Birchstone Brief for the week ended 30 September 2022

ATO Updates

Taxpayers invited to provide feedback on the Taxpayers’ Charter

The ATO is inviting taxpayers to provide feedback on the Taxpayers’ Charter. 

The Charter was first published in 1997 and aims to help taxpayers understand their rights and obligations, what they can expect from their interactions with the ATO, and what to do if they are not satisfied.

Class and product rulings issued

The ATO has issued the following ruling:

• CR 2022/87  — Iluka Resources Ltd —  Demerger of Sierra Rutile Holdings Ltd;
• CR 2022/88 — Firefly Resources Ltd — Demerger and scrip for scrip roll-over; and
• PR 2022/9 — Challenger Life Company Ltd CarePlus Annuity and Insurance.

Updated guidance on market valuations

The ATO has released its market valuation for tax purposes guide, which replaces previous web guidance and provides more up-to-date guidance on the Commissioner’s expectations regarding market valuations for tax purposes. 

Guidance on the safe harbour for the main residence exemption & deceased estates updated

The ATO has updated PCG 2019/5, which sets out the conditions that must be satisfied to fit within a safe harbour so that taxpayers can manage their affairs as if the Commissioner had exercised his discretion to extend the 2-year period allowed to dispose of the main residence of a deceased person without triggering CGT. The update:

• adds restrictions on real estate activities imposed by a government authority in response to the COVID-19 pandemic that took more than 12 months to address as an acceptable circumstance to satisfy the first of the safe harbour conditions; and
• clarifies that the ATO’s general administrative approach is to exercise the discretion to extend the 2-year period after settlement of the sale of the deceased’s main residence has occurred. 

State Taxes

Land Tax (ACT) – Determination regulating land tax and foreign ownership surcharge issued

The ACT Treasurer has issued the Taxation Administration (Amounts Payable—Land Tax) Determination 2022, which provides that from 1 October 2022:

• ACT land tax will be made up of the following components:
  • a fixed charge of $1,462 (a 5% increase from the rate for 2021-22); and
  • specified marginal rating factors; and
• the rate for the foreign ownership surcharge will be 0.75% of a property’s base value for the purposes of section 17E(4) of the Land Tax Act 2004 (ACT). 

Other News

WA de facto couples now able to split superannuation upon separation

Relevant parts of the Family Court Amendment Act 2022 (WA) and the Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Act 2020 (Cth) commenced on 28 September 2022. As a result, the long-awaited reforms (first covered in the Birchstone Brief for the week ended 19 August 2022) allowing separating de facto couples in Western Australia to split their superannuation entitlements are now active. WA has thus been brought into line with the rest of the  States and Territories, meaning that all married and de facto couples in Australia are now treated equally under the law in respect of their ability to divide their property, including their superannuation, following separation.

Cases

Rizkallah v FCT [2022] AATA 3081 – AAT denies rental property deductions in excess of income

The AAT has upheld amended assessments rejecting claims for unsubstantiated maintenance expenses and capital allowance deductions in relation to a rental property that was leased to the taxpayer’s estranged husband at rates only sufficient to cover the associated mortgage payments, holding that expenses which exceeded the rental income derived were not ‘necessarily incurred in’ gaining or producing the taxpayer’s assessable income and were therefore not deductible. However, the AAT exercised its discretion to remit the 50% penalty the ATO had imposed for reckless to 25% in light of misleading and inaccurate advice the taxpayer had received from her family and tax agent. The taxpayer was not eligible for the safe harbour exception as there was insufficient evidence to demonstrate she had provided her tax agent with all relevant information.

Wulf v FCT [2022] AATA 3094 – AAT allows deductions for repairs to rental property

The Commissioner denied the taxpayer’s claimed deductions for the costs of repairing a rental property after it had suffered significant water damage, contending that the relevant works amounted to improvements and that the associated outgoings were therefore capital in nature. The taxpayer argued the repairs were not in the nature of improvement but were repairs necessary to generate income from the property. The AAT partly upheld the taxpayer’s claims for expended materials on the basis that the carpenter responsible for the repairs gave evidence that the extent of the works was necessary to assess the damage and repair the water proofing in the house, and that the work had minimal effect on the rental value of the house as any improvements had only been minor. However, as the AAT found that parts of the house had been completely rebuilt, refurbished and modernised, the expenditure in respect of this was properly understood as capital in nature and was therefore not deductible. The AAT was unable to apportion the labour costs into deductible and non-deductible components based on the invoices provided and therefore remitted the decision under review to the Commissioner to make the appropriate apportionment. 

Legislation

Treasury Laws Amendment (2022 Measures No 2) Bill 2022 (Cth) – Miscellaneous tax and super measures pass the House of Representatives

The Bill containing miscellaneous tax and superannuation measures (first covered in the Birchstone Brief for the week ended 5 August 2022) has successfully passed through the House of Representatives.

Treasury Laws Amendment (Australia-India Economic Cooperation and Trade Agreement Implementation) Bill 2022 (Cth) – Bill preventing Australian tax on payments made to Indian residents for remote technical services introduced 

The Bill (first covered in the Birchstone Brief for the week ended 5 August 2022) has been introduced into the House of Representatives to stop Australian taxation of certain payments or credits made to Indian tax resident firms for providing certain technical services remotely (i.e. not through a permanent establishment in Australia) to Australian customers. If passed by both Houses, the Bill will commence on the later of the day it receives royal assent and the day the Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) enters into force for Australia. However, the provisions will not commence at all if the AI-ECTA does not enter into force for Australia. 

Legislative instrument setting out information requirements for GST adjustment notes finalised

A Deputy Commissioner of Taxation has issued the A New Tax System (Goods and Services Tax) Adjustment Note Information Requirements Determination 2022 (first covered in the Birchstone Brief for the week ended 19 August 2022), which contains the information that must be contained in an adjustment note and a recipient created adjustment note. The Determination:

• applies to all entities that issue adjustment notes for the purposes of the GST Act; 
• commences on 30 September 2022; 
• finalises LI 2022/D11; and
• replaces the A New Tax System (Goods and Services Tax) Adjustment Note Information Requirements Determination 2012.

Legislative instrument containing attribution rules for certain deferred transfer farm-out arrangements finalised

A Deputy Commissioner of Taxation has issued the A New Tax System (Goods and Services Tax) Attribution Rules for Deferred Transfer Farm-out Arrangements Determination 2022 (first covered in the Birchstone Brief for the week ended 19 August 2022), which sets out specific attribution rules for certain deferred transfer farm-out arrangements where a supply or acquisition made under a contract is subject to preconditions. The Determination:

• is necessary to prevent the basic attribution rules in Division 29 and the special rules in Chapter 4 of the GST Act from applying inappropriately to such arrangements; 
• commences on 29 September 2022;
• finalises LI 2022/D12; and
• replaces the A New Tax System (Goods and Services Tax) (Particular Attribution Rules Where Supply or Acquisition Made Under a Contract Subject To Preconditions) Determination 2012.

Regulations issued to expand eligibility for downsizer super contributions scheme

The Governor-General has issued the Superannuation Legislation Amendment (Broadening Contribution Rules) Regulations 2022 (Cth), which support the government’s expansion of the downsizer contributions scheme (first covered in the Birchstone Brief for the week ended 5 August 2022) by allowing regulated superannuation funds and RSA institutions to accept downsizer contributions from individuals aged 55 and over from the date the measure commences. 

Bills referred to Senate Committee

The Treasury Laws Amendment (2022 Measures No 3) Bill 2022 (Cth) and the Income Tax Amendment (Labour Mobility Program) Bill 2022 (Cth) (first covered in the Birchstone Brief for the week ended 9 September 2022) have been referred to the Senate Economics Legislation Committee for consideration. The Committee’s report is due on 17 November 2022.