Birchstone Brief for the week ended 17 June 2022

News and Events

Section 100A – Practical Tips – What to do before AND after 30 June

Everyone is talking about section 100A following the release of the ATO’s draft guidance, yet much uncertainty remains with 30 June fast approaching. On Thursday 23 June at 11AM AWST, join Daniel Taborsky and Shivani Jethwa for a free webinar during which they will provide practical tips and guidance on what tax practitioners should be doing before and after 30 June to minimise risk for their clients and themselves.

This session will cover: 

  • the ATO’s further pre-30 June guidance on section 100A (which was released yesterday);
  • trust distribution basics;
  • what you need to consider before 30 June;
  • what you should be doing after 30 June (which is arguably more important); and
  • what to do about historical distributions. 
To register, click here. If you can’t make it but would like a copy of the recording, register and we will send you a copy of the recording.

Birchstone Insights

Over the Hill: A New Era for Binding Death Benefit Nominations

Many advisors and members of self-managed superannuation funds have been eagerly awaiting the decision in Hill v Zuda [2022] HCA 22. The High Court has unanimously ruled that the requirements in regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (Cth) have no application to an SMSF.

This has settled years of debate about whether SMSFs were permitted to:

  • offer binding death benefit nominations that would not automatically lapse after three years; and
  • depart from the formal requirements of the nomination, such as the number of witnesses.

The outcome is consistent with the ATO’s views in SMSF Determination 2008/3 (which is not law in itself) and long-standing professional practice.

Notwithstanding the High Court’s decision, advisors and members must remain vigilant that any binding death benefit nomination strictly conforms to the specific requirements set out in the particular fund’s trust deed.

 

ATO Updates

Additional section 100A guidance for 2021-2022 released

As promised by Deputy Commissioner Louise Clarke, the ATO has released guidance for advisors and trustees dealing with trust distributions for the 2021-2022 income year regarding when section 100A may apply.

The guidance is intended to assist advisors and trustees understand when section 100A may be relevant as we approach Tax Time 2022, and covers:

  • when section 100A may apply;
  • key points about section 100A;
  • managing section 100A risk for 30 June 2022;
  • consequences of section 100A applying; 
  • how the ATO assesses section 100A risk; and
  • records that should be kept to assist in the event of a review.

The guidance also refers readers to the suite of draft documents concerning section 100A that were released earlier this year for further information (discussed in the Birchstone Brief for the week ended 25 February 2022).

ATO outreach to DGRs not registered as charities

The ATO has announced that from June 2022 it will be contacting DGRs not currently registered as a charity to discuss the updated requirements for DGR endorsements. From 14 December 2021, DGR endorsement requires a fund, authority or institution to be:

  • a registered charity;
  • an Australian government agency; or
  • operated by one of the above.

Transitional arrangements for these changes expire on 14 December 2022.

Rulings issued

The ATO has issued the following:

  • CR 2022/52 – Espresso Displays Pty Ltd – Portable display monitors;
  • CR 2022/53 – Whitefield Ltd – Bonus share plan;
  • CR 2022/54 – Bionics Institute of Australia – Loans from public and private ancillary funds;
  • CR 2022/55 – Oil Search Ltd – Scheme of arrangement and scrip for scrip roll-over;
  • CR 2022/56 – Tower Ltd – Capital return;
  • CR 2022/57 – PRT Company Ltd – Distribution of special dividend and return of capital following sale of assets;
  • CR 2022/14ER1 – Erratum to CR 2022/14 – Cardno Ltd – Return of capital and special dividend;
  • CR 2021/3W – Withdrawal of CR 2021/3 – Intelematics Australia Pty Ltd CONNECT tracking and fleet management solution – Use for FBT car logbook and odometer records; and
  • PR 2022/5 – Instreet Masti.

Cases

Dua v FCT [2022] AATA 1520 – Medical practitioner refused debt relief following flashy purchases

The AAT has refused to grant a medical practitioner release from their tax debt after finding they would not suffer serious hardship if required to satisfy it.

The taxpayer’s tax liability consisted mainly of unpaid PAYG instalments. On 24 June 2020 the taxpayer applied for a release of his tax liabilities due to serious financial hardship pursuant to section 340-5 of Schedule 1 to the Taxation Administration Act 1953 (Cth). The taxpayer purchased a 2019 Porsche Macan for five days later and acquired another property in December 2020. The Commissioner declined to release the taxpayer but granted a full remission of GIC. The Commissioner also disallowed the taxpayer’s objection. The taxpayer applied to the AAT for review, providing updated financial information.

The AAT ultimately affirmed the objection decision under review. Regarding a preliminary issue raised by the taxpayer that a determination of serious hardship should be confined to his known circumstances at the time he made the release application, the AAT held it could consider circumstances arising after lodgment. The AAT found discrepancies in the information provided which evidenced the taxpayer’s failure to make a full and frank disclosure of his income and outgoings.

The AAT also held that the income/outgoings test was not satisfied on the evidence and the taxpayer had not met his onus of establishing that being required to meet his tax liabilities would result in serious hardship within the meaning of section 340-5. Even if the discretionary power to release had been enlivened, it would not be appropriate to exercise it in the taxpayer’s circumstances.

Edge Developments (SA) Pty Ltd v Treasurer of the State of South Australia [2022] SASC 55 – Redemption and cancellation of units in a unit trust subject to stamp duty 

The Supreme Court of South Australia has held that a redemption and cancellation of units in a unit trust (which was held to be a landholding entity) constituted a dutiable transaction.

The units in the unit trust carried an entitlement to share in the profits of a commercial development pursuant to a Performance Charge over land owned by Adabco and Tabco. Abadco and Tadbco jointly held 70.59% of the units. In 2014, the remaining units (which were held by another party) were redeemed for $2,350,000 resulting in Abadco and Tabco holding 100% of the units. Stamp duty was imposed on an underlying land value of $23 million pursuant to section 100(2)(b) of the Stamp Duties Act 1923 (SA) (the Act), on the basis that the unit trust was a land holding entity and Adabco and Tabco had increased their prescribed interest in it as a result of the transaction.

The contention that the unit trust was a land holding entity stemmed from its entitlement to the profits of the commercial development pursuant to the Performance Charge, which the respondents submitted meant it had an equitable interest in the land itself. The appellants contended that the right to receive proceeds from the sale of land did not create an interest in that land at common law, and even if it did, such an interest would not be dutiable due to section 92(1) of the Act. Alternatively, the appellants also submitted that the redemption was exempt from duty under section 102F(1) of the Act.

The Supreme Court ultimately dismissed the appeal, finding that the Performance Charge gave rise to a beneficial interest in the development sale proceeds and therefore a deemed beneficial interest in the land pursuant to section 2(2). As such, the interest was a local land asset and, as the value of the interest was greater than $1 million, the trust was a land holding entity. Regarding the section 92(1) contention, the Court accepted that had the unit trust’s interest in the land been solely pursuant to a mortgage, lien or charge then it would not have been taken to hold a local land asset and would therefore not have been a local land holding entity. However, the unit trust also had a deemed beneficial interest in the land due to section 2(2). As such, the unit trust was a land holding entity, notwithstanding that it also had another interest in the land as chargee. The Court also rejected the appellants’ contention that the exemption in section 102F(1) applied.

Legislation

Victorian state taxes amendment Bill receives assent

The State Taxation and Treasury Legislation Amendment Bill 2022 (Vic) has received royal assent as Act No 23 of 2022 and is now law.

The Act makes various tax and tax-related amendments to the:

  • Duties Act 2000 (Vic);
  • Land Tax Act 2005 (Vic);
  • Payroll Tax Act 2007 (Vic);
  • Taxation Administration Act 1997 (Vic); and
  • Windfall Gains Tax and State Taxation and Other Acts Further Amendment Act 2021 (Vic).

Subscribe

Birchstone Brief

Curated for the needs of SME tax professionals. The Birchstone Brief is delivered to your inbox every week. It contains all the tax developments you need to know from the previous week, with insights from the team at Birchstone Tax Law. No fluff. It’s the one email you will look forward to receiving.


 

* indicates required