Birchstone Brief for the week ended 16 April 2021

ATO Update

Class Ruling

The ATO has issued Class Ruling CR 2021/27 which sets out the tax treatment for entities who subscribed for and acquired Macquarie Group Capital Notes 5 (MCN5) issued by Macquarie Group Limited.

State Taxes

NSW: Stricter legislation for payroll tax avoidance 

The NSW Government has announced the proposed introduction of stricter legislation targeting companies that avoid their payroll tax obligations through unpaid wages or other practices associated with tax avoidance or minimisation. The announcement states that the new legislation will include harsher penalties and the naming of taxpayers who have underpaid payroll tax.

Cases

Razzy Australia Pty Ltd & Anor v Commissioner of State Revenue [2021] VSC 124Restructuring of super funds exempt from duty

The Supreme Court of Victoria has held that the notional acquisition of a significant interest in a landholder trust by a superannuation fund was exempt from duty.

The taxpayer companies were the corporate trustees for three superannuation funds, with two brothers being the only members of the superannuation funds. The superannuation funds held units in two landholding unit trusts. In 2018, the brothers implemented various transactions to restructure the funds so that each brother controlled their respective fund(s) with assets proportionate to their existing entitlements. The restructure involved a redemption of units in the landholding trusts, which resulted in an increase of the remaining unitholders’ interests in the trusts. The Commissioner imposed duty on the basis that the increase in unit holdings held by the funds was the relevant acquisition of a significant interest in a landholder, as the aggregated increase in interests exceeded 20%.

The issue in dispute was whether the relevant acquisitions were exempt from duty under section 89D and section 40 of the Duties Act 2000 (Vic). Section 89D(1)(a) provides that an acquisition of an interest in a landholder is an exempt acquisition if the means by which the person acquired the interest ‘would have resulted in no ad valorem duty being payable … had the subject of the acquisition been a transfer of the land of the landholder to the person’. Section 40 provides that no duty is chargeable for a transfer of dutiable property between superannuation funds. The court held that the acquisitions were exempt from duty, as the exemption did not require a direct transfer and could apply to transactions which involved a redemption of units, as the relevant restructure did.

Frangieh v FCT [2021] AATA 842Failure to lodge penalties upheld

The AAT has upheld the Commissioner’s decision to imposed failure to lodge (FTL) penalties against an individual taxpayer and 5 of his associated entities (together, the taxpayers).

The Commissioner had imposed FTL penalties on the taxpayers for failure to lodge business activity statements and income tax returns on time. The taxpayers stated that the late lodgments were as a result of the inaction of their accountants to meet their tax reporting obligations. The taxpayers argued that they were exempt from FTL penalties and, in the alternative, sought a remission of the FTL penalties – which the ATO refused to request. The taxpayers objected against the FTL Remission Decision, with the ATO disallowing the objection. The taxpayers appealed the objection decision to the AAT.

The issues in dispute were whether:

  • the AAT had jurisdiction to determine whether the taxpayers were not liable to FTL penalties;
  • the AAT had jurisdiction to review FTL penalties if there was less than two penalty units remaining; and
  • the AAT should remit the FTL penalties in full or in part.

The AAT held that it didn’t have jurisdiction to determine whether or not the FTL penalties should have been imposed, because its discretion was limited to reviewing the Commissioner’s objection decision. Further, because some of the penalties were less than two units, the taxpayers could not object against the Commissioner’s refusal to remit them and the AAT had no jurisdiction to review the Commissioner’s decision. Finally, the AAT decided against remitting the FTL penalties in full or part, citing the failure of the taxpayers to show the late lodgment was beyond their control or that it was fair and reasonable to remit these penalties.

Appeals

The High Court of Australia has granted the Commissioner special leave to appeal from the decision in Carter & Ors v FCT [2020] FCAFC 150. In that case, the Full Federal Court held that the beneficiaries of a discretionary trust had effectively disclaimed their entitlement to default trust distributions.

The High Court of Australia has refused to grant the Chief Commissioner (NSW) special leave to appeal from the NSW Court of Appeal’s decision in Chief Commissioner of State Revenue v Benidorm Pty Ltd [2020] NSWCA 285 (“Declaration of trust” not dutiable – covered in the Birchstone Brief for the week ended 29 January).

Dr Rowntree has appealed to the Full Federal Court from the decision inFCT v Rowntree (No 3) [2021] FCA 306 (Significant penalties for promoters of tax exploitation schemes – covered in the Birchstone Brief for the week ended 9 April).

Legislation

Treasury Laws Amendment (Measures for a later sitting) Bill 2021: FBT exemption to support retraining and reskilling Exposure draft materials

The Treasury has released exposure draft materials proposing amendments to the Fringe Benefits Tax Assessment Act 1986 to allow an FBT exemption for employers who provide education or training to employees whom are no longer required, or employees that the employer reasonably expects to no longer require, for the primary purpose of enabling the employee to gain new employment.

Treasury Laws Amendment (Measures for Consultation) Bill 2021: Exempting granny flat arrangements from CGT Exposure draft materials

The Treasury has released exposure draft materials proposing amendments to the Income Tax Assessment Act 1997 and the Income Tax (Transitional Provisions) Act 1997 to provide a capital gains tax exemption for certain granny flat arrangements.

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