Birchstone Brief for the week ended 7 October 2022

ATO Updates

3-year extension available for DGRs to register as charities

The ATO is urging DGRs who require more time to register as a charity to fill out a form to seek a 3-year extension to do so. The criteria that must be met and the factors the Commissioner must consider before deciding to grant an extension are set out in the Treasury Laws Amendment (2021 Measures No 2) (Deductible Gift Recipients—Extended Application Date) Instrument 2021. DGRs who have not registered as a charity or sought an extension by 14 December 2022 risk losing their endorsement.

ATO confirms deductible non-contingent liabilities should be excluded from CGT asset cost bases

TD 2022/14, which finalises TD 2019/D11, confirms the ATO’s position that a non-contingent liability cannot be both deductible for income tax purposes and form part of a CGT asset’s cost base. This is because section 110-45(2) of the ITAA 1997 operates to exclude expenditure that has been deducted or can be deducted from the cost base of CGT assets acquired after 7.30PM ACST on 13 May 1997 (unless that amount falls within one of the listed exceptions).

ATO issues draft views on alienation of income from an individual’s fame by related entities

The ATO has issued TD 2022/D3, which sets out the Commissioner’s draft view that any income derived from the use of an individual’s fame by a related entity (such as a company or a family trust) will be taken to have been derived by the individual and not the related entity. The Commissioner’s rationale for this view is that as individuals with fame have no property in that fame under Australian law, they are unable to transfer or vest any property in that fame to a related entity. Notably, the draft Determination distinguishes arrangements where the related entity engages the individual to provide services to third parties, stating that payments for such services can be assessable to the related entity (subject to the PSI rules and Part IVA). TD 2022/D3 marks a departure from the ATO’s previous guidance relating to professional sportspersons (PCG 2017/D11 and ATO ID 2004/511), which was withdrawn in 2018.

The draft Determination is proposed to apply retrospectively once finalised, although the ATO has stated it will not devote compliance resources to apply it in relation to the 2018-19 to 2022-23 income years if individuals have already entered into arrangements in good faith that are consistent with the principles outlined in PCG 2017/D11.

Draft updated guidance on individual tax residency tests released

The ATO has released TR 2022/D2, which contains fresh guidance on the Commissioner’s interpretation of the individual tax residency rules. The lengthy draft ruling:

• consolidates the ATO’s views on the ordinary concepts test, the domicile test and the 183-day test;
• accounts for key case law developments; and
• is intended to replace IT 2650 and TR 98/17, both of which have been withdrawn with effect from 6 October 2022.

Comments on the draft ruling are due by 25 November 2022.

State Taxes

Duties (SA): Changes to concessions for electric vehicles

The Governor of South Australia has made the Motor Vehicles (Electric Vehicle Registration) Amendment Regulations 2022 (SA) and the Stamp Duties (Electric Vehicles) Amendment Regulations 2022 (SA) to ensure that:

• electric vehicles can be registered in South Australia without payment of the associated registration fee; and
• the existing stamp duty exemption for motor vehicles that can be registered without fee will not be available for an electric vehicle that is registered without payment of the registration fee.

Other News

Treasury consults on Australia’s implementation of OECD measures to combat BEPS

Treasury has released a consultation paper regarding Australia’s proposed implementation of Pillar One and Pillar Two of the OECD’s globally agreed plan to combat base erosion and profit shifting (BEPS). Pillar One broadly aims to reallocate some taxing rights over multi-national enterprises (MNEs) to the countries where their goods and services are consumed (‘market jurisdictions’), while Pillar Two puts a floor on tax competition to disincentivise MNEs from profit shifting to low tax jurisdictions (including implementation of an effective global minimum corporate income tax rate of 15%). The consultation paper explains the proposed measures (including adoption of a Domestic Minimum Tax) and asks associated questions. The last day for submissions is 1 November 2022, although further consultation is expected before any final decisions are made.

Cases

Dowsing v FCT [2022] AATA 3173 – Taxpayer’s addictions did not warrant full remission of penalty

In this case, the AAT held that the taxpayer’s drug and gambling addictions were not sufficient circumstances to warrant an exercise of its discretion to further remit the administrative penalty that had been imposed for the taxpayer’s failure to submit his 2017 tax return. The AAT found that the taxpayer’s circumstances were at least partially a result of poor life choices rather than factors outside of his control such as ill-health or a natural disaster.