Birchstone Brief for the week ended 28 April 2023

ATO Updates

Decision Impact Statement: Guardian case 

The ATO has issued a Decision Impact Statement (DIS) regarding the Full Federal Court’s decision in FCT v Guardian AIT Pty Ltd ATF Australian Investment Trust [2023] FCAFC 3 (covered in the Birchstone Brief for the week ended 27 January 2023).

The DIS provides that the Full Court’s decision demonstrates the following in respect of Part IVA:

• that an arrangement which does not satisfy the requirements of section 100A may nonetheless be subject to Part IVA; and
• when identifying an alternative postulate for post-15 November 2012 schemes, particular regard must be had to the substance of the scheme and its result or consequence, and the income tax result of the alternative postulate must be disregarded.

In respect of section 100A, the DIS states the Commissioner considers a number of the Full Court’s observations confirm the Commissioner’s views as expressed in TR 2022/4, including that:

• for section 100A to apply, a reimbursement agreement must exist at, or prior to, the time at which a beneficiary is made presently entitled to income of the trust;
• an arrangement that constitutes an agreement may be both informal and unenforceable, and the parties may be free to withdraw from it or to act inconsistently with it, notwithstanding their adoption of it; and
• for there to be an ‘agreement’ for the purposes of section 100A, there must be a common intention or consensus existing between at least two parties.

As a result of the decision, the ATO will update:

• TR 2022/4 to reflect aspects of the Full Court’s decision in accordance with comments made in the DIS: and
• PS LA 2005/24 to reflect the views expressed by the Full Court with respect to the effect of the 2013 amendments to Part IVA.

Class and product rulings issued

The ATO has issued:

• CR 2023/19 – EROAD telematics system – Use for car logbook and odometer records;
• CR 2023/20 – Wireless Australia Pty Ltd – Use of FTC manager for fuel tax credits;
• CR 2023/21 – Cardno Limited – Return of capital and special dividends; and
• PR 2023/4 – Fuel tax: Navman Wireless Australia Pty Limited and FTC Manager – FTC Self Claim level clients.

Cases

Elcheikh v FCT [2023] AATA 859 – Taxpayer fails to show assessments were excessive

The AAT has held that a taxpayer failed to demonstrate that default amended income tax assessments were excessive. This was primarily due to the taxpayer’s failure to adduce evidence to show what his taxable income was for the relevant income years, as he had failed to keep records and had no relevant corroborating evidence to show that amounts paid to him by his father’s businesses were loans rather than wages.

Further, the Tribunal found that the taxpayer had failed to show that his tax shortfalls were not caused by fraud or evasion, and as such none of the amended assessments were made out of time.

The AAT also affirmed the significant administrative penalties the Commissioner had imposed, observing that the taxpayer’s behaviour (in failing to take an interest in his tax affairs and signing tax returns prepared by his father’s accountants but not engaging with them) constituted intentional disregard of the tax law.