Tax Bulletin – February 2020

In February we have seen the passing of long-awaited legislation which includes the extension of the director penalty regime to GST and the Superannuation Guarantee Amnesty. There are also important state tax developments for landholders in in Victoria and NSW. 

LEGISLATION UPDATE

Anti-phoenixing legislation passed

Legislation has finally been passed to implement a range of anti-phoenixing measures, including:
– Penalties for engaging in or facilitating dispositions of company property to defeat creditors.
– Preventing directors from improperly backdating resignations or ceasing to be a director when this would leave the company with no directors.
– Allowing the Commissioner to collect estimates of anticipated GST, LCT & WET liabilities.
– Making company directors personally liable for their company’s GST, LCT & WET liabilities in certain circumstances.

 An independent review of the operation of the measures will be completed at the end of 5 years.

The extension of the director penalty notice regime to GST, WET & LCT liabilities means that company directors (including corporate trustees) should ensure they lodge their activity statements within 3 months of their due date or else risk automatically becoming personally liable for these taxes.

Superannuation Guarantee Amnesty legislation passed

Legislation has now also passed the Senate to provide a one-off superannuation guarantee amnesty to allow employers to claim tax deductions for payments of superannuation guarantee charge or contributions made during the amnesty period, and to remove penalties and fees that may otherwise have applied.

Amnesty treatment is available for historic shortfalls which arose up to and including the quarter ended 31 March 2018, with superannuation guarantee shortfalls relating to subsequent quarters not being eligible. The superannuation guarantee amnesty does not apply if an employer has already been notified that the ATO will be examining their superannuation guarantee compliance.

The superannuation guarantee amnesty period will end 6 months after the day the Act receives Royal Assent. Employers will therefore have higher minimum penalties if they fail to come forward during the amnesty period.

If an employer has made a disclosure in the past (being any time after 24 May 2018) that would have been eligible for the amnesty, an entitlement to refunds and to amend tax returns should now arise.

Bushfire Assistance passed

The Bushfire Tax Assistance legislation has been passed by both Houses. The legislation makes Government support payments to volunteer firefighters, relief and recovery payments and non-cash benefits provided by Australian governments, non-assessable non-exempt income.

Senate Report on the Currency (Restrictions on the Use of Cash) Bill

A Senate Committee has recommended the start date of the Bill which will make it an offence to make or accept cash payments exceeding $10,000 be deferred in consultation with business as to the timeframe required to implement changes. The intended start date was 1 January 2020 but the Government has confirmed that it will not make the legislation retrospective.

The Committee also recommended that the Government review the penalty provisions for once-off breaches to ensure they are not too harsh, as well assessing the impact on certain migrant communities (particularly with respect to funerals) before passing the Bill.

CASE LAW UPDATE

Schiele v Commissioner of Taxation —Backpacker tax residency (again!)

In Schiele v CofT, the taxpayer was a German backpacker who came to Australia on a working holiday visa for 9 months. This included 6 months living rent free on a farm (on which he worked for 3 months and also used as a travel base). The taxpayer lodged his return on the basis of being a resident of Australia, but the ATO issued his assessment on a non-resident basis.

The AAT held that, although the taxpayer was present in Australia for more than 183 days, his usual place of abode was not Australia and he did not intend to take up residency here. Whilst based on the farm he continued to travel and there was no evidence that he considered it to be his home or usual place of abode. He had no enduring connection with Australia and his stay was always intended to be temporary.

Key takeaway: This decision, together with the previous backpacker residency cases and ATO statements, indicate that will generally only be in unusual circumstances that a taxpayer on a working holiday visa would be considered a tax resident.    

Doyle v Commissioner of Taxation—Sale of land and Revenue vs Capital Treatment

In Doyle v CofT, the AAT found that profits derived on the sale of parcels of land by various trusts (which had a common controller) were correctly taxed on revenue account rather than being capital gains. The taxpayer contended that they had acquired the properties with an intention of long-term hold but due to financing pressures had been required to sell the land.

The member held that, to meet the test of whether property is acquired as part of a profit-making scheme, it is sufficient that one of the purposes was profit making by sale. The weight of the documentary evidence in this case indicated the taxpayer had a flexible approach to how profit would be realised. At the time each property was acquired the purpose was to develop the property and put it to a commercially advantageous use, which could have been selling, leasing or a combination of both. Accordingly, each property was acquired as part of a profit-making scheme that included, as one of its purposes, profit making by sale.

The member considered a range of evidence, including legal and accounting advice obtained when structuring the purchases and statements made to potential financiers and investors.

Key takeaway: Care should be taken if a client is purchasing an asset for a long-term hold but also gives  consideration to the potential for profit-making by sale, as this may place the capital gains tax treatment of the asset at risk.

RULINGS, GUIDELINES & PRACTICE STATEMENTS

MT 2006/1 Addendum — when holding entity is carrying on an enterprise

Miscellaneous Taxation Ruling MT 2006/1 sets out when an entity carries on an enterprise for ABN and GST purposes. MT 2006/1 has ben updated to include references to the Taxation Ruling TR 2019/1, which deals with when a company carries on a business for income tax purposes.

MT 2006/1 includes an example of a trustee that holds all shares in three companies but has no involvement in the running of the companies and provides no services to the group. In this case, the trustee is not considered to be carrying on enterprise. TR 2019/1 includes a similar example in relation to a holding company, which is stated to be carrying on a business. The Addendum adds a footnote which explains that the TR 2019/1 example is distinguishable as in that case the holding company undertakes more activities in managing the company group.

TD 2019/14 — Trust splitting arrangements

The ATO has finalised its view on when trust split arrangements will cause a trust resettlement. Tax Determination TD 2019/14 is generally in line with the draft, however, it now includes an example of an arrangement with the following features that does not give rise to a trust resettlement
– Amendment of the trust deed to allow for the appointment of additional trustees and separate appointors in respect of different parts of the trust fund. However, the deed must require each trustee still take into account losses and expenses incurred by the whole trust when determining the distribution of net income. The trustees must also be required to act together in making certain decisions and have recourse to all of the trust assets to satisfy their right of indemnity.
– Appointing a new trustee and appointor over some of the assets of the trust fund and removing the existing trustee and appointor in respect of those assets.
– No change in control of the existing trustee or to the beneficiaries.
– Separate accounts are being kept but the results consolidated for the entire trust fund and a single tax return prepared.

Key takeaway: Clients who would like to separate the control and benefit of certain trust assets between different family members may wish to consider if these features would achieve the desired outcomes.

TDID 2019/1—disclosure of tax debt information to credit reporting bureaus

Taxation Administration (Tax Debt Information Disclosure) Declaration 2019 has been issued, identifying the classes of entity whose tax debt information can be disclosed to credit reporting bureaus.

STATE TAX DEVELOPMENTS

NSW—Surcharge land tax and duty

Legislation was introduced in NSW last year which provides that a discretionary trust holding NSW residential property will be deemed a foreign trust if its terms do not explicitly and irrevocably prevent a foreign person from ever becoming a beneficiary. This means that a foreign trust is liable to foreign person surcharge purchaser duty and surcharge land tax in NSW even if the trust has never distributed to a foreign person and does not intend to.

Transitional provisions applied to 31 December 2019 allowing deeds to be amended to exclude foreign beneficiaries. The Government intends to extend this into 2020 as legislation has not yet been passed (final extension date currently unknown).

Victoria —Foreign purchaser additional duty

The Victorian SRO has also announced a change in the application of duty to discretionary trusts acquiring land in Victoria from 1 March 2020.

The current position is that the SRO applies a practical approach under which it does not treat a trust with a foreign beneficiary as a foreign trust if the beneficiary has not received distributions, and is unlikely in the future to receive any distributions. The new position will remove the practical approach, and be that a discretionary trust purchasing land will be liable for the foreign purchaser additional duty if the trust has the ability to distribute to a foreign resident.

Key takeaway: Any trust with NSW land-holdings or which is acquiring Victorian land should amend its Deed to exclude foreign beneficiaries (provided the Deed allows such amendments).

ATO, GOVERNMENT & TPB ACTIVITY

TPB(DP) D1/2020 —CPE requirement for agents

The TPB has released a discussion paper arising from its review of its continuing professional education (CPE) policy for tax agents, BAS agents and tax (financial) advisors. The paper includes a proposed minimum CPE hours requirement of 40 hours per annum for all tax practitioners. At present, the requirement is for 90 hours for tax agents, 45 hours for BAS agents and 60 hours for tax (financial) advisers to be completed over a three-year period.

The TPB is also considering making recommendations as to particular types of CPE to be completed, and further clarifying that a tax practitioner should be able to demonstrate how the CPE activities they have completed are relevant to the services they provide. The closing date for submissions is 18 March 2020.

Response to taxpayer engagement report

The Government and ATO have released their responses to recommendations in a 2018 report by a House of Representatives committee on taxpayer engagement. Key responses include:
– The Government will not commission a full review of the tax system, take action to introduce a “standard deduction” or consider introducing an ABN withholding tax system.
– The ATO is consulting with the community to help shape the design of the future return lodgement experience, which includes the concept of “push returns.”  The ATO will maintain paper-based returns for the foreseeable future but will continue to work toward a paper-free income tax return system.
– The ATO will review the functionality of its ATO contractor assessment tool and attempt to improve its simplicity and usability.

Inquiry into Employee Share Scheme (ESS) rules

The Government has announced that the Standing Committee on Tax and Revenue will conduct a inquiry into the tax treatment of employee share schemes which will look at:
– How effective the 2015 changes have been in their goal of bolstering entrepreneurship and supporting start-up companies, and the costs and benefits to the broader community.
– Whether the current tax treatment remains relevant to start-up companies and whether any changes are appropriate.
– How companies currently structure their ESS arrangements and how taxation treatment affects these decisions.
– The challenges faced in setting up an ESS arrangement, how the ATO standard documents assist this process and whether additional improvements should be made.

Submissions are due by 19 March 2020.

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.