Birchstone Brief for the week ended 27 January 2023

Section 100A Webinar (including the Guardian decision)

Register for our section 100A webinar on 7 February at 11 am AWST / 2 pm AEDT, where Daniel Taborsky will dissect the recent Full Federal Court decision in FCT v Guardian AIT Pty Ltd ATF Australian Investment Trust [2023] FCAFC 3 and the finalised ATO guidance (TR 2022/4 and PCG 2022/2).

What are the differences between the draft guidance and the finalised versions? How does it differ from the Full Federal Court’s decision in Guardian?

What should you be doing now? 

Click the link below to find out more and to register.

Register for our Section 100A Webinar


The Financial Adviser’s Toolbox

As a financial adviser, the tools in your toolbox are what allow you to provide value to your clients.

Sharpen your tools by joining Birchstone Tax Law on Wednesday 15 February for a breakfast seminar at Frasers King’s Park as we run through some recent legal developments and strategies for your clients specifically for financial advisers.

The seminar will be accredited by the Financial Planning Association of Australia for 1 CPD hour.

Click the link below to find out more and to register.

Register for our in-person Financial Advisors Seminar

ATO Updates

Product ruling issued

The ATO has released: PR 2023/1 – Utmost Executive Investment Account.

State Taxes

Payroll Tax (Qld): Government entities not to be grouped

Queensland Treasury has released PTAQ000.7.1, which explains the details of an administrative arrangement that will be in place for the 2022-23 and 2023-24 financial years such that the Queensland Commissioner of State Revenue will not treat certain government entities as grouped for payroll tax purposes merely due to State, ministerial or Governor in Council control.

Other News

CPI for December 2022 quarter released

The ABS has released the Consumer Price Index (CPI) number for the December 2022 quarter, which is linked to the indexation of a range of amounts for tax and superannuation purposes pursuant to Subdivision 960-M of the ITAA 1997 (including the CGT improvement threshold and certain tax offsets).

The latest CPI number is particularly significant as it confirms that the superannuation general transfer balance cap (which is indexed to CPI in $100,000 increments) is set to jump by a $200,000 increment for the first time from 1 July 2023. Unless the legislation is changed, the indexation provisions will apply such that the cap will increase to $1.9m for the 2023-24 income year (up from $1.7m in the 2023-23 income year).



FCT v Guardian AIT Pty Ltd ATF Australian Investment Trust [2023] FCAFC 3 – Commissioner fails on 100A grounds but finds partial success with Part IVA

The Commissioner has found partial success in his appeal against Logan J’s decision in Guardian AIT Pty Ltd ATF Australian Investment Trust v Commissioner of Taxation [2021] FCA 1619. The relevant facts can be summarised as follows. In the 2012 and 2013 income years:

  • the trustee (Guardian) of a trust (AIT) made a newly incorporated, wholly owned corporate beneficiary (AITCS) presently entitled to the net income of the trust (other than franked dividends);
  • this entitlement was not initially paid (UPE);
  • AITCS paid its income tax liability by drawing on its UPE; 
  • AITCS then declared a fully franked dividend in the following income year to Guardian (as trustee for AIT), which was set off against the UPE; and 
  • Guardian resolved to distribute all fully franked dividends it received to a non-resident beneficiary (Mr Springer) who was also the controller of all the relevant entities. 
This arrangement can be described as a ‘mini washing machine’ arrangement. It had the effect of converting income that would have been taxed at non-resident marginal rates if it had been distributed directly to Mr Springer (i.e. straight from AIT to Mr Springer), to income that was only taxed at the corporate tax rate (by flowing the income from AIT to AITCS back to AIT via a franked dividend from AITCS and then distributing all fully franked dividends to Mr Springer).

Guardian succeeded in arguing that section 100A and Part IVA did not apply to the above scenario at first instance. The Commissioner appealed, arguing section 100A applied to the 2013 income year and Part IVA applied to both the 2012 and 2013 income years. 

The Full Federal Court unanimously held that: 

  • Based on the written and contemporaneous evidence led by the taxpayer, it could not be said that at the time AITCS was made presently entitled to AIT’s net income in June 2013 there was a ‘reimbursement agreement’ (or any type of agreement) for AITCS to declare a franked dividend in the following income year to AIT to offset the UPE. Section 100A therefore did not apply to the 2013 income year. Notably, as the Court found there was no ‘reimbursement agreement’, it did not consider the scope of the ‘ordinary family or commercial dealing’ exception. 
  • Part IVA applied to cancel the tax benefit obtained by Mr Springer under the scheme concerning AIT’s income distributions for the 2013 income year, but did not apply to the similar scheme in the 2012 income year. This was because ‘the form of the 2013 related scheme was not the product of an evolving set of circumstances, but was the implementation of a strategy that had been developed with the evolution and implementation of the 2012 related scheme‘ (at [223]). That is, the Court considered that, when viewed objectively, the repetition in 2013 of what had previously occurred in 2012 had been done for the dominant purpose of enabling Mr Springer to obtain a tax benefit. 

For a detailed analysis of the decision, register for our section 100A webinar next Tuesday (7 February).



Proposed changes to NALI rules – Treasury consultation paper released

The Treasury has released a consultation paper considering options to amend the non-arm’s length income (NALI) and related expenses rules which apply to superannuation funds. The proposed amendments include:

  • exempting large APRA-regulated funds from the rules in relation to general fund expenses; and
  • introducing an upper limit on the amount of fund income taxable as NALI where a SMSF or small APRA-regulated fund breaches the general expense provisions (such that the amount of fund income taxable at the highest marginal rate due to the breach would be 5 times the level of the general expenditure breach).



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