Birchstone Brief for the week ended 4 June 2021

Upcoming events

Don’t get caught out on June 30: What you need to know about Trust Distributions and Division 7A (Webinar)

On Tuesday June 15 at 11am AWST, Birchstone Tax Law will be hosting a free webinar on trust distributions and Division 7A. 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.

Dan’s Deliberations

As 30 June fast approaches, you should be aware of a recent change to the Australian Accounting Standards that may dramatically increase compliance costs for your SME clients (but more importantly, how to avoid this unwanted outcome!).
 
AASB 2020-2, released in March, amends the Australian Accounting Standards so that on and from 1 July 2021, for-profit private sector entities required by their constitutional documents (i.e. trust deed, partnership agreement, company constitution) to ‘prepare financial statements that comply with Australian Accounting Standards’ must prepare General Purpose Financial Statements (GPFS). Prior to this amendment, these same entities would only have been required to prepare Special Purpose Financial Statements. GPFS are far more complex, time-consuming and costly to prepare, and generally wouldn’t be appropriate for the needs of your SME clients.
 
To prevent your SME clients from being burdened with the additional compliance costs associated with preparing a GPFS, it would be prudent to review their constituting document. If their constituting document does require the preparation of financial statements that comply with the Australian Accounting Standards, we would recommend that amendments be made to amend this requirement. If you have any SME clients that are in this boat, we would be happy to help!

ATO Update

Class ruling

The ATO has issued Class Ruling CR 2021/39 – WPP AUNZ Ltd – scheme of arrangement, FY 2020 Total Dividend and Special Dividend.

Car limit: Depreciation

The car limit for depreciation purposes has been increased to $60,733 for the 2021-22 financial year ($59,136 in 2020-21).

Other News

Superannuation minimum drawdown rates

The Government has announced that the temporary reduction in superannuation minimum drawdown rates will be extended to the 2021-22 income year. The Government had previously reduced the superannuation minimum drawdown rates by for the 2019-20 and 2020-21 income years in response to the COVID-19 pandemic.

Cases

McCarthy v FCT [2021] AATA 1511 – Profits from the sale of subdivided lots treated as assessable income

The AAT has affirmed a decision of the Commissioner that the profits from the sale of subdivided lots were assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (Cth).

In August 2016, the taxpayer and her husband purchased a residential property as joint tenants for $675,000. At the time of purchase, there was a long-term tenant in residence. In November 2016, the taxpayer and her husband lodged an application for approval of a plan for the subdivision of the Property into two lots. The tenant vacated the property in May 2017 and the house was demolished in July 2017. Following subdivision of the property, the two lots were sold for $480,000 and $490,000 respectively. The Commissioner assessed the taxpayer on the profit generated from the sale of the two subdivided lots.

The main issue was whether the sale of the subdivided lots was a transaction entered into in the course of carrying out a business or in carrying out a business operation or commercial transaction with a profit-making purpose. The AAT held that it was the intention of the taxpayer to subdivide and sell the property at the time of the purchase of the property. The AAT therefore affirmed the decision of the Commissioner to assess the taxpayer on the profits of the sale as ordinary income. The AAT stated the taxpayer’s contentions that they intended to hold on to the property as a rental investment with the potential to subdivide was not supported by the evidence given the taxpayer’s lack of knowledge as to what rent the tenant was paying or whether the rent could service their loan.

Olias Pty Ltd as trustee for the Storer Family Trust v FCT [2021] AATA 1524 – Superannuation guarantee

The AAT has affirmed a decision of the Commissioner that a music teacher was an employee for superannuation guarantee purposes.

The taxpayer carried on a music school business. Between 1 July 2014 and 30 September 2017, the taxpayer engaged the services of Mr Rowell to provide private lessons for guitar and singing to students. The agreement between the taxpayer and Mr Rowell was mainly based on verbal agreements, however, Mr Rowell was asked for and did provide an ABN to the taxpayer. Relevantly, Mr Rowell:

  • was paid a set, non-negotiable half-hourly rate;
  • was expected to provide those lessons when scheduled, to the students provided to him, for the specified lesson duration, at the specified location;
  • was provided with a uniform shirt to wear; and
  • could only be dismissed if he broke the law or failed a police check/working with children clearance.

On the basis that Mr Rowell was an employee, the ATO issued superannuation guarantee charge assessments to the taxpayer for the period between 31 December 2014 and 30 June 2017.

The issue at hand was whether Mr Rowell was an employee of the taxpayer for the purposes of section 12(1) of the Superannuation Guarantee (Administration) Act 1992 (Cth). The AAT held that Mr Rowell was an employee and, aside from varying the shortfall amount for one quarter, upheld the superannuation guarantee charge assessments issued by the ATO. Amongst other reasons, the AAT held that Mr Rowell was an employee because:

  • the contractual agreement seemed akin to that of a casual employment agreement;
  • there was no negotiation in relation to pay;
  • the taxpayer had control over Mr Rowell in relation to how the lessons operated; and
  • Mr Rowell was providing the services on behalf of the taxpayer.

Legislation

Exposure draft materials: Visibility of superannuation assets in family law proceedings

Exposure draft materials have been released to improve the visibility of superannuation assets in family law proceedings. The exposure draft materials propose to make amendments to the Taxation Administration Act 1953 (Cth) and the Family Law Act 1975 (Cth) to facilitate the identification of superannuation assets by parties to family law proceedings by leveraging information held by the ATO.

Fuel tax: Heavy road user charge

determination has been made to increase the fuel tax road user charge from $0.258 to $0.264 per litre.

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