Birchstone Brief for the week ended 16 June 2023

ATO Updates

Ruling on individual residency finalised

TR 2023/1 outlines the Commissioner’s views regarding the residency tests for individuals for tax purposes as set out in section 6(1) of the ITAA 1936 and when the Commissioner considers that a person will be a resident of Australia for tax purposes. The lengthy ruling:

• replaces IT 2650, IT 2681 and TR 98/17;
• finalises TR 2022/D2;
• takes into account recent cases, including but not limited to Harding v FCT, Pike v FCT and Addy v FCT;
• provides 18 examples; and
• considers how the residency tests apply to short-term temporary workers, working holiday makers, part-year residents and dual residents.

Ruling on labour costs and capital assets

TR 2023/2 finalises TR 2019/D6 and sets out the Commissioner’s view regarding the correct treatment of labour costs relating to the construction or creation of capital assets. In essence, the Commissioner considers that while labour costs are generally revenue in nature, ‘capital asset labour costs’ incurred specifically for constructing or creating capital assets are incurred on capital account and are therefore not deductible under section 8-1. The Commissioner considers that whether particular costs are so incurred is a question of fact and degree.

GSTR 2004/7 updated

The ATO has issued an addendum to GSTR 2004/7, which deals with when GST will be applied to the supply of certain things to non-resident individuals or entities outside of Australia, to reflect the ATO’s updated guidance regarding individual tax residency in TR 2023/1.

ATO to focus on SMSFs with interests in property development activities

The ATO has issued TA 2023/2, which alerts taxpayers that the ATO will pay increased attention to arrangements designed to divert profits from property development projects to SMSFs through the use of special purpose vehicles involving non-arm’s length arrangements.

The ATO is concerned that these types of arrangements lack commerciality and result in profits being shifted from related entities to a concessionally-taxed SMSF (and potentially the SMSF receiving tax offset refunds in relation to dividends received if the SPV is a company), thereby reducing the overall tax payable.

The Commissioner considers that:

• dividends and franking credits received by SMSFs under such arrangements may be non-arm’s length income within the meaning of section 295-550 of the ITAA 1997;
• Part IVA may apply to such arrangements; and
• such arrangements may result in compliance action being taken against the SMSF and its trustees/the directors of its corporate trustee.

Certain PAYG withholding labels to be pre-filled in activity statements from July 2023

The ATO has announced that, from July 2023, PAYG withholding data from single touch payroll (STP) reports will be used to pre-fill relevant taxpayer’s activity statements. Labels W1 and W2 will be automatically filled under these new arrangements, but labels W3 and W4 will not. Changes made to STP reports will also not pre-fill.

ATO to data-match income protection and rental property insurance data

As set out in two legislative instruments registered on the Federal Register of Legislation, the ATO will acquire:

• income protection insurance policy data from insurers for the 2022 to 2026 income years; and
• landlord insurance data from insurers for the 2022 to 2026 income years.

The collected data will be matched against ATO records and used to ensure taxpayers are meeting their obligations.

Class and product rulings issued

The ATO has issued:

• CR 2023/30 – Wesbeam Holdings Limited – Selective off-market share buy back;
• CR 2023/31 – LogbookMe Pty Ltd – LogbookMe In-Car Logbook Solution for measuring the kilometres travelled in a vehicle for fuel tax credit purposes;
• CR 2023/32 – EROAD Australia Pty Ltd – Fuel Tax Credits Solution;
• PR 2023/7 – W.A. Blue Gum Project 2023; and
• PR 2023/8 – Elders Rural Services Australia Ltd – Rural Products Prepayment Program.

State Taxes

Qld: 2023-24 Budget released

The Queensland Treasurer handed down the 2023-24 Queensland Budget on 13 June 2023. The key tax-related measures are as follows:

• Introduction of a payroll tax amnesty for qualifying medical practices that would otherwise be liable to pay payroll tax on payments made to contracted GPs. The amnesty applies to eligible payments made from 1 July 2018 until 30 June 2025.
• Extension of the existing 1% discount on payroll tax for eligible regional employers until 30 June 2030.
• Extension of the 50% payroll tax rebate for wages paid to apprentices and trainees until 30 June 2024.
• A number of tax concessions will be made available to eligible build-to-rent developments that provide at least 10% of constructed dwellings as affordable housing at discounted rents. The concessions include a 50% reduction in the taxable value of land for land tax for a maximum of 20 years, a 100% reduction in the taxable value of land for land tax foreign surcharge for a maximum of 20 years, and a 100% discount on any additional foreign acquirer duty imposed on land to be used for a build-to-rent development.

South Australia State Budget 2023/24 released

The South Australian Treasurer handed down the 2023-24 South Australian Budget on 15 June 2023. The key tax-related measures are as follows:

• Stamp duty will be abolished for eligible first home buyers purchasing new homes valued up to $650k. Relief will progressively phase out for properties valued up to $700k. Stamp duty will also be abolished on vacant land purchased to construct a new home worth up to $400k, with relief progressively phasing out for land valued up to $450k. These changes will apply to contracts entered into on or after 15 June 2023.
• The property value cap for first home buyers to receive the First Home Owner Grant will increase from $575k to $650k for contracts entered into on or after 15 June 2023. First home buyers building a new home may also be eligible to access home loans with a 2% deposit.
• There will be a 50% land tax reduction on land used in eligible build-to-rent housing projects where construction commences on or after 1 July 2023.
• Taxpayers impacted by the Murray River flood event may be eligible for land tax and stamp duty relief.

Vic (Windfall Gains Tax): Updated guidance issued

The State Revenue Office of Victoria has issued updated updated web guidance on the State’s windfall gains tax. This includes:

• guidance on the residential land exemption; and
• information on deferring payment of a windfall gains tax liability

Cases

Hornsby Shire Council v Commonwealth of Australia [2023] HCA 19 – High Court unanimously rules that the notional GST scheme is not unconstitutional

The High Court has unanimously held that sections 15(aa) and 15(c) of the Local Government (Financial Assistance) Act 1995 (Cth) (the Act) do not compel local governments to pay GST, and therefore do not constitute an impermissible ‘tax’ on State property contrary to section 114 of the Constitution, despite those provisions requiring local governing bodies to make voluntary GST payments under the notional GST scheme as a condition of receiving Commonwealth funding under the Act.  

B&F Investments Pty Ltd ATF the Illuka Park Trust v FCT [2023] FCAFC 89 – Full Federal Court dismisses 100A appeal

The Full Federal Court has:

• dismissed the Trustee’s appeal against; and
• allowed Beneficiary Co’s appeal in relation to,

the Federal Court’s decision reported at [2022] FCA 1112 (covered in the Birchstone Brief for the week ended 23 September 2022).

In dismissing the Trustee’s appeal, which basically concerned the proper interpretation of section 100A(8) (which essentially provides that a ‘reimbursement agreement’ only includes an agreement entered into for certain purposes), the Full Court ultimately concluded that the provision was satisfied on the facts of the case, finding that the relevant arrangements constituted a reimbursement agreement entered into for the purpose of securing that the Trustee would not be liable to pay income tax in the 2014 income year (which would have been liable to pay income tax had the arrangement not been entered into).

In allowing Beneficiary Co’s appeal, the Full Court noted that while the Commissioner may issue inconsistent alternative assessments, any assessments inconsistent with the true state of affairs (once established) are clearly necessarily excessive. As the true state of affairs in this case was that section 100A applied to the relevant arrangements, this necessarily entailed a conclusion that the alternative assessment issued to Beneficiary Co was excessive.

Condon v FCT [2023] FCA 561 – Federal Court affirms amended assessments based on asset betterment method

The Federal Court has upheld objection decisions by the Commissioner in relation to default and amended assessments for four income years that were made using the ‘asset betterment method’. In essence, this was because the Court found that the taxpayer had failed to discharge his onus of proving that the assessments for any of the relevant years were excessive or otherwise incorrect. This was due to a lack of sufficient evidence (as the taxpayer had transacted using cash wherever possible and had not kept written records of transactions) and the fact that the Court considered the taxpayer not to be a reliable or credible witness.

FCT v Rawson Finances Pty Ltd [2023] FCA 617 – Federal Court overturns previous decision due to taxpayer fraud

In a lengthy judgment, Justice Perry of the Federal Court has set aside the Full Federal Court’s decision as reported in Rawson Finances Pty Ltd v FCT [2013] FCAFC 26. This decision was reached due to new evidence which overwhelmingly established that the decisions the AAT and Full Federal Court had made in favour of the taxpayer had been obtained by fraud on the part of its director and company secretary. Notably, Justice Perry did not conclude that the legal practitioners acting on behalf of the taxpayer in the AAT and Full Federal Court proceedings had engaged in fraud.

Anders v FCT [2023] AATA 1471 – Taxpayer not entitled to self-education deductions

The AAT has affirmed the Commissioner’s decision to deny a casually employed music relief teacher deductions for the cost of two Master of Public Policy and Management course subjects, holding that there was an insufficient connection between the course fees and the taxpayer’s employment as a relief teacher. This was primarily because the subjects undertaken did not maintain or improve the taxpayer’s skill or knowledge as a music teacher and were unlikely to lead to an increase in his income-earning activity as a relief or music teacher.

Legislation

Legislative instrument regarding RCTIs registered

A legislative instrument which:

• repeals 51 previous instruments relating to recipient created tax invoices (RCTIs); and
• introduces a much broader class of tax invoices that can be issued by recipients,

has been registered on the Federal Register of Legislation. The instrument finalises LI 2022/D15 (covered in the Birchstone Brief for the week ended 18 November 2022).

Treasury Laws Amendment (2023 Law Improvement Package No 1) Bill 2023 (Cth) introduced

A Bill to:

• make a number of minor and technical amendments to of Treasury portfolio legislation to correct drafting errors, repeal inoperative provisions, address unintended outcomes and make other technical changes; and
• implement recommendations by the Australian Law Reform Commission to simplify and improve the navigability of the law,

has been introduced into the House of Representatives.

Treasury Laws Amendment (2023 Measures No. 3) Bill 2023 (Cth) introduced

A Bill has been introduced into the House of Representatives which will, if enacted into law:

• amend the Corporations Act 2001 (Cth) to better recognise the experience of existing financial advisers as equivalent to tertiary study and address other technical limitations of the current framework; and
• amend the Taxation Administration Act 1953 (Cth) and the Income Tax Assessment Act 1997 (Cth) to improve the flexibility of how the First Home Super Saver Scheme applies in practice.

Revenue Legislation Amendment Bill 2023 (Qld) introduced

A Bill to enact the tax-related measures contained in the 2023-24 Queensland Budget has been introduced into the Queensland Parliament. The Bill also amends:

• the Land Tax Act 2010 (Qld) to remove the requirement for a landowner to apply for a land tax exemption in relation to a property used as their home where the Commissioner has verified their eligibility on the basis of available information and given the landowner a notice; and
• the Taxation Administration Act 2001 (Qld) to clarify the operation of the refund provisions.