Birchstone Brief for the week ended 17 September 2021

Birchstone Insights

Birchstone Insights will return next week.

ATO Update

Taxpayer Alert released: Disguising undeclared foreign income as gifts or loans from related overseas entities

The ATO has released Taxpayer Alert TA 2021/2 which sets out the ATO’s concerns with Australian resident taxpayers who attempt to avoid or evade tax on their foreign assessable income by concealing the character of funds upon their repatriation to Australian by disguising the funds received as a gift, or a loan, from a related overseas entity. 

Taxpayer Alert released: Promoting products leading to distorted fuel tax credit claims

The ATO has released Taxpayer Alert TA 2021/3 which details the ATO’s concerns regarding the promotion of particular telematics technology products by software providers and tax professionals to encourage clients to claim additional fuel tax credits.

Class Rulings

The ATO has issued the following class rulings:

  • CR 2021/60 – Macquarie Bank Limited – Macquarie Bank Capital Notes 3; and
  • CR 2021/61 – Metcash Limited – Off-market share buy-back.

Cases

MJ and IT Pty Ltd v Commissioner of Taxation [2021] AATA 3250 – AAT determines company entered into cash flow boost scheme

The AAT has found that a taxpayer company entered into a scheme for the sole or dominant purpose of obtaining a cash flow boost and therefore contravened s 5(1)(g) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020.

The taxpayer company operated a beauty business that ceased in 2020 due to the COVID-19 situation. In March 2020, and following discussions with ‘Mrs K’ (shareholder and sole director), the taxpayer’s accountant and tax agent generated a payslip which showed a gross salary payment of $25,000 to Mrs K, a net payment of $13,602 to Mrs K, PAYG withholding of $11,398 and SG of $2,375. A journal entry was also entered recording a wages payable of $13,602 and a director’s loan account of the same amount. The Commissioner issued an amended assessment to the taxpayer which disallowed the cash flow boost entitlement as the $13,602 amount had not actually been paid to Mrs K.

The AAT held that that the taxpayer company had constructively paid $25,000 to Mrs K, as there had been an expensing of the directors’ fee, the withholding of PAYG and the loan account balance had been dealt with. However, the AAT held that the taxpayer was ineligible for the cash flow under section 5(1)(g) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020, as the taxpayer had acted with the sole or dominant purpose of increasing their cash flow boost for the month of March 2020. The AAT reasoned that the steps taken by the taxpayer (the payment of the amounts to Mrs K) would not have occurred if the parties had been at arm’s length or the cash flow boost had not existed.

Legislation

Exposure Draft Legislation

The Treasury has released exposure draft legislation to introduce a temporary levy on offshore petroleum production.

The levy is designed to recover the costs the Commonwealth incurred in decommissioning the Laminaria-Corallina oil fields and associated infrastructure.

Industry Research and Development Amendment (Industry Innovation and Science Australia) Bill 2021 – Bill receives assent

The Bill which amends a number of Acts to replace references to ‘Innovation and Science Australia’ with ‘Industry Innovation and Science Australia’ has received assent and is now law.

Treasury Laws Amendment (2021 Measures No 2) Bill 2021 – Bill receives assent

The Bill which makes changes to deductible gift recipients endorsement and the Offshore Banking Unit regime has received assent and is now law.

Treasury Laws Amendment (2021 Measures No 6) Bill 2021 – Bill receives assent

The Bill that makes amendments relating to refunds of large-scale generation shortfall charges, superannuation information under family law matters and actuarial certificates for superannuation funds has received assent and is now law.

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