Birchstone Brief for the week ended 16 October 2020

ATO Updates

Updated PAYG withholding schedules

The ATO has published the updated tax withholding schedules to implement the personal income tax cuts announced in the Federal Budget. Employers have until 16 November to ensure they are withholding the correct amounts. Xero and MYOB are yet to incorporate the new withholding schedules into their software.

Employees will need to wait until they lodge their 2020/21 tax returns to receive their entitlement to the tax cuts back to 1 July 2020 as the new withholding schedules only implement the tax cuts on a prospective basis.

New JobKeeper alternative decline in turnover test

The ATO has registered a Legislative Instrument which adds an additional alternative decline in turnover test for the purposes of the JobKeeper rules. The new alternative test applies to entities that temporarily ceased trading for some or all of the relevant comparative period (i.e. during the September 2019 quarter for the JobKeeper extension up to 31 December 2020). 

ATO practice statement on SMSF penalties

The ATO issued Practice Statement PS LA 2020/3 which provides guidance to ATO officers on the administration of penalties for SMSFs including the circumstances officers should take into account when considering remission. 

The practice statement is part of the ATO’s ‘rebalancing’ of their approach to SMSF compliance after a review found ATO officers had been too lenient in remitting penalties. The approach under the new practice statement is firmer which will result in more SMSFs being liable for significant penalties. The timing of the release of the practice statement is somewhat surprising given the current COVID-19 situation. 

ATO concession for SMSF asset valuations

The ATO has stated it will not impose penalties if a SMSF trustee has difficulty obtaining evidence to support market valuations of assets due to COVID-19. Instead, the ATO will send a letter to the trustee advising them to ensure that they have supporting valuation evidence by the time of their next audit, if possible.

Auditors should still consider modifying Part B of the audit report and lodge a contravention report if necessary, including the reasons why the trustee was unable to obtain the appropriate evidence.

Other News

Board of Taxation’s report on corporate tax residency released

The Federal Government has released the Board of Taxation’s report on the corporate tax residency rules. The Board’s key recommendations were incorporated in the proposed changes to the corporate tax residency test announced in the 2020/21 Federal Budget.

The law is proposed to be amended so that a company incorporated offshore will be treated as an Australian tax resident only if it has a ‘significant economic connection to Australia’. This test will be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia.

Exposure draft: DGRs required to register as charities with ACNC

Treasury has released an exposure draft which proposes to require all deductible gift recipients (DGRs) (other than ancillary funds, specifically listed DGRs and Australian government agencies) to register as charities with the Australian Charities and Not-for-profits Commission (ACNC). 

Most DGRs are already registered with the ACNC. For those that are not, they will have 12 months to get registered following the commencement of the amendments. While that period may be extended by the ATO in limited circumstances, DGRs that are not currently registered as charities with the ACNC would be well advised to start thinking about commencing the registration process.

State Taxes

Queensland duties exemption for eligible small business restructures

Small business entities (with an annual turnover of up to $5m) in Queensland can now access exemptions from transfer duty on certain transfers undertaken in the course of a restructure. While the exemption is limited, it is a step in the right direction. 

Queensland, WA and the NT are the only jurisdictions that still impose duty on the transfer of non-land business assets. We call on the WA & NT Governments to follow suit and, if they will not abolish these duties, at least provide an exemption for restructures.

Legislation

Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Bill 2020 (Cth)

The Bill that implements a number of measures announced in the 2020/21 Federal Budget received Royal Assent. The measures included in the Bill are the personal income tax cuts, the loss carry back provisions, the increase to the small business turnover threshold for certain concessions, the changes to the R&D incentive provisions and the temporary full expensing of depreciating assets.

Cases

Advanced Holdings Pty Ltd atf The Demian Trust v FCT [2020] FCA 1479 – Tax consequences of sale of properties by trustee

In a case that turns on its own facts, the Federal Court considered a number of issues concerning the determination of net income of a unit trust, and which entities were assessable on that net income. 

The trustee of the unit trust was in a joint venture with a third party who had financed the acquisition of three properties. The Federal Court held that the third party joint venturer did not have a 50% equitable interest in the properties because there was no express or implied intention in the joint venture agreement to create such a beneficial interest. 

The Court also held that the sole unitholder of the unit trust held its units in its own right, and not in its capacity as a trustee of another trust as it had never been validly appointed as trustee.
 
San Remo Heights Pty Ltd v FCT [2020] AAT 4023 – Sales of vacant subdivided land subject to GST

The AAT needed to consider whether sales of vacant land was part of an ‘enterprise’ carried on by a company and therefore subject to GST. Despite the company having acquired the parent lot in 1962, the company failed to discharge its burden of proving that the series of activities it undertook in relation to the land over the years did not constitute an enterprise. The AAT therefore held that the sales were subject to GST.

This case illustrates how broad the enterprise definition can be and that it is harder for a company to prove that it is not carrying on an enterprise, as opposed to an individual in the same circumstances.

Arjunan v FCT [2020] AATA 4024 – Affirmed taxpayer was an Australian resident

The AAT affirmed the Commissioner’s objection decision that the taxpayer was an Australian resident for tax purposes. The self-represented taxpayer was employed by the Queensland Government, but on leave without pay, for the 7-month period he worked in Kuwait. The AAT found that during that time “he maintained an intention to return to Australia and an attitude that Australia remained his home” and was therefore a resident of Australia under the ordinary resides test, the domicile test and the 183-day test.

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