During October, the ATO appealed the Bendel decision regarding Division 7A and unpaid present entitlements. In addition, Treasury has released an exposure draft on the new superannuation tax.
LEGISLATION UPDATE
Progress of current measures
The following measures are currently before the Senate, which will next sit on 6 November 2023:
– Treasury Laws Amendment (2023 Measures No 1) Bill 2023—contains changes to the off-market share buy-back rules and the treatment of franked distributions funded by capital raisings.
– Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023 – contains changes to thin capitalisation rules.
– Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 – includes the $20,000 instant asset write-off; small business energy incentive and changes to ‘non-arms length income’ rules.
Additional tax on superannuation earnings
The Government has released exposure draft legislation to introduce the previously announced additional tax on individuals with total superannuation balances (TSB) above $3 million. The draft is in accordance with the original proposal, with the tax set to apply from the 2026 income year.
Earnings = Current financial year TSB less Previous financial year TSB (adjusted for withdrawals & contributions) less any carried forward negative earnings
Proportion of earnings subject to tax = Current financial year TSB—$3m
Current financial year TSB
Tax liability = 15% x Earnings x Proportion of Earnings
The tax is to be imposed at 15% and will be assessed to the individual, however they can choose for it to be paid from the fund. The $3m threshold will not be subject to indexation.
Note: Under the proposed calculation, unrealised market value movements will be subject to tax.
RULINGS, COMPLIANCE GUIDELINES & TAXPAYER ALERTS
Draft TR 2023/D2—Composite item & depreciating assets
TR 2023/D2 outlines the ATO view as to when separate components of an asset are standalone depreciating assets, or whether they together constitute a single depreciating asset. This issue is likely to become relevant for the 2024 income year due to the ending of temporary full expensing and the commencement of the $20,000 instant asset write-off threshold for small businesses.
The draft ruling provides guiding principles for identifying the relevant asset. These include whether the components perform separate identifiable or discrete functions, the degree of physical or functional integration, and whether purchased to function together as a system.
One of the examples in the ruling considers the purchase of a computer package consisting of a computer, monitor, wireless keyboard and mouse.
– As it is purchased to provide a single, integrated system intended to function as a whole it is a single depreciating asset.
– If individual items are acquired as replacements to an existing package, each item would be a separate depreciating asset.
– If a printer is purchased as part of the package it will be a separate depreciating asset as it performs a separate function, is capable of independent existence and easily interchangeable.
CASE LAW UPDATE
Appeals Update
JMC Pty Ltd v FC of T: Employee v Contractor
The Full Federal Court held that an individual engaged to provide teaching services was not an employee under the ordinary meaning. They were also not an employee under the extended definition for super guarantee purposes due to the right to subcontract their services, with consent (refer Tax Bullen—May 2023).
The High Court has dismissed the Commissioner’s application for special leave to appeal the decision, and so the Full Federal Court decision will stand.
Michael John Hayes Trading v FC of T—Dividend stripping
The Commissioner has appealed to the Full Federal Court against the decision that an arrangement was not a dividend stripping scheme. This was on the basis that the original shareholders in the trading companies did not receive any capital amounts, and the sole or dominant purpose was for asset protection and succession planning rather than to avoid tax. (Refer Tax Bulletin—September 2023)
Bendel v CofT— Unpaid present entitlement held not to be a Division 7A loan
In the Bendel decision, the AAT held that the unpaid present entitlement of a corporate beneficiary of a trust was not a ‘loan’ within the meaning of section 109D of Division 7A. (Refer Tax Bulletin—September 2023). The Commissioner has appealed the decision to the Federal Court.
Note: This is a welcome development, as the ATO is not required to apply the law in accordance with an AAT decision.
STATE TAXES UPDATE
Expansion of Vacant Residential Land Tax
The Victorian government has introduced legislation to expand the Vacant Residential Land Tax. The tax is levied at 1% on the capital unimproved value, and currently applies only to inner and middle Melbourne residential properties which are unoccupied for more than six months a year or being constructed or renovated and have been uninhabitable for 2 years or more.
The expanded tax will include:
– All vacant residential land in Victoria (subject to some exemptions) from 1 July 2025.
– Unimproved residential land that has been unimproved for 5 years or more in established areas of metro Melbourne, from 1 July 2026.
Note: The existing exemption for holiday homes will remain. However, this generally only applies to property owned by an individual, and so can apply to homes held by trusts.
CONTACT US
For further information on any of these updates, or for general assistance, please contact either Jacci Mandersloot or Natalie Claughton.
The information contained in this bulletin is intended to provide general information only and is not intended to serve as tax advice. Specific advice should always be sought regarding a taxpayers’ particular circumstances. Please contact MC Tax Advisors if you would like assistance with the issues identified in this bulletin.
