Birchstone Brief for the week ended 9 July 2021

Dan’s Deliberations

Divorce and tax – two modern day certainties?

Tax can have a significant impact on property settlements. While most family lawyers have a working knowledge of the CGT issues, Division 7A and its impact on property settlements is less understood.

At its heart, the purpose of Division 7A is to prevent access to company profits that have been taxed at the corporate tax rate (as low as 25%) by shareholders and their associates without ‘top-up’ tax being paid to bring the total tax paid up to their individual marginal tax rate (as high as 47%). It is because of this difference between the corporate tax rate and the individual marginal tax rates that Division 7A exists. If the corporate tax rate and the highest marginal tax rate were the same, there would be no need for Division 7A.

Division 7A can apply to payments and loans from private companies to shareholders or their associates, as well as to the forgiveness of debts. In a family law context, we often see Division 7A rear its ugly head where:

  1. assets are being transferred out of a company (or some cases a trust);
  2. Division 7A loans are being ‘transferred’ from one spouse to the other;
  3. a trust has unpaid present entitlements (UPEs) owing to a corporate beneficiary; or
  4. there are significant retained profits in a company.

Our next webinar on “Tax Tips, Tricks and Traps for Family Law Property Settlements” is designed to give family lawyers, accountants and financial advisors involved in the process the knowledge they need to identify tax issues that can derail a property settlement. The webinar will be run on Wednesday 28 July at 11am AWST and you can find out more details and register for free here.

And for those of you saying, “What about the other certainty in life, death?”, our estate planning colleagues won’t let us forget about death, and we’ll be running a webinar on the tax issues that can arise in deceased estates later in the year.

ATO Update

Guidelines updated: Corporate tax residency

The ATO has updated Practical Compliance Guideline PCG 2018/9 which contains practical guidance to assist foreign incorporated companies to apply the principles set out in TR 2018/5 relating to the central management and control test of residency. The transitional compliance approach (which was due to end on 30 June 2021) has been extended until 31 December 2021 or 30 June 2022 (depending on the taxpayer’s year end).

Division 7A: Benchmark interest rate

The ATO has announced that the Division 7A benchmark rate will remain unchanged at 4.52% for the year ended 30 June 2022.

Class Rulings

The ATO has issued the following class rulings:

  • CR 2021/42 – APG Self Storage Trusts – Scrip for scrip roll-over; and
  • CR 2021/43 – Airservices Australia – Early retirement scheme 2021.

State Taxes

Stamp Duty (Tas): Electric vehicles

The Tasmanian Parliament has approved changes to the Duties Act 2001 (Tas) to include a two-year stamp duty waiver for purchases of electric vehicles.

Duties and Land Tax (Tas)

The Bill which:

  • introduces a 2-year waiver of duty on purchases of electric and hydrogen fuel cell vehicles;
  • allows land tax bills of more than $500 to be paid in instalments; and
  • makes changes to the land tax rate thresholds,

has been passed by both houses of Parliament and awaits assent.

Land Tax (NSW): Life interest

Revenue NSW has issued Ruling LT 110 which explains the land tax liability of owners of land subject to a life interest.

Cases

Appeals

The taxpayers have made a special leave application to the High Court of Australia from the decision of the Full Federal Court in Peter Greensill Family Co Pty Ltd (Trustee) v FCT; Nicholas Martin & Anor v FCT [2021] FCAFC 99.

Legislation

Pay-roll Tax Assessment Regulations 2021 – Prescribed departments

The Pay-roll Tax Assessment Regulations 2003 (WA) have been amended to update the list of State departments and other organisations that are exempt from payroll tax.

Exposure draft materials: Reporting regime for platform providers

Exposure draft materials have been released which propose changes to the Taxation Administration Act 1953 (Cth) to implement a reporting regime which will require operators of electronic platforms within the sharing economy to report identification and payment information regarding participating sellers to the ATO for data matching purposes. The reporting regime is proposed to apply to:

  • ride-sourcing and short-term accommodation from 1 July 2022; and
  • asset sharing, food delivery, tasking-based services and other services from 1 July 2023.

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