Birchstone Brief for the week ended 8 December 2023

Make sure you attend our Bendel webinar!

Join Daniel Taborsky, Managing Director, and Mary Hu, Associate Director today at 10AM to 11AM AWST 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. 

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

New Commissioner of Taxation announced 

 The Commonwealth Treasurer has announced that the Albanese Government will appoint Rob Heferen as the next Commissioner of Taxation from 1 March 2024, for a period of seven years. 

Guidance on employee/independent contractor distinction finalised

The ATO has finalised:

• TR 2023/4, which sets out the Commissioner’s view regarding when an individual will be an employee of an entity for the purposes of Australia’s PAYG withholding regime; and
• PCG 2023/2, which sets out the Commissioner’s compliance approach for businesses that engage workers and classify them as either employees or independent contractors, including an explanation of how the ATO will allocate compliance resources based on the perceived risks associated with the classification.

TR 2023/4 was originally issued in draft as TR 2022/D3 (covered in the Birchstone Brief for the week ended 16 December 2022). The finalised ruling is broadly consistent with the draft and does not contain any major changes. Unsurprisingly, TR 2023/4 is consistent with the High Court’s decisions in the Personnel Contracting and Jamsek cases, expressly stating that:

• whether a worker is an employee of an entity within the ordinary meaning of that term is a question of fact to be determined through an objective assessment of the totality of the relationship between the parties, having regard only to the legal rights and obligations which constitute that relationship (at paragraph [7]); and
• where the parties have comprehensively committed the terms of their relationship to a written contract and the validity of that contract is not in dispute, it is the legal rights and obligations in the contract alone that are relevant in determining whether a worker is an employee (at paragraph [9]).

PCG 2023/2 was originally issued in draft as PCG 2022/D5 and (also covered in the Birchstone Brief for the week ended 16 December 2022). The finalised PCG is also broadly consistent with the draft. Notably, one of the risk criterion in the finalised PCG is whether an engaging business obtained advice from an appropriately qualified professional regarding the characterisation of the workplace relationship under review that is at least reasonably arguable.

Draft guidance on deductibility of trustee risk reserve payments made by superannuation funds

TD 2023/D3 considers the deductibility under section 8-1 of payments made by the trustee of a superannuation fund (in capacity as trustee) to the trustee in its own capacity. to address the risk of exposure arising from recent amendments to the Superannuation Industry (Supervision) Act 1993 (Cth), which voided any provisions in a superannuation entity’s governing rules exempting or indemnifying the trustee from certain penalties arising from the contravention of a Commonwealth law.

The Determination provides that the Commissioner considers a payment from the trustee of a superannuation fund to the trustee in its own capacity will be capital in nature and therefore not deductible under section 8-1 if the payment is objectively made for the purpose of allowing the trustee to build or maintain a reserve to address the trustee’s risks because of the amendments to the SISA.

Class rulings issued

The ATO has issued:

• CR 2023/67 – Two10degrees Pty Ltd — Use of Global Alerting Platform In-Vehicle Management System for fuel tax credits; and
• CR 2023/68 – Thorn Group Limited — Return of capital.

State Taxes

Duties (NSW): Revenue NSW reminder to submit corporate reconstruction exemption applications

Revenue NSW has reminded applicants submitting corporate reconstruction and corporate consolidation duty exemption applications to do so by mid-December 2023. This is because, from 1 February 2024, the full duty concession for corporate reconstructions and consolidations will be replaced with a concessional rate of 10% of the duty that would otherwise be payable on the transaction.

Notably, transitional provisions allow the existing exemption to apply to relevant transactions arising from an agreement or arrangement that was entered into before 19 September 2023 where an exemption application is lodged by 1 April 2024.

Cases

PepsiCo, Inc v FCT [2023] FCA 1490 – Federal Court issues first decision concerning DPT

In the first reported decision considering the diverted profits tax (DPT), the Federal Court has ruled that:

• a component of the payments made by Schweppes Australia Pty Ltd under its exclusive bottling agreements (EBAs) with two US beverage companies (PepsiCo, Inc and Stokely-Van Camp, Inc) were royalties in respect of which the US companies were liable for Australian royalty withholding tax; and
• in the alternative (i.e. only if the Court’s conclusion as to the royalty withholding tax issue was incorrect), one of the principal purposes of PepsiCo and Stokley-Van Camp in entering into or carrying out the scheme constituted by the EBAs was to obtain a tax benefit (namely not being liable to pay Australian royalty withholding tax) and to reduce foreign tax (namely US tax on their income), such that the Court would have concluded that the DPT provisions applied.

Nerang Subdivision Pty Ltd v Hutson [2023] QSC 268 – Administrator of deceased estate required to be registered for GST

The Queensland Supreme Court has held that the administrator of a deceased estate who entered into an agreement with third parties for the development of 312 hectares of land that formed part of that estate was required to be registered for GST.

Appeals
Shell Energy Operations case

The NSW Chief Commissioner of State Revenue has been unsuccessful in its application for special leave to appeal to the High Court from the NSW Court of Appeal’s decision in Chief Commissioner of State Revenue (NSW) v Shell Energy Operations No 2 Pty Ltd [2023] NSWCA 113 (covered in the Birchstone Brief for the week ended 2 June 2023). As such, the Court of Appeal’s decision now stands.

In that case, the Court held that interests in power stations which were severed from the land on which they stood pursuant to two statutory vesting orders were ‘goods’ for the purposes of the landholder duty provisions in Chapter 4 of the Duties Act 1997 (NSW).

Edge Developments Pty Ltd case

The High Court has refused the taxpayer’s application for special leave to appeal against the South Australian Court of Appeal’s decision in Edge Developments Pty Ltd v Commissioner of State Taxation (SA) [2023] SASCA 88 (covered in the Birchstone Brief for the week ended 25 August 2023). In that case, the Court held that:

• a unit trust’s equitable interest in land pursuant to a performance charge was a relevant interest in land sufficient to render it a land holding entity; and
• as such, a redemption of units in the unit trust that led to an increase in the relevant taxpayers’ interests in the unit trust was a dutiable transaction.

Gosford Classic Car Museum case

The High Court has granted the taxpayer special leave to appeal against the Full Federal Court’s decision in Automotive Invest Pty Limited v FCT [2023] FCAFC 129 (the ‘Gosford Classic Car Museum’ case, covered in the Birchstone Brief for the week ended 18 August 2023). In that case, the Full Court had upheld a decision that  that cars displayed in a car museum that were also held for sale were not held solely as trading stock. As a result, the Full Court ruled that:

• the taxpayer was liable to increasing luxury car tax adjustments; and
• the input tax credits the taxpayer could claim in respect of the cars were mostly limited to 1/11th of the car limit.

Legislation

Legislation introduced to replace the AAT with the Administrative Review Tribunal

Following the Commonwealth Attorney-General’s announcement in January 2023 that the Albanese Government would replace the AAT and replace it with a new administrative review body, the Administrative Review Tribunal Bill 2023 (Cth) and Administrative Review Tribunal (Consequential and Transitional Provisions No 1) Bill 2023 (Cth) have been introduced into federal Parliament.