Birchstone Brief for the week ended 5 March 2021

Upcoming Events

All in a Day’s Work: Employee Share Schemes Webinar

Tomorrow at 11am AWST, Birchstone Tax Law will be co-hosting a free webinar on employee share schemes. To find out more details and register, click here. If you can’t make it, register and we’ll send you a copy of the recording.

Over my Dead Body Seminar

On 25 March 2020, Birchstone Tax Law will be running an estate planning seminar. To find out more details and to purchase tickets, click here.

ATO Updates

Draft Practical Compliance Guideline PCG 2021/D2 – Allocation of professional firm profits

The ATO has released Draft Practical Compliance Guideline PCG 2021/D2 (Draft PCG) which sets out the ATO’s proposed compliance approach to the allocation of professional firm profit to the individual professional practitioner (IPP). The Draft PCG states that the ATO is concerned about arrangements involving taxpayers who redirect their income to an associated entity from a business or activity which includes their professional services, where it has the effect of altering their tax liability.

The Draft PCG replaces the ATO’s withdrawn previous guidance titled “Assessing the Risk: Allocation of profits within professional firms”. The new Draft PCG provides a risk assessment framework, which may be used by IPPs to access their risk where their circumstances pass two ‘gateways’:

  • Gateway 1 requires a genuine commercial basis for the arrangement and for the way profits are distributed; and
  • Gateway 2 requires that the firm and the IPP do not demonstrate ‘high-risk features’, such as financing arrangements relating to non-arm’s length transactions and exploitation of the difference between accounting standards and tax law.

Once finalised, the Draft PCG will apply prospectively from 1 July 2021.

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

The ATO has issued a Decision Impact Statement on the decision handed down in Victoria Power Networks Pty Ltd v FCT [2020] FCAFC 169 (summarised in the Birchstone Brief for the week ended 23 October 2020). In this case, the Full Federal Court held that customer contributions to electricity distributors for ‘uneconomic conditions’ were treated as follows:

  • cash payments made by the customer to the distributor equal to the excess of construction costs over the expected revenue were assessable on revenue account; and
  • assets transferred by the customer to the distributor after carrying out construction works, with the distributor paying a rebate, was a non-cash benefit. The arm’s length value of the constructed asset was held to be equal to the amount of the rebate, meaning no amount was assessable to the distributor.

The ATO considers that the treatment of the cash payments made by the customer is consistent with the Commissioner’s view that customer cash contributions were ordinary income for the purposes of section 6-5 of the Income Tax Assessment Act 1997 (Cth). The ATO also stated that the treatment of the non-cash benefit was a result of the particular facts, but has implications for other electricity distributors subject to equivalent regulatory regimes.

Taxation Determiniation TD 2021/3 – FBT living-away-from-home allowance

The ATO has released Taxation Determination TD 2021/3 which outlines the reasonable amounts for food and drink expenses incurred by employees receiving a living-away-from-home allowance fringe benefit for the year commencing 1 April 2021.

Taxation Determination TD 2021/4 – FBT cents per kilometre rate for vehicles other than cars

The ATO has issued Taxation Determination TD 2021/4 which sets out the different cents per kilometre rates for calculating the fringe benefit arising from the private use of a vehicle other than a car for the FBT year commencing 1 April 2021.

Draft GST Determinations

The ATO has issued the following Draft GST determinations:

  • WTI 2021/D1 – Goods and Services Tax: Waiver of Tax Invoice Requirement (eftpos Interchange Services Reports) Determination 2021; and
  • WAN 2021/D1 – Goods and Services Tax: Waiver of Adjustment Note Requirement (eftpos Interchange Services Reports) Determination 2021.

FBT Rulings withdrawn

The ATO has withdrawn the following FBT Rulings:

  • TD 2014/3 – indexation factors for valuing non remote housing for the FBT year commencing 1 April 2014;
  • TD 2015/4 – indexation factors for valuing non remote housing for the FBT year commencing 1 April 2015;
  • TD 2021/5 – exemption threshold for the FBT year;
  • TD 2015/6 – cents per kilometre rate for vehicles other than cars;
  • TD 2015/7 – living-away-from-home allowance;
  • TD 2015/8 – benchmark interest rate for the FBT year; and
  • TD 2015/11 – car parking threshold.

State Taxes

New South Wales: Guidance released for payroll tax exemption

Revenue NSW has released Practice Note CPN 020 which provides guidance to employers in NSW on when, and to what extent, an exemption from payroll tax applies to the JobKeeper payment.

Cases

Khan v FCT [2021] AATA 367 – Taxpayer denied deduction for self-education expenses

The AAT has denied the taxpayer a deduction for self-education expenses because they were not outgoings incurred in the course of the taxpayer’s existing employment relationship but were a cost of obtaining employment with a new employer.

On 1 September 2016, the taxpayer was dismissed from his employment as an aircraft maintenance technician for ‘gross misconduct’. On 4 November 2016, following a dispute resolution process between the taxpayer and his former employer, the taxpayer’s dismissal was rescinded and the employment was deemed to have ended by resignation. Between 5 September and 5 November 2016, the taxpayer had incurred expenditure on self-education to undertake courses to qualify him to perform maintenance on certain additional types of aircraft.

The AAT held that these expenses were not deductible under section 8-1(1)(a) of the Income Tax Assessment Act 1997 (Cth) because the expenses were not connected with assessable income to be derived from his existing employment. At the time that the taxpayer incurred the expenses, his existing employment, if not terminated, was in the process of coming to an end and there was no prospect of continuation of his employment in a way that would enable him to benefit from the courses in his existing employment.

BSJR v FCT [2021] AATA 333 – Wrongly claimed input tax credit

The AAT has refused to exercise its discretion to treat a document as a tax invoice, meaning that the taxpayer claimed an input tax credit in the incorrect tax period. 

On 30 June 2015, the taxpayer made a progress payment to a construction company following receipt of a progress claim (PC6). The taxpayer claimed an input tax credit in the June quarter relating to PC6, despite the claim not qualifying as a tax invoice for GST purposes. A tax invoice was subsequently issued the next day. The taxpayer claimed an input tax credit relating to PC6 in its activity statement for the September quarter. Following an audit, the ATO denied the input tax credit for the June quarter, adjusted the tax payable and imposed a shortfall penalty for recklessness. The input tax credit was attributed to the September quarter as the taxpayer did not hold a tax invoice in the June quarter.

The AAT refused a request to exercise its discretion to treat PC6 as a tax invoice because the taxpayer made a choice to lodge the activity statements before receiving the invoice. Further, the taxpayer would receive the benefit of two input tax credits for one acquisition if the discretion was exercised, as the ATO would be out of time to amend the September quarter. However, the AAT decided to remit the shortfall penalties, citing that the effective penalty rate across the tax periods was unduly harsh.

Appeals

The High Court of Australia has refused to grant the taxpayer special leave to appeal from the decision in FCT v Healius [2020] FCAFC 173 (summarised in the Birchstone Brief for the week ended 9 October 2020). In that case, the Full Federal Court had held that payments made by a medical operator to doctors to practise at its centres were on capital account.

The taxpayer has appealed to the Full Federal Court from the decision in CUB Australia Holding Pty Ltd v FCT [2021] FCA 43 (summarised in the Birchstone Brief for the week ended 5 February 2021). That case concerned the validity of a section 353-10 notice where legal professional privilege was claimed.

Legislation

Treasury Laws Amendment (Income Tax Assessment Repeal and Consequential Amendments) Regulations 2021 Sunsetting of 1997 Regulations

The Regulations which repeal the Income Tax Assessment Regulations 1997 (Cth) at the same time as the Income Tax Assessment (1997 Act) Regulations 2021 (Cth) commence have been registered.

Customs Tariff Amendment (Incorporation of Proposals and Measures) Bill 2020Customs duty for COVID-19 medical products

The Bill that prescribes a free rate of customs duty for COVID-19 medical products has received assent and is now law.

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