This Week in Tax
CRITICAL TRUST UPDATES
New Event : Trust Distributions – How will the reforms to trusts affect your clients for 30 June 2011
Register now for Adelaide, Brisbane, Melbourne, Perth, Sydney and Live Web Stream session
There are important developments in the reform of the tax law for trusts. on 13 April 2011, the Assistant Treasurer released Exposure Draft legislation which will impact trust distributions for the 30 June 2011 income year. The Tax Institute is running seminars to ensure all members understand the changes that will affect how they advise their clients.
The events will be held in Sydney on 3 May, Melbourne on 4 May, Adelaide on 9 May, Brisbane on 16 May and Perth on 19 May. The Sydney session will available via a Live Web Stream on Tuesday 3 May.
Free Online Video for members: Current Trust Issues
In the latest CPE.TV Tax Perspectives program Arthur Athanasiou FTIA and Steve Westaway FTIA explore the proposed trust-streaming rules and discuss the issues that will directly affect tax agents who need to prepare trust income tax returns under the new rules.
This program is free for members of The Tax Institute. Just login to The Tax Institute’s website, visit the CPE.TV page (under Online Resources) and click on the “Click here to view free Taxation Institute programs” button to access it.
Click here for more information and to subscribe to CPE.TV
SENIOR TAX COUNSEL’S REPORT
Preamble – Friday 21 April 2011
Recently the Government released a discussion paper concerning ‘Privilege in relation to tax advice’. This was further to an Australian Law Reform Commission report and recommendations dating back to 2007.
The paper investigates the merits of giving clients of professional tax advisers privilege for tax advice documents prepared for them, which currently have to be disclosed to the Tax Office during an audit. It effectively discusses the possible codification of the existing Tax Office Accountants’ Concession.
Tax advisers play a key role in ensuring compliance with tax laws, so we need to ensure that communication between a client and their tax adviser is full and frank. That will only happen when there’s no fear that those communications will need to be handed over to the Tax Commissioner. Extending professional privilege to advisers would not hurt the unique rights of officers of the court. Both client legal privilege and a new tax advice privilege could exist alongside one another.
Kind regards,
Robert Jeremenko FTIA
The Tax Institute Technical Subcommittee meetings
· GST Subcommittee (Wednesday 4 May 2011);
· CGT & Losses Subcommittee (Thursday 26 May 2011); and
· Superannuation Subcommittee (Wednesday 18 May 2011).
If you have any issues that you would like raised at any of the Subcommittee meetings please contact us at Tax Policy.
Upcoming Consultations
· NTLG Fringe Benefits Tax Subcommittee (Thursday 12 May 2011);
· ATO Tax Practitioner Forum (Friday 20 May 2011);
· NTLG Superannuation Technical Sub-group (Tuesday 7 June 2011);
· NTLG Losses & CGT Subcommittee (Wednesday 8 June 2011);
· Public Rulings Steering Committee (Friday 10 June 2011);
· NTLG GST Subcommittee (Wednesday 15 June 2011);
· BAS Agent Advisory Group (Thursday 16 June 2011);
· Accounting Working Group (Friday 17 June 2011);
· National Tax Liasion Group (Wednesday 22 June 2011); and
· Lodgement Working Group (Thursday 30 June 2011).
If you have any issues that you would like raised at any of the consultations please contact us at Tax Policy.
The Tax Institute in the media
The Tax Institute was mentioned on Tuesday 26 April 2011 and Wednesday 27 April 2011 in The Advertiser: “Call to avoid tax law turn”, Adelaide Now, The Age: “Tax avoidance cases focused on hypotheticals”, Reuters, Sydney Morning Herald, WA Today and Brisbane Times: “‘Misreading’ led to tax law complexity” in relation to Justice Tony Pagone QC speaking at The Tax Institute’s SA Convention on the interpretation of Part IVA.
The Tax Institute was extensively quoted in The Australian on Thursday 28 April 2011, in relation to rumoured trust tax changes: “Clamp on trusts would hit key MPs”. In the article, we say that we are surprised by speculation of a crackdown, given the strength of the Government’s recent statements in support of family trusts. We also said that it was not just the wealthy who would be hit by the rumoured Budget changes – it’s mum-and-dad corner store owners and fish-and-chip shop owners who often use trust structures for legitimate purposes.
The Tax Institute was also quoted in SmartCompany on Thursday 28 April 2011: “Wayne Swan zeroes in on family trusts but experts expect only tinkering in Federal Budget”. In the article, The Tax Institute says that radical reform is unlikely, because there are already plenty of changes going on in the area, and trusts have had a lot of uncertainty over the past 20 years. The message from the Government is trusts are legitimate vehicles, particularly for primary producers. On the same issue, the Australian Financial Review quoted The Tax Institute on Thursday 28 May 2011: “Swan warned of risks in targeting trusts”. In the article, we say that the strident opposition from the Nationals and small business people to Shadow Treasurer Joe Hockey’s suggestion that trusts should be taxed as companies was a bit of a lesson for Governments that dabble in trust tax law.
On Friday 29 April 2011 The Tax Institute was extensively quoted in the Australian Financial Review (pages 8-9) with regard to excess super contributions tax: “Hefty penalties may be relaxed for honest gaffes”. The article quotes the Assistant Treasurer’s speech to The Tax Institute’s National Convention in March, where he said that he had to pay excess super contributions tax, so he’s more than sympathetic, he’s annoyed. The Tax Institute says in the article, that although the Tax Commissioner has a discretion to waive the tax penalties, he has used the discretion in very rare circumstances. The quotes continue: “The Tax Institute is hopeful that the Government is heeding our long-standing concern about the inequity of a 93 per cent tax impost. It should introduce some level of flexibility to allow taxpayers who inadvertently exceed the caps to withdraw the money to prevent this excess impost. A simple oversight should not incur a tax rate of 93 per cent, possibly one of the highest tax rates on super in the world.”
LEGISLATION
Treasurer refuses to rule out changes to low income tax offset for child trust beneficiaries
In a press conference held in Canberra on 27 April 2011, the Treasurer, Wayne Swan, said he would not comment on press speculation that changes would be announced in the Budget in relation to the availability of the the low income tax offset for children who are beneficiaries of family trusts.
When referred to the recent comment by the Assistant Treasurer, Bill Shorten, that trusts were legitimate, and not a form of tax evasion, the Treasurer said:
“Far be it for me to try and interpret the story this morning, but the story this morning isn’t a story about trusts and engaging in appropriate behaviour. It is actually a story about the use of a low income tax offset by people who are using trusts and there is a very big distinction between the two and there is no conflict with what I’m saying with what Bill Shorten had to say at all.”
For a copy of the transcript of the Treasurer’s press conference, go here
Government extends consultations for Tax Breaks for Green Buildings program
In media release No 2011/062, issued 20 April 2011, the Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, announced that the Government will conduct further consultations around the Tax Breaks for Green Buildings program to deliver the best outcomes for industry. In order to facilitate the further consultations with industry, the program will now come into effect on 1 July 2012.
For more information, please refer to the Tax Breaks for Green Buildings information page on the Department of Climate Change and Energy Efficiency website here
Submissions to Treasury: Discussion Paper – GST cross-border transactions
Treasury has advised that it received 10 submissions in response to the discussion paper on the Implementation of the recommendations of the Board of Taxation’s review of the GST to cross-border transactions, released on 15 February 2011, including one from The Tax Institute. There were 8 public submissions, and 2 confidential submissions. The public submissions are accessible here
Cents per kilometre rates for calculating tax deductible motor vehicle expenses – regs made
Income Tax Assessment Amendment Regulations 2011 (No 3) was made on 21 April 2011 and registered on the Federal Register of Legislative Instruments on 21 April 2011 as Select Legislative Instrument 2011 No 57.
The Regulations amend the Income Tax Assessment Regulations 1997 to determine cents per kilometre rates for calculating tax deductible motor vehicle expenses for 2010-11.
The rates for the 2010-11 income year have not changed from the 2009-10 rates because the Private Motoring Subgroup index at September 2010 was still below its level at September 2008. The rates are as follows:
Description
Engine capacity of car not powered by a rotary engine (cc)
Engine capacity of car powered by a rotary engine (cc)
Rate per kilometre (cents)
Small car
Not exceeding 1600cc
Not exceeding 800cc
63
Medium car
Exceeding 1600cc but not exceeding 2600cc
Exceeding 800cc but not exceeding 1300cc
74
Large car
Exceeding 2600cc
Exceeding 1300cc
75
For a copy of the Explanatory Statement, click on the Explanatory Statement tab.
CASES
Decision Impact Statement – White
On 28 April 2011, the ATO issued a Decision Impact Statement in relation to the Federal Court decisions in FCT v White [2010] FCA 730; 2010 ATC 20-195 and FCT v White (No 2) [2010] FCA 942; 2010 ATC 20-205. The case concerned whether amounts paid to an employee incentive trust were assessable to a shareholder/director of the employer company, and whether an administrative penalty of 50% for recklessness was excessive.
The Decision Impact Statement says that the Federal Court recognised that, based on the findings of fact made by the AAT, the payments made to the trustee of the incentive trust on behalf of the taxpayer were ordinary income derived by him from the provision of his services. The Court also recognised that the taxpayer was liable to a penalty under the former s 226H of ITAA 1936.
Decision Impact Statement – Gloxinia
On 21 April 2011, the ATO issued a Decision Impact Statement in relation to the Full Federal Court decisioin in FCT v Gloxinia Investments Ltd atf Gloxinia Unit Trust [2010] FCAFC 46; 2010 ATC 20-182; 75 ATR 806.
The case was about the GST treatment of the sale of strata-titled home units:
· constructed by a developer on its own account;
· on lands already held by the developer by virtue of an existing long-term lease granted to the developer by a local Council; and
· whereby the developer’s existing long-term leasehold interest in the land, upon completion of construction of the home units, will be converted into individual 99 year strata lot leases.
The majority of the Full Federal Court (Kenny and Middleton J) held that the home units, when sold by Gloxinia, had previously been the subject of a long term lease and were no longer new residential premises pursuant to s 40-75(1)(a) of the GST Act. The Court concluded that, pursuant to s 40-65 of the GST Act, the sale of the home units by Gloxinia to third parties were input taxed supplies of residential premises.
The Commissioner’s application for special leave to appeal to the High Court was refused on 1 October 2010 – see FCT v Gloxinia Investments Limited as Trustee for Gloxinia Unit Trust [2010] HCATrans 255 (1 October 2010).
The Decision Impact Statement notes that the Assistant Treasurer issued a press release [No 2011/020] “Clarifying GST Rules Around Residential Property” on 27 January 2011 announcing that the Government will move to amend the GST Act in the light of this decision to ensure that the Act achieves the intended policy outcomes for the GST treatment of residential premises. The press release indicates that the amendments, when enacted, will have some retrospective application.
The Decision Impact Statement sets out the administrative treatment the Commissioner proposes to apply. Further, it states that GSTR 2008/2 will be withdrawn. The Court’s decision means that the ATO view outlined in GSTR 2008/2 with respect to development lease arrangements with government agencies is incorrect under the current law.
GSTR 2003/3 will also be reviewed to ensure consistency with the Court’s decision.
Commissioner’s case on transitional termination payment “incongruous” – Perfrement
The AAT has upheld the taxpayer’s challenge to an assessment that denied a redundancy payment received by him the character of a “transitional termination payment” for the purposes of s 82-10 of ITAA 1997.
Section 82-10 requires that a payment, if it is to qualify as a transitional termination payment, must (amongst other things) be made pursuant to an entitlement provided for under a contract in force before 10 May 2006. The taxpayer had such a contract. His employment was terminated by redundancy on 30 September 2008. His employer amended its redundancy policy in May 1995, July 2005 and July 2008, during the term of the taxpayer’s employment. The amendment in July 2008 followed changes to the taxation law.
The Commissioner argued that because of the amendments in July 2008, the taxpayer’s redundancy was not provided for under a contract in force before 10 May 2006. In response, the taxpayer submitted that it was incongruous for the Commissioner to assert that the employer’s redundancy policy must be taken to have changed because the tax laws changed and the employer purported to publish, in effect, a memorandum of advice to its employees identifying the changes in the tax laws.
The AAT agreed. It said, at para 34:
“The Tribunal is of the opinion that the policy published by the employer in July 2008 was neither a new contract nor a variation of the existing contract. The redundancy policy published in July 2008 was essentially a memorandum of advice to employees as to the effect of newly introduced tax laws. It was, in essence, self-evident advice contained within a company policy document. There was, as submitted by the [Commissioner], no change to the method of compensation in the event of redundancy, but rather a change in the application of tax laws to those benefits.”
The AAT set aside the decision under review and in substitution decided the taxpayer received a transitional termination payment as defined in section 82-10 of ITAA 1997.
Perfrement and FCT [2011] AATA 264 (AAT, Hughes M, 20 April 2011).
RULINGS
GST: development, lease and disposal of retirement village tenanted under “loan-lease” arrangement – GSTR 2011/1
On 27 April 2011, the ATO issued GST Ruling GSTR 2011/1 entitled “Goods and services tax: development, lease and disposal of a retirement village tenanted under a ‘loan-lease’ arrangement”. It was previously released in draft form as GSTR 2010/D1.
The Ruling considers the GST implications of the development and supply of a retirement village tenanted under a “loan-lease” arrangement. In particular, this Ruling considers:
· the consideration for and price of a taxable or GST-free supply of a retirement village for the purposes of s 9-15 and s 9-75(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); and
· the extent to which input tax credits are available for acquisitions or importations made by the developer to construct or develop the village under Division 11 or Division 15 of the GST Act,
for retirement villages that have the features set out in para 6 of the Ruling.
4 Addenda issued
On 27 April 2011, the ATO issued the following 4 Addenda:
· TD 2004/76A1 – Addendum Income tax: consolidation: are the voting interests in a foreign company held by a subsidiary member of a consolidated group treated as being voting interests of the head company of the group when determining whether s 23AJ of ITAA 1936 applies to a dividend paid to the group?
· TR 2001/14A6 – Addendum Income tax: Division 35 – non-commercial losses
· TR 2007/6A1 – Addendum Income tax: non-commercial business losses: Commissioner’s discretion
· GSTR 2004/9A2 – Addendum Goods and services tax: GST consequences of the assumption of vendor liabilities by the purchaser of an enterprise
SUPERANNUATION
Bilateral agreements – what is an employer’s super obligations when an employee is working overseas?
Employers may be paying double super for employees working temporarily overseas. To prevent the payment of double super, Australia has bilateral agreements with many other countries, including a new agreement with the former Yugoslav Republic of Macedonia, which commenced on 1 April 2011.
For more information, go here
ATO NEWS
The BAS agent (Edition 13) April 2011
For a copy of the ATO’s publication, The BAS agent (Edition 13) for April 2011, go here
Commissioner’s address – Measure for Measure: The Four Pillars of Compliance
On 25 February 2011, the Commissioner, Michael D’Ascenzo, gave an address entitled “Measure for Measure: The Four Pillars of Compliance” to CEDA Trustees Roundtable, Arnold Bloch Leibler, Melbourne, Victoria. For a copy of the address, go here
Tax practitioner webcasts
For ATO tax practitioner webcasts current as at 19 April 2011, go here
MEMBER FEEDBACK
A win for the ATO
MEMBER 69 writes:
“Okay ATO, you win. I am closing down my practice of 30 years in November (need the few months extra income).
Due to the last twelve months of ATO disaster I contracted a stress related disease which will need another 12 months of treatment. On top of which they keep sending stupid letters either to us or the client and quite frankly I have had enough. I still could have carried on for another five or six years, but what’s the use. They are never going to admit to their mistakes (read the Fin Review [last] week), so the hell with it.
Adios y’all.”
Is ATO processing in disarray or do they know exactly what they are doing?
MEMBER 70 writes:
“We recently lodged 3 BASs simultaneously for a taxpayer which were late. Two resulted in liabilities and the third resulted in a refund greater than the aggregated liability of the other two BASs. Guess what! We got a phone call from the ATO a couple of days later demanding payment. When we asked about the third BAS refund, they advised that it wouldn’t be processed for another 28 days. I have seen the comments in TAXVINE about similar stories and thought you were all embellishing these stories just a little, but obviously not! We told them politely to go away until they had processed the refund.
Just two weeks earlier, I had a call from ATO debt collection advising that a client’s 2010 tax bill was overdue. I checked the Portal and yes, there was a tax bill that was due on 21 March 2011. I checked our system for an assessment and could not find one. When I asked the ATO officer about the assessment they advised that no assessment had actually issued yet due to an ATO error. So I asked that she send it out immediately and we will have the client pay it. The response…wait for it, “We don’t expect the assessment to issue for at least another 28 days, but we will need the taxpayer to make immediate payment to avoid the imposition of GIC”. I told her politely to refer to the Taxpayers Charter and also the ATO Receivables Policy but she didn’t care and simply demanded payment. Result, no assessment to date, however I have asked the client to pay the bill to avoid hassles.
The ATO know exactly what they are doing and they have been given very clear and concise instructions from the Commissioner (confirmed from a source inside the ATO), to aggressively pursue every taxpayer for all debts on the day after they fall due. This has come from the Minister’s office. The government is struggling to replenish the cash from their Stimulus Package that apparently saved the world from financial ruin. We have more aggression to come from the ATO so hold on to your pants!”
On due dates for payment on company “Statements of Account”
MEMBER 71 writes:
“Is it intentional for due dates for payment not to be shown on company and superannuation fund Income Tax Account Statements of Account in the hope that taxpayers will pay early rather than by the actual due date? Or is this just another stuff up on the ‘new beaut’ computer system from the Australian Incompetence Office?
Consequently, we just can’t send the statements out to clients, but have to advise them of the due date for payment as it’s not shown anywhere.”
I can relate to that
MEMBER 72 writes:
“Hello TAXVINE
I have just read through 2011 TAXVINE No 14 and for some reason I seem to be able to understand two of the member feedback points.
For me to understand them I feel indicates the troubles being experienced right across the tax system for everyone.
Member 65 feedback
This talked about the couple with the same incomes with the wife having the higher PAYG instalment. I had almost the opposite occur where the wife’s was not processed by the ATO for a couple of months. This was great in our situation as this kept the instalments down and also the tax payable did not have to get paid. I was hoping they would never send the assessment. The client was getting a bit worried because they thought there was a problem with the return and I had to speak to them each couple of weeks. Well, finally after ringing the ATO, hesitantly, they told me it was due to a date of birth discrepancy and so they could not issue the assessment. It looks like several years ago a return had the wrong date on it and this had been fixed and fine for the past couple of years until the new systems had been put in place. Now the new ATO systems could not cope.
I recently saw the tax agent magazine publish details to tell us to make sure dates of birth are correct. This must be the likely answer for Member 65 by my guess, but, in their case, it worked against them.
Member 68 feedback
We received the same letters for clients reminding clients to lodge their BAS and I could not work it out. If I just received the BAS for all the clients and had team members collate these and send them out, what was I going to do with these strange letters reminding them to lodge the BAS?
Then I had a chat with my team members and we started to notice that a couple of BAS and IAS had not been sent out to clients. I asked a couple of staff what had happened with these BAS and they looked blankly at me telling me that we have not received the BAS yet. For another one we asked the ATO to reissue the statement so that they can pay it.
Once I put 2 and 2 together I finally realised the purpose of these strange letters from the ATO – they must have no idea which ones they did not send out, but they know that they did not send some of them, so here are these letters.
Hope this might help explain some of the issues being faced.”