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NTLG minutes - 27 March 2009 |
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Meeting details
Venue: |
McKay Board Room |
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Date: |
27 March 2009 |
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Start: |
9.30am |
Finish: |
3.30pm |
Chair: |
Michael D'Ascenzo |
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Secretariat and contact: |
Louise Jameson |
Contact phone: |
(07) 3119 9394 |
Attendees
Gary Addison |
CPA Australia |
Gerry Bean |
Law Council of Australia (LCA) |
Brenda Berkeley |
Treasury |
Steve Cane |
National Tax Accounting Association (NTAA) |
Annamaria Carey |
Tax Office |
Keith Clissold |
Association of Taxation and Management Accountants (ATMA) |
Lance Cunningham |
National Institute of Accountants (NIA) |
Michael D’Ascenzo |
Tax Office |
Michael Dirkis |
Taxation Institute of Australia (TIA) |
Frank Drenth |
Corporate Tax Association (CTA) |
Yasser El-Ansary |
Institute of Chartered Accountants in Australia (ICAA) |
Kevin Fitzpatrick |
Tax Office |
Mark Friezer |
Law Council of Australia (LCA) |
Jennie Granger |
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Michael Hay |
CPA Australia |
Andrew O’Bryan |
CPA Australia |
James O’Halloran |
Tax Office |
Bruce Quigley |
Tax Office |
Joan Roberts |
Taxation Institute of Australia (TIA) |
Heather Schache |
Taxpayers Australia Incorporated (TA) |
Tony Stolarek |
Institute of Chartered Accountants in Australia (ICAA) |
Vicki Stylianou |
National Institute of Accountants (NIA) |
David Williams |
Taxation Institute of Australia (TIA) |
Louise Jameson |
Tax Office |
Apologies
Chris Branson |
Law Council of Australia (LCA) |
Bob Duncan |
Association of Taxation and Management Accountants (ATMA) |
Michelle de Niese |
Corporate Tax Association (CTA) |
Alexis Kokkinos |
Institute of Chartered Accountants in Australia |
Guests
Stephanie Martin and Andrew England (Item 7) |
Tax Office |
Bruce Collins (Item 7) |
Tax Office |
Mark Konza (Items 8–10) |
Tax Office |
Andrew Watson (Item 12) |
Tax Office |
Mark Carter (Item 14) |
Tax Office |
Megan Yong (Item 19) |
Tax Office |
John Evans (Item 20) |
Tax Office |
Professional bodies represented at the National Tax Liaison Group
Association of Taxation and Management Accountants |
ATMA |
Corporate Tax Association |
CTA |
CPA Australia |
CPA Australia |
Institute of Chartered Accountants in Australia |
ICAA |
Law Council of Australia |
LCA |
National Institute of Accountants |
NIA |
National Tax and Accountants Association |
NTAA |
Taxation Institute of Australia |
TIA |
Taxpayers Australia Incorporated |
TA |
Agenda items
Disclaimer
National Tax Liaison Group (NTLG) agendas, minutes and related papers are not binding on the Tax Office or any of the other bodies referred to in these papers. The Commissioner of Taxation has instilled a more open philosophy and process with the NTLG. As such, minutes of NTLG meetings are published well before the meeting date on which members accept or modify the minutes under normal meeting protocols. These minutes have been formally endorsed by the members.
1. Introductions, apologies, confirmation of minutes of 26 November 2008 meeting
Chairs opening comments
- Welcome to participants.
- Changes to NTLG membership.
- Introduction of guest participants.
The Commissioner, Michael D'Ascenzo opened the meeting at 9.30am and welcomed:
- Gerry Bean, representing (new member – LCA).
- Yasser El-Ansary, representing (new member – ICAA).
- Tony Stolarek, representing (ICAA).
- David Williams, representing (new member – TIA).
Apologies
Apologies have been received from:
- Christopher Branson (LCA).
- Bob Duncan (ATMA).
- Alexis Kokkinos (ICAA).
- Michelle de Niese (CTA).
Representatives
- Keith Clissold (ATMA) attending in lieu of Bob Duncan.
- Mark Friezer (LCA) attending in lieu of Chris Branson. The Commissioner, on behalf of the forum, requested that regards be passed to Chris.
Departures with thanks
- Grant Cathro (LCA).
- Sue Williamson (TIA) were thanked for their contributions to the NTLG during their appointments and best wishes were extended to them for their futures.
Confirmation of previous minutes (26 November 2008)
As no amendments were proposed to the previous minutes, they were formally accepted. It was confirmed that the current practice of providing a short summary of the meeting outcomes while the draft minutes were prepared would continue as a standard practice.
Post meeting update
Amendments to the minutes of the 3 September 2008 meeting are submitted for endorsement
- Agenda item 3 – JCPAA report discussion. Pages 20 – 23 refer.
The amendments are:
Under the heading JCPAA recommendations – paragraph 4 now starts with ‘Recommendation 11…’ as opposed to ‘The 12 month time frame…’
The heading Tax Design Review Panel report has been replaced with Australia’s Future Tax System (AFTS) Review heading.
Paragraph 6 starting ‘The Tax Design Review panel is chaired... ‘the main points of the recommendations have been amended to read:
- There will be further consultation, including consultation before the policy decision is taken, where appropriate.
- Transparency is part of the process.
- There will be a forward legislative program on the Treasury website.
- Introduction of measures is expected within 12 months of announcement.
- Paragraph 8 starting ‘The TIES process was discussed.’ The word ‘TIES’ is inserted into the 4th sentence to now read ‘It is thought that existing issues will be incorporated into the new TIES process, …’.
- Some formatting amendments were also included.
2. Register of private binding rulings
At the 26 November 2008 NTLG meeting the Tax Office advised that it did not see the current private binding ruling (PBR) register as an appropriate source of advice and guidance for tax practitioners and that it proposed to convert it to a simple number and subject title listing only. However, this proposal was strongly contested by other NTLG members as being a backward step since practitioners find the register to be a useful guide to the Tax Office position on particular issues and generally superior in this regard to ATO Interpretative Decisions (ATO ID).
The Tax Office has since deferred the introduction of the abovementioned initiative pending further discussions with external NTLG members in early 2009 against the background of recent improvements to the Tax Office’s advice and guidance products, including access to its website.
While these changes are welcome, the external members remain of the view that the PBR register should be retained until such time as the current ATO ID register is significantly enhanced to ensure that it is able to provide a similar level of advice and guidance as is currently available from the existing PBR register. A necessary step to achieve this would be to ensure that existing and future ATO IDs included examples of the relevant factual circumstances to provide further clarification of how the law applies in such situations.
Another central issue is that of transparency. ATO IDs only issue when the Tax Office decide to issue one. In the absence of PBRs being published, we have no way of knowing what the Tax Office are advising or being asked to advise on, and thus what issues are not covered by an ATO ID.
The Professional Bodies also seek an update from the Tax Office of the outcomes of their discussions with each Body and stakeholder.
Response
The Register of Private Binding Rulings (the register), available on the Tax Office's website, is an historical record of private rulings issued by the Commissioner over the past few years, that are edited to remove information that might identify the taxpayer to whom the private ruling relates.
In November 2008 the Commissioner informed the National Tax Liaison Group (NTLG) that he was considering reducing the contents of the register to the subject heading and reference number for each private ruling. Research undertaken by the Tax Office revealed that the register was being used for purposes not intended at the time it was instigated. Tax Office investigations showed that some people were using the register for research purposes. The Commissioner considered, among other things, that as the register contains some outdated and misleading material (the latter mainly due to the editing process), it was posing too great a risk to the community and should be modified.
The Tax Office received a number of representations from the tax profession and the Inspector-General of Taxation raising concerns with the Commissioner's decision, and undertook a round of discussions with NTLG members to better understand the professions’ concerns, to further explain our reasons for the proposed change, and to provide further information about our advice and guidance products, such as ATO IDs.
These discussions have been very helpful. We have been reassured by the NTLG’s clear understanding of the limitations and risks associated with the register, and by the NTLG’s willingness to work with the Tax Office both to reinforce this understanding across the tax profession and to assist tax practitioners to get the most out of our advice and guidance products such as ATO IDs. Together, we will ensure that the register can continue to provide transparency on the rulings system.
In light of these discussions, on 3 March 2009 the Commissioner issued Media release 2009/16 stating the register will be maintained in its current form.
The Commissioner also invited the Inspector-General of Taxation to review the private rulings system, including the register, and looks forward to working with the Inspector-General to ensure the register can continue to deliver transparency to the public in the most effective and productive way.
Meeting discussion
The members thanked the Commissioner for his attention to this issue and agreed that a good resolution had been achieved.
The Commissioner and Second Commissioner Quigley reiterated their previous offer to continue to work together to improve ATO IDs.
It was noted that there is a need to publicise the availability of ATO IDs and members were invited to include information in their association newsletters or magazines.
3. Tax bonus payment
Since the government’s announcement on its Nation Building and Jobs Plan on 3 February, all professional bodies have received considerable member feedback expressing concern about the delivery of the announced tax bonus. In particular, members are concerned at the amount of work it will create (especially for small practices) as well as additional costs (bank transaction fees, postage etc).
One particular issue which has been raised is the impact on tax agents’ ‘trust accounts’ and the cost to the agents of delivering the bonus on behalf of the government. As many taxpayers have their refunds banked through their accountants and tax agents, it is likely there will be considerable pressure on these agents to receive, process, withdraw and post or send the bonus to their clients (or former clients). Some members have stated that they may even have to consider closing their trust accounts.
We appreciate that the Tax Office has been undertaking consultation on the issue of delivering the tax bonus including holding a workshop to discuss and resolve these concerns. We note the Tax Office’s broadcast on 18 February 2009 and would appreciate further advice and information on the implementation of this approach.
We also note the Prime Minister’s advice in a recent briefing to industry that the government was relying on massive goodwill to deliver its fiscal stimulus package. Is there anything else we should be telling members and other stakeholders?
Response
An update on the support and assistance provided to tax practitioners to assist in the redirection of the tax bonus payment to their clients is provided.
The tax profession has raised concerns about the ability of agents to cope with workload pressures and additional costs involved in redirecting tax bonus payments.
The Tax Office is in regular consultation with the tax profession to ensure payments made through tax agents are expedited with minimal impact on agent workloads.
Following comprehensive consultation in various tax practitioner representative forums in early February, special arrangements were introduced to enable agents to focus on processing 2007–08 income tax returns for eligible clients.
The lodgment of company, trusts, partnerships and superannuation fund returns has been deferred from 15 May to 5 June 2009 and additional time has been provided to lodge 2007–08 returns for those affected by illness or natural disasters. These extensions have been put in place to allow agents to focus on processing 2007–08 returns for eligible clients.
Ongoing consultation with the tax profession has enabled the development of other initiatives to assist practitioners in making payments available to clients quickly.
A tax agent broadcast published on 26 February 2009 provided tax agents with a choice of three options that allows them to minimise their costs by opting out of correspondence and payment redirection work for some or all of their clients.
From the week beginning Monday 23 February 2009, the Tax Office is making available to tax agents a list of their clients who have been identified as being eligible for the tax bonus. Agents can choose to have the Tax Office:
- send all tax bonus payments directly to their clients’ last notified residential address or nominated personal bank account
- send some of the listed clients’ tax bonus payments directly to their clients’ last notified residential address or nominated personal bank account, or
- continue to receive the payments on behalf of their clients.
This initiative was supported by a Tax Office Tax Practitioner’s Forum on Friday, 27 February 2009 and it was confirmed that no additional assistance is necessary at this time. Forum membership includes representatives from all tax practitioner associations.
To date, we have received 6,000 requests for client lists. From the requests, 2,700 agents have selected Option 1 and 130 agents have selected Option 2.
Entitlements will be posted to client accounts by 20 March 2009 and tax agents will be able to view these details on the portal as of that date.
Payments will commence progressively from 6 April:
- EFT payments are scheduled to be completed by 5 May 2009.
- Cheque payments are scheduled to be completed by 13 May 2009.
Payments will be issued evenly across all states and a random program adopted to identify sequence of payment. Follow up processing and payment schedules are planned in May and June 2009.
A constitutional challenge was received by an Australian resident via a writ filed in the High Court Australia on 26 February 2009. The challenge claims that the Tax Bonus for Working Australians Act (No 2) 2009 (the Act) is invalid on two grounds:
- That the bonus is characterised as a gift and the Act is not a law with respect to taxation under section 51(ii) of the Constitution or any other paragraph of section 51.
- That the payment is not authorised as the Act fails to comply with subsection 81 and section 83 of the Constitution as it does not contain a provision which lawfully appropriates money for the purposes of the Commonwealth.
The matter is being lead by Treasury with support from other agencies including the Tax Office and an expedited hearing was granted. The matter is set down for hearing before the Full Court on 30–31 March.
Updates will be provided regularly through our normal channels of communication including the Tax Practitioner Forums and newsletters.
Meeting discussion
Members thanked the Commissioner for the information available on this issue, and advised that there was now a degree of comfort associated with it. The two main dates associated with it are the High Court challenge and the payment dates. Members appreciated the consultation that occurred and requested that prior consultation on issues affecting tax practitioners occur again in the future. Members found the three options useful and appreciated the extension periods provided. The usefulness of the 'opt out' option was emphasised. The next anticipated issue concerns the expectations of clients regarding payments. Members were advised that the quality of residential address information is an issue from the Tax Office perspective, and may be a particular issue to monitor with agents who 'opt out'.
A large number of calls have been made to the Tax Office and approximately 112,000 individuals have changed their address details for the payment. Approximately 7.1 million (as identified in February) are eligible for the payment as identified in February from tax return lodgments, out of 8.7 million in total. There are 300,000 additional lodgments over the same time last year.
Payments will commence progressively from 6 April for those who have lodged their returns. Payments will extend over a four week period, and messages will be distributed to agents to inform them of the mail out process. Additional phone lines will be available from mid May to accommodate additional calls.
This topic will be discussed at the ATO Tax Practitioner Forum (ATPF) meeting of 15 May 2009.
The Commissioner advised that the office will use lessons from this exercise to inform any similar future initiatives.
Information regarding the Tax bonus, including frequently asked questions, is available on the web site.
Post meeting update
Payments have been made progressively to eligible taxpayers. Several issues associated with the payments are being addressed and resolved with assistance from the tax profession.
Media release 2009/31 of 7 May 2009 announced the Tax Office has distributed 6.5 million tax bonus payments and is on track to distribute 7.8 million payments by 16 May 2009.
4. Compliance program consultation
At the November 2008 NTLG meeting, it was agreed that a workshop would be held in early 2009 to seek NTLG members’ perspective on the compliance environment and assist in the development of 2009–10 Compliance program.
NTLG action item 0811/02 refers.
The Compliance program sets out our view of compliance with the tax and superannuation systems by the Australian community. It also outlines our concerns about where compliance is at risk and the actions we are taking to address this.
It was agreed to discuss the topic at the 27 March 2009 NTLG meeting in lieu of the proposed workshop.
It is anticipated that the discussion will include members’ perspective on emerging compliance challenges that may impact on the integrity of the tax administration system, and the 2009-10 Compliance program.
Response
The Commissioner and Second Commissioner Jennie Granger will lead the meeting discussion.
Pre-reading background material has been provided for this agenda item.
Please note that specific papers which will form the basis of the discussion will be provided at the meeting.
Meeting discussion
Second Commissioner Jennie Granger circulated a document to stimulate the discussion around the key risk areas, and in the context of the current economic conditions. The proposed top level compliance risk focus areas included:
- challenges arising from the global economy
- coverge of income tax risks, including expanding coverage of the wealthy, small and medium and large markets
- compliance with superannuation obligations
- small business compliance, and
- serious abuse of Australia’s tax and superannuation systems.
Members were invited to comment on the risk focus areas and advise of any additional topics.
Members were asked to advise of key compliance risks for tax practitioners. The Tax Agent Services Bill and 'safe harbour' provisions were identified as an issue, in that taxpayers need to understand their obligation to provide accurate and honest information to tax agents, and not rely purely on safe harbour provisions. It is expected that the new Board will provide more guidance.
The discussion moved to focus on the draft Compliance program, which was to be shared with the JCPAA in early April. Members were invited to forward any comments or feedback. The high level themes will require more specificity, and members commented that empathy and understanding were key themes.
Members queried if capacity existed to provide any incentives to ‘trusted taxpayers’ as part of the ACA proposal. The Commissioner advised that the benefit is seen as a reduction in compliance costs plus the 'no surprise' element, and is interested in making compliance easier where possible. Members were advised that the risk picture for the coming year was unlikely to be significantly different to previous years.
Members raised the issue that the current economic circumstances created a new operating environment for a number of tax agents. Members were invited to advise if there were specific areas or topics where the Tax Office could assist in providing assistance or guidance for tax agents. Advice has already been provided to large corporates regarding redundancy payments for example. Insolvency issues may also arise.
Members were advised that a range of issues associated with natural disasters were being addressed, eg record re-construction, for individuals and businesses, and were invited to provide feedback. The importance of retaining information relating to the occurrence of natural disasters was acknowledged as the consequences are usually long lasting beyond the event. Members commented positively on the approach being adopted by the Tax Office.
The use of benchmarks, developed by GST, was discussed. They have proved to be useful as an educative process, and additional benchmarks have been requested. It was acknowledged that benchmarks are useful as a diagnostic tool to provide assistance and may be used as part of an overall compliance strategy.
The attitude of Tax Office auditors, particularly during audit visits for smaller entities, was raised. The Commissioner advised that a message has been issued to staff to be conscious of current circumstances and the impact of current economic conditions. Members were invited to advise the office of any negative experiences. The Commissioner reassured members that Tax Office approaches had not altered, the message to staff is to apply current policy with a level of empathy. There has been approximately a 20 percent increase in payment arrangements in recognition, and it was acknowledged that this would be a sensitive issue this year.
The Commissioner advised that in the booklet 'Large business and tax compliance' there is an offer to encourage voluntary compliance and agreed to extend the offer to all segments. The professional associations were encouraged to provide factual situations to enable the Tax Office to provide assistance to minimise concern and angst. They were also encouraged to assist members in the escalation of issues where there may be 'blockers'.
Members raised some concern associated with ‘audit visits’, with approximately 6,000 to be conducted by June. They would appreciate the opportunity for tax agents to be involved. The protocols associated with these 'obligation support visits' had been discussed at the 23 March 2009 Lodgment Working Group meeting, with agreement that tax agents are welcome to be present with their clients during these visits. There have been 300 visits to date with positive outcomes. The objective of the visits is to assist small business as an early intervention exercise and is not classed as an audit.
The Commissioner thanked members for their comments and confirmed the desire to consult and collaborate.
Members were invited to forward any comments on the Compliance program within the following two weeks if possible, however there would be further opportunities to comment. The program will be an on-line product this year, and is expected to be released in early August.
Post meeting update
Natural disaster assistance
A policy to assist with the re-construction of tax records, and accompanying fact sheets have been developed with assistance from tax professionals and clients. Feedback from groups included those affected by the Victorian bushfires, plus a group from Queensland, who were not directly affected by the floods. On site assistance has been provided in the re-construction of records and the lodgment of income tax returns and activity statements.
The Tax Office has developed some products to assist tax agents and their clients in times of natural disasters covering administrative assistance and the reconstruction of records. The information on Assistance for tax agents affected by natural disasters is now available on the Tax Professionals section of the website.
5. Decision Impact Statement for the Roche case
In the Tax Office’s Decision Impact Statement (DIS) for Roche Products Pty Limited v. Commissioner of Taxation, the Commissioner indicated in respect of view of Downes, J President on the Treaty power that the Tax Office 'is not bound by the observations made by His Honour on this point and will continue to adhere to the position outlined in Tax Ruling 92/11 (TR), TR 94/14 and TR 2001/13 that the business profits or associated enterprises article of a double tax agreement (DTA) may provide a separate basis for assessing transfer pricing adjustments, independently of Division 13'.
Would the Tax Office please provide an explanation of the basis on which it considers that it is not bound by the views of His Honour, noting in particular that that the Tax Office has not appealed against the Tribunal’s decision nor has indicated that it was considering having the law on this point tested in another case?
Response
For the substituted tax years ending 31 December 1992 to 31 December 2002, Roche Products Pty Ltd (the taxpayer) claimed deductions for the purchase of trading stock from related companies in the Roche group located in Switzerland and Singapore.
The Commissioner issued amended assessments increasing the taxpayer’s taxable incomes in the relevant years by a total of approximately $126 million by:
- increasing the amount of profit of the taxpayer in accordance with the associated enterprises articles of the Swiss and Singapore Double Tax Agreements, and
- making determinations under Division 13 of the Income Tax Assessment Act 1936 (ITAA 1936) disallowing the deductions claimed by the taxpayer for that portion of the purchases that were considered to exceed the arm’s length consideration.
The Commissioner considers that both bases of amendment are supported by the terms of subsection 170(9B) of the ITAA 1936, as the associated enterprises articles are ‘relevant provisions’, and sections 136AD and 136AE are ‘prescribed provisions’, for the purposes of that subsection (see the relevant definitions in subsection 170(14)).
In his final decision of 22 July 2008 ([2208] AATA 639), Downes J dealt with the case primarily on the basis that he was applying the provisions of section 136AD. His Honour noted, in paragraph 190, that: ‘both parties accepted that the result in this case would not be affected if the treaties conferred no power to assess’.
His Honour then commented, in paragraph 191, that ‘In the result I do not need to decide the issue although I note that there is a lot to be said for the proposition that the treaties, even as enacted as part of the law of Australia, do not go past authorising legislation and do not confer power on the Commissioner to assess. They allocate taxing power between the treaty parties rather than conferring any power to assess on the assessing body.’
The Commissioner considers that it is quite clear from the face of paragraph 191 of his decision, that Downes J did not consider his comments in that paragraph were part of his decision in the case, for the purposes of subsection 43(1) of the Administrative Appeals Tribunal Act 1975. That is why the Decision Impact Statement Roche Products Pty Ltd v. Commissioner of Taxation case noted that the Commissioner is not bound by the observations made by His Honour in paragraph 191.
The Commissioner would also note that, although Downes J considered the operation of subsection 170(9B) in paragraphs 197 to 207 of his decision, this was only done in the context of that provision applying ‘for the purpose of giving effect to a prescribed provision’, that is, section 136AD. His Honour did not consider, and was not required to consider, whether subsection 170(9B) applied ‘for the purpose of giving effect to a relevant provision’, that is, the associated enterprises articles.
Division 13 and subsections 170(9B) and (9C) were introduced into the ITAA 1936 in 1982 by the Income Tax Assessment Amendment Act 1982. The Explanatory Memorandum to the relevant Bill makes it quite clear that subsection 170(9B) was being enacted to allow for the amendment of assessments supported by either determinations made under the then new Division 13 or the operation of the associated enterprises articles.
Meeting discussion
There was general discussion of the issue during which the CTC (CTC) advised that the issue is still under consideration. He added that the Tax Office had sought legal advice as part of its consideration of the issue.
6. Use of Decision Impact Statements
Recently, we have seen a growth in the use of DIS by the Tax Office to provide interpretations of the law. We refer to two DIS documents, being the Cajkusic DIS and the McNeil DIS by way of examples. Both of these documents provide significant levels of technical analysis, as well as providing conclusions (in some instances) which are not supported by any technical analysis. For example, the McNeil DIS states:
To the extent that this compensation is less than the income arising from the issue of the right, the shareholder or unit holder will be entitled to a deduction.
We highlight that there is no analysis provided for the conclusion stated above, which in effect provides a very definitive conclusion that a taxpayer will be allowed a deduction. Accordingly, taxpayers may rely on the statement made in claiming deductions. In the Cajkusic DIS, the Commissioner makes the following statements:
Notwithstanding some broad observations made by their Honours about the effect of trust instruments (e.g., paragraphs 18 and 27 - 30), the question before them did not involve the characterisation of a receipt and, unlike some commentators, the Commissioner does not understand the case to be authority for the proposition that the terms of a trust instrument can govern what is income, for the purposes of subsection 97(1), in the hands of the trustee. The Commissioner considers he must continue to follow what he understands to be the reasoning of the High Court in the ANZ Savings Bank decision (see per Gleeson CJ, paragraphs 14 and 15; cf/ Full Court in Cajkusic at paragraph 29).
In this second example, taxpayers may rely on the statement made by the Commissioner in determining distributions and attribution of net income of the trust. These statements may ultimately be found to be incorrect (for example, given the pending decision in the Bamford case). We note that the DIS documents generally contain the following warning at the top:
This document is not a public ruling, but provides a statement of the Commissioner's position in relation to the decision and how the law will be administered as a consequence of the decision. Any proposals for changes in the law are matters for government and it is not appropriate for the Commissioner to comment.
Given this statement contained in the DIS document, our questions in relation to DISs are as follows:
- Does the Commissioner consider the DIS to be (at the very least) an administrative practice of the Tax Office? That is, what form of protection would exist for taxpayers relying on a comment similar to that contained in the McNeil DIS or the Cajkusic DIS?
- If the documents provide little protection for taxpayers, could the Tax Office consider reducing the scope in which it provides technical analysis and conclusions in the DIS, which should be better placed in documents that taxpayers can rely on (that is, rulings and determinations)?
- Can the Tax Office move to an approach of 'identifying key technical areas to consider' in the DIS, and then making a statement as to how interpretive products will be released to deal with those technical issues. For example, in relation to the deductibility statement in the McNeil DIS, we question whether it would have been better to state that 'the Tax Office believes that a deduction may be available to the extent that this compensation is less than the income arising from the issue of the right. The Tax Office will seek to clarify this issue by releasing a taxation determination on the issue.'
- We would recommend incorporating a new section that is titled 'Proposed new interpretive products to deal with key issues identified in the DIS'. For example, this section could list the proposed determinations or rulings. We are concerned that the current approach has resulted in DIS forming a substitute for providing a formal binding product on the interpretational issue.
Response
As a general proposition, a DIS sets out how the law will be administered as a consequence of a particular decision, pending any change to existing tax office rulings, but is not normally expected to contain advice. They are not public rulings. However, if a DIS contains advice about an indirect tax law, the DIS will state that the advice is a public indirect tax ruling: Refer Law Administration Practice Statement PS LA 2008/3 (paragraphs 234–236 reproduced below).
Decision impact statements
234. Decision impact statements 193 are published in the 'Legal database' on the Tax Office website to communicate to the community the Tax Office reaction to adverse and other significant court or tribunal decisions. They include a summary of the case details, a summary of the facts and issues decided, and they note any consequences in relation to public rulings. They set out how the law will be administered as a consequence of the decision, pending any change to existing Tax Office rulings, but are not normally expected to contain advice. They are not public rulings for the purposes of Part 5-5. To the extent they contain advice on an indirect tax law (other than a fuel tax law) that affects an entity's liability or entitlements; they may be public indirect tax rulings for the purposes of section 105-60.
235. A taxpayer who relies on a decision impact statement that is not a public indirect tax ruling, and makes a mistake as a result of the statement being incorrect or misleading, will receive the same penalty and interest protection as for written guidance. 194
236. Where a decision impact statement does contain advice on how the Commissioner would interpret an indirect tax law (other than a fuel tax law), the decision impact statement will state that the advice is a public indirect tax ruling for the purposes of section 105-60 and the taxpayer will receive the same protection that applies for public indirect tax rulings. 195
Whether or not a DIS evidences a general administrative practice (GAP) is a question of fact to be determined having regard to all the facts and circumstances. While a Tax Office publication such as a DIS may evidence a GAP, it is the consistent actions of the Commissioner that determines the existence or otherwise of a GAP. This view is supported by the explanation of a GAP in the Explanatory Memorandum to the review of self assessment (ROSA) legislation and is reflected in our discussion of this issue in Tax Ruling TR 2006/10, our public ruling on the post-ROSA public rulings system.
If the professional bodies consider that issues dealt with in a particular DIS should be contained in a binding product, please advise us accordingly, and we will consider your request.
If, at the time of issuing a DIS, we have decided to publish a new binding product as a result of the decision, we will include that in the section that covers implications for current public rulings or determinations.
We note the reference to the Cajkusic DIS and the pending decision in the Bamford case which was funded by the Commissioner under our test case program. We are hopeful that the Bamford decision will provide clarification of the law relating to trust taxation.
Meeting discussion
Members appreciated the response provided.
There was a perception that the two DISs mentioned may have encroached on areas normally covered by public rulings. The CTC agreed that a DIS may sometimes include interpretative views but the intention was to avoid providing interpretative advice in such a statement as far as possible.
The Commissioner and CTC invited members to advise of any issues associated with DISs that may be suitable for public rulings.
7. Taxpayer Alerts
There are two parts to this agenda item.
We appreciate the important role of the Tax Office’s Taxpayer Alerts (TA) in optimising taxpayer voluntary compliance through the 'early warning' of significant new and emerging higher risk planning issues or arrangements. However, when cast too widely, we are also concerned that Taxpayer Alerts put unnecessary upward pressure on compliance costs when tax agents and taxpayers are not clear about whether or not their arrangements fall within a particular TA.
In both the recently released TAs, TA 2009/4 and TA 2009/5 – relating to GST – each these TAs provides a diagramatic summary of the arrangement of concern. However, each TA precedes this summary with an indication that it applies 'to arrangements having some or all (emphasis supplied) of the following features' listed in the TA. Our concern is that, for example, a number of key aspects of structures based in the building and construction industry may have some of the features listed in the TA without necessarily equating with the diagrammatic summary and where there was no attempt or intention to impact on any pre/post GST effect of the transaction.
Having regard to the features listed in each of these TAs:
7.1. Would the Tax Office please clarify which particular arrangement of concern is covered by the TA?
Response
Taxpayer Alert TA 2009/4
In this arrangement, an owner of land acquired before 1 July 2000 contracts an associate to construct residential premises. The associate neither invoices nor requires payment until after the owner registers for goods and services tax (GST), allowing the owner to register as close as possible to the sale of the premises.
The aim of the arrangement is to secure the dual benefits of minimal GST under the margin scheme and a full input tax credit for construction costs.
Taxpayer Alert TA 2009/5
This arrangement involves a land owner engaging an associate to construct residential premises that are to be leased. The associate claims input tax credits that may not otherwise be available to the land owner.
The arrangement is also designed to allow the associate to defer, in some cases indefinitely, its GST liability on the supply of construction services to the land owner.
Entities dealing at arms-length on normal commercial terms would not fall within the parameters of these TAs.
7.2. Is it only the situation represented in the diagrammatic summary? If so, would the Tax Office please amend these TAs to clarify their scope and application?
Response
We do not consider it necessary to amend the Taxpayer Alerts to clarify their scope and application. The arrangements of concern are those that fall within the contextual setting of the diagrammatical representations including variations, outlined in the Alerts.
Moreover, the alerts do not cover those arrangements where there is no attempt or intent to impact on the GST effect of the transaction. Therefore, transactions that have some of the features would not come under scrutiny if there is no attempt to obtain unintended GST benefits.
We intend to issue a formal view about the application of taxation laws to these arrangements as soon as possible.
Deputy Commissioner, Stephanie Martin, Aggressive Tax Planning, will attend this meeting to provide a stock take of TAs issued since January 2008 and will discuss the Taxpayer Alert Program more generally.
Meeting discussion
There was discussion regarding the two taxpayer alerts mentioned and the wording used. Members expressed concern as it was thought that the wording created some confusion regarding their application.
The Commissioner commented that he thought the wording of GST Taxpayer Alert TA 2009/5 was clear in relation to articulating the mischief.
Deputy Commissioner Martin provided context around the taxpayer alert process, the objective of which is to provide early warning to taxpayers regarding Tax Office concerns about particular arrangements prior to reaching a concluded view. Information, including alerts, is available on the Aggressive Tax Planning section of the website. Members were advised that not all tax planning issues that are examined are subject to an alert. The practice statement, PS LA 2008/15 which was issued in October 2008, is to be updated to better reflect the approach used for TAs.
Members were advised as to what matters are considered in providing alerts, and aim to issue alerts on appropriate matters in a timely way. This is then followed up as quickly as possible to clarify the ATO view on the arrangement. Media releases and advice to specific tax agents and tax professionals are provided following the issue of alerts. In some cases, advice has also been forwarded to known participants or potential participants.
An outline of the three main types of alerts and follow up was provided.
- Alerts where there is no ATO view and where we seek to provide the ATO view
- Alerts where we have a view that the arrangement is ineffective, such as where evasion is involved. An ATO view is not needed for these alerts.
- Alerts where there may also be an ATO view on foot and the alert is being issued because there is information that indicates renewed promotion of the arrangements.
Members were advised that the Tax Office continues to consider how the alert process and products can be improved and referred to the wording used in the mentioned alerts.
The intent is to strike the right balance between specificity of a single issue compared to a general view, to focus on the concern rather than the detail of the features. The Commissioner confirmed that the focus of alerts needs to be on the underlying mischief.
The Tax Office agreed to review the wording in future Alerts to provide greater clarity about the arrangements covered by the warnings, including adopting the members’ suggestion to use 'arrangements with features substantially equivalent to the following' instead of 'arrangements with some or all of the following features'.
Members were provided with a handout, included below, which outlines the alerts issued for 2008 and 2009, including the status in relation to the ATO view.
ATO view status for taxpayer alert topics
From 1 January 2008
Alert no. |
TA 2008/1 – Issued:14/1/08 |
Topic |
Certain stapled securities involving notes and preference shares. |
ATO view required |
Yes. Finalised. |
Progress/status of view |
Finalised. Tax Determination (TD) 2008/D6 issued |
Alert no. |
TA 2008/2 – Issued:13/3/08 |
Topic |
Use of certain legal structures established in Liechtenstein to attempt to avoid or evade Australian tax obligations. |
ATO view required |
No |
Progress/status of view |
Arrangements appear to involve concealment and fraud. Issues being resolved at case level by application of ordinary provisions. No issues of interpretation identified in cases to date. Considering marking up Alert accordingly that the arrangement is ineffective. |
Alert no. |
TA 2008/3 – Issued:26/3/08 |
Topic |
Uncommercial use of certain trusts. |
ATO view required |
Yes. Finalised. |
Progress/status of view |
Priority Technical Issue raised. Draft TD 2008/D16 issued 18/11/08. Proposed issued date for final TD is 23/04/09. |
Alert no. |
TA 2008/4 – Issued:26/3/08 |
Topic |
Self-managed superannuation funds deriving income from certain uncommercial trusts. |
ATO view required |
Yes. Finalised. |
Progress/status of view |
Priority Technical Issue raised. TD 2006/7 issued. |
Alert no. |
TA 2008/5 – Issued:4/4/08 |
Topic |
Certain borrowings by self managed superannuation funds. |
ATO view required |
Yes. To be finalised. |
Progress/status of view |
Priority Technical Issue raised. Question and answer document issued at same time as Alert. |
Alert no. |
TA 2008/6 – Issued:10/4/08 |
Topic |
Claiming tax deductions for debts from a previous tax planning scheme that are forgiven or where repayments are refunded. |
ATO view required |
Under consideration. |
Progress/status of view |
Priority Technical Issue finalised. ATO view dependant on how scheme implemented, that is, questions of fact. Considering issuing a series of related ATO IDs. |
Alert no. |
TA 2008/7 – Issued:18/4/08 |
Topic |
Application of Part IVA of the ITAA 1936 to 'wash sale' arrangements. |
ATO view required |
Yes. Finalised. |
Progress/status of view |
ATO view finalised prior to issue of Alert. |
Alert no. |
TA 2008/8 – Issued:7/5/08 |
Topic |
Australian resident entities creating false deductions and/or concealing income through arrangements with promoters based in Vanuatu. |
ATO view required |
No |
Progress/status of view |
Arrangements appear to involve concealment and fraud. Issues being resolved at case level by application of ordinary provisions. No issues of interpretation identified in cases to date. Considering marking up Alert accordingly that the arrangement is ineffective. |
Alert no. |
TA 2008/9 – Issued:23/5/08 |
Topic |
Private company loan arrangement to obtain tax-free distributions and avoid deemed dividends. |
ATO view required |
No |
Progress/status of view |
Alert indicate that arrangement was ineffective, based upon previous advice on decided cases, so ATO view not required. In line with ATO view in litigation cases currently underway. |
Alert no. |
TA 2008/10 – Issued:23/5/08 |
Topic |
Purported prepayment of service fees designed to postpone tax liability. |
ATO view required |
No |
Progress/status of view |
Alert indicate that arrangement was ineffective, based upon previous advice on decided cases, so ATO view not required. In line with ATO view in litigation cases currently underway. |
Alert no. |
TA 2008/11 – Issued:6/6/08 |
Topic |
Land Impairment Trust Arrangement. |
ATO view required |
Yes. Finalised. |
Progress/status of view |
Matter considered by GAAR Panel for preliminary advice prior to issue of Alert. Case-level decisions already made. Issue currently being handled through relevant product rulings (ATO views). |
Alert no. |
TA 2008/12 – Issued:13/6/08 |
Topic |
Non-cash contributions to superannuation funds. |
ATO view required |
Yes. To be finalised. |
Progress/status of view |
Priority Technical Issue raised. Draft ruling in progress. |
Alert no. |
TA 2008/13 – Issued:25/6/08 |
Topic |
Employee Savings Plans. |
ATO view required |
Yes. To be finalised |
Progress/status of view |
Priority Technical Issue raised. Tax ruling and determinations to be issued in draft form in May. |
Alert no. |
TA 2008/14 – Issued:25/6/08 |
Topic |
Salary Deferral Arrangements. |
ATO view required |
Yes. To be finalised. |
Progress/status of view |
Priority Technical Issue raised. Tax ruling and determinations to be issued in draft form in May. |
Alert no. |
TA 2008/15 – Issued:25/6/08 |
Topic |
Profit washing scheme using a trust and a loss entity. |
ATO view required |
Yes. To be finalised. |
Progress/status of view |
Recurrence of previous arrangement, with small variations. Preparing addendum to previous view in (TD 2005/34) to add clarity to ATO view and reference to Raftland decision. |
Alert no. |
TA 2008/16 – Issued:25/6/08 |
Topic |
Liquidation of entities to avoid the payment of tax liability. |
ATO view required |
Yes. To be finalised. |
Progress/status of view |
Recurrence of previous arrangement, with small variations. Preparing addendum to previous view in TD 2005/34. |
1 July 2008 to 31 December 2008
Alert no. |
TA 2008/17 – Issued: 27/8/08 |
Topic |
Claims for GST refunds beyond four years arising from the reclassification of a previously taxable supply as GST free GST Refunds. |
ATO View required |
No |
Progress/status of view |
Alert indicated that the Commissioner would not exercise the discretion in such circumstances where the taxpayer did not bear the economic burden of the GST. |
Alert no. |
TA 2008/18 – Issued:13/11/08 |
Topic |
Arrangements to shift foreign business losses into Australian branches or resident entities. |
ATO View required |
No |
Progress/status of view |
Alert indicated that arrangement was ineffective, so ATO view not required. Currently conducting risk reviews on cases that may involve this arrangement. |
Alert no. |
TA 2008/19 – Issued:18/11/08 |
Topic |
Disposal of Australian real property under Division 855 Income Tax Assessment Act 1997 (ITAA 1997). |
ATO View required |
No |
Progress/status of view |
Alert indicated that arrangement was ineffective, so ATO view not required. Features were covered by examples in the Explanatory Memorandum (EM) for the Division, but non-compliance detected in actual cases. |
Alert no. |
TA 2008/20 – Issued:18/11/08 |
Topic |
Foreign residents exploiting asset valuations to avoid CGT. |
ATO View required |
No |
Progress/status of view |
Alert indicated that arrangement was ineffective, so ATO view not required. Features were covered by examples in the EM for the Division, but non-compliance detected in actual cases. |
From 1 January 2009
Alert no. |
TA 2009/1 – Issued:8/1/09 |
Topic |
Superannuation Illegal Early Release Arrangements. |
ATO View required |
No |
Progress/status of view |
Alert indicate that arrangement was ineffective, so ATO view not required. Based upon previous case level decisions regarding fraud on related arrangements and successful Australian Securities and Investment Commission (ASIC) prosecutions on organisers of such arrangements. |
Alert no. |
TA 2009/2 – Issued:22/1/09 |
Topic |
Certain cross-border Prepaid Forward Purchase Agreements. |
ATO View required |
Yes |
Progress/status of view |
Several cases already decided on the basis that the arrangement is ineffective. Considering whether to issue an ATO ID or mark up the Alert that the arrangement is ineffective. |
Alert no. |
TA 2009/3 – Issued:5/2/09 |
Topic |
Bringing forward deductions to rehabilitate a mine site. |
ATO View required |
Yes |
Progress/status of view |
Currently conducting risk reviews that appear to involve this arrangement. Depending upon findings of fact, will consider whether to issue an ATO ID or mark up the Alert that the arrangement is ineffective. |
Alert no. |
TA 2009/4 – Issued:17/2/09 |
Topic |
Land owner’s use of a registered associate to maximise input tax credit entitlements and reduce GST payable under the margin scheme. |
ATO View required |
Yes. To be finalised. |
Progress/status of view |
Priority Technical Issue raised. Proposed to result in ATO view, either via TD or ATO ID, depending upon complexity. |
Alert no. |
TA 2009/5 – Issued:17/2/09 |
Topic |
Use of an associate to obtain GST benefits on construction of residential premises for lease. |
ATO View required |
Yes. To be finalised. |
Progress/status of view |
ATO view under development, based upon case level advice – likely via an ATO ID. |
8. Division 7A issues
It is noted that the most recent meeting of the NTLG Division 7A Working Party in late January 2009 discussed a proposed practice statement dealing with the future exercise of the Commissioner's discretion under section 109RB and also an update on Tax Office compliance activities in this area. This is against the background of the Tax Office’s current approach of moving more into a compliance phase now and looking at targeting questionnaires to potential higher risk taxpayers and transactions to determine compliance at both a client and agent level.
In light however of the implications for taxpayers of the Tax Office’s current administrative practices in respect to honest mistakes or inadvertent omissions, the external members believe that the current focus of the Tax Office should be on the preparation of a public ruling to clarify the operation of the law in this area in addition to a practice statement.
This request for a public ruling in respect to what constitutes an honest mistake or inadvertent omission is a threshold requirement for the exercise of the Commissioner’s discretion. Thus it would be more appropriate in our view for a Practice Statement to issue in respect of how the Commissioner’s discretion will be exercised and a public ruling to issue on what amounts to an honest mistake or inadvertent omission.
If the Tax Office’s view of the law as to what constitutes an honest mistake or inadvertent omission is unduly narrow then the discretion is effectively rendered useless and thus would clearly defeat the purpose for which it was introduced. We are not seeking carte blanche here but rather just a reasonable approach where mistakes have been made. Blatant cases should not necessarily be afforded protection.
Response
This issue was raised at the Division 7A Working Group of the Small to Medium Enterprises (SME) ATPF Sub-committee and it was agreed there, that a letter detailing industry concerns about the issue would be provided and that the Tax Office would review its position upon receipt of this letter.
A joint submission on draft practice statement PS LA 2843: ‘honest mistake or inadvertent omission’ was received on 16 March 2009.
Meeting discussion
Deputy Commissioner, Mark Konza advised members that the joint submission on the draft practice statement PS LA 2843 is being considered and advised members that a meeting with representatives was likely to occur within the next month to consider the way forward. That is after Easter. A Tax Office meeting is expected to occur in approximately two weeks, followed by a meeting with external stakeholders approximately a fortnight later.
The need for a public ruling was discussed, and it was considered that as the law was relatively straightforward, a public ruling was not required and that factual examples may provide the guidance sought. Of 33 applications for the exercise of discretion, approximately 20 have been allowed, and they have related to the same topic area. A significant number of the examples included in the draft PS LA have been derived from scenarios that the Tax Office has seen. The majority of the applications where discretion has been allowed relate to tax agent confusion as to whether the business to business loan is subject to Division 7A.
Members were advised that a précis of the applications for discretion received would be provided for the meeting, and that the Tax Office would be happy to consider other examples if necessary.
The Tax Office will continue to determine what guidance can be issued on 'honest mistake'.
NTLG0903/02 |
9. Professional practice structures
We note an article in the Australian Financial Review on Monday 16 February 2009 titled 'Tax Office takes aim at rorts by professionals'. The article includes quotes from Mark Konza that indicates the Tax Office is concerned some partners in professional practices are returning incomes that are lower than some of the employees in the firm. It is noted that many owner operated non-professional practice commercial businesses will pay the owner salaries less than what are being paid to some of their higher paid employees.
Would the Tax Office indicate whether they will be taking any action in relation to these other non-professional practice commercial businesses to increase the income of the owner operator?
If it is not intended to take such action could the Tax Office indicate the relevant differences between professional practices and these other commercial businesses?
Response
The Tax Offices recognises that the legal and accounting professions are an important part of the Australian economy and an important part of the Australian taxation system. Tax professionals influence all other sectors of our society on taxation matters.
Like all other important sectors of our economy, the Tax Office monitors the tax compliance of the legal and accounting professions. With those professions we have seen instances in the past of grossly excessive fees charged through service trust arrangements to shift income to lower taxed family members. Those practises have largely been resolved through our collaborative approach with the professions. The guide material we have issued suggests when taxpayers will be at low risk of audit on these types of arrangements (where their service entity fees are below indicative mark-up rates) and most cases reviewed show those indicative rates are being followed.
More broadly, the Tax Office’s interest in any taxpayer may be summarised as the need to understand the economic performance of the taxpayer, their comparative taxation performance and the reason for any material discrepancy. In that context, where taxpayers operate through different structures we look at the circumstances of the establishment of the structures to ensure they are properly implemented, including conformity with any regulatory, trade or professional requirements. Where amounts are paid to related entities we examine the commerciality of those arrangements. Where salaries paid to partners fall well below that of similarly qualified employees, the broader arrangement will be reviewed to assess any associated risk.
From year to year, the Tax Office evaluates the risk around all significant industries and practises. The highest risk areas are flagged in our annual compliance program as we are most interested in optimising voluntary compliance.
Meeting discussion
Deputy Commissioner, Mark Konza advised members that the legal and accounting professional project has been in place for a number of years, including involvement in the service entity project. Most of these are SMEs involved in turnover aspects. Currently, a small team is undertaking ongoing analyst work.
It was not intended to focus only on these professions, however, a large part of the work relates to these professions. Members were advised that a recent service trust case involved an engineering firm.
Arrangements have been seen where the 'legalities' and 'practice' do not align as well as they could and it was this comment that has been referred to in the media.
10. Unpaid present entitlements
On Friday 20 February 2009 the Thomson's Weekly Tax Bulletin refers to Mark Konza's comments on unpaid present entitlement's and the possibility of their conversion into loans and the potential application of section 100A.
In a recent speech to a Taxation Institute seminar it was indicated that the Tax Office may be considering treating unpaid present entitlements as loan were they are shown in the accounts as loans. While situations exist where unpaid present entitlements could be been converted into loans, there will need to be strong evidence that the unpaid present entitlement stops being an amount held on trust for the corporate beneficiary and becomes a loan. The fact that the unpaid present entitlement is shown in the accounts as a loan will usually be as a result of incorrect accounting treatment and not as a result of the conversion into a loan. The bodies are concerned that the Tax Office may use incorrect accounting treatment of the unpaid present entitlement as basis of saying it has been converted into a loan.
The question is whether the Tax Office would impose section 100A in the context of unpaid present entitlements is also of concern. In what situations the tax office would be looking to use section 100A in the context of unpaid present entitlements. In particular will its use be limited to more blatant avoidance arrangements such as in Raftland or is the Tax Office seeking to apply it more generally.
Could the Tax Office clarify their position on these matters and in particular whether they are considering issuing a determination or other product on these issues?
Response
In a recent speech to a Taxation Institute seminar it was indicated that the Tax Office may be considering treating unpaid present entitlements as loan [sic] were [sic] they are shown in the accounts as loans', the Tax Office considers that Deputy Commissioner, Mark Konza’s comments have been taken out of context to the extent that the comments have been construed as meaning that a 'loan' must be shown in the accounts before it can become a section 109D loan for Division 7A purposes.
Whether the accounting treatment is correct or not is not the issue. The issue is whether an unpaid present entitlement has converted to a section 109D loan – which is a question of fact.
As outlined in the presentation to the TIA on 10 February 2009, 'what initially commences as an unpaid present entitlement can, factually, become a section 109D loan from the private company beneficiary back to the trustee.'
Examples of when this could occur included:
- a private company beneficiary may make a loan to the trustee of a trust if the trustee, acting under the authority of the trust deed or with the acquiescence from the beneficiary, credits moneys owing by the trustee to the beneficiary to a loan account in the name of the beneficiary, and
- a loan may also be created if the moneys owing by the trustee of a trust to a private company beneficiary are credited to a loan account in the name of the beneficiary without the authority of the beneficiary if the beneficiary later acquiesces in and adopts the trustee’s actions in crediting the loan account.'
In regard to the use of section 100A in regard to unpaid present entitlements, it was noted that 'there may be circumstances in which an agreement for the non payment of a private company beneficiary’s present entitlement to trust income may be associated with the provision of money, property, services or other benefit to another person, including the trustee themselves, pursuant to a reimbursement agreement within the meaning of section 100A.'
Section 100A will be used where reimbursement agreements are found to exist.
No tax determinations or other products are currently under development. These issues are highly dependent on the facts of each case.
Meeting discussion
Deputy Commissioner, Mark Konza advised members that the intent of the speech referred to was to engage in a technical discussion with the members of the particular professional association. The Tax Office had noticed a growing trend of a number of cases with large amounts of unpaid present entitlements and wanted to alert the membership of issues that can arise.
Members were advised that the matters are fact dependent and need to be considered on a case by case basis. There may be instances where the unpaid present entitlements are in fact a loan. Where there is no loan there is still a need to consider what is happening in the trust as section 100A might apply.
Furthermore, where there was a non-business use of the funds, eg acquisition of a private residence, there may be a need to consider the possible application of section 100A.
There was some discussion of the examples provided. Members were advised that these were drawn from observations and were provided to assist discussion of the issues.
The Commissioner noted that this discussion didn’t involve an interpretative issue, but rather indicated a need to work with the profession to ensure that these arrangements are working appropriately.
It was agreed that a number of the issues including the application of Part IVA, could be discussed at a future workshop. A number of examples would be considered plus areas where guidance could be provided. It was thought that this workshop could be arranged to take place on the same day as the Division 7A workshop to enable stakeholders to attend both workshops. Discussion concerning the background rationale relating to these examples resulted in agreement to provide this information to members as background prior to the workshop.
NTLG0903/03 |
Post meeting update
Deputy Commissioner, Mark Konza’s speech to the TIA 'Is the Tax Office widening its crackdown on lawyers and accountants' was published on the Tax Office website as of 31 March 2009.
11. Disputes concerning credits on pay as you go amounts
The professional association members have raised two issues in relation to the Perdikaris matter.
Following the Federal court’s decision on the appeal in Perdikaris v. Deputy Commissioner of Taxation [2008] FCAFC 186 (5 December 2008) members have raised two issues relating to pay as you go (PAYG) matters.
11.1 How are disputes concerning credits on PAYG amounts to be resolved without recourse to litigation?
Response
Section 18–15 of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides for credits to be allowed to a taxpayer for PAYG credits withheld from their salary and wages. The income tax laws do not provide for a specific right of review on this matter.
Moreover, section 18-15 is a self executing provision in that if the relevant withholding has been made, it operates to allow the relevant credit. Allowance of the credit is not dependent upon any act or decision of the Commissioner. As such there is no administrative decision of the Commissioner which can be the subject of a judicial review under the Administrative Decisions (Judicial Review) AD(JR) Act.
The judicial remedies available to a person are proceedings under section 39B of the Judiciary Act 1903 or alternatively, if a matter is the subject of debt recovery action, they may contest the debt by asserting that the employer had withheld the relevant PAYG deductions.
As a matter of practice, a person is given every opportunity to provide evidence that an amount was in fact withheld from their salary or wages.
If a credit has not been allowed because the employee has been unable to reasonably demonstrate that an amount has been withheld, they may seek an internal review, either generally or to consider any further material they may have obtained which they believes evidences that the amount claimed has been withheld.
11.2 What guidelines exist for Tax Office staff on the criteria to apply when determining to deny PAYG withholding credits to a taxpayer in cases where the wages or salary in question have been paid by a company which is related to the taxpayer? In particular, if there are moneys owing by that company to the Tax Office, is that fact a material consideration for the Tax Office in resolving the dispute with the taxpayer?
Response
Section 18-15 of Schedule 1 to the TAA provides that an entity is entitled to a credit against their income tax assessment for an income year equal to the total amounts withheld from withholding payments made to that entity during the income year. A payment summary will normally be evidence that amounts were withheld from payments.
Where there appears to be a non-arms length relationship between the payer and the payee, further verification that amounts were withheld may be required. In determining this, the Commissioner would consider all the facts and circumstances, including verification that the payer has lodged annual withholding reports, business activity statements and made payments of withheld amounts to the Tax Office. In this regard we note the comments of the Full Federal Court in Perdikaris that while a failure to remit is not of itself evidence of a failure to withhold, it will put into legitimate question whether amounts were withheld.
On this point, the relevant guidelines provide:
'If a company has withheld the correct amount of liability but has not paid in full we cannot hold onto the refund or demand the company to pay. Under law we must allow employees, including directors the credits that have been withheld from their salary and wages. However if the company is still trading and they have not paid the withholding we should ensure the debt is known.'
Meeting discussion
Members accepted the response provided.
12. Employee share and option arrangements
We understand the Tax Office currently has a tax audit/risk review project in relation to employee share/option arrangements (see speech by Commissioner to Australian Institute of Company Directors Dinner, 11 September 2008). We note that a number of theses audits or reviews are starting just before the two or four year amendment period has finished in relation to the relevant tax year. In these cases the Tax Office auditors are asking taxpayers to allow an extension of the amendment period under section 170(7) ITAA 1936.
Our concern is that the Tax Office has not issued a comprehensive ruling on the operation of the employee share scheme provisions and is now taking a hard line on some issues that go back up to four years or more. There have been some interpretational issues surrounding many aspects of the Division 13A that the Tax Office have not as yet commented upon in public rulings or determinations, but are now being raised in these audits and risk reviews. For example:
- the 5% beneficial interest test and the 5% voting power test in subsections 139CD(6) and (7), and
- the date of acquisition of shares or options and the date on which the benefit should be calculated, for example, the date of contract or the date of issue (it is noted that TD 2008/D18 has recently been released but it is looking at this issue only in relation to subsection 139CD(6) and not in relation to the calculation of the discount).
The Tax Office auditors are taking a hard line stance on some of these issues when there are real interpretational issues that need to be resolved. Penalties of 50% are being imposed even though the Tax Office has not previously issued its understanding of the issues. We are concerned that many genuine employee incentive arrangements are not caught up in these current audits just because a particular and reasonable interpretation of Division 13A was taken when establishing the arrangement but a different interpretation is now being taken by the Tax Office auditor.
We suggest that the Tax Office issue a comprehensive public ruling outlining its interpretation of the employee share scheme provisions before conducting such an extensive audit programme.
This issue is of particular importance now due to the economic downturn and the effect on employee share options, many of which are now out of the money. Where the Tax Office determines in an audit that particular options are not qualifying share options under section 139CD, the taxpayers would be assessed on the value of the options at the time of issue. Where these options are now out of the money and it is likely once the qualifying period is finished they will lapse without being exercised, it is likely that there will need to be a further amendment reversing this audit assessment when the options lapse (assuming they continue to be out of the money until then, which is likely in most cases). We question the wisdom of conducting audit activity around this area at this time when so many of the options are out of the money and therefore any amendment action will have to be reversed once the options lapse.
Response
History
The main provisions covering employee share schemes are in as Division 13A of the ITAA 1936* and came into effect from 28 March 1995. In the words of the then Treasurer this was because the previous section 26AAC share schemes had become ‘no more than executive remuneration packages designed to convert salary into shares in order to take advantage of open ended tax deferral opportunities’.
Our risk assessment processes in 2002–03 identified highly paid executives as an area where more work could be undertaken to understand and scope potential risk. Following this, questionnaires were issued in 2003–04 to a sample of Chief Executive Officers to gather more information. From the risk analysis subsequently undertaken the high income individuals work program commenced to address compliance risks among highly paid executives and directors of public companies. The primary risk identified was under reporting of income resulting from employee share schemes.
The Compliance Program 2006–07 first highlighted a greater emphasis on examining the tax affairs of high income individuals and more information on our approaches in this part of the individuals market have been highlighted subsequently in the Compliance program 2007–08 and Compliance program 2008–09. Part of this approach has been informing tax professionals of our concerns in ways such as visits to the ‘Big 4’ accounting firms in 2007, regular articles in our tax agent publications and seminars.
The results of this work in 2007–08 included audits and reviews of 175 taxpayers resulting in voluntary disclosures in over 60% of cases. While other issues were identified in some cases the main issue requiring amendment was under reporting of employee share scheme income.
In 2008–09 this work has expanded and we continue to identify many instances of non-compliance with Division 13A requiring adjustment. We have also identified a wide range of non-compliant behaviours and this is reflected in the range of shortfall penalties imposed. Further details are provided below.
Technical issues
It is the Tax Office view that the operation of Division 13A is quite clear. The Master Tax Guide since 1996 has had a good explanation of its operation that is clearly indexed. The Tax Office has provided frequently asked questions on www.ato.gov.au and these have been reviewed and updated on a regular basis.
Through the NTLG there have been three recent employee share scheme issues raised, including the current issue, all of which have occurred in last six months.
Clarification was sought in relation to the beneficial interest in a share created when an option is granted and this was satisfied by the issue of Tax Determination TD 2009/3 on 11 March 2009.
A further question regarding the treatment of brokerage costs in relation to employee shares was raised and response provided that share brokerage costs incurred by a taxpayer in relation to the acquisition of employee share scheme shares or rights are not deductible as they are capital in nature (see ATO Interpretative Decision ATO ID 2002/1066).
We are aware that two employee share scheme related capital gains tax (CGT) issues were raised at the NTLG CGT Subcommittee in 2004. One of these issues eventually resulted in amendments to section 130–90 ITAA 1997.
Following representations to Treasury by certain large corporates, a number of significant amendments were made to Division 13A in 2005 including:
- incorporating roll over provisions for restructures and 100% takeovers, and
- cross border issues.
As a consequence of those actions, we understand that Treasury set up a consultative forum in 2005 to allow professional bodies to discuss and make a case for further amendments. The Tax Office was also invited to attend these forums. This forum continued until 2007 and the most significant amendment (there were other smaller changes) that came from this source was the inclusion of stapled securities in Division 13A.
One of the issues initially raised in this forum related to the market value of unlisted shares and revolved around requests under paragraph 139FB(1)(b) for approval by the Commissioner of a reasonable method of calculating the arm’s length value of such shares. This problem focussed on a range of practical issues that involved valuation methods and the Australian Valuation Office. That forum initially made representations to Treasury to consider a legislative fix but was not ultimately actioned when further support for the proposal was not supported by the majority of the forum participants.
There have been several requests for class rulings and a few PBR requests but none of these have raised issues with the basic operation of Division 13A.
The issues that have been raised have not been with the basic operation of Division 13A and as such we see no case for the preparation of a comprehensive public ruling.
Compliance issues
There is no specific targeting of cases with the intention of requiring an extension to the period of review as a matter of course but where an extension is needed to enable a taxpayer argument to be properly considered or to allow a taxpayer to properly consider the Tax Office position we will seek agreement to extend the period of review.
There is also no specific targeting of cases where options are ‘out of the money’. The compliance risk targeted in our case selection processes is under reporting of income. Where officers conducting the reviews and audits identify non-compliance with the law they will amend the assessment. As discussed further below we have commenced a consultation process to help us understand the issues arising from the share market decline and whether there is a need for further education or interpretative products around any new issues being encountered.
Audit officers continue to apply the law consistent with the Tax Office interpretation of Division 13A since its introduction. Tax practitioners may now be more aware of the Tax Office views because of the expansion of the audit program but our application has remained consistent.
One issue that we have identified is that some taxpayers have not been seeking the Commissioner’s discretion to include a late section 139E election. It has been difficult to determine in some cases when the elections were actually made and why discount income had not been returned, in other cases we have evidence that documents have been backdated.
Apart from the backdating of section 139E elections the main compliance issues arising from our audit activities are the failures to include the discount associated with the acquisition of shares or rights or the incorrect calculation of the discount amount.
Subsection 139B(2) states that unless subsection (2A) or (3) applies, the discount is included in the taxpayer’s assessable income of the year of income in which the share or right is acquired. Subsection (2A) is about shares acquired before the taxpayer become an employee and is not relevant to the examples that follow.
Subsection 139B(3) states that if the share or right is a qualifying share or right and the taxpayer has not made an election under section 139E covering the share or right, the discount is included in the taxpayer’s assessable income of the year of income in which the cessation time occurs.
For the 2008 and prior income years (to which all these examples relate) in order to make an election under section 139E a taxpayer may make the election that subsection 139(2) applies. The election must be in the approved form and be made before they lodge their return of income for the income year or within such further time as the Commissioner allows (this section aspect is referred to as the 'Commissioner’s discretion').
As a result of the non-compliant conduct around the making of section 139E elections a legislative amendment was sort and obtained. For the 2009 and later income years the election is made in the taxpayer’s return of income for the acquisition year.
Example 1
The taxpayer acquired options in the 2001 and 2004 income years. A section 139E election was made only in relation to the 2004 income year. No amount of discount was returned in the taxpayer’s return for the 2004 income year.
The taxpayer exercised the options acquired in 2001 in the 2006 income year. The taxpayer included an amount of discount arising as a result of the cessation event in their return for the 2006 income year.
The taxpayer was notified of the Tax Office’s intention to undertake a tax audit and provided the information requested within the period allowed.
In the course of preparing the information requested the taxpayer’s tax agent realised the taxpayer had not included the discount on the options acquired in 2004 in the taxpayer’s return for that income year. In responding to the Tax Office’s information request the tax agent provided a copy of the section 139E election, which had been made in the approved form pursuant to TD 97/23, and requested an amendment to the taxpayer’s return for the 2004 income year to include the discount amount.
Both amounts of discount were incorrectly calculated.
An election made in the approved from pursuant to Tax Determination TD 97/23 clearly states that the taxpayer is choosing to apply subsection 139E. Subsection 139B(2) clearly states that the amount of discount is to be included in the taxpayer’s assessable income in the year in which the shares or rights are acquired. As a result a 25% penalty for lack of reasonable care was imposed in relation to the shortfall arising in the 2004 income year.
For the 2006 income year the taxpayer had attempted to correctly calculate and declare the assessable discount arising from the exercise of the options (a cessation event). However they miscalculated the amount of the discount and as a consequence a shortfall amount arose. The taxpayer’s calculation was based on the market value of the underlying share obtained from a single source. This was found to be lower than the market value of those shares obtained by the Tax Officer from three other sources. As a consequence the taxpayer was found to have exercised reasonable care when making the misstatement that gave rise to the shortfall amount and no administrative penalty was imposed.
Example 2
The taxpayer acquired options in the 2004 and 2006 income years. The amount of the discount associated with the acquisition of these options was included in the taxpayers return for the 2006 income year but not for the 2004 income year.
The taxpayer disposed of both parcels of the options in the 2007 income year.
The taxpayer received a pre-lodgement advisory letter from the Tax Office prior to lodging his return for the 2007 income year alerting the taxpayer to the fact that the Tax Office was aware that they had disposed of their options and setting out the tax treatment that arose as a result of that disposal, both on the basis that they had made a section 139E election and if they had not.
Prior to lodging their return for the 2006 income year the taxpayer had sought to amend their return for the 2004 income year to include an amount of discount. This self-assessment amendment was processed and issued prior to the taxpayer lodging their return for the 2007 income year.
The taxpayer did not include any discount amount in their return for the 2007 income year, however, a capital gain was returned.
The taxpayer was notified of the Tax Office’s intention to undertake a tax audit and provided the Tax Office with the information requested within the period allowed. From the information provided it was clear that whilst section 139E elections were prepared in the approved form for both income years however, neither were signed or dated. Despite repeated requests by the Tax Office no explanation was provided by the taxpayer or their tax agent as to why the section 139E elections had not been signed. Thus despite the fact that the taxpayer had:
- amended their assessment for the 2004 income year to include an amount of the discount, and
- included an amount of discount in their return for the 2006 income year.
An administrative penalty of 50% was imposed on the shortfall amount arising from the taxpayer’s failure to include any discount amount in their return for the 2007 income year as a result of their recklessness as to the operation of a taxation law for the following reasons:
Subsection 139E clearly states that an election must be made before the taxpayer lodges the relevant tax return or within such further time as the Commissioner allows. The taxpayer had not made an election in the approved form before they lodged their returns for the 2004 and 2006 income year as neither of the prepared election forms had been signed or dated.
It is not sufficient to say that by the Commissioner accepting and processing the 2004 amendment request the Commissioner has accepted validity of the election. The request for the exercise of discretion is an administrative function separate from the assessment function that includes the processing of an amendment request and at no time had the taxpayer actually sought exercise of the Commissioner’s discretion.
Prior to the lodging of your tax return for the 2007 income year the Tax Office sent the taxpayer a letter advising them of the tax consequences of their acquisition and disposal of options and provided them with the phone number of a tax officer they could contact if they wished to discuss any of the issued raised by the letter. Neither the taxpayer nor the tax agent made any enquiries of the Tax Office and instead prepared the tax return in a manner contrary to the advice provided.
Example 3
The taxpayer acquired options in the 2000, 2002, 2003, 2004 and 2005 income years.
The taxpayer’s employer provided the taxpayer with a summary of the taxation treatment of options including detailed examples of how to calculate the discount associated with the acquisition of unlisted options and further advised the taxpayer to seek their own professional advice in relation to their acquisition of options.
The taxpayer made section 139E elections prior to lodging their return for the 2004 and 2005 income years.
Section 139E elections for the 2000, 2002 and 2003 income years were signed by the taxpayer in December 2004 and dated 1 September 2000, 12 September 2002 and 1 May 2004 respectively.
The taxpayer did not request the Commissioner to exercise his discretion to allow further time in which an election could be made for the 2000, 2002 and 2003 income years at the time the documents were signed. Such a request was, however, made after the taxpayer had been notified of the Tax Office’s intention to undertake a tax audit.
The taxpayer exercised the options they acquired in the 2000 income year during the 2003 income year. When lodging their tax return for the 2003 income year the taxpayer returned an amount of discount based on the happening of the cessation event. This discount amount returned had been correctly calculated. The taxpayer subsequently amended their return on a self assessment basis to remove the discount amount on the basis that they had made a section 139E election. However, the taxpayer did not amend their return for the 2000 income year to return the amount of the discount arising as a result of a section 139E election having been made.
The amount of the discounts return for the 2004 and 2005 income years was incorrectly calculated by some 52% and 25%, respectively, less than the actual discount amount. The tax agent stated that in calculating these discount amounts they followed the examples and explanations provided by the Tax Office on our website under the topic Employee share schemes – answers to frequently asked questions by employees (Employee share schemes – answers to frequently asked questions by employees (ESS FAQs)). However, it is apparent from the errors made by the tax agent in undertaking the calculations that they did not correctly follow the advice contained in the ESS FAQs and in particular did not use market value calculation prescribed by the legislation as the starting point for the calculating the discount amount.
An administrative penalty of 25% for lack of reasonable care in complying with a taxation law was imposed in relation to the shortfall amounts arising in the 2004 and 2005 income years. We considered the taxpayer and their tax agent to have been in possession of sufficient information to determine the correct calculation of the discount amount for these income years and failed to exercise reasonable care in following the examples provided in the ESS FAQs and information provided by the taxpayer’s employer.
An administrative penalty of 75% for intentional disregard of a taxation law was imposed in relation to the shortfall amounts arising as a result of the taxpayer’s failure to include the discount amounts arising from cessation events happening to the options they acquired in the 2000, 2002 and 2003 income years for the following reasons:
- the taxpayer was aware of the choice to make section 139E elections and that those elections needed to be made before the return for the relevant income year was lodged
- the taxpayer and their tax agent was aware of the tax implications of making section 139E elections and in particular the tax benefits from doing so in these circumstances (see for example the self-amendment to the 2003 income tax return), and
- the taxpayer did not take the opportunity to explain the events and details surrounding the back dating of elections in December 2004 and were evasive in responding to Tax Office requests for information about these events and in particular why it was that a request for exercise of the Commissioner’s discretion was not made at the time.
Example 4
The taxpayer was employed as an Executive Director of a publicly listed company at the time of the Tax Office audit. The taxpayer was previously employed as a Chief Financial Officer and General Manager of a publicly listed company. The taxpayer has a Bachelor of Commerce and a Masters of Business Administration and is also a Fellow of CPA Australia.
The taxpayer acquired options in the 2001 income year and did not make a section 139E election in relation to the acquisition of those options prior to lodging their tax return for that income year.
The taxpayer’s employer provided them with detailed advice on the operation of the Executive Option Plan which included a summary of the taxation treatment of the options. This summary included an explanation that the employee would be required to include the discount amount as assessable income, outlined the taxation consequences of making a section 139E election and advised that the rights were qualifying rights for the purposes of Division 13A.
In 2004, two days prior to exercising the options the taxpayer requested the Commissioner exercise his discretion to allow the taxpayer further in which to make an election for the 2001 income year. The Commissioner declined to exercise his discretion and advised the taxpayer accordingly. The taxpayer did not seek to have reviewed or challenged the Commissioner’s decision.
The taxpayer was a self preparer and lodged a self amendment request for their tax return for the 2001 income year to include additional income at label 22 – Other income and advised that the amount being included was the discount arising from the acquisition of options in that year.
The taxpayer was notified of the Tax Office’s intention to undertake a tax audit and asked to provide further information in relation to their acquisition of options in the 2001 income year. The taxpayer did not provide the Tax Office with a section 139E election for the 2001 income year or an explanation of the basis upon which they amended their return for that year.
The taxpayer lodged their return for the 2004 income year and did not include any discount arising from the exercise of the options (being a cessation event).
A penalty of 75% for intentional disregard of a taxation law was imposed on the shortfall amount arising from failure by the taxpayer to include the discount arising from the cessation event in the 2004 income year for the following reasons:
- the taxpayer had been given clear advice by their employer on the taxation consequences relating to the acquisition of the options
- the Commissioner advised the taxpayer they he would not exercise his discretion to allow a further period of time in which the taxpayer could make a section 139E election for the 2001 income year, and
- the taxpayer ignored the advice of the Commissioner, self amended his return for the 2001 income year on the basis that he had made a section 139E election when he had not done so in accordance with the legislative requirements and had failed to return the discount amount when the taxpayer knew that it should properly have been brought to account.
Example 5
In the course of examining the tax affairs of a range of executives, a number of clusters of individuals with apparent non-compliance in their taxation obligations have been found. In at least one case the common factor is their tax agent who is a chartered accountant employed by a ‘Big Four' accounting firm.
For these taxpayers, all of whom were self-preparers, it is clear that they have not made section 139E elections prior to lodging their returns for the relevant income year.
Having exercised, or contemplating exercising their options these taxpayers have sought advice of this tax agent and have then sought to amend their returns for those years without first asking the Commissioner to exercising his discretion and obtaining further time in which to make a section 139E election. This is despite the tax agent in other correspondence with the Tax Office having clearly demonstrated their understanding of the operation of Division 13A, the manner in which section 139E elections are to be made and the need to seek further time in which to make an election where one hasn’t been make prior to lodging the relevant return.
Consultation
At the ATPF on 27 February 2009 we invited members to both add issues to the table below and provide feedback on the priority of addressing the issues. We asked for feedback by 27 March 2009. We invite members of the NTLG to similarly participate and request feedback by 1 May 2009. The intention is to inform our marketing and education plans and to continue ongoing consultation and any co-design of products with the ATPF.
High income individual – employee share scheme issues
Issue |
Awareness of basics of tax treatment for ESS when shares or rights received. |
Legislative reference |
Division 13A |
Eduction/Law interpretation/ATO view clarification |
Education |
Comments |
Possible flyer or similar plain English brochure directing to more information. |
Proposed rating (1–3) |
Issue |
Treatment of rights that have an exercise price greater than current value of share price – 'underwater options'. |
Legislative reference |
139DD |
Eduction/Law interpretation/ATO view clarification |
Education |
Comments |
Is the process to follow clear and well understood? Is the effect on associates understood? |
Proposed rating (1–3) |
Issue |
Commissioner's discretion to allow further time to lodge an election after lodgment date. |
Legislative reference |
Section 139E |
Eduction/Law interpretation/ATO view clarification |
Education/ATO view clarification |
Comments |
Are the circumstances when the Commissioner will (and won't) allow a late election clear and understood? |
Proposed rating (1–3) |
Issue |
Timing of acquisition – when a share or right is acquired can have significant impacts on market value and discount calculation. |
Legislative reference |
Division 13A Subdivision F. |
Eduction/Law interpretation/ATO view clarification |
Education/ATO view clarification |
Comments |
Is it clear how the interaction between ESSs, employment contracts, board decisions and annual general meeeting (AGM) decisions determines timing of acquisition? |
Proposed rating (1–3) |
Conclusion
The Tax Office sees its actions around employee share and option arrangements as appropriate given the risk and behaviours identified. There has been no change in view or practice in our administration of Division 13A. If members have issues relating to specific cases they should raise it with the manager of the team conducting the review or audit.
Members are invited to contribute to the consultation process outlined above by 1 May 2009.
Meeting discussion
Andrew Watson, Director Micro Enterprises and Individuals, attended the meeting to discuss this agenda item.
Members were provided with information on the difference between High Wealth and High Income Individuals and advised that compliance with Division 13A is currently under review. Information on the 2007–08 results were included in last years compliance program.
Consultation, as outlined in the response, has commenced and ATPF and NTLG members have been invited to provide feedback by 1 May 2009.
Members appreciated the comprehensive response provided and some discussion concerning the examples occurred.
There appeared to be an unresolved issue associated with the complexity of calculating the discount when there is a lengthy delay between the issue of shares and the time that the discount needs to be calculated. Members were advised that section 139E election issues were the most common issues raised.
Another issue, associated with section 139DD – reversal of assessment associated with section 139E election was raised. It was queried as to what occurred when shares are issued to an associate as the position did not appear to be clear. Members were advised that guidance and input on general scenarios was being sought and incorporated in FAQs currently being reviewed prior to publishing on the web site, see Employee share schemes. It was suggested that there might be a need for a guidance product.
CTC advised that the issue of deduction of brokerage costs would be reviewed in light of the issues raised in this discussion.
The Commissioner invited members to provide information on issues where additional guidance was required to PALU at PALU@ato.gov.au.
The management of guidance product development will continue through the current ATPF process.
Post meeting update
In the 2009-2010 budget the government has announced changes to the income tax concessions previously available to participants in employee share schemes. The changes will apply to shares and rights acquired under an employee share scheme after 7.30pm (AEST) on 12 May 2009.
The measure will eliminate the existing tax deferral option by removing the ‘election to be taxed upfront’ provisions. This will mean that discounts provided on shares or rights acquired under an employee share scheme will be assessed in the income year the shares or rights are acquired. The measure will also limit access to the existing tax exemption of up to $1,000 to employees with an adjusted taxable income of less than $60,000.
At the time of writing, legislation has not been enacted to give effect to the measure. Members can obtain information such as details as to how to complete the 2009/10 tax return and information about the progress of the Bill that includes this measure at New legislation which can be found at www.ato.gov.au
* All legislative references in this document are to the Income Tax Assessment Act 1936 unless otherwise stated
13. Tax treatment of companies offering bonus share plans to conserve cash
The professions raise an issue which is significant:
- for Australian companies which are seeking to conserve cash at a time of global financial crisis, and
- in raising issues about consistency of Tax Office interpretive approach, with previous rulings, and also the extent to which Tax Office interpretations are 'business friendly'.
At this time of global financial crisis, various companies are exploring mechanisms whereby, in lieu of cash dividends some other recognition can be provided to their shareholders, in a way which meets two requirements:
- providing the shareholders with some perceived rewards, while not seeing cash being dispersed by the company, and
- not giving the shareholder an incentive or requirement to sell their shares.
The options to make non-cash transactions, which are at least perceived by the market as being dividend-like, include:
- dividend reinvestment plans where, very broadly, a dividend is declared and the dividend funds are automatically reinvested in additional shares in the company, and
- bonus share plans, under which a shareholder contractually elects to give up their right to a dividend, and receives a bonus shares. The bonus shares essentially achieve no additional cost base, and thus do not reduce the amount of taxable income ultimately flowing to the shareholder when the shareholder sells their shares.
Section 6BA of ITAA 1936 'Taxation treatment of certain shares' prescribes at section 6BA(5) that where a shareholder has a choice of whether to receive a cash dividend or a bonus share issue, then the receipt of a bonus share issue is treated as being a dividend.
The Tax Office has held the view to date that a bonus share plan, properly constituted, does not provide the shareholder with the choice, and thus section 6BA(5) does not apply, and thus the shareholder can treat the bonus share plan as giving rise to a delusional spreading of cost base, without an amount being assessable as a dividend.
This previous Tax Office position is documented in a Tax Office PBR (Authorisation number 64594) which is quite unambiguous and set out in an analysis of over 1500 words in length, in the discussion of Issue 4 in that PBR:
Where a shareholder of the company elects to receive bonus securities:
the Explanatory Memorandum to the Taxation Laws Amendment (Company Law Review) Bill 1998 makes it clear that where a shareholder has a choice of whether to be paid a dividend or to be issued shares, and the shareholder chooses to be issued with shares the instruments issued are taken to be a dividend….
Where a shareholder of a company elects to receive bonus securities the shareholder never has a right to receive a $X dividend. In such cases when the time for actual payment of the dividend arrives, the shareholder simply has a right to a $Y dividend. The shareholder can never be said to have foregone a $X dividend because the shareholder cannot choose to forego something to which they are not entitled to…….
This approach is further reinforced by the Explanatory Memorandum to Section 6BA of the ITAA 1936…
This PBR, available on the Register, is an extremely detailed analysis of numerous issues, of over 14,000 words, which is over 30 pages long when printed.
PBR 64594 does not represent a rushed or incomplete or preliminary or ill-considered analysis, and the high quality of its analysis suggests that it has received the highest level of input by senior officers of the Tax Office. The analysis of this issue proceeds over numerous pages.
Current apparent change of Tax Office view
We understand that various companies some, anxious to adopt a bonus share plans in order to protect their cash resources at this time of global financial crisis, have approached the Tax Office to seek a PBR or class rulings about the adoption of bonus share plans in 2008 or 2009.
The professions understand that the relevant Tax Office officers appear to now have a different view to that expressed in PBR 64594. The professions understand that the difference of view has not been formally explained, and that Tax Office officers seem to be unaffected by consideration of the fact that public companies are seeking to explore these bonus share plans as a means of cash conservation at a time of financial crisis.
In Draft Tax Determination TD 2008/D17 'Income Tax: In accounting for a dividend reinvestment plan, can a company taint its share capital account for purposes of Division 197 of the ITAA 1997', the draft view of the relevant officers expressed in paragraphs 24 to 25 is that the legal analysis and differentiation between bonus shares and DRPs is not relevant for purposes of section 6BA of ITAA 1936.
There is no detailed analysis, and certainly no attempt to differentiate the very high quality analysis demonstrated by the Tax Office in PBR 64594.
The professions recognise that TD 2008/D17 is in a consultative phase, however this issue is much wider than the minimal analysis in TD 2008/D17 which is directed at other issues, so it is appropriate to resolve this issue expeditiously.
Issues for discussion at the NTLG
However at this time of global financial crisis, and given that this is a major issue for listed Australian companies are seeking to conserve cash, and that indeed various corporates have been unable to use bonus share plans because of the views being expressed by Tax Office officers, the professions would like to discuss the following issues:
- The profession assume that the views expressed in the very lengthy and thoughtfully analysed PBR 64594 in respect of the application of section 6BA to bonus share plans were confirmed with senior Tax Office officers at the time of issue of that PBR. The professions note that section 6BA(5) has been in largely the same form since 1979.
- Can the Commissioner outline the policy rationales why an analysis of the rules, which has been publicly available for some years, which is consistent with the interpretation of most professional advisors, and which has informed the analysis of Corporate Australia, is now considered to be inappropriate by various Tax Office officers involved in the area of corporate capital management?
- Can the Commissioner outline why this change of view, in relation to the treatment of shareholders, should be communicated in a draft tax determination dealing with companies’ share tainting accounts, rather than receiving specific analysis in its own right?
- From the viewpoint of governance and ensuring consistency of Tax Office interpretive approach, can the Commissioner advise whether the issue of draft tax determinations, which obliquely or clearly manifest a change of approach by the Tax Office in material areas such as this matter, involve any process for internal cross-checking with other senior Tax Office officers, to consider the commercial corporate and economic implications of such changes of opinion?
- Because this Tax Office interpretation affects corporate behaviour at this time of global financial crisis, and the uncertainty in this regard has (the professions understand) caused various Australian public companies to be unable to plan for bonus share plans in relation to their 2009 strategies, it is a significant issue. Given that the Commissioner has stated at various recent presentations that the Tax Office is interested in understanding the key problems which corporate Australia has arising from the global financial crisis, so that the Tax Office can help, can the Commissioner advise what is the process to be adopted for the Commissioner to help corporate Australia resolve this apparent divergence from previously communicated interpretations?
Further materials for reference purposes
For completeness, the professions note that section 6BA(6) provides that the rules in section 6BA(5) do not apply where a listed public company has a fact pattern of giving shareholders a choice whether to be paid a minimally franked dividend. However, that particular mechanism is not available for Australian public companies which might have no capacity to pay a minimally franked dividend, because they might have tax losses in relation to their Australian activities through the outcome of the commercial conditions currently in force, or because they have capital allowances or other tax benefits which exceed their taxable income, or the conditions in the current global financial crisis are causing their funding costs to escalate so that they do not have positive taxable income. As a result, the provisions in section 6BA(6) are of no benefit to various Australian companies. In any event those provisions are not relevant when, given the previous very clearly articulated and unambiguous view of the Tax Office, there is not an issue under section 6BA(5) in relation to bonus share plans.
Response
The Commissioner does not accept that there has been a change of view in respect of the application of subsection 6BA(5) to bonus share plans. The agenda item does not point to anything, other than PBR 64594 (PBR 64594), as reflecting the view of the Tax Office in this regard. As the bodies are aware, an edited version of a private ruling is not a precedential advice or guidance product to be used in the same way as a public ruling or an ATO ID.
Section 6BA supplements the definition of dividend in section 6 of the ITAA 1936. It provides rules for the taxation treatment of bonus shares depending on whether or not consideration has been provided for their issue. Subsection 6BA(5) recognises that where a shareholder is offered a choice between shares and a dividend the shareholder essentially provides consideration. The decision to take shares is, in substance, a decision to re-invest the dividend in shares. It thus deems the additional shares to be a dividend.
Whether subsection 6BA(5) applies to bonus share plans depends on the meaning of the words ‘if a shareholder has a choice whether to be paid a dividend or to be issued shares’. That same choice is referred to in subsection 6BA(6). Subsection 6BA(6) provides an exception to subsection 6BA(5) for bonus share plans offered by listed public companies in certain circumstances. There is nothing in the terms, context or policy of section 6BA to suggest that the word ‘choice’ is used differently between subsections 6BA(5) and (6). The fact that subsection 6BA(6) is expressed as an exception to subsection 6BA(5) supports the view that they are not mutually exclusive in operation. Further, section 45 of the ITAA 1936, which is capable of applying to bonus share plans, recognises that subsection 6BA(5) may also apply. Section 45 specifically provides that it only applies to the provision of shares if subsection 6BA(5) does not apply, again recognising an overlap in operation between subsection 6BA(5) and section 45.
There is also nothing in the Explanatory Memorandum to the Taxation Laws Amendment (Company Law Review) Act 1998 to suggest that, in terms of this policy, the choice exercised by a shareholder under a bonus share plan should carry different consequences to the choice exercised by a shareholder under a dividend re-investment plan. In both cases the practical substance of the transaction is that it is equivalent of receiving and re-investing the dividend. The fact of choice suggests that the shareholder has given up the dividend in return for a share.
The conclusion reached in PBR 64594 is considered correct, but some of its reasoning does not appropriately take account of the policy behind section 6BA or its context. The reason why subsection 6BA(5) does not apply to the ‘bonus securities’ in PBR 64594 is that consideration is not, in substance, provided by the shareholder for the bonus security. Most of the special dividend has not been re-invested in the ‘bonus securities’. Rather, the ‘bonus securities’ carry the right to the special dividend, just spread over a period of time. The function of the ‘bonus securities’ is to allow the special dividend, and the franking credits attaching to it, to be traded for value. The transaction in PBR 64594 does not involve a choice between a dividend and a security, but a choice to take that dividend over a longer period of time via the security. It should be noted that PBR 64594 also correctly holds that the small part of the special dividend that was given up by the shareholder to create the bonus security involved consideration and gave rise to a dividend.
It should be appreciated that the amendments to section 6BA in 1998 formed part of a wider suite of provisions dealing with the taxation consequences of changes to the Corporations Law. Where an Australian public company without franking credits offers a bonus share plan and (for some reason) subsection 6BA(5) does not apply, section 45 would apply. The act of offering shareholders a choice to participate in the bonus share plan constitutes a strategy of directing shares and minimally franked dividends between groups of shareholders, and thus is streaming. If section 45 applies the value of the shares is deemed to be an unfranked dividend.
Draft Taxation Determination TD 2008/D17 (now finalised as Taxation Determination TD 2009/4) does not communicate a change in the Commissioner’s view on the taxation treatment of bonus share plans. Rather, it communicates how the share capital tainting rules apply to dividend re-investment plans.
TD 2009/4 does not apply to bonus share plans. This is specifically stated at paragraphs 1 and 12. Paragraph 12 also states that bonus share plans are not considered to be dividend re-investment plans for the purposes of the Determination.
TD 2009/4 states at paragraph 24 that subsection 6BA(1) covers dividend re-investment plans. It also holds that dividend re-investment plans come within the terms of subsection 6BA(5), as they involve the making of the relevant choice.
The Tax Office will consider any requests from the bodies for a public ruling on specific interpretative issues relating to bonus share plans.
Meeting discussion
Members raised the issue where companies are trying to conserve cash due to the global financial crisis through bonus share plans and noted that adverse tax consequences could occur. There was some discussion regarding the payment of company dividends in the current economic climate and the application of section 6BA.
It was agreed that the agenda response provided clarification of the ATO view and that it makes it clear that the only avenue is to seek legislative change. The agenda response discusses the PBR and the outcome.
There was agreement to provide a form of practical guidance to assist with the correct tax treatment of bonus shares.
NTLG0903/04 |
14. Use of the Tax Issues Entry System program
At the last NTLG main meeting, there was a discussion of the Tax Issues Entry System (TIES) program. Members were asked to provide feedback on any administrative issues associated with the program. We would like to formally request the NTLG to put in place a formal program for dealing with technical amendments.
We would request that, where both practitioners and the Tax Office agree that there is a minor technical deficiency in the words of the legislation, a joint document could be submitted to TIES from the NTLG. We believe that this formal process would reduce unnecessary duplication of review work if the issue were to be independently submitted by members of the NTLG.
Furthermore, we would like to request whether the NTLG could formalise this process in each of its working groups and subcommittees, so that any such issues resolved in those groups can also follow the same process.
Response
We agree that the NTLG and its various sub-committees would be a useful source of issues for the TIES process.
Where an issue suitable for the TIES process is identified by an NTLG Sub-committee we suggest that the secretariat for the Sub-committee submit the issue for consideration using the standard TIES process. This involves completion of a simple template on the TIES website. The template allows for the NTLG Sub-committee to be shown as the source of the issue and for any details of conclusions reached by the sub-committee about the effect of the issue and any possible solution.
Our experience to date shows that it is often necessary to make contact with the person who has submitted an issue to get further clarification. For NTLG issues, the contact could be the sub-committee secretariat, if they knew enough about the issue to explain it further, or possibly an individual member of the sub-committee who was prepared to be the point of contact.
Reporting on the progress of NTLG initiated issues would be done via the existing TIES process, using the public register on the TIES website. Sub-committee secretariats could provide updates to their Sub-committees using the public register. TIES also make direct contact on each individual issue with the person who submitted the issue. For NTLG issues that would be the sub-committee secretariat.
It is probably worth reiterating that the TIES process can only deal with ‘care and maintenance’ issues, that is, to ensure the law is operating as intended, by correcting technical or drafting defects, removing anomalies or addressing unintended outcomes.
In practice, TIES issues will be those that can only be resolved by a minor legislative change or by a proper administrative response. To date, issues submitted which have been outside the scope contemplated by TIES have included requests for interpretation of the law and requests for IT systems changes to the Tax Office’s electronic lodgment system for instance.
As a separate issue, we have asked the various secretariats for the NTLG subcommittees to examine their current issues registers with a view to identifying issues that would be suitable for the TIES process. These issues could be added to the TIES register and resolved using that process.
Meeting discussion
TIES is a joint Tax Office and Treasury initiative originating from a Board of Taxation recommendation in the 2007 ‘Improving Australia’s Tax Consultation System’ report. The main focus is to identify legislative and administrative issues relating to the care and maintenance of the tax system. The process within the NTLG arena, is to ‘sweep up’ issues raised through the NTLG and its sub forums and if appropriate, to be included on the TIES register.
Members queried the operation of the register, noting that information should be available on the status of issues raised so they are not constantly raised and rejected. Members were advised that each issue is included on the Public register, which will include outcomes. If the issue is out of scope, that is, not related to care and maintenance issues, this will be included on the register. There is an educative element to the process, providing information on why issues are out of scope.
There are currently approximately 40 issues on the register, in numerical order. The need to re-organise the register will depend on any need for improvements as the process continues.
In response to a query as to whether Treasury would compile a list of issues raised separately to the TIES process, members were advised that it is not intended to establish a TIES type register of all issues raised, for example, announced but unenacted measures.
Members were advised that the current government announces more often topics such as forward work programs and likely sittings (refer Assistant Treasurer’s website). A view was put forward that there should be a single register for all issues raised, including policy and care and maintenance issues, but excluding integrity type issues which may assist in tracking issues and responses. Members were advised that Treasury is responsible for issues raised with the Minister and the process is through the pre-budget submission process. It may be appropriate to consider whether a similar process is appropriate for other than care and maintenance issues as part of the TIES pilot review process.
Information on TIES is included in the Tax practitioner webcast 24 March 2009, which is available on the website.
15. Role of accountants in certifying identity documents
The Tax Office has recently indicated to one of the professional bodies represented on the NTLG that accountants as a group can no longer certify identity documents. The specific advice received from the Tax Office, Client Services area on this matter is as follows:
This is because at all times the person certifying the document should not perform this duty where there is, or it could be perceived, that there is a conflict of interest. For example, witnessing documents where there is an ongoing commercial relationship with the person or for a family member, friend or employee. However, if an accountant is also a JP and does not have an ongoing commercial relationship with the person then they could certify documents.
We are concerned that the Tax Office appears to have changed a long-standing practice in this area without prior consultation with the professional bodies. It also fails to take account of the fact that most accountants are members of a professional body and thus subject to highly stringent ethical and professional standards such as Accounting Professional and Ethical Standards Board (APES) 110 and APES 220 which specifically address conflict of interest issues.
Moreover, the focus of the Tax Office new policy on a perceived conflict of interest arising from a commercial relationship clearly impacts particularly on those members of the professional accounting bodies that are in public practice notwithstanding that a high proportion of these members are also tax agents and thus subject to separate regulatory requirements under the tax agent provisions of the income tax law which is expected to be shortly replaced by the proposed broader national regime contained in the Tax Agent Services Bill 2008.
We note also that members of other professions such as solicitors would also arguably have a problem with the Tax Office new ‘conflict of interest’ policy arising from a commercial relationship.
In this light, the professional bodies who are members of the NTLG would appreciate the Tax Office advice on the following:
- Is the recent information received from the Tax Office on the above matter correct?
- If so, could the Tax Office please show the relevant legislation/regulations or other authority on which it is based.
- When were these changes made? and the relevant background to the changes. Why wasn't the accounting profession consulted on these changes?
- How do these changes sit with relevant state/federal legislation on the designation of people who can certify personal documents?
Response
At the NTLG pre-meeting hook-up, members agreed to refer this item to the ATPF meeting of 27 February 2009 as the issue had been raised at that forum previously, with a report to be provided to the NTLG following that meeting.
A brief discussion occurred at the 27 February 2009 ATPF meeting where it was agreed to further discuss the topic at the next ATPF meeting to be held on 15 May 2009.
Meeting discussion
Deputy Commissioner, James O’Halloran advised members that there has been no change in Tax Office policy in respect of accountants being able to certify documents. This issue has been raised several times over the past years at the NTLG and ATPF forums. It was confirmed that there has been no change in the policy as to who is able to certify documents.
The policy was established in 1996 due to concerns regarding the possible conflict of interest. At the ATPF meeting of 27 February 2009, it was agreed to table the position and a follow up discussion is to occur at the 15 May 2009 meeting. This discussion will confirm the current position as well as the background and rationale.
This issue will be managed through the ATPF forum, and will be included as an agenda item for the 15 May 2009 meeting.
16. Trust practice statement
On 18 December 2008, the Tax Office circulated a draft Practice Statement on the ‘Taxation of the section 95 net income of a trust’ and a covering note providing background information to external NTLG members for comment to the NTLG Trust Consultation Sub-group by 13 February 2009.
The external NTLG members would appreciate the Tax Office providing an update on developments in respect to this matter at the March 2009 meeting.
Action item 0811/06 refers.
Response
A draft practice statement about the application of Division 6 was discussed at a meeting of the NTLG Trust Consultation Sub-group (TCSG) on 1 December 2008. Members wishing to make further written comments were invited to do so by 10 December 2008. As a result of feedback from Sub-group members, the practice statement was revised in respect of a number of issues.
The revised practice statement, together with a note outlining the discussions at the TCSG meeting, was distributed to NTLG members on 18 December 2008. NTLG Members were asked to provide written comments by 13 February 2009. To date we have only received a couple of submissions. We therefore asked Members if they require further time in which to make their submissions and a number of have indicated that they do. Further submissions will therefore be accepted up to and including the week ending 27 March 2009.
SME has also consulted with the SME ATPF in respect of the draft practice statement. SME has asked for comments from the members of that forum by 27 March 2009.
The Tax Office is currently considering the comments that have been provided by both NTLG and sub-group members. Once submissions from all of the forums are to hand we hope to distribute a compendium of issues and responses.
Meeting discussion
There was a general discussion about what the Tax Office should do to provide taxpayers and advisers with some degree of certainty about the application of Division 6 pending further clarification of the law by the court and any reform of the law. It was acknowledged by all members that law reform was needed but that this was unlikely in the short term. Members also acknowledged that the decision in Bamford is not expected to resolve all outstanding issues.
After some discussion about the draft practice statement the Commissioner suggested that the Tax Office would look at identifying in a revised paper those arrangements and practices which are not acceptable. This would provide some certainty to taxpayers and advisers by highlighting the areas which the Tax Office would focus on pending clarification of the law.
The Commissioner also stated that taxpayers could continue to rely on PS LA 2005/1 (GA) relating to the taxation of capital gains of a trust.
The Tax Office will review feedback on the draft practice statement and prepare a revised paper which will include the identification of practices and arrangements which are unacceptable. This revised paper will be sent to the bodies for comment before it is finalised.
NTLG 0811/06 Action item NTLG0811/06 (revised 27 March 2009) |
17. CGT consequences of earnout arrangements (TR 2007/D10)
It is understood and that the Rulings Panel was to finalise the outstanding issues around TR 2007/D10 at an out of session meeting in November 2008.
Would the Tax Office please provide a report on its progress, including confirmation whether or not the issues have been resolved and when we can expect a finalised ruling?
Response
Following consideration of feedback on the draft ruling, the CTC has decided to defer finalisation of the ruling pending discussions with the Treasury.
Meeting discussion
Members were advised that this issue is on-going and members will be advised of the progress of the draft ruling.
NTLG0903/05 |
18. Brokerage costs – sale of shares assessed under Division 13A
Brokerage costs incurred by an employee in selling shares that are assessed solely under Division 13A.
This agenda item was submitted prior to the 26 November 2008 meeting and included as Other business at agenda item 17.1. Action item NTLG 0811/10 was raised regarding the provision of a response.
We seek clarification of the Tax Office position on the deductibility of brokerage costs under section 8-1 of ITAA 1997 when:
- the brokerage costs are incurred by an Australian resident employee in selling qualifying shares or rights in circumstances where the discount is included in the employee’s assessable income under the provisions of section 139B(3) of ITAA 1936, and
- the qualifying shares or rights are disposed of within 30 days of the cessation time (section 139CC(3)).
In this instance, the entirety of the discount is included in assessable income under Division 13A, and the CGT provisions do not apply – see section 130-83(2).
Consistent with the legislative scheme of Division 13A of ITAA 1936, we note:
- shares or rights are only issued or acquired under an employee share scheme if the shares or rights are acquired 'in respect of, or for in relation directly or indirectly to, any employment of the taxpayer or an associate of the taxpayer' – section 139C(1)
- Division 13A was preceded by sections 26AAC and 26(e), and those provisions were introduced as a means of quantifying and codifying the income tax treatment of benefits arising to an employee in consequence of their employment – see, for example, McArdle v. Federal Commissioner of Taxation (1988) 19 ATR 985
- we submit that the 1st positive limb of section 8-1 is satisfied because the occasion of the brokerage costs is found in the production of assessable income (see, for example, Federal Commissioner of Taxtion v. Day [2008] HCA 53 at paragraph 30)
- the brokerage costs would not be an outgoing of capital or of a capital nature under section 8-1 on the basis that the occasion for the outgoing is the derivation of assessable income from the carrying out of the employee’s regular employment duties and as a financial reward for their exertion – see, for example, Romanin v. Federal Commissioner of Taxation [2008] FCA 1532
- section 139CC(3) only applies where shares or rights are disposed of in an arm’s length transaction within 30 days of the cessation time. Logically, brokerage costs will almost always be incurred contemporaneously with a disposal to which section 139CC(3) applies and the resulting assessable income being derived. By contrast, where section 139CC(4) applies (because the shares or rights are not disposed of within 30 days of the cessation time), brokerage costs would be taken into account in calculating any capital gain or loss. As such, to exclude brokerage costs from deductibility under section 139CC(3) would be anomalous, and
- the concept that brokerage costs incurred in deriving assessable income is deductible is consistent with the treatment of shares or rights held as trading stock and as revenue assets.
Does the Tax Office accept that brokerage costs are deductible under section 8-1 of ITAA 1997 when incurred by an Australian resident employee in selling qualifying shares or rights in circumstances where the discount is included in the employee’s assessable income under the provisions of section 139B(3) of ITAA 1936 and the qualifying shares or rights are disposed of within 30 days of the cessation time (section 139CC(3))?
Concern has been raised that from a policy perspective, unless a deduction is allowed under section 8-1, in these circumstances the brokerage costs would otherwise fall into blackhole expenditure, and section 40-880 of ITAA 1997 is of no assistance.
If the Tax Office is of the view that the brokerage costs are not deductible, then would the Tax Office support an approach to Treasury to consider an amendment to the law, given these costs are not taken into account in either section 8-1, Division 13A, section 40-880 or under the CGT provisions?
Moreover, as a practical matter, many employees who sell qualifying shares or rights which are arranged through a broker organised by their employer are only paid the ‘net’ proceeds after brokerage costs have been deducted and would ordinarily only be including the ‘net’ proceeds in their assessable income.
We are not aware that the Tax Office has provided any guidance on this issue in terms of public rulings.
Response
The broader implications of the High Court decision in Day and the Federal Court decision in Romanin are being considered, and a response will be provided once this is finalised.
Meeting discussion
The agenda response was accepted. A response will be provided following considerations of the above mentioned court cases.
This agenda item was initially submitted prior to the 26 November 2008 NTLG meeting and action item NTLG 0811/10 was raised regarding the provision of a response. A response will be provided under action item NTLG0811/08.
Post meeting update
The following response to the agenda topic was forwarded to NTLG members on 7 May 2009.
The Tax Office accepts that brokerage costs are deductible under section 8-1 of the ITAA 1997 when incurred by an Australian resident employee in selling qualifying shares or rights in circumstances where the discount is included in the employee’s assessable income under the provisions of section 139B(3) of the ITAA 1936 and the qualifying shares or rights are disposed of within 30 days of the cessation time (section 139CC(3)).
19. TaxPack 2009
The Tax Office would like to inform members of significant style and content improvements to this year’s TaxPack publication and changes to our tax time publication delivery strategy, and seek advice on potential impacts for tax practitioners.
The TaxPack 2009 was presented to the ATPF on Friday 27 February 2009.
Response
Key points
- TaxPack 2009 has undergone a significant redesign. It is now written using simpler language and offers an improved layout and overall readability to enhance the experience for the remaining paper self-preparer lodgers.
- The Tax Office has simplified the tax-time paper lodgment offer to the community.
- The Tax Office is in the final stage of phasing out home deliveries of TaxPack 2009 and TaxPack 2009 supplement.
- TaxPack 2009 and TaxPack 2009 supplement will be available from newsagents, at Tax Office shopfronts and for home delivery through our telephone and online product ordering system.
Background
Over the past three years, the Tax Office has recognised a clear community preference by those who choose to self-prepare to lodge tax returns online using e-tax. Each year, the uptake of e-tax increases substantially and the number of paper form lodgments decreases. Accordingly the Tax Office, while continuing to provide a paper tax return lodgment service to the community, has reviewed existing strategies in recognition of the decline in use of these paper products.
We have further simplified the paper lodgment offer to the community by reducing and simplifying the number of products available to improve the lodgment experience and reduce waste of resources such as paper. We have also decided to not publish Retirees TaxPack in 2009.
TaxPack 2009 has been written using simpler language and making it more accessible to a broader audience (including retirees). It has an improved layout and is more readable with a larger printed font size. We have removed content not directly relevant to preparing an income tax return, bringing it closer to its original intent of providing instructions for people to prepare their income tax return.
User testing of the content and format means that we can be confident that the product is an improved version for our remaining paper tax return lodgers.
TaxPack 2009 will not be marketed as a new product and reference to it will only be made as part of the normal tax time communications. Tax Office communications will continue to encourage online lodgment via e-tax for self-preparers and will also advise how to acquire a paper product. A separate tax time message to former users of Retirees TaxPack is planned.
TaxPack 2009 supplement is not changing significantly this year, and the main change being made to the income tax return form is increasing the font size.
For tax time 2009, we will completely phase out household deliveries of TaxPack to New South Wales, Western Australia, Victoria and the Australian Capital Territory after successful trialling deliveries of e-tax products in 2007 and 2008. E-tax products will only replace household deliveries of TaxPack to South Australia, the Northern Territory, Queensland and Tasmania.
Deliveries of the short tax return instructions 2009 and other smaller tax-time products will continue.
TaxPack 2009 and TaxPack 2009 supplement will continue to be available to taxpayers through newsagents, Tax Office shopfronts and the Tax Office website, or they can be ordered by phone. In addition, e-tax is available from the Tax Office website.
Meeting discussion
Members were provided with information regarding changes to the content and delivery of TaxPack for tax time 2009.
The Tax Office acknowledged the need to continue to assist taxpayers who lodge their tax returns on paper, estimated at approximately one million users, including TaxPack users. There has been an increase in the use of e-tax.
Changes for this year include the withdrawal of Retirees TaxPack as it does not appear to be meeting their needs. Products for self preparers are being revised and members were provided with examples of prototypes. Some of the changes including the use of plainer language and inclusion of the more technical information at the back of the publication were discussed. Changes for the following year are also being considered. Members suggested some additional improvements to the layout of information, including directing taxpayers’ attention to areas on the pages that require action.
The Commissioner invited members to forward any further suggestions directly to Assistant Commissioner, Megan Yong.
Changes to distribution arrangements were also covered. Members were advised that there was a positive response to the CD mail out pilot, which has resulted in a wider distribution for this year.
It was acknowledged that a number of tax agents utilise TaxPack as a reference guide. Members queried if a CD, containing references used in tax time products, could be made available for agents use. Members were advised that publications referred to in TaxPack will be available on the Tax Office website.
Members were provided with the following handout detailing proposed changes.
Tax time 2009 – the paper offer
Each year the number of taxpayers lodging their income tax returns electronically continues to increase. The popularity of features such as pre-filling of income tax data has made this lodgment channel increasingly attractive to a large percentage of taxpayers. The Tax Office will continue to further develop and promote its electronic lodgment products. Taxpayers who use the paper TaxPack to prepare and lodge their income tax return are a diminishing segment of individual taxpayers. For the 2007–08 year the percentage of paper TaxPack lodgers is less than 10%.
During this year the Tax Office has had a project team reviewing and renewing this paper product with a view to improving the product for those unable to utilise the electronic channels.
The project team have worked closely with technical areas of the Tax Office. In addition, user testing of the content and format means that we can be confident that the product is an improved version for the remaining paper tax return lodgers. TaxPack supplement is not changing this year, and the main change being made to the income tax return form is increasing the font size.
Tax time paper product changes 2009
Paper product |
Change to product |
No change to product |
Existing TaxPack |
Replaced with 'new style' TaxPack |
|
New TaxPack 2009 |
Plainer English, refined content and improved structure. Necessary technical changes |
|
Existing TaxPack supplement |
Necessary technical changes. Cosmetic changes to meet style of 'New TaxPack' |
No change to written style |
Retirees TaxPack |
Replaced with new TaxPack |
|
Short tax return (can be lodged via IVR) |
||
Family Tax Benefit claim |
Discontinued |
No change to written style or structure |
How the paper tax time products will be distributed
Product |
Available in newsagents |
ATO shopfronts, online and phone ordering systems |
Available on the web |
Direct delivery based on 2008 lodgments |
New-style TaxPack 2009 |
ü |
ü |
ü |
|
TaxPack 2009 supplement |
ü |
ü |
ü |
|
Short tax return |
ü |
ü |
ü | |
Business and professional items |
ü |
ü |
||
Refund of franking credits |
ü |
ü |
ü | |
Baby bonus (last year) |
ü |
ü |
ü | |
TaxPack referred publications (for example, Capital Gains Tax Guide) and business referred publications |
High volume publications at shopfronts and online ordering |
ü |
Summary
- The TaxPack product for 2009 will be a more plain English style to enhance the experience for the remaining paper lodgers.
- TaxPack and TaxPack supplement will be distributed via newsagents, shopfronts.
- Online ordering system.
- Tax Office communications will continue to encourage online lodgment via e-tax and will also advise where to go to acquire a paper product.
Action item |
NTLG 0903/06 |
20. NTLG Sub-forum governance report – Consolidations Sub-group
This is a standing agenda item which enables the NTLG sub-forums to provide governance reports and discussions associated with the NTLG sub-committees.
The Consolidations Sub-group (CSG) has been nominated by NTLG members to provide the governance report at the 27 March 2009 meeting.
Response
Assistant Commissioner, John Evans, chair of the NTLG CSG will attend the meeting to discuss the report.
Chair
John Evans, Assistant Commissioner, Centre of Expertise, Consolidations.
Secretariat
Shirley Cooper-Dixon, Centre of Expertise, Consolidations, and
Karin Collinson, Centre of Expertise, Consolidations.
Purpose of sub-group
The NTLG CSG provides a forum for the Tax Office, Treasury and professional and industry associations to raise and discuss legal and administrative issues in relation to the consolidation provisions. The sub-group operates as a consultative forum to identify and prioritise the most significant technical and administrative consolidation issues and to help the Tax Office form interpretative views and resolve administrative issues.
Membership
The sub-group membership includes senior members of the Tax Office with responsibility for the administration of the consolidation provisions. A Treasury officer familiar with the consolidation provisions attends the sub-group in an ex officio capacity.
The following professional bodies are represented on the CSG:
- Institute of Chartered Accountants in Australia
- CPA Australia
- Taxation Institute of Australia
- Corporate Tax Association
- National Institute of Accountants
- Law Council Of Australia
- Investment and Financial Services Association
- Australian Bankers’ Association
- Minerals Council of Australia, and
- Australian Petroleum Production and Exploration Association.
The sub-group membership also includes representatives of major accounting firms. Some of these representatives have contributed to public forums concerning the consolidation provisions since the time of the Ralph Review. Some external members of the sub-group have a very deep knowledge of the provisions.
Sub-group background
The NTLG CSG was formed in late 2002 and has been meeting since March 2003.
Compliance with Corporate Management Practice Statement (CMPS) 2006/06
The NTLG CSG complies with the requirements set out in the Corporate Management Practice Statement PS CM 2006/06. The sub-group has published a NTLG Consolidation Sub-group charter. In December 2007 the sub-group conducted a review of membership by way of questionnaire. Survey responses indicated that there is general satisfaction amongst the members on the running of the sub-group. Presently sub-group membership is under review.
Sub-group operations
Generally the sub-group operates as follows:
- there are two meetings per year, approximately six months apart, in Melbourne
- prior to each meeting, members jointly prioritise the issues they consider to be of highest priority
- at the meeting, the Tax Office advises those issues it accepts as being systemic and significant
- generally, the Tax Office will produce a discussion paper in relation to an issue, and distribute it to members before the subsequent meeting
- members may respond in writing or otherwise prior to the meeting, and
- the issue is discussed at the meeting and a decision is discussed as to how the matter, considering its significance, may most appropriately be resolved.
There may be other interactions on particular issues if it is necessary.
Process issues
On 13 May 2008 the current government released a list of twenty five consolidation related measures announced by the previous government that the current government intends to proceed with. It is expected that draft legislation in relation to eighteen of these measures will be released for consultation very shortly.
Very few new high priority issues have been raised with the sub-group by tax practitioners since the legislative announcements, with the exception of an issue concerning convertible notes.
External representatives have expressed the need to maintain a primary focus on providing input into the consultation process regarding these announced legislative changes. However the release of the legislation in draft form has been slower and less complete than originally anticipated.
Progress of issues
The sub-group has seventeen high priority issues on hand.
Of these seventeen issues on hand:
- two have been on hand since the meeting of 26 February 2009. They were Tax Office initiated
- thirteen involve matters on the 'T list' of the Consolidation Issues Register. Treasury is aware of these issues. The Tax Office is of the view these issues will require a legislative solution
- one matter awaits the finalisation of Draft TR 2007/D10 ‘Capital Gains Tax; consequences of earnout arrangements’, and
- one issue relates to trusts joining and leaving a consolidated group during an income year. While a legislative modification for 2007-08 onwards has been announced, an appropriate administrative solution for the prior period is under discussion. This needs to take account of the wider review of trusts.
Work done as a result of NTLG sub-group discussions concerning the single entity rule over the last two years culminated in the formation of a project team of senior Tax Office staff so as to ensure a systematic approach was adopted in addressing related issues.
A paper on single entity issues will be presented by Deputy CTC at the upcoming Consolidation Symposium.
There are a range of high priority issues on the T register which have been referred to Treasury but in respect of which there have not yet been government announcements. A copy of the high priority issues register A is included below. Both registers will be published on the web site.
Current significant issues before the sub-group
Convertible notes
This issue arose as an NTLG sub-group issue at the initiative of a representative sub-group member. The Tax Office has some concerns with non-share equity instruments and how they are treated in the tax cost setting process. These have been referred to Treasury. This is an issue where it is anticipated there may be a need to consult with external members before a solution might be arrived at.
Multiple entry consolidated (MEC) groups
Complexity burdens the administration of the tax system and the MEC provisions and their interaction with the wider Act are complex. The Tax Office is concerned as to the burden of compliance costs for MEC groups. Sub-group members have observed that the interaction of the MEC group rules and other income tax provisions introduce unintended ambiguity. There is open acknowledgement by Sub-group representative members of the need for legislative direction concerning MEC groups. Collaborative discussion of MEC group issues with members of the sub-group would be welcomed and input was requested.
Deferred tax liabilities
A discussion paper was circulated to sub-group members prior to the 26 February 2009 meeting and feedback requested in the hope that the Tax Office and members could agree on a way forward in dealing with deferred tax liabilities (DTLs). Members agreed to review the discussion paper and provide comments by 30 May 2009 such that the findings could be presented to the sub-group at the next meeting.
Status of issues as at March 2009 considered by the sub-group
CSG – Issues register Priority 'A'
Issue no. |
17.21 |
Issue |
The implications for consolidation of the view expressed in the recently released Draft Taxation Ruling TR 2007/D10, Capital gains tax: consequences of earnout arrangements. |
Expected treatment |
This issue will be further considered. |
Comments |
Accepted as a Priority issue at the 21 November 2007 meeting. A technical discussion paper regarding effect of subsection 705-65(5B) having regard to TR 2007/D10 was presented at the 12 June 2008 sub-group meeting. |
Indicative timeline |
Undertaking further research and consultation, including with Treasury, to clarify the Tax Office view on 'earnout rights'. |
Issue no. |
17.22 |
Issue |
Trust joining and leaving a consolidated group during an income year. |
Expected treatment |
CRM material and other administrative approaches are being considered. |
Comments |
Phone hook-up with the working party established by the Sub-group was held on 23 November 2007 to discuss interpretative approaches. |
Indicative timeline |
Administrative approaches, including draft material for the Consolidation Reference Manual, is being considered. |
Issue no. |
17.23 |
Issue |
Deferred Taxes in the Allocable Cost Amount (ACA) and the Tax Cost Setting Process. |
Expected treatment |
Feedback from NTLG sub-group members requested. |
Comments |
Accepted as a Priority issue at the 26 February 2009 meeting. Technical discussion paper regarding Deferred Taxes in the ACA and the Tax Cost Setting Process was presented at that meeting. |
Indicative timeline |
Members were invited to provide feedback on the discussion paper by 30 May 2009. |
Issue no. |
17.24 |
Issue |
Single entity rule and foreign branches. |
Expected treatment |
A further discussion paper is expected to be presented at the next sub-group meeting. |
Comments |
Accepted as a priority issue at the 26 February 2009 meeting. A technical discussion paper regarding the interaction of the single entity rule with the attribution rules was presented at that meeting. |
Indicative timeline |
Members were invited to provide feedback on the discussion paper by 30 May 2009. |
Conclusion
The Chair wishes to acknowledge the assistance from members of the sub-group who have contributed helpful technical insight and the valuable input of the Treasury representative.
Meeting discussion
John Evans, Chair of the Consolidations Sub-committee, provided an outline of the main issues before the sub-group.
Some of these issues were briefly discussed, including how they are to be progressed.
Members acknowledged that the sub-committee is quite active and complimented the members on its work.
The CTC suggested that there may be a need for a review of systemic issues which have been identified. There appears to be a need for legislative changes to resolve some of the uncertainty associated with aspects of the Consolidation provisions.
There was agreement to focus on some systemic issues such as MEC and convertible notes at the next Sub-group meeting, scheduled for July 2009.
Post meeting update
The Assistant Treasurer, the Hon Chris Bowen MP, announced the release of exposure draft legislation and associated explanatory material to improve the income tax consolidation regime on 28 April 2009 in media release no.033 (refer The Treasury – The Hon Chris Bowen – Media Releases – 2009 – 33 28/4/2009 Release of Draft Legislation to Improve the Consolidation Regime).
The exposure draft legislation implements the majority of the changes announced in the 2008–09 Budget to enhance the operation of the consolidation regime and improve interactions with other parts of the law. Treasury has invited submissions by 25 May 2009.
21. General Anti-Avoidance Rules Panel Report
This is a standing agenda item and is included in the agenda twice yearly, at the March and September NTLG meetings.
Issues log item NTLG 0609/10 refers.
Response
1 July 2008 to 31 December 2008
Membership of the General Anti-Avoidance Rules (GAAR) Panel at 31 December 2008 was:
- Des Maloney (Chair from December 2008)
- Nick Oliver
- Andrew England
- Stephanie Martin
- Justice Tony Pagone (external member)
- Tony Pane (external member), and
- David Williams (external member).
Peter Walmsley chaired the panel until the November 2008 GAAR panel meeting. In December 2008 Des Maloney took over as Chair of the panel.
The panel met six times during the period July to December 2008 considering a total of nine issues, three of which had been considered previously by the panel earlier in 2008 and late 2007.
Four of the meetings (July, August, October and November) were one day meetings. The September and December meetings were held over two days.
In accordance with the processes set out in Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules, taxpayers attended panel meetings and gave presentations to the panel on all occasions. In all instances the taxpayers concerned chose to be represented by solicitors or accountants; in five instances the taxpayer concerned also chose to be represented by counsel.
Examples of the types of arrangements considered by the panel during the relevant period included:
- debt deduction arrangements
- capital reduction arrangements (TD 2003/3 provides the Tax Office views about these types of arrangements)
- employee remuneration arrangements (refer to Taxpayer Alert TA 2008/13)
- trust loss arrangements (the arrangement is similar to the one considered by the High Court in Raftland Pty Ltd as trustee of the Raftland Trust v. Commissioner of Taxation [2008] HCA 21)
- trust stripping and washing arrangement (similar to Taxpayer Alert TA 2005/1 and Tax Determination TD 2005/34)
- international merger/acquisition tax structuring arrangement, and
- withholding tax avoidance arrangement.
In six of the matters considered, the panel advised that the relevant GAAR may apply.
In two of the matters before the panel, the panel advised that while the Commissioner had arguments available under the relevant GAAR, Part IVA could not have application without further available evidence being obtained. The panel advised that if the Commissioner was able to obtain the further evidence, the matter should return to the panel or panel chairman for further consideration.
Of the remaining matter, the panel advised that the relevant GAAR would not have application if the scheme is carried out as outlined by the taxpayer.
Meeting discussion
Members accepted the report.
A query regarding Part IVA processes was raised and it was confirmed that in instances where a position paper is issued to a company and it is referred to the GAAR panel, taxpayers are invited to attend the panel hearing.
Post meeting update
The role and operation of the GAAR panel is outlined in the Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules. Previous NTLG meeting minutes, for example, 20 March 2007, provide instances of taxpayers attending panel hearings.
22. Public Ruling Steering Committee
This agenda item is to provide an update on the recent activities of the Public Ruling Steering Committee.
This is a standing agenda item noted as NTLG 0711/08.
The Steering Committee will next meet on 23 March 2009.
Response
At the 23 March meeting, the Steering Committee proposes to discuss the following items:
- any new issues raised by the NTLG sub forums
- the status of the ruling on section 73CA of ITAA 1936
- McNeil’s case and its suitability as a ruling
- the public rulings program, and
- committee governance issues.
An update from the steering committee meeting will be provided at the NTLG meeting.
Meeting discussion
Second Commissioner, Bruce Quigley provided an update following the Steering Committee’s meeting on 23 March. Copies of the draft minutes from that meeting were provided to members, and will be available on the website.
Members were advised that there are a few rulings going forward, and that the steering committee was finalising its charter containing its operating guidelines.
A query was raised regarding the progress of the ruling on 73CA, and members were advised that it was nearing finalisation. The ruling had been presented to the panel and a revised draft was to be circulated to the sub-committee. The need to finalise the ruling was acknowledged.
The issue of uncertainty associated with aspects of section 25-90 was raised. It was queried as to whether a TD or ATO view on arrangements of outbound investments would be likely.
The Commissioner advised that if the issue is significant, it would be included on the rulings program.
Second Commissioner Quigley reissued the invitation to members that they were welcome to advise the Steering Committee of high priority issues at any time.
Post meeting update
Aspects of section 25-90, in particular, compliance activity associated with cross border issues were discussed at the 6 March 2009 Finance and Investment NTLG Sub-group meeting. The possibility of issuing alerts was raised at the sub-group meeting under agenda item 5. Please refer to the Finance and Investment Sub-group minutes for more information.
Taxpayer Alert TA 2009/9: Contrived cross-border arrangements that seek to generate debt deductions for non-assessable non-exempt income was published to the website on 23 April 2009.
23. Amendment period for individuals or simplified tax system taxpayers
This issue was raised at the 26 November 2008 meeting at agenda item 7.
As a result of the discussion at the meeting, it was agreed that a more detailed explanation of the issue was to be considered and members advised. A more detailed explanation is provided below.
Action item 0811/05 refers.
Response
Under Section 170 of the ITAA 1936 the period in which the Commissioner can amend an assessment for most individuals, including small business entities, is two years. The term small business entity has the meaning given in section 328-110 of the ITAA 1997. A small business entity is an individual, partnership, company or trust that carries on a business for all or part of the income year and has less than $2 million aggregated turnover.
However, there are some individuals who are specifically excluded from the two year period of review because they have more complex affairs. Those individual taxpayers who are excluded from the standard two year review period are identified by the qualifications in the table in subsection 170(1). Those excluded from the two year review period include a taxpayer that:
- is a recipient of partnership income (from a partnership that is carrying on a business) or a trust distribution, where the partnership or trust is not a small business entity for that year
- gets a benefit from a scheme entered into or carried out with the dominant purpose that the taxpayer (or someone else) get a tax benefit, or
- is excluded from the two year period by regulation.
Taxpayers excluded from the standard two year amendment period generally have a four year period of review, as provided for by item 4 in the table in subsection 170(1). As such, section 170 operates so that a taxpayer has a standard period of review of either two or four years, depending on their circumstances, in which alterations or additions can be made to their assessments.
The aim of a standard period of review is to limit the time during which taxpayers experience uncertainty over whether they have correctly self assessed their income tax liability. Subsection 170(1) does not limit the Commissioner’s power to amend an assessment within the standard period of review. Rather the subsection provides a general grant of power enabling the Commissioner to amend an assessment at any stage within the relevant standard period of review, by making such alterations in or additions to it as he or she considers necessary.
Example: two year amendment period
Gyles is an individual taxpayer who is subject to the standard two year amendment period. He received his original 2007–08 assessment on 31 October 2008. In May 2009 a Tax Office risk review identifies dividend income which Gyles had not included in his income tax return. The Commissioner is able to amend his assessment to include the extra income until 31 October 2010.
Example: four year amendment period
In his 2007–08 income tax return, George included his salary and a trust distribution from a managed fund investment. George received his original notice of assessment on 30 November 2008. This trust is not a small business entity. On 1 December 2011, the Commissioner amends the assessment to include additional salary income. Although the amended assessment was issued more than two years after George received his original notice of assessment, he is not eligible for the standard two year amendment period for 2007–08 because he is a recipient of a trust distribution from a trust that was not a small business entity for that year.
The Commissioner may issue an amended assessment to George with respect to any subject matter or particular as he or she considers necessary within four years after the day on which the Commissioner gave George notice of the 2007–08 assessment. In this example, the Commissioner has done so in respect of George’s salary income.
Provisions which provide for an unlimited period for the Commissioner to amend
The Commissioner’s power to amend during the relevant standard period of review can be contrasted with the Commissioner’s power to amend returns under those sections which provide for an unlimited amendment period, in particular, items 5 and 6 in the table in subsection 170(1) and subsections 170(10) and (10AA). Under those provisions, amendments issued outside of the standard period of review are ordinarily confined to those subject matters or particulars which caused the individual to fall within the scope of those sections.
For example, an amended assessment issued under item 1 of the table in subsection 170(10) allows the Commissioner to amend an assessment at any time for the purpose of giving effect to section 23AB. 23AB relates to persons serving with an armed force under the control of the United Nations. Item 1 of the table in subsection 170(10) ensures that a civilian, who at the direction or with the approval of the Commonwealth, is serving outside Australia with an armed force under the control of the United Nations is afforded the special concessions provided by section 23AB. An assessment in respect of a person who has performed United Nations service may be amended at any time to apply a provision of section 23AB which applies in consequence of that service.
Similarly, under item 5 of the table in subsection 170(1), amendments made outside the usual statutory amendment period where there has been fraud or evasion would normally be confined to the issue or particular to which the avoidance of tax due to fraud or evasion relates.
Example: unlimited amendment period
Robyn claimed deductions in her 2005–06 income tax return in connection with a pre-paid outgoings scheme. She received her 2005–06 income tax assessment notice on 1 December 2006. On 1 July 2011, the Commissioner issued an amended assessment to Robyn for the 2005–06 year of income disallowing the pre-paid outgoings claimed. The expenditure was not allowable as a deduction in 2005–06 because of section 82KJ of the ITAA 1936. Because section 82KJ is listed at item 12 in the table in subsection 170(10) the Commissioner could amend Robyn’s assessment in relation to the pre-paid outgoings without time restriction. Subsection 170(10), in so far as it relates to section 82KJ, ensures the amendment does not apply to Robyn’s assessment beyond these matters.
Meeting discussion
Chief Tax Counsel, Kevin Fitzpatrick advised that the agenda response addressed the issue.
While members accepted the response provided, they requested some additional form of guidance to assist in determining whether the two or four year period applied. An issue similar to this was raised at a Tax Practitioner Advisory Group meeting.
It was agreed to publish the information on this issue to the web.
NTLG 0903/07 |
24. Matters referred to sub-forums, NTLG work program and management of issues
The sub-forum reports and information provided on action items were accepted by all present.
24.1 Report on action items arising from 26 November 2008 NTLG meeting
Action item |
NTLG0811/01 |
Description |
A discussion on the TIES process is to be included on the agenda for the March 2009 NTLG meeting. Refer agenda item 1. |
Status |
Ongoing |
Outcome/resolution |
Members submitted 'use of TIES program' as an agenda item for the 27 March 2009 NTLG meeting. A response has been included into the March 2009 agenda. It has been agreed to include TIES as a design topic for the June 2009 NTLG meeting. Secretariat processes have ensured this will be included as an agenda item for the June meeting. |
Action item |
NTLG0811/02 |
Description |
A workshop to discuss issues associated with the 2009–10 Compliance Program is to be scheduled for February 2009 with relevant stakeholders. Members are invited to submit issues for consideration. This item is to be included on the agenda of the 27 March 2009 NTLG meeting. Refer agenda item 4. |
Status |
Ongoing |
Outcome/resolution |
It was agreed to include a discussion on the 2009–10 Compliance Program as a design topic for the 27 March 2009 NTLG meeting in lieu of the proposed workshop. |
Action item |
NTLG0811/03 |
Description |
A phone hook-up is to be arranged with members to discuss the issues associated with Division 7A loans and the part repayment prior to lodgment in more detail and determine the way forward. Refer agenda item 5. |
Status |
Ongoing |
Outcome/resolution |
In December 2008 members put forward a paper regarding interpretative anomalies in relation to section 109E. Members raised the prospect of a public ruling being developed to provide a definitive view. Check if this should be included in the TIES stock take. On 22 December 2008 the Tax Office issued to members the following statement; 'the Tax Office thanks the members of the NTLG who have contributed to the raising of the perceived anomaly as it relates to section 109E and amalgamated loans of the ITAA 1936. In recognition of the concern raised, the Tax Office will look to develop an interpretative product to provide clarity and consistency in the application of relevant provisions within Division 7A. Furthermore, in recognition that both tax practitioners and their clients may have incorrectly assumed that repayments prior to the lodgment or due date of lodgment of the private company return were considered to form part of the minimum yearly repayments of such loans, the Commissioner will address this in a forthcoming practice statement. Such a practice statement will highlight the acceptance that such instances can be accepted as being an inadvertent omission or honest mistake'. Members will be advised once finalised. |
Action item |
NTLG0811/04 |
Description |
Consideration is to occur to review the company tax return guide to include a prompt regarding loan repayments made prior to 30 June. Refer agenda item 6. |
Status |
Finalised |
Outcome/resolution |
The request has been accepted and arrangements are being made to include the following statement in the 2008–09 Company Return Form Instructions. For loans in an earlier income year that have not been fully repaid by the end of the 2008–09 income year, a deemed dividend may arise if the minimum yearly repayment calculated under subsection 109E(5) of the ITAA 1936 has not been made to the company by the end of the 2008–09 income year. |
Action item |
NTLG0811/05 |
Description |
An explanation of the application of the amendment period for taxpayers is to be considered and members advised. Refer agenda item 7. |
Status |
Ongoing |
Outcome/resolution |
A response for guidance on the exceptions to the two year amendment period has been included in this agenda (27 March 2009) as item 23. |
Action item |
NTLG0811/06 |
Description |
A copy of the draft practice statement relating to Division 6 matters is to be distributed to NTLG members in late December for comment by 14 February 2009. Refer agenda item 10. |
Status |
Ongoing |
Outcome/resolution |
A draft practice statement about the application of Division 6 was discussed at a meeting of the NTLG TCSG on 1 December 2008. Members wishing to make further written comments were invited to do so by 10 December 2008. As a result of feedback from sub-group members, the practice statement was revised in respect of a number of issues. The revised practice statement, together with a note outlining the discussions at the TCSG meeting, was distributed to NTLG members on 18 December 2008. NTLG Members were asked to provide written comments by 13 February 2009. To date we have only received a couple of submissions. We therefore asked Members if they require further time in which to make their submissions and a number of have indicated that they do. Further submissions will therefore be accepted up to and including the week ending 27 March 2009. The SME business line has also consulted with the SME ATPF in respect of the draft practice statement. SME has asked for comments from the members of that forum by 27 March 2009. The Tax Office is currently considering the comments that have been provided by both NTLG and sub-group members. Once submissions from all of the forums are to hand we hope to distribute a compendium of issues and responses. |
Action item |
NTLG0811/07 |
Description |
Tax Office is to provide information on ATO ID process to members for dissemination through newsletters. Refer agenda item 11. |
Status |
Finalised |
Outcome/resolution |
On 18 March 2009 members were provided with information on the ATO ID process for their further dissemination as appropriate. |
Action item |
NTLG0811/08 |
Description |
A list of draft rulings expected to issue in the December 2008 to January 2009 period is to be forwarded to members. Refer agenda item 13. |
Status |
Finalised |
Outcome/resolution |
A list of draft public rulings and determinations was distributed to members on 18 December 2008. Comments were due back to the Public Rulings Steering Committee by mid February 2009. |
Action item |
NTLG0811/09 |
Description |
Chair and secretariat details to be included in future NTLG sub-forum reports. Refer agenda item 15. |
Status |
Finalised |
Outcome/resolution |
NTLG administrative processes have been reviewed and amended to ensure Chair and secretariat details will be included in future sub forum reports. |
Action item |
NTLG0811/10 |
Description |
Members are to be provided with a response to the issue – Brokerage costs incurred by an employee in selling shares which are assessed solely under Division 13A. Refer agenda item 16.1. |
Status |
Ongoing |
Outcome/resolution |
The broader implications of the High Court decision in Day and the Federal Court decision in Romanin are being considered, and a response will be provided once this is finalised. |
Action item |
NTLG0811/11 |
Description |
A working party is to be established to resolve technical issues regarding Part IVA and alienation of personal services income. Nominations are to be requested from NTLG members and the former ATPF Alienation working party members. Refer agenda item 16.2. |
Status |
Finalised |
Outcome/resolution |
Nominations have been received. The Part IVA Working Party has been established and will be reporting to the NTLG. The charter, membership and minutes of meetings will be made available on the web. The first phone hook-up took place on 15 December 2008. The next meeting is scheduled for 27 March 2009. |
24.2 NTLG action item log (ongoing action items)
A copy of the NTLG action item log, updated as at 24 March 2009 will be forwarded to members prior to the 27 March 2009 meeting.
The action item log has been structured into three parts:
Part A |
Contains responses to action items for consideration for finalisation at the 27 March 2009 meeting. There are 12 items put forward for consideration as completed. Those items are included below. |
Part B |
Contains the ongoing action items. |
Part C |
Contains the standing agenda items. |
Action items for consideration as completed at this meeting are:
Action item |
NTLG0503/04 |
Description |
Managed investment schemes (MIS). Refer agenda item 5. The Tax Office to provide further updates at future NTLG meetings. |
Outcome or resolution |
Update as at March 2009 On 5 February 2008 the Tax Office issued its Decision Impact Statement on Hance v. Federal Commissioner of Taxation; Hannebery v. Federal Commissioner of Taxation. In terms of implementing the test case decision, the Decision Impact Statement states: The Tax Office will not apply to the High Court for special leave to appeal the decision of the Full Federal Court. The decision that the applicants would be carrying on a business was open to the Court on the facts of the case. This decision provides greater certainty about how the tax laws apply to contributions to registered agricultural managed investment schemes. Taxation Ruling TR 2007/8 will be withdrawn. Draft GST Ruling GSTR 2008/D1 will also be withdrawn. The Commissioner will consider whether a new ruling is needed. Applications for product rulings in relation to schemes similar to that considered by the Full Federal Court, will be handled in accordance with the Court’s decision. TR 2007/8 and GSTR 2008/D1 were withdrawn on 11 February 2008 and we have started processing stockpiled applications for product rulings. The test case demonstrates that contentious tax matters can be expedited in a timely fashion with the co-operation of industry and the courts. The office of Aggressive Tax Planning (ATP) considers this issue to be addressed and finalised. |
Action item |
NTLG0612/06 |
Description |
PMD is to follow up with some of the NTLG members as to the best way forward in respect of the Technical Issues Management Sub-committee (TIMS). Refer agenda item 8.2 Note: This issue links directly to NTLG0612/07 which covered updates on the progress of Treasury issues associated with the TIMS and TIES. NTLG0612/07 has been listed as finalised to reduce the risk of duplication. Issues and updates relating to both TIMS and TIES will be tracked against NTLG0612/06. |
Outcome or resolution |
Update as at March 2009 The TIES website allows tax professional associations, individual tax professionals and the general public to register issues relating to the care and maintenance of the tax and superannuation systems via an online form. The focus is on correcting technical or drafting defects, removing anomalies, and addressing unintended outcomes. At the December 2008 Board of Taxation meeting, it was agreed that Mr Keith James would chair a TIES Working Group which would assist Treasury and the Tax Office in the prioritisation of issues raised in TIES. Gordon Cooper, Teresa Dyson, Michael Hay and Ken Spence, of the Board of Taxation Advisory Panel, are members of the TIES Working Group. Treasury and the Tax Office will write to the group in the near future inviting its comments on the preliminary classification of the 24 issues to hand, and the proposed solutions for the issues that are within scope. |
Action item |
NLTG0612/24 |
Description |
An update on Tax Sharing Agreements is to be provided to NTLG members. Refer agenda item 28. |
Outcome or resolution |
Update as at March 2009 |
Action item |
NTLG0703/07 |
Description |
Consideration for a form of public advice regarding deductibility of compound interest in a line of credit facility is to occur. Refer agenda item 20. |
Outcome or resolution |
Update as at March 2009 |
Action item |
NTLG0711/06 |
Description |
Results of the PPBR review, and its application to the class ruling process, are to be provided to NTLG members at the meeting following the review’s finalisation (approximately 30 June 2008). Refer agenda item 15. |
Outcome or resolution |
Update as at March 2009 The delay in issuing the revised practice statement did not impact on taxpayer service. Prior to the release of the replacement practice statement the priority rulings process was administered in a way that gave effect to the Commissioner’s 22 May 2008 announcement that class rulings meeting the requirements of PS LA 2005/10 can be accepted into the process. Replacement practice statement will be published in late March 2009. Members will be advised when the practice statement is published. This issue is now considered finalised. |
Action item |
NTLG0803/04 |
Description |
The use of Alternate Dispute Resolution (ADR) in the Tax Office. Members are to be provided with information on how disputes are resolved if the matter does not proceed to litigation, what processes are followed at the litigation stage and the number of cases that have been resolved using ADR. Refer agenda item 8. |
Outcome or resolution |
Update as at March 2009 Outcomes of the pilot were:
The outcomes of the pilot were presented to the NTLG GST Sub-group on 19 March 2009. Time constraints limited the opportunity for discussion but members reacted positively. Further details can be obtained by e-mailing the NTLG secretariat at palu@ato.gov.au and requesting NTLG080304 attachment. |
Action item |
NTLG0809/03 |
Description |
Members are to be advised of progress of the advice or guidance product in respect of employee share schemes. Refer agenda item 6. |
Outcome or resolution |
Update as at March 2009 PTI 1053 was raised with its resolution being through the issue of a TD. Draft Taxation Determination TD 2008/D18 was listed on the public rulings program as ID 2950. The draft TD was published on 17 December 2008 which resulted in no comments being received. The final determination issued on 11 March 2009 as Taxation Determination TD 2009/3. No panel consideration was required. NTLG members advised 18 March 2009. |
Action item |
NTLG0811/04 |
Description |
Consideration is to occur to review the company tax return guide to include a prompt regarding loan repayments made prior to 30 June. Refer agenda item 6. |
Outcome or resolution |
Update as at March 2009 For loans in an earlier income year that have not been fully repaid by the end of the 2008–09 income year, a deemed dividend may arise if the minimum yearly repayment calculated under subsection 109E(5) of the ITAA 1936 has not been made to the company by the end of the 2008–09 income year. |
Action item |
NTLG0811/07 |
Description |
Tax Office is to provide information on ATO ID process to members for dissemination through newsletters. Refer agenda item 11. |
Outcome or resolution |
Update as at March 2009 |
Action item |
NTLG0811/08 |
Description |
A list of draft rulings expected to issue with a comments period from December 2008 to January 2009 to be forwarded to members. Refer agenda item 13 |
Outcome or resolution |
Update as at March 2009 Comments were back to the Public Rulings Steering Committee by mid February 2009. |
Action item |
NTLG0811/09 |
Description |
Chair and secretariat details to be included in future NTLG sub forum reports. Refer agenda item 15. |
Outcome or resolution |
Update as at March 2009 |
Action item |
NTLG0811/11 |
Description |
A working party is to be established to resolve technical issues regarding Part IVA and alienation of personal services income. Nominations are to be requested from NTLG members and the former ATPF Alienation Working Party members. Refer agenda item 16.2. |
Outcome or resolution |
Update as at March 2009 Nominations have been received. The Part IVA Working Party has now been established and will be reporting to the NTLG. The charter, membership and minutes of meetings will be made available on the web. The first phone hook-up took place on 15 December 2008. The next meeting is scheduled for 27 March 2009. |
24.3 ATO Tax Practitioner Forum
Chair
James O’Halloran, Deputy Commissioner, Tax Practitioner and Lodgment Strategy.
Secretariat
Rana Cobbin, Tax Practitioner and Lodgment Strategy
Last meeting held
The last meeting was held on 27 February 2009.
Next meeting
The next meeting will be held on 15 May 2009.
Minutes
The draft ATO Tax Practitioner Forum minutes - 7 November 2008 minutes were endorsed at the 27 February 2009 meeting and are published on the web.
New significant topic
Agenda item |
3.1 |
Issue/application |
Government Economic Stimulus package – Tax Bonus for Working Australians. |
Meeting discussion |
The Tax Office thanked the professional associations and a number of working groups for their assistance in advising us of the range of issues that needed to be considered and addressed in relation to the issuing of the Tax Bonus for Working Australians. The Tax Office recognised the potential workload that may have been placed on tax practitioners. As a result of the workshop and ongoing consultation with tax practitioners and the associations, we have been working through the range of issues to minimise the impact on tax practitioners. A Tax Office broadcast was issued on 26 February 2009, Choose how your clients receive their tax bonus, which advises tax practitioners of the options the Commissioner has put in place for agents who are the contact address for their clients’ tax correspondence and/or payments. The Tax Office will also commence a marketing campaign advising the general public of the tax bonus and what options are available to them to receive the bonus. Information was also provided on the logistics of issuing the tax bonus payments. Comments provided by the professional associations on how they view the Tax Office administration of this initiative to date are:
Tax Office will be providing more information on the tax bonus through various Tax Office channels and asked that the professional associations communicate this information and key messages to their members. The Tax Office invited members to continue providing any comment, feedback and/or suggestions. |
Agenda item |
3.2 |
Issue/application |
Natural Disasters: Victorian Bushfires, QLD and NSW floods. |
Meeting discussion |
The Chair of the ATPF reconfirmed the Commissioner’s message that during these hard times tax will be removed as a concern for victims of the natural disasters. Recognising that the Tax Office is not an emergency response agency, we have been contacting agents in the affected areas to see if there is any assistance that we can provide. This assistance includes providing deferrals and information. The Tax Office also stopped correspondence to people in affected areas as tax matters were understandably not a priority for them at that time. More recently the Tax Office has been visiting agents in the Kings Lake are in, Victoria and at Ingham in Queensland. Different approaches are required for different disasters, however loss of client’s information is a major issue. Information for people affected by natural disasters is available on www.ato.gov.au or they can call the dedicated emergency support info line 1300 304 975 for further assistance. A Fast Key Code (FKC) 5 has also been added to the Tax Agents Service line 137286, for natural disasters enquiries. The Tax Office will organise a phone hook-up with the professional associations to discuss what further support and/or information can be provided to assist those affected by the recent natural disasters. |
Agenda item |
4 |
Issue/application |
Temporary investment allowance. |
Meeting discussion |
ATPF members asked what steps the Tax Office would take to provide guidance on how it will administer the temporary investment allowance pending the passage of the necessary legislation. The Tax Office is unable to provide rulings on proposed legislation. Treasury may be contacted for clarification or enquires about the draft legislation. This can be done by email to investmentallowance@treasury.gov.au Members were provided with a copy of the information Small Business and General Business Tax Break – Draft Legislation (refer The Treasury – Published Information, Reviews, Inquiries & Consultations – 25-02-2009 Draft Legislation for the Small Business and General Business Tax Break) and the Small Business and General Business Tax Break – Frequently Asked Questions released by Treasury. This information is also available on www.ato.gov.au |
Agenda item |
5 |
Issue/application |
Tax Office debt collection policies. |
Meeting discussion |
Information was provided on the Tax Office debt collection policies in the current environment, which is dominated by global financial situations. Members had asked that cebt topic be maintained as a standing agenda item for 2009. It was agreed that, prior to each ATPF meeting, ATPF members would confirm if there was any issue in relation to the Tax Office debt collection polices that will need to be discussed at the next meeting. |
Agenda item |
6 |
Issue/application |
20% PAYG instalment relief. |
Meeting discussion |
The Tax Office advised that the process currently in place is in anticipation of the legislation obtaining royal assent. A member acknowledged it is a treasury policy however the Tax Office is advising that the 20% reduction is mandatory. Is the 20% reduction mandatory – as many clients had advised them they are going to make full payment? The Tax Office advised in the written response provided with the agenda papers that when legislation is enacted, the Tax Office must reduce the PAYG instalment amount notified for the quarter that includes 31 December 2008 for eligible small business entities – that is, the reduction is mandatory. Members asked what amount will be raised on the running balance account (RBA), the 80% or 100%? The Tax Office advised that the RBA will post the 100% and then a reduction to the 80% amount. Members suggested providing messages to tax practitioners advising them when the accounts have been adjusted. This will enable the tax practitioner to confirm clients who are eligible for the reduction to ensure they receive it. |
Agenda item |
7 |
Issue/application |
Tax Office – Resourcing and impact on consultation with tax profession and agents. |
Meeting discussion |
The Chair advised members that the Tax Office remains committed to consultation and that there is no conscious decision to reduce face to face meetings. We are however, mindful of the cost to the professional associations, tax practitioner members and the Tax Office to attend meetings. In the future, we will review if a meeting is required. Where meetings don’t warrant a face to face meeting we will investigate the option of holding tele-conferences. For example the Lodgment Working Group cycle of content didn’t justify three – four meetings so the meeting dates where adjusted. Members were fully supportive of the consultation process and offered assistance where ever possible. The Chair invited members to provide suggestions on future consultation options or ideas. |
Agenda item |
9 |
Issue/application |
Tax Pack 2008/09. |
Meeting discussion |
Information was provided on the redesign of Tax Pack in 2008/09. The new TaxPack will be written using more simple language and have an improved layout. The Tax Office is also in the final stage of phasing out home deliveries of TaxPack 2009 and the supplement. The TaxPack 2009 and supplements will be available in newsagents, Tax Office shopfronts, online and phone ordering systems. Information will also be provided to software providers. A member commented that the layout looked good, was easy to read and using electronic channels is the way of the future. |
Agenda item |
11 |
Issue/application |
Tax Practitioner Research |
Meeting discussion |
The Tax Office provided an overview of the findings from three tax practitioners’ surveys conducted by the Tax Office in 2008. Members commented on the difference between the ‘Effective’ to the ‘Satisfied’ rating received for the various Tax Office products. Results indicated Tax Office products are considered highly effective in assisting agents with tax work, but agents were less satisfied. Members commented that the feedback on the new search engine in www.ato.gov.au is that it is not as effective as the Google search. ATPF members were invited to provide feedback on the Tax Office search engine on www.ato.gov.au |
Agenda item |
12 |
Issue/application |
Update on Industry Benchmarks and a Personal living Expenses Guide |
Meeting discussion |
The Tax Office provided information on the development and application of the Industry benchmarks and Personal living expenses. The Tax Office has commenced and will continue consulting with tax practitioners and associations to seek their feedback on aspects such as the best way to present this information to small business operators. The Tax Office advised that the benchmarks are not used to trigger audits, however, they are used by auditors to develop a better appreciation of how an industry operates. An exception to this can occur where a business has not keep adequate records or refuses to cooperate in the audit process. Benchmarks will be updated, most likely on an annual basis as is currently the case for the taxi industry using the ‘cents per kilometre’ rate and other financial ratios which are included in the Tax Office Taxation Statistics publication. It was acknowledged that events such as the current global economic downturn would influence the currency and value of benchmarks as a guide and thought needs to be given to the timing of their review. The Tax Office invited any tax practitioners who are interested in providing feedback on the methodology used to generate these new benchmarks and aspects such as the best way to present this information to small business operators. |
Agenda item |
17 |
Issue/application |
Tax Practitioners certifying documents |
Meeting discussion |
A member raised the issue that the Tax Office does not allow accountants, as a group, to certify identity documents. The Tax Office advised that this issue is reviewed regularly due to the concern around proof of identity and tax file numbers. There has not been a recent change to Tax Office policy of not allowing tax practitioners from certifying documents due to the conflict of interest. The Tax Office agreed to provide a general briefing on identity theft and fraud at the 15 May ATPF meeting. (Background information: This item was raised as a NTLG agenda item for the 27 March 2009 meeting. At the NTLG pre-meeting hook-up, members agreed to refer this item to the ATPF as the issue had been raised at that forum previously). |
24.4 Alienation and Part IVA Working Group
Co-Chairs
Peter Nash, Assistant Commissioner, Micro Enterprises and Individuals, and
Euan Campbell, Assistant Commissioner, Tax Counsel Network
Secretariat:
Briony Andrew, Micro Enterprises and Individuals
Last meeting held
The initial meeting was held on 15 December 2008. This has been the only meeting of the forum to date.
Next meeting
The next meeting will be held on 27 March 2008.
Minutes
The minutes of the Alienation and Part IVA Working Group meeting held on 15 December 2008 were circulated in draft to members on 23 December 2008 and are being published to the web.
A summary of work program undertaken since last NTLG
At the last meeting, the Tax Office asked members to provide their views by 8 February 2009 on current Tax Office guidance on Part IVA and income splitting, what guidance ought to be provided, and fact patterns where Part IVA would and would not apply. A total of four submissions were received. At the next meeting, a detailed discussion of these issues is scheduled.
24.5 Consolidation Sub-group
Chair
John Evans, Assistant Commissioner, Centre of Expertise, Consolidations
Secretariat
Shirley Cooper-Dixon, Centre of Expertise, Consolidations, and
Karin Collinson, Centre of Expertise, Consolidations
Last meeting held
The last meeting was held on 26 February 2009.
Next meeting
The next meeting will be held in July 2009 (to be confirmed).
Minutes
The draft NTLG Consolidation Sub-group minutes – 12 June 2008 have been published to the Tax Office website. Final minutes have been endorsed and are in the process of being published to the web. Draft minutes for the 26 February 2009 meeting will soon be available on the web.
New significant topics
Issue no. |
Agenda item 3/26 Feb09 |
Issue/application |
Multiple Entry Consolidated (MEC) Groups – current issues. |
Status |
Complexity burdens the administration of the tax system and the MEC provisions and their interaction with the wider Act are complex. The Tax Office is concerned as to the burden of compliance costs for MEC groups. Sub-group members have observed that the interaction of the MEC group rules and other income tax provisions introduce unintended ambiguity. There is open acknowledgement by Sub-group representative members of the need for legislative direction concerning MEC groups. Collaborative discussion of MEC group issues with members of the sub-group would be welcomed. |
Outcome – action to date |
Input from members requested. |
Issue no. |
Agenda item 4/26Feb09 |
Issue/application |
DTLs – Deferred Taxes in the ACA and the Tax Cost Setting Process. |
Status |
A discussion paper was circulated to sub-group members prior to the meeting. Members’ feedback on the content of the discussion paper was requested in the hope that the Tax Office and members could agree on a way forward in dealing with DTLs. |
Outcome – action to date |
Members agreed to review the discussion paper and provide comments by 30 May 2009 such that the findings could be presented to the sub-group at the next meeting. |
Issue no. |
Agenda item 5/26Feb09 |
Issue/application |
SER and foreign branches. |
Status |
A discussion paper was circulated to sub-group members prior to the meeting. The discussion paper was confined to attribution in the context of consolidation and foreign branches. |
Outcome – action to date |
A further paper concerning thin capitalisation, transfer pricing and tax implications of attribution is to be presented at the next meeting. |
Ongoing significant topics
Issue no. |
Action item 2/28Jun07 |
Issue/application |
Single entity rule/Intra-group assets and third party interactions (NTLG CSG issues (17.19 and 17.20). |
Status |
This issue will be considered as part of single entity rule (SER) project. No further products will be issued in the near future, but the Tax Office will be working with Treasury to consider possible solutions. Members were asked to forward any additional intra-group asset and SER issues for consideration. It is understood that the Board of Tax intends to write to the Treasurer as to undertaking a post implementation review of the consolidation provisions. Such review is anticipated to include a review of the operation of the SER. No decision as to the fact and scope of such a review is expected before the Treasurer’s Budget speech in May. |
Outcome – action to date |
Current Tax Office thoughts in relation to the SER will be presented by the Deputy CTC at the upcoming TIA Consolidation Symposium. |
Issue no. |
Action item from agenda item 5/28Jun07 |
Issue/application |
Trust joining and leaving a consolidated group during an income year (NTLG CSG issue 17.22). |
Status |
Issue discussed at the meeting on 26 February 2009. |
Outcome – action to date |
Draft Consolidation Reference Manual material and other administrative approaches are being considered in light of a wider Tax Office review of issues involving trusts. |
Issue no. |
Agenda item 7/12Jun08 |
Issue/application |
The treatment of convertible notes on entry and exit. (NTLG CSG issue 17.17). |
Status |
This arose as an NTLG issue at the initiative of a representative member of the sub-group. It was noted the Tax Office has some issues with non-share equity instruments and how they are treated in the tax cost setting process. This is an issue where it is anticipated there may be a need to consult with external members before a solution might be arrived at. |
Outcome – action to date |
The Tax Office has expressed its concerns to Treasury. |
Outstanding issues summary
Issue no. |
Action item from agenda item 5/28Jun07 |
Issue/application |
Division 705-C for non-consolidated groups (NTLG CSG issue 17.08). |
Status |
This ruling topic was withdrawn from the public rulings program, subsequent to the 12 June 2008 meeting. It will be considered as a part of ongoing discussions with Treasury. Members were requested to provide examples/scenarios where they think subdivision 705-C should apply |
Outcome – action to date |
Sub-group members provided examples just prior to our February meeting. These examples will be examined by the Tax Office and discussed at the next sub-group meeting. |
Issue no. |
Agenda item 4/12Jun08 |
Issue/application |
Foreign Hybrids |
Status |
Members of the sub-group requested that a formal Tax Office view be provided as to whether a foreign hybrid could be a member of a consolidated group, given the view provided in Taxation Determination TD 2008/24 about the assessability of dividends paid by a non-resident company to a partnership. |
Outcome – action to date |
Members were invited to prioritise the issue via the Issues Registers such that appropriate Tax Office resources could be employed to provide a response. |
Issue no. |
Agenda item 6/12 Jun08 |
Issue/application |
The implications for consolidations of the view expressed in the recently released Draft Taxation Ruling TR 2007/D10, Capital gains tax consequences of earnout arrangements (NTLG CSG issue 17.21). |
Status |
Taxation Ruling 2007/D10 remains in draft form. |
Outcome – action to date |
It would be premature to pre-empt the final form of the TR and the implications of that ruling on the consolidation cost setting process. |
A summary of work program undertaken since last NTLG
The following issues have been finalised.
Issue no. |
Action item 1/28Jun07 |
Issue/application |
Tax Sharing Agreements (TSA) and the clear exit provisions. |
Status |
Finalised |
Issue no. |
Action item from agenda item 13/28Jun07 |
Issue/application |
Straddle contracts (NTLG CSG issue 14.01a). |
Status |
Finalised |
24.6 Division 7A Working Group
Chair
Tony Sullivan, Assistant Deputy Commissioner, Small Medium Enterprise
Secretariat
Dominic Belvedere, Small Medium Enterprise
A summary of work program undertaken since the last NTLG
A workshop was held with members of the Division 7A Working Group on 30 January 2009. The purpose of the workshop was to present the draft PS LA (PTI number 983, ID 2843) to the group and seek comment and feedback.
The subject matter of the draft PS LA is:
a. on the meaning of ‘honest mistake’ and ‘inadvertent omission’ in paragraph 109RB(1) (b), and
b. the matters that the Commissioner must have regard to in making a decision under subsection 109R(2) (or refusing to make such a decision).
The tax practitioners were asked if they agreed with the guidance being provided to Tax Office staff in the draft practice statement in relation to the exercise of the Commissioner’s discretion.
Working group members expressed considerable concern with aspects of the practice statement. The major concern is that they consider the subject matter warrants issue of a ruling by the Tax Office rather than a practice statement. They consider the Tax Office should be publishing its interpretation and application of the law in relation to this topic in the same way that the Tax Office has published its views on the application of penalties, that is, via ruling.
Working group members committed to outlining their concerns with the practice statement in writing. Comments are due to be provided by 11 March 2009.
24.7 Finance and Investment Sub-group
Chair
John Smith, Senior Tax Counsel, Tax Counsel Network.
Secretariat
Robin Halls, Centre of Expertise, Finance and Investment.
Last meetings held
There have been two meetings since the last NTLG meeting, convened on 12 December 2008 and 6 March 2009.
The NTLG Finance and Investment Sub-group minutes – 16 June 2008 are published on the web.
Next meeting
The next meeting is being considered for early June 2009.
Minutes
The minutes of the 12 December 2008 meeting have been finalised, circulated and sent for publication on the Tax Office website.
The minutes of the 6 March 2009 meeting are being drafted for circulation to the attendees.
Ongoing significant issues
Three significant topics were identified at the 28 August 2007 special meeting of the sub-group. The Tax Office has advised the sub-group that it has provided formal advice to Treasury on two of those issues (Issue 2, Foreign Exchange [Forex] Issues; and Issue 3, Debt/Equity – Section 974-80 of the ITAA 1997). Pending Treasury’s consideration of Tax Office and industry views and further developments, no further action is presently required by the sub-group.
The remaining Debt/Equity issue – Effectively non-contingent obligation (ENCO) – continues.
ENCO
Issue no. |
1 |
Issue/application |
ENCO |
Status |
Ongoing |
Outcome – action to date |
Submissions on the ENCO discussion paper from professional bodies represented on the sub-group have been considered. Discrete aspects of ENCO are being addressed. Three action items were agreed at 16 June, 12 December 2008 and 6 March 2009 meetings:
|
A summary of work program undertaken since last NTLG
Emerging issues/establishment of working groups
Division 250 Working Group
Following the submission of a number of interpretative and administrative issues relating to ITAA 1997 Division 250, section 250-1 – What this Division is about, members of the sub-group agreed to have these matters dealt with by a specially constituted Division 250 working group reporting to the sub-group.
The Division 250 Working Group first met on 2 December 2008. Interpretative and administrative issues relating to Division 250 were discussed and will be advanced at the working group’s next meeting on 7 April.
TOFA 3 and 4 Working Group
Members of the sub-group also agreed that a specially constituted working group reporting to the sub-group should be established. The bill relating to TOFA 3 and 4 was introduced to parliament on 4 December 2008.
The TOFA 3 and 4 Working Group met first on 12 December 2008, and its second meeting was on 6 March 2009. Prior to royal assent the working group’s focus is on identifying and resolving administrative issues related to TOFA 3 and 4 and identifying interpretative issues for advice after royal assent is granted.
Action items from the 16 June 2008 and earlier meetings, updated at the 12 December 2008 and 6 March 2009 meetings, with status after 6 March 2009 meeting:
Action item |
270208-6 |
Issue/application |
Tax Office to consider whether it would be appropriate to provide public guidance on the implications of ATO Interpretative Decision ATO ID 2007/197 and ATO Interpretative Decision ATO ID 2007/198: if proceeds of sales of ‘borrowed’ shares that are trading stock are brought into account in a year before shares are acquired to replace the ‘borrowed’ shares, is the deduction for purchases only allowed in the later year? What is the timing of accounting for profit if the ‘borrowed’ shares that are sold are not trading stock, but are revenue assets? |
Status |
Ongoing |
Outcome |
It was decided at the 6 March meeting that the Tax Office would draft two Taxation Determinations to provide guidance on the issues and clarify any ambiguity in the ATO IDs. An internal issues paper had been drafted by the Tax Office for the Deputy CTC. |
Action item |
270208-2.2 |
Issue/application |
Members to consider relevance of economic compulsion in the debt test and illustrate the issues to be considered by practical examples, including, where possible, full facts, circumstances, documentation and text of the examples. |
Status |
Closed |
Outcome |
Replaced with action item 121208-1.3 after discussion. |
Action item |
270208-2.3 |
Issue/application |
Members to consider relevance of limited recourse in the debt test and illustrate the issues to be considered by practical examples, including, where possible, full facts, circumstances, documentation and text of the examples. |
Status |
Closed |
Outcome |
Refer action item121208-1.1. |
Action item |
160608-1 |
Issue/application |
Chair to ascertain what if any further discussions have taken place concerning deferred purchase agreements and CGT. |
Status |
Completed |
Outcome |
Advice issued to members on 17 June 2008. |
Action item |
160608-2 |
Issue/application |
NIA to circulate issues paper of the discussions of the sub-group’s external members for approval of the external members and submit the paper to the secretariat. |
Status |
Closed |
Outcome |
Replaced with action item 121208-1.3 after discussion. |
Action item |
160608-3 |
Issue/application |
Secretariat to ascertain whether the NTLG Foreign Source Income Sub-group has examined (or may examine) the issue of application of the functional currency rules to trusts. |
Status |
Ongoing |
Outcome |
The secretariat advised that the issue is being considered within the Internationals Centre of Expertise. The action item remains open and a report of progress will be delivered to the next meeting. |
Action item |
160608-4 |
Issue/application |
Property Council of Australia (PCA) representative to forward to the secretariat a copy of PCA’s further Treasury submission for circulation to the sub-group members. |
Status |
Completed |
Outcome |
Copy of PCA’s submission received and circulated. |
Action item |
160608-5 |
Issue/application |
Tax Office to advise on progress of public ruling on revenue capital distinction for managed investment funds. |
Status |
Ongoing |
Outcome |
Report to sub-group at 6 March 2009 meeting: The topic remains on the Rulings Program, but the release of a draft TD has been deferred following feedback from key stakeholders including funds management industry bodies and specific tax advisors. The broad issue is now being considered by the Board of Taxation. The action item remains open, and the sub-group will be advised of developments in relation to the draft TD. |
Action item |
121208-1.1 |
Issue/application |
Debt/equity – effectively non-contingent obligation (ENCO) Tax Office proposals. Members to provide any standardised limited recourse clauses for consideration by the Tax Office. |
Status |
Completed |
Outcome |
Examples of standardised limited recourse clauses provided to secretariat, circulated to members for 6 March 2009 meeting. |
Action item |
121208-1.2 |
Issue/application |
Tax Office to provide a short paper that discusses the effect of limited recourse clauses on finding an ‘effectively non-contingent obligation’; paper to be circulated ‘in confidence’ for consideration by members of the sub-group. |
Status |
Completed |
Outcome |
Paper circulated ‘in confidence’ for consideration by members of the sub-group and discussion at the next sub-group meeting. |
Action item |
121208-1.3 |
Issue/application |
Members to advise of specific matters to be considered by the Tax Office in providing any formal advice on ‘economic compulsion’ and ENCO, and provide any additional material to be considered by the Tax Office in any advice. |
Status |
In course |
Outcome |
Resolved at the 6 March 2009 meeting that the Tax Office will now propose a ruling for the public rulings program that explains its views on the extent to which economic compulsion is relevant to finding an ENCO for the purposes of the debt test in Division 974. |
Action item |
121208-2 |
Issue/application |
Application of section 98(2A) of the ITAA 1936 – member to provide a paper setting out views on additional matters raised for consideration by the sub-group. |
Status |
In course |
Outcome |
Member to provide paper. |
‘New’ identified potential rulings by the Finance and Investment Sub-group
Potential ruling topic |
Extent to which economic compulsion is relevant in finding an ENCO. |
Sub-committee priority high/medium/low |
High |
Outcome – action to date |
Tax Office will propose a ruling be accepted on the public rulings program that explains the Tax Office’s views on the above topic. |
Potential ruling topic |
Implications of ATO Interpretative Decision ATO ID 2007/197 and ATO Interpretative Decision ATO ID 2007/198: if proceeds of sales of ‘borrowed’ shares that are trading stock are brought into account in a year before shares are acquired to replace the ‘borrowed’ shares, is the deduction for purchases only allowed in the later year? What is the timing of accounting for profit if the ‘borrowed’ shares that are sold are not trading stock, but are revenue assets? |
Sub-committee priority high/medium/low |
High |
Outcome – action to date. |
After discussion at the sub-group, it was agreed that Taxation Determinations should be proposed to provide guidance on the issues and resolve any ambiguity. |
24.8 Foreign Source Income Sub-group
Chair
Anne Van Loon, Assistant Commissioner, Large Business and International
Secretariat
Geoff Tarran, International Tax Division, Large Business and International
Last meeting held
The last meeting was held on 25 November 2008.
Next meeting
The next meeting will be held on 3 April 2009.
Minutes
The minutes of the Foreign Source Income Sub-group meeting held on 25 November 2008 are currently in draft and will soon be published to the web.
Ongoing significant topics
Issue no. |
FSISC 0905/7.7 |
Issue/application |
Foreign Hybrids |
Status |
In progress |
Outcome – action to date |
Four Priority Technical Issues (PTIs), 984, 1005, 1006 and 1007 were identified through a scoping process with members within the sub-group. PTI 1005 dealing with the definition of 'What is meant by 'foreign tax is imposed' for the purpose of the definition of foreign hybrid partnership has been finalised by the release of TD 2009/2 on 21 January 2009. PTI 1006 is currently in draft TD form and is expected to be released on 11 March 2009. PTI 1007 is being dealt with through the release of a tax determination which is currently being drafted. A fourth PTI (984) dealing with a general administration matter is to be dealt with by other guidance advice. |
Issue no. |
FSISG 0708/6.4 |
Issue/application |
Foreign Income Tax Offset (FITO) issue: |
Status |
In progress |
Outcome – action to date |
An interim response has been provided between meetings. |
Issue no. |
FSISG 0708/06.5 |
Issue/application |
FITO Issue: |
Status |
In progress |
Outcome – action to date |
An interim response has been provided between meetings. |
Issue no. |
FSISG 0408/06.3 |
Issue/application |
FITO Issue: |
Status |
In progress |
Outcome – action to date |
A comprehensive administratively binding information guide is currently being drafted. Fact sheets are also being updated. |
A summary of work program undertaken since last NTLG
All Foreign Source Income Sub-group priority issues have been progressed since the last report to the main NTLG in September 2008.
Guidance on foreign hybrids
PTI topic (1005) dealing with the definition of 'What is meant by 'foreign tax is imposed' for the purpose of the definition of foreign hybrid partnership in section 830-10', has been addressed with the release of Tax Determination TD 2009/2 on 21 January 2009. The draft tax determination (Tax Determination TD 2008/D13) issued on the 24 September 2008.
A draft taxation ruling is in progress for the PTI topic (1006) covering the issue of 'the interaction of the foreign hybrid rules in Division 830 with the foreign income tax offset regime'. The first draft was considered by the Public Rulings Panel on the 30 October 2008, with a range of issues being reviewed in light of recommendations by the panel. The draft tax ruling is due to issue towards on 11 March 2009.
A third PTI topic (1007), dealing with 'the interaction of Division 830 (foreign hybrids) with exemptions under the FIF regime', is to be addressed by a tax determination and has been recently placed on the rulings program in accordance with the staggered approach to the development of these products and is being progressed in accordance with its agreed time lines.
In relation to the PTI topic (984) covering the lodgment of partnership returns, at the July meeting the forum created an informal working group to advance this issue. This group have met on two occasions and provided valuable input into resolution of this issue. A report has been finalised which makes several recommendations which are now under consideration by the Chair.
FITO regime issues
Convertible foreign losses and the application of these provisions in a partnership situation. This issue has been referred to Treasury, who have advised the sub-group a minor amendment is likely before the commencement of the next income year.
Application of Division 770-75 (ITAA 1997) to debt deductions. External members raised this issue which concerned clarifications of the operation of subsection (4)(b)(ii). This matter had already been identified by the Tax Office and a minor technical amendment has been effected.
An issue raised by external members concerned clarification of the words 'reasonable related' as used in division 770-74(4)(b)(ii) (ITAA 1997), in the calculation of the FITO limit. This issue is being dealt with as part of a comprehensive communication product on the operation of the FITO regime.
FITO communication products. The Tax Office is developing a comprehensive communication product on the FITO regime and fact sheets. This product is currently in development and a fact sheet dealing with foreign losses is being updated to reflect changes concerning the removal of the quarantining of foreign losses.
An issue raised by external members concerns whether there are any rules which prescribe the order in which the parts of the tax loss must be deducted, in the situation where a corporate tax entity has a tax loss that includes both a convertible foreign loss and another amount that would have been the entity’s tax loss under section 36-10, 165-70, 175-35 or 701-30 of the ITAA 1997. Interim advice has been provided to the members between meetings and an update will be provided at the next meeting.
Carry forward losses and the 'reasonably related' test. Members had raised the issue as to whether carried forward losses can be taken to be reasonably related (within the meaning of subparagraph 770-75(4)(b)(ii) of the ITAA 1997) to amounts of assessable income excluded under paragraph 770-75(4)(a) of the ITAA 1997. Interim advice has been provided to the members between meetings and an update will be provided at the next meeting.
Other
The effect of Inoperative Provisions Act upon section 461 and section 613 of the Income Tax Assessment Act. Treasury has received a Tax Office minute written about this issues and it will form part of a minor amendments package which is likely to be introduced into parliament later in the 2009 year.
24.9 Fringe Benefits Tax Sub-committee
Chair
Lee Beaver, Fringe Benefits Tax (FBT) Technical Leader, Centre of Expertise, Admin Business and PTax
Secretariat
Joanne Dibetta, Centre of Expertise, Admin Business and PTax
Last meetings held
The last meetings were held on 13 November 2008 and 26 February 2009.
Next meeting
The next meeting will be held on 14 May 2009.
Minutes
The NTLG FBT Sub-committee minutes – 13 November 2008 are published to the web.
New significant topics
Issue no. |
6, 7, 8 |
Issue/application |
Clarification of the meaning of ‘primarily for use in the employee’s employment’ in relation to eligible work-related items such as a briefcase and portable electronic device and mobile phone. |
Status |
Completed |
Outcome – action to date |
As a result of the 2008 amendments to section 58X of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), the FBT exemption for eligible work-related items is restricted to items that are ‘primarily for use in the employee’s employment’. The Tax Office clarified the issues raised by members in the minutes. |
Issue no. |
9 |
Issue/application |
Incentive awards |
Status |
Completed |
Outcome – action to date |
Members discussed the different arrangements in place between different organisations. The minutes record the relevant rulings that can assist with reaching a conclusion based on particular facts, as to whether a benefit has been provided ‘in respect of the employment of an employee’. |
Issue no. |
11, 14, 15, 16 |
Issue/application |
Living-away-from-home (LAFHA) issues. |
Status |
Completed |
Outcome – action to date |
The minutes record discussion of the various issues raised in the four submissions. Tax Office response recorded in the minutes note the relevant sections of the FBTAA, the facts to consider, rulings and FBT publications available when making a decision in relation to how LAFHA should be treated. |
Ongoing significant topics
Issue no. |
3.1 |
Issue/application |
Taxpayer Alerts TA 2008/13 and 2008/14. |
Status |
Completed |
Outcome – action to date |
Three taxation determinations are being prepared to clarify the ATO view in respect of the arrangements identified in the taxpayer alerts. The draft rulings are listed on the Public rulings program. Members will be kept informed of the progress of the rulings through the standing agenda item ‘Rulings issued since the last meeting’ or ‘FBT related rulings on the public rulings program’. |
A summary of work program undertaken since last NTLG
The following FBT ATO IDs have issued:
ATO Interpretative Decision ATO ID 2008/158 – Exempt benefits: work related items – portable electronic device - upgrades made at the time of purchase.
ATO Interpretative Decision ATO ID 2008/159 – Exempt benefits: work related items – expense payment made earlier in an FBT year.
ATO Interpretative Decision ATO ID 2008/160 – Exempt benefits: work related items – loan arrangements.
24.10 GST Sub-group
Chair
Paul Tregillis, Assistant Commissioner, GST
Secretariat
Owen Clancy, Technical Legislation, GST
Last meetings held
The last meetings were held on 3 December 2008 and 19 March 2009.
Next meeting
The next meeting will be held on 18 June 2009.
Minutes
The NTLG GST Sub-group minutes – 2 September 2008 minutes have been published on the web. Draft minutes of the 3 December 2008 meeting are with members for ratification at the March 2009 meeting, and are available from the secretariat pending publication. Regular updates are provided to members and published for all unresolved issues raised by members. The NTLG GST Sub-group minutes – 3 December 2008 contains the 3 December 2008 updates.
New significant topics
Topics listed below are those which were discussed at the December 2008 meeting.
Issue no. |
9.18 |
Issue/application |
GST impacts of current economic climate. |
Status |
Further feedback will be sought at the March 2009 meeting on the stimulus package. |
Outcome – action to date |
The Tax Office canvassed members feedback on the GST compliance impact for the economic downturn at the 2 December 2008 meeting. A follow up session will occur at the March 2009 meeting regarding the GST effects of the economic stimulus package with a representative from the Debt business line attending. |
Issue no. |
1.53 |
Issue/application |
Administrative Appeals Tribunal (AAT) decision in re Hornsby Shire Council and Commissioner of Taxation [2008] AATA 1060, handed down 26 November 2008. |
Status |
DIS issued. |
Outcome – action to date |
The implications of this decision were discussed at the 3 December 2008 meeting. Following the meeting a decision was taken not to lodge an appeal, and a Decision Impact Statement – Hornsby Shire Council v. Commissioner of Taxation was issued on 25 February 2009. |
Issue no. |
9.16 |
Issue/application |
Draft Goods and Services Tax Ruling GSTR 2008/D4 on cancellation fees. |
Status |
Draft ruling issued. |
Outcome – action to date |
Member comments were sought on the draft ruling at the meeting, and the comment period ended on 10 December 2008. The February 2009 rulings program lists the final ruling as planned to issue on 29 April 2009. |
Issue no. |
6.12 |
Issue/application |
Apportionment of input tax credits on the basis of net interest revenue. |
Status |
Discussion paper circulated. |
Outcome – action to date |
The circumstance in which the use of net interest revenue is acceptable, following the issue of GSTR 2006/3 in April 2006, was discussed at the 2 December meeting. A discussion paper was circulated to members in February 2009 for consideration at the March 2009 meeting. |
Issue no. |
Raised at meeting |
Issue/application |
Publication of edited versions of public rulings. |
Status |
Escalated to main NTLG. |
Outcome – action to date |
Members expressed concern regarding the changes to the process for publishing edited versions of public rulings. This is outside the forum’s role and has been escalated to the NTLG. |
Ongoing significant topics
Issue no. |
6.10 |
Issue/application |
Changes to ‘Belvedere’ example in Financial Supplies Ruling GSTR 2002/2. |
Status |
Issues being workshopped. |
Outcome – action to date |
A workshop was conducted prior to the 2 December 2008 meeting and the issue was further discussed at that meeting. A working group is to be established to identify a solution. |
Issue no. |
7.3 |
Issue/application |
Requirements for issuing recipient created tax invoices and opportunities to more easily meet these requirements. |
Status |
Awaiting member comment. |
Outcome – action to date |
Draft revised determination text was circulated to members for comment on 6 October 2008. |
Issue no. |
4.5 |
Issue/application |
Proof of identity for non resident registration. |
Status |
Post implementation review. |
Outcome – action to date |
Identification requirements have been reduced and the revised requirements published. A watching brief is being maintained to identify any implementation and post implementation issues. This issue has also been raised in public consultation by the Board of Taxation on its GST administration review. |
Issue no. |
13.18 |
Issue/application |
Administration of penalties under the new tax system and GST. |
Status |
Changes to practice statement being developed. |
Outcome – action to date |
GST subcommittee member representation included in Tax Office/NTLG workshop on 2 December 2008. Draft practice statement scheduled for publication in February 2009. |
Issue no. |
13.24 |
Issue/application |
GIC on Tax Office overpayments (De Angelis and Smith litigation). |
Status |
DIS issued. |
Outcome – action to date |
The Decision Impact Statement Deputy Commissioner of Taxation v. De Angelis [2008] SADC 103 was updated on 19 January 2009 following the SA District Court decision. A DIS in relation to Decision Impact Statement Deputy Commissioner of Taxation v. Smith [2008] NSWDC 219 was published at the same time following the decision on the same issue in the NSW District Court. Member comment on these statements has been sought by 16 March 2009. |
Issue no. |
13.19 |
Issue/application |
Public ruling and practice statements on application of four year time limits on collecting GST debts and refunds. |
Status |
Draft ruling and draft practice statement being finalised. |
Outcome – action to date |
Comments on MT 2008/D4, on section 105-55 of the TAA are being considered. A draft practice statement on section 105-50 of the TAA issued on 10 December 2008 for external consultation. A discussion paper on the operation of section 105-65 of TAA, in relation to refunds of GST in business to business transactions, was circulated to members for comment on 21 January 2009. |
Issue no. |
14.8 |
Issue/application |
Publication of EANnet GST classification decisions. |
Status |
System development by a third party provider. |
Outcome – action to date |
A workshop has been held with further development required around issues of security and integrity of the database. A food classification tool is also being developed by the Tax Office. |
Issue no. |
4.6 |
Issue/application |
Retrospective GST registration cancellation. |
Status |
Forms and educational material being reviewed. |
Outcome – action to date |
A clarification of the approach to recipients was issued after the December 2008 meeting. A review of relevant forms and publications is continuing in consultation with members and draft changes are expected to be circulated prior to the March 2009 meeting. |
Property issues
Issue no. |
1.38, 1.39 |
Issue/application |
GST Issues involving property intended for sale that is rented out pending sale. |
Status |
Draft GST ruling issued. |
Outcome – action to date |
Draft Goods and Services Tax Ruling GSTR 2008/D5 issued on 17 December 2008 with comments due by 13 February 2009. In line with forum practice the issue will be removed from the sub-group issues list on issue of the draft ruling. |
Issue no. |
1.42 |
Issue/application |
GST implications of DIS for Debonne Holdings Ltd v. Federal Commissioner of Taxation [2006] AATA 886. |
Status |
Addendum being drafted. |
Outcome – action to date |
A PTI has been registered. Changes to GST Ruling GSTR 2002/5 are being developed for expected release in draft form in June 2009. |
Issue no. |
1.44 |
Issue/application |
Partitioning of real property and GST. |
Status |
Final ruling being developed. |
Outcome – action to date |
A consultation paper has been provided to members, with comments sought by 16 January. These comments are being considered and the final ruling is expected to issue in early March 2009. |
Issue no. |
1.46 |
Issue/application |
Residential premises – revision of GSTR 2000/20 Commercial Residential Premises. |
Status |
Draft ruling being developed. |
Outcome – action to date |
Members’ views on priority issues for review were sought in 2008, and an issues paper is being developed for consideration by the Public rulings panel. The 16 January 2009 decision in South Steyne Hotel Pty Ltd and Ors v. Federal Commissioner of Taxation [2009] FCA 13, which deals with the subject matter, has been appealed. |
Issue no. |
1.47 |
Issue/application |
New residential premises and section 9-30(4) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). |
Status |
Addendum to draft ruling issued. |
Outcome – action to date |
An addendum to Goods and Services Tax Ruling GSTR 2003/3 issued on 17 December 2008. |
Issue no. |
1.50 |
Issue/application |
Margin scheme determination – valuation issues. |
Status |
Legislative determination being developed. |
Outcome – action to date |
A draft of the legislative determination is expected to be circulated to members for discussion at the March 2009 meeting. |
Issue no. |
1.51 |
Issue/application |
Brady King litigation – margin scheme valuations. |
Status |
Appeal lodged |
Outcome – action to date |
Following the full Federal Court decision in Brady King v. Federal Commissioner of Taxation [2008] FCAFC 118, on 18 December 2008 a decision on the valuation issues in this litigation (Brady King v. Federal Commissioner of Taxation (No.2) [2008] FCA 1918) was handed down. This decision has now been appealed. |
Issue no. |
9.10 |
Issue/application |
In specie distributions and associates rule in Division 72. |
Status |
GST Determination being developed. |
Outcome – action to date |
A Draft GST Determination dealing with the Division 72 issues is to be published in early 2009. Consideration is being given to an issue raised by members in relation to agreements to lease. |
A summary of work program undertaken since last NTLG
The last meeting occurred on 3 December 2008. Issues are being progressed with draft or final ruling changes having been published since the December 2008 meeting for a number of these issues, with other issues working toward the distribution of draft products for discussion at the 19 March 2009 meeting.
Changes to the approach to agenda setting were introduced at the December 2008 meeting as a result of the forum annual review. Categorisation of issues according to the familiar problem areas of financial supplies, international, property and administration issues is being piloted.
There has also been a change in meeting structure to separate agenda items from the updates of general ongoing issues. No changes to external membership or reporting arrangements are proposed. A reduction in meeting frequency is to be adopted if such changes are considered by the main NTLG.
24.11 Losses and Capital Gains Tax Sub-committee
Chair
Margaret Haly, Assistant Commissioner, Centre of Expertise, Losses and CGT
Secretariat
Sean Bielanowski, Centre of Expertise, Losses and CGT
Last meeting held
The last meeting was held on19 November 2008 in Melbourne.
Next meeting
The next meeting will be held on 10 June 2009 in Sydney.
Minutes
The draft minutes of the NTLG Losses and Capital Gains Tax Sub-committee meeting held on 19 November 2009 have been sent to members and are currently being finalised for publishing.
New significant topics
Issue no. |
2008/11 – 2.0 |
Issue/application |
Establishment of a working group to consider issues for non residents arising in relation to Division 855. |
Status |
Progressing |
Outcome – action to date |
At the meeting, Debbie Hastings, Senior Assistant Commissioner, National Management team, Centres of Expertise who has overall Law and Practice responsibility for the Division 855 project work sought nominations of persons with expertise relevant to this project from each of the professional associations to join with the Tax Office on a consultative working group. The working group will work through Division 855 issues with the aim of reaching an agreed view of how the law operates as well as working on and clearing compliance products that would be distributed to the wider tax community. Nominations are currently being received by Debbie Hastings. The formal establishment of the working group has been deferred at this stage; however, members of the sub-committee have been encouraged to raise Division 855 issues through the sub-committee process. |
Ongoing significant topics
Issue no. |
2008/11 – 4.1 |
Issue/application |
Application Dick Smith case. |
Status |
Progressing |
Outcome – action to date |
A draft of the taxation ruling went before the Rulings Panel on 26 September 2008 and the suggestions from the meeting have been incorporated into the draft. That amended draft is currently being reviewed by Deputy CTC. It is anticipated that the draft taxation ruling will issue in March 2009. |
Issue no. |
2008/11 – 4.4 |
Issue/application |
Draft Taxation Ruling TR 2007/D10 – CGT consequences of earnout arrangements. |
Status |
Progressing |
Outcome – action to date |
Following consideration of feedback on the draft ruling, the CTC has decided to defer finalisation of the ruling pending discussions with the Treasury. |
Outstanding issues summary
Issue no. |
2008/11 4.7 |
Issue/application |
Interaction of section 70-95 [trading stock where there has been a change of use] with the capital gains rules. |
Status |
Awaiting further information |
Outcome – action to date |
Following discussion at the June 2008 meeting, a member offered to provide examples of emerging issues to support further discussion. These examples could not be provided for the November meeting, so the item has been moved to the June 2009 meeting. |
Issue no. |
2008/11 – 9.0 |
Issue/application |
CGT event D2 and the small business CGT concessions. |
Status |
Progressing |
Outcome – action to date |
This item raised four questions. Questions 1 and 2 were resolved at the meeting in November 2008. Questions 3 and 4 require the Tax Office to review ATO ID 2004/650. The review is currently underway. |
24.12 Promoter Penalty Co-design Sub-committee
Chair
Stephanie Martin, Deputy Commissioner, Aggressive Tax Planning
Secretariat
Tony Poulakis, Aggressive Tax Planning
A summary of work program undertaken since the last NTLG
Since the last update to the NTLG, work on the implementation of the promoter penalty laws has progressed.
We have continued to undertake reviews of entities who may have contravened the laws and we expect to apply sanctions to a number of them over the coming months.
We intend to engage with the Promoter Penalty Co-design Sub-committee members in the near future by way of a teleconference late March 2009 to consult on a number of initiatives including governance and internal control arrangements and the publication of further practical guidance to assist entities better manage the risks associated with the operation of the promoter penalty laws.
24.13 Superannuation Technical Sub-group
Chair
Gwen Miller, Technical leader, Centre of Expertise, Superannuation
Secretariat
Cindy Baker, Centre of Expertise, Superannuation
Last meetings held
The last meeting was held on 3 December 2008 with two subsequent phone hook-up workshops held on 16 December 2008.
Next meeting
The next meeting is scheduled for 23 March 2009 as a telephone hook-up.
Minutes
The minutes of the NTLG Superannuation Technical Sub-group meeting held on 3 December 2008 will soon be published to the web.
Ongoing significant topics
Issue/application |
Section 67(4A) Borrowings (Instalment Warrants) |
Status |
Ongoing |
Outcome – action to date |
The Tax Office, APRA, Treasury and superannuation industry representatives have been working together to address a number of technical regulatory issues (some of which were outlined in Taxpayer Alert 2008/5) concerning the new instalment warrants/borrowing provisions (subsection 67(4A) of the Superannuation Industry (Supervision) Act 1993 (SIS Act). The provisions allow a superannuation fund to borrow money to acquire an asset where the borrower’s rights are limited to recourse against the asset. The Tax Office has published guidance on several regulatory issues in a Instalment warrants and super funds – questions and answers (Q&A) format on www.ato.gov.au Advice from Special Counsel was sought in January in relation to three key regulatory issues. The Q&A will be further updated after consideration of this advice and discussions with APRA and Treasury. |
Issue/application |
Total Permanent Disability (TPD). |
Status |
Ongoing |
Outcome – action to date |
The Tax Office presented a discussion paper on the Total Permanent Disability issue to the 3 December NTLG Superannuation Technical Sub-group meeting. Subsequently the Tax Office held an out of session workshop on 16 December 2008. The workshop participants provided the Tax Office with a number of reasons why the law as currently drafted may be difficult to administer. They also expressed their views as to why they believe the current law does not accurately restate the provisions of the ITAA 1936. Treasury confirmed that it would consider the policy questions and advise the government as to the need to change the law. The Tax Office will consider the administrative and compliance issues arising from the interpretation of the ITAA 1997, including development of any necessary public rulings or determinations. |
Issue/application |
Current Pension Liability |
Status |
Ongoing |
Outcome – action to date |
The Tax Office presented a discussion paper on current pension liability issues, to the 3 December NTLG Superannuation Technical Sub-group meeting. Subsequently the Tax Office held an out of session workshop on 16 December 2008. The workshop discussion was very useful with industry representatives agreeing to make a joint submission to the Tax Office outlining the alternative interpretive views. The representatives responsible for the joint response expect to present it to the March 2009 meeting of the NTLG Superannuation Technical Sub-group. |
A summary of work program undertaken since last NTLG
Two out of session workshops were held on 16 December 2008 on:
- Exempt Current Pension Liability, and
- Total Permanent Disability.
Comments are currently being collated to discuss at next meeting on 23 March 2009.
Current potential ruling topics identified by the NTLG Sub-group
Potential ruling topic |
Draft Self Managed Superannuation Funds Ruling SMSFR 2008/D5 – Meaning of ‘in house asset’ for the purpose of section 71 of the SIS Act. |
Sub-committee priority high/medium/low |
Low |
Action taken |
Draft ruling published 5 November 2008. |
Potential ruling topic |
Draft Superannuation Guarantee Ruling SGR 2008/D2 – Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'. This ruling will replace or update:
|
Sub-committee priority high/medium/low |
Low |
Action taken |
Draft ruling published 5 November 2008. SGR 94/1 to be withdrawn with effect from 30 July 2008. |
Potential ruling topic |
Taxation Ruling TR 2008/9 – Income tax: meaning of 'Australian superannuation fund' in subsection 295-95(2) of the ITAA 1997. |
Sub-committee priority high/medium/low |
Low |
Action taken |
Final ruling published 10 December 2008. |
Potential ruling topic |
Self Managed Superannuation Funds Determination SMSFD 2008/3 – Death Benefit Nominations. |
Sub-committee priority high/medium/low |
Low |
Action taken |
Final ruling published 17 December 2008. |
Potential ruling topic |
Superannuation Guarantee Ruling SGR 2009/1 – Superannuation guarantee: payments made to professional sportspersons. |
Sub-committee priority high/medium/low |
Low |
Action taken |
Final ruling published 21 January 2009. |
Potential ruling topic |
Self Managed Superannuation Funds Ruling SMSFR 2009/1 – Self Managed Superannuation Funds: Business real property for the purposes of the SIS Act. |
Sub-committee priority high/medium/low |
Low |
Action taken |
Final ruling published 28 January 2008. |
Potential ruling topic |
Self Managed Superannuation Funds Ruling SMSFR 2008/D2 – Self Managed Superannuation Funds: the application of subsection 66(1) of the SIS Act to contributions of assets to a self managed superannuation fund by a related party of that fund. |
Sub-committee priority high/medium/low |
Low |
Action taken |
Draft published on the 2 April 2008. Final publication date expected to be 25 March 2009. |
Potential ruling topic |
Self Managed Superannuation Funds Ruling SMSFR 2008/D1 – Unpaid Trust Distributions. |
Sub-committee priority high/medium/low |
Low |
Action taken |
Draft published 19 March 2008. Final ruling has been delayed, to be discussed at April 2009 SPR Rulings Panel, final publication expected to be May/June 2009. |
Potential ruling topic |
Self Managed Superannuation Funds Ruling SMSFR 2008/D4 – The meaning of ‘borrow money’ or maintain an existing borrowing of money for the purposes of section 67 of the SIS Act. |
Sub-committee priority high/medium/low |
Low |
Action taken |
Draft ruling published 17 September 2008. Final ruling due for publication 25 March 2009. |
Potential ruling topic |
Contributions Ruling – Income Tax: What is a superannuation contribution, how is a contribution made, when is a contribution made. |
Sub-committee priority high/medium/low |
Low |
Action taken |
Draft ruling due for publication 18 March 2009. |
24.14 Transfer Pricing Sub-group
Chair
Anne Connon, Assistant Commissioner, Transfer Pricing Practice
Secretariat
Justin Bushell, Transfer Pricing Practice Business Manager
Last meeting held
The last meeting was held on 5 December 2008.
Next meeting
The next meeting will be held on 31 March 2009.
Minutes
The minutes of the Transfer Pricing Sub-group (NTLG TP) meeting held on 22 July 2008 were accepted with minor alterations on 5 December 2008.
The draft minutes of the Transfer Pricing Sub-group meeting held on 5 December 2008 have been distributed to NTLG members for comment and will be endorsed as final minutes at the meeting to be held on the 31 March 2009.
Ongoing significant topics
Issue no. |
04/010307 |
Issue/application |
Business Restructures. |
Status |
Ongoing |
Outcome – action to date |
The final version of the Business Restructures discussion paper has been prepared but is yet to be released to industry. The approach taken in the draft final paper has been agreed in principle with NTLG TP members. The Commissioner has requested that Counsel’s opinion be obtained in whether Division 13 or treaty Article 9 confer a 'reconstruction power' and whether Article 9 authorises the making of transfer pricing adjustments as an alternative to Division 13. These issues are fundamental to the approach taken in the discussion papers on Business Restructures and Guarantee Fees and Intra Group Loans. Counsel’s opinion is due to be received by 31 March 2009. |
Issue no. |
2/010307 |
Issue/application |
Guarantee Fees and Intragroup Loans. |
Status |
Ongoing |
Outcome – action to date |
A discussion paper on this topic was released to NTLG TP members in June 2008. A total of 11 submissions on the discussion paper were received and comments have been collated. A financial services industry experts working group has been formed by the Deputy Commissioner, Complex Case Leadership. The purpose of this working group is to review and provide advice on the assumptions on the operation of financial markets underlying the discussion paper. As stated above, Counsel’s opinion on the legal authority for the reconstruction power and heads of power under Division 13/Article 9 has been requested. These issues underlie the approach taken in the discussion paper. Counsel’s opinion is expected by 31 March 2009. |
Advance Pricing Arrangement (APA) Program
The PricewaterhouseCoopers (PwC) legal report on the review of the APA program was discussed on a confidential basis at the NTLG TP meeting held in Melbourne on 5 December 2008. It had previously been discussed a week before at the inaugural meeting of the Large Business Advisory Group and a small group of NTLG TP members attended for this agenda item. The purpose of the discussions was to identify priorities for the implementation of the report recommendations and additional measures to make the future APA Program relevant to the needs of industry. The following were highlighted at both forums:
- co-design of a process for negotiating complex APAs, in particular, for transactions where the Tax Office position has not been determined, for example, business restructures, and
- where possible, the process should include agreement in advance on the scope of the APA negotiations.
The NTLG TP will be the primary body for progressing and co-designing the features of the new APA Program. An APA co-design committee has been established as a Sub-committee of the NTLG TP to address co-design recommendations from the report, industry and the Tax Office. The first meeting of this group was held on the 29 January 2009 in Melbourne. At this meeting industry representatives and Tax Office members were each assigned topics for development into draft proposals for discussion by the Committee at the next meeting which is set down for 19 March 2009.
The Assistant Treasurer will be briefed on the PwC Legal report before it is released on the Tax Office website, which is expected to be in mid March 2009.
Interaction of Transfer Pricing and Customs (ACS)
At the April 2008 meeting representatives of the ACS advised that they had been unable to progress processes to facilitate post importation adjustments to the customs value of imported goods following transfer pricing adjustments. In particular, the ACS Integrated Cargo System cannot process multiple import declarations.
Importers must lodge separate amended import declarations for each transaction if they wish to defer the additional GST on importation of goods subject to a transfer pricing adjustment. This is time consuming and potentially costly if a Customs Broker is involved.
The Tax Office believes that transfer pricing adjustments increasing the price of imported goods represent a very small percentage of total transfer pricing adjustments and recommended at the July 2008 meeting that importers in this situation contact Rod Dunn of GST International for an administrative solution to the problem.
A paper was sent to NTLG TP members on 5 February 2009 to:
- summarise the administrative difficulties being experienced by importers in settling their GST liability following a transfer pricing adjustment to the price of imported goods, and
- identify the problems requiring joint Agency (Australian Customs Service/Tax Office) activity to resolve.
The paper requested NTLG TP members to provide an estimate of the problem in terms of numbers of additional GST liabilities arising, the amounts of GST involved; and suggested solutions to the problem, in particular, whether a systems solution is required.
Organisation for Economic Cooperation and Development (OECD) update
At the NTLG TP meeting of 5 December 2008 Marc Simpson made the following points:
In September 2008 the OECD released its business restructuring discussion paper for public comment, with comments due by February 2009. The OECD is intending to hold a consultation session in June 2009.
NTLG TP members were provided with a written summary of the non-confidential aspects of OECD Working Party 6’s (WP6) current projects on the review of comparability and profit methods.
Discussions on the substantiative content of the proposed changes to Chapters I and III of the Transfer Pricing Guidelines on these topics will continue at the meeting in March 2009. Once the substance of the text is finalised the format of the changes (that is, a new chapter or an Annexure) will be decided. It is intended that the WP6 will finalise its discussion of the changes by the end of 2009, enabling submission to the OECD Committee for Fiscal Affairs (CFA) at its January 2010 meeting for approval for public release in 2010.
24.15 Trustee Beneficiary Rules Working Party
Chair
Michael Hardy, Assistant Commissioner, Small and Medium Enterprises
Secretariat
Vicki Squires, Small and Medium Enterprises
Last meeting held
No meetings have been held since the last NTLG meeting.
The fourth and final meeting of the TBRWP was held on 16 October 2008 and the outcomes of this meeting are included in this sub-committee report. The outcomes of the October 2008 meeting were previously tabled at the NTLG meeting of 26 November 2008.
Next meeting
Currently, there are no plans to hold a further face-to-face meeting of the TBRWP as substantial progress has been made in achieving the terms of reference for the working party. The working party will continue its work in relation to the practical and administrative issues in implementing the trustee beneficiary (TB) legislation, by email and telephone communication.
Minutes
The minutes for the meeting of 16 October 2008 have been completed. As this is a limited life working party the minutes will not be published on the Tax Office website.
Outstanding issues summary
Issue no. |
1 |
Issue/application |
Develop appropriate information products to clarify certain definition in the TB legislation. |
Status |
Progressing |
Outcome – action to date |
Obtaining a Tax Office view so that greater clarification can be provided in relation to certain terms in the TB legislation. |
A summary of work program undertaken since last NTLG
Since the last NTLG meeting on 26 November 2008, the Tax Office has continued to:
- co-design the new TB statement reporting process. The reporting process has been improved from the former paper only ultimate beneficiary (UB) schedule to allow the reporting of the TB statement information in the trust tax return by the inclusion of new labels in the trust return (and the use of some existing labels)
- develop a form and systems to allow reporting and payment of the trustee beneficiary non-disclosure tax (TBNT) as well as the raising of a TBNT liability, and
- progress interpretational issues in relation to the TB legislation.
At the final meeting of the TBRWP on 16 October 2008, the following matters were discussed:
- the Tax Office provided an update of the progress of the development of the TB statement form to be included in the trust tax return
- the Tax Office also provided a progress report on the development of the TBNT payment advice and the TB reporting and payment systems
- in relation to the possible exposure to TBNT, the Tax Office expressed the view that they thought the bias would be on education and assistance for trustees that may be exposed to TBNT in the initial years to allow them to make corrections and only after there was some history of lodgments on which to develop a balanced compliance program would they begin to assess whether any targeted active compliance was required
- feedback was obtained from the working party in relation to the TB instructions to be included in the Partnership and trust tax returns instructions
- the Tax Office provided an update in relation to its response to issues raised by the working party. Although most of the issues were outside of the scope of the working party’s terms of reference, the Tax Office considered these issues to ensure that it had considered all matters impacting on the implementation of the TB legislation
- the working party members referred to previous requests for the Tax Office to provide clearer examples of what amounts comprise an ‘untaxed part of a share of net income’ and a ‘tax preferred amount’ for the purposes of the TB legislation. The Tax Office advised that it would continue to consider the provision of information products to provide greater clarification in relation to these terms, and
- the working party reflected on the work that had been achieved since December 2007 and conducted an evaluation of the successes of the working party and suggested improvements for future consultation and co-design between tax professionals and the Tax Office.
Summary
At the final meeting, the working party expressed their satisfaction with the progress in developing the TB statement form and in particular the achievement of the placement of the TB statement in the trust tax return.
Feedback was provided that the working party had been a good and productive example of the Commissioner’s 3C’s (collaboration, co-design, consultation) at work.
Collaboration between tax professionals and the Tax Office has resulted in a comprehensive communication strategy, the co-design of the TB reporting and payment systems, information products and a news article.
The chairperson summed up that the consensus was that there had been compromise and practical outcomes and the working party had been open and receptive to understand others views. The chairperson thanked all members for their contribution and advised that the Tax Office will continue to consult the working party informally to complete the work in relation to the implementation of the TB legislation.
As substantial progress has been made in completing the program of the working party, the operations of the working party will be scaled down and it is not envisaged that there will be a need to hold any further formal meetings. There will be continuing communication and consultation between the Tax Office and the working party in relation to the communication strategy for the implementation of the TB legislation.
This is the final sub-committee report of the trustee beneficiary rules working party.
24.16 Trust Consultation Sub-group
Chair
Kate Roff, Assistant Commissioner, Tax Counsel Network
Secretariat
Lyn Freshwater, Centre of Expertise, Losses and Capital Gains Tax
Last meeting held
The last meeting was held on 1 December 2008.
Next meeting
No date has been set for the next group meeting.
Minutes
The Trust Consultation Sub-group draft minutes – 1 December 2008 have received member comments and are available on the web.
Ongoing significant topics
Issue |
Share of income |
Issue/application |
The most significant issue currently being considered by the group is how a beneficiary should determine the share of the section 95 net income of a trust estate in respect of which they should be assessed pursuant to section 97 of the ITAA 1936. This issue was discussed at the February, June and December 2008 meetings of the TCSG. |
Status |
The Tax Office has prepared some draft guidance material on the issue. This material was circulated to NTLG and Sub-group members for comment in mid-December 2008. |
Outcome – action to date |
The Tax Office is currently considering the comments that have been provided by both NTLG and aub-group members. Once submissions from all of the forums are to hand we hope to distribute a compendium of issues and responses. |
Outstanding issues summary
A register of issues is maintained in respect of all issues that have been referred to the sub-group. The register is published on the Tax Office website.
As indicated in the Governance Report provided at the November 2008 NTLG meeting, many of these issues are being considered by the Board of Taxation in its review of the taxation arrangements applying to managed funds. It is not proposed to issue any general public ruling in respect of these issues while that review is being undertaken.
A summary of work program undertaken since last NTLG
The following is an update of the action items from the last meeting of the sub-group.
Action item |
1 |
Due date |
14 December 2008 |
Issue/application |
If possible, Tax Office to provide members with a copy of the history of Division 6 which was put to the Court in the Bamford matter and a copy of the transcript of the case. Update: the history of trust taxation in Australia that was handed-up in Bamford was circulated to members on 18 December 2008. Members were also advised that the transcript could not be made available due to potential copyright and privacy concerns. |
Responsibility |
Secretariat |
Action item |
2 |
Due date |
31 January 2009 |
Issue/application |
Annual review to be completed and advised to NTLG. Update: The annual review of the group has been completed. The Forum Approver endorsed the Chair's recommendation that the group continue. |
Responsibility |
Secretariat |
Action item |
3 |
Due date |
31 January 2009 |
Issue/application |
Members wishing to make further comments on tax file number (TFN) withholding tax issues to provide them in writing. Update: Extensions been granted to allow members further time to make comments in relation to these matters. |
Responsibility |
Members |
Action item |
4.2 |
Due date |
17 December 2008 |
Issue/application |
Draft guidance material to be distributed to TCSG and NTLG members. Update: Revised guidance material distributed on 18 December 2008. Comments sought by 13 February 2009. |
Responsibility |
Secretariat |
24.17 Public Rulings Panel
Chair
Andrew England, Deputy CTC, GST
Secretariat
Gabi Janus, Law and Practice
Last meetings held
There have been two panel meetings held since the last NTLG meeting, convened on 11 December 2008 and 26-27 February 2009.
Next meeting
The next meeting is scheduled for 26 and 27 March 2009.
Minutes
The minutes of the Public Rulings Panel meeting held on:
- 11 December 2008 have been finalised, and
- 26 and 27 February 2009 are being finalised.
Ongoing significant topics
December 2008 | |
Issue no. |
ID 2909 |
Issue |
Income tax: what are the income tax consequences for an employee entering into an Employee Savings Plan as described in Taxpayer Alert TA 2008/13? The panel considered the following key issues:
|
Status |
The draft determination is being amended to take into account Panel discussion and is scheduled to issue on 6 May 2009. |
December 2008 | |
Issue no. |
ID 2910 |
Issue |
Income tax: what is the income tax treatment of a salary deferral arrangement as described in Taxpayer Alert TA 2008/14? The panel considered the following key issues:
|
Status |
The draft determination is being amended to take into account Panel discussion and is scheduled to issue on 6 May 2009. |
December 2008 | |
Issue no. |
ID 2911 |
Issue |
Income tax and fringe benefits tax: what is the tax treatment of the receipt of bonus units by an employee as part of a remuneration arrangement? The panel considered whether:
|
Status |
Following consideration at the panel, issues have arisen which require further research and consideration and for this reason the timeline for completion has been extended. The draft determination will now be progressed as a ruling and is scheduled to issue on 6 May 2009. The related determinations (IDs 2909 and 2910) will issue at the same time. |
December 2008 | |
Issue no. |
ID 2518 |
Issue |
Income tax: genuine redundancy payments The ruling issued in draft form as Taxation Ruling TR 2008/D6 on 27 August 2008 (considered by the panel in March and June 2008). The panel considered the following issues in relation to genuine redundancy payments:
|
Status |
The ruling is being amended to take into account the panel discussion and is scheduled to issue on 8 April 2009. |
February 2009 | |
Issue no. |
ID 868 |
Issue |
GST: cancellation fees The ruling issued in draft form as Draft Goods and Services Tax Ruling GSTR 2008/D4 on 29 October 2008. The panel considered the comments received on the draft ruling including:
|
Status |
The ruling is being amended to take into account the panel discussion and is scheduled to issue on 29 April 2009. |
February 2009 | |
Issue no. |
ID 2875 |
Issue |
Miscellaneous tax: notification requirements under section 105-55 of Schedule 1 to the TAA. The ruling issued in draft form as Draft Miscellaneous Taxation Ruling MT 2008/D4 on 29 October 2008. (Not previously considered by the panel). The panel considered the comments received on the draft ruling including:
|
Status |
The ruling is being amended to take into account the panel discussion and is scheduled to issue on 29 April 2009. |
February 2009 | |
Issue no. |
ID 2829 |
Issue |
Income tax: trading stock – treatment of discounts, rebates and other trade incentives offered by suppliers to retailers. The panel considered the following issues:
|
Status |
The ruling is being amended to take into account the panel discussion and is scheduled to issue on 29 April 2009. |
February 2009 | |
Issue no. |
ID 2821 |
Issue |
Income tax: research and development: reduced deductions under section 73CA of the ITAA 1936 where expenditure not 'at risk'. The ruling was previously considered by panel in October 2008 and out of session in January. The panel considered the following issues: The importance of the phrase ‘as a direct or indirect result’ in subsection 73CA(5). The meaning of the term ‘not at risk’ as used in the provision. The interaction between section 73CA and section 73B. |
Status |
The ruling is being amended to take into account the panel discussion and is scheduled to issue on 29 April 2009. Due to the complexity of the issues involved this timeline may need to be extended. |
The panel considered the following rulings out-of-session:
November 2008 | |
Issue no. |
ID 2509 |
Issue |
Petroleum resource rent tax: transfer of expenditure incurred in relation to a project that did not have a production licence to other taxable projects of the person or other group companies under sections 45A and 45B of the Petroleum Resource Rent Tax Act 1987 (PRRTAA) where the expenditure is taken to be incurred by the person under sections 48 and 48A of the PRRTAA. |
Status |
The ruling issued as Taxation Ruling TR 2009/1 on 4 February 2009. |
November 2008 | |
Issue no. |
PTI 1036 |
Issue |
Addendum to GSTR 2006/9: Goods and services tax: supplies. |
Status |
The addendum is being amended to take into account out-of-session panel comments received and is scheduled to issue on 8 April 2009. |
January 2009 |
|
Issue no. |
ID 2821 |
Issue |
Income tax: research and development: reduced deductions under section 73CA of the ITAA 1936 where expenditure not 'at risk'. |
Status |
Refer February panel information above. |
24.18 Superannuation Public Rulings Panel
Chair
Robert Olding, Senior Tax Counsel, Tax Counsel Network
Secretariat
Sue Chadwick, Law and Practice
Last meeting held
There have been two panel meetings since the last NTLG meeting, convened on 10 December 2008 and 16-17 March 2009.
Please note: The final version of the super guarantee ruling regarding payments to sportspersons was sent to the panel for their consideration out-of session in mid-November 2008.
Panel meetings
The panel met on 10 December 2008 to discuss the issues summarised in the minutes.
The panel also met on 16 and 17 March 2009. Topics discussed were:
- Can the trustee of a superannuation fund, in situations other than where the trustee becomes subject to a legal disability, apply subparagraph 17A(3)(b)(ii) of the SIS Act to transfer the trustee’s duties and responsibilities to a legal personal representative? The draft ruling is scheduled to publish 10 June 2009.
- The meaning of ‘ordinary time earnings’ and ‘salary or wages’.
- ‘Can a loan be an investment?’ to be discussed in relation to:
- SMSFR: the meaning of 'asset', 'loan', 'investment in', 'lease' and 'lease arrangement' in the definition of an ‘in-house asset’ in the SIS Act, and
- SMSFR: application of the SIS Act to unpaid trust distributions payable to a self managed superannuation fund.
Both rulings are scheduled to publish on 24 June 2009.
Next meeting
The panel will reconvene on 27 March 2009 to further consider the draft ruling on the meaning of ‘ordinary times earnings’ and ‘salary or wages’. The next meeting is then scheduled for 18 and 19 June 2009.
Minutes
The minutes of the Superannuation Rulings Panel meeting held on 10 December 2008 have been finalised:
Ongoing significant issue
Issue no. |
2631 |
Issue/application |
SMSFR – the meaning of 'borrow money' or 'maintain an existing borrowing of money' for the purposes of section 67 of the SIS Act. Question 1 – Distinction between borrowings to acquire assets and instalment purchase agreements The panel discussed the distinction between the creation of indebtedness and a borrowing, including a case study which illustrated the creation of a liability without a borrowing. The panel discussed the exceptions to the prohibition on borrowing in section 67 and suggested adding something to the ruling to clarify that even if there was a borrowing, it might be covered by an exception. Question 2 – Refinancing an existing borrowing The panel discussion focussed on clarifying the ruling to illustrate that an initial borrowing and a refinancing of that borrowing are each separate borrowings for the purposes of section 67. |
Outcome – action to date |
Ruling scheduled to publish 8 April 2009. |
24.19 Test Case Litigation Panel
Chair
Kevin Fitzpatrick, CTC
Secretariat
Jill Gatland, Legal Services, Law and Practice
Last meetings held
There have been two meetings since the last NTLG meeting, convened on 8 December 2008 and 2 March 2009.
Next meeting
The next meeting will be held on 4 May 2009.
Meeting of 8 December 2008
Two applications for test case funding were submitted and considered by the panel. In each case, the Chair of the panel accepted the recommendations of the panel.
Case summary |
This case considered the GST treatment of cash back payments made by a manufacturer to retail end users who purchase a qualifying product from a participating retailer. |
Funding decision |
Funding declined |
Panel reasons |
The panel considered that the issues in this case may be decided on the particular facts and not provide any broader law clarification for the community. The panel also noted that the applicant had the financial capacity to pursue the litigation and that the case was being litigated in the AAT rather than a court. The Chair of the panel further noted that if the case was appealed to the Federal Court by either party, a further application for funding would be considered at that stage. |
Case summary |
This case considered the issue of deductibility of legal expenses incurred in relation to proceedings commenced by the taxpayer to enforce the terms and conditions of an employment contract upon termination of that employment. |
Funding decision |
Funding deferred |
Panel reasons |
The panel noted that the issue in this case is similar to the issue being considered in the Commissioner’s appeal against the decision of the Federal Court of Australia in Romanin v. The Commissioner of Taxation [2008] FCA 1532. Accordingly, the panel considered it would not be in the public interest to provide funding to test an issue that is currently the subject of a Full Federal Court appeal. |
Meeting of 2 March 2009
Five applications for test case funding were submitted and considered by the panel. In each case, the Chair accepted the recommendations of the panel.
Case summary |
Application for funding for a review before the AAT concerning the tax implications in relation to an early retirement scheme payment in a situation where the employee continued to be employed by the same employer in a different capacity. |
Funding decision |
Funding declined |
Panel reasons |
The panel considered that it was not in the public interest to provide funding because the issue would be determined on the facts and, therefore, would not have significance for a broad section of the community. |
Case summary |
Application for funding of an appeal to the Full Federal Court on whether the Commissioner’s decision to refuse to exercise his discretion pursuant to section 388-55 of the TAA, to extend time for the applicant to consolidate pursuant to section 703-50 of the ITAA 1997 until after it had lodged its income tax return, was wrong in law. |
Funding decision |
Funding approved |
Panel reasons |
Funding was provided for the first instance appeal to the Federal Court. The issues on which clarification were sought remain the same and therefore funding should continue for the Full Federal Court proceedings. |
Case summary |
Funding sought for the taxpayer in the Commissioner’s appeal to the Full Federal Court. This case concerns the issue of deductibility of legal expenses incurred in relation to proceedings commenced by the taxpayer to enforce the terms and conditions of an employment contract upon termination of that employment. |
Funding decision |
Funding approved |
Panel reasons |
It was considered that there was sufficient public interest in this issue as the case raises some contentious issues and the decision is likely to have a broad application. |
Case summary |
Application for funding a review by the AAT on whether subsection 70B(4) of the Income Tax Assessment Act 1936 (Cth) ('ITAA 1936') applies to deny a deduction that would otherwise be allowable under subsection 70B(2) of the ITAA 1936 for a loss arising from the disposal of convertible notes |
Funding decision |
Funding declined |
Panel reasons |
The panel recommended that funding be declined on the basis that the case is before the AAT and therefore unlikely to provide judicial clarification, and it would appear that the claim for a revenue loss in the circumstances of this case is unintended by the legislature. |
Case summary |
Application for funding a review by the AAT on the deductibility of rent and mortgage interest expenses as home office expenses for an employee, in circumstances where his employer provides the taxpayer with two offices but also requires that the employee be available on-call at all times. |
Funding decision |
Funding declined |
Panel reasons |
The panel considered the law in this regard to be certain and not contentious, and that resolution of this matter would turn on the facts with reference to settled principles of law. |
Four additional matters were approved for funding without reference to the test case litigation panel. Decisions were made in accordance with the Tax Office’s published policies.
Case summary |
Whether professional footballers are entitled to deductions for the management fees incurred in relation to the making of an employment contract with a football club. The case considers the Maddelena principle. |
Funding decision |
Funding approved |
Panel reasons |
This case was previously granted test case funding at the Full Federal Court stage. It was considered appropriate to continue test case funding following the High Court’s decision to grant the taxpayers special leave to appeal. |
Case summary |
The characterisation, for GST purposes, of four categories of supply made in connection with individual strata-titled units used as rooms in a hotel complex. |
Funding decision |
Funding approved |
Panel reasons |
This case was previously granted test case funding at the Federal Court stage. It was considered appropriate to continue test case funding for the taxpayer’s appeal to the Full Court of the Federal Court. |
Case summary |
Whether the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 and Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 ('the Surcharge Acts') are constitutionally invalid in respect of their application to a former member of the South Australian Parliament. |
Funding decision |
Funding approved |
Panel reasons |
This case was previously granted test case funding at the Full Federal Court stage. It was considered appropriate to continue test case funding following the High Court’s decision to grant the taxpayer special leave to appeal. |
25. Other business
No other business had been received prior to the meeting.
Meeting discussion
FBT and donations
An issue was raised in respect of the legislation on FBT and donations for the 2008/09 year onwards. A number of corporates had arrangements in place prior to 2008/09, and it would be helpful if there was some interpretative product to provide assistance.
Reference was made to a ruling on FBT from several years ago.
It was agreed that a guidance product would be provided.
NTLG0903/08 |
TOFA
It was mentioned that the next few months will be a busy period for the TOFA Working Party. The group will need to prioritise the list of issues and estimate the extent of their impact.
Next meeting and close
The next meeting is scheduled for Wednesday 17 June 2009, commencing at 9.30am.
Meeting discussion
The Commissioner thanked members for their contributions and commented that a range of topics had been covered. The months ahead look like being quite busy and provide a number of challenges for all.
The meeting was declared closed at 3.30pm.
Summary of action items
The Tax Office agreed to review the wording in future alerts to provide greater clarity about the arrangements covered, and to adopt the words 'arrangements with features substantially equivalent to the following'. Refer agenda item 7- Taxpayer Alerts. | |
A workshop is to be arranged to progress the draft PS LA or appropriate guidance product in respect of Division 7A issues. Refer agenda item 8 – Division 7A issues. | |
A workshop is to be arranged to consider the issues raised in the discussion and areas of potential guidance associated with unpaid present entitlements. Refer agenda item 10 – Unpaid present entitlements. | |
Practical guidance is to be provided by the Tax Office on the tax treatment of bonus shares. Refer agenda item 13 – Tax treatment of companies offering bonus share plans to conserve cash. | |
|
(updated 27.03.09) |
A revised paper on Division 6, including the identification of practices and arrangements which are unacceptable, will be distributed to the professional bodies for comment prior to finalisation. Refer agenda item 16 – Trust practice statement. |
NTLG members will be advised of the progress of the draft ruling TR 2007/D10. Refer agenda item 17 – CGT consequences of earnout arrangements. | |
The Tax Office will consider the feasibility of producing a CD for tax agents, containing references used in tax time products. Refer agenda item 19 – TaxPack 2009. | |
Information to assist with determining which amendment period for individuals or STS taxpayers is applicable will be published to the website. Refer agenda item 23 – Amendment period for individuals or STS taxpayers. | |
A guidance product for the treatment of FBT and donations will be considered. Refer agenda item 25 – Other business: FBT and donations. |
Last Modified: Friday, 3 July 2009
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