Monday
DTA with Iceland – draft legislation released
The Government has released draft legislation to implement the new DTA with Iceland. The new tax treaty reduces tax impediments to bilateral trade and investment. Among other things, the DTA alleviates double taxation by lowering withholding tax rates (on cross border interest, dividend and royalty payments) and also includes OECD/G20 base erosion and profit shifting (BEPS) recommendations to target international tax avoidance practices. The Australia-Iceland tax treaty will enter into force once both countries have completed their domestic requirements to bring the new tax treaty into force, including amending Australia’s domestic law. Comments are due by 23 December 2022.
Deduction for payment of damages to settle dispute
The AAT has ruled that a company which carried on a consultancy services and financial asset broking business was entitled to a deduction for $200,000 paid to settle proceedings in relation to services it provided to another company. The other company claimed that it had suffered loss as a result of the taxpayer “negotiating a number of unauthorised transactions” on its behalf. In finding that the taxpayer was entitled to a deduction for the amount, the AAT found that the “essential character of expenditure from practical business point of view” was of a revenue nature, and not of a capital nature. Accordingly, the AAT held that the amount was deductible under s 8-1 of the ITAA 1997. However, the AAT found that legal expenses incurred by the taxpayer were not deductible because it was not clear whether they were incurred in its defence of the proceedings or in relation to other matters, such as its liquidation or a threatened action in defamation. (XPTC and FCT [2022] AATA 4147, 28 November 2022.)
Board of Taxation: Status of current reviews
The Board of Taxation has provided an update on its current work program. Its CEO update for December 2022 states that the final report on its “Review of CGT roll-overs” was submitted to the Government on 11 November 2022 but is yet to be publicly released. It also advised that its “Review of Digital Assets and Transactions” is still on-going and that the Board will continue to engage with interested parties throughout the remainder of the review.
ASIC: Superannuation trustees on notice re complaints handling
ASIC has warned that Superannuation trustees are on notice to improve their internal dispute resolution systems after a targeted review of trustee compliance with the enforceable complaints handling requirements found that some trustees had sub-standard arrangements for managing complaints. Report 751 Disputes and deficiencies: A review of complaints handling by superannuation trustees (REP 751) outlines ASIC’s findings on compliance by a selection of trustees with the obligations in Regulatory Guide 271 Internal dispute resolution (RG 271). ASIC said it saw examples of trustees’ failure to comply with fundamental obligations, which could lead to poor outcomes, such as consumers abandoning a complaint rather than seeing it through.
Tuesday
New lodgement deferral request process in 2023
In response to feedback from the members of the Tax Practitioner Stewardship Group that the current process for requesting lodgement deferrals can be an irritant, the ATO are releasing a new lodgement deferral request function, which will go live in Online services for agents in 2023. It is expected to provide: a more intuitive lodgement experience; real-time visibility of requests; quicker processing times. The ATO have been working with representatives of the Lodgment Program Review Working Group to design the new function with agents’ needs in mind and will begin testing the new function in the coming months. A public beta version will be released and the ATO will be encouraging agents to get familiar with the new function so they’re ready to transition across.
ATO raids: crackdown on dodgy sales suppression technology
The ATO has advised that it has been involved in a national and global crackdown on businesses suspected of supplying and using illegal electronic sales suppression tools (ESST) or software to avoid paying tax. The raids in Australia were undertaken by ATO supported by the AFP in Victoria, New South Wales, Queensland, Western Australia, and Tasmania. The raids were conducted at 35 separate premises suspected of supplying and using ESST. The ATO said that these sales suppression tools allow retailers to keep a separate set of books and launder the money in one transaction and that they conceal and transfer this income anonymously, sometimes offshore. The ATO also emphasised it has been illegal to produce, supply, possess, use or promote ESST or software in Australia since October 2018.
Tax and financial reform Bills receive Royal Assent
The following tax and financial reform-related Bills received Royal Assent on 12 December 2022:
- Treasury Laws Amendment (2022 Measures No 2) Act 2022 – which, among other things, requires electronic platform operators to provide information on transactions to the ATO; enables small business entities to apply to the AAT for an order staying, or otherwise affecting, the operation or implementation of decisions of the Commissioner being reviewed by the AAT; and enables the Commissioner to direct an entity to complete an approved recordkeeping course as an alternative to financial penalties where they reasonably believe the entity has failed to comply with its tax-related recordkeeping obligations.
- Treasury Laws Amendment (Electric Car Discount) Act 2022 – which amends the FBTAA 1986 to exempt from fringe benefits tax the use, or availability for use, of cars made available by employers to current employees that are zero or low emissions vehicles with a value at first retail sale below the luxury car tax threshold for fuel efficient vehicles.
- Financial Sector Reform Act 2022 – which, among other things, makes amendments regarding the new financial accountability regime and establishes the financial services compensation scheme of last resort to provide compensation to eligible consumers where the Australian Financial Complaints Authority has made a determination in their favour that remains unpaid.
Victorian vacant residential land tax to recommence
As part of the Victorian Government’s COVID-19 relief measures, vacant residential land tax was waived in 2021. The tax will recommence for 2022 with land owners required to notify the Victorian State Revenue Office if they own a property in inner and middle Melbourne that was vacant for more than six months in 2022. Notifications are due by 15th January 2023.
CGT withholding for foreign resident sales
The ATO has advised that because it will be closed from 12.00 pm (AEDT) Friday 23 December 2022 to 3 January 2023, no clearance certificates or variations for “foreign resident capital gains withholding” (FRCGW) will be processed during this period. The ATO says that if you require a certificate or variation for a settlement during that period, lodge you will need to lodge your application by 19 December 2022 to avoid extended settlement dates.
Wednesday
No CGT concessions – exclusion for “main use to derive rent”
The AAT has confirmed that a taxpayer was not entitled to the CGT small business concessions for a capital gain she made on the sale of a small block of residential premises. The taxpayer claimed she was carrying on a business in relation to her activities of renting and maintaining the properties etc. However, the AAT confirmed that even if she was carrying on a business (on which it made no finding), the exclusion in s 152-40(4)(e) ITAA 1997 for an asset whose “main use is to derive rent” would clearly apply on the plain meaning of the words and given that the tenants were clearly paying rent – and notwithstanding any imperative to interpret the concessions favourably for a taxpayer. (Del Castillo and FCT [2022] AATA 4233, 12 December 2022)
IGTO report: ATO administration of deceased estates
The Inspector-General and Taxation Ombudsman IGTO)’s has issued detailed recommendations to improve the tax administration of deceased estates in relation to its report on “Death and Taxes – An investigation into ATO systems and processes for dealing with deceased estates. The recommendations relate to a range of matters, including: “whole of government death notifications”, the dissemination of ATO guides and instruction for trust tax returns and the utility of PCG 2018/4 Income tax – liability of a legal personal representative of a deceased person.
NSW: “First Home Buyer Choice” tax measures
NSW Revenue has issued a Guide on the recently introduced “First Home Buyer Choice” tax measures. The Guide provides information on the following matters: the nature of the First Home Buyer Choice; Commencement date; Transitional provisions; How the property tax calculated; and Options available for first home buyers.
TPB: Registered practitioners under franchise arrangements
The Tax Practitioner Board (TPB) has released information on how to become a registered tax practitioner for individuals who are considering gaining relevant experience from a tax practice that operates under a franchise arrangement. The TPB says that depending on the structure of the franchise arrangement, an individual may be a franchisee operating a franchise business or an employee of or contractor for the franchise business. Further, the franchisor may be the supervising tax practitioner or a company or partnership.
Thursday
GST assessment not excessive – and 50% shortfall penalty upheld
A taxpayer, which ran a talent business, has failed to discharge the onus of proving that an amended GST assessment issued to it was excessive. The ATO contacted the taxpayer for further information in relation to a BAS lodged for one quarter and the taxpayer responded claiming there had been a typographical error. A subsequent audit of the taxpayer resulted in an amended assessment for a GST shortfall of some $39,000 and the imposition of a 50% shortfall penalty of some $19,000. On review of the decision, the AAT found, among other things, that there was a lack of corroborating evidence to link various transactions to creditable purpose and that therefore, the taxpayer’s claims for input tax credits had been properly disallowed. The AAT also found there were no grounds for remission of the penalty as the taxpayer had made misleading statement in its disclosure to the ATO. (The Trustee for the NFTA Unit Trust and FCT [2022] 4132, 5 December 2022.)
Former Perth financial adviser imprisoned for super fraud
ASIC has advised that a former Perth financial adviser has been imprisoned for superannuation fraud. On 13 December 2022, the former financial adviser was sentenced in the Perth District Court for dishonestly obtaining over $35,000 from his clients’ superannuation accounts. He was sentenced to three years in prison, to be released after 18 months upon entering a $5000 recognisance to be of good behaviour for two years. An ASIC investigation identified that after obtaining a superannuation fund’s details, the financial adviser submitted falsified benefit access applications or hardship applications to the funds. The financial adviser also impersonated his clients over the telephone when communicating with their super funds.
ATO: Missed the director ID deadline?
The ATO has provided information about what to do if you’ve missed the director ID deadline. The ATO states that if you missed the deadline, you can still apply ID beyond 14 December 2022 by requesting an extension of time. See the ABRS website for more information.
Exemption: wholly-owned Aust subsidiaries of the Future Fund
The Government has announced that the law will be amended to exempt wholly-owned Australian incorporated subsidiaries of the Future Fund from corporate income tax. Providing the exemption will remove the administrative burden associated with the payment of tax by the subsidiaries and subsequent claiming of an imputation refunds on dividends paid to the Future Fund. Comments are due by 22 December 2022.
Friday
ATO lodgment dates shifted
As many practices are closed for a well-earned break over the festive season the 15 January 2023 lodgement deadline for income tax returns may cause pressure for tax practitioners. To help ease the pressure, the ATO are: extending the due date for lodgement of agent prepared Income Tax Returns and associated schedules and reports for medium and large entities from 15 January to 31 January 2023; and extending the lodgement date for country-by-country reporting statements for the year ended 31 December 2021 from 31 December 2022 to 31 January 2023. Existing deferrals beyond 31 January 2023 will remain in place and there will be no changes to the payment due dates. If you, your practice or clients are having difficulty lodging on time for reasons beyond your control lodgement support options available.
Draft Ruling: Who is an employee?
The ATO has released Draft Taxation Ruling TR 2022/D3 Income tax: pay as you go withholding – who is an employee? It explains the Commissioner’s approach in applying the High Court decisions in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 to the definition of “employee” for the purposes of s 12-35 of Sch 1 to the TAA 1953. It also aids in understanding the ordinary meaning of an “employee” for the purposes of s 12(1) of the Superannuation Guarantee (Administration) Act 1992, but it is not legally binding on the Commissioner for this purpose. The High Court cases state that whether a worker is an employee of a putative employer under the term’s ordinary meaning is a question of fact to be determined by reference to an objective assessment of the totality of the relationship between the parties, having regard only to the legal rights and obligations which constitute that relationship. In this context, the Ruling considers each of the common law indicia of employment which remain relevant but are not to be used in a checklist manner. (This draft replaces Taxation Ruling TR 2005/16 Income tax: Pay As You Go – withholding from payments to employees.)
Draft PCG: Classifying workers as employees or independent contractors
The ATO has released Draft Practical Compliance Guideline PCG 2022/D5 Classifying workers as employees or independent contractors – ATO compliance approach. It outlines the Commissioner’s compliance approach for businesses that engage workers. It does not provide a definitive answer to the question “am I an employee or a contractor” but sets out how we allocate our compliance resources based on the risk associated with the classification. It also does not replace, alter or impact the ATO’s interpretation of the law or relieve any parties of their obligation to comply with relevant tax or superannuation laws. It should be read in conjunction with Draft Taxation Ruling TR 2022/D3 Income tax: pay as you go withholding – who is an employee? (above) and Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee?
PCG: GST and residential colleges
The ATO has released PCG 2022/3 Goods and services tax and residential colleges – ATO compliance approach. It sets out the Commissioner’s compliance approach for universities and residential colleges supplying accommodation, meals, tertiary residential college courses and religious services (or a combination of any of these services) to resident students and claiming input tax credits.
