Birchstone Brief for the week ended 8 January 2021

News

Welcome back

We hope that you had a happy and safe holiday season and take this opportunity to wish you a Happy New Year! The Birchstone Brief will be continuing as a weekly update in 2021.

Other News

The Board of Taxation has released a second consultation paper as part of its review of the CGT roll-over rules.

The second consultation paper has been prepared with the following two key objectives:

  1. to present a framework of principles for CGT roll-overs to help develop an understanding of what roll-overs are for and the role they play in the CGT framework; and
  2. to present a general roll-over for business restructuring to replace the existing suite of transaction-based restructure roll-overs with a single, principles based relief that provides clear and consistent outcomes.

The closing date for submissions is 5 February 2021.

ATO Updates

IGTO report on JobKeeper and Boosting Cash Flow measures

The Inspector-General of Taxation and Taxation Ombudsman (IGTO) released its latest report addressing concerns raised by, or on behalf of, small businesses. The majority of the complaints related to a series of decisions made by the ATO that small businesses were ineligible to receive JobKeeper and/or Boosting Cash Flow payments because sales had not been reported in their BAS as lodged (or to be lodged) before 12 March 2020 or they were not required to lodge a BAS at all.

The IGTO concluded that the ATO did not provide a number of new businesses with an opportunity to provide evidence before the ATO determined that small businesses were ineligible for the support measures. The IGTO highlighted that small businesses can demonstrate eligibility through other measures.

State Taxes

Tasmania: Payroll tax liability waived for wage supplements paid to hotel quarantine workers

The Tasmanian Government has made the Payroll Tax (Pandemic) Order (No 3) 2020 which waives employers’ payroll tax liability for the wage supplement paid to employees delivering hotel quarantine services. The order took effect from 23 December 2020.

Cases

Commissioner of State Revenue v 1043 Melton Highway Pty Ltd [2020] VSC 820 – Transfer duty applied to interest paid on late settlement

The Supreme Court of Victoria has ruled that interest on late payments was part of the total consideration for the purchase of a property and subject to transfer duty. The taxpayer entered into a contract with a related party to purchase property in November 2010. The contract provided that the taxpayer would be liable for interest on late payments of progress amounts and on the balance amount owing if the settlement was delayed. Due to the late payments and a delayed settlement, the taxpayer paid more than $950,000 in interest. 

The Court considered that the interest amounts constituted part of the consideration for the transfer of property as the one dutiable transaction, rather than there being a distinct or separate transaction. Therefore, transfer duty was chargeable on the purchase price as well as the interest amounts.

La Mancha Group International B.V v FCT [2020] FCA 1799 – Tax liabilities assumed by surviving company following merger

This case involved the merger of LGMI (Netherlands) and LMA (Luxembourg) which were both members of the La Mancha Group. As a result of the merger, the assets and liabilities of LGMI would transfer to LMA as the surviving company and LGMI would cease to exist. LGMI had unpaid Australian tax liabilities of over $90 million and it had commenced proceedings against the disallowance of its objection decisions.

The Federal Court declared that LMA will assume the Australian tax liabilities of LGMI. LMA will be entitled to exercise objection and appeal rights as the ‘taxpayer’ in relation to any assessments issued to LGMI.

Hedges v FCT [2020] AATA 3507 Goodwill and work in progress payments to retired law firm partner

This case involved payments made to a retired partner of a law firm. Upon his retirement, the taxpayer was entitled to receive payments from the partnership for his share of the goodwill and work in progress. He was also required to repay amounts he owed, including the shortfall in his capital account.

The AAT decided that a discount capital gain (in relation to the taxpayer’s share of goodwill) and work in progress payments made to the taxpayer could not be offset against the amounts he owed to the partnership. Therefore, the amount paid for the taxpayer’s share of goodwill became the capital proceeds for CGT purposes. Similarly, the work in progress payment was also assessable (under section 15-50 of the ITAA 1997) in full without any set-off. 

Apted v FCT [2020] AATA 5139 – Backdated ABN registration satisfied JobKeeper registration

This case concerned the requirement for a business to have had an active ABN as at 12 March 2020 in order to receive JobKeeper payments. The taxpayer was a sole trader who, when he retired in August 2018, cancelled his GST registration and ABN. The taxpayer commenced business again 12 months later without registering for GST or an ABN. After the taxpayer was denied the JobKeeper payments in April 2020 due to the lack of an ABN, the Commissioner of the Australian Business Register reactivated the taxpayer’s ABN – backdated to 1 July 2019. The AAT determined that the taxpayer’s backdated ABN registration satisfied the requirement of having an active ABN as at 12 March 2020.

Legislation

Treasury Laws Amendment (2020 Measures No 6) Bill 2020 – Temporary full expensing measures

The Bill implementing changes to the temporary full expensing measures received Royal Assent on 17 December 2020 and is now law.

National Emergency Declaration (Consequential Amendments) Bill 2020 – Deducting gift made to a disaster relief fund

The Bill that amends the ITAA 1997 to create an alternative test for declaring an event to be a disaster for the purpose of deducting a gift made to a disaster relief fund received Royal Assent on 15 December 2020 and is now law.

Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 – Insolvency Reforms

The Bill that implements insolvency reforms that will apply to incorporated businesses with liabilities less than $1 million received Royal Assent on 15 December 2020 and is now law.

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