Birchstone Brief for the week ended 15 December 2023

Merry Christmas and Happy New Year! 

This is the last edition of the Birchstone Brief for 2023. 

The team at Birchstone Tax Law wish you a Merry Christmas and a Happy New Year! We hope you have a safe, relaxing and well deserved break. 

Thank you for taking the time to read the Birchstone Brief each week, and we look forward to being back in your inboxes in 2024

ATO Updates

TAs regarding certain ‘arrangements of concern’ in the context of R&D tax incentive claims

The ATO has issued two Taxpayer Alerts (TAs) regarding certain ‘arrangements of concern’ in the context of R&D tax incentive claims. 

TA 2023/4 states that the ATO is concerned about, and will be reviewing, claims made by R&D entities in respect of expenditure incurred under an agreement with an associate (the ‘Service Provider’). The particular features of arrangements the ATO are concerned about include where:

• it is incorrectly claimed that an R&D entity has incurred or paid relevant expenditure under an agreement with the Service Provider; or 
• an R&D entity claims a tax offset for expenditure incurred in relation to R&D activities purportedly conducted for the R&D entity’s own benefit, but which are instead in substance being conducted for the benefit of the Service Provider; and
• the Service Provider is not an entity that would be entitled to claim an R&D tax offset, or as much of  an offset, were it to conduct the relevant R&D activities for its own benefit. 

The ATO’s view as expressed in TA 2023/4 is that such arrangements may give rise to Part IVA implications if they were entered into or carried out by one or more parties for the purpose of obtaining a tax offset, even if they are otherwise effective under the substantive R&D tax incentive provisions. 

TA 2023/5 states that the ATO is concerned about arrangements where Australian resident R&D entities are claiming R&D tax offsets in respect of expenditure incurred on R&D activities conducted overseas, where those overseas R&D activities were in fact being conducted for the benefit of a related foreign entity. Where an arrangement falls within TA 2023/5, the ATO is concerned that:

• the Australian resident R&D entities do not actually qualify for the R&D tax offsets claimed; or 
• even if the substantive R&D tax incentive provisions are satisfied, that Part IVA may still apply to cancel any tax benefits obtained. 

Draft guidance regarding deductibility of personal financial advice fees

TD 2023/D4 sets out the Commissioner’s view regarding the deductibility of financial advice fees paid by individuals who are not carrying on a business, and the requirements that the Commissioner believes need to be satisfied for an individual to claim such a deduction under sections 8-1 or 25-5 of the ITAA 1997. The draft Determination is intended to replace TD 95/60 (which has been withdrawn with effect from 12 December 2023), in light of regulatory reforms to the financial services industry in recent years. However, TD 2023/D4 does not represent a change in the Commissioner’s view regarding the deductibility of financial advice fees as outlined in TD 95/60. 

Guidance regarding RITCs on advisor fees for superannuation funds and IDPS investment platforms 

The ATO has issued guidance setting out the Commissioner’s view regarding the eligibility of superannuation funds and investor-directed portfolio services (IDPS) investment platforms to claim reduced input taxed credits (RITCs) on adviser fees where personal financial advice is provide to a member of the fund or investment platform. In summary, the Commissioner considers that superannuation funds and IDPS investment platforms will generally have no entitlement to claim RITCs in these circumstances, on the basis that the recipient of the relevant supply is the member (and not the fund or investment platform). This is consistent with the Commissioner’s existing guidance in GSTR 2006/9. 

ATO end of year office closure

The ATO has announced that its offices will close from midday on Friday 22 December 2023 and reopen on Tuesday 2 January 2024.

Class and product rulings issued

The ATO has issued:

• CR 2023/69 – Newcrest Mining Limited – Employee share scheme – Shares disposed of under scheme of arrangement;
• CR 2023/70 -– B&C Hospitality Holdings Pty Ltd – Employee share scheme – Reducing the minimum holding period;
• CR 2023/71 – SILK Laser Australia Limited – Scheme of arrangement and special dividend;
• CR 2023/72 – St Barbara Limited – Return of capital by in specie distribution of ordinary shares in Genesis Minerals Limited; and
• PR 2023/26 – Luxury Escapes Business Traveller Program.

State Taxes

Duties (Vic): Final design of commercial stamp duty reform announced

The Victorian Government has announced that the design of reforms to progressively abolish stamp duty on commercial and industrial properties in Victoria and replace it with an annual tax based on unimproved land value, first announced in the 2023-24 Victorian Budget (covered in the Birchstone Brief for the week ended 26 May 2023), has been finalised.

Duties (Vic): Guidance updated on landholder duty concession for interposed unit trusts

The State Revenue Office of Victoria has updated its guidance regarding when it considers that the concessional rate of landholder duty under the Duties Act 2000 (Vic) will apply to relevant acquisitions arising on certain reorganisations of listed stapled entities. 

Other News

Mid-Year Economic and Fiscal Outlook for 2023-24

Treasury has released its Mid-Year Economic and Fiscal Outlook for 2024-24 (MYEFO). Interestingly, the MYEFO contains several tax and superannuation measures which have not previously been announced, including the Government’s proposal to:

• deny deductions for ATO interest charges (including GIC and SIC) incurred in income years starting on or after 1 July 2025 (noting that the Commissioner will continue to have the discretion to remit these charges); and 
• from 1 January 2025, increase the foreign resident capital gains withholding tax rate from 12.5% to 15%, and reduce the withholding threshold to 0.

Cases

Chief Commissioner of State Revenue (NSW) v Integrated Trolley Management Pty Ltd [2023] NSWCA 302 – NSW Court of Appeal rules that trolley collection contractor is an employment agent 

The NSW Court of Appeal has allowed the NSW Chief Commissioner of State Revenue’s appeal against the NSW Supreme Court’s decision in Integrated Trolley Management Pty Ltd v Chief Commissioner of State Revenue (NSW) [2023] NSWSC 557 (covered in the Birchstone Brief for the week ended 2 June 2023), holding that a taxpayer who contracted with major supermarket operators to provide trolley collection services via a subcontracting arrangement was an “employment agent” for the purposes of the Payroll Tax Act 2007 (NSW). 

Active Sports Management Pty Ltd v Industry Innovation and Science Australia [2023] AATA 4078 – Development of customised basketball shoe not eligible R&D activities

The AAT has affirmed a decision of Industry Innovation and Science Australia that activities undertaken by a sports apparel and footwear company in connection with the development of a customised basketball shoe were not eligible R&D activities under the Industry Research and Development Act 1986 (Cth), concluding that none of the activities were core or supporting R&D activities within the meaning of sections 355-25(1) and 355-30(1) of the ITAA 1997. 

Appeals – Sladden

The taxpayer has filed a notice of appeal to the Federal Court against the AAT’s decision in Sladden v FCT 2023 ATC [2023] AATA 3815 (covered in the Birchstone Brief for the week ended 1 December 2023). In that case, the AAT held that the entirety of a lump-sum settlement payment made by 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.