to the ATO.

Parliamentary report on inquiry into tax deductibility

The House of Representatives Standing Committee on Economics tabled the report of its inquiry into Tax Deductibility on 15 June 2017. Although the Committee recommended that the Government maintain the current personal income tax framework that allows deductions for valid expenses, it has recommended the ATO review its compliance activity in relation to work related expenses. It was also recommended that the ATO undertake a detailed review of tax deductions to identify areas that are open to systemic abuse and that it recommend amendments to law or policy where appropriate.

In relation to company income tax deductions (including the deductibility of interest), the Committee saw no evidence for change, and in relation to base erosion and profit shifting (BEPS), it recommended that the Government continue its work in this area.

Australia - Singapore Prime Ministerial statement and new visa

In a joint press statement released by the Prime Ministers of Australia and Singapore, various trade initiatives in the region were discussed including:

·       Singapore and Australia's support for the Trans-Pacific Partnership with the remaining 11 members after the withdrawal of the United States, and

·       the upgraded Singapore-Australia Free Trade Agreement, which will come into force this year.

During his visit to Singapore, the Australian Prime Minister also announced a new long-term, multiple entry visa option for Singaporeans visiting Australia, and a new reciprocal Work and Holiday maker program to commence from 1 August 2017.