Birchstone Brief for the weeks ended 2 and 9 February 2024

ATO Updates

Guidance on composite items and capital allowances finalised  

The ATO has finalised its guidance regarding how to determine the relevant depreciating asset for the purposes of the capital allowances provisions in Division 40 of the ITAA 1997 where composite items are involved.

TR 2024/1 sets out the Commissioner’s views on:  

• relevant principles to assist in determining whether a composite item is itself a depreciating asset or whether its components are separate depreciating assets; and  
• whether an ‘interest in an underlying asset’ for the purposes of section 40-35 of the ITAA 1997 requires an entity to have an interest in all parts of a composite item that is itself a depreciating asset, or whether an interest in any part of the asset is enough. 

The finalised ruling was previously issued in draft as TR 2023/D2 and applies retrospectively to income years commencing both before and after its date of issue.

Guidance regarding how to calculate EV home charging electricity costs finalised

PCG 2024/2 sets out the ATO’s recommended methodology to calculate the cost of electricity used in charging an electric vehicle at an employee’s or individual’s home. Whether an employer or individual would like to use the methodology outlined in the PCG or to determine the cost of electricity used at its actual cost is a choice which must be made on a per vehicle basis and applies for the entire FBT or income year. Notably, the PCG:

• applies for FBT purposes from 1 April 2022 and income tax purposes from 1 July 2022;
• does not apply to plug-in hybrid electric vehicles or vehicles that are not zero emissions vehicles; and
• was previously issued in draft as PCG 2023/D1. 

Class Rulings issued  

The ATO has issued:

• CR 2024/4 – Allkem Limited – Scrip for scrip roll-over;
• CR 2024/5 – Shriro  Holdings Limited – Return of capital; and
• CR 2024/6 – Healthia  Limited – Scheme of arrangement. 

Cases

Gallo v Chief Commissioner of State Revenue [2023] NSWCATAD 311 – Liability of US citizen for NSW surcharge land tax affirmed

In this case, the NSW Civil and Administrative Tribunal affirmed the liability of the taxpayer (a US citizen who did not reside in their NSW property and leased it out to tenants) for NSW surcharge land tax pursuant to section 5A of the Land Tax Act 1956 (NSW). In affirming the Chief Commissioner’s objection decision, the Tribunal rejected the taxpayer’s submissions that he was exempt from NSW surcharge land tax by virtue of the Australia-US Free Trade Agreement and section 109 of the Australian Constitution.

Khalil & Associates Pty Ltd ATF The George Khalil Family Trust v Chief Commissioner of State Revenue [2024] NSWCATAD 23 – Trustee deemed to be a foreign person liable for NSW surcharge land tax 

The NSW Civil and Administrative Tribunal has affirmed the Chief Commissioner’s decision that a taxpayer (the corporate trustee of a discretionary trust) was a ‘foreign person’ within the meaning of the Land Tax Act 1956 (NSW) (in its capacity as trustee) and therefore liable to pay NSW surcharge land tax.  In so finding, the Tribunal rejected the taxpayer’s argument that a deed amending the trust deed for the discretionary trust to include a specific clause stating that ‘any foreign beneficiary that may exist in this trust is irrevocably excluded from receiving any current, or future trust distributions’ irrevocably prevented foreign persons from being beneficiaries of the trust for the purposes of the Land Tax Act 1956 (NSW). This was because the amending deed did not preclude the taxpayer from amending the trust deed again in the future so as to make a foreign person a potential beneficiary of the trust.  

Legislation

Bill to implement Albanese Government’s changes to Stage 3 tax cuts introduced

The Treasury Laws Amendment (Cost of Living Tax Cuts) Bill 2024 (Cth) was introduced into the House of Representatives on 6 February 2024.

If enacted, the Bill will implement changes to the Stage 3 income tax cuts for individuals that were legislated under the previous Morrison Government and are currently still due to come into effect on 1 July 2024. The changes proposed by the Bill are summarised in the table below.

Bill to increase Medicare Levy low-income thresholds introduced

The Treasury Laws Amendment (Cost of Living – Medicare Levy) Bill 2024 (Cth) was introduced into the House of Representatives on 6 February 2024. If enacted into law, the measures contained in the Bill will increase the Medicare Levy low-income thresholds and the surcharge low-income threshold in line with CPI.

Bill to increase foreign acquirer fees introduced

The Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2024 (Cth) was introduced into the House of Representatives on 7 February 2024. If enacted into law, the measures contained in the Bill will, among other things, amend the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 (Cth) and the Foreign Acquisitions and Takeovers Fees Imposition Regulations 2020 (Cth) to:

• triple the fees for acquiring established residential dwellings; and
• double vacancy fees.

Bill to preserve foreign purchaser fees and charges introduced

The Treasury Laws Amendment (Foreign Investment) Bill 2024 (Cth) was introduced into the House of Representatives on 7 February 2024. If enacted into law, the Bill will amend the International Tax Agreements Act 1953 (Cth) to ensure the primacy of certain Australian taxes over any conflicting ‘non-discrimination’ provisions in any of Australia’s DTAs.

Proposed section 5(3) of the Act will ensure that, to the extent that any of Australia’s DTAs contain an article that is inconsistent with a provision of a Commonwealth, State or Territory law that imposes a tax other than ‘Australian tax’, the domestic provision will prevail. Notably, ‘Australian tax’ is given a limited definition in the Act, essentially only incorporating income tax (including the Medicare Levy) and FBT.  

The result of the proposed changes is that Commonwealth, State and Territory laws that impose additional fees or surcharges on foreign residents (such as foreign investment fees and surcharge duty and land tax) will continue to apply as intended, notwithstanding anything to the contrary in any of Australia’s DTAs.

This significant development, coming in response to prior announcements by State Revenue Offices that certain foreign surcharge duties may be inconsistent with some of Australia’s DTAs (covered in the Birchstone Brief for the week ended 24 February 2023), has been received with some controversy – particularly as it is proposed that the changes will apply retrospectively from 1 January 2018 if enacted.