Birchstone Brief for the week ended 14 October 2022

News and Events

Lisa’s Lore

A Socialite’s Mansion is (still) her Castle

The decision in Commissioner of Taxation v Bosanac [2021] FCAFC 158 was a shock to the system for professionals who routinely advise clients to structure their affairs such that significant assets are held in the sole name of the low-risk spouse. That case saw the ATO successfully argue that half of the equity in a Dalkeith home (registered in the wife’s sole name) should be deemed to be held for the benefit of her ex-husband and therefore available to satisfy his debts.

The background to the decision was:

• In 2006, during their marriage, the wife purchased the Dalkeith home in her sole name for $4.5 million;
• The deposit was funded by a joint bank account and finance was obtained in joint names for the balance of the purchase price. The loans were secured by mortgages over the Dalkeith home and other properties – one held in the husband’s sole name and the other held in the wife’s sole name.
• The couple subsequently separated in 2013, and the husband moved out of the Dalkeith home in 2015.

In 2016, the ATO obtained judgment against the (now ex-) husband for a tax debt exceeding $9 million. The ATO sought a declaration that half of the equity in the Dalkeith home was held on trust for the ex-husband.

The basis for the ATO’s argument was a legal presumption that a person who advances purchase monies for property, which is held in the name of another person, intends to have a beneficial interest in the property (“presumption of resulting trust”). That presumption is subject to an exception that, in the case of purchases by a husband in the name of a wife, the beneficial interest was intended to pass with the legal interest (“presumption of advancement”). However, the ATO was able to show that the exception did not apply to this particular transaction and thereby obtained its favourable judgment from the Full Federal Court.

Last week, in a turn of events, the High Court handed down a unanimous judgement in Bosanac v Commissioner of Taxation [2022] HCA 34, allowing the wife to keep the Dalkeith home and confirming it could not be used to pay her ex-husband’s debts. The High Court found that the presumption of resulting trust did not arise as, on the evidence, there was an inference that the parties objectively intended for the wife to be the sole owner of the Dalkeith home. The ex-husband had merely facilitated her acquisition.

The High Court’s decision largely depended on the facts of the case, including that:

• The ex-husband was a sophisticated businessman and would have appreciated the significance of legal title to land.
• During their marriage, the couple held most of their assets separately.
• There was no suggestion that the Dalkeith home was purchased in the wife’s name to help her ex-husband avoid creditors.

The High Court also observed that in certain relationships, such as that between a husband and wife, the presumption of resulting trust does not arise. The Commissioner’s contention that the presumption of advancement should be abolished was therefore rejected.

From an asset protection perspective, registering a main residence in the low-risk spouse’s sole name may still be a viable strategy in certain circumstances. If nothing else, it at least creates an additional barrier for potential creditors to overcome.

Lisa Monaco, Associate Director

ATO Updates

Interim report released on ATO’s administration and management of objections

The Inspector-General of Taxation and Taxation Ombudsman (IGTO) has released an interim report (and summary slide deck) regarding the ATO’s administration and management of taxpayer objections. The ‘phase 1’ report concludes that the ATO is generally effective in communicating taxpayers’ rights to object, but notes that strong feedback was received from taxpayers that the objection process itself has a need for improvement. Following further investigation and consideration of stakeholder submissions regarding the interim report, the IGTO’s ‘phase 2’ report is expected to make further findings and recommendations on how the objections process can be improved.

Class rulings Issued

The ATO has issued the following:

• CR 2022/89 – Home Consortium stapled group — Destapling and restructure; and
• CR 2022/90 – Oklo Resources Ltd — Scrip for scrip roll-over.

State Taxes

Service NSW releases online calculator to assist first home buyers

Service NSW has released an online calculator to assist first home buyers to weigh up their options when choosing between conventional stamp duty or a smaller annual property tax when purchasing dwellings worth up to $1.5 million (or vacant land on which they intend to build worth up to $800k), referred to as the ‘First Home Buyer Choice’ (announced in the 2023-23 NSW State Budget and first covered in the Birchstone Brief for the week ended 24 June 2022).

Draft Rulings (Vic): Land tax primary production exemptions

The Victorian State Revenue Office has issued two draft rulings on the primary production exemptions from Victorian land tax:

• LTA-010, which provides guidance on the interpretation and application of key terms and concepts relating to the primary production land tax exemptions; and
• LTA-011, which sets out the requirements of the primary production land exemptions and explains the meaning of ‘business’ and key elements of the ownership tests.

Comments on the draft rulings are due by 10 November 2022.

Other News

OECD Global Crypto-Asset Reporting Framework released

The OECD has released the Crypto-Asset Reporting Framework (CARF), which is aimed at combatting the challenges associated with the rise of cryptocurrency for investment and financial uses. The CARF is intended to serve as a standardised global automatic exchange of information between participating countries similar to the OECD/G20 Common Reporting Standard, and contains model rules ready for adoption into domestic legislation and associated commentary.

Charities risk de-registration for outstanding reporting obligations

Over 700 charities have been warned by the ACNC that they are at risk of losing their registration for failing to meet their obligations to submit Annual Information Statements. The ACNC has also urged discontinued charities to request the ACNC to revoke their registrations, which can be done through the Charity Portal.

Australia signs tax treaty with Iceland

On 12 October, Australia signed the Convention Between Australia and Iceland for the Elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance and its associated Protocol. The agreement is the first double tax agreement between Australia and Iceland and will enter into force once the domestic implementation requirements have been met.

Legislation

Draft legislation to introduce Safeguard Mechanism Credits as registered emissions units

The government has issued exposure draft legislation to assist Australia to achieve its commitment to reach net zero emissions by 2050.  The draft legislation contains amendments to the ITAA 1997 to include new Safeguard Mechanism Credits (SMCs) as specified registered emissions units. This is to ensure SMCs receive the same tax treatment as other specified units (such as Australian Carbon Credit Units). The last day to submit comments on the exposure draft legislation is 28 October 2022.  
First Home Buyer Choice Bill introduced (NSW)

The Property Tax (First Home Buyer Choice) Bill 2022 (NSW) has been introduced into the NSW Parliament. The Bill gives effect to the measures first announced in the 2022-23 NSW State Budget, allowing first home buyers purchasing a dwelling worth up to $1.5 million (or vacant land on which they intend to build worth up to $800k) to choose to either:

• pay traditional stamp duty on the transfer of the land; or
• make the land subject to property tax, in which case a smaller annual fee will be payable.