Birchstone Brief for the week ended 17 May 2024

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After a short hiatus, we are looking forward to being back in your inboxes every week with insights relating to recent tax developments. 

Now, on to the tax news! 

 

ATO Updates

DIS on Full Federal Court’s 12(3) decision in Jamsek case

The ATO has issued a Decision Impact Statement (DIS) concerning the Full Federal Court’s decision in Jamsek v ZG Operations Australia Pty Ltd (No 3) [2023] FCAFC 48 (covered in the Birchstone Brief for the week ended 24 March 2023). In that case, the Court held that individual truck drivers who provided delivery services to a company over an extended period via their respective partnerships with their wives were not ’employees’ of that company within the extended definition of that term for the purposes of section 12(3) of the SGAA 1992 (finding that the provision could only apply where the putative ’employee’ was a natural person and a party to the relevant contract in their individual capacity). 

The DIS states that:

  • the decision reached by the Court is consistent with the Commissioner’s submissions as to the operation of section 12(3) in the proceedings; 
  • consistently with previous decisions concerning section 12(3), the Court affirmed that applying section 12(3) requires analysis of the content of the promises exchanged under the relevant contract, which involves an evaluation of the terms of that contract and the benefits received under it by the engaging entity; 
  • while the Commissioner agrees with the Court’s observations that a quantitative analysis of the benefits received by the engaging company under the contract would have been the most appropriate way to determine if the contract was ‘principally’ for labour in this case, the Commissioner considers that it remains open to apply a qualitative analysis where the particular factual circumstances warrant this approach; and
  • the Commissioner is considering whether any changes to relevant guidance products are required in light of the decision. 

DIS on Full Federal Court’s decision in JMC case

The ATO has issued a DIS concerning the Full Federal Court’s decision in JMC Pty Ltd v FCT [2023] FCAFC 76 (covered in the Birchstone Brief for the week ended 26 May 2023). In that case, the Full Court overturned the first instance decision of Wigney J reported at [2022] FCA 750 and found that:

  • on an analysis of the totality of the legal rights and obligations of the relevant parties as provided for in their comprehensive written contract, a lecturer engaged by the appellant company was an independent contractor and not an employee within the ordinary meaning of that term (primarily due to the lecturer’s contractual right to subcontract or assign the performance of the relevant teaching services and the lack of a contractual right on the part of the appellant to substantially control the lecturer); and
  • the lecturer was also not an employee of the appellant within the meaning of the extended definition given to that term by section 12(3) of the SGAA 1992, as his contractual right to subcontract or assign the performance of the relevant teaching services meant that the contract was not ‘wholly or principally’ for the lecturer’s labour, but was rather a contract for the provision of teaching services. 

The result was that the appellant was not required to make superannuation guarantee contributions in respect of amounts paid to the lecturer for the performance of the teaching services. Notably, the Commissioner’s application seeking special leave to appeal the Full Federal Court’s decision to the High Court was unsuccessful (on the basis the Commissioner had not identified any reason to doubt the correctness of the Full Court’s decision). 

The DIS states that:

  • TR 2023/4, which contains the Commissioner’s position regarding the ordinary meaning of the term ’employee’, references the Full Federal Court decision; 
  • the existence of a contractual right within a contract allowing a worker to delegate, subcontract or assign their work to another, whether or not subject to the consent of the engaging entity, will result in the contract not being either wholly or principally for the labour of the worker – such that the worker does not fall within the extended definition of ’employee’ under section 12(3); 
  • in cases where a contract does not contain a clear right to delegate, subcontract or assign the obligation to perform work, the Commissioner will form its position regarding the application of section 12(3) based on the available evidence regarding the relevant contractual arrangement; and 
  • the Commissioner is considering whether any changes to relevant guidance products are required in light of the decision. 

DIS on Full Federal Court’s decision in Hannover Life case

The ATO has issued a DIS concerning the Full Federal Court’s decision in FCT v Hannover Life Re of Australasia Ltd [2024] FCAFC 23 (covered in the Birchstone Brief for the week ended 8 March 2024). In that case, the Full Federal Court dismissed the Commissioner’s appeal against the primary judge’s decision reported at [2023] FCA 680 and affirmed the primary judge’s decision that:

  • to the extent the overhead expenses incurred by the taxpayer (a life insurance company) related to its GST-free supplies of reinsurance services, those expenses were partly creditable (and the taxpayer company was therefore entitled to claim input tax credits in respect of those expenses to that extent); and
  • subject to one modification, the taxpayer company’s method of apportioning input tax credits was fair and reasonable in the circumstances.

The DIS states that:

  • the Commissioner accepts the decision regarding the taxpayer company’s entitlement to input tax credits was open to the Full Court in light of the primary judge’s assessment of the evidence at first instance; 
  • the Commissioner’s approach to the application of section 11-15 of the GST Act is consistent with the Full Court’s observations regarding the operation of the section (and therefore focuses on the precise nature of the relationship between an acquisition and the supplies made by an entity); 
  • the Commissioner expects taxpayers applying section 11-15 to their own circumstances to evidence that they have precisely identified a relevant acquisition and undertaken a factual enquiry to determine if, and the extent to which, that acquisition relates to one or more different classes of supplies (and the GST implications of this); 
  • while the Commissioner accepts there may be more than one apportionment methodology that is fair and reasonable in any given fact pattern, the Commissioner does not consider that the fact the taxpayer company’s use of a specific apportionment method was allowed in this case represents a general endorsement of that method as fair and reasonable in other factual circumstances; and 
  • the Commissioner does not consider that the Full Court’s decision impacts on any related advice or guidance products.  

Class and product rulings issued

The ATO has issued:

  • CR 2024/30 – Gamma Investments HoldCo Pty Ltd – Reduction of share capital; and 
  • PR 2024/5 – Challenger Lifetime Annuity (Liquid Lifetime) – 2024. 

 

State Taxes

Key Tax Measures from WA 2024-25 Budget

The WA Treasurer handed down the State’s 2024-25 Budget on 9 May 2024. There were no significant changes to the State’s revenue laws announced aside from the following.

  • the expansion of stamp duty concessions for first home buyers (increasing the maximum price of an established home eligible for the first home owner transfer duty exemption from $430,000 to $450,000 and the maximum price of an established home eligible for the concessional first home owner rate of transfer duty from $530,000 to $600,000) in relation to agreements entered into from 9 May 2024; and
  • confirmation that WA will not proceed with its planned road user charge for zero and low emission vehicles

Key Tax Measures from Victorian 2024-25 Budget

The Victorian Treasurer handed down the State’s 2024-25 Budget on 7 May 2024. The key changes to the State’s revenue laws that were announced are as follows.

  • A new land tax exemption for land used to provide social and emergency housing, to commence from the 2025 land tax year. This exemption will also extend to land owned by a charity on which social and emergency housing is being developed. 
  • An increase to the payroll tax-free threshold from $700,000 to $900,000 from 1 July 2024, and a further increase to $1,000,000 from 1 July 2025. The benefit of the tax-free threshold will also be phased out for larger businesses. 
  • The full abolition of business insurance duties by 2033, to be implemented gradually over a 10-year period by reducing the rate of duty (currently 10%) by one percentage point each year. 
  • The Victorian State Revenue Office will be given further funding to expand tax compliance programs and modernise the office’s use of technology. 

Key Tax Measures from NT 2024-25 Budget

The Treasurer of the Northern Territory handed down the NT’s 2024-25 Budget on 14 May 2024. It did not include any changes to the Territory’s tax or revenue policy. 

 

Other News

Key Tax & Superannuation Measures from Federal 2024-25 Budget

The Commonwealth Treasurer handed down the Federal Government’s 2024-25 Budget on 14 May 2024. In a missed opportunity for tax reform, few tax-related policy changes were announced. The key tax and superannuation-related matters were as follows. 

  • Extension of the $20,000 instant asset write-off for eligible businesses by 12 months until 30 June 2025. 
  • Introduction of tax incentives for hydrogen (a $2 refundable and uncapped tax offset per kilogram of renewable hydrogen produced by eligible Australian resident companies for up to 10 years, between 1 July 2017 and 30 June 2040) and critical minerals production (a refundable tax offset equal to 10% of eligible costs incurred in processing the 31 currently listed critical minerals, for a maximum of 10 years between 1 July 2027 and 30 June 2040). 
  • Strengthening the foreign resident CGT rules by broadening the types of assets that foreign residents are liable to Australian CGT on, amending the point-in-time principal asset test to a 365-day testing period, and requiring foreign residents disposing of shares and other membership interests exceeding $20 million in value to notify the ATO prior to the transaction being executed. 
  • From 1 July 2026, subjecting significant global entities (SGEs) that seek to avoid paying Australian royalty withholding tax by mischaracterising or undervaluing royalty payments to the same tough penalties that apply to SGEs that underpay other forms of tax by taking an incorrect position.
  • Delaying the changes to Part IVA (such that the GAAR can be applied to schemes that result in a lower Australian withholding tax rate or have the dominant purpose of reducing foreign tax) that were announced in last year’s Federal Budget from the previously proposed date of 1 July 2024 to income years which start after the enacting legislation receives royal assent. In this regard, it is important to note that Treasury has yet to release any draft legislation designed to implement this measure for public consultation.
  • The Albanese Government’s previously announced proposal to deny deductions for payments relating to intangibles held in jurisdictions with a lower than 15% corporate tax rate has been dropped. 
  • Updates will be made to the list of specifically named deductible gift recipients in the ITAA 1997. 
  • Superannuation will be paid on government-funded paid parental leave for parents of babies born or adopted on or after 1 July 2025. 
  • The Commissioner will be given a specific statutory discretion not to apply a taxpayer’s income tax refunds to offset historical tax debts that are not actively being pursued. 
  • Indexation of the Higher Education Loan Program (and other student loans) will be limited to the lower of either CPI or WPI, with effect from 1 June 2023. 

 

Legislation

Senate Committee recommends Bills increasing tax on superannuation balances exceeding $3 million be passed

The Senate Economics Legislation Committee has recommended that the:

both be passed. 

If enacted into law, the Bills (first covered in the Birchstone Brief for the week ended 1 December 2023) will make targeted amendments to increase the rate of tax payable on earnings that relate to a person’s total superannuation balance above $3 million to 30% from the 2025-26 income year. 

Notably, separate dissenting reports were issued by Coalition Senators and the Australian Greens. The Coalition’s report outlined concerns about the fact that the 30% tax rate would apply in relation to unrealised gains, an ‘entirely novel concept that has no basis in basic tax principles and will result in de facto double taxation’. The Australian Greens’ report recommended that the $3 million threshold be lowered to $2 million, such that earnings on superannuation balances over $2 million would be made liable to the $30% tax rate, to be indexed in line with inflation. 

Bill addressing the PwC tax leaks scandal and the PRRT deductions cap awaits royal assent

The Treasury Laws Amendment (Tax Accountability and Fairness) Bill 2023 (Cth) has completed its passage through the Federal Parliament and now awaits royal assent to become law. When enacted into law, the Bill (first covered in the Birchstone Brief for the weeks ended 17 and 24 November 2023) will implement:

  • regulatory measures announced in response to the PwC tax leaks scandal (such as changes to the promoter penalty regime and the powers of the Tax Practitioners Board); and
  • a 2024 Federal Budget measure to introduce a cap on the use of deductions to offset assessable income for the purposes of the petroleum resource rent tax (PRRT).

Digital ID Bill 2024 (Cth) awaits royal assent

The Bill (first covered in the Birchstone Brief for the weeks ended 29 March and 5 April 2024) which provides the legislative framework to create a Digital ID system for the entirety of the Australian economy has completed its passage through the Federal Parliament and now awaits royal assent to become law. 

Land Tax Assessment Amendment (Build-to-Rent) Bill 2023 (WA) now law

The Bill (first covered in the Birchstone Brief for the week ended 19 May 2023) providing eligible build-to-rent developments with a 50% exemption from WA land tax for 20 consecutive years received royal assent on 15 May 2024 and is now law. 

Bill to increase WA transfer duty concessions for first home owners introduced 

The Duties Amendment (First Home Owner Concessions) Bill 2024 (WA) was introduced into the WA Legislative Assembly on 15 May 2024. The purpose of the Bill is to implement the changes to the concessional transfer duty treatment for first home owners purchasing established homes announced in the WA 2024-25 Budget, as outlined above. 

 

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