Birchstone Brief for the weeks ended 29 March and 5 April 2024

ATO Updates

Draft GST Determination: Food marketed as a prepared meal

The ATO has released GSTD 2024/D1, which sets out the Commissioner’s view on the circumstances in which food is ‘food of a kind marketed as a prepared meal, but not including soup’ and hence not GST-free. The draft Determination comes following the Federal Court’s decision in Simplot Australia Pty Ltd v FCT [2023] FCA 1115 (covered in the Birchstone Brief for the week ended 29 September 2023), in which the Court ruled that whether a food item constitutes that of a kind ‘marketed as a prepared meal’ depends on how the food is marketed (and not how it is consumed).

Following this decision, the Commissioner’s view, as set out in the draft Determination, is that:

• determining whether food is of a kind ‘marketed as a prepared meal’ requires assessment of whether the food is, as a matter of common sense and experience, marketed as a prepared meal; and
• answering this question is to be approached objectively with reference to the attributes of the food in question, including its quantity, composition and presentation.

Class Rulings Issued

The ATO has issued:

• CR 2024/20 – Symbio Holdings Limited – Scrip for scrip roll-over and special dividend;
• CR 2024/21 – The Ian Potter Cultural Trust – Fellowships; and
• CR 2024/22 – Australia and New Zealand Banking Group Limited – ANZ Capital Notes 9.

Cases

Delbake Pty Ltd v FCT [2024] AATA 449 – No exceptional circumstances justifying remission of Part 7 Penalty

In this case, the AAT held that:

• despite the assertions put forward by the applicant taxpayer (including but not limited to the illness of its accountant, the impact of the COVID-19 pandemic and the fact that  it had made ‘late payments’ to its employees’ superannuation funds in five out of seven relevant quarters), there were no ‘exceptional circumstances’ which prevented the employer taxpayer from disclosing information relevant to the amount of its superannuation guarantee shortfalls for the quarters 30 September 2015 to 31 March 2018 to the Commissioner prior to receiving notification of the Commissioner’s audit; and
• therefore, section 62(5) of the Superannuation Guarantee (Administration) Act 1992  (Cth) was not enlivened in relation to those quarters, such that the Commissioner was unable to remit the additional superannuation guarantee charge that had been imposed by law on the taxpayer under Part 7 of the Act beyond 100% of the superannuation guarantee shortfalls.

One of the primary reasons that led to this conclusion was the Tribunal’s assessment of the fact that the taxpayer provided information to the Commissioner in April and May 2022 (following the commencement of an audit in February 2022) implied that the taxpayer could have provided that information earlier if it had made the effort.

Mylan Australia Holding Pty Ltd v FCT [2024] FCA 253 – Federal Court rules subsidiary funding arrangements not subject to Part IVA

The Federal Court has ruled that the way in which an Australian resident company within the Mylan group financed its acquisition of another pharmaceutical company (with a mix of interest-bearing debt and equity at a 3:1 ratio) was not a scheme to which Part IVA of the ITAA 1936 applied.

In reaching this decision, the Court found that:

• the taxpayer had not obtained a tax benefit in connection with the scheme when compared to the primary counterfactual identified by the Commissioner;
• however, the taxpayer had obtained a tax benefit in connection with the scheme (increased interest deductions for Australian income tax purposes) when compared to a counterfactual defined by the Court; and
• nonetheless, notwithstanding hat a tax benefit had been obtained, Part IVA did not apply to the scheme as the taxpayer had discharged its onus of proving that an objective consideration of the eight factors in section 177D of the ITAA 1936 led to the conclusion that there was no basis to conclude that the scheme was entered into for the sole or dominant purpose of obtaining an Australian tax benefit.

Grant v FCT [2024] AATA 427; Collie v FCT [2024] AATA 440 – AAT upholds Pt IVA determinations relating to Hart scheme

In two related but separate proceedings, the AAT has largely upheld Part IVA determinations issued to two more key participants in the tax scheme the subject of the Full Federal Court’s decision in Hart v FCT [2018] FCAFC 61. In finding that the relevant schemes were entered into for the dominant purpose of obtaining a tax benefit, the Tribunal observed that:

• the fact that a scheme also achieves some non-tax purpose (e.g.  asset protection, as was advanced by the taxpayers in these cases) does not put it beyond the reach of Part IVA (that is, a scheme can have concurrent commercial and tax avoidance purposes – the relevant enquiry for the purposes of Part IVA is which of those purposes is dominant); and
• the objective facts in these cases (where a blatant, artificial and contrived means had been designed and executed to ensure that income amounts were not taxed in the hands of any taxpayer when they otherwise would have been) revealed a dominant purpose of tax avoidance or securing the relevant tax benefits, as opposed to asset protection.

Appeals – Quy case

The taxpayer has filed a notice of appeal to the Federal Court against the AAT’s decision in Quy v FCT [2024] AATA 245 (covered in the Birchstone Brief for the week ended 1 March 2024). In that case, the AAT held that the taxpayer was a resident of Australia for income tax purposes under the ordinary concepts and domicile tests due to his numerous continued ties to Australia throughout the relevant income years.

Legislation

Bill to temporarily extend WA land tax exemptions for residential construction now law

The Land Tax Assessment Amendment (Residential Construction Exemptions) Bill 2023 (WA), which temporarily extends the WA land tax exemptions for land where the construction or refurbishment of a residential building that will be used as the landowner’s primary residence commenced between 1 July 2020 and 30 June 2023, received royal assent on 26 March 2024 and is now law.

Bills to implement national Digital ID system pass Senate

The Digital ID Bill 2023 (Cth) and the Digital ID (Transitional and Consequential Provisions) Bill 2023 (Cth) have both been passed by the Senate with amendments and now return to the House for consideration.
The purpose of the Bills is to create an economy-wide Digital ID system that will allow individuals to verify their identity online in relation to transactions with all government (i.e. Commonwealth, State and Territory) entities, and eventually businesses, without having to repeatedly provide copies of their identification documents.

Bill to implement film offset, mining capital allowances and other changes introduced

The Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 (Cth) has been introduced into the House of Representatives. If enacted into law, the Bill will implement a number of tax and superannuation measures, including:

• clarifying the definition of ‘exploration for petroleum’ and strengthening the anti-avoidance rules in the Petroleum Resource Rent Tax Assessment Act 1987 (Cth);
• amending the capital allowance provisions in the ITAA 1997 to ensure that the ‘first use’ of a mining, quarrying and prospecting right only occurs when an activity that is authorised by the right is undertaken, and not merely when the right begins to be held;
• implementing various changes to the location and producer tax offsets in the ITAA 1997; and
• a number of technical and miscellaneous amendments to the superannuation and tax laws, including in relation to the value shifting rules and transfer pricing guidelines.