8. Litigation issues

Jonathan Woodger updated members on the following matters under litigation:

Full Federal Court case:

Macquarie - The Full Federal Court dismissed an appeal by Macquarie Bank (Macquarie Bank Limited v Commissioner of Taxation [2013] FACFC 119]. In its judgment, the Court made comments about PS LA 2011/27 Matters the Commissioner considers when determining whether the ATO view of the law should only be applied prospectively, which the ATO is currently considering.

High Court case:

MBI Properties - On 15 November 2013, the ATO lodged an application for special leave to the High Court, after an unfavourable Full Federal Court decision in MBI Properties Pty Ltd v FC of T. The case involves the application of Division 135 of the GST Act following the sale of leased residential premises as a going concern, but it has broader implications for the GST treatment of leases.

Other matter:

Repeal of s 25-90 - The previous Government had announced an intention to repeal this provision. Consultation workshops, which were very constructive, were held in Canberra (July) and Melbourne (September), between ATO, Treasury, firms and industry groups. Subsequent to this consultation, on 6 November 2013, the Treasurer and Assistant Treasurer announced that the abolishment of the section 25-90 deduction will not proceed.

Deborah Vegar provided members with an update on Rights to Future Income. This is an Action item from the 12 August 2013 LBLG meeting (Action Item 05-120813).

Deborah informed members that the ATO is currently undertaking compliance activity to assure that taxpayers have implemented the rights to future income component of the 2012 amendments to the consolidation rules.

The only Rights to Future Income matter considered by the court is IOOF Holdings Limited v Commissioner of Taxation of the Commonwealth of Australia [2013] FCA 1189. The decision concerns a preliminary question as to whether the original 2010 law was capable of applying to the dispute. The court is yet to consider whether IOOF is entitled to a deduction for the tax cost setting amount of approximately $230 million allocated to the contractual rights at issue.

Middleton J held that even if the taxpayer had an accrued right to have their private ruling application dealt with under the original 2010 law the application rules to Tax Laws Amendment (2012 Measures No.2) Act 2012 evinced a contrary intention and the accrued right did not survive. That is, the 2012 amendments will apply to determine whether IOOF was entitled to a deduction.

There are other issues that may be the subject of litigation in the near future. These include whether the pre rules version of the residual tax cost setting rule in subsection 701-55(6) applies to assets such as derivatives to enable a deduction for the tax cost setting amount, and the entitlement to deductions for the tax cost setting amount of unbilled income assets under the pre rules.

The ATO is currently preparing four Taxation Determinations regarding the operation of the application rules to the 2012 amendments. The Taxation Determinations address issues raised by members of the former NTLG Consolidation Sub-group.

The ATO is also considering whether certain issues concerning the operation of the prospective rules raised by members of the former NTLG Consolidation Sup-group will be addressed by public ruling.

    Last modified: 30 Jun 2014QC 39944