Birchstone Brief for the week ended 25 November 2022

ATO Updates

Ruling on PSI released

The ATO has released TR 2022/3, which:

• combines and updates TR 2001/7 and TR 2001/8 (both of which have been withdrawn with effect from 24 November 2022);
• constitutes the ATO’s finalised guidance on the concepts of personal services income (PSI) and personal services businesses (PSB); and
• forms part of the ATO’s overall view on the PSI regime (and should therefore be read in conjunction with TR 2003/6 and TR 2003/10). 

Decision impact statement: Water West 

The ATO has released a decision impact statement regarding the AAT’s decision in Water West Pty Ltd v FCT [2022] AATA 427. In that case, the AAT confirmed that a company which was formerly part of a large group but had become part of a smaller group with an aggregated turnover of less than $10 million was not eligible to receive the cash flow boost. This was because it was not a small or medium business entity at the relevant time as:

• it had been part of the larger group in the previous income year (1 January to 31 December 2018); and
• was part of the larger group for almost two-thirds of the current income year (which the AAT held had commenced on 1 January 2019 and ended on 30 June 2020 due to the taxpayer company going through a transitional period as it changed its balance date from 31 December to 30 June). 

In the statement, the ATO states that despite the AAT’s decision in Water West, the Commissioner considers that:

• the relevant income year for the purposes of determining an entity’s aggregated turnover is a 12-month period (and will seek to clarify this at the earliest opportunity); 
• a transitional period does not constitute an income year for the purposes of the ITAA 1936 and ITAA 1997; 
• an income year cannot be a period of more than 12 months under the ITAA 1936 and ITAA 1997; and
• an entity calculates its aggregated turnover based on the annual turnovers of entities connected and affiliated with it for the period that aligns with the primary entity’s income year, whether or not the connected and affiliated entities have a different accounting period.

Approximately 1M directors yet to apply for director ID

In a recent media release, the ATO announced that as at 23 November 2022 around one million company directors still needed to apply for their director ID by the 30 November deadline. 

Class rulings issued and withdrawn

The ATO has:

• issued CR 2022/106 – Bank of Queensland Ltd – BOQ Capital Notes 3; and
• withdrawn CR 2014/7 – Income tax: payments assigned to representative public dentists (RPDs) under the Child Dental Benefits Schedule (CDBS) with effect from 24 November 2022, as the matters dealt with by it are now covered by CR 2022/100.  

Cases

Hedges v FCT [2022] FCA 1389 – Federal Court confirms capital gain from disposal of goodwill not reduced by capital account shortfall offsets

Cheeseman J of the Federal Court has dismissed the taxpayer’s appeal against the AAT’s decision in Hedges v FCT [2020] AATA 5307 (first covered in the Birchstone Brief for the week ended 8 January 2021), ruling that the capital gain arising from the taxpayer’s disposal of goodwill upon his retirement from a partnership was not reduced by amounts set off against his actual cash entitlement pursuant to a partnership deed. As such, the capital gain was assessable to the taxpayer in full (after the application of the 50% discount).

Cammarano v FCT [2022] AATA 3910 – AAT affirms amended assessments based on casino data

The AAT has affirmed amended assessments issued to two brothers on the basis of casino member records. The taxpayers were unable to provide substantive evidence regarding how their extensive gambling activities were funded (having filed witness statements but declining to give evidence at the hearing), and therefore could not establish:

• that their income as stated in their tax returns and their gambling winnings were the only ways they funded their gambling activities;
• what their actual income was in the relevant income years; or 
• that the amended assessments were excessive,

Legislation

Treasury Laws Amendment (2022 Measures No 4) Bill 2022 (Cth) introduced into Parliament

A Bill has been introduced into the House of Representatives that contains provisions pertaining to:

• the digital games tax offset;
• the tax treatment of digital currency;
• reducing the compliance burden for FBT record keeping;
• the skills and training boost and technology investment boost;
• superannuation financial reporting and auditing; 
• deductible gift recipients; and
• taxation of military superannuation benefits. 

The majority of these measures have been discussed in more detail in previous editions of the Birchstone Brief. 

Notably, the Bill has been referred to the Senate Economics Legislation Committe for inquiry and a report by 25 January 2023. 

Treasury Laws Amendment (Electric Car Discount) Bill 2022 (Cth) awaits royal assent

The Bill which contains an FBT exemption for certain zero or low emissions vehicles with a first retail sale value below the luxury car tax threshold for fuel efficient vehicles (first covered in the Birchstone Brief for the week ended 29 July 2022) was passed by the Senate with amendments on 25 November 2022. Those amendments were agreed to by the House of Representatives on 28 November 2022. The Bill has therefore completed its journey through Parliament and now awaits royal assent. 

Treasury Laws Amendment (Modernising Business Communications and Other Measures) Bill 2022 (Cth) introduced into Parliament

A Bill has been introduced into the House of Representatives to, among other things:

• allow the electronic signing and sending of documents under the Corporations Act 2001 (Cth); 
• update payment provisions in Treasury laws to allow electronic payments to be used; 
• permit certain regulators under a number of Acts to hold virtual or hybrid hearings and examinations; 
• enable notices currently required to be published in newspapers to be published in an accessible and reasonably prominent manner;
• begin moving some ASIC legislative instruments into the Corporations Act (to improve the navigability of the law); and
• make miscellaneous and technical amendments to Treasury portfolio legislation (including the SISA, FBTAA, ITAA 1997 and the GST Act) to correct drafting errors, repeal inoperative provisions, address unintended outcomes and make other technical changes. 

The Bill has also been referred to the Senate Economics Legislation Committe for inquiry and a report by 25 January 2023. 

Bills giving effect to AL-ECTA now law

The following Bills (which were introduced to give effect to customs and taxation arrangements agreed under the Australia-India Economic Cooperation and Trade Agreement (AI-ECTA)) have passed both Houses, received the royal assent and are now law:

• Customs Tariff Amendment (India-Australia Economic Cooperation and Trade Agreement Implementation) Bill 2022 (Cth) (which received royal assent as Act No 56 of 2022); 
• Customs Amendment (India-Australia Economic Cooperation and Trade Agreement Implementation) Bill 2022 (Cth) (which received royal assent as Act No 57 of 2022); and
• Treasury Laws Amendment (Australia-India Economic Cooperation and Trade Agreement Implementation) Bill 2022 (Cth) (which received royal assent as Act No 60 of 2022). 

Exposure draft legislation: Response to review of TPB & TASA

Treasury has released exposure draft legislation and associated explanatory material regarding the government’s response to the independent review concerning the effectiveness of the Tax Practitioners Board (TPB) and the Tax Agent Services Act 2009 (Cth) (TASA). The proposed amendments to the TASA incorporate several of the recommendations from the review and are designed to enhance community confidence, increase the independence and effectiveness of the TPB, and support high standards in the tax profession whilst streamlining the regulation of tax practitioners.

Land Tax Assessment Amendment Bill 2022 (WA) now law

The Bill (first covered in the Birchstone Brief for the week ended 23 September 2022) received royal assent as Act No 42 of 2022 on 21 November 2022 and is now law.