tax rage navigating the current landscape...i aint got no love for mygov, … will still do my thang...

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TAX RAGE

Navigating the current

landscape

Peter Adams

November 2018

Peter Adams

Augmentors

Peter has more than 20 years experience as a tax practitioner, having worked in senior

tax management roles in the profession with both KPMG and PwC as well as in

commerce. Recently Peter has focused on providing tax consulting and tax training

services in the SME market.

Copyright

© 2018 – Institute of Public Accountants. Apart from any fair dealing for the purposes of private study, research or as permitted under the Copyright Act, no part of this handout material may be reproduced or copied in any form or by any means without the written permission of the Institute of Public Accountants.

Disclaimer

The contents of this paper are for general information only. They are not intended as professional advice, for this you should consult a suitably qualified accountant or other professional. The Institute of Public Accountants expressly disclaims all liability for any loss or damage arising from reliance upon any information in this paper.

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TAX AGENTS RAP● YO … TAX AGENTS MATTER, ● Wassup Morrison and Jordan… ● All I’m getting is double talk and chatter● I’m trippin dog… cause YO TAX AGENTS MATTER● TAX AGENTS MATTER!● Commissioner says he wants to be my mate, ● But round every turn he tries to seal my fate● You wanna be my friend then act like the latter● Cause YO TAX AGENTS MATTER● TAX AGENTS MATTER!● Y’all gotto sing from my page to calm my rage● Walk in my shoes, before you get my dues● Don’t be given me no dog’s breakfast, while you gettin fatter● Cause YO TAX AGENTS MATTER● TAX AGENTS MATTER!● I aint got no love for myGov, …● Will still do my thang and go beyond and above,● Making taxpayers’ lives better● Cause YO TAX AGENTS MATTER● TAX AGENTS MATTER!

Key Recent Federal Budget Measures

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Main Residence exemption – foreign Residents

2017 Budget announcement to deny foreign residents access to

the CGT main resident exemption from 9th May 2017

Only Australian residents can access main residence exemption

○ No exempt portion of any future capital gain on a disposal

(all or nothing)

● Transitional measure, properties held at 9th May 2017 will

continue to qualify for the exemption if sold by a foreign

resident on or before 30th June 2019


If you a non-resident on the date your contract of sale is signed (as opposed to settlement date), you will

be subject to CGT on 100% of the capital gain

● Vicki acquired a dwelling on 10 September 2010, moving into it and establishing it as her main

residence as soon as it was first practicable to do so.

On 1 July 2018 Vicki vacated the dwelling and moved to New York. Vicki rented the dwelling out

while she tried to sell it. On 15 October 2019 Vicki finally signs a contract to sell the dwelling with

settlement occurring on 13 November 2019. Vicki was a foreign resident for taxation purposes on

15 October 2019

● The time of the CGT event A1 for the sale of the dwelling is the time the contract for sale was

signed, that is 15 October 2019. As Vicki was a foreign resident at that time she is not entitled to the

main residence exemption in respect of her ownership interest in the dwelling

Note: This outcome is not affected by

○ Vicki previously using the dwelling as her main residence; and

○ the absence rule in section 118 - 145 that could otherwise have applied to treat the dwelling as Vicki’s

main residence from 1 July 2018 to 15 October 2019 (assuming all of the requirements were satisfied)

Note : Note that if Vicki returned to Australia and re-established her Australian residency status for

tax purposes before 15 October 2019, she would be entitled to the full main residence exemption

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● Removal of exemption also extends to situations where dwellings are

acquired from a deceased estate

Implications

● Foreign residents may consider selling their main residence before 30th

June 2019 to benefit from transitional rule

● individuals who are becoming non-residents of Australia may want to

consider whether they should enter into a contract to dispose of their

former Australian residence before they permanently depart Australia

● We may see an increase in Australians who have departed the

country, exploring ways to remain a resident of Australia for tax

purposes, however, this may have other, negative tax implications as

they may then become taxable on their non-Australian sourced income

Changes to small business CGT Concessions

As part of its 2017-18 Budget, on 9 May 2017, the Government announced

proposed amendments which would limit the application of the small

business CGT concessions (SBCGT Concessions).

● amendments were intended to ‘improve the integrity of the tax system’

Note: The breadth of the changes proposed raise a question as to whether

the Bill will result in an integrity improvement or a broader shift away from

the policy intentions which have underpinned the SBCGT Concessions

since their introduction in 1999

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Changes to small business CGT ConcessionsCurrent SBCGT Rules Proposed new SBCGT Rules

The current SBCGT Concession rules apply the

following additional basic conditions for capital

gains relating to shares in a company or interests

in a trust:

•if the relevant taxpayer is an individual, either

the taxpayer or their spouse must be a ‘CGT

concession stakeholder’ in the Object Entity or

•if the relevant taxpayer is a company or trust,

CGT concession stakeholders in the Object

Entity must together hold (directly or indirectly) at

least 90% of the interests in the taxpayer.

The Bill proposes that additional basic conditions

will apply for capital gains relating to shares in a

company or interests in a trust (Object Entity) as

follows:

•either the taxpayer must be a CGT concession

stakeholder in the Object Entity, or CGT

concession stakeholders in the Object Entity

must hold at least 90% of the interests in the

taxpayer

•unless the taxpayer satisfies the maximum net

asset value test (MNAVT), the taxpayer must

have carried on a business just prior to the CGT

event

•the Object Entity must either be a CGT small

business entity for the income year or satisfy the

MNAVT and

•the shares or interests in the Object Entity must

satisfy a modified active asset test.

Changes to small business CGT Concessions● The requirement for the Object Entity to meet the MNAVT or small business entity test will

exclude taxpayers who are presumably outside the integrity concern

● To make matters worse, the Government has retained a retrospective application date of

1 July 2017

● integrity improvement or a broader shift away from the policy intentions which have

underpinned the SBCGT Concessions since their introduction in 1999

○ no requirement to test whether an Object Entity satisfied a maximum net asset

value

○ also proposed a shift from testing the taxpayer only (ie the entity disposing of an

asset, share or interest) to a twofold approach which also tests an Object Entity.

This is seemingly on the basis of a policy intention that an Object Entity must itself

be a CGT small business entity in order for the SBCGT Concession to apply

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Purchasers of new houses – the new GST collectors

The new GST rules which impose a withholding obligation for purchasers will:

● apply from 1 July 2018

● apply to sales of land with new residential premises or potential residential land

● make the purchaser liable to remit GST to the ATO and

● require the vendor to provide a purchaser with a notice

This is another compliance obligation to be imposed on vendors and purchasers (for

example, in addition to the foreign resident CGT withholding) that will need to be

considered

A vendor is required to provide the purchaser with a specific type of notification

(relating to GST on the supply) before making the supply. This notification informs the

purchaser that they are required to make a GST payment to the ATO and outlines the

amount of GST owed. Failure to do so may result in 100 penalty units (which is

currently $21,000, or up to 5 times that amount for corporations)

Purchasers of new houses – the new GST collectors

The amount of GST to be paid is 1/11th of the contract price of the

supply. However, where supplies are made under the margin scheme, a

statutory rate will apply. The statutory rate of 7% (or greater amount as

determined by the Minister in a legislative instrument, but no more than

9%) must be withheld by the purchaser and paid to the ATO

The vendor will be entitled to a credit for the amount of any payment

made to the ATO by the purchaser

Law companion ruling LCR 2018/D1

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Divergent tax policies

● The next 12 months is “going to be a big year in tax”, as political parties

have started drawing distinct lines in tax policy ahead of the up coming

federal election

● Need for tax agents to explain implications of these policy differences to

their clients


Coalition’s current tax policies are:

● A reduced corporate tax rate for all companies eventually with a target rate of 25%

(Note – will not be taken to the next election as part of the Coalition platform);

● A reduction in personal tax rates;

○ From 2018-19 to 2021-22 new tax offset for middle and lower income earners

○ From 1 July 2018 32.5% tax bracket increased to $90,000

○ From 2022-23 increase 19% tax bracket to $41,000 and increasing LITO from

$445 to $645 and further increase 32.5% tax bracket to $120,000

○ From 1 July 2024 abolish 37% tax bracket entirely and increasing top marginal

tax bracket to $200,000

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● No change to current arrangements regarding negative gearing of

investment property;

● No change to the CGT discount which currently sits at 50% for

individuals;

● No change to the current arrangements regarding trust distributions

from discretionary trusts



● No change to the current arrangements regarding imputation in

particular, full refund of excess imputation credits; and

● No changes in relation to depreciation – the $20,000 immediate asset

write-off available to 30 June 2019

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Labor Seeking mandate

Labor policies mentioned so far:

● A restoration of the company tax rate to the full 30% coupled with a

possible lower rate for smaller corporate entities with turnover less than

$2M;

● Higher personal tax rates at the top end and lower personal tax rates at

the lower end;

● An increase in the Medicare levy to 2.5% coupled with a more

generous Medicare levy arrangement for lower paid workers than

currently available

Labor Seeking mandate


● A prohibition on negatively gearing investment properties other than newly built

investment properties;

● A halving of the capital gains tax (CGT) discount to 25% for individuals;

● A minimum tax of 30% on all distributions from discretionary trusts;

● A denial of refund in respect of excess imputation credits (subject to certain

limited exceptions);

● A new deduction (the Australian Investment Guarantee) which will enable a

20% deduction in respect of the purchase of any new eligible asset worth more

than $20,000;

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Labor Seeking mandate.. (cont)


● Capping of deductions for managing tax affairs to a maximum of $3,000;

● Whistle-blower rewards for tax evasion; and

● Superannuation:

○ Oppose catch up contributions on concessional contributions and tax

deductibility on personal superannuation contributions;

○ Lower annual non-concessional contribution cap to $75,000 and further

lower high income super contribution threshold to $200,000; and

○ Increasing the Superannuation Guarantee to 12% when fiscal

circumstances allow

Key Federal Budget Measures

Black Economy

● From 1 July 2019, businesses may not be able to claim deductions for payments to their

employees (e.g. wages) where Pay As You Go withholding (PAYG) has not been

withheld

○ Will the new measure apply to businesses that inadvertently classify a worker as

an independent contractor rather than an employee, and do not withhold PAYG. In

addition to non-deductibility for payments such as wages, the business would also

be exposed to existing implications under the PAYG penalty regime and

Superannuation Guarantee Charge

● In addition, no deduction will be available for payments made by businesses to

contractors where the contractor does not provide an Australian Business Number (ABN)

and the business does not withhold any amount of PAYG despite the withholding

requirement applying

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Black Economy

● Introduction of an economy-wide limit of $10,000 for cash payments

made to businesses for goods and services from 1 July 2019

● Further expansion of taxable payments reporting system (TPRS) by

extending coverage to security providers and investigation services,

road freight transport, and computer system design and related

services to a stage where businesses will need to ensure that they

collect information from 1 July 2019, with the first annual report

required in August 2020


Black Economy

● New and enhanced ATO enforcement against the Black Economy by

creating:

○ A new enforcement strategy featuring mobile strike teams and

an increased audit presence, a Black Economy Hotline,

improved Government data analytics and educational activities

○ Support for the new Black Economy Standing Taskforce to

ensure a more coordinated approach to combatting the black

economy

● Consulting on a new regulatory framework for issuing ABNs in 2018-

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Image rights

● Integrity measures will be introduced to prevent individuals with potentially

valuable ‘image rights’ (such as sportspeople, entertainers and media identities)

obtaining a tax advantage by entering into arrangements involving the licencing of

those image rights to controlled entities (companies and trusts).

● Payments relating to ‘image rights’ will be included in the individual’s assessable

income

● Note: The Australian Taxation Office recently released Draft Practical Compliance

Guideline 2017/D11.

● The Guideline provided a ‘safe harbour’ approach and percentage for working out

the payment for a sportsperson’s Image Rights.

● The ‘safe harbour’ is 10% of the total payment made to the player for personal

services, image rights and anything else


Image rights

Targeted at high profile people using their name,fame or brand image via a family trust or

company.

Also captures anyone with an exploitable personal brand or image

● Anti-income diversion measure to ensure income taxed at top marginal tax rate

rather than lower company tax rate

○ Not uncommon for personalities to use companies to receive fees from

entities who used their images for promotional purposes

○ Not unlike treatment of PSI companies where income paid to the company is

attributed back to individual

Income diversion now seems under ATO focus – Allocation of profits for professional

firms

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SMSF Audit Cycle

● The annual audit requirement for self-managed superannuation funds (SMSFs) will

be extend to a 3-yearly cycle for funds with a history of good record-keeping and

compliance.

○ The measure will apply to SMSF trustees that have a history of 3 consecutive

years of clear audit reports and that have lodged the fund's annual returns in

a timely manner

○ This measure will start on 1 July 2019. The Government said it will undertake

consultation to ensure a smooth implementation


Division 7A measures

The Government will defer previously announced Division 7A

measures to 1 July 2019

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SBE CGT Concessions in relation to partnerships

This announcement provides that from Budget night, partners that

alienate their income by creating, assigning or otherwise dealing

in rights to the future income of a partnership, will no longer be

able to access the small business CGT concessions in relation to

those rights


Deny deductions for vacant land

● Taxpayers will not be allowed a deduction for expenses associated

with holding vacant land from 1 July 2019.

● The measures are expected to impact a large number of taxpayers

and will apply to residential and commercial land.

● Disallowed deductions may not be carried forward to future years

when the land may no longer be vacant.

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Deny deductions for vacant land

● Where the denied deduction would ordinarily form part of the cost base of a

capital gains tax asset, it may still be included in the cost base of the asset.

● However, items such as interest, that would not ordinarily form part of cost

base, will not be deductible or included in cost base.

There are exceptions where:

● A property has been constructed and has received approval to be occupied

and is available to rent; or

● the owner is using the land to carry on a business.

NOTE

This is an integrity measure to stop taxpayers claiming deductions where they

are not holding the land for the purpose of earning assessable income

Tax Developments 2018 / 2019

Maximum Net Asset Test Failed Hookey v FCT [2018] AATA 1509

● In this case the taxpayer made a capital gain in the 2008 year when he

sold five child care centre businesses.

● The taxpayer reduced the capital gain by application of the small business

CGT concession by an amount of $1,633,841.

● The Commissioner denied the use of these concessions as the taxpayer

failed the $6 million maximum net assets test.

● The taxpayer argued that there are liabilities which should be taken into

account to determine the net assets bring the net value below $6 million

and that the value of the assets sold is less than the price at which they

were sold.

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Some of the liabilities that the taxpayer argued should be included were:

● Accrued interest on a loan.

○ This loan was taken out by a related entity predominately for purposes connected with the asset, secured

by a registered mortgage upon the asset, and the asset was one of the CGT assets upon which the net

assets were calculated.

○ AAT held that interest which has already accrued would form part of the liabilities of the entity at the

relevant date, and interest which has not yet accrued would not do so.

● An amount equal to the cost to complete a child care centre that was valued on an “as if

complete” basis. ○ The AAT accepted this liability should be included.

● A $1.5 million family court payment. However, there was no evidence this was due at the

time of the CGT event

○ AAT rejected this as an eligible liability.



● Commissioner argued that value for assets sold is what is on the arms-length contracts,

and if so, $6m MNAV test is not met and taxpayer is entitled to a small business CGT

concessions.

● Taxpayer argued that the purchaser was willing buyer and was prepared to pay above

market value in order to add to its portfolio.

● Taxpayer provided valuations valuation that valued the assets at $3.2 million and $3.5

million less than the purchase price stipulated in the contracts of sale.

● The first valuation taken before the sale noted that a premium may be paid by a major

chain operator to acquire properties as part of a portfolio

● However this aspect had not been taken into account in the valuation.

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● AAT rejected taxpayer’s argument.

● The AAT cited the case of the Commissioner of Taxation v Miley [2017] FCA 1396:

○ “…Even if the valuation of an asset is to be approached on the basis of

hypothetical buyers and sellers, it is necessary to have regard to the realities

of the market… If there is, or is likely to be, a particular buyer who is likely to

be willing to pay more for the asset in question than others because they are

in a better position to exploit the particular attributes or potentialities of the

asset, that buyer should not be excluded in considering the releva

● Taxpayer exceeded $6m MNAV, so no access to SBE CGT concessions


Personal Income Tax Plan

Treasury Laws Amendment (Personal Income Tax Plan) Bill 2018

● This Bill amends the income tax law to implement Government’s Personal income tax

plan.

● There are two elements of the plan.

● The first is the introduction of the low and middle income tax offset (in addition to the Low

Income Tax Offset) and the later replacement of both that offset and the LITO with the

new low income tax offset.

● The second is changes to the thresholds at which marginal income tax rates apply.

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Low & Middle Income Offset for Australian residents during 2019 to 2022 years. Applies in

addition to current LITO which has maximum entitlement of $445.




● A new low income tax offset will replace both low and middle income tax offset and low

income tax offset on 1 July 2022.

● New low income tax offset is available to Australian resident during 2022-23 or a later

income year if their taxable

● income for that income year does not exceed $66,667.

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Income tax thresholds

● This Bill amends the thresholds and rates that apply to individuals over the next seven

years.

● From the 1 July 2018, this Bill will increase the 37% threshold $90,000 from $87,000.

● This will save those earning over $90,000 about $135 a year.

● From 1 July 2022, the 19% rate starts where taxable income exceeds $41,000 rather than

$37,000, and the 32.5% rate starts when taxable income exceeds $120,000 rather than

$90,000.

● Finally, from 1 July 2024, the 37% rate will be abolished and the threshold above which

taxable income is taxed at 45% will increase to $200,000.


Downsizer Super Concession Ruling - Law Companion Ruling LCR 2018/D4

● This draft Ruling considers the new downsizing measure that allows a new

contribution type, a “downsizer contribution”, into the superannuation

system.

● This allows individuals to contribute the proceeds of the sale of their home

into superannuation where certain requirements are satisfied.

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Requirements:

● The individual must be aged 65 years or older at the time the contribution is made;

● Contribution must be capital proceeds from sale of interest in a qualifying dwelling in Australia;

● Ownership interest in dwelling or ownership interest in land on which the dwelling is situated, must

have been held for 10 years by individual or spouse prior to disposal;

● Any capital gain or loss from the disposal of the dwelling must have qualified (or would have

qualified) for the main residence CGT exemption in whole or part;

● Contribution must be within 90 days of disposal, or such longer time as Commissioner allows;

● A choice is made to treat contribution as a downsizer contribution, and superannuation plan

provider is notified in approved form of this choice at or before contribution is made;

● Contributing individual has not previously made downsizer contributions for earlier disposal; and

● The maximum contribution is lesser of $300,000, or the proceeds from the sale



● Individuals are not required to purchase another dwelling following the sale of the relevant

dwelling interest to be eligible to make a downsizer contribution.

● Rules only apply where the contract for the disposal of the relevant dwelling interest is

entered into on or after 1 July 2018.

● Downsizer contribution is neither a concessional nor a non-concessional contribution and

therefore is not counted towards the respective contribution caps.

● Total superannuation balance of the individual will not affect any eligibility to make a

downsizer contribution.

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Example

Scenario

● Stuart and Shirley are married and own a house as tenants in common, each with a 50% share in the

property.

● They are both eligible to make a downsizer contribution from the capital proceeds from the sale of this

house.

● In 2019 they sell the property for $500,000.

● The capital proceeds attributable to each individual’s interest are $250,000.



Example

Outcome

● An individual is able to contribute the capital proceeds derived from the disposal of both their interest

and their spouses’ interest

● As long as they are sold under the same contract, Stuart and Shirley are able to access each other’s

proceeds to make a downsizer contribution.

● Stuart and Shirley can choose how to allocate the total available contribution amount, as long as

neither individual contributes more than $300,000 in total, and the sum of their respective contributions

does not exceed the capital proceeds of $500,000.

● They choose to make $300,000 of contributions to Shirley’s complying superannuation plan, and a

$200,000 contribution to Stuart’s complying superannuation plan.

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First Home Super Saver Scheme

Law Companion Ruling LCR 2018/D5 First Home Super Saver Scheme

● This draft Ruling provides guidance on the operation of the First Home Super Saver

Scheme.

● This Scheme is designed to allow individuals who make voluntary contributions into the

superannuation system on or after 1 July 2017, to withdraw those contributions and an

amount of associated earnings for the purpose of purchasing their first home.



● Eligible individuals can apply to access the FHSS Scheme from 1 July 2018.

● To be eligible for the FHSS Scheme, you must:

○ Never have held certain property interest in Australia, unless specific financial hardship requirements are

met;

○ Be over the age of 18; and

○ Not have requested a release authority under the FHSS Scheme previously.

● The property interest under these conditions includes a freehold interest in real property in

Australia, long term leases of land and a company title interest in land in Australia.

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● Contribution must be an “eligible contribution” in order for it to be released under this

Scheme.

● An eligible contribution can be an employer contribution that is not a mandated employer

contribution or a member contribution that is made by you.

● However, some contributions are specifically excluded from being eligible contributions,

including:

○ Any part of a contribution to the extent it is required to be made because of the law of the Commonwealth or

of a State or Territory, or the rules of the relevant superannuation fund;

○ Contributions made in respect of defined benefit interests; and

○ Contributions made to constitutionally protected funds.



● Where rules of superannuation fund require member to make either a concessional or non-

concessional contribution within a particular range (e.g. 1 to 5% of the member’s salary),

only the proportion of contribution equal to ‘minimum’ contribution s excluded as eligible

contribution.

Examples of contributions that are not eligible contributions include:

● Amounts that reduce an employer’s potential liability for the superannuation guarantee

charge

● Amounts required to be made by employer under an industrial agreement

● Contributions made for you by another person (such as friend, spouse or family member)

● Government co-contributions

● Contributions that relate to structured settlements or orders for personal injuries

● Certain CGT-related payments to the extent not in excess of CGT cap amount when made,

and

● Amounts paid due to a contribution splitting arrangement.

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● An individual can apply to Commissioner to make a first home super saver determination.

● This first home super saver determination will set out maximum amount that can be released.

● The maximum withdraw amount is $15,000 of eligible contributions made in a particular

financial year, to a total of $30,000 of contributions across all years.

● Whilst the full amount of eligible concessional contributions counts towards the limit, only 85%

of the concessional contributions are releasable

● if a member contributes $20,000 eligible concessional contributions in a financial year they only

have $12,750 of releasable concessional contributions (85% of $15,000).

● Amount is included in assessable income for the year in which member requests Commissioner

to issue release authority,

● Member is entitled to non-refundable tax offset equal to 30% of assessable FHSS released

amount.

● Commissioner will withhold PAYG amount from FHSS released amount before releasing

balance



● Following conditions must be met after the release of funds under the Scheme:

○ Member must enter into a contract to purchase or construct a CGT asset that is a residential

premise within 12 months after the release of the first FHSS released amount (or further period

allowed by ATO).

○ Price for purchase or construction of premises is at least equal to the sum of the FHSS released

amounts;

○ Member has occupied the premises, or intend to occupy the premises as soon as practicable;

○ Member intends to occupy premises for at least 6 months of first 12 months after practicable to do

so; and

○ Member notifies Commissioner of the matters outlined above within 28 days after entering into the

contract to purchase or construct the residential premises.

● Commissioner may extend the period for entering into a contract by up to 12 months.

● If a member does not sign a contract in the 12 months from the release date they must make

non-concessional contribution of the amount and notify the ATO in the approved form.

● If they do not they will be subject to FHSS tax at 20% of assessable FHSS released amount.

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Example

● Nicholas works for a company that pays their employees on the first day of each month.

● Nicholas has an effective salary sacrifice agreement with the employer.

● The employer also makes voluntary after-tax contributions on behalf of Nicholas as part of the

same payroll process.

● He has an agreement with his employer to make the following voluntary contributions on his

behalf during the 2017-18, 2018-19 and 2019-20 financial years:

● $550 per month under the salary sacrifice arrangement, and

● $550 per month as an after-tax superannuation contribution.



Example

● In total, Nicholas has $6,600 a year in concessional contributions (those made under the salary

sacrifice arrangement) and $6,600 in non-concessional contributions (those made after tax)

made on his behalf in each financial year.

● In July 2020, Nicholas applies for a FHSS determination.

● Subject to the restrictions set out in paragraph 43 of the Draft Ruling, the FHSS releasable

contributions includes 85% of the concessional contributions (under the salary sacrifice

arrangement) and 100% of the non-concessional contributions.

● Nicholas can only have a maximum of $30,000 of eligible contributions made across all years

under the FHSS Scheme.

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Example

FHSS determination will count the contributions in the order in which they were made as follows:

● All of the voluntary contributions he made for the 2017-18 financial year ($6,600 non-concessional

contributions and $5,610 concessional contributions will be releasable contributions).

● All of the voluntary contributions he made for the 2018-19 financial year ($6,600 non-concessional

contributions and $5,610 concessional contributions will be releasable contributions).

● All of the voluntary contributions he made for July 2019 to September 2019 will be counted ($1,650 non-

concessional contributions and $1,650 concessional contributions will count towards the limit).

● However, for October only $300 of further contributions can be released until he reaches his $30,000 limit.

● This means that the simultaneous contribution rule will apply for the contributions made in October and the

amount released from the fund will include $300 of non-concessional contributions for that month.

● This means for 2019-20 year, releasable contributions amount will be $1,950 ncc’s and $1,402.60 cc’s

(where the eligible cc is determined as $1,650 multiplied by 85%).

● Nicholas’ determination will also include associated earnings for each of these contributions.


Valuations for the margin scheme upheld Decleah Investments Pty Ltd v FCT [2018] FCA 717

● Federal Court overturned AAT decision that taxpayer had not provided approved valuation of

the properties at 1 July 2000 when applying margin scheme on the supply of subdivided lots

originally acquired GST-free.

● One valuation that the taxpayer produced and used was done in 2009 where a valuer used a

discounted cash flow to value land at 1 July 2000.

● Rather than considering the land as it was on 1 July 2000 and predicting possible future cash

flows, the valuer used the actual cashflows that occurred between 2000 and 2009.

● The Commissioner rejected this method.

● The Federal Court held that the issue for determination was whether the valuation was made in

a manner “not contrary to professional standards in Australia”.

● The issue was not whether the method used was a good application of a method.

● As Commissioner had not shown how this method was contrary to any professional standard,

the valuation must be an approved valuation as valid basis for the margin scheme

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A permanent place of abode outside of Australia Harding v FCT [2018] FCA 837

● Federal Court concluded that a taxpayer did not have a permanent place of abode outside of

Australia and so was a resident for tax purposes under the domicile test.

● The taxpayer worked in Saudi Arabia and Bahrain.

● His family remained living in the family home in Australia, expected to join him but never did and

he separated from his wife.

● While working overseas, the taxpayer had a one or two-bedroom serviced apartment at different

times.

● While the taxpayer did not intend to return to Australia he did not establish a permanent place of

abode overseas as required under the domicile test due to the nature of the service apartments.


Work related expenses not substantiated Hussain and FCT [2018] AATA 1111

● AAT considered deduction claims of an interpreter for travel and other work-related expenses.

● The amount claimed was over $27,000 in the 2013 year and over $51,000 in the 2014 year.

● Commissioner asked for substantiating evidence for these amounts and the taxpayer replied

that he did not have access to the documents due to a marriage breakdown.

● He also could not find documents after this breakdown due to having to move.

● Travel diary information either incomplete or not available

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Work related expenses not substantiated Hussain and FCT [2018] AATA 1111

● AAT upheld the Commissioner’s decision to deny the deductions.

● AAT expressed concern that some of the claimed expenses may not have been incurred.

● AAT was not satisfied that the taxpayer took reasonable precautions to prevent the loss or

destruction of the written records or has provided a credible explanation for not being able to

provide supporting documentation

● Taxpayer also did not make any reasonable efforts to obtain substitute documents to support

his claim that he had paid them.

● Therefore, the AAT upheld the Commissioner’s decision not to exercise the discretion to allow

the deductions where these is no substantiating evidence.


Taxable Payment Reporting for Couriers and Cleaners

Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018

● This Bill will require entities providing courier or cleaning services that have an ABN to report to

the Commissioner information about transactions that involve engaging other entities to

undertake those courier or cleaning services for them from 1 July 2018.

● This is same as reporting requirements that currently apply in building and construction

industries.

● The Bill has been passed by the House of Reps but with an amendment that treats exempts

entities from the requirements where the total amount of payments an entity receives for courier

or cleaning services are less than 10% of the entity’s GST turnover.

29


Car depreciation limit

Taxation Determination TD 2018/6 Income tax: what is the car limit under section

40-230 of the Income Tax Assessment Act 1997 for the 2018-19 financial year?

● The car limit under section 40-230 for 2018-19 year is $57,581.

● If cost of a car exceeds car limit, the first element of cost is reduced to the car

limit.


Luxury car tax

Luxury Car Tax Determination LCTD 2018/1 Luxury car tax: what is the luxury car

tax threshold and the fuel-efficient car limit for 2018-19 financial year?

● The Luxury Car Tax threshold for the 2018-19 financial year is $66,331 and the

fuel-efficient car limit for the 2018-19 financial year is $75,526.

30


FBT car parking threshold

Taxation Determination TD 2018/7 Fringe benefits tax: for the purposes of section

39A of the Fringe Benefits Tax Assessment Act 1986 what is the car parking

threshold for the fringe benefits tax year commencing on 1 April 2018?

● The car parking threshold for the fringe benefits tax year commencing on 1 April

2018 is $8.83. This replaces the amount of $8.66 that applied in the previous

year commencing 1 April 2017.


Clothing claims - Clothing claims put through the wringer this Tax Time

● Commissioner has said that this year ATO will focus on work-related clothing and laundry

expenses.

● Last year around 6 million people claimed work-related clothing and laundry expenses, with

total claims adding up to nearly $1.8 billion.

● These claims are nearly 20% over the last five years.

● Around a quarter of all clothing and laundry claims were exactly $150 and the Commissioner is

concerned that some taxpayers think they are entitled to claim $150 as a standard deduction,

even if they don’t meet the clothing and laundry requirements.

● This $150 limit is a rule regarding record-keeping, not what can be claimed.

● While a taxpayer does not need written evidence for claims under $150, the clothing must have

been for uniform, protective or occupation-specific clothing

● It must be required to be worn to earn income - taxpayers must show how they calculated the

claim.

31



● Commissioner is reminding taxpayers that they cannot claim a deduction for normal clothing,

even if your employer requires them to wear it, or it is only worn to work.

● Commissioner states that for eligible clothing (occupation-specific, protective or uniform and not

plain or conventional clothing), a taxpayer can calculate their claim for washing, drying and

ironing by the following assuming the claim is less than $150:

○ $1 per load if the load is made up only of work-related clothing

○ 50c per load if you include other laundry items



Example - Incorrectly claiming for plain clothing

● An advertising manager claimed $1,854 for clothing and laundry expenses.

● Her claim was for clothing purchased at popular fashion retail stores.

● When we contacted her, she said she represented her company at work functions and awards

nights and was required to dress a certain way.

● We explained that expenses for conventional clothing are not deductible, even if you are

required to wear them for work, and/or only wear them for work.

● The taxpayer’s clothing and laundry claim was disallowed in full, and a penalty for failing to take

reasonable care was applied.

32



Example - Unreasonable calculation of laundry claim

● A car detailer claimed work related laundry expenses of over $20,000 per year over two years.

● When questioned, the taxpayer told us he worked out the laundry expense at the rate of $227

per hour, as he valued his personal time.

● He then made a voluntary disclosure that his claim was excessively high and in no way a

reasonable amount to claim.

● The taxpayer’s claims were reduced to $0 in accordance with his voluntary disclosure.

● As he made a voluntary disclosure before our audit progressed, no penalties were applied.


Single Touch Payroll and seasonal workforce

Legislative Instrument - Taxation Administration – Single Touch Payroll – Exemption for Employers

Having a Seasonal Workforce

● This instrument exempts employers from reporting under Single Touch Payroll if they have 20

or more employees on 1 April in any year, but:

○ They had fewer than 20 employees for 10 of the preceding 12 months, and

○ They reasonably expect to have fewer than 20 employees for 10 of the following 12 months.

● This instrument recognised that for some employers, the number of individuals employed on 1

April may be higher than is the case for the majority of the year.

● That may be due to seasonal or other industry specific factors.

● For example, an orchard may employ a large number of pickers in March and April but very few

staff for the remainder of the year.

33


New cents per kilometre rates

MVE 2018/D1 Income Tax Assessment Act 1997 - cents per kilometre deduction

rate for car expenses 2018

● This instrument applies to work-related car expense deductions and sets the

rate at which those deductions may be calculated using the cents per kilometre

method.

● The Commissioner of Taxation has determined that the rate is 68 cents per

kilometre for the income year commencing 1 July 2018.


SBE CGT - Active Asset Test Failed - Rus v Commissioner of Taxation [2018] AATA 1854

● Taxpayer sought review of an objection decision disallowing her objection against a private

binding ruling on whether certain property was an “active asset”

● The size of the property is approximately 16 hectares and approximately 15 hectares is vacant

land.

● There had been one unsuccessful attempt to crop this area and no money was made from the

cropping attempt.

● There were no livestock and no agistment.

● There were three buildings on the property, being two residences used by family members rent

free and a shed.

● The shed was used in a plastering/housing construction business run by a company that the

owner of the land was a shareholder and director of.

● There were four business vehicles parked near the shed and two containers.

● Also, a room in the house was used for the administration of the business.

34



● This property was sold, and the owner wanted to apply the small business CGT exemptions

(specifically the 15 year exemption).

● To do this the property needed to be an active asset.

● The AAT stated that to be an active asset the asset needs to have been used or held ready for

use in the course of carrying on a business.

● That business can be carried on by the owner of the asset, their affiliate or another entity that is

connected with the owner of the asset.

● It was accepted that the taxpayer and the company were connected entities.



● The AAT summarised the question to be answered as follows:

● “The relevant question to be answered in the present circumstances is whether the whole of the

land is an active asset when only a very small part of it has been used in carrying on a

business?”

● Having regard to the nature of the CGT asset, the nature of the company’s business and the

relationship between the CGT asset and that business, the AAT concluded that the CGT asset

was not used in the course of carrying on the company’s business.

● The CGT asset was 90% vacant so the asset as a whole could not be said to have been used in

carrying on the business.

● The existence of the vacant land did not contribute to the conduct of the business activities of

the company

35



● The taxpayer sought to add additional evidence to that which was in the private ruling.

● This included use of the land as security for a line credit for the business and a Deed of

Agreement recording a lease of the land to the company.

● The AAT could not consider these in this case as they were reviewing the private ruling, but in

any event, the AAT did not consider that the grant of security over the land for a line of credit

was a relevant use by the company.

● The grant of the security did not result in the largely vacant land contributing to the physical

conduct of the company’s business activities.

● The AAT also said that the Deed of Agreement did not demonstrate use of the land by the

company in the course of its business.


FBT - Exempt Work Vehicles Practical Compliance Guideline PCG 2018/3

● Generally, a fringe benefit arises where an employer makes a vehicle they hold available for the

private use of its employee.

● However, the private use of a motor vehicle is exempt from FBT if all of the following conditions

are satisfied:

○ The vehicle is an eligible vehicle, including a panel van, utility (ute) or other commercial vehicle (that is, one not

designed principally to carry passengers); and

○ The employee’s private use of such a vehicle is limited to: travel between home and work

○ travel that is incidental to travel in the course of duties of employment, and

○ non-work related use that is minor, infrequent and irregular.

36

Tax Developments 2018 / 2019 FBT - Exempt Work Vehicles Practical Compliance Guideline PCG 2018/3

In PCG 2018/3, ATO will seek verification private use of vehicle was minor, infrequent and irregular if:

● You provide an eligible vehicle to a current employee;

● The vehicle is provided to the employee for business use to perform their work duties;

● The vehicle had GST-inclusive value less than luxury car tax threshold when vehicle was

acquired;

● The vehicle is not provided as part of a salary packaging arrangement and the employee cannot

elect to receive additional remuneration in lieu of the use of the vehicle;

● You have a policy in place that limits private use of the vehicle and obtain assurance from your

employee that their use is limited;

● Employee uses the vehicle to travel between their home and their place of work and any

diversion adds no more than two kilometres to the ordinary length of that trip; and

● For journeys undertaken for wholly private purpose, the employee does not use the vehicle to

travel:○ more than 1,000 kilometres in total, and

○ a return journey that exceeds 200 kilometres.


FBT - Exempt Work Vehicles Practical Compliance Guideline PCG 2018/3

● The Commissioner states that, while employers do not need to rely on this Guideline to claim

the exemption from FBT for these vehicles, but if the employer meets these conditions:

○ They do not need to keep records about your employee’s use of the vehicle that demonstrate that the private

use of the vehicle is “minor, infrequent and irregular”, and

○ The Commissioner will not devote compliance resources to review that you can access the car-related

exemptions for that employee.

● Therefore, if the employee’s use cannot meet the conditions, they will need to have records that

prove the private use was minor, infrequent and irregular.

37


Beneficiary of a discretionary trust lending interest-free to the trustee

Taxation Determination TD 2018/9 Income tax: deductibility of interest expenses incurred by a

beneficiary of a discretionary trust on borrowings on-lent interest-free to the trustee

● In TD 2018/9 Commissioner states that a beneficiary of a discretionary trust who borrows

money, and on-lends all or part of that money to trust interest-free, is usually not entitled to a

deduction for any interest expenditure incurred by the beneficiary in relation to the borrowed

money on-lent to the trustee.

● It is only where:

○ the beneficiary is presently entitled to income of the trust estate at the time the expense is incurred, and

○ the expense has a nexus with the income to which the beneficiary is presently entitled,

● that the interest expense (or part thereof) might be deductible.


Division 7A and Ordinary Commercial Transactions

Taxation Determination TD 2018/13 Income tax: Division 7A: can section 109T of the Income Tax

Assessment Act 1936 apply to a payment or loan made by a private company to another entity (the

‘first interposed entity’) where that payment or loan is an ordinary commercial transaction?

● In TD 2018/13 the Commissioner states that Division 7A, and specifically the interposed entity

rules in section 109T, 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.

● This section states that if a reasonable person would conclude that the payment or loan to the

first interposed entity is made solely or mainly as part of an arrangement involving a payment or

loan to a shareholder or shareholder’s associate, Division 7A operates as if the private

company made a payment or loan to the target entity.

● This can be the case even if the first payment or loan is an ordinary commercial transaction.

38

Div 7A - Interposed entity (company) loansInterposed entity loans – Section 109T

• Deemed loan arises as a result of interposed entity loan• Deemed loan is repayable and/or can be converted to arm’s length loan

before tax return due date• If not repaid or converted, deemed loan becomes Div 7A deemed dividend

ABC Co. P/L

XYZ Co.

Or

XYZ Trust

ABC Co.

P/L

Shareholder

Loan

1

Loan 2

Deemed Loan

(Section 109T)






39







GST Withholding on New Residential Premises

Law Companion Ruling LCR 2018/4 Purchaser’s obligation to pay an amount for GST on taxable

supplies of certain real property

● In this Ruling the Commissioner provides information about GST notification and withholding

requirements for vendors and purchasers of residential premises and potential residential land.

● The Ruling covers: ○ the types of supplies for which purchasers are required to pay

○ when a purchaser is required to pay

○ the amount the purchaser is required to pay

○ the requirement for a vendor to provide a notice to the purchaser, and

○ the penalties that may apply to vendors and purchasers.

40





Supplies subject to withholding

● This withholding applies to supplies for which any of the consideration, other than a deposit, is

first provided on or after 1 July 2018.

● However, the withholding does not apply if the contract was entered into before 1 July 2018 and

consideration for the supply, other than a deposit, is first provided before 1 July 2020.

● For this withholding to apply the supply must be of either: ○ new residential premises (excluding new residential premises due to substantial renovations or commercial

residential premises), or

○ potential residential land.





When the GST withholding amount must be paid

● The purchaser must pay the withholding amount to the Commissioner on, or before, the day on

which any of the consideration is first provided for the taxable supply.

● In most cases this is on, or before, the day of settlement.

● However, a purchaser does not have to pay a GST withholding amount at the time when they

pay a genuine deposit.

● The purchaser does not have a GST withholding obligation if the deposit is forfeited

● If the deposit is not a genuine deposit (e.g. part-payment), it will be treated as part of the

consideration for the supply.

● This means the purchaser may be required to pay a GST withholding amount on, or before,

paying the deposit to the vendor.

41





GST withholding amount to be paid

● The GST withholding amount to be paid by the purchaser is generally 1/11th of the “contract

price”.

● However, there are some situations where the amount is different


GST Withholding on New Residential Premises Law Companion Ruling LCR 2018/4 Purchaser’s

obligation to pay an amount for GST on taxable supplies of certain real property

GST withholding amount to be paid

42


GST Withholding on New Residential Premises - Law Companion Ruling LCR 2018/4 Purchaser’s


Notification

● A vendor of residential premises or potential residential land must give a written notice to the

purchaser before making the supply.

● The notice must state whether the purchaser is required to make a payment

● If the purchaser is required to make a payment, the vendor’s notice must also state:

○ The vendor’s name and ABN;

○ The dollar amount to be withheld and paid to the Commissioner by the purchaser;

○ When the amount must be paid by the purchaser; and

○ The GST-inclusive market value of any non-monetary consideration

● The Commissioner expects that the vendor will generally give the notice as part of the contract

for sale. However, this notice may be given as a separate document.




Notification

● A vendor of residential premises or potential residential land must give a written notice to the

purchaser before making the supply.

● The notice must state whether the purchaser is required to make a payment

● If the purchaser is required to make a payment, the vendor’s notice must also state:

○ The vendor’s name and ABN;

○ The dollar amount to be withheld and paid to the Commissioner by the purchaser;

○ When the amount must be paid by the purchaser; and

○ The GST-inclusive market value of any non-monetary consideration

● The Commissioner expects that the vendor will generally give the notice as part of the contract

for sale. However, this notice may be given as a separate document.

43




● To assist with this the Commissioner has released the following online forms and instructions

for these forms:

○ The GST property settlement withholding notification; and

○ The GST property settlement date confirmation.

● The forms provide the details of: ○ the contact person

○ the property

○ the GST withholding amount, and

○ purchaser and the supplier (vendors, seller, property developers, etc).




● The GST property settlement withholding notification form is used to advise the Commissioner

that a contract has been entered into for the supply of new residential premises or potential

residential land in which there is a withholding obligation.

● The purchaser or their representative can submit this form at any time after a contract has been

entered into and prior to the date the withholding obligation is due.

● Usually that will be the settlement date but if the contract is an instalment contract it will be the

date the first instalment is paid.

● The GST property settlement date confirmation form is used to confirm the settlement date.

● The purchaser or its representative can submit this form at the time the withholding obligation

becomes due, either when the first instalment is paid or at settlement.

44


Interest on overpaid GST - Travelex Limited v FCT [2018] FCA 1051

● In this case the High Court had previously held that the taxpayer’s supply of

foreign currency on the departure side of the Customs barrier was GST-free

and was therefore entitled to a GST refund.

● This case covered the calculation of interest payable in respect of the amount of

overpaid GST.

● The Federal Court concluded that interest applied from 14 days after the

surplus arose, not 14 days after notification of the surplus was given to the

Commissioner.


Instant asset write-off - Treasury Laws Amendment (Accelerated Depreciation for

Small Business Entities) Bill 2018

● This Bill has been passed.

● The Bill extends by 12 the period during which small business entities can

access the $20,000 instant asset write-off rules to 1 July 2019.

● An immediate deduction for depreciating assets is also available for amounts

included in the second element of a depreciating asset’s cost and general small

business pools balances, where the amount is less than $20,000.

● This threshold amount is due to revert to $1,000 on 1 July 2019 under this Bill.

45


CGT Improvement Threshold Taxation Determination TD 2018/8 Income tax:

capital gains: what is the improvement threshold for the 2018-19 income year under

section 108-85 of the Income Tax Assessment Act 1997?

● The CGT improvement threshold is $150,386 for the 2018-19 year.

● The CGT improvement threshold is used when assessing whether a capital

improvement to a pre- CGT asset represents a separate asset, which is subject

to CGT, or whether it is part of the pre- CGT asset.

● If the capital improvement to an asset acquired before 20 September 1985 has

a cost that is more than 5% of the amount received on disposal of the asset, or

more than the CGT improvement threshold, the improvement is treated as a

separate asset that is subject to CGT.


Trust Split Arrangements Draft Taxation Determination TD 2018/D3 Income tax: will a trust split

arrangement of the type described in this draft Determination cause a new trust to be settled over

some but not all assets of the original trust with the result that CGT event E1 in subsection 104-55(1)

of the Income Tax Assessment Act 1997 happens?

● A trust split is where the parties to an existing trust split the operation of the trust so that some

trust assets are controlled by and held for the benefit of one class of beneficiaries, and other

trust assets are controlled and held for the benefit of others.

● A trust split usually involves a discretionary trust that is part of a family group.

● A common reason given for splitting the trust is to allow different parts of the family group to

have autonomous control of their own part of the trust fund.

46


Trust Split Arrangements Draft Taxation Determination TD 2018/D3 Income tax: will a trust split

arrangement of the type described in this draft Determination cause a new trust to be settled over

some but not all assets of the original trust with the result that CGT event E1 in subsection 104-55(1)

of the Income Tax Assessment Act 1997 happens?

● A trust split as described in this draft Determination will result in the creation of a trust by

declaration or settlement as the trustee has new personal obligations and new rights have been

annexed to property.

● This will cause CGT event E1 in subsection 104-55(1) of the Income Tax Assessment Act 1997.

● The trust split arrangement results in two distinct trust funds which are both administratively and

legally separated.

● CGT event E1 occurs, either by declaration or settlement, because the trustee has new

personal obligations and new rights have been annexed to property.

● The CGT event happens at the time the new trust is created.


FBT exemption for religious practitioners Draft Taxation Ruling TR 2018/D2 Fringe benefits tax:

benefits provided to religious practitioners

● This draft Ruling explains when certain benefits provided by registered religious institutions to

religious practitioners will be exempt from fringe benefits tax.

● Under section 57 of the Fringe Benefits Tax Assessment Act 1986, where:

○ the employer of an employee is a registered religious institution, and

○ the employee is a religious practitioner, and

○ a benefit is provided to, or to a spouse or a child of, the employee, and

○ the benefit is not provided principally in respect of duties of the employee other than any pastoral duties or any

other duties or activities that are directly related to the practice, study, teaching or propagation of religious

beliefs,

● the benefit is an exempt benefit.

47


FBT exemption for religious practitioners Draft Taxation Ruling TR 2018/D2 Fringe benefits tax:

benefits provided to religious practitioners

A registered religious institution must maintain a current ACNC registration with a subtype “advancing

religion”.

To be a religious practitioner, the Commissioner states that all of the following characteristics should

be present:

● they are a member of a religious institution

● they are recognised by ordination or other admission or commissioning

● they are officially recognised as having authority on doctrine or religious practice

● they are distinct from ordinary adherents of the religion

● they are an acknowledged leader in spiritual affairs of the institution, and

● they are authorised to act as a minister or spiritual leader, including the conduct of religious

worship and other religious ceremonies.


DGRs and charities “in Australia” - Draft Taxation Ruling TR 2018/D1 Income tax: the ‘in Australia’

requirement for certain deductible gift recipients and income tax exempt entities

In this draft Ruling the Commissioner provides guidance on:

● the condition that certain Deductible Gift Recipients (DGRs) be “in Australia” before a gift or

contribution to them is tax deductible

● the condition that certain entities have a “physical presence in Australia” before their income is

exempt from tax, and

48


DGRs and charities “in Australia” - Draft Taxation Ruling TR 2018/D1 Income tax: the ‘in Australia’

requirement for certain deductible gift recipients and income tax exempt entities

● For a DGR to be “in Australia”, it must be established or legally recognised in Australia and

operates in Australia at that time

● The Income Tax Exempt Entity must have a physical presence in Australia, but merely

operating through an Australian agent, or simply owning property in Australia, is not enough to

be “in Australia”.

● The Income Tax Exempt Entity must also incur its expenditure and pursue its objectives

principally in Australia, but only to the extent of its physical presence in Australia.

● If the entity has a physical presence in both Australia and overseas, only the expenditures

incurred, and objectives pursued that are attributable to its physical presence in Australia are

examined, and only at the particular time the income is derived.

● ATO will not take compliance action where over 50% of actual expenditure is incurred in

Australia


● GST on Offshore Hotel Bookings EXPOSURE DRAFT - Treasury Laws Amendment (2018

Measures No. 5) Bill 2018: Online hotel bookings

● The draft legislation will extend the GST by ensuring that offshore sellers of hotel

accommodation in Australia calculate their GST turnover in the same way as local sellers from 1

July 2019.

● Currently, unlike GST-registered businesses in Australia, offshore sellers of Australian hotel

accommodation are exempt from including sales of hotel accommodation in their GST turnover.

● This means they are often not required to register for and charge GST on their mark-up over the

wholesale price of the accommodation.

● Both Australian and foreign consumers are increasingly booking Australian hotel rooms through

online services based offshore, which are taking advantage of an exemption designed for

offshore tour operators.

● Removing the exemption will level the playing field by ensuring the same tax treatment of

Australian hotel accommodation, whether booked through a domestic or offshore company.

49


Overtime meal deductions rejected Mitchell and FCT [2018] AATA 2507

● In this case the taxpayer claimed a deduction of $8,130 for overtime meals expenses.

● The taxpayer was a site surveyor for a construction project.

● He worked long hours, sometimes starting at 5:30am and working most Saturdays.

● Under the EBA the taxpayer worked under, if he worked more than a certain number of hours

he was to be paid an overtime meal allowance.

● In the year in question he was paid this allowance 107 times.

● The taxpayer stated that he bought breakfasts on the mornings when he started at 5.30 am,

breakfast and lunch on Saturdays and dinner on the way home on many days.

● Taxpayer claimed a deduction based on Commissioner’s reasonable rates for 300 days in the

year.

● Commissioner audited him and allowed a deduction for an amount up to the amount of overtime

meal allowances included in taxpayer’s assessable income ($1,608).


Overtime meal deductions rejected Mitchell and FCT [2018] AATA 2507

● Due to a lack of any written evidence, many of the meals were not deductible.

● Also, given taxpayer had claimed the deduction for 300 days when he was only paid the

allowance for 107 days, AAT concluded that it was appropriate for Commissioner to limit the

deductions to the amount of the allowance paid.

● AAT noted that merely because a taxpayer receives a meal overtime allowance does not entitle

a

● taxpayer to claim a deduction for a “reasonable amount” for meals.

● Rather, it is necessary for a taxpayer to demonstrate that○ (a) they incurred outgoings on overtime meals and

○ (b) the circumstances in which those outgoings were incurred satisfied the requirements of s 8-1

50


Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Act 2018

● The Act amends the Rates Act to ensure that, from 1 July 2017, a corporate tax entity will not

qualify for the lower corporate tax rate of 27.5% if more than 80 % of its assessable income is

income of a passive nature.

● Since 1 July 2017, to get the 27.5% rate, a corporate tax entity must be a base rate entity.

● The first test to be a base rate entity is a turnover test. The turnover tests are:○ For the 2017-18 income year —an aggregated turnover of less than $25 million; and

○ For the 2018-19 income year and subsequent years —an aggregated turnover of less than

○ $50 million.

● This Act changes the second requirement to be a base rate entity.

● Previously the second test was the company had to be carrying on a business.

● Now the second test is that no more than 80% of the corporate tax entity’s assessable income

for that income year is “base rate entity passive income”.



An amount of assessable income is base rate entity passive income if it is:

● A distribution or dividend by a corporate tax entity, other than a non-portfolio dividend;

● Franking credits attached to such a distribution;

● Interest or a payment in the nature of interest;

● A royalty;

● Rent;

● A net capital gain;

● An amount included in assessable income of a partner in a partnership or beneficiary of a trust

to the extent that the amount is referable to another amount that is base rate entity passive

income.

NOTE - an amount from a trust to a corporate tax entity will retain its character to determine whether

or not it is base rate entity passive income of the corporate tax entity.

51



● For the purposes of working out its corporate tax rate for imputation purposes for an income

year, a corporate tax entity must assume that:

○ Its aggregated turnover for the income year is equal to its aggregated turnover for the

○ previous income year;

○ Its base rate entity passive income for the income year is equal to its base rate entity passive

○ income for the previous income year; and

○ Its assessable income for the income year is equal to its assessable income for the previous income year.

● If the corporate tax entity did not exist in the previous income year, its corporate tax rate for

imputation purposes for an income year will be the lower corporate tax rate of 27.5%.



Example

In the 2017-18 income year, Bear Co has:

● aggregated turnover of $8 million;

● base rate entity passive income of $7.5 million; and

● assessable income of $8 million.

Therefore, for the 2017-18 year, 92.59% of Bear Co’s assessable income is base rate entity passive

income. Consequently, for that income year, Bear Co’s corporate tax rate is 30%.

52



Example

● Bear Co proposes to pay a dividend to its shareholders in the 2018-19 income year.

● For the purpose of working out its corporate tax rate for imputation purposes for the 2018-19 income year,

Bear Co must assume that its aggregated turnover, base rate entity passive income and assessable

income are the same as for the 2017-18 income year.

● As 92.59% of its assessable income was base rate entity passive income for the 2017-18 income year,

Bear Co’s corporate tax rate for imputation purposes is 30%.

● Therefore, Bear Co’s corporate tax gross-up rate for that income year will be 2.33 (i.e. (100% —

30%)/30%).

● Bear Co makes a fully franked distribution of $100 per share in the 2018-19 income year.

● The maximum franking credit that can be attached to that distribution is $42.91 (i.e. $100/2.33).


Law Companion Ruling LCR 2018/D7 Base rate entities and base rate entity passive

income

● On the same day as the Treasury Laws Amendment (Enterprise Tax Plan Base

Rate Entities) Act 2018 was passed by the Parliament, the Commissioner

release a draft Law Companion Ruling.

53



income

EXAMPLE 1

● Kookaburra Co was founded on 1 July 2017.

● As Kookaburra Co did not exist in the prior income year (the 2016–17 income year), its 2017–

18 corporate tax rate for imputation purposes is 27.5%.



income

EXAMPLE 2

● In the 2016–17 income year, Emu Co had aggregated turnover of $24 million.

● Emu Co’s 2016–17 assessable income was 55% base rate passive income. In the 2017–18

income year, Emu Co had aggregated turnover of $28 million.

● Emu Co’s 2017–18 assessable income was 62% base rate passive income.

● Because Emu Co’s 2017–18 aggregated turnover was above the aggregated turnover threshold

of $25 million, it is not a base rate entity, and had a 2017–18 corporate tax rate of 30%.

● Emu Co had a 2017–18 corporate tax rate for imputation purposes of 27.5%.

● This is because its aggregated turnover and base rate passive income, to calculate its corporate

tax rate for imputation purposes in the 2017–18 income year, is below the $25 million dollar

threshold, and less than 80%.

54



income

EXAMPLE 3

● In the 2017–18 income year, Cockatoo Co had an aggregated turnover of $48 million.

● Cockatoo Co’s 2017–18 assessable income was 82% base rate passive income.

● In the 2018–19 income year, Cockatoo Co had aggregated turnover of $46 million.

● Cockatoo Co’s 2018–19 assessable income was 75% base rate passive income.

● Cockatoo Co’s 2018–19 aggregated turnover was below the aggregated turnover threshold of

$50 million, and its base rate passive income was below the 80% threshold.

● Therefore, it was a base rate entity, with a 2018–19 corporate tax rate of 27.5%.

● Cockatoo Co has a 2018–19 corporate tax rate for imputation purposes of 30%.

● This is because its base rate passive income for the purpose of determining its corporate tax

rate

● for imputation purposes is above the 80% threshold.


Enterprise Tax Plan: small business company tax rate change: compliance and administrative

approaches for the 2015-16, 2016-17 and 2017-18 income years - Practical Compliance Guideline

PCG 2018/D5

● In this Practical Compliance Guideline, the Commissioner states:

○ “This draft Guideline sets out the ATO’s compliance and administrative approaches for corporate tax entities

that have faced practical difficulties in determining their corporate tax rate and corporate tax rate for imputation

purposes in the 2015-16, 2016-17 and 2017-18 income years.”

● Commissioner acknowledges that uncertainty may have arisen as a result of changes to the tax

laws, and changes to these laws still before Parliament, that set out eligibility for the reduced

corporate tax rate and the subsequent release of Draft Taxation Ruling TR 2017/D7 Income tax:

when does a company carry on a business within the meaning of section 23AA of the Income

Tax Rates Act 1986?

● Commissioner states he will not allocate compliance resources specifically to conduct reviews

of whether corporate tax entities have applied the correct rate of tax or franked at the correct

rate in the 2015-16 and 2016-17 income years.

55


“Draft Property and Construction Website Guidance” - Commissioner of Taxation

● This guidance aims to provide insight and transparency into the Commissioner’s decisions on a

range of property development scenarios.

● The Commissioner’s intention is to update this guidance as new arrangements emerge.

● This guidance has two main sections. The first details the issues ATO sees and ATO general

position.

● The issues that the Commissioner considers are:

○ Is the agreement to develop and sell your land a mere realisation or a disposal either in the course of a business

or as part of a profit making undertaking or plan?

○ Capital vs Revenue Characterisation

○ Property Development Agreements

○ Timing of return of income and deductions


Removing tax deductibility of non-compliant payments EXPOSURE DRAFT - Treasury Laws

Amendment (Black Economy Taskforce Measures)

● Applies from 1 July 2019, and removes the ability of taxpayers to deduct certain payments if the

associated withholding obligations have not been complied with.

● If the PAYG Withholding regime applied to the following payments, and payer did not withhold

the amount from the payment as required or did not notify the Commissioner when required,

then deduction is not allowed in relation to these payments:

○ Salary, wages, commissions, bonuses or allowances to an employee;

○ Directors’ fees;

○ Religious practitioner;

○ Labour hire arrangement; or

○ For a supply of services — excluding supplies of goods and supplies of real property — where the payee has

not quoted its ABN.

56




● The deduction is only denied where no amount has been withheld at all or no notification is

made to the Commissioner.

● Withholding an incorrect amount or notifying an incorrect amount will not affect the entitlement

to a deduction.

● A deduction is also denied in relation to a non-cash benefit provided in lieu of a cash payment.

● Where an employer that makes a payment to an employee that they believe to be a contractor,

they will not be denied a deduction if, had the employer been correct in characterising the

employee as a contractor, the employer would not have been required to withhold and the

person provides an ABN.




EXAMPLE

● Caleb carries on a business as a mechanic. Caleb does not have any employees until he hires

an apprentice, Bianca, in May 2020. Caleb is not aware that he must withhold an amount from

Bianca’s wages and pay it to the Commissioner.

● Caleb visits his accountant in September 2020 to prepare his 2019-20 income tax return.

● He mentions his expenditure to pay Bianca’s wages. Caleb’s accountant advises Caleb he

should have been withholding from the wage payments.

● Caleb notifies the Commissioner of his mistake and enters into an arrangement to pay the

Commissioner the penalties associated with his failure to withhold.

● However, he is entitled to claim the deduction for the cost of Bianca’s wages in his 2019-

20 income tax return.

57


Streaming franking credits separately to dividend income

● Federal Commissioner of Taxation v Thomas;

● Federal Commissioner of Taxation v Martin Andrew Pty Ltd;

● Federal Commissioner of Taxation v Thomas Nominees Pty Ltd;

● Federal Commissioner of Taxation v Thomas [2018] HCA 31

● In this case the trustee of a trust received franked distributions and then passed resolutions that

sought to distribute franking credits between beneficiaries separately from, and in different

proportions to, the income comprising the franked distributions.

● The resolutions were intended to maximise refundable tax offsets and “stream” the income

between beneficiaries to attract the most favourable marginal tax rates.

● During this case, the assumption that franking credits could be so distributed separately to the

dividend incomed was referred to as the “Bifurcation Assumption”.

● The income tax returns for the trustee and beneficiaries were prepared and lodged on the basis

that the Bifurcation Assumption was legally effective.







● After the Commissioner gave notice of an audit

● The trustee applied for and obtained from the Supreme Court of Queensland “directions” that

the resolutions gave effect to the Bifurcation Assumption, which was correct in law.

● The Commissioner completed his audit and issued Notices of Amended Assessment which did

not allow the franking credits to be directed differently than the dividend income.

● Two beneficiaries appealed the Commissioner’s assessment.

● The Full Court held that the “directions” of the Supreme Court applied to the franked

distributions allowing the Bifurcation Assumption to hold.

58







● The Commissioner appealed the previous decision to the High Court.

● Before the High Court, the Trustee and two beneficiaries accepted that the Bifurcation

Assumption was legally ineffective to negate Division 207 of the ITAA97.

● Therefore, the High Court held that the “directions” of the Supreme Court did not apply to the

Commissioner applying Division 207as a part of assessing the taxpayers.


Deduction for share losses and legal fees Greig v Commissioner of Taxation [2018] FCA 1084

● In this case the taxpayer purchased shares in a company that was placed into administration.

● As a result, taxpayer lost over $11m and spent $507,198 in legal fees opposing the

administration.

● Taxpayer claimed a deduction for the loss and the expense.

● The Commissioner rejected the deductions.

● The Federal Court concluded that even though the taxpayer intended to gain a profit from

acquiring the shares, they were not acquired as a part of a business.

● The large size of the shareholding did not convert the activities to a business.

● Therefore, any loss was a capital loss.

59


ESAS discount assessable Fox and FCT [2018] AATA 2791

● In this case the taxpayer was given rights to shares under an employee share scheme.

● Later, the rights were converted to shares and, under Division 83A, the discount of over

$100,000 between what the taxpayer had paid and what they were worth when she received

the shares should have been included in the taxpayer’s assessable income.

● The taxpayer did not include this amount.

● Commissioner did later include the amount as the employer reported the taxing event and this

amount to the Commissioner as they were required to do.

● At around the same time as the Commissioner adding the value of the discount to the

taxpayer’s assessable income, the company went into liquidation and the shares became

worthless.

● The taxpayer objected to the amount being added into her assessable income, arguing she was

coerced into taking part in the employee share scheme.

● The AAT rejected this argument and found no evidence of coercion.


Taxation Ruling TR 2018/6: Income tax: trust vesting - consequences of a trust vesting

● In this Ruling the Commissioner states his views about the income tax consequences of a trust

vesting and discusses certain issues that can arise

● Commissioner states that prior to a trust’s vesting, it may be possible for the trustee pursuant to

a proper exercise of a valid power under the deed, or a court, to postpone the vesting of the

trust by nominating a later date as the new vesting date.

● However, once the vesting date has passed, the trust has vested and it is no longer possible for

a trustee to change the vesting date.

● Specifically, once the trust has vested, the interests in the trust property become fixed at law.

● This result cannot be avoided by the parties continuing to carry on as though the trust had not

vested or by a purported exercise by the trustee of a power to vary the deed.

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● Commissioner states that: “neither a mistaken assumption that discretionary powers of

appointment continue to apply after a trust’s vesting date, nor ignorance of the vesting

date having occurred, can alter the legal and equitable rights of parties that are

established by the terms of the trust on vesting.”

● This would mean it is likely that CGT event E5 (beneficiary becoming absolutely entitled)

or CGT event E7 (disposal to beneficiary to end capital interest) have occurred.

● Accordingly, CGT may be payable.



EXAMPLE - INEFFECTIVE AMENDMENT OF VESTING DATE

● The deed of the Smith Discretionary Trust expressly states that the trust will vest on 30 June

2018 or on such earlier date as the trustee nominates.

● While the trustee has broad powers to amend the deed, those powers expressly exclude any

changes that affect the definition of the vesting date.

● Without more (for example, a court order changing the vesting date), a purported amendment

by the trustee to extend the trust’s vesting date will be ineffective, and the trust will vest on 30

June 2018.

61



EXAMPLE - IGNORANCE OF VESTING DATE BY TRUSTEE AND BENEFICIARIES

● A discretionary trust was established to lease property to a company that operates a medical practice.

● Under Deed, on the vesting date, trustee holds property for takers on vesting as (equal) tenants in

common.

● The vesting date is defined to be 1 November 2014.

● The trustee, unaware of the provisions of the deed regarding vesting, continued to make discretionary

distributions of income and capital to beneficiaries after 1 November 2014.

● Trust beneficiaries, also unaware of relevant provisions of Deed, did not challenge the actions of the

trustee.

● As the trust vested on 1 November 2014 by operation of the deed, the trustee had neither the power to

distribute income nor capital after this date and the purported appointments were therefore ineffective.

● Income and capital of trust post-vesting was instead beneficially owned in equal shares by takers on

vesting.

● Those takers on vesting are presently entitled to the income of the trust ineffectively

● appointed, and assessable on their respective shares of the net income of the trust.


What is the benchmark interest rate applicable for the year of income that commenced on 1

July 2018 for the purposes of Division 7A of Part III of the Income Tax Assessment Act 1936

and how is it used? Taxation Determination TD 2018/14

● The Determination states that for the income year that commenced on 1 July 2018, the

benchmark interest rate for Division 7A is 5.20%.

62


GST on Offshore Hotel Bookings Exposure Draft - Treasury Laws Amendment Bill 2018

● The amendments in this exposure draft include in an entity’s GST turnover supplies of a right or

option to use commercial accommodation in the indirect zone, even where that supply is not

made in the indirect tax zone and is made through an enterprise that the supplier does not carry

on in the indirect tax zone.

● This ensures that entities that supply rights to use Australian commercial accommodation but

carry on their business offshore are still required to register for GST if their GST turnover,

including those supplies, equals or exceeds the relevant GST turnover threshold.


Further expansion of the taxable payment reporting system Exposure Draft - Treasury Laws

Amendment (Black Economy Taskforce Measures No. 2) 2018

● This exposure draft bill requires entities that have an ABN and make supplies of ‘road freight’,

‘IT’ or ‘security, investigation or surveillance’ services to report information to the Commissioner

about transactions with contractors providing such services on behalf of these entities.

● This reporting is the same as the reporting required by entities that make supplies of ‘building

and construction’, ‘courier’ and ‘cleaning’.

● The terms ‘road freight’, ‘IT’ and ‘security, investigation or surveillance’ are not defined and

therefore take their ordinary meaning.

63


Phoenix activity draft legislation EXPOSURE DRAFT - Treasury Laws Amendment (Combating

Illegal Phoenixing) Bill 2018

This draft Bill does the following:

● Create new phoenix offences;

● Prevent directors from backdating resignations to avoid personal liability;

● Prevent sole directors from resigning and leaving a company as an empty corporate shell;

● Restrict voting rights of related creditors of the phoenix company at meetings regarding the

appointment or removal/replacement of a liquidator;

● Make directors personally liable for GST liabilities; and

● Extend the ATO’s existing power to retain funds in cases of outstanding tax lodgements.


Non-commercial loss and the Commissioner’s discretion for newly established businesses

McGlinn v Commissioner of Taxation [2018] FCA 1275

● Taxpayer had been in the business of breeding Australian bloodline Arabian horses for many

years.

● After some unsuccessful years the taxpayer changed to breeding overseas bloodlines Arabian

horses.

● Due to the start-up costs of importing the Arabian horses, the taxpayer made a loss and wanted

to offset that loss against her other assessable income.

● The Commissioner deferred the losses under the non-commercial loss rules in Division 35.

● The taxpayer requested that the Commissioner use his discretion to allow the loss to be

deducted as the loss came from a new and distinct business activity that would become

profitable within a commercially viable period.

64


Non-commercial loss and the Commissioner’s discretion for newly established businesses

McGlinn v Commissioner of Taxation [2018] FCA 1275

● The Commissioner stated that the same business was being carried on as before and so he

could not exercise this discretion.

● He argued breeding overseas Arabian horses was not a new business activity, but an evolution

of the long-standing business.

● Federal Court remitted the case back to Commissioner to reconsider as it believed he had not

asked the correct question.

● Question was not whether business before and after purchase of overseas houses was similar.

● Rather the question was whether the change in bloodlines was a new business activity, rather

than was it a new business.

● As this could have affected the determination that Commissioner made, Federal court returned

the matter to the Commissioner for him to consider again.


Immediate deduction for fodder storage Treasury Laws Amendment (Supporting Australian

Farmers) Bill 2018

● This Bill will allow primary producers to immediately deduct the cost of fodder storage assets.

Currently these costs are depreciated over 3 years.

● Examples of this include silos and hay sheds that are used to store grain and other animal feed.

● Applies to fodder storage assets first used or installed ready for use on or after 19 August 2018.

● The Bill amends the rules for fodder storage on Division 40 so that the deduction will be equal

to the capital expenditure incurred in that year

● Previously the deduction was only 1/3rd of the expenditure incurred in that year with the other

2/3rds being available as equal deductions over the following 2 income years.

65


Practical Compliance Guideline PCG 2018/4 Income tax - liability of a legal personal representative

of a deceased person

● One of the major concerns in taking on the role of a legal person representative is that the

Commissioner can treat legal personal representatives as having a personal liability for a tax

debt where assets of a deceased estate have been distributed and there is still outstanding tax

debt.

● In this Practical Compliance Guideline, the Commissioner states when legal personal

representatives of smaller and less complex estates can be personally liable for tax debts.

● The Guideline also provides a safe harbour arrangement to ensure the Commissioner does not

seek to recover the deceased’s outstanding tax liabilities from the legal personal

representative’s own assets.




● The Guideline states that these LPRs may be personally liable if they have notice of the tax

amount when they distribute the assets.

● While this is a question of fact, the Guideline set out the situations when the Commissioner

considers that such notice has occurred.

● LPR has notice of any amount that deceased owed to the Commissioner at the date of their

death.

● This includes income tax on returns that the deceased person had lodged, but that had not

been assessed at the time of the person's death.

● As LPR is required to lodge all income tax returns that the deceased person has not lodged,

they have notice of any liability arising from assessments relating to these returns.

● LPR will also have notice of liabilities that may arise from review and audits that the

Commissioner has told the legal personal representative or the deceased person about.

66




● LPR may become aware of a material irregularity in an income tax return lodged by the

deceased.

● The Commissioner will treat LPR as not having notice of any tax relating to that irregularity if the

legal personal representative brings it to the attention of the Commissioner in writing and the

Commissioner does not, within six months, issue an amended assessment or indicate that it

intends to review the matter.

● If further assets come in after what is thought to be the completion of the estate’s

administration, LPR will be treated as having notice of a claim to the extent there are taxes on

those further assets.

● LPR will not have notice of any further tax claim relating to returns LPR lodged if:

○ They acted reasonably in lodging all of the deceased person's outstanding returns, and

○ Commissioner has not given LPR notice that it intends to examine the deceased person's taxation affairs within

six months from the lodgment of the last of the outstanding returns by LPR.




EXAMPLE : SMALL ESTATE - MATERIAL TAX IRREGULARITY IDENTIFIED BY THE LPR

● Peter died on 12 December 2016.

● Jill was appointed executrix of his will and obtained probate in January 2017.

● In the course of discharging her duties as executrix, Jill confirmed with the ATO that Peter had lodged all of

his income tax returns other than the returns for the 2015-2016 year and the final period to Peter's date of

death.

● In preparing those returns, Jill discovered that Peter had never returned rental income from a property that

he had owned in Sydney since 2010.

● Jill included rental income from that property in the returns for the 2016 income year ($20,000) and the

period to Peter's date of death ($10,000).

● She lodged both returns on 3 March 2017.

● Jill did not seek to amend any of Peter's earlier year assessments or otherwise bring the irregularities to

the ATO's attention.

67





● On 4 April 2017, the ATO issued notices of assessment relating to the returns that Jill had lodged.

● Jill paid those assessments out of the estate's assets.

● On 1 July 2017, Jill published a Notice of Intended Distribution (under State succession laws) for claims to

be made within 30 days.

● On 4 August 2017, Jill distributed the remaining assets of the estate.





● On 20 October 2017, the ATO wrote to Jill advising that Peter's assessments for the 2014 and 2015 years

were being reviewed because of the non-reporting of rental income.

● Jill had become aware of a material irregularity for those income years because she had discovered that

Peter had not included rental income in his returns.

● Jill will be personally liable for any outstanding tax liabilities resulting from the amendment of Peter's 2014

and 2015 income tax assessments.

● Jill cannot avoid liability on the basis that she had no notice of it.

● If Jill had brought the prior year irregularities to the ATO's attention when she lodged the outstanding

returns, Jill would not be personally liable because the ATO did not advise her within six months that it was

intending to review the assessments.

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Draft Practical Compliance Guideline PCG 2018/D6 The Commissioner's discretion to extend the two

year period to dispose of dwellings acquired from a deceased estate

● This draft Practical Compliance Guideline considers when the Commissioner will exercise his

discretion to extend the 2-year period for disposing of an inherited dwelling in order to qualify for

the full CGT main residence exemption.

● The factors which would weigh in favour of the Commissioner allowing a longer period are:

○ The ownership of the dwelling, or the will, is challenged

○ A life or other equitable interest given in the will delays the disposal of the dwelling

○ The complexity of the deceased estate delays the completion of administration of the estate, or

○ Settlement of the contract of sale of the dwelling is delayed or falls through for reasons outside of

your control.


Draft Practical Compliance Guideline PCG 2018/D6 The Commissioner's discretion to extend the two

year period to dispose of dwellings acquired from a deceased estate

Under the safe harbour, a taxpayer can assume the Commissioner has exercised his discretion

where all of the following conditions are met:

● During the first two years after the interest in the dwelling passed to the taxpayer, more than 12

months was spent addressing one or more of the specific factors favourable to the exercise of

the discretion

● The dwelling was listed for sale as soon as practically possible after those circumstances were

resolved

● The sale completed within six months of the dwelling being listed for sale, and

● The longer period for needed is no more than 12 months.

NOTE - If a taxpayer is covered by this safe harbour, they can assume the Commissioner has

extended the 2 years by an additional year.

69


Shares not held for 12 months Mangat v FCT (Taxation) [2018] AATA 3012

● Taxpayer signed an engagement letter to start employment on 30 December 2011. An

attachment to the letter offered her options over shares in her employer.

● However, the taxpayer did not complete the Share Purchase Application Form until 17 August

2012.

● In March 2013 her options were cancelled because the company was converted into a public

company and she could either take the value of the options or get shares in the new public

company.

● She elected to take 50% as cash and 50% as shares in the public company.

● She did not lodge tax returns, but the employer reported these events to the Commissioner who

assessed the complete amount (the cash and the shares) as consideration for a CGT event.

● Taxpayer argued that Commissioner was wrong in the assessment as she had acquired the

shares options at least 12 months before cancellation of share options and could use CGT

discount.


Shares not held for 12 months Mangat v FCT (Taxation) [2018] AATA 3012

● AAT concluded that the engagement letter said that the taxpayer may be offered shares in the

company during the term of the deed and so was not an offer of shares.

● Also, the attachment to the engagement letter was not executed on 30 December 2011 but

sometime later.

● As such, the taxpayer only acquiring the options in August 2012, that is, when she applied for

the issue of options in the company.

● This was not 12 months before the options were cancelled.

● Interestingly, the Commissioner initially applied a 75% penalty as tax returns were not lodged

by the taxpayer.

● Commissioner remitted this to 50% before the AAT heard the case.

● However, the AAT remitted the penalty further to 40% as the taxpayer was lodging returns and

getting up to date.

70


Taxpayer’s claim for input tax credits rejected Mango Reef Pty Ltd and FCT [2018] AATA 3091

● Taxpayer requested refund of over $600,000 of input tax credits on acquisition of 145kg of gold.

● Taxpayer claimed that, over a series of transactions at multiple locations including the car park

of an airport, it had acquired this gold, which it sent to a Melbourne company to be refined.

● Commissioner refused to provide input tax credits as he believed the transaction never

occurred.

● Commissioner also applied a 75% penalty.

● Based on the evidence of the taxpayer, AAT stated that it was unlikely that any of the

transactions took place at all.

● Sole director and shareholder of the taxpayer was the main witness and AAT concluded he was

evasive and unwilling to answer questions directly.

● AAT held that the tax invoice was not a true invoice for a supply and decided that a 75% penalty

for intentional disregard was appropriate in the circumstances.


$20,000 Instant Asset Write-Off Extended Treasury Laws Amendment

(Accelerated Depreciation for Small Business Entities) Bill 2018

● This Bill has now passed both houses of the Parliament.

● The Bill extends the period during which small business entities can access

expanded accelerated depreciation rules for assets costing less than $20,000 to

30 June 2019, when it will revert to $1,000.

71


GST and Inbound Tour Operator Draft Practical Compliance Guideline PCG 2018/D7 GST -

inbound tour operators and agency

● An inbound tour operator is an Australian entity that enters into agreements with non-residents

to arrange the supply of an Australian tour packages including accommodation and non-

accommodation components.

● Whether GST is required to be remitted on these supplies depend on whether they are acting

as an agent or principal.

● If they act as an agent of the non-resident, any commission charged to the non-resident will be

GST-free as it is an export.

● If they act as principal, the entire supply may be subject to GST as they are providing the

service to be used in Australia.


Single Touch Payroll Update “Moving to STP reporting”, Commissioner of Taxation,

www.ato.gov.au, 5 September 2018

● The Commissioner is contacting employers who are yet to start reporting through Single Touch

Payroll and are not covered by a deferral, but who should be reporting.

● He is letting them know they need to get ready or start Single Touch Payroll reporting.

● Employers can complete a Single Touch Payroll deferral request if they are not ready to start

reporting.

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