Birchstone Brief for the week ended 5 November 2021

ATO Update

TA 2021/4 – Structured arrangements that avoid luxury car tax 

The Commissioner has issued a Taxpayer Alert for arrangements involving the sale of both new and second-hand luxury cars between participating entities designed to improperly obtain refunds of luxury car tax (LCT) and evade LCT on the retail sale of the cars.

Rulings

The ATO has issued the following class rulings:

  • CR 2021/71 – Commonwealth Bank of Australia – Off-market share buy-back; and
  • CR 2021/72 – Neometals Ltd – Demerger of Widgie Nickel Limited.

State Taxes

Duties (WA) – Easements

The Commissioner of State Revenue has issued Commissioner’s Practice DA 22.3 which clarifies how duty will be assessed on the creation, grant and surrender of an easement.

Cases

Addy v FCT [2021] HCA 34 – ‘Backpacker tax’

The High Court has allowed the taxpayer’s appeal against the Full Federal Court’s decision in FCT v Addy [2020] FCAFC 135, finding that Australia’s ‘backpacker tax’ contravened the non-discrimination clause in the double tax agreement between Australia and the UK (DTA).

The taxpayer was a British national working in Australia on a working holiday visa. The taxpayer was subject to the ‘backpacker tax’ (which required working holiday visa holders to pay tax at 15% on their first $37,000 of income) on the income she earnt as a waitress. In contrast, Australian resident taxpayers were (and still are) entitled to a tax-free threshold for the first $18,200 they earn in an income tax year, and then taxed at 19% up to $37,000. In the earlier proceedings, the Full Federal Court held that the taxpayer was subject to the backpacker tax and that the tax did not contravene the non-discrimination clause in the DTA.

The issue before the High Court was whether the backpacker tax contravened the non-discrimination clause in article 25(1) the DTA. Article 25(1) provides that ‘Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements of which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected’. In upholding the taxpayer’s appeal, the High Court reasoned that because an Australian national deriving taxable income in the same circumstances would have been entitled to a tax-free threshold and taxation at a lower rate, the ‘backpacker tax’ had contravened the non-discrimination clause in article 25(1) of the DTA.

Legislation

Electric Vehicles (Revenue Arrangements) Bill 2021 – Stamp duty (NSW)

The Bill which amends the Duties Act 1997 (NSW) to exempt eligible electric vehicles from stamp duty has received assent and is now law.

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