Birchstone Brief for the week ended 23 October 2020

ATO Updates

JobKeeper – Wage condition for JobKeeper extension

Employers have until 31 October 2020 to meet the wage condition for their eligible employees for fortnights that commenced on 28 September 2020 and 12 October 2020.

JobKeeper – Addendum issued to LCR 2020/1 on decline in turnover test

The ATO issued an Addendum to Law Companion Ruling LCR 2020/1, which relates to the JobKeeper decline in turnover test. The Addendum clarifies that the Ruling addresses the original decline in turnover test and does not specifically cover the actual decline in turnover test which is the new requirement introduced as part of the JobKeeper extension for fortnights from 28 September 2020. There are, however, some parts of the Ruling which are relevant for the actual decline in turnover test. Further information about the actual decline in turnover test is available on the ATO website. The Addendum also includes minor updates to reflect legislative amendments that have been made to the original decline in turnover test.

State Taxes

South Australia – Introduction of temporary relief for land tax

As a result of the changes in the aggregation of land, which came into effect from midnight on 30 June 2020, transition relief is available for some taxpayers whose land tax liability has increased as a result of the changes. Eligible taxpayers may apply for relief of up to $100,000 in 2020/21, $30,000 in 2021/22 and $15,000 in 2022/23.

Other News

Virtual meetings and electronic documents – Draft legislation released

The Government has issued exposure draft legislation that proposes to amend the Corporations Act 2001 (Cth) to make the current temporary relief in relation to virtual meetings and electronic document execution permanent. The reforms will permanently allow companies to hold virtual meetings, send meeting-related materials electronically and validly execute documents electronically. There are additional provisions relating to corporate accountability and transparency.

Cases

Victoria Power Networks Pty Ltd v FCT [2020] FCAFC 169 – Non-cash benefits

This case concerned the assessability of customer contributions to power distributors for ‘uneconomic’ connections (i.e. where the costs to construct the connection would be more than the revenue which was expected to be earned from it). The distributor could ‘charge’ customers for these connections to ensure the connection was not uneconomic.

The distributors could ‘charge’ customers for these connections in two ways:

  • Option 1: The distributor carries out the construction works and the customer pays an amount equal to the excess of the construction costs over the expected revenue.
  • Option 2:  The customer carries out the construction works, transfers the constructed asset to the distributor and the distributor pays the customer a rebate. The amount of the rebate was determined by subtracting from the estimate of the construction costs the amount of the shortfall. 

The economic position for the distributor under both options is the same. However, the Full Court found that the tax outcomes were different.

The Full Court found:

  • Option 1: The amount paid was assessable to the distributor on revenue account. It was not a capital payment nor an assessable recoupment.
  • Option 2: The transfer of the constructed asset to the distributor was a non-cash benefit for the purposes of section 21A of the ITAA 1997. Under section 21A, the distributor would be assessed on the difference between the arm’s length value of the constructed asset less the distributor’s contribution in the form of the rebate. The Full Court found that the arm’s length value of the constructed asset was equal to the amount of the rebate (as opposed to the higher cost of construction as the distributor would have not have reasonably paid the full construction costs as the connection was uneconomic). Accordingly, no amount was assessable to the distributor.

MWWD v FCT [2020] AATA 4169 – Independent contractor vs employee for superannuation guarantee purposes

The AAT held that a service technician was an independent contractor and not an ’employee’ of a machinery repair business for superannuation guarantee purposes. The ATO considered the technician was an ’employee’ within the meaning of s 12 of the Superannuation Guarantee (Administration) Act 1992 (Cth) and issued a superannuation guarantee charge assessment for unpaid super contributions.  After conducting a multi-factorial assessment, the AAT found that on balance the totality of the relationship was one of an independent contractor.

The AAT also rejected that the technician was an employee under the extended definition of that term which captures ‘a person that works under a contract that is wholly or principally for the labour of the person’ as the contract allowed him to delegate work and engage sub-contractors.

N & M Martin  v FCT [2020] FCA 1186 & Peter Greensill  v FCT [2020] FCA 599 – Cases to be heard together

The Full Federal Court will hear the appeals against the decisions in N & M Martin  and Greensill together. In N & M Martin, Steward J applied the reasoning in Greensill to find that a distribution of capital gains made on the sale of shares that were not Taxable Australian Property to a foreign resident were assessable. 

Legislation

Economic Recovery Package (JobMaker Hiring Credit) Amendment Bill 2020 (Cth)

The Bill to implement the JobMaker Hiring Credit passed the House of Representatives on 19 October without amendments.  Similar to JobKeeper, the Bill enables the Treasurer to make rules to provide for the JobMaker Hiring Credit scheme, which will operate for the period from 7 October 2020 to 6 October 2022. The substantive details of the scheme will be contained in legislative instruments which we expect to be released after the Bill has passed through Parliament and received royal assent.

The Bill has been referred to the Senate Economics Legislation Committee. The Committee’s report is due on 6 November 2020.

Treasury Laws Amendment (Measures for a later sitting) Bill 2020: Minor and Technical Amendments (Cth) – Exposure draft materials

The Treasury has released exposure draft materials proposing minor and technical amendments to certain legislation relating to tax, superannuation and corporations law. The amendments aim to correct technical or drafting defects, remove anomalies and address unintended outcomes in the operation of the legislation.

One proposed change of note is that SMSFs will be required to prepare their accounts and statements at least 45 days before the due date to lodge the fund’s return for that year of income. 

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