Birchstone Brief for the week ended 1 December 2023

Don’t miss our Bendel webinar!

Join Daniel Taborsky, Managing Director, and Mary Hu, Associate Director as they delve into the case of Bendel v FCT [2023] AATA 3074, which held that unpaid present entitlements (UPEs) owing to corporate beneficiaries are not loans for Division 7A purposes. The webinar has been rescheduled to 14 December 2023 at 10AM to 11AM AWST.

Topics that will be discussed include:

• the ATO’s views on the treatment of UPEs owed to corporate beneficiaries under Division 7A;
• the key reasons underlying the Tribunal’s decision in Bendel;
• how Subdivision EA of Division 7A could still apply to UPEs owed to corporate beneficiaries; and
• the practical implications of the Bendel decision, including a discussion of the ATO’s Interim Decision Impact Statement published on 15 November 2023.

Click the link below to find out more and to register.

ATO Updates

ATO welcomes Federal Court’s decision in PepsiCo case

The ATO has welcomed the decision by the Federal Court’s decision in relation to PepsiCo, Inc. v Commissioner of Taxation, whereby the Court confirmed that Pepsi is liable for royalty withholding tax or, in the alternative, that diverted profits tax (DPT) would have applied. Relevantly, this case marks the first court decision that has considered the DPT since its enactment.

Class and product rulings issued

The ATO has issued:

• CR 2023/65 – Venus Metals Corporation Limited – In specie distribution of Rox Resources Limited shares;
• CR 2023/66 – Judo Capital Holdings Limited – Judo Capital Notes; and
• PR 2023/25 – XLD Commodities Pty Ltd – XLD Grain & Fertiliser Prepayment Program.

Other News

Australia-Portugal DTA signed

The Assistant Minister for Competition, Charities and Treasury has announced that Australia has signed its first-ever Double Tax Agreement with Portugal. The treaty will enter into force once both countries have completed their domestic implementation requirements.

Cases

Sladden v FCT [2023] AATA 3815 – AAT holds lump sum insurance settlement was assessable as income

The AAT has held that a lump sum settlement payment from an insurer to a policyholder in settlement of any and all claims relating to two linked policies of insurance (one of which was income protection insurance and the other life insurance) was assessable as income of the taxpayer in the year in which it was paid.   

In making its decision, the Tribunal noted that the terms of the Deed of Settlement in accordance with which the payment was made were not determinative of the nature of the payment. Rather, the Tribunal could have regard to the facts and circumstances which led to the execution of the deed to determine the true nature of the settlement payment. As the taxpayer and their insurer had only considered the taxpayer’s claim under the income protection policy when negotiating the settlement, the Tribunal concluded that no part of the settlement was paid other than in respect of commutation of the taxpayer’s monthly income protection benefits. Consequently, the entire amount of the settlement sum was assessable income of the taxpayer.

Banktech Group Pty Ltd v FCT [2023] AATA 3850 – Supplies of cash withdrawal services subject to GST

The AAT has held that supplies of ‘cash withdrawal services’ using the taxpayer’s cash dispensing equipment in hotels and other venues were taxable supplies subject to GST. This was because the AAT did not accept that the supplies were input-taxed financial supplies of ATM services, on the basis that the taxpayer’s cash dispensing equipment:

• required intervention from venue staff;
• involved the use of multiple devices; and
• was not marketed as an ATM.  

Meakins v FCT [2023] AATA 3852 – Deductions for holding costs of undeveloped land disallowed

The AAT has affirmed objection decisions in which the Commissioner disallowed deductions claimed in respect of holding costs for land that still remained undeveloped 17 years after it had been purchased. The Tribunal also upheld administrative penalties that were imposed on the taxpayer for recklessness, finding that the taxpayer had demonstrated gross carelessness in continuing to claim the relevant deductions after the ATO had raised concerns over such in prior income years and indicated they would not be allowed.

Came v FCT [2023] AATA 3951 – AAT holds transfer of foreign superannuation funds not assessable to taxpayer directly

The AAT has overturned the Commissioner’s decision to treat funds transferred by a taxpayer from their foreign superannuation fund to an Australian complying superannuation fund via an Emigrant Capital Account as assessable to the taxpayer directly, holding that the transfer was in fact assessable to the taxpayer’s Australian complying superannuation fund as the taxpayer had made a valid election pursuant to section 305-80 of the ITAA 1997.

The Tribunal reached this decision because it considered the Commissioner had adopted a strained interpretation of the relevant legislative provisions, and that following legislative change in 2007, there was no longer a requirement for there to be a direct payment from a foreign superannuation fund to a complying superannuation fund for a taxpayer to be able to make an election under section 305-80.

Legislation

Treasury Laws Amendment (2023 Measures No 1) Bill 2023 (Cth) now law

The Treasury Laws Amendment (2023 Measures No 1) Bill 2023 (Cth) (recently covered in the Birchstone Brief for the weeks ended 17 and 24 November 2023) received royal assent on 27 November 2023 and is now law.

The Bill contains measures to:

• reform the Tax Practitioners Board;
• align the tax treatment of off-market share buy-backs undertaken by listed public companies with the tax treatment of on-market share buy-backs; and
• prevent certain distributions that are funded by capital raisings from being frankable.

Bill containing extension of land tax residential construction exemptions introduced (WA)

The Land Tax Assessment Amendment (Residential Construction Exemptions) Bill 2023 (WA) has been introduced into the WA Parliament. The Bill contains measures to temporarily extend the land tax residential construction exemptions for owners who commenced construction between 1 July 2020 and 30 June 2023.

Bills to implement super tax changes introduced

The Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 (Cth) and the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023 (Cth) have been introduced into the House of Representatives.

The Bills contain measures to reduce the income taxation concessions for individuals with total superannuation balances (TSB) over $3 million. If they are enacted, then from the 2025-26 income year onward, the income tax rate imposed on superannuation earnings will increase by 15% to 30% for earnings attributable to balances that exceed $3 million. The additional tax (referred to as ‘Division 296 tax’) will be imposed directly on relevant individuals (rather than their superannuation funds) and will be calculated based on the proportion of their TSB that exceeds $3 million. Controversially, the government has done nothing to address concerns about the additional tax applying to unrealised gains.