Birchstone Brief for the week ended 17 March 2023

ATO Updates

PSLA 2005/2 updated to include guidance re education directions

PSLA 2005/2, which deals with penalties for taxpayers who fail to keep or retain records, has been updated to include guidance for ATO staff regarding when it would be appropriate to issue a tax-records education direction instead of imposing a pecuniary penalty. 

Decision Impact Statement: Landcom case

The ATO has issued a Decision Impact Statement (DIS) concerning the Full Federal Court’s decision in FCT v Landcom [2022] FCAFC 204 (covered in the Birchstone Brief for the week ended 2 January 2023). In that case, the Court dismissed the Commissioner’s appeal against the decision in Landcom v FCT [2022] FCA 510 (covered in the Birchstone Brief for the week ended 13 May 2022), upholding the primary judge’s decision that where there is a supply of several freehold interests in land, the GST margin scheme applies separately to each interest, notwithstanding that they were all supplied to the same purchaser under a single contract. 

In the DIS, the ATO confirms that the Commissioner will administer the law in accordance with the Full Court’s conclusions about the application of the margin scheme to supplies of land consisting of multiple interests. However, the Commissioner considers this will not change the overall outcome for non-government taxpayers as the final GST outcome will be largely the same where liabilities and entitlements are determined collectively or individually for each interest. The Commissioner does not consider the decision has broader relevance to the meaning of ‘supply’ outside of Subdivision 38-N and Division 75 of the GST Act. 

The ATO will:

• review a number of GST rulings to ensure they are consistent with the Full Federal Court’s decision; and 
• engage with States and Territories on the agreed notional GST dispute resolution process to determine whether any updates may be appropriate in light of the decision. 

Class and product rulings issued

The ATO has issued:

• CR 2023/11 – Logbook Me Pty Ltd – In-Car Logbook Solution for reporting of road tolls; 
• CR 2023/12 – Warwick Credit Union Ltd – Capital Notes; and 
• PR 2023/2 – Zurich Life Insurance (Hong Kong) Ltd – Matterhorn life insurance policy.

State Taxes

Victorian State Revenue Office confirms no changes to administration of surcharge taxes

The Victorian SRO has released a remarkably succinct statement explaining that it will continue to apply the Victorian foreign purchaser additional duty and land tax absentee owner surcharge to all foreign purchasers and absentee owners, despite a previous announcement by RevenueNSW (covered in the Birchstone Brief for the week ended 24 February 2023) that NSW’s foreign surcharge provisions are inconsistent with international tax treaties entered into by the Commonwealth with New Zealand, Finland, Germany and South Africa. 

Cases

Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40 – Medical centre’s payroll tax appeal dismissed

In a win for the NSW Chief Commissioner of State Revenue, the NSW Court of Appeal has denied the medical centre taxpayer’s application seeking leave to appeal the decision of the Appeal Panel of the NSW Civil and Administrative Tribunal. The relevant facts were as follows.

The applicant taxpayer operated a number of medical centres in Western Sydney, and employed nurses and administrative staff in the operation of those centres. However, all medical practitioners who worked at the centres did so under written contracting agreements, supplemented by some informal arrangements. The medical practitioners had the benefit of the applicant’s staff in delivering their medical services to the general public, and the applicant’s staff would generally deal with Medicare claims in respect of those services on the practitioners’ behalf. As a result, Medicare payments attributable to the practitioners’ services were usually paid into a bank account controlled by the applicant. The applicant’s administrative staff would then pay practitioners 70% of the Medicare amounts attributable to their services, with the remaining 30% of the relevant benefit being retained by it. The Chief Commissioner assessed the applicant to payroll tax on these payments to practitioners, asserting they were taxable wages for the purposes of the Payroll Tax Act 2007 (NSW) as amounts paid in relation to the performance of work under relevant contracts. 

The applicant challenged the Chief Commissioner’s decision before the NSW Civil and Administrative Tribunal at first instance, which found the arrangements between the applicant and the medical practitioners were ‘relevant contracts’ and therefore affirmed the assessments. The applicant then appealed to the Appeal Panel of the Tribunal, which rejected the appeal on the basis that the applicant’s grounds did not involve a question of law and instead sought to dispute findings of fact. 

Ultimately, the Court of Appeal dismissed the taxpayer’s application for leave to appeal for the following reasons: 

• firstly, the Court was satisfied that (contrary to the applicant’s submissions), the Tribunal had been correct to find the medical practitioners provided services to the applicant by servicing patients at its medical centres and thereby enabling it to operate its business; and 
• secondly, the Court found that the Appeal Panel had not erred in dismissing the applicant’s appeal on the basis that it had not raised any questions of law. 

Legislation

Exposure draft legislation: changes to thin capitalisation rules

Treasury has released exposure draft legislation and explanatory materials regarding changes to the thin capitalisation rules, which were originally announced as part of the 2022-23 October Budget (covered in the Birchstone Brief for the week ended 28 October 2022). 

Exposure draft legislation: disclosure of subsidiary information by public companies

Treasury has released exposure draft legislation and explanatory materials related to the Albanese government’s proposed transparency measure (originally announced as part of the 2022-23 October Budget) which would require Australian public companies (both listed and unlisted) to publicly disclose information regarding:

• the number of their subsidiaries; and 
• those subsidiaries’ countries of tax domicile.