Birchstone Brief for the week ended 14 May 2021

ATO Update

ATO updates ruling: Permanent establishments

The ATO has issued an Addendum to TR 2002/5, which sets out what a ‘place at or through which [a] person carries on any business’ is in the context of the definition of a permanent establishment in subsection 6(1) of the Income Tax Assessment Act 1936< (Cth). The Addendum amends the Ruling to include an example (based on the implications of COVID-19) of when a period of six months or more would not constitute temporal permanence.

FBT car parking threshold

The ATO has announced that the FBT car parking threshold for the year ended 31 March 2022 will be increasing from $9.15 to $9.25.

Class Ruling

The ATO has issued Class Ruling CR 2021/34, which sets out the tax consequences of the demerger of Norwest Minerals Limited  by Australian Mines Limited.

Cases

Dessent v FCT [2021] AATA 1206 – Insurance payment treated as assessable recoupment

The AAT has held that the insurance payment received by a taxpayer was an assessable recoupment under section 20-20 of the Income Tax Assessment Act 1997 (Cth).

The taxpayer owned a property and rented out part of it to a tenant who ran a cafe business, with the taxpayer receiving rent of about $24,000 each year. In April 2015, the property was damaged because of a storm and subsequent flood and the taxpayer made a claim against his insurance policy. In November 2016, the taxpayer received an insurance payment of $250,000, with the deed between the insurer and the taxpayer describing it as money for ‘loss of rent and any other benefits under the policy of insurance’. The taxpayer did not include the insurance payment in his 2016-17 or 2017-18 income tax returns, and claimed deductions of over $60,000 for repairs to his property in each of these years. The ATO issued amended assessments in respect of both years which increased the taxpayer’s taxable income by the amounts claimed for repair expenses, as the Commissioner considered these to be recoupment amounts.

The issue before the AAT was whether the $250,000 received by the taxpayer was an assessable recoupment under section 20-20 of the Income Tax Assessment Act 1997 (Cth). The AAT held that the first limb of the test under section 20-20 had been satisfied, as the amount received by the taxpayer was paid by way of insurance. The AAT also held that the second limb of the test under section 20-20 had been satisfied, as the costs of repairs undertaken by the taxpayer to the property were deductible in each of the ‘current years’. On this basis, the AAT affirmed the decision of the Commissioner.

SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 395 – Landholder duty for wind farm

The Supreme Court of New South Wales has held that a taxpayer was liable to landholder duty on the value of wind farms assets affixed to the land.

In 2016, the taxpayer company acquired 100% of the units in the Taralga Holding Land Trust (Trust). The Trust held long-term leasehold interests in land on which a wind farm had been built. As part of the windfarm, there were wind turbine generators bolted into concrete foundations, a switchyard, control building, and access roads. On the basis that the Trust was a landholder entity, the Chief Commissioner of State Revenue assessed the taxpayer for duty on a dutiable value of $223.6 million. The taxpayer appealed to the Supreme Court of New South Wales for a review of the assessment made by the Chief Commissioner.

The issues in dispute were whether:

  • the Trust was a landholder;
  • the valuation of $223.6 million for the landholdings of the Trust relied upon by the Chief Commissioner was correct (which required determining whether the wind farm assets were fixtures or chattels); and
  • whether the power under section 163G of the Duties Act 1997 to disregard the value of goods in determining the duty payable should be exercised.

The Court found that the Trust was a landholder and the taxpayer was liable to pay duty on the ‘unencumbered value’ of the Trust’s interests in land. The Court held that the wind turbine generators and other infrastructure were tenants’ fixtures and included in the Trusts’ interests in land. The Court also held that section 163G has no relevant application. The Court then considered the valuation of the Trusts’ interests in land and applying a discount rate for depreciation and other associated costs, the Court found that the Chief Commissioner’s assessment of $223.6 million was excessive and the Trust’s interests in land were correctly valued at $201,621,227.

Coronica v FCT [2021] AATA 1225 – Undertaking for SMSF trustee

The AAT has accepted an undertaking given by an applicant who had his disqualification as a SMSF trustee set aside by the AAT (summarised in the Birchstone Brief for the week ended 9 April). The AAT had previously set aside the ATO’s decision to disqualify the applicant from acting as a trustee of a superannuation fund despite various breaches of the SIS Act. Amongst other things, the undertaking requires the applicant to:

  • not act as a trustee of any superannuation fund other than his existing fund;
  • conduct all financial activities of the fund through the fund’s own bank account; and
  • appoint and continue to engage an independent auditor for the fund.

Legislation

Treasury Laws Amendment (2021 Measures No. 3) Bill 2021 Budget measures

The Bill which addresses some of the changes announced in the 2021-22 Federal Budget has been introduced into Parliament. The Bill introduces measures which:

  • increase the Medicare levy low-income thresholds;
  • change the tax treatment of lump sum payments made to Thalidomide survivors; and
  • grants new entities deductible gift recipient status.

Tax Administration Amendment (Combating Wage Theft) Bill 2021Payroll tax

The Bill which provides measures to deter the underpayment of wages has been introduced into the NSW Parliament. Amongst other things, the Bill introduces measures which:

  • give the Chief Commissioner of State Revenue greater power to recover payroll tax on unpaid wages; and
  • create higher penalties for offences such as knowingly giving false information.

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