Birchstone Brief for the week ended 17 and 24 November 2023

ATO Updates

Interim Decision Impact Statement on Bendel case

The ATO has issued an interim Decision Impact Statement (DIS) regarding the AAT‘s decision in Bendel v FCT [2023] AATA 3074. In that case, the AAT held that unpaid present entitlements to income or capital of a trust estate owed to a corporate beneficiary did not constitute loans to the trust within the meaning of section 109D(1) of the ITAA 1936. The Commissioner has since appealed against this decision.

The interim DIS notes that, until the appeal process is finalised, the Commissioner:

• does not intend to revise his current views relating to the Division 7A implications of private company entitlements UPEs, as set out in TD 2022/11.  Pending the finalisation of the appeal process for the Bendel decision, the ATO will continue to administer the law in accordance with TD 2022/11; and
• does not propose to finalise objection decisions (where a settlement is not reached) where the decision turns on whether or not a UPE was a loan for the purposes of section 109D. However, if taxpayers compel the Commissioner to make a decision, any such decisions will be made in line with TD 2022/11.

The ATO is also reviewing the impact of the decision on related guidance, determinations and rulings, including TR 2022/4, TR 2015/4, TD 2015/20, PCG 2022/2  and PCG 2017/13.

New non-binding web guidance on crypto assets

The ATO has released new non-binding guidance on its website regarding the Commissioner’s view of the taxation implications of certain crypto asset activities. The newly updated guidance covers a number of topics, including exchanges or swaps of crypto assets, crypto asset transactions with gift cards or debit cards, staking rewards and airdrops, decentralised finance and wrapping crypto assets, and crypto asset prizes and gambling winnings. 

PCG 2021/2 updated

The ATO has updated PCG 2021/2, which provides a practical compliance approach for determining the market value of a hybrid security for CGT purposes when it is bought back or redeemed from an investor holding it on capital account. The update provides clarification in relation to how the ATO considers the modified volume weighted average price for a hybrid security should be calculated. 

TD 2023/6 finalised

The ATO has finalised TD 2023/6, which sets out the Commissioner’s view regarding when an expense will be taken to have been incurred for the purposes of the ‘early stage test’ associated with the early stage innovation company (ESIC) regime. 

TD 2023/7 finalised

TD 2023/7 sets out amounts the Commissioner will accept as estimates of the value of goods taken from trading stock for private use by taxpayers in named industries for the 2023-24 income year. 

ATO ID 2003/953 withdrawn

The ATO has withdrawn its ATO ID 2003/953, which deals with the GST implications of supplies of multi-purpose compression socks. The interpretative decision has been withdrawn as the ATO considers it requires clarification and may be misleading, as compression socks will only be GST-free if they are specifically designed for people with an illness or disability and are not widely used by people without an illness or disability. This is determined by the facts in each case. The current ATO position on the GST implications of supplies of compression socks is set out in the ATO’s GST and health publication.

New reporting requirements for not-for-profits 

The ATO has announced that, from the 2023–24 income year, not-for-profit entities with an active Australian Business Number must file a NFP self-review return to maintain their income tax exemption. This return, due between 1 July and 31 October each income year, requires entities to self-assess their purpose and activities against the criteria for income tax exemption. It can be lodged online or through a registered tax agent. However, government entities, charities registered with the ACNC, and taxable not-for-profits are exempt from this requirement.

SMSF rulings updated

The ATO has updated the following SMSF rulings to reflect amendments enacted by the Treasury Laws Amendment (Self-Managed Superannuation Funds) Act 2021 (Cth), which increase the maximum number of allowable SMSF members from 4 to 6 from 1 July 2021: SMSFR 2009/1, SMSFR 2009/3, SMSFR 2009/4 and SMSFR 2010/1.

Class and product rulings and addendum issued

The ATO has issued:

• CR 2023/60 – Teletrip Devices – car logbook and odometer records; 
• CR 2023/61 – Argo Investments Limited – Dividend substitution share plan;
• CR 2023/62 – Argo Global Listed Infrastructure Limited – Dividend substitution share plan;
• CR 2023/63 – Carbon Revolution Limited – Employee share scheme – Exchange of shares for Carbon Revolution plc shares;
• CR 2023/64 – Sunland Group Limited – Return of capital;
• PR 2023/23 – Zurich Life Insurance (Hong Kong) Limited – Matterhorn life insurance policy;
• PR 2023/24 – Allianz Guaranteed Income for Life; and
• PR 2019/5A1 – Addendumto PR 2019/5 – Income tax: Taxation consequences of investing in the Westpac Protected Equity Loan.

State Taxes

Duties (NSW): Revenue Rulings updated 

Revenue NSW has updated six revenue rulings to incorporate amendments contained in the Revenue, Fines and Other Legislation Amendment Act 2023 (NSW) (covered in the Birchstone Brief for the week ended 8 September 2023), as follows:

• DUT 012v4;
• DUT 030v2;
• DUT 033v2;
• DUT 036v4;
• DUT 044v2; and
• DUT 049v2.

Duties (NSW): Treasury and Revenue Legislation Amendment Act Guide 

Revenue NSW has issued the Treasury and Revenue Legislation Amendment Act Guide, which provides key information relating to the tax measures that were announced as part of the 2023-24 NSW Budget (covered in the Birchstone Brief for the week ended 22 September 2023) and implemented by the Treasury and Revenue Legislation Amendment Act 2023 (NSW). 

Land Tax (NSW): Ruling on UVA updated

LT 048v2 explains:

• how NSW land tax is calculated for land that is eligible for an unutilised value allowance (UVA) pursuant to section 62J of the Land Tax Management Act 1956 (NSW); and 
• how an owner of eligible land may apply to the Chief Commissioner of State Revenue to have an UVA determined.

Revenue NSW reminds advisors of promoter penalty provisions following High Court decision on the Victorian road user charge

Revenue NSW has issued a statement:

• providing that it has “become aware of certain advisors promoting actions that may qualify as tax avoidance schemes” after the High Court ruled in Vanderstock v State of Victoria  [2023] HCA 30 that a road user charge imposed by Victoria was invalid; and
• recommending that advisors familiarise themselves with the promoter penalties that can apply under the Taxation Administration Act 1996 (NSW) and exercise care in advising clients on action they might take in respect of a tax liability that could comprise a tax avoidance scheme.

Cases

Mitri v FCT [2023] AATA 3762 – Property sales held to be on revenue account

The AAT has ruled that gains from the sale of subdivided properties were on revenue and not capital account pursuant to the Myer Emporium principle, based on the inability of the relevant taxpayers to prove that the properties were not acquired for the purpose of resale at a profit.

Home789 Resources Pty Ltd & others v Chief Commissioner of State Revenue [2023] NSWCATAD 263 – Payroll tax degrouping application denied

The NSW Civil and Administrative Tribunal has affirmed the Chief Commissioner of State Revenue’s decision not to degroup several entities for payroll tax purposes. The primary reason for this decision was the fact that a single individual exercised considerable control and influence over each relevant business.

Baullo v Commissioner of State Revenue [2023] VCAT 1164 – Loan forgiveness in connection with transfer of property to beneficiary results in duty liability

In this case, the Victorian Civil and Administrative Tribunal held that the transfer of a property to beneficiaries of a discretionary trust was not exempt from stamp duty under section 36A of the Duties Act 2000 (Vic) on the basis that the Tribunal could not be satisfied that the transfer was not part of a sale or other arrangement under which there was any consideration for the transfer. This is because the Tribunal found that there was a satisfaction or forgiveness of debts owed by the trust to the beneficiaries in connection with the property transfer.

Waverley Investments Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCATAD 255; Axiom88 Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCATAD 252; Watertite Investments Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCATAD 274  – Imposition of NSW surcharge land tax affirmed as trust deeds did not meet section 5D requirements

In the three cases listed above, the NSW Civil and Administrative Tribunal affirmed the imposition of NSW surcharge land tax on the trustees of three discretionary trusts in various land tax years as the terms of the relevant trust deeds did not meet the requirements of section 5D of the Land Tax Act 1956 (NSW).
Relevantly:

• section 5D(2)-(3) provide that the trustee of a discretionary trust will only be considered not to be a foreign person for NSW surcharge land tax purposes if no potential beneficiary of the trust is a foreign person (“no foreign beneficiary requirement”) and the terms of the trust are not capable of amendment in a manner that would result in there being a potential beneficiary of the trust who is a foreign person (“no amendment requirement”); and
• the terms of the relevant trust deed in each of the three cases cited above did not meet those requirements.

While relatively straightforward (in the sense that they involved a simple application of settled law to the relevant facts), each of these three cases serves as a clear reminder of the care that must be taken when drafting trust deeds for discretionary trusts that will hold land in NSW, in order to prevent any adverse surcharge land tax implications.

Legislation

Bill on measures to address PwC leaks scandal and PRRT introduced to Federal Parliament

The Treasury Laws Amendment (Tax Accountability and Fairness) Bill 2023 (Cth) has been introduced into Federal Parliament.  The Bill:

• contains regulatory measures announced in response to the PwC tax leaks scandal (such as changes to the promoter penalty regime and the powers of the Tax Practitioners Board); and
• implements a 2024-24 Federal Budget measure to introduce a cap on the use of deductions to offset assessable income for the purposes of the petroleum resource rent tax (PRRT).

Exposure drafts of the legislation were covered in the Birchsotne Brief for the week ended 22 September 2023.

Bill to enshrine the objective of superannuation introduced to Federal Parliament

The Superannuation (Objective) Bill 2023 (Cth) has been introduced into Federal Parliament. If passed, the Bill will:

• enshrine the objective of superannuation in legislation, namely ‘to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way’; and
• require a statement of compatibility with the objective to be included in the explanatory materials accompanying all proposed laws and regulations relating to superannuation, unless an exception applies.

Notably, the wording of the objective is identical to that proposed in a related Treasury consultation paper (covered in the Birchstone Brief for the week ended 24 February 2023).

Amended Bill on TPB reform, off-market share buy-backs and franked distributions awaits assent

The Treasury Laws Amendment (2023 Measures No 1) Bill 2023 (Cth) (first covered in the Birchstone Brief for the week ended 17 February 2023), which includes reforms to the Tax Practitioners Board (TPB), off-market share buy-backs, and franked distributions funded by capital raisings, has been passed by the Federal Parliament with amendments. The Bill also contains amendments initiated by the Australian Greens that will:

• ban any senior executives or partners currently working at a tax firm with more than 100 employees, or individuals with ongoing financial links to large tax firms, from being members of the Tax Practitioners Board; and
• require tax agents to report to the Tax Practitioners Board if they become aware of the fact that another agent has breached the Code of Professional Conduct. 

Duties Amendment (Off-the-Plan Concession and Foreign Persons Exemptions) Bill 2023 (WA) awaits assent

The Bill (covered in the Birchstone Brief for the week ended 11 August 2023) has completed its passage through WA parliament with minor amendments. Once enacted into law, the Bill will:

• provide an upfront concession on duty for purchases of off-the-plan apartments in multi-story developments;
• increase the concession thresholds for eligible contracts signed on or after 11 May 2023; and
• expand existing foreign developer exemptions to remove restrictions on the type of land eligible for a refund of foreign buyers duty if acquired for a residential development.