Birchstone Brief for the week ended 26 August 2022

ATO Updates

Stapled group reporting concerns

The ATO has announced its concerns that some entities with transitional managed investment trust (MIT) cross staple arrangement income are not reporting correctly, having identified some instances of non-disclosure and non-reconciliation of amounts disclosed in trust income tax returns, annual investment income reports and distribution statements for non-concessional MIT income (NCMI). The ATO recommends relevant taxpayers and custodians:

• have their NCMI reporting mechanisms reviewed by their service providers and tax agents; 
• take steps to ensure reporting is in place for future lodgments (if they already lodged their trust tax returns and did not complete the MIT and NCMI related disclosures); and
• consider revising past disclosures. 

Decision Impact Statement: Aurizon Holdings Ltd v FCT [2022] FCA 368

The ATO has issued a decision impact statement regarding the Federal Court’s decision in the Aurizon Holdings case.

The primary issue in that case was whether a ‘State Contribution’ paid to Aurizon Holdings  by the State of Queensland was ‘share capital’ for the purposes of section 957-300 of the ITAA 1997. The Commissioner contended that it was not share capital but a different form of capital (as it was not made in exchange for an issue of shares), but the court disagreed and held it was a contribution of share capital in the specific facts of the case. The court also granted declaratory relief to the taxpayer in that case, despite the Commissioner’s contentions that it should not do so (on the basis that the private ruling process provided an alternative and more appropriate remedy). 

The Commissioner considers that the decision has very limited wider application and turned on its own facts. Given the unusual circumstances of the case, the Commissioner’s view is that:

• the decision affirms the pre-existing view of what is generally to be treated as share capital; and
• the approach taken in the case as to what constitutes share capital will only be relevant in the unusual circumstance where there is clear contemporaneous evidence that the objective intention was that the relevant amount was always meant to be a contribution to share capital. 

Regarding the subsidiary issue of declaratory relief, while he acknowledges that the case was unusual, the Commissioner nevertheless considers that the private binding ruling process is capable of dealing with complicated factual circumstances. 

The Commissioner does not intend to alter any ATO precedential documents or practice statements as a result of the decision. 

ATO contact imminent for SMSF trustees who have ignored final warnings to lodge

The ATO has announced that it has identified hundreds of SMSF trustees who have failed to lodge their SMSF annual return (SAR) following final warning letters issued in April and June this year. These trustees should expect contact from the ATO in due course and the commencement of compliance action where appropriate. Moreover, the ATO advises any trustees who have received correspondence reminding them to lodge to file any outstanding returns as soon as possible.

Class Rulings Issued

The ATO has issued the following class ruling:

• CR 2022/77 – DGO Gold Ltd — Scrip for scrip roll-over.

Other News

Review of the Tax Treatment of Digital Assets and Transactions in Australia

The Board of Taxation has released its Consultation Guide for the review of the tax treatment of digital assets and transactions in Australia. While it was initiated by the former government, the current government has noted the review is in line with its commitment to improve tax transparency in the Australian taxation system and ensure a more robust global system.

The guide gives an overview of crypto assets and their current taxation treatment in Australia. It also outlines recent relevant reports and announcements and asks a number of consultation questions under the following headings:

• current tax treatment of crypto assets;
• awareness of the tax treatment of crypto assets;
• characteristics and features of crypto assets; 
• international tax treatment of crypto assets and experience; 
• changes to Australia’s taxation laws for crypto assets; and
• administration of Australia’s taxation laws for crypto assets. 

Cases

Adcon Resources Vic Pty Ltd v FCT [2022] AATA 2629 – GST group’s registration revoked due to 90% ownership requirement

The AAT has affirmed the Commissioner’s decision to revoke a GST group’s registration on the basis that the group did not meet the 90% ownership requirement in the GST Act.

The basis of the Commissioner’s revocation decision was that beneficial ownership of the two companies in the GST group were held by two different entities. The taxpayer’s shares were legally and beneficially held by a Mr Isaac (who was also its sole director), while the other company’s shares were legally but not beneficially owned by Chale Pty Ltd (Chale). The taxpayer contended that it had been set up incorrectly (i.e. that its shares were meant to have been held by Chale, not Mr Isaac) and therefore that Mr Isaac must have been holding them as a nominee or on trust for Chale. 

The AAT held there was no evidence in support of a nominee or trust relationship existing in relation to the relevant shares (noting that the company had been set up at Mr Isaac’s direction and that the onus is on the directors of a company to ensure that details entered into ASIC’s registers are correct). As such, the AAT found the two companies in the purported GST group were not part of the same 90% owned group and therefore did not meet the GST group membership requirements. The AAT did not consider the issue of when the GST group should have commenced as the requirements for a GST group to have been formed were not met.

FSYC v FCT [2022] AATA 2680 – Taxpayer’s GST liabilities not eligible for release

The AAT has affirmed the Commissioner’s decision to decline to release a taxpayer from GST liabilities on the basis that:

• the debt release provisions in the TAA 1953 do not apply to GST liabilities or associated general interest charges; and
• there is no general discretion to release liabilities that are not listed in section 340-10 to Schedule 1 of the TAA 1953; and 
• therefore, GST liabilities and associated general interest charges are not liabilities to which release can be granted in cases of serious hardship.

Legislation

Income Tax Assessment (Eligible State and Territory Covid-19 Economic Recovery Grant Programs) Amendment Declaration (No 4) 2022 – Certain business grants made NANE income

The Treasurer has declared various Victorian and ACT business grant programs to be eligible programs for the purposes of section 59-97 of the ITAA1997. As such, payments under these programs that were received by SMEs (as defined in section 59-97) in the 2020-21 or 2021-22 income years will now be treated as non-assessable non-exempt income.