Birchstone Brief for the week ended 11 August 2023

ATO Update

Class and product ruling released

The ATO has issued:

• CR 2023/44 – Tulla Resources Plc – Dermerger and scrip for scrip roll-over; and

• PR 2023/14 – National Australia Bank Tailored Equity Scolutions Facility.

Cases

BPFN v Commissioner of Taxation [2023] AATA 2330 – Interest income derived from a series of loans held not to be NALI

The AAT held that the non-arm’s length income (NALI) provisions did not apply to interest income derived from back to back loan agreements (including between related parties).

The taxpayer was a corporate trustee for an SMSF. The taxpayer earned interest income through trust distributions from a unit trust, JJUT. JJUT lent amounts to related entities (being ABC Pty Ltd and the DEF trust), which on lent the amounts to independent third parties.

This income was reported as exempt current pension income (ECPI). However, following an audit, the Commissioner classified the income as NALI (and therefore, precluded from being ECPI).

The central issue was whether the NALI provisions, specifically, section 295-550(5) of ITAA 1997 applied. While the AAT acknowledged that internal dealings weren’t at arm’s length, it determined that the derived interest income matched arm’s length expectations. Consequently, the AAT held that the interest income was not NALI.

Hannover Life Re of Australiasia Ltd v FCT [2023] FCA 680 – Overhead expenses partly creditable – Appeal update

The Commissioner has filed a notice of appeal to the Full Federal Court against the decision in Hannover Life Re of Australiasia Ltd (covered in the Birchstone Brief for the week ended 30 June 2023). In this case, the Federal Court had held that a life insurance company was partly entitled to input tax credits in relation to its overhead expenses.

Legislation

Duties Amendment (Off-the-Plan Concession and Foreign Persons Exemptions) Bill 2023 – Bill Introduced

This Bill was introduced to Parliament on 9 August 2023, which, if enacted, will introduce the following changes:

• purchasers of off-the-plan apartments in multi-storey developments will receive an upfront concession on duty payable instead of paying the full amount of duty upfront and receiving a rebate after settlement;

• the concession thresholds will be increased for eligible contracts signed on or after 11 May 2023; and

• existing foreign developer exemptions will be expanded to remove restrictions on the type of land eligible for a refund of foreign buyers duty if it is acquired for a residential development (these amendments will apply retrospectively from 1 January 2023).

The existing transfer duty rebate for purchases of off-the-plan apartments was due to expire on 24 October 2023 but has been extended to 30 June 2025.