Tax Bulletin – April 2021

TAX BULLETIN – MARCH 2021
April 4, 2021
Federal Budget – Snapshot for SMEs and Individuals
May 11, 2021

The ATO has released its Decision Impact Statement regarding the Apted case, in which it accepts it has exercised its discretion for JobKeeper and Cashflow Boost purposes too narrowly. This opens up an avenue for review for a significant number of taxpayers. Further details of this and other updates are in our April tax bulletin.

LEGISLATION UPDATE
Retraining benefits—FBT exemption

Draft legislation has been released to introduce the FBT retraining exemption announced in the last Federal Budget. The exemption will apply from 2 October 2020.

An FBT exemption will apply to the cost of education or training provided to an employee who has been, or is reasonably expected to be, made redundant. The primary purpose of the education or training must be to enable them to gain employment to which the education or training relates. The exemption will not apply to a benefit provided under a salary sacrifice arrangement.

Redundancy will include where:
– an employee is made redundant in one part of the employer’s business but is able to be redeployed to another part of its business (or within an associate’s business).
– the employee is not actually made redundant.

Granny flat arrangement—CGT exemption

Draft legislation has also been released to introduce the CGT exemption announced in the Federal Budget with respect to granny flat arrangements. The exemption will apply to CGT Events which would otherwise arise once the legislation commences.

A CGT event will not happen if an arrangement is entered which creates, varies or terminates a granny flat interest between;
– an individual who has reached pension age, or has a disability; and
– an individual who owns or has agreed to acquire a dwelling.

A ‘granny flat interest’ is an agreement for accommodation for life. There must be a written agreement which indicates an intention for the parties to be legally bound. The exemption will not apply if the arrangement is of a commercial nature (for example, there is a requirement to pay rent).

Homebuilder— Extension of construction commencement date

The construction commencement requirement for HomeBuilder has been extended from 6 months to 18 months due to delays in the construction industry caused by supply constraints.

The extension will provide an additional 12 months to existing applicants to commence construction from the date that the building contract was signed. All applicants who signed contracts during the eligibility period between 4 June 2020 and 31 March 2021 will have this extension applied to them.

Director Identification Regime

The Treasury has released new details on the director identification number (DIN) regime. The regime will be administered by the Commonwealth Registrar, which will operate as a separate function of the ATO.  As part of the application process directors will be required to provide their names and former names, addresses and former addresses, contact details, and their date and place of birth. Applicants will need to prove their identity using key Australian identity documents.

Once the process commences, existing company directors will have until 30 November 2022 to apply for a DIN. After this date, individuals will be required to apply for a DIN prior to being appointed as a director.

There will be civil and criminal penalties for directors who fail to apply for a DIN within the applicable time frame, and for conduct such as providing false identity information to the Registrar or intentionally applying for multiple DINs.

CASE LAW UPDATE

Watt and FCT—Director challenge to SCG assessment

Watt and FCT involved Mr W, a former company director. After he retired, the ATO issued SGC assessments to the company and director penalty notices to Mr W in respect of underpaid superannuation. The company went into liquidation and the liquidators objected to the SGC assessments. The objection was only partially successful and the liquidators decided not to challenge the objection decision. The ATO looked to Mr W to comply with the DPNs, who then applied for review of the ATO’s objection decision.

The AAT held that it is only an employer (being the company) who has the right to seek review of the ATO’s objection decision. Accordingly, Mr W did not have standing to challenge the objection decision.

Note: The If SGC is unpaid but not reported to the ATO (lockdown DPN) the director penalty can only be remitted by paying the outstanding debt.

Merchant and FCT  – Disqualification of SMSF trustee

In Merchant and FCT, an SMSF had acquired a large parcel of shares in a listed company from the applicants’ family trust, which was a significant shareholder. The ATO applied Part IVA to the transaction, to which the taxpayer has objected. The ATO also took the view that the transaction contravened the SIS Act as it did not give effect to a proper investment strategy and breached the sole purpose test and the prohibition on using fund resources to financially assist members. The Commissioner exercised his power to disqualify the individuals as directors of the SMSF corporate trustee.

The applicants sought to adjourn proceedings for review of the disqualification decision on the basis it depended on whether Part IVA applies to transaction. The AAT held that a Part IVA decision was not determinative of the subject matters of the disqualification review and did not agree to the adjournment.

Key takeaway: The case has attracted interest as, on the face, it appears to involve simply acquiring listed shares at market value from a related party.

Apted and CofT  – Decision Impact Statement – JobKeeper and Cashflow Boost Discretion

The ATO has issued a decision impact statement on Apted and FCT, where the Full Federal Court held the Commissioner should have exercised his discretion to treat a sole trader as having an ABN on 12 March 2020 for the purpose of accessing JobKeeper as an eligible business participant (refer Tax Bulletin— March 2021). The ATO has accepted that this discretion (which is also relevant for the Cashflow Boost) should have been exercised more broadly and has therefore also updated its practice statement PSLA 2020/1 which dealt with the exercise of this discretion, to reflect this.

The ATO will automatically contact taxpayers of which it is aware are impacted. Other taxpayers who may now be eligible for JobKeeper or Cashflow Boost should contact the ATO.

Note: A taxpayer must still satisfy the requirement to have notified the ATO of supplies made in a period ending prior to 12 March 2020.

RULING, DETERMINATIONS AND PRACTICE STATEMENTS

Deferred application of change in view on car parking fringe benefits

The issue of draft ruling TR 2019/D5 reflected a change in the ATO view in regard to what is a ‘commercial parking station’. If an employer premises is within 1km of a commercial parking station it can be liable for FBT on car parking provided to its employees. The draft view is that a parking facility can qualify even if it has a primary purpose other than providing all day parking, as reflected by the high rates it charges (e.g. hospital or airport parking). Under the previous view, these facilities would not qualify.

After consultation the ATO has advised that the final FBT ruling will revise this test. Further, the changes will apply from 1 April 2022 rather than the original date of 1 April 2021.

Note: Car parking benefits provided by small businesses (if not in a commercial car park) are exempt from FBT. This exemption will extend to businesses with aggregated turnover of up to $50m from 1 April 2021.

Practice Statements issued

PSLA 2021/1—Application of the promoter penalty laws: Sets out the Indicators of potential promoter behaviour, the decision-making process and the remedies available to the ATO.

PSLA 2021/2—Discretion to retain tax refunds: ATO administrative approach to its discretion to retain tax refunds where a taxpayer has an outstanding tax notice which may affect the refund amount. The discretion will only be applied to taxpayers engaging in high-risk behaviour, including phoenix type activity.

 OTHER TAX ACTIVITY & FOCUS
Application of the NALE rules to super funds—extension of compliance approach

The ATO’s transitional compliance approach for the non-arm’s length expenditure (NALE) rules has been extended to 30 June 2022. The application of the NALE rules are set out in LCR 2019/D3 and the ATO compliance approach is in PCG 2020/5.

Under the transitional approach, the ATO will not allocate compliance resources to determine whether the provisions apply to a complying super fund which has incurred NALE of a general nature that has a nexus to all income derived by the fund (e.g. NALE on accounting services). This approach does not apply if a fund incurs NALE that directly relates to particular income.

2021 FBT compliance date

The ATO has confirmed that the due dates for lodgement and payment due date for tax agents for 2021 FBT returns is 25 June if the return is lodged through the practitioner lodgement service (PLS).

Joint bodies submission on ‘Allocation of professional profits’ draft guidelines

The joint professional bodies have made a number of criticisms of PCG 2021/D2 (refer Tax Bulletin—March 2021) in an ATO submission, including that:
– There is no general principle that profit derived by an entity from personal services of an individual, can be regarded as the income of that individual, or general expectation that the individual owner of a business receives any particular remuneration.
– There is no proper justification for singling out the services provided by professional firms.
– If an individual practitioner can show they are remunerated on an arm’s length basis for the services they provide the arrangement should be low risk (all other things being equal).
– The basis for the significant shift in the risk scoring of arrangements from the previous, suspended, guidelines is not explained. The effective tax rate thresholds do not factor in the reductions in corporate and individual rates which will result in a large number of practitioners being classified as moderate or high risk when their arrangements are highly unlikely to trigger Part IVA.
– The associations themselves involved in consultation nor was any detail provided to them, and so the PCG does not reflect the views of the Joint Bodies

CONTACT US

For further information on any of these updates, or for general assistance, please contact Our Directors, 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.