Birchstone Brief for the week ended 3 November 2023

ATO Updates

Decision Impact Statement – Bains case

The ATO has issued a Decision Impact Statement (DIS) regarding the AAT’s decision in Bains v FCT [2023] AATA 2477. In that case, the AAT held that payments from a “Fairness Fund” established by the Victorian government in connection with changes to regulation of the taxi industry were one-off discretionary payments and not income according to ordinary concepts.

In the DIS, the Commissioner accepts the AAT’s decision that payments from the Fund were not income according to ordinary concepts and undertakes to administer the law in accordance with this decision.
However, the DIS notes that the AAT did not consider the treatment of payments from the Victorian Taxi Reform Hardship Fund or Victorian Transition Assistance payments, or other payments made as a result of taxi industry reforms in other States. The Commissioner therefore considers that the decision in Bains does not impact the ATO’s position on other types of financial assistance payments made to Victorian tax licence holders.

The ATO is also reviewing the impact of the decision on related advice and guidance products, including a related fact sheet and TR 2006/3. 

PS LA 2013/2 updated 

The ATO has updated PS LA 2013/2 to reflect current processes. The Practice Statement is a guide on the role and function of the ATO’s Economist Practice, the nature of the advice it provides, and the process ATO officers should follow in obtaining advice from it.

PCG 2018/9 updated

The ATO has updated PCG 2018/9 to include a risk assessment framework and provide further guidance on its ongoing compliance approach for public groups including foreign-incorporated companies. The updates were initially released in draft in PCG 2018/9DC1 (covered in the Birchstone Brief for the week ended 30 June 2023). 

ATO to collect and match officeholder data 

The ATO will collect and match officeholder data for 2023/24 through to 2024/25 from ASIC, the Office of the Registrar of Indigenous Corporations and the Australian Charities and Not-for-profits Commission (ACNC).

Some of the objectives of the data-matching program are to identify, deter and disrupt those promoting or engaging in illegal phoenix activity, and to better utilise registry data to combat unlawful activity.

Draft guidance on the tax implications of the CCIV regime

LCR 2023/D1 sets out draft guidance from the ATO regarding the tax treatment of corporate collective investment vehicles (CCIVs). The draft ruling also explains the deeming principle and its effect on the tax treatment of a CCIV, a CCIV sub-fund trust and investors. The ruling is intended to operate retrospectively from 1 July 2022. Comments on the ruling are invited until 15 December 2023.

Draft legislative instrument regarding PAYG instalments

The ATO has issued a draft legislative instrument  concerning an alternative method for working out pay as you go (PAYG) instalments for monthly payers. The instrument provides eligible entities required to make PAYG instalments on a monthly basis with a simpler alternative method for working out the amount of their monthly instalment.

Class rulings issued

The ATO has issued:

• CR 2023/58 – Vanguard retail funds — Exchange of units for units in Vanguard wholesale funds; and
• CR 2023/59 – Park AI Pty Ltd — ParkLog report for calculating car parking benefits.

State Taxes

Duties (Vic): Revised ruling on the meaning of ‘land development’

The Victorian State Revenue Office has issued DA-064v2, which is intended to provide clarification on the actions and activities which constitute ‘land development’ as defined in s 3(1) of the Duties Act 2000 (Vic). The updated ruling has effect from 31 October 2023.

Duties (Vic): SRO’s temporary position regarding duty on late settlement interest extended indefinitely

The Victorian State Revenue Office has extended its temporary approach to the duty treatment of late settlement interest indefinitely. The approach requires that transactions entered into on or after 1 July 2022 must be re-lodged for assessment if late settlement interest of $5,000 or more is payable. This approach will apply until a further announcement is made.

Duties (Vic): Draft rulings on economic entitlements in land updated

The Victorian State Revenue Office has also updated two draft revenue rulings regarding:

• the acquisition of economic entitlements in relation to land; and
• how to calculate the percentage of beneficial ownership of land taken to have been acquired under such entitlements.

DA-065 provides guidance on the application of the economic entitlement provisions in Part 4B of Chapter 2 of the Duties Act 2000 (Vic) to service fees, including in circumstances relating to a resident in a retirement village. It also deals with the acquisition of interests in landholders that may be outside the landholder duty provisions.  

Where a person acquires an economic entitlement, the person is taken to have acquired beneficial ownership of the land in the percentage calculated under s 32XE of the Duties Act 2000 (Vic). DA-066 provides guidance on determining the percentage of beneficial ownership of land taken to have been acquired under an economic entitlement, including circumstances where the Commissioner considers it appropriate to exercise their discretion under s 32XE(3) to determine a percentage less than 100%.

Comments on the draft rulings are welcomed until 1 December 2023.

Other News

ACNC – DIS on Equality Australia case

The ACNC has issued a DIS on the AAT’s decision in Equality Australia Ltd v ACNC Commissioner [2023] AATA 2161 (covered in the Birchstone Brief for the week ended 28 July 2023).

In that case, three members of the AAT unanimously held that people who identify as LGBTQI+ are capable of being regarded as persons in need of benevolence. However, two of those members found that the applicant (an organisation which had since 2017 focused on advocacy and lobbying to change laws and social practices which were injurious to LGBTQI+ persons) did not provide direct benevolent relief to LGBTQI+ persons and was therefore not entitled to registration as a public benevolent institution (PBI). The third member of the tribunal disagreed, holding that the applicant had engaged in activities and projects beyond seeking to change laws which could be appropriately described as providing benevolent relief. The decision has since been appealed to the Full Federal Court.

In the DIS, the ACNC Commissioner:

• notes that the decision is subject to appeal, and therefore that the DIS relates to the AAT decision and the law as it currently stands (noting that the outcome of the appeal may provide further clarification of the law);
• undertakes to continue to determine whether an applicant is a PBI by undertaking a holistic analysis, taking account of the applicant’s aims (or objects or purposes), and the way it achieves these through its activities;
• accepts that a PBI can engage in some preventative activities, dependent on the particular circumstances; and
• states that the overriding consideration in determining whether an applicant is a PBI will be whether there is a sufficient connection between its purpose and activities and the benevolent ends it pursues.

The ACNC Commissioner’s Interpretation Statement on PBIs was updated on 31 August 2023 to reflect the AAT’s decision.

Cases

Appeal News – Bendel

The Commissioner has appealed against the AAT decision in Bendel v FCT [2023] AATA 3074 (covered in the Birchstone Brief for the week ended 29 September 2023).

In that case, the AAT held that unpaid present entitlements owing to a corporate beneficiary did not constitute loans (within the meaning of section 109D(3) of the ITAA 1936) to the relevant trust for the purposes of Division 7A of the ITAA 1936.

Until the appeal is decided, AAT’s the decision remains noteworthy, as it directly contradicts the ATO’s longstanding position (expressed in TR 2010/3 (now withdrawn) and TD 2022/11) that UPEs owed to corporate beneficiaries constitute a loan for section 109D(3) purposes.

Bowerman v FCT [2023] AATA 3547 – Loss on sale of residential unit deductible

In an interesting decision, the AAT has allowed a self-funded retiree who managed her own investment portfolio (which included rental property investments) a deduction for the loss she incurred on the sale of a residential unit that she had originally purchased with a profit-making purpose, despite the fact that she had also temporarily lived in the relevant property as her primary residence before selling it.

Notably, the AAT also allowed the taxpayer (who accounted on a cash basis) to claim a loss in the 2020 income year in light of the ATO’s view as expressed in TR 97/7. But for that public ruling, the AAT would have ruled that the taxpayer did not incur the loss until settlement of the relevant property, which did not occur until the 2021 income year.  

QQPK v FCT [2023] AATA 3493 – Gambling wins not an adequate explanation for taxpayers’ money

In another default assessment case, the AAT has upheld assessments issued by the Commissioner on the basis that the relevant taxpayers failed to discharge their onus of proof that large amounts of money passing through their bank accounts had come from gambling winnings and were not connected with their concrete pumping business. This was because the taxpayers’ records were non-existent or incomplete, and the Tribunal found them to be unsatisfactory witnesses.

The Tribunal also refused to reduce or remit the significant penalties the Commissioner had imposed on the taxpayers for intentional disregard and recklnesses.

Holm v FCT [2023] AATA 3545 – Extension of time to lodge objections for 21-year period refused

In a quirky case, the AAT has rejected a taxpayer’s request for an extension of time to object against relevant income tax assessments in order to claim a $2 deduction in over 20 income years for work-related text messages. Key reasons underpinning the Tribunal’s decision included:

• the significant delay before the taxpayer had attempted to lodge objections against the relevant assessments (particularly in relation to the earlier years);
• the fact that the taxpayer did not have substantiating evidence (and would therefore likely not succeed with his objections even if extensions of time were allowed); and
• the minimal financial impact of the decision on the taxpayer (as the maximum amount of tax in dispute was, at best, $21 in total).