Birchstone Brief for the week ended 19 November 2021

News and Events

It Takes a Village… and a Child Maintenance Trust

On Wednesday 8 December at 11am AWST, Birchstone Tax Law will be hosting a free webinar on child maintenance trusts. To find out more details and register, click here. If you can’t make it but would like a copy of the recording, register and we’ll send you a copy of the recording.

ATO Update

ATO media release: Small business CGT concessions

In a media release dated 16 November 2021, the ATO has highlighted its concerns that some larger and wealthier businesses have been mistakenly claiming the small business CGT concessions when they are not entitled to. The media release states that those businesses that have claimed one or more of the small business CGT concessions in recent income tax returns may receive a letter from the ATO asking whether they have met the basic eligibility conditions and whether they have the records to substantiate their eligibility.

Rulings

The ATO has issued the following rulings:

  • CR 2021/74 – Woolworths Group Limited – Demerger of Endeavour Group Limited – Employee share scheme;
  • CR 2021/75 – Australian Unity Limited – Mutual Capital Instruments (2021 Issue);
  • CR 2021/76 – Viva Energy Group Limited – Return of capital and share consolidation;
  • CR 2021/77 – Horizon Oil Limited – Return of capital;
  • CR 2021/78 – Templeton Global Growth Fund Ltd. – Off-market share buy-back and scrip for scrip roll-over;
  • PR 2021/13 – Tax consequences for a borrower being charged a discounted home loan interest rate calculated under Loan Reducer; and
  • PR 2021/14 – Tax consequences for a Participant in an Urbau joint venture project.

Cases

Clough Ltd v FCT [2021] FCAFC 197 – Deductibility of payments to cancel employee entitlements

The Full Federal Court has allowed the taxpayer’s appeal from the decision in Clough Ltd v FCT [2021] FCA 108 (summarised in the Birchstone Brief for the week ended 26 February 2021), finding a concession by the Commissioner before the initial trial meant the deemed assessment in the relevant income year was manifestly excessive.

In the 2014 income year, the taxpayer company had claimed a full deduction under section 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) for a $15 million payment made to cancel employee entitlements under an employee option plan and an employee incentive scheme. The ATO issued a deemed assessment to the taxpayer on the basis that these payments were not deductible under section 8-1. At first instance, the trial judge held the payment was not deductible under section 8-1 as it was not incurred in gaining or producing assessable income nor necessarily incurred in carrying on a business for that purpose. However, prior to the trial, the Commissioner had conceded that the amount may be deductible over 5 years under the black hole expenditure provision (section 40-880 ITAA 1997).

The Full Federal Court held that the trial judge had not made an error in finding that the payment made by the taxpayer was not deductible under section 8-1, rejecting the taxpayer’s argument to this effect. However, the Court found the deemed assessment issued to the taxpayer was excessive as the Commissioner had conceded the taxpayer’s payment was deductible under s 40-880, and therefore a portion of the $15 million would have been deductible in the 2014 income year. On this basis, the Court held the taxpayer’s original appeal should have been allowed.

Appeals

The High Court has refused to grant the taxpayer special leave to appeal from the Full Federal Court’s decision in Mussali v FCT [2021] FCAFC 71. In that case, the Full Federal Court held that rent pre-payments to secure a lower rent were of a capital nature and were therefore not deductible under s 8-1 of the Income Tax Assessment Act 1997 (Cth).

Legislation

Payroll tax (NSW): Waivers

Bill which amends the Payroll Tax Act 2007 (NSW) to create a 50% payroll tax waiver for the 2021/22 financial year to employers with annual Australian payroll of $10 million or less that:

  • qualified for the 2021 COVID-19 JobSaver Payment scheme or the 2021 COVID-19 Business Grant scheme administered by Service NSW; or
  • met the 30% or greater decline in turnover test for either of these schemes,

has received assent and is now law.

Public Ancillary Fund Guidelines

The Treasury has released exposure draft materials to remake the Public Ancillary Fund Guidelines.

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