Birchstone Brief for the week ended 2 July 2021

Mat’s Monologue

The ATO has released its finding report for its Top 500 tax performance program. The program was an extension of the Top 320 program.

The program seeks open and transparent engagement with the wealthiest private groups in Australia. The program focuses on four key areas:

  • effective tax governance;
  • risks flagged to market are not present or are appropriately mitigated;
  • tax outcomes from both ongoing and atypical transactions are understood and agreed as correct; and
  • differences in accounting and tax results are complete and can be explained in context.

The report indicates that only 52 of the participants achieved “justified trust” with the ATO through the program. The main reason that this number is relatively low is because very few taxpayers could demonstrate that they had effective tax risk governance procedures in place. The report notes that governance procedures were not well documented and the knowledge of tax risk governance in the groups examined was generally concentrated in the hands of one or two people. Perhaps of benefit to a wide range of taxpayers, the report flagged a number of common tax risks. These risks included:

  • misusing tax concessions (in particular the small business CGT concessions);
  • incorrect characterisation of receipts as capital;
  • non-compliance with Division 7A when wealth is extracted; and
  • non-arms length transfers into self-managed superannuation funds

All taxpayers should take particular care when they approach these common risk areas, as it can be expected that the ATO will scrutinize these areas closely going forward.

Find out more about Mat Sunits here.

ATO Update

TD 2021/6 – Reasonable travel and overtime meal allowance expense amounts

The ATO has issued TD 2021/6 which sets out what the Commissioner considers are reasonable amounts (for the substantiation exception) in relation to claims made by employees for:

  • overtime meal expenses – for food and drink when working overtime;
  • domestic travel expenses – for accommodation, food and drink, and incidentals when travelling away from home overnight for work; and
  • overseas travel expenses – for food and drink, and incidentals when travelling overseas for work.

PCG 2017/13 – Application extended to arrangements maturing in 2021

The ATO has the extended the application of PCG 2017/13 to investment Option 1 (7-year) and investment Option 2 (10-year) sub-trust arrangements maturing in the 2021 income year (as foreshadowed in Dan’s Deliberations for the week ended 18 June 2021). PCG 2017/3 sets out the Commissioner’s views on the requirement to repay principal for sub-trust arrangements that mature in the 2017-2021 income years.

TR 2021/3 – Effective life of depreciating assets for 2021-22

The ATO has released TR 2021/3 which sets out the effective life of depreciating assets under section 40-100 of the Income Tax Assessment Act 1997 (Cth) for the 2021-22 year.

Top 500 Tax Performance Program: Interim findings released

The ATO has published a report on its interim findings from the Top 500 tax performance program. The Top 500 programs helps the ATO to determine whether Australia’s largest privately owned groups are correctly meeting their income tax and GST obligations.

CGT improvement threshold: 2021-22

The Commissioner has increased the CGT improvement threshold to $156,784 for the 2021-22 year (previously at $155,849).

State Taxes

ACT: Stamp duty

The ACT has announced that stamp duty will be abolished on off the plan purchases up to $500,000 or below.

Qld: Payroll tax ruling

The Queensland Commissioner of State Revenue has released Public Ruling PTAQ000.5.1 which sets out the terms of the arrangement announced as part of the 2021-22 State Budget that extends the 50% payroll tax rebate for wages paid to apprentices and trainees for a further 12 months until 30 June 2022.

Other News

OECD/G20 Inclusive Framework on BEPS

The OECD has announced that 131 of the 139 member jurisdictions have agreed to the details of a two-pillar solution to combat base erosion and profit shifting.

Cases

Commissioner of State Taxation v Takhar & Anor [2021] SASCA 58 – Land tax exemption

The Supreme Court of South Australia Court of Appeal has held that two taxpayers were exempt from paying land tax on a parcel of land under section 5(10)(g)(ii) of the Land Tax Act 1936 (SA).

The two taxpayers (brothers) owned several parcels of land in Queensland and South Australia used in a mixed primary production business. In 1991, the taxpayers purchased a parcel of land in Burton, South Australia with the intention to carry on the business of a chicken farm (which wasn’t allowed due to the land zoning). In 2010, cropping became a viable option for this parcel of land and the taxpayers added soil to improve the land use. The soil was contaminated which led to an investigation by the Environment Protection Agency (EPA), and as a result the taxpayers did not begin spraying and ploughing the parcel of land until 2013. In 2013, the Commissioner issued a land tax assessment of $142,597 in relation to the South Australian parcel of land for the 2013-14 land tax year.

The issue before the Court was whether the land qualified for the land tax exemption under section 5(10)(g)(ii), which exempts land used for primary production in a ‘defined rural area’ (which this was) from land tax if the land is owned jointly or in common by 2 or more natural persons at least 1 of whom is engaged on a substantially full-time basis in a relevant business. The Court ruled that the exemption did apply and that this parcel of land should be exempt from land tax. The court held that the parcel of land did satisfy the requirement of being used ‘wholly or mainly for the business of primary production’, because even though the taxpayers didn’t plant a crop during the relevant investigation period, the land was still being used to its best effect in pursuit of the taxpayers’ broader primary production business. Further, the Court found that despite the taxpayers outsourcing the cropping activities on the parcel of land, the arrangement between the taxpayer and the sharefarmer was that of a joint venture and therefore the taxpayer was engaged on a substantively full-time basis in a relevant business.

Legislation

Treasury Laws Amendment (Miscellaneous and Technical Amendments) Regulations 2021 – Fee refunds

Regulations have been made to ensure that a fee refund received by a member’s superannuation account does not count towards their concessional contributions cap.

Treasury Laws Amendment (COVID-19 Economic Response) Bill 2021 – COVID-19 grants

The Bill which extends the concessional tax treatment of qualifying COVID-19 grants until 2021-22 has received assent and is now law.

Superannuation Levies: 2021-22

Determination has been made to specify the superannuation supervisory levy and retirement savings account providers supervisory levy for 2021-22.

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