Birchstone Brief for the week ended 24 June 2022

News and Events

Section 100A Documentation Pack

If you have been wondering what documentation you can put in place to minimise the section 100A risk for your clients, we have a solution for you.

We have put together a section 100A documentation pack with a template letter and beneficiary instruction form for trustees to send to beneficiaries after the trustee has resolved to distribute income to them. This practical resource is designed to minimise the risk of section 100A applying by clearly documenting that the beneficiary is aware of their trust entitlement and has made an independent decision on what to do with it. These documents have been informed by the law on section 100A, and takes into account the latest ATO guidance (TR 2022/D1, PCG 2022/D1 and TA 2022/1).

You can purchase the Section 100A Documentation Pack here for $99. Once you purchase the Section 100A Documentation Pack you will receive a link to download the template letter and beneficiary instruction form (in Microsoft Word format) and this can be used for all of your clients.

ATO Updates

ATO issues reminder about fraudulent GST claims

The ATO has issued a reminder stating that it has identified a significant number of GST refund fraud attempts involving:

• individuals inventing fake businesses;
• lodging fraudulent ABN applications; and
• submitting fictious BAS in an attempt to gain a false GST refund.

ATO finalises protocol on legal professional privilege

The ATO has finalised its protocol on legal professional privilege (LPP), which contains its recommended approach to identifying communications covered by LPP and making claims of LPP to the ATO following the receipt of a formal notice connected with the ATO’s formal information gathering powers. Notably, the ATO states in the protocol that it is not intended to provide a legal analysis of the law regarding LPP in Australia and that following the recommended approach is voluntary.

2022-23 CGT improvement threshold determined

The Commissioner has determined that the CGT improvement threshold for the 2022-23 year will be $162,899 (up from $156,784 last year). Notably, the Commissioner no longer issues a Taxation Determination setting out the CGT improvement threshold.

Class ruling issued

The ATO has issued the following class ruling:

• CR 2022/58 – Tabcorp Holdings Ltd – Demerger of The Lottery Corporation Ltd.

State Taxes

Queensland Budget 2022-23

Mr Cameron Dick, the Queensland Treasurer, handed down the State’s Budget for 2022-23 on 21 June. It contains the following tax-related measures.

Payroll tax

• A ‘mental health levy’ on large employers (or groups of employers) with annual Australian taxable wages over $10 million will be introduced.
• A proposed increase to the payroll tax deduction ceiling from $6.5 million in annual Australian taxable wages to $10.4 million.
• An extension of the 50% payroll tax rebate on the exempt wages of apprentices and trainees until 30 June 2023.

Duty

• An exemption from foreign acquirer duty for retirement visa holders (subclasses 405 and 410) on the purchase of their principal place of residence on or after 1 January 2023.

Betting tax reform

• A new funding model has been proposed to take effect from 1 December 2022 to ensure ongoing sustainable funding for Queensland’s racing industry. The new model includes a 5% racing levy on the betting tax and making bonus (or free) bets taxable.

New South Wales Budget 2022-23

Mr Matt Kean, the NSW Treasurer, handed down the State’s Budget for 2022-23 on 21 June. It contains the following tax-related proposals.

Opt-in first home buyer property tax

• From 16 January 2023, it is proposed to give first home buyers purchasing a property worth up to $1.5 million the option to pay an annual property tax instead of upfront transfer duty (noting that the First Home Buyer Assistance Scheme will remain in place for eligible first home buyers who do not opt-in).
• The annual property tax will be based on the property’s unimproved land value and the annual owner-occupier rate will be set at $400 plus 0.3% of the property’s unimproved land value in 2022-23.

Land tax

• The discount for early payment of land tax will be reduced from 1.5% to 0.5% from 1 January 2023.
• The foreign investor land tax surcharge will be increased from 2% to 4% from the 2023 land tax year.

Payroll tax

• Payroll tax relief will be extended to employers who pass on payments received under the Commonwealth’s Aged Care Workforce Bonus Payment program (worth up to $800 per employee), which otherwise would have been subject to payroll tax.
• It is proposed that jobs created under a subprogram of the Future Economy Fund may be exempted from payroll tax, expected to provide $51 million in payroll tax exemptions over five years from 2022-23.

Betting taxes

• From 1 July 2022, the point of consumption tax rate will increase to 15% and the effective betting tax rates under the Betting Tax Act 2001 (NSW) will also be adjusted to 15%.

Other News

Crypto assets will not be regarded as foreign currency for tax purposes

The Treasurer has announced that the Albanese government will take action to clarify current arrangements in legislation to ensure crypto assets will be excluded from being regarded as foreign currency for tax purposes. The clarification will be backdated to 1 July 2021 to avoid any ambiguity. As such, capital gains tax will continue to apply to crypto assets held as investments.

Cases

GQRW v FCT [2022] AATA 1779 – Payments under consent orders assessable under Myer Emporium principle

The AAT has ruled that payments received by a taxpayer pursuant to consent orders relating to ongoing family and business proceedings were assessable as ordinary income in accordance with the Myer Emporium principle.

In this case, the parties undertook a restructure in 2005 involving the transfer of intellectual property from the trading company to a unit trust, and the intellectual property was leased back to the company for royalties. The unitholders were family trusts including the GQRW Family Trust. B was the primary beneficiary of the Trust and the sole director of the trustee. A was not named as a beneficiary but was a secondary beneficiary as B’s spouse. During the restructure, A and B’s marriage broke down. A commenced litigation against the company (and others), claiming the restructure was designed to exclude A from the business and was therefore oppressive. Consent orders were signed, pursuant to which the GQRW Family Trust was to pay 50% of the royalties it received from the unit trust to A. The Supreme Court subsequently dismissed the oppression proceedings. The Family Court finalised the distribution of A and B’s matrimonial property in 2016. 

In 2014, the Commissioner issued A an amended assessment for the 2013 income year including the amount of the unit trust distributions in A’s assessable income. A objected, the Commissioner disallowed their objection, and A applied to the AAT for review. The key issue was whether the distributions were assessable.

The AAT ultimately affirmed the decision under review. In terms of characterising the amount received, the AAT rejected A’s contention that the payments were matrimonial distributions made from B’s post-tax earnings pursuant to an oral separation agreement with B that should be treated as tax free spousal maintenance. Rather, the AAT found that as the unit trust had made the payments to A pursuant to the consent orders and A had commenced proceedings to protect their interests in the company (a profit-making purpose), the payments therefore constituted income according to ordinary concepts. 

Legislation

Tas: Foreign investor land tax surcharge and duties amendment Bills receive assent

The Land Tax Amendment (Foreign Investors) Bill 2022 (Tas) and the Land Tax Rating Amendment (Foreign Investors) Bill 2022 (Tas) have both received royal assent and are now law. Consequently, a 2% land tax surcharge for foreign investors will have effect in Tasmania from 1 July 2022. The operation of the surcharge was discussed in more detail in the Birchstone Brief for the week ended 27 May 2022.

The Duties Amendment Bill 2022 (Tas) has also received royal assent and is now law. The Act amends the Duties Act 2001 (Tas) to:

• clarify the operation of the foreign investor duty surcharge (applying retrospectively from 1 July 2018);
• provide relief from the duty surcharge from 1 July 2022 for Tasmanian-based foreign developers that build at least 50 residential dwellings in Tasmania in a 12-month period; and
• ensure property purchases funded by non-interest based finance are only subject to duty once.

Qld: Land tax and Budget measures Bill introduced and passed

The Revenue Legislation Amendment Bill 2022 (Qld), which makes miscellaneous amendments to certain State revenue statutes in connection with land tax reform and the State’s 2022-23 Budget, was introduced into the Legislative Assembly on 21 June and passed through the Assembly on 24 June.

Once it receives assent, the Bill will:

• amend the Land Tax Act 2010 (Qld) to implement a reform announced in the 2021-22 Budget Update – Mid Year Fiscal and Economic Review by enabling the value of interstate landholdings to be accounted for when determining a taxpayer’s Queensland land tax payable from the 2023-24 financial year; and
• amend the Payroll Tax Act 1971 (Qld) and the Duties Act 2001 (Qld) to implement the 2022-23 Budget measures discussed above.

NSW: Budget measures Bill awaits assent

The State Revenue Legislation Amendment Bill 2022 (NSW) was introduced into the NSW Legislative Assembly on 21 June, passed both Houses on 23 June, and is currently awaiting royal assent. Once it receives assent, the Bill will make amendments to the Land Tax Act 1956 (NSW), the Payroll Tax Act 2007 (NSW) and the Betting Act 2001 (NSW) to implement the 2022-23 Budget measures discussed above. It will also make amendments to the Totalizator Act 1997 (NSW) consequent to the amendments to the Betting Act.

Effective life Determination issued

The ATO has issued the Income Tax (Effective Life of Depreciating Assets) Amendment Determination (No 1) 2022. The Determination amends the Income Tax (Effective Life of Depreciating Assets) Determination 2015 by updating the Commissioner’s effective life schedule for depreciating assets and applies from 1 July 2022.

2022-23 PAYG withholding schedules issued

A legislative instrument (the Taxation Administration Withholding Schedules 2022) setting out 15 withholding schedules specifying the amount, formula and procedures for working out the amount to be withheld from an entity under the Pay As You Go (PAYG) system has been issued by the Commissioner.