Birchstone Brief for the week ended 1 July 2022

News and Events

Section 100A Documentation Pack

30 June has come and gone and now is the time to put in place documentation for your clients to protect against the risk of section 100A applying.

Our section 100A documentation pack includes a template letter and beneficiary instruction form for trustees to send to beneficiaries after 30 June. 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

Prior guidance on Div 7A withdrawn

Following the release of TR 2022/D1 earlier this year, the ATO has withdrawn TR 2010/3 and accompanying PS LA 2010/4 with effect from 1 July 2022.

The effect of this is that the ATO’s previous position (that a UPE held on sub-trust for the benefit of a corporate beneficiary could be loaned back to the trust on commercial terms without any Div 7A consequences) has now been rolled back in favour of the new view expressed in TR 2022/D1: that a trust’s use of a UPE held on sub-trust for the benefit of a corporate beneficiary will constitute the provision of financial accommodation regardless of whether a commercial rate of return is paid.

When finalised, TR 2022/D1 will apply to trust entitlements created on or after 1 July 2022. Entitlements conferred on or before 30 June 2022 can still rely on TR 2010/3 and PS LA 2010/4.

ATO confirms US GILTI rules do not correspond to CFC provisions

The ATO has issued TD 2022/9 (previously released as draft TD 2019/D12), which confirms that section 951A of the US Internal Revenue Code of 1986 (the assessing provision of the US global intangible low taxed income (GILTI) rules) is not a provision of a law of a foreign country that corresponds to section 456 or 457 of the ITAA 1936 for the purposes of the hybrid mismatch rules in s 832-130(5) of the ITAA 1997.

The practical effect of this is that, for the purposes of applying Australia’s hybrid mismatch rules:

• the fact that an amount is included as GILTI in the US will not affect whether a deduction/non-inclusion outcome arises; and
• amounts treated as GILTI in the US will not be regarded as dual inclusion income.

The Determination applies before and after its date of issue.

ATO extends transitional period for corporate tax residency

The Commissioner has amended paragraph 104AA of PCG 2018/19 to give foreign incorporated companies a further 6 months (until 31 December 2022) to revise their governance arrangements in light of the ATO’s view on “central management and control” (as set out in TR 2018/5) for the purposes of retaining their foreign tax resident status.

ATO will focus on ‘wash sales’ this tax time

The ATO has announced that it will be focusing on ‘wash sales’ this tax time through the application of its sophisticated data analytics to large swathes of data from cryptocurrency exchanges and share registries.

A ‘wash sale’ refers to the sale of an asset followed by the reacquisition of the same or a substantially similar asset close to the end of an income year where the deliberate purpose of sale is to generate a capital loss that can then be carried forward.

Taxpayers who engage in wash sales risk the application of Pt IVA of the ITAA 1936 to such transactions and, consequently:

• having any associated capital loss denied; and
• potentially being penalised and charged with interest.

Effective life of depreciating assets for 2022-23

The ATO has issued TR 2022/1, which contains the effective life of depreciating assets acquired from 1 July 2022 for the purposes of section 40-100 of the ITAA 1997.

Class ruling and addendum issued

The ATO has issued the following:

• CR 2022/59 – Cedar Woods Properties Ltd – Bonus share plan; and
• CR 2013/14A2 – Addendum to CR 2013/14 – Goods and services tax: goods and services supplied by dentists.

State Taxes

NSW: Practice Note on unpaid NSW tax liabilities released

The Chief Commissioner of State Revenue for NSW has issued CPN 024: Interest and penalty tax guidelines, which outlines:

• their approach to imposing penalties and interest; and
• the circumstances in which their remission powers may be exercised.

Cases

JMC Pty Ltd v FCT [2022] FCA 750 – Federal Court finds lecturer was engaged as employee

The Federal Court has determined that a lecturer was an employee of a higher education provider within both the ordinary meaning of that term and the extended definition in section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGA Act).

Mr H (a qualified sound engineer) was engaged by the applicant company (JMC) to provide it with ‘teaching services’ in the relevant periods. The terms and conditions of the engagement were recorded in a written contract, and included that:

• JMC would pay Mr H an hourly rate for delivering lectures and marking exams;
• Mr H, as the ‘services provider’, was required to submit invoices to JMC using his ‘registered business name’ specifying the teaching services he had provided, alongside time sheets and weekly signed lesson plans;
• Mr H could subcontract or assign the obligation to provide teaching services to JMC to another person or corporation; and
• when, why and how the teaching services were to be delivered was to be directed by JMC’s managing academic officer.

JMC made no superannuation contributions on Mr H’s behalf throughout the relevant periods on the basis that it considered he was an independent contractor and not an employee. The Commissioner disagreed, issuing JMC with notices of assessment for superannuation guarantee charge in respect of Mr H totalling $17,370 (including interest and administration components) on the basis that Mr H was JMC’s employee for the purposes of the SGA Act, either because he fell within the ordinary meaning of the term ‘employee’ in section 12(1) or the extended meaning of employee in section 12(3). JMC objected to the assessments and, following the Commissioner’s decision to disallow their objection, appealed to the Federal Court.

In accordance with the High Court’s decisions in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2, the Court’s characterisation of the relationship between Mr H and JMC proceeded with reference to their rights and obligations under the relevant contracts. The Court observed that while there were terms that suggested Mr H may have been an independent contractor, a close analysis of the totality of the legal rights and obligations provided for in the contracts ultimately supported the conclusion that Mr H was an employee pursuant to common law principles. Of significance was the fact that Mr H:

• entered the contract as an individual (rather than a corporation or partnership);
• was to be paid an hourly rate (and not for a result or product);
• was provided equipment and infrastructure by JMC; and
• had a relatively limited and narrow right to subcontract or assign,

with all of these factors suggesting he had been engaged to work as part of JMC’s business and was effectively integrated into it. The Court also found there was little doubt that Mr H worked under a series of contracts that were principally for his labour. As such, Mr H was also an employee within the extended meaning of that term in section 12(3).

Legislation

Bills enacting State Budget revenue-related measures now law

The following Bills that make miscellaneous amendments to certain State and Territory revenue laws in connection with their 2022-23 Budgets have received the royal assent and are now law:

• the State Revenue Legislation Amendment Bill 2022 (NSW) (covered in the Birchstone Brief for the week ended 24 June 2022);
• the Revenue Legislation Amendment Bill 2022 (Qld) (covered in the Birchstone Brief for the week ended 24 June 2022); and
• the Revenue Legislation Amendment and Repeal Bill (NT), which:
  • introduces from 1 July 2022 stamp duty exemptions for single-contract house and land packages and speculative build homes and a stamp duty concession for electric vehicles;
  • repeals the property activation levy; and
  • caps the indexation of monetary units, penalty units and revenue units at 2.7%.