Birchstone Brief for the week ended 10 February 2023

ATO Updates

Taxpayer alert on interposing a holding company to access company profits tax-free

In TA 2023/1, the ATO has flagged that it is reviewing arrangements whereby:

• a holding company is interposed between a private company with retained profits and its shareholder; 
• a CGT roll-over is applied to disregard the CGT consequences of that interposition; 
• the private company then pays a franked dividend to the holding company; and
• the holding company uses the proceeds from the dividend to fund a loan to the individual on terms that do not comply with section 109N of the ITAA 1936. 

The ATO is concerned that taxpayers are entering into these kinds of arrangements under the misapprehension they are effective in avoiding additional tax being paid by the individual taxpayer (i.e. ‘top-up tax’). Specific aspects of such arrangements that concern the ATO include whether:

• there is any intention for the ‘loan’ from the holding company to the individual to be repaid, or whether the amount is an assessable dividend pursuant to section 109C; 
• the arrangement constitutes a dividend stripping scheme or operation, such that section 177E applies to include the amount of the ‘loan’ in the individual taxpayer’s assessable income and section 207-145 of the ITAA 1997 applies to cancel the franking credit on the dividend to the holding company; or
• the arrangement constitutes a scheme to which Part IVA could apply. 

Draft legislative instrument regarding alienated PSI withholding issued

LI 2023/D1 will, if enacted:

• vary to nil the amount a personal services entity is required to pay to the Commissioner when it receives alienated personal services payments in certain circumstances; and
• in so doing, continue existing withholding arrangements for alienated PSI under F2013L00522, which is due to sunset.

State Taxes

SA tax relief for flood-struck River Murray residents

RevenueSA has confirmed the following tax relief measures for residents and businesses whose properties and vehicles have been destroyed or substantially damaged by the River Murray flooding:

• A waiver of 2022-23 land tax liabilities for business properties and long-term residential rentals that have been substantially damaged or destroyed. Holiday rental properties will also be eligible where an owner can demonstrate a loss of income because of substantial damage or destruction from the flood. Refunds will be provided where affected taxpayers have already paid their 2022-23 land tax liabilities; 
• Homeowners whose principal places of residence have been substantially damaged or destroyed due to the floods will be eligible for stamp duty relief of up to $48,830 on the pruchase of a new home. Stamp duty relief of up will also be provided in respect of the purchase of vehicles to replace others which were destroyed or lost in the flooding (up to $2,816 for non-commercial vehicles and $2,127 for commercial vehicles, respectively); and
• Owners will be entitled to relief equivalent to the emergency services levy paid on the active registration period of any lost or destroyed vehicles. 

An online application for the relief measures will be available soon. Interested persons can register their interest here. 

Other News

OECD releases administrative guidance regarding implementation of global minimum tax for large MNEs

The OECD has released administrative guidance to assist governments with the implementation of Global Anti-Base Erosion rules to ensure large multinational enterprises (MNEs) will be subject to a 15% effective minimum tax rate.

Legislation

Regulations made to prescribe additional amount for 2024-25 JMEI annual exploration cap

The Income Tax Assessment Amendment (Junior Minerals Exploration Incentive) Regulations 2023 (Cth) has been made to increase the annual exploration cap for the Junior Minerals Exploration Incentive (JMEI) by $2.15 million for the 2023-24 income year. 

Treasury Laws Amendment (2022 Measures No 5) Bill 2022 (Cth) now law 

The Bill amending the list of named deductible gift recipients in the ITAA 1997 (first covered in the Birchstone Brief for the week ended 2 December 2022) has received royal assent and is now law.

Treasury Laws Amendment (Modernising Business Communications and Other Measures) Bill 2022 (Cth) passes House of Representatives

The Bill which, among other things, modernises communication methods available to consumers, businesses and regulators when interacting with each other, has passed the House of Representatives and is now before the Senate.