Tax Bulletin – May 2020

May has provided further updates on JobKeeper and the Cashflow Boost, including the ATO view on the ‘general’ ineligibility for the Cashflow boost where PAYGW registration has occurred post 12 March 2020. The ATO have also provided concessions on deferred lodgement dates and compliance with Division 7A. Further, with Parliament sitting again, legislation has started moving through Parliament. 

LEGISLATION UPDATE

Treasury Law Amendment (More Flexible Superannuation) Bill has been introduced to House of Representatives, which:
– Extends the bring forward age limit to 65 and 66 years for non-concessional super contributions. This may allow these individuals to make up to $300,000 in contributions.
– Will apply to contributions made from 1 July 2020.

Treasury Laws Amendment (2020 Measures No 1) Bill has received Royal Assent and is therefore law. This Bill contains:
– Amendments relating to the definition of Significant Global Entity and CbC Reporting.
– Tax relief for merging superannuation funds which was due to expire on 1 July 2020 has now been made permanent.

Treasury Laws Amendment (2020 Measures No 2) Bill has also received Royal Assent and is therefore law. This Bill
– Amends hybrid mismatch rules.
– Broadens amounts employers can voluntarily report under STP to include child support payments.

Parliament will next sit for 2 weeks from 10 June. It is hoped that changes to exclude JobKeeper ‘top-up’ payments from SGC will be passed in this sitting.

The professional bodies are also putting pressure on Treasury to provide an update and defer the changes to Division 7A, which are due to start 1 July 2020 despite no legislation being released.

STIMULUS PAYMENTS UPDATE – JOBKEEPER AND CASHFLOW BOOST

Updates to Practical Compliance Guideline PCG 2020/4

The ATO has updated PCG 2020/4, which provides guidance on how it will apply compliance resources to schemes to obtain access to JobKeeper payments, to include two new examples which result in a high risk of audit:
– Deferral or reduction of price paid to suppliers so that suppliers obtain a JobKeeper payment.
– Deferral, reduction or waiver of revenue paid to entity so it can obtain a JobKeeper payment,

Reporting deferrals

An extension of time has been provided for employers to make the JobKeeper monthly turnover declarations until the 14th of each month (instead of the 7th).

Note: a delay in making a declaration will also means a delay in receiving payment from the ATO.

Payments which count towards $1,500 wage condition

The ATO has set out the payment types which are able to counted towards meeting the JobKeeper $1,500 ‘wage condition’:
– Eligible payments include: allowances, overtime, approved salary sacrifice arrangements, taxable component of ETPs, unused leave lump sum payments, lump sum arrears payments
– Ineligible payments include: reimbursements, non-salary sacrifice fringe benefits, director fees.

Important dates

Businesses must have enrolled by May 31 to claim JobKeeper payments for April or May. If enrolling for the first time in subsequent months, this must be done by the end of the relevant month.

Fortnightly payments for May and subsequent months must now be made by the end of the relevant fortnight, commencing with the fortnight ended May 10. If employees are paid less frequently, the payment can be allocated between fortnights in a reasonable manner.

Eligibility for Cashflow Boost  – PAYGW commenced after 12 March 2020

The ATO has updated its website to set out when a business which registered for PAYG withholding (PAYGW) after 12 March 2020 will be eligible for the cashflow boost. Whilst this is not a legislative requirement, the ATO approach is that a business without a PAYGW registration on 12 March 2020 would generally not be entitled to the cashflow boost, other than in limited circumstances including where the business:
– Started employing in the March 2020 period, and either;
           – the employees were engaged before 12 March 2020 but were not required to be paid until  12 March 2020 or later; or
           – they were engaged after 12 March 2020 but the business can demonstrate there were other reasons for engaging the employee after that date.
– Has a history of paying wages to the relevant employees and can substantiate this.

Businesses that can demonstrate these circumstances will need to contact the ATO and provide additional information in order to receive payment of the cashflow boost.

A business that has a history of paying wages but has not been registered for PAYGW, may be liable for penalties for failing to withhold and failing to register for PAYGW.

CASE LAW UPDATE

Greig v FCT —Share losses deductible

In a split decision, the Full Federal Court found that share losses made by the taxpayer in Grieg v FCT were deductible. The taxpayer invested almost $12m in a company’s shares in 64 trades over a 2-year period, which he disposed of for a loss. Although he treated his other share investments as capital, he sought to treat the loss on these shares as being on revenue account.

The taxpayer acquired the shares with a profit-making intention, rather than as a long term investment to derive dividend income, even though it took a longer time to realise, and no profit was in fact made. If a gain had been realised it would have been the result of the implementation of a profit-making purpose and part of an overall sophisticated plan. The taxpayer acted as a ‘business person’ would to obtain a profit, which included a plan to exploit the unrealised value of the company’s underlying asset and taking steps to defend the  value of his investment in court.

Key takeaway: Taxpayers who acquire investments in a systematic and business-like manner could be at risk of having any gains taxed on revenue account (with no CGT discount). This is more likely to be the case where, for example, the asset has no likelihood of generating income other than from a sale.

Peter Greensill Family Co Pty Ltd v FCT— Capital gains derived by a foreign beneficiary

The taxpayer in this case was a discretionary trust which made a capital gain on the sale of non-taxable Australian property (non-TAP) which it distributed to a foreign resident individual.  

The taxpayer argued there was a policy objective that foreign beneficiaries of resident trusts not be taxed on capital gains from non-TAP assets. The Federal Court held that section 855-10 of the ITAA97 did not apply as the trust was not a foreign resident and the deemed gain derived by the beneficiary was not a “capital gain … from a CGT event” as required to fall within the section. The Court also did not accept there was evidence of the asserted policy objective (though this would not have been relevant in any event).

Key takeaway: The decision gives judicial support to the ATO view in its draft Tax Determination TD 2019/D6. A foreign resident should therefore generally hold non-TAP assets either directly or via a fixed trust in order to access the CGT exemption.

Donkin & Ors v FCT— Trust resolution not effective

In Donkin & Ors a trustee resolved to distribute to individual beneficiaries the necessary proportion of its trust law income to equate to a specified assessable income amount, with any balance to be distributed to a company. Various deductions were disallowed after an audit and the beneficiaries contended the individual’s income should not change and the increase in net income was assessable to the company.

The AAT held that the resolutions fixed the respective shares of taxable income as being the proportion of the trust’s income as ascertained by the trustee. This meant that the additional assessable income was assessable to all the beneficiaries in this proportion.

Key takeaway: This reinforces that it is generally not possible to ensure a beneficiary receives a fixed amount of assessable income from a trust if its taxable income is not known at the time of the resolution.

Holman and FCT—No partnership for tax purposes

In this case the taxpayer’s wife had registered an ABN, business name and registered for GST for a retail business. The taxpayer claimed 80% of the business loss in his personal tax return on the basis they operated the business in partnership and had agreed to split the profits and losses on an 80/20 basis. The ATO denied the loss on the basis that a partnership did not exist for income tax purposes.

The AAT found that the taxpayer’s wife had commenced the business as a sole trader and was the sole owner of the business name and bank account. The retail lease also supported that this position. There was no evidence of the taxpayer and his wife trading in joint name or agreeing to split profits and losses.  Contributing to the business as accounts manager was not sufficient to establish a partnership.

Key takeaway: The ATO may seek to review the underlying evidence to substantiate contentions made by a taxpayer and it is crucial that transactions are accounted for in accordance with this evidence.

304 Wanda Street Pty Ltd and FCT—No enterprise at time of acquisition of property

The taxpayer purchased a vacant block of land shortly after establishment and lodged a DA for an “ecotourist” facility but it was refused. It later obtained approval for a single dwelling. The taxpayer claimed an input tax credit for the GST on the purchase price. The ATO disallowed the claim on the basis that the taxpayer was not carrying on an enterprise at the time of acquiring the property.

The AAT agreed that there was no evidence that the taxpayer was conducting an enterprise. Most of the post purchase activities related to a DA for the single dwelling, there was no evidence of an architect’s involvement and no construction work. There was little evidence to show that the taxpayer had brought any rational financial analysis to bear on its acquisition of the property and subsequent activities.

Key takeaway: Although ‘carrying on an enterprise’ does not require there to be a business, it still requires a profit-making undertaking and so a taxpayer should be able to provide evidence that they intend to make a profit from their activities.

Other cases

BHP Billion Limited v FCT: High Court decision held subsidiaries of dual listed parent companies were ‘associates’ for tax purposes as the parent companies were ‘sufficiently influenced’ by each other.

BAC Holdings Ltd v FCT:  Federal Court held that the taxpayer could not appeal a private binding ruling objection decision as a ‘dissatisfied’ person, as there was a material difference between the scheme facts and what actually occurred.

NQZG and CofT: AAT held that amounts payable under a share sale agreement for a ‘Founders Retention Amount’ (payable if the founders were still employed at the end of a period) were assessable as income rather than as sale proceeds for the shares.

ATO & TPB ACTIVITY

Increase in car depreciation limit

The ATO has increased the car cost limit for depreciation for the 2020-21 financial year to $59,136 from $57,581. This is the maximum value a taxpayer can use to work out the depreciation claim for vehicles. This will therefore apply to cars acquired from 1 July 2020.

Division 7A—impact of deferred lodgement dates

The ATO guidance on unpaid present entitlements (UPEs) in PSLA 2010/4 has been updated to reflect the extension of the due date for lodgement of 2019 trust tax returns. If a company became entitled to a UPE in the 2019 income year, the operation of Division 7A can be avoided if the UPE is placed on sub-trust for the company’s sole benefit by 5 June 2020 (or any later lodgement date allowed by the Commissioner).

The deferred lodgement date also applies with respect to the date by which a loan agreement needs to be executed or a loan repaid to avoid the operation of Division 7A.

The ATO is also to issue guidance shortly for those affected by COVID-19 who have minimum loan repayments due for the year ending 30 June 2020.

Taxpayer Alert—Foreign investment in Australian entities

The ATO has issued TA 2020/2 in relation to foreign investments into Australian entities with features that are not consistent with vanilla debt or equity arrangements. Arrangements of concern include where the return payable to the offshore investor includes a contingent additional return if the Australian entity divests its assets reflecting a share of the proceeds. The entity treats the amount payable to the offshore investor as a deduction but the return is not subjected to Australian income or withholding tax.

The ATO may consider applying withholding tax obligations, transfer pricing rules or Part IVA.

Tax deductibility of superannuation contributions 

The ATO has advised that superannuation contributions made to the Small Business Superannuation Clearing House must be made by 23 June 2020 to be eligible for deduction in the 2020 income year.

Tax Practitioner Board—Relaxation of CPE requirements

The TPB CPE policy requires that no more than 25% of CPE should be undertaken through relevant technical/professional reading. This cap has been temporarily removed until 30 September 2020.

The TPB is also accepting a small amount of educative health and wellbeing activities, such as attending webinars about how to manage stress and self-care, as being a relevant CPE activity that will count towards CPE hours. The vast majority of CPE activities must still be relevant to the tax agent in maintaining, developing or promoting skills, knowledge or attributes of the tax agent

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.