Meeting minutes

NTLG members

3 November 2009

Unclassified

format

Audience

Date

Classification

 
     

National Tax Liaison Group Minutes

FOR THE MEETING of 17 June 2009

Venue : McKay Board Room, Level 10

Amungula Building, 26 Narellan Street, Canberra

(commencing at 9.30am)

 
   

unclassified

For further information or questions, contact
Louise Jameson
(07) 3119 9394

Members:

Gerry Bean

Brenda Berkeley

Steve Cane

Annamaria Carey

Lance Cunningham

Michael D’Ascenzo (Chair)

Michael Dirkis

Bob Duncan

Yasser El-Ansary

Kevin Fitzpatrick

Mark Friezer

LCA

Treasury

NTAA

Tax Office

NIA

Tax Office

TIA

ATMA

ICAA

Tax Office

LCA

Jennie Granger

Michael Hay

Alexis Kokkinos

Mark Morris

Andrew O’Bryan

James O’Halloran

Joan Roberts

Vicki Stylianou

Roger Timms

David Williams

Tax Office

CPA Australia

ICAA

CPA Australia

CPA Australia

Tax Office

TIA

NIA

TA

TIA

Apologies:

Gary Addison

Christopher Branson

Frank Drenth

CPA Australia

LCA

CTA

Michelle de Niese

Bruce Quigley

Heather Schache

Tony Stolarek

CTA

Tax Office

TA

ICAA

Guests and Agenda item:

Mike Bond (Items 2 and 17)

Sue Sinclair (Items 2 and 17)

Paul Madden (Item 4)

Tax Office

Tax Office

Treasury

Sandra Roussel (Item 6)

Chris Leggett (Item 6)

Kate Roff (Item 10)

Terry Murphy (Item 10)

Treasury

Treasury

Tax Office

Tax Office

Secretariat:

Louise Jameson

Tax Office

   

Please note: 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. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change. These minutes have been formally endorsed by the members. Agenda Summary

1 Introductions, apologies, confirmation of minutes of 27 March 2009 meeting 4

Design Topics 7

2 Private binding rulings register 7

3 Tax Issues Entry System (TIES) 8

4 Standard business reporting 10

Interpretation and administration 12

5 Calculation of “market value” of unlisted shares 12

6 Employee share schemes 14

7 Investment allowance compliance strategies 18

8 Division 7A – TD 2009/5 ‘exercising discretion under subsection 109Y(2)’ 23

9 Unpaid present entitlements 25

10 Private trusts compliance risk areas 26

11 Self education deductions post Anstis decision 28

12 Hartnell v Commissioner of Taxation 30

13 BHP Billiton Finance Ltd v Commissioner of Taxation 32

Updates 34

14 Division 7A – draft practice statement PS LA 2843 34

15 Tax bonus payment 35

16 Litigation case report 38

17 Dispute Resolution – a holistic approach 53

18 Public Ruling Steering Committee update 54

19 Matters referred to sub-forums, NTLG work program and management of issues 55

19.1 Report on action items arising from 27 March 2009 NTLG meeting 56

19.2 NTLG action item log (ongoing action items) 59

19.3 ATO Tax Practitioner Forum 63

19.4 Alienation and Part IVA Working Group 67

19.5 Consolidation Sub-group 68

19.6 Division 7A Working Group 71

19.7 Finance and Investment Sub-group 72

19.8 Foreign Source Income Sub-group 77

19.9 Fringe Benefits Tax Sub-committee 80

19.10 GST Sub-group 83

19.11 Losses and Capital Gains Tax Sub-committee 88

19.12 Promoter Penalty Co-design Sub-committee 90

19.13 Superannuation Technical Sub-group 92

19.14 Transfer Pricing Sub-group 95

19.15 Trust Consultation Sub-group 98

19.16 Public Rulings Panel 100

19.17 Superannuation Public Rulings Panel 105

19.18 Test Case Litigation Panel 108

20 Other business 111

21 Next meeting and close 111

Professional bodies represented at the NTLG

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

Summary of Action Items – 17 June 2009

Action Item

Details of item

Page no.

NTLG0906/01

Further information will be provided to members following consideration of practical examples and the application of section 139DD.

Refer agenda item 6 – Employee Share Schemes

18

AGENDA ITEMS

Agenda items are provided by the professional bodies and the Tax Office, including the many joint Tax Office/practitioner/taxpayer liaison forums operating across Australia. They are set out with the description of the item and the response from the Tax Office or the professional bodies.

[_Toc240443268] 1 Introductions [_Toc201042915] , apologies, confirmation of minutes of 27 March 2009 meeting

· Chair’s opening comments

· Welcome to participants

· Changes to NTLG membership

o Welcome to Roger Timms – Taxpayers Australia

· Introduction of guest participants

· Apologies

o Apologies have been received from:

§ Gary Addison (CPAA)

§ Christopher Branson (LCA)

§ Frank Drenth (CTA)

§ Michelle deNiese (CTA)

§ Bruce Quigley (Tax Office)

§ Heather Schache (TA)

§ Tony Stolarek (ICAA)

· Amendments to the minutes of 27 March 2009 meeting as appears below were formally endorsed at the meeting.

o Agenda item 10 – Unpaid present entitlements. Page 32 refers.

The meeting discussion notes are amended to read as follows:

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 Div 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.

Opening comments and introductions:

The Commissioner, Michael D’Ascenzo opened the meeting at 9.30 am and welcomed:

Roger Timms, representing Taxpayers Australia - (new member)

In lieu representatives were also welcomed:

Mark Friezer (LCA) attending in lieu of Chris Branson. The Commissioner, on behalf of the forum, requested that regards be passed to Chris.

Mark Morris (CPAA) attending in lieu of Gary Addison.

Apologies were accepted from:

Gary Addison - CPAA

Chris Branson - LCA

Frank Drenth – CTA

Michelle de Niese - CTA

Heather Schache – Taxpayers Australia

Tony Stolarek - ICAA

Previous minutes:

The amendments that were proposed to Agenda item 10 of the 27 March 2009 minutes were adopted. As no further amendments were proposed, the minutes of the 27 March 2009 meeting were formally accepted.

Post meeting update:

The draft minutes of the 27 March 2009 NTLG meeting have been replaced with the confirmed minutes on the Tax Office website.

[_Toc183510919][_Toc240443269] Design Topics

[_Toc240443270] 2 Private binding rulings register

The Professional Associations will be lodging submissions with the Tax Office on the PBR system before the next NTLG meeting scheduled on 17 June 2009.

We would like to ask the Tax Office to discuss the submissions and comment on some of the suggestions made in the submissions.

Response:

The draft submission has been prepared by the ICAA, and is subject to further comment and changes by the TIA and CPA Australia. It was received by the Tax Office on 4 June 2009.

Meeting discussion:

First Assistant Commissioner Sue Sinclair and Assistant Commissioner Mike Bond attended the meeting to discuss the draft submission with the members.

The draft submission addressed several areas, such as education, warnings on PBR’s, and ATOID’s. There was ‘in-principle’ support for the comments in relation to education, and the Tax Office would explore ways to undertake it. The Tax Office also agreed to explore what extra warnings and advisory notes needed to be placed on the PBR Register of Private Binding Rulings (the register).

Other matters raised in the discussion included the perception of an absence of precedent for some entries on the register, however one of the associations has a list of items which will be forwarded to the Tax Office. The Commissioner encouraged such feedback and also where members felt that a series of edited versions or ATOID’s may indicate a trend that required addressing through a public ruling for example.

The Commissioner welcomed the general direction of the submission and stated his willingness to continue to work with the professional bodies.

Members were advised that as part of the Inspector General of Taxation’s review into the Tax Office’s administration of private rulings, the Inspector will examine both the register and ATOID’s. The Tax Office is working with the Inspector General on these and other aspects of the review. The ICAA agreed to send their submission, once finalised, to the Inspector General as well as to the Tax Office.

The Tax Office will continue to work with the Inspector General and the professional bodies on both the register and improvements to ATOID’s.

[_Toc240443271] 3 Tax Issues Entry System (TIES)

At the last meeting, there were some broad comments made on TIES. The Tax Office is asked to provide an update on TIES. In particular, we ask the Tax Office whether they have formalised a process in relation to linking TIES with NTLG meetings in:

· identifying previous technical amendment issues discussed at subcommittee level;

· identifying technical amendment issues that have been submitted to Treasury; and

· documenting a process going forward as to how issues discussed at NTLG can be forwarded to TIES (and be consistently applied at all NTLG subcommittee levels).

In addition, we understand that there was a meeting held by the Board of Taxation and Treasury, would the Tax Office be able to provide members with feedback of that meeting?

Response:

Information was provided at the 27 March 2009 NTLG meeting, the NTLG and its sub forums, could be a useful source of issues for the TIES process. It was suggested that where a suitable issue is identified by an NTLG sub forum, the secretariat would submit the issue for consideration via the standard process, i.e. completing the template available on the TIES website.

Reporting on the progress of NTLG initiated issues would be done via the existing TIES process, using the public register on the TIES website. NTLG sub forums will notify potential issues using the TIES process.

An update on the stock take which has been undertaken of technical amendments previously discussed at NTLG sub forums and which would qualify for TIES, will be provided at the meeting.

Feedback on the meeting between the Board of Taxation’s TIES Working Group, Treasury and the Tax Office, which was held on 24 March 2009, was provided at the 27 March NTLG meeting.

Meeting discussion:

Members were advised that there are currently in excess of 60 measures on the TIES register. A number of issues are outside the scope of TIES e.g. major policy proposals and administrative issues such as Tax Office computer systems.

Members were advised of the results of a ‘stocktake’ of issues undertaken by the NTLG sub forums. Seven issues were identified as a result; two of which relate to Consolidation. The remaining five did not fit within the TIES scope. Of the issues that remained on the former TIMS register, there are only two outstanding issues, which have been included on the TIES register. Seven other issues that were on TIMS have been finalised and six were resolved via alternate options. The stocktake provided a degree of reassurance that suitable issues are not being overlooked.

The TIES process is not intended to address all issues, but rather only ‘care and maintenance’ issues as alternate avenues exist for other issues such as policy. A review of the TIES process is to be conducted after 12 months and any changes would form part of the recommendations to the Board of Taxation.

There was a discussion of the mechanics of the process and members were advised that issues are tracked via the issues register and include information as to whether the issue is within scope or not.

The Commissioner commented that the TIES process supports transparency by making information publicly available and is not reliant on feedback via members. The Board of Taxation has been asked to look at the best use of the TIES initiative and the Commissioner encouraged the professional associations to use the TIES process for administrative, technical and/or small P policy issues. He commented that a number of minor legislative taxation amendments are passed each year, and that TIES is a good process to suggest such amendments. The Tax Office is able to consider and implement administrative fixes only.

[_Toc240443272] 4 Standard business reporting

The Government’s strategy to reduce the regulatory reporting burden on Australian businesses, the Standard Business Reporting (SBR) initiative, is on track to be implemented by July 2010.

SBR is expected to save Australian businesses close to $800 million annually when fully implemented. SBR will enable businesses to report to a range of Australian, state and territory government agencies using a single financial reporting language (XBRL). Examples of the reports that are within SBR’s current scope include Business Activity Statements and PAYG returns (Tax Office), financial statements (ASIC), and payroll tax (SROs).

Paul Madden (Treasury) will provide an update on the progress of the SBR initiative at the meeting.

Response:

For discussion at the meeting.

Information on the SBR initiative is available on the SBR website .

The Commissioner, Michael D’Ascenzo made the following comments on SBR in his speech ‘Public Practice Muster’ to the NIA Public Practice Symposium, Sydney on 21 May 2009.

We are working with software providers to make it possible for businesses to interact with relevant Tax Office services directly from their accounting and payroll software. This could include the lodgment of returns.

This work is being conducted as part of the standard business reporting (SBR) program. This program aims to reduce the reporting burden for business by using the information contained in their accounting software to automate the filling and sending of financial information to government agencies – including the Tax Office.

Also, as part of SBR, we are leading the design and build of a multi-agency authentication solution that will make it easy for businesses to become online users of secure government services.

While these initiatives should benefit businesses, they still leave plenty of room for tax agents to provide higher value services such as end of year reconciliations, and cash flow and tax advice.

Meeting discussion:

Members were advised that Standard Business Reporting initiative is a three year program, two years of which have been progressed. A number of products associated with SBR are now available, and there is a good degree of collaboration across a number of government agencies. The overall purpose is to reduce the regulatory reporting burden for businesses and reduce their compliance costs.

Members were provided with a handout which outlined the purpose, outcomes and provided updates on a number of the pilots. Challenges to date have included the development of a common language. SBR taxonomy is a common reporting language, based on international standards and best practice. One of the challenges to date included the development of the common language. There are now two major components in the SBR taxonomy: the SBR AU Taxonomy and the SBR AU Reports Taxonomy. The next version is expected in October 2009. Members were advised that the mapping process in taxonomy will assist with sending reporting information. More detailed information is available on the SBR website , e.g. available forms.

Members were provided with an update from the recent SBR conferences held in Sydney and Melbourne. It was mentioned that there are eight development partners associated with the TFN declaration pilot. Feedback from the developers recommended that it would be advisable to focus on the implementation for 2010 rather than now. A number of papers were presented at the conference, including a presentation by John Stantial of UTC on the introduction of SBR. SBR Conference papers are available on the SBR website

One firm that is using the reporting taxonomy saw a significant reduction in time and costs, even though they were unable to transmit. Two banks and two multinationals that are keen to join the pilot associated with financial statements. Members were invited to consider participation in any of the pilots. It was mentioned that the Netherlands are approximately three years ahead of Australia in these developments, and that an emerging challenge is the consideration of a common taxonomy with New Zealand.

The Commissioner commented that it was very encouraging to see how this initiative is progressing.

The website provides a subscription service for updates on the initiative.

[_Toc240443273] Interpretation and administration

[_Toc240443274] 5 Calculation of “market value” of unlisted shares

There is a reference to previous discussions in the NTLG agenda papers for the 27 March 2009 meeting (Agenda item 12, Employee Share and Option Arrangements) about section 139FB(1)(b) of the ITAA 1936 about the Commissioner having the ability to prescribe how “market value” of unlisted shares can be calculated.

Many Small and Medium Enterprises (SMEs) wish to offer their employees shares but find obtaining a full market valuation of their shares cumbersome and expensive and these factors discourage the offering of shares to employees of SMEs. Section 139FB(1)(b) exists to provide a method by which the Commissioner can circumvent having a full market valuation being undertaken by a company.

We understand that the Australian Valuation Office was working with the Tax Office and had produced a draft booklet about market valuation guidelines. Has this booklet progressed? In any event, will the Commissioner consider creating a valuation methodology for use under section 139SB(1)(b) which does not involve SMEs going to the expense of a full independent valuation.

Response:

The Australian Valuation Office and the Tax Office jointly developed a document Market valuation for tax purposes ’ which is available on the Tax Office website. This document contains information in relation to the current rules for the valuation of shares. Consultation with relevant stakeholders occurred during its development, and amendments were made following feedback.

In particular the document discusses the interaction of market valuations and the valuing of unlisted shares under section 139FB(1)(b); please see Employee share acquisition schemes for unlisted shares .

It states:

Tax law sets out how shares and other interests are treated for tax purposes when acquired under employee share acquisition schemes (see Division 13A of the ITAA 1936). In particular, it defines market value for unlisted shares as ‘the arm’s length value of the share’ (paragraph 139FB(1)(b) of the ITAA 1936).

This subsection allows us to approve, in writing, a reasonable method of calculating the arm’s length value of unlisted shares for the purpose of Division 13A. For example, an acceptable arm’s length value might be one based on recent arm’s length commercial transactions involving the unlisted shares.

As a general rule, we accept that the market value of the unlisted shares is a reasonable basis for establishing arm’s length value. However, we will not usually rule where the request applies to future employee share acquisitions, because the facts we need to establish the market value may not be certain until the future acquisition happens (see Prospective market value [P1184_92421] in part A).

Under the law, the arm's length value of unlisted shares can be determined by a registered company auditor (in the relevant state or territory), who is not associated in certain capacities with the company (see section 139FG of the ITAA 1997). The auditor provides a written report in a form we approve. This report is given to the person from whom the taxpayer acquires the shares. [P1178_91367][H28]

Meeting discussion:

This item and the following agenda item (Employee Share Schemes) were incorporated in the one discussion. Please refer to the meeting discussion notes for Agenda item 6.

[_Toc240443275] 6 Employee share schemes

Application of section 139DD to options acquired by employees’ associates

The Professional Bodies seek Tax Office guidelines on the operation of section 139DD Income Tax Assessment Act 1936 (ITAA 1936) in relation to share options acquired by associates of employees. There appears to be confusion between the legislative provisions and the EM in relation to the use of the words ‘taxpayer’ and ‘associate’ in this regard.

Background:

Section 139D refers to the discount on shares or options being assessed to an associate where the share is acquired by taxpayer in respect of associate’s employment. The use of the terms ‘taxpayer’ and ‘associate’ are confusing in this section. In that section the employee’s associate is referred to as the ‘taxpayer’ even though they do not pay the tax under that provision. Instead, the employee, who is referred to as the ‘associate’ in that section, is the one who pays tax (but is not referred to as the ‘taxpayer’). This is confusing. It appears the intent of section 139DD is to ensure the employee pays the tax on discount on issue of the shares or options issued to their associates and therefore it may have been better if the employee was referred to as the ‘taxpayer’.

A better way of describing the situation is, where an employee’s associate acquires shares or options at a discount in relation to the employee’s employment, the employee is assessed on the discount. This is the way it is described in the EM to Tax Law Amendment Bill (No 2) 1995 which introduced Division 13A (extract attached).The EM generally refers to an employee as ‘the taxpayer’ for the purposes of Division 13A and therefore being the only person who can be assessed on a discount under Division 13A. Where a share or option is acquired by an associate of an employee (section 139D) the EM continues to refer to the employee as the ‘taxpayer’ and their associates as the ‘associates’ – by way of example, refer to:

· Para 2.21: If a taxpayer has acquired a share or right under an employee share acquisition scheme (ESAS), the taxpayer is to include in his or her assessable income the discount given in relation to the share or right [subsection 139B(1)]

· Heading above para 2.26 reads: Shares or rights acquired by associates to be taxed as if they were acquired by the taxpayer (emphasis added)

o Para 2:26: If shares or rights to shares are acquired by an associate (emphasis added) of the taxpayer (my emphasis) under an ESS, the taxpayer (emphasis added) will be taxed in relation to those shares or rights as if they were the shares or rights of the taxpayer [new section 139D]

o By way of explanation for the purpose of section 139D, the EM states at para 2.26:

The measure ensures that no tax advantage can be obtained by a taxpayer (emphasis added) through income splitting, e.g. an employee could benefit when an employer provides shares or rights to an associate of the employee who is on a lower marginal tax rate than the employee

The main issue of concern is whether the confusing use of the terms associate and taxpayer in section 139D affect the interpretation of the same terms in section 139DD, or is the interpretation of the terms ‘associate’ and ‘taxpayer’ in the EM be the better interpretation for the purposes of section 139DD?

Section 139DD provides for an amendment of the taxpayer’s assessment that included the discount on acquisition of share option in circumstances where, the taxpayer does not eventually acquire the share under the option. An important requirement for this provision to apply is that the company that issued the option was the employer of the taxpayer or the holding company of the employer of the taxpayer. We see the intent of this section is to ensure the option for shares in the employer of the employee or its holding company and not any other company. It should not matter whether the options were issued to the employee or their associate. However, to get to this position in situations where an employee’s associate acquired the options, the reference to ‘taxpayer in subsections 139DD (1) and (2) needs to be the reference to the employee’s associate (because they are the ones that acquired the options) and the reference to ‘taxpayer’ in subsection 139DD (3) needs to be the reference to the employee (i.e. the real taxpayer because of section 139DD).  We note that in relation to Section 139DD the EM says:

· Para 2.44 (under the heading of Refunds ): Situations may arise where rights to acquire shares are given to employees and there are conditions attached to those rights which result in the employee being unable to exercise the rights. These rights to acquire shares would have been valued as if the restrictions did not apply. Where an employee loses these rights to acquire shares without ever having had the power to exercise the rights, solely because of termination of employment or because the exercise of the rights was conditional on certain employer performance targets being met, the employee, on application, will be treated as never having been (words added) provided with (words added) the benefit

· Para 2.45:The refund will only be provided in respect of rights received in the employer company or holding company of the employer company

Although the EM refers to situations where “rights to acquire shares are given to employees” we question whether it can be construed from this that the Parliament intended to eliminate the operation of section 139DD to situations where the options were acquired by associates of employees.

In summary:

· The clear intent of Division 13A is to tax employees on any discount inherent in shares or options received under an ESS (whether received by the employer or their ‘associate’) – i.e. ‘the taxpayer’ for the purposes of Division 13A is an employee and Division 13A doesn’t impose tax on an associate of an employee.

· Division 13A as a whole is a regime for taxing employees on ESAS discounts and all Sub Divisions and sections within Division 13A provide the essential framework for determining when, and the amount of, the discount to be assessed to an employee as the taxpayer for Division 13A purposes. Section 139DD is a fundamental part of this regime as the EM clarifies that its purpose is to effectively reduce the amount of the discount assessed to an employee (under Division 13A) in respect of the acquisition by the employee (for Division 13A purposes) of a certain number of rights to acquire share in their employer (or the holding company of their employer), where the entitlement to exercise all, or any, of those rights is lost (either due to the termination of the employee’s employment or because certain performance conditions were not satisfied).

· The EM makes it clear that section 139D was inserted to support the clear intent of Division 13A of taxing employees on any ESAS discounts, by confirming that should ESAS shares or options be received by an employee’s associate, the employee is the taxpayer for the purposes of Division 13A. Unfortunately, when section 139D was drafted, the wording used in the EM wasn’t consistently carried through into that section, thus confusing the issue of who ‘the taxpayer’ is for section 139D actually is. This is particularly evident from the wording of the heading to section 139D in the legislation (Discount assessable to associate if share acquired by a taxpayer in respect of associate’s employment), which is virtually the opposite of the wording of (and clear meaning provided by) the corresponding heading in the EM (Shares or rights acquired by associates to be taxed as if they were acquired by the taxpayer).

Response:

The Government released a consultation paper and exposure draft bill on the reform of the taxation of employee share schemes on Friday 5 June 2009 (see media release No. 61 ). The options paper is available from www.treasury.gov.au . Submissions were requested by 12 June 2009.

Information on Reforming the taxation of employee share schemes is available on the website and contains links to the relevant joint media releases and budget papers.

The current frequently asked questions on Employee Share schemes are in the process of being revised and will be available on the website during June 2009.

A response to the agenda item will be provided prior to or at the meeting.

Two Treasury representatives, Sandra Roussell and Chris Leggett attended the meeting for this item.

Meeting discussion:

Acting Second Commissioner Kevin Fitzpatrick advised members that Division 13A taxes the taxpayer on any discount relating to shares or options received under an employee share scheme by the employee or associate. Members were advised that the Tax Office considers that the law is clear regarding these provisions.

There was a discussion regarding the application of ‘claw back’. There was some discussion of instances where claw back appears to have been applied to the employee. It was thought that this may not apply where the shares are held by associates. It was thought that section 139DD (ITAA 1936) may restrict claw back to the employee, but may not apply where the associate holds the shares. Members were invited to provide examples to enable further consideration and clarification as necessary.

The Commissioner introduced Sandra Roussell and Chris Leggett, from the Department of Treasury.

Members were advised that the pre budget measures on ESS would apply to 30 June. There was an awareness of the level of uncertainty that existed in the community and the measure was being progressed to resolve this uncertainty.

Members were advised that 60 submissions in response to the consultation paper ‘ Reform of the Taxation of Employee Share Schemes ’ had been received. One issue raised was the interaction with CGT rules and members were advised that this issue had already been noted for consideration.

The issue of the valuation of unlisted shares, eg the “rule of thumb” for market value was raised. Members were advised that the Board of Taxation will be reviewing the valuation of shares, including unlisted shares, as part of their consultative process.

A query in relation to “acquisition time” in one of the Frequently Asked Questions was raised. It appeared that there may be an inconsistency between the examples and the information provided. It was agreed that the point would be referred to the relevant area for consideration and amendment as necessary.

Members were advised that the issue of employee versus associate and who receives the claw back would be clarified during the review of employee share schemes.

Second Commissioner Granger advised members that information on the sale of shares was being provided to all levels of the community.

Members were invited to advise if they thought that resources should be directed to other issues currently not under attention.

[NTLG090601] Action item NTLG 0906/01:

Further information will be provided to members following consideration of practical examples and the application of s139DD.

Post meeting update:

The information on Employee share schemes – answers to frequently asked questions by employees has been updated on the Tax Office web site as of 15 July 2009 in response to member feedback at the meeting.

Additional feedback will be considered in further reviews of information available via the website.

[_Toc240443276] 7 Investment allowance compliance strategies

The Tax Laws Amendment (Small Business and General Business Tax Break) Bill 2009 has received Royal Assent.

Can the Tax Office advise:

· Which group or officers in the Tax Office will be responsible for guidance and responding to queries concerning the tax break

· What guidance is planned to be delivered on the tax break; and

· Has the Tax Office developed guidance or tax return instructions on the documentation taxpayers should retain to support their claims for the tax break?

Some issues remain on which taxpayers might wish to seek guidance, for example:

· self constructed assets will be treated as started to be constructed when the taxpayer first incurs expenditure in respect of the construction of the asset or the modifications to an existing asset (s.41-25(3A)). Taxpayers might consider that they incur expenditure in respect of construction of the asset when they incur salary costs of employees of the business in preparing requests for tender, or construction workplans, without necessarily paying money to external contractors or suppliers

· Where a larger project is constructed but will contain elements which are acquired under contracts (e.g. generators in a power station), and the taxpayer takes the view that the large project is a single asset, will this unitisation approach be acceptable to the Tax Office.

Response:

General information:

Where taxpayers or advisers seek guidance on the investment allowance, they can refer to the new legislation web page: Investment Allowance: small business and general business tax break . This provides links to the law on this measure, the explanatory memorandum and a guide on the Small Business and General Business Tax Break.

Where binding advice is required from the Tax Office taxpayers should seek a private binding ruling.

Temporary arrangements to assist corporate taxpayers eligible for the 30% rate

For taxpayers and/or advisers who need to speak to a senior officer about seeking advice from the Tax Office on significant transactions in order to meet the 30 June deadline and attract the 30% rate, they should contact:

Lyndall Crompton via email: Lyndall.Crompton@ato.gov.au

Michael Tucker via email: MichaelJ.Tucker@ato.gov.au

These arrangements were put in place and promoted through the Large Business Online Bulletin and picked up by the CTA through their own networks. It is recognised that arrangements already exist to provide priority private binding rulings – see PS LA 2009/2 . This temporary service initiative is complementary to those arrangements and is intended to support corporate taxpayers who may wish to pursue eligible capital investment at a rate of 30% under the auspices of the Government’s economic stimulus plan.

In meeting taxpayer expectations and noting the proximity of the 30 June deadline, it should be recognised that ultimately there will be practical limitations in providing formal binding advice in some cases, particularly where quite complex transactions or arrangements are involved. However, every effort will be made to assist taxpayers who act in a cooperative and reasonable manner. We will endeavour to provide prompt advice by bringing in senior technical experts early to ensure taxpayers understand how the law applies to their particular circumstances when they are deciding whether it is commercially soun d to commit to and undertake eligible capital investment. It may be in some cases, because of the circumstances, taxpayers will have to weigh up the commercial risks and take a reasonably arguable position.

Responses to the issues raised:

Areas in Tax Office responsible for provision of advice and guidance

Responsibility for the provision of guidance and advice rests with the relevant business line depending on turnover, e.g. under $2 m – ME&I; $2 - 250m - SME; or over $250m – LB&I. That business line will escalate and engage the relevant Centre of Expertise and/or tax counsel where appropriate particularly where the matter is complex or novel. Law and Practice will provide technical leadership.

Phone enquiries on the business tax break will be dealt with by a direct line to our business tax break info line on 1300 337 921.

Tax agents will continue to use their tax agent information line – 137286 and use the relevant fast key code.

For those large business entities that have a key client manager, they may wish to contact that person for further details.

Guidance available from the Tax Office

Outlined below is a list of the various forms of guidance that has been or will be provided:

· The new legislation page on ato.gov.au that provides the most up to date information on the investment allowance and links to further information. Updates to this page are distributed to tax agents via e-link.

· A guide linked to the new legislation page (20 pages)

· Tax return and schedule instructional guides containing information about this tax break and how to complete the new tax return label

· Tax agent satellite seminar guide and DVD

· Tax agent magazine article

· Activity statement update article

· Large Business and International Online bulletin

· Radiowise radio segments - talkback sessions on business topics - hosted by Paul Clitheroe

· Business update seminars

· Information provided at Tax Office consultative forums

· Call centre scripts

· Outbound educational assistance calls for new to small business taxpayers

· Messages posted to the tax agent, business and BAS portals

· Workforce education news – online newsletter featuring an article on the business tax break

· Industry associations – information delivered to industry associations about the tax break

· Access article – article in Access magazine for disability audiences

· Radio for print handicapped – radio scripts used in Tax Office radio segments

· SBS and community radio – radio scripts used in Tax Office radio segments

· Editorial provided for use in Non-English speaking background articles

Record keeping requirements

There are no special record keeping (or substantiation) requirements applicable to the Tax Break (investment allowance). The general record keeping requirements apply and these are outlined in the tax return instructional guides as well as on our website: Record keeping essentials .

Consequently the tax return instructions and information guide do not specifically provide guidance on the documentation that taxpayers should retain to support their claims for the tax break.

Tax return instructional guides provide general information about record keeping requirements and these requirements equally apply to the Small Business and General Business Tax Break.

Specific comments follow in relation to the technical questions raised. All references are to the Income Tax Assessment Act 1997.

Self-constructed assets

For self-constructed assets, the investment commitment time under subparagraph 41-25(1)(a)(ii) for an amount that is included in the first element of the asset’s cost is the time at which you start to construct the asset. Similarly, for amounts that are included in the second element of the asset’s cost, paragraph 41-25(1)(b) provides that the investment commitment time is the time when you start construction for the economic benefit.

For the purposes of determining the time when construction starts, subsections 41-25(3A) and 41-25(3B) treat construction as starting at a time when you first incur expenditure in respect of the construction of the asset (subparagraph 41-25(1)(a)(ii)) or construction for the benefit (paragraph 41-25(1)(b)).

The use of the expression ‘in respect of’ indicates that the expenditure in question is not limited to expenditure incurred on the actual physical construction of the asset or construction of the particular economic benefit. The words expand or enlarge the range of expenditure that will be counted for the purposes of determining the investment commitment time for an amount. Expenditure will have the character of being ‘in respect of’ construction if it has the necessary relationship or connection with construction activities. This is consistent with the interpretation of ‘construction expenditure’ in section 43-70 which covers capital expenditure incurred in respect of the construction of capital works. Taxation Ruling TR 97/25 confirms that ‘construction expenditure’ includes not just the cost of the structure itself but preliminary expenses such as architects fees and engineering fees.

However, whilst the phrase widens the range of expenditure that evidences the time when a taxpayer either starts to construct an asset or modify an asset, it does not extend to expenditure that has only a remote or tenuous connection with the construction. There needs to be a material and relevant connection between the expenditure incurred and the construction for the expenditure to be ‘in respect of’ the construction.

Judicial interpretation of the expression ‘in respect of’ in various statutory contexts indicates that the legislative context is critical to the breadth of the connection between the two subject matters that the expression is intended to capture.

The context of new Division 41 is providing a bonus deduction for new investment in tangible depreciating assets. The purpose of the measure is to stimulate new investment by providing a tax incentive for taxpayers to commit to such investment in the short term. To be eligible for the tax break a taxpayer must evidence a commitment to invest within the legislated time frames. For assets that are purchased, this commitment is evidenced at the time of entering into the relevant contract. For assets that are self-constructed, the analogous commitment occurs when the expenditure in respect of the construction is incurred.

The context indicates that it is only expenditure that evidences a commitment to proceed with the construction of the asset or modification to the asset which is covered by the expression. For example, it is likely that the tendering process is one step removed from the time when such a commitment to construct is present. The tendering process itself, whilst having a remote relationship with the construction which may follow, does not itself evidence a commitment to start construction.

Whether the subject matter of the expenditure incurred evidences a commitment to start construction depends on the particular facts and circumstances of the case. The mere fact that the expenditure is incurred on the engagement of external contractors or suppliers is not decisive.

Construction of project

Division 41 is based on the concept of a 'depreciating asset' as defined in section 40-30. Whether a composite item is a single depreciating asset or consists of multiple separate depreciating assets is a question of fact and degree which depends on the circumstances of the particular case.

If more than one depreciating asset is acquired or constructed as part of a larger project, each of the depreciating assets acquired or constructed needs to be tested against the conditions for the deduction. These conditions cannot be applied to the project as a whole if the components of the 'project' comprise separate depreciating assets.

Case law indicates that the intended function or purpose of an item is central to determining whether a composite item is a single depreciating asset or whether the components are separate depreciating assets for the purposes of Division 40. As Division 41 relies on the definition of 'depreciating asset' in Division 40, the function test should also be used to identify the relevant depreciating asset for the purposes of Division 41. Taxation Ruling TR 94/11 contains guidelines about the function test and explains how it must be applied to the particular factual circumstances of each case.

Meeting discussion:

Members appreciated the information provided in the response.

Members advised that there were some concerns associated with this measure, predominately in respect of the degree of certainty provided for taxpayers. They advised that a number of taxpayers relied on the guide and draft legislation released by Treasury, and were seeking greater certainty. Members were advised that Treasury provided assistance to taxpayers through the provision of the guide to assist with the introduction of the new legislation.

The Commissioner invited members to advise the Tax Office of any technical issues that require clarification. Members were advised that a significant amount of information has been made available to taxpayers. The Commissioner advised that he believed that if a high degree of practical certainty existed, that this would suffice for the operation of the measure. Members were advised that consultation with businesses has occurred to identify key technical issues that required attention, and there was satisfaction with the information available. Information on the Small business and general business tax break is available on the Tax Office web site, including examples and fact sheets.

A concern as to how early actions would be viewed in following years was expressed, and the Commissioner advised that the circumstances in the initial stages where limited information was available could be taken into consideration. It was acknowledged that some mistakes may have been made in the absence of information. Members were advised that additional information is being made available and published to the web site, eg information on penalties and interest charges is available. The need is to focus on the more contentious issues. Members were encouraged to forward issues that require assistance and to advise their priority.

Members were encouraged to contact Lyndall Crompton and Mike Tucker (see agenda response for contact details) for large business queries, or direct agent related queries to PALU.

The Professional to Professional (P2P) approach was mentioned as a channel that might be appropriate to use to provide information on the allowance to agents.

Post meeting update :

Additional information was published on the Tax Office web site on 16 June which addressed queries regarding demonstrator vehicles. A fact sheet has been published to the website.

Queries are being addressed on receipt, and phone queries are responded to promptly with a high degree of satisfaction.

[_Toc240443277] 8 Division 7A – TD 2009/5 ‘ exercising discretion under subsection 109Y(2)’

There are three parts to this agenda item.

TD 2009/5, which explores whether, in exercising the discretion under ss 109Y(2) of the Income Tax Assessment Act 1936, the Commissioner can take into account the value of the company's assets, not shown in the company's accounting records, as a substitute for an appropriate value of a private company's assets, has given rise to the following concerns:

8.1 Can the Tax Office indicate how the provisions of this determination will be applied for entities that are non-reporting entities and for which accounting standards are non-mandatory?

Response:

Taxation Determination TD 2009/5 does not draw any distinction between reporting and non reporting entities. The TD has broad application to all private companies. Irrespective of the above distinction, the Commissioner’s discretion to substitute an appropriate value for a company’s assets will arise where the value of the assets as per the company accounting records when compared to the totality of the company’s assets are substantially different. This will be the case for both reporting and non reporting entities.

The intent of the Commissioner’s discretion is to address the actions of all private companies who attempt to circumvent the operation of Division 7A.

8.2 Is the reference in paragraph 28 to “proper accounts” and footnote 18 with respect to non-reporting entities, to be read as accounts which are prepared in accordance with the Corporations Act?

Response:

The reference to proper accounts is a reference to accounts (or accounting records) prepared in accordance with accounting standards.

Paragraph 27, in relation to valuing assets in accordance with accounting standards, makes the point that:

‘it is not itself conclusive against the exercise of the power to revalue assets to show that the company’s accounting records are correctly prepared in accordance with accounting standards’.

Paragraph 28 then follows by stating what the Commissioner will do as a matter of practice.

As noted in paragraph 21 ‘accounting records’ include, but are not confined to, the company’s books of account, financial statements and balance sheet.

8.3 How will the Commissioner apply the determination where such loans are funded by either a bank debt or creditors rather than earnings?

Response:

In exercising the discretion to substitute an appropriate value the Ruling paragraphs in Taxation Determination TD 2009/5 will be followed.

For the purposes of working out the distributable surplus the circumstances surrounding the loan to the shareholder (or associate) and the funding of the loan may be a factor to take into account when determining whether a value for a company’s assets should be substituted. There could be other factors.

The source of the funds is not relevant in determining whether or not a private company is taken to pay a dividend under subsection 109D(1) of the Income Tax Assessment Act 1936. The amount of the dividend taken to have been paid is the amount of the loan that has not been repaid before lodgment day, subject to the private company’s distributable surplus.

Meeting discussion:

Members accepted the response provided.

[_Toc240443278] 9 Unpaid present entitlements

Subdivision EA of Division 7A – Unpaid present entitlements

Could the Commissioner please advise how he is applying or intending to apply Subdivision EA to chains of trusts where the trustee of T1 has an unpaid present entitlement to the trustee of T2 and T2 has an unpaid present entitlement to a company (corporate beneficiary), and T1 makes a loan, payment etc to a shareholder or associate of the company?

Response:

The arrangement as described fails to attract the application of Subdivision EA of Division 7A of Part III of the Income Tax Assessment Act 1936. Section 109XB which determines the amount to be included, as if it were a dividend, in the assessable income of the shareholder or associate has no application because the condition contained in paragraphs 109XA(1)(c), 109XA(2)(b) and 109XA(3)(b) cannot be satisfied. However in the absence of further facts, we have not considered the possibility that the above may attract the general provisions of Part IVA.

Meeting discussion:

Members commented that the Treasury discussion paper "Improving fairness and integrity in the Tax System - Tightening the non-commercial loan rules in Division 7A of the Income Tax Assessment Act 1936 ".was silent in respect of Part IVA.

Members were advised that it was unlikely that Part IVA would be included as its application is fact dependent. The agenda response is general in nature as it is not possible to determine if Part IVA is applicable.

Members accepted the response.

[_Toc240443279] 10 Private trusts compliance risk areas

At the March 2009 NTLG there was some discussion about the areas of compliance risk emerging in respect of private trusts.

Would the Tax Office please update NTLG members about their proposed strategies for dealing with this risk and putting taxpayers on notice about particular behaviours or activities that could increase their risk profile?

Response:

Assistant Commissioner Kate Roff will attend the meeting to discuss this issue.

An update on the draft practice statement is provided.

Pending clarification from the courts, the Tax Office has been developing a practice statement for staff about how to determine who should be assessed in respect of the section 95 net income of a trust. A draft of the practice statement was circulated to NTLG members in December 2008 and discussed at the 27 March 2009 NTLG meeting. The Tax Office has been reviewing the draft practice statement to take into account submissions made by NTLG members. One of the issues of concern to members was that the Tax Office should identify the circumstances in which it would engage in active compliance work to enforce its preferred view of the law.

The Tax Office was intending to undertake another round of consultations on a revised draft of the practice statement. However, on 3 June 2009, the Full Court of the Federal Court handed down its decision in the Bamford test case. The Court found in favour of the Commissioner in the first year on the basis “that share” in s 97(1) refers to a beneficiary’s proportionate or fractional entitlement to the income of the trust estate. In the second year the Court found in favour of the taxpayer on the basis that a trust instrument may confer upon a trustee a power to determine that a capital receipt is “income of the trust estate” for the purposes of s 97.

The Tax Office is reviewing the decision and would be interested in the views of NTLG members as to whether the principles expressed in the reasons for judgment are sufficiently clear to be capable of general application.

While we need to consider the appropriate response to the issues raised in Bamford, the Tax Office has identified other areas of concern relating to trusts including the use of hybrid trusts (Taxpayer Alerts TA 2008/3 and TA 2008/4 ) and the use of lifestyle assets held in trusts. We will set out a more complete picture of our areas of interest in the 09/10 Compliance Program.

Meeting discussion:

Assistant Commissioner Kate Roff and Special Counsel Terry Murphy attended the meeting to discuss the implications of the Full Federal Court decision of the Bamford matter.

The focus of the discussion was on whether the principles expressed in the reasons for the decision were sufficiently clear to be capable of general application, the degree of certainty provided by the decision and consideration of applying for special leave to appeal to the High Court.

Members were invited to provide their views on the degree of certainty provided. The Tax Office identified a number of perceived uncertainties which were discussed. A number of issues were discussed, such as the relevance of PS LA 2005/1 and CGT implications, the application of Part IVA, litigation and what constitutes of income of the trust estate. Members were advised that PS LA 2005/1 would continue to apply until such time as the new practice statement was in place. A range of views were expressed by members, including that sufficient certainty was provided by the decision to an opposing view.

The Commissioner invited members to advise whether they would support an application for special leave to appeal the decision to the High Court at their earliest convenience following the meeting.

Post meeting update :

A practice statement is being developed by the Tax Office in relation to the assessment of trust net income pending a decision by the High Court in the Bamford matter. This should assist taxpayers by providing a practical understanding regarding the administration of Division 6 in the intervening period. Practice Statement Law Administration PS LA 2009/7 – Approach to certain trust issues involving Division 6 of Part 111 of the Income Tax Assessment Act 1936 pending resolution of the Bamford litigation is available.

An application for special leave to appeal the decision to the High Court has been lodged.

[_Toc240443280] 11 Self education deductions post Anstis decision

On 1 April 2009 the Federal Court held in Anstis v FCT [2009] ATC 286 that the taxpayer was entitled to an income tax deduction for various self-education expenses [TOC.7.10][TOC.7.7]incurred as a necessary incident of deriving an assessable youth allowance under section 8-1 of the Income Tax Assessment Act (1997).

The rationale for this decision was that the taxpayer would only be entitled to the assessable youth allowance to the extent that the taxpayer satisfied an activity test which in turn required the satisfactory completion of at least three quarters of a full time course of educational study at an educational institution, and it was these requirements which necessarily required the taxpayer to incur self education costs.

The professional bodies note that the decision is contrary to the Commissioner’s long standing treatment on the deductibility of such costs for recipients of Commonwealth educational assistance payments such as the youth allowance, ABSTUDY and VCES as set out in paragraphs 71 to 77 of Taxation Ruling 98/9. This interpretation was predicated on the view that that self-education expenses relating to a course of study are not relevant and incidental to the derivation of government assistance programs but should rather be characterised as relating to undertaking a course of study.

We also note that a Decision Impact Statement has not yet been issued setting out the Commissioner’s interpretation of the decision or its impact on the above extract of Taxation Ruling 98/9.

The Professional Bodies would appreciate receiving further clarification of the Commissioner’s current views on the tax deductibility of such costs especially given the imminent close of the 2008-09 tax year. If the decision is left to stand:

· what processes will the Tax Office be putting in place to allow previous recipients to amend their returns to seek deductions for self education expenses; and

· will the Commissioner seek to issue an addendum to Taxation Ruling TR98/9 to appropriately amend paragraphs 71 to 77 of this ruling.

Response:

The Commissioner does not agree with the decision of the Federal Court and has filed an appeal to the Full Federal Court. In accordance with the Tax Office’s usual practice, a Decision Impact Statement will not be published until the appeal process has finished.

The Commissioner’s view, as set out in Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses, is that self-education expenses incurred by a student in relation to a course of study are not relevant and incidental to the derivation of Youth Allowance income, as they are incurred in gaining a qualification which is designed to enable the student to obtain future employment in a particular field.

Until this matter is resolved, the Tax Office will continue to apply the view set out in TR 98/9. If a recipient of Youth Allowance income has lodged an objection to claim a deduction for their education expenses, the resolution of that objection will be held over pending the outcome of the appeal process.

The Commissioner is considering the potential implications of an adverse decision in this matter. However, it will not be possible to fully determine the consequences for the Tax Office's interpretative approach, nor the administrative arrangements that would need to be implemented, until the appeal process is finished and a final decision has been handed down.

Meeting discussion:

Members were advised that the appeal is likely to be heard in August 2009. The Tax Office will provide a Decision Impact Statement once the outcome has been considered.

The members accepted the response provided above.

Post meeting update:

The Full Federal Court hearing has been set for 27 August 2009.

[_Toc240443281] 12 Hartnell v Commissioner of Taxation

In the recent decision in Hartnell v Commissioner of Taxation (No1) [2009] FCA 230 Perram J held that a journalist was entitled to access to the income tax returns of taxpayers who were not parties to the appeal in question.

This decision was a discretionary one but was based on the “normal approach” of the Federal Court to such matters (application for access) In particular, there was reference to Williams v Forgie [2003] FCA 991, a case in which Heerey J ordered that Herald and Weekly Times “have leave to inspect, as sought in the motion, outlines of evidence, statements of contentions of fact and law and affidavits filed in the proceeding”.

From the judgement in Hartnell it appears that the income tax returns of the relevant taxpayers, who were not parties to the actual proceedings and may not have even been aware that their tax returns were being tendered, were exhibits which had been tendered in the course of the matter.

The only undertaking provided by the applicants for access was “not to publish any tax file numbers contained in exhibits”, which is covered by the law anyway.

In both of these cases it was the Commissioner objecting to access being granted.

The Commissioner accepts that he is obliged to act as a model litigant.

· Given the above, what steps is the Commissioner taking to address the fact that journalists have had access to documents which would ordinarily be subject to strict secrecy provisions under section 16 of the Income Tax Assessment Act 1936 to reduce or eliminate future access being had by journalists in future tax cases?

· Did the Commissioner appeal against the decision to allow access in Hartnell v Commissioner of Taxation (No1)? Could the reasoning be explained?

· Is the Commissioner intending to seek a law change in relation to this apparent loophole to the secrecy provisions?

Response:

The Commissioner did not appeal against the decision of the Court, because it was essentially an exercise of the Court's discretion under Order 46 r 6(4) of the Federal Court Rules. It was considered that his Honour's decision was consistent with the principles established in relation to the exercise of the discretion, and it was not considered appropriate to file an appeal in this matter because there was no apparent error of law on which to base an appeal. In the circumstances, pursuing an appeal would not have been an effective use of Commonwealth resources. It should be noted that the taxpayers in this case did not file an appeal against the decision. They also opposed the application and submitted that no access at all should be granted to the tax returns contained in the exhibits.

The documents in question were tendered into evidence by the taxpayers and their witnesses by annexing them to various affidavits that had been filed by them in the proceedings. The affidavits were read into the transcript in open Court, and there is nothing to prevent the media from seeking access to any document in a proceeding. It should be noted that the Commissioner has contacted all affected taxpayers as part of a process of issuing new tax file numbers (TFN’s) to taxpayers whose TFN’s may have been compromised as a result of these proceedings.

Any law change is a matter of policy for Government. However, we shall be drawing the decision in this case to the attention of Treasury in the context of the current review of the secrecy provisions.

Meeting discussion:

Members queried whether the Tax Office would seek a suppression order in situations where confidential tax information could be compromised. Members were advised that the Tax Office is conscious of privacy issues and preserving the confidentiality of taxpayer’s information.

Members accepted the response.

[_Toc240443282] 13 BHP Billiton Finance Ltd v Commissioner of Taxation

In light of the decision of Gordon J in BHP Billiton Finance Ltd v Commissioner of Taxation (FCA 276) handed down on 30 March 2009, there is now some measure of concern about the potential application of this decision, in particular the circumstances in which the Tax Office will seek to pierce the corporate veil.

Would the Tax Office please advise when and in what circumstances the Commissioner will seek to pierce the corporate veil in light of Gordon J's decision (for instance, to what extent are companies controlled by one director/shareholder and non-consolidated groups at risk of the Commissioner arguing that the holding company/director carries on the business and that the company is merely a conduit)?

Response:

The Commissioner has filed a notice of appeal from the decision of the Honourable Justice Gordon in BHP Billiton Finance Ltd v Commissioner of Taxation given on 3 April 2009. As a result, it is difficult to measure the potential application of the decision before litigation in this matter is finalised. However, general advice is provided, first, in relation to the arguments of the Commissioner that were considered by her Honour and, secondly, when and in what circumstances will the Commissioner seek to challenge the presumption of separate legal entity.

One of the issues before her Honour was whether there was a business of lending money, rather than whether there was a business being conducted by the particular entity. The Commissioner submitted that the subsidiary company (BHP Finance) did not carry on a business of lending money, as BHP Finance relied upon the board of BHP Billiton Limited (BHPB) to approve capital expenditure on a particular project and BHP Finance relied upon the processes and procedures of BHPB.

The Commissioner did not contend that BHP Finance was at the relevant time a 'mere conduit' of its parent company, BHPB. Instead, the Commissioner said that BHP Finance made the advances of money for the extraneous purpose of establishing a new profit-earning structure at the behest of and in the interests of the parent company, to benefit other parts of the BHPB group. This proposition supports a recognition of a separate legal entity on the basis that it is the taxpayer who must be in the business of lending money and that a connection needs to be established between the loss or outgoing and the earning of assessable income of that separate legal entity. In establishing who is the proper taxpayer, expenditure must relate to the assessable income of the appropriate legal entity. As a general rule, a loss or outgoing is not deductible unless it is incurred in gaining or producing the assessable income of the person who incurs it.

The particular facts of each case will necessarily determine when and in what circumstances the Commissioner may seek to challenge the characterisation of an outgoing or loss, and what business is being carried on by a legal entity. The mere fact that corporate boards overlap, that companies are controlled by one director/shareholder or that companies are members of non-consolidated groups are insufficient by themselves to defeat the presumption of separate existence. However, in suitable cases the Commissioner may seek 'to pierce the corporate veil' where, for example, Part IVA is applied or where there is evidence of sham transactions.

Meeting discussion:

Members were advised that the Tax Office has lodged an appeal against the decision that was handed down on 3 April 2009. At this stage, no information is available as to when the appeal will be heard.

Members accepted the response.

[_Toc240443283] Updates

[_Toc240443284] 14 Division 7A – draft practice statement PS LA 2843

The joint bodies made a confidential submission to the Tax Office on the proposed Division 7A practice statement PS LA 2843 – ‘Exercise of the Commissioner's discretion under section 109RB of Division 7A of the Income Tax Assessment Act 1936 to either disregard a deemed dividend or to permit a deemed dividend to be franked’.

Can the Tax Office please provide an update on outcomes after reviewing the submission and whether the Tax Office will be meeting with the bodies to discuss their view on the submission points?

Response:

A submission was lodged with the Tax Office on 16 March 2009 detailing members’ concerns regarding the draft practice statement PS LA 2843.

Following consideration of this submission, position papers relating to the draft practice statement PS LA 2843 and Unpaid present entitlement are being finalised. These documents will be provided to Division 7A working group members for consideration shortly. Arrangements for a meeting in early July 2009 to discuss the issues and the way forward are in progress.

Meeting discussion:

Members were advised that the meeting had been scheduled for 10 July. Following feedback from the members regarding commitments for their members, the Division 7A working group meeting has been rescheduled to 17 July 2009.

Post meeting update :

A further meeting has been scheduled for 25 September 2009.

[_Toc240443285] 15 Tax bonus payment

Following the Government’s stimulus package announcement on 3 February 2009, the Tax Office has been responsible for the administration of the Tax Bonus payment initiative.

Since early April, the Tax Office has sent around 7.9 million eligible Australians tax bonus payments of up to $900.

Information on the tax bonus payment initiative is available on the Tax Office website, and discussion has occurred at NTLG and ATPF meetings in February, March and April 2009. Minutes of these meetings are available on the Tax Professionals segment of the Tax Office web site.

This agenda item is to provide an update on the initiative.

Response:

The Government's Nation Building - Economic Stimulus Plan was a response to the global economic downturn. The Tax Office was responsible for the tax bonus payments, including designing and building the administrative systems to deliver the payments. Inherent in the Government’s objective was the constraint that payments had to be made quickly for it to have the Government’s desired effect and impact.

The measure provides a tax bonus payment to 8.7 million people. We have largely delivered on this major policy initiative.

This was made possible by working closely with all of our intermediaries and stakeholders, and the Commissioner particularly wishes to acknowledge the significant support provided by the tax profession. In working with tax agents we were able to ensure that payments were distributed very quickly to recipients.

To help tax agents with any additional workloads associated with the tax bonus payment we:

· deferred lodgment of company, trusts, partnerships and superannuation fund returns to 5 June 2009 – allowing tax agents to focus on finalising their individual clients’ returns

· extended the lodgment due date to 31 October for individual returns for 87,000 clients of 144 agents who are currently under a special lodgment program due to their personal circumstances, and

· offered agents the opportunity to opt out of redirecting payments to their clients.

As at 19 May 2009, we have made 7.9 million payments to people at a value of $6.9 billion. 2.7 million payments with a value of $2.38 billion were channelled through tax agents. Remaining payments will be made progressively as eligible income tax returns are received and processed.

Of the 22,000 active tax agents, nearly 6000 opted not to receive the tax bonus payment on behalf of their clients. Information provided by agents meant that 2.3 million taxpayer records were updated.

As of 21 May 2009, there were approximately 790 agents who received tax bonus payments. All agents were contacted and the issues were resolved. This resulted in the return of approximately 9800 tax bonus payments from tax agents for redirection. A small number of cases have been identified where duplicate payments were made by both the tax agent and the Tax Office. 80% of the duplicate payments have been ceased with action taken to resolve the remaining cases.

Around 27,000 payments have been made to persons who were eligible and reported an overseas postal or residential address. Approximately 16,000 payments have been made to the deceased estates of persons who were eligible but died during or after the 2007-08 income year. The Tax Office cannot identify how many people in prison may receive a payment. In total, these payments represent less than one half of one percent of the total number of payments.

By mid-May the Tax Office had received more than 678,000 current year income tax returns above the same period last year. Most of this was a ‘bring forward’ from the usual tax agent lodgment patterns. However 124,000 taxpayers also lodged around 222,000 extra prior year returns. Much of this increased lodgment is directly attributable to the bonus payments and represented a significant effort on the part of tax agents.

As of late May:

· approximately 20,000 payments require updated addresses to be traced; and

· over 1.2 million calls had been received through the dedicated tax bonus hotline, with the majority of queries focussing on eligibility issues.

During the next significant period, 16 May 2009 to 30 June 2009, the focus will be on resolving queries in relation to “where is my tax bonus payment” and lodgment. The Tax Office will continue to promote lodgment of the 2007-08 income tax returns through media activities.

Information on the tax bonus is available on the Tax Office website. Answers to frequently asked questions about the tax bonus for tax practitioners were last updated on 29 May 2009.

Meeting discussion:

Members were provided with a one page handout summarising information on the Tax Bonus Payment initiative which Second Commissioner Granger addressed.

The contribution of members and all other tax agents in assisting with income tax return lodgments was greatly appreciated. Several significantly outstanding returns have been lodged as taxpayers sought the bonus payments. Second Commissioner Granger thanked the professional associations for working with the Tax Office to assist the implementation. Over three million change of addresses were notified and actioned.

The whole exercise demonstrated the robustness of the system, as this was the first time that such an exercise was undertaken. The implementation provided a good insight for the community and the Tax Office. A significant number (2.3 million) returns have been lodged earlier than they might have been in previous years. Additional time has been allowed for those who have been affected by the recent natural disasters. Tax agents and professional associations played a major role in the implementation.

Other information provided included the compensation claims; 55 have been received. Of these, 35 have been due to Tax Office error. There are a number of factors to consider in arriving at a suitable rate, and members were invited to provide comments. Members were invited to contact PALU with any issues regarding Tax Bonus payments.

The Commissioner commented that the Tax Office and the community have had a number of challenges this year; such as natural disasters, the global financial crisis and recession impacts in addition to normal business. This has had an impact on the Tax Office systems, for example, etax was available for a longer period. He acknowledged that a significant effort is required to manage these issues.

[_Toc240443286] 16 Litigation case report

This is a standing agenda item and is included in the agenda twice yearly, at the June and November/December NTLG meetings.

Action item number NTLG0706/11 refers.

Response:

This update is a summary of all significant litigation matters, as at 29 May 2009, including matters:

· in progress;

· that have received a recent decision; and

· that are awaiting decision.

The last significant litigation update provided to the NTLG was up to and including 18 November 2008.

Significant litigation matters – in progress

A list of strategic issues currently in litigation is provided for information. These are issues that are likely to have wider law clarification implications beyond the particular case:

Venue

Topic

Issue

Special Leave to appeal to the High Court

Deductions for prepayment of rent

Whether the prepayment of rent to occupy casino premises for 12 years, the payment of which was negotiated as part of the bid for the casino licence, is deductible under s 51(1) ITAA 1936 or s 8-1 ITAA 1997).

Alternatively, if the outgoing is deductible, whether Part IVA applies.

Full Federal Court set aside the decision of the primary judge and held that the prepayment of rent was an outgoing of capital or of a capital nature.

Special Leave to appeal to the High Court

Third party notice for payment of tax debt

Whether a notice issued under s 260-5 of the Tax Administration Act 1953 was invalid because it was an attachment under s 500 of the Corporations Act 2001.

Full Federal Court set aside the decision of the primary judge and held that service of the notice was not an attachment for the purposes of s 500 and the notice was valid.

Special Leave to appeal to High Court

Dividend stripping scheme

Whether the arrangement, which took profits out of two companies controlled by the taxpayer not in the form of dividends, was a scheme 'having substantially the effect of a scheme by way of or in the nature of a dividend stripping' for the purposes of s 177E(1)(a)(ii) ITAA 1936.

Whether Part IVA is limited in its operation by other provisions in the ITAA 1936 and the ITAA 1997.

Full Federal Court upheld the decision of the primary judge that the schemes came within the scope of s 177E(1)(a)(ii).

Special Leave to appeal to High Court

Deductions for purchase of land for a retirement village

Whether investors in retirement village syndicates were able to claim deductions pursuant to s 8-1 ITAA 1997 for the unpaid balance of the purchase price of property that would be developed as a retirement village.

Full Federal Court set aside the decision of the primary judge, and held that the balance of the purchase price is not incurred until settlement.

Special leave to appeal to High Court

Trust loss provisions – classification of trusts

Whether s 272-127 in Schedule 2F ITAA 1936 can apply when two higher level trusts together, but neither individually, have fixed entitlements to all of the income and capital of a subsidiary trust, with the consequence that the subsidiary may be able to carry forward losses where otherwise it would not be able to do so.

The Full Federal Court upheld the decision of the primary judge in favour of the Commissioner that the section requires the trust to be wholly owned (directly or indirectly) by ‘each of one or more trusts’, and did not specifically mention trusts owned collectively or by a group.

Full Federal Court

GST – meaning of commercial residential premises

Whether the supply of a strata-titled hotel unit by way of lease is a supply of commercial residential premises, or whether the supply is input taxed.

Whether the sale of a unit to an investor, subject to the lease, is a GST-free supply of a going concern, or an input taxed supply.

Whether the supply of the continuing leases by the investors was an ongoing input taxed supply.

Whether the supply of accommodation in the hotel to guests are taxable supplies of accommodation in commercial residential premises, or are input taxed supplies of residential accommodation.

The primary judge held in favour of the Commissioner on each of the issues in dispute.

Full Federal Court

Consolidation – liabilities of subsidiary at the leaving time

Whether, on a proper construction of s 711-45(1) ITAA 1997, a liability of a leaving entity at the leaving time means a liability of the leaving entity just before it ceases to be a subsidiary member of a consolidated group. .

The primary judge adopted a purposive approach and decided in favour of the Commissioner.

Full Federal Court

Consolidation – application of general power to defer time for making choice

Whether the Commissioner has the power to exercise the discretion under s 388-55 TAA 1953 to defer the time within which the taxpayer can lodge a form notifying the Commissioner of a choice to consolidate under s 703-50 ITAA 1997.

The primary judge held that the general power in s 388-55 TAA 1953 has no application to the period described in s 703-50 ITAA 1997.

Full Federal Court

GST – margin scheme – validity of valuation

Concerns the application of the GST margin scheme to the acquisition of an office building, its conversion into strata-title units (residential apartments) and the subsequent sale of those units by a property developer.

Whether a valuation obtained by the taxpayer complied with the requirements of Method 1 set out in MSV 2000/2 (Annexure 2 to GSTR 2000/21) such that the taxpayer was entitled to calculate the margin on the supply of the strata units under s 75-10(3) GST Act.

The primary judge held that the valuation did not comply with the Commissioner’s legislative determination and, therefore, was invalid.

Full Federal Court

GST – supply in relation to rights for use outside Australia

Whether the appellant's sale of foreign currency on the departures side of the customs barrier at an Australian international airport to a customer travelling overseas is a supply that is made in relation to rights for use outside Australia and therefore GST-free under item 4 in the table in s 38-190(1) GST Act.

The primary judge held that the supply was not GST-free.

Full Federal Court

Deductions for bad debts – application of Division 243 ITAA 1997

In the first proceedings, whether the taxpayer, an international financier for the company group, was entitled to claim deductions in respect of amounts loaned to other companies within the group, on the basis that it was in the business of lending money and the debts were written off as bad. Alternatively, whether Part IVA applied to the claim for a bad debt.

In the second proceedings, whether Division 243 ITAA 1997 applied to a particular loan to reduce capital allowance deductions for expenditure funded under limited recourse debt arrangements where the deductions are excessive having regard to the amount of debt that was repaid.

The primary judge held in favour of the taxpayer in both proceedings.

Full Federal Court

Self-education expenses

Whether expenses incurred by the taxpayer in the course of studying full-time to obtain a teaching degree are deductible against Youth Allowance income.

The primary judge reversed the decision of the AAT and held that the occasion of the expenditure was the need to satisfy statutory requirements for receipt of the youth allowance and that the expenses were incurred in the course of producing that income.

Federal Court

GST – residential premises

Concerns issues raised by decision in Toyama; in particular, the meaning of “residential premises to be used predominantly for residential accommodation” for the purposes of s 40-65(1) GST Act; and whether subjective intention of the purchaser is a relevant factor in determining how premises will be used.

Federal Court

CGT reduction arrangements

Whether Part IVA applies to a CGT reduction arrangement which used Division 19A to achieve an increase in the CGT cost base of shares, and a corresponding reduction in the capital gain from the disposal of those shares to an unrelated third party.

CGT reduction arrangements are the subject of TD 2003/3.

Federal Court

Part IVA – use of rollover relief provisions

Does Part IVA ITAA 1936 apply to an arrangement involving the transfer of assets to an interposed entity, which then transferred those assets to an arm’s length purchaser?

The sale of assets was necessary for a proposed merger to occur. The interposed entity had access to capital losses not otherwise available to be transferred under Subdivision 170-B ITAA 1997 to the owner of the assets and could therefore shelter the capital gain made by the sale of the assets to the purchaser. The arrangement utilised rollover relief pursuant to Subdivision 126-B ITAA1997.

Federal Court

Sale agreement and a Deed of Assignment

Whether entering into a Sale Agreement and a Deed of Assignment brought about a disposal of the rights for the purposes of s 160M ITAA 1936.

Whether the assignment of the Distribution Agreement brought about a disposal for the purpose of s 160ZD(4) ITAA 1936.

Alternatively, whether s 160ZD(2) ITAA 1936 would deem the taxpayer to have received market value consideration in respect to the disposal.

Federal Court

CGT reduction arrangement

This is a CGT reduction case involving Part IVA ITAA 1936 and the use of an exempt s23AJ dividend paid by way of intra-group round robin debt from an unbooked revaluation to reduce the market value of a US subsidiary that was later sold as part of a major international reorganisation.

The threshold issue is whether the amended assessment that issued in March 2006 for the 1999 year is a valid assessment.

Whether Part IVA ITAA 1936 applies to include the amount of additional capital gain in the taxpayer’s assessable income for the relevant year.

Federal Court

Development lease arrangements

Whether sales of long-term leases of residential apartments, constructed pursuant to a development lease arrangement broadly of the kind described in GSTR 2008/2, constitute sales of “new residential premises” for the purposes of s 40-75(1) GST Act.

Federal Court

GST

This case will consider whether the applicant supplied all of the things necessary for the continued operation of an enterprise in the context of property development (s 38-325(2)(a) GST Act); and whether the enterprise was operated until the day of the supply (s 38-325(2)(b) GST Act).

The case will challenge the Commissioner’s view as set out in GSTR 2005/5 and GSTR 2002/5.

Federal Court

Unit trust

Whether a Unit trust which provides premises, equipment and services to medical professionals for a fee, acquires copyright in the medical records acquired with and from the vendors of medical practices that the unit trust has acquired. Secondly, if copyright is acquired, what amount is reasonably attributed to the copyright under the contract of acquisition for unspecified amounts of such copyright?

Whether the sole unit holder of the Unit trust is entitled to reduce its distributions received from the Unit trust on the basis the trust is entitled to deductions under s 373-10 ITAA 1997 for capital expenditure in acquiring copyright on an item of intellectual property, being the medical records, for depreciation/capital allowance on copyright used in gaining the trust's assessable income.

Federal Court

Transfer pricing

Whether Division 13 of Part III ITAA 1936 authorises the Commissioner to adjust the purchase price of products acquired by the taxpayer from related parties and whether the associated enterprise articles of DTAs authorise the Commissioner to adjust the purchase price of products acquired by the taxpayer from related parties.

Federal Court

Relevant considerations for exercise of discretion to remit penalties

Whether the Tribunal correctly remitted a penalty under former s 227(3) ITAA 1936 from 75% to 25%, despite upholding the Commissioner’s finding of evasion and the imposition of a 75% penalty.

Significant litigation matters – recent decisions

Matter

Venue/Date handed down

Outcome (to ATO)

Case Issue

Pape, Bryan

High Court (3 April 2009)

Favourable

Concerned a challenge to the validity of payments under the Tax Bonus Act on two bases:

Whether the payment of the bonus is a gift and not authorised as a law with respect to taxation under s 51(ii) of the Constitution.

Whether the payment of the tax bonus is not authorised on the grounds that the Act fails to comply with s 81 and or 83 of the Constitution because the Act does not lawfully appropriate money for the purposes of the Commonwealth.

The matter proceeded as a special case and the majority of the High Court answered the questions stated as follows:

1. The Plaintiff has standing to seek the relief claimed in his Writ of Summons and Statement of Claim.

2. The Tax Bonus Act is a valid law of the Commonwealth.

3. There is an appropriation of the Consolidated Revenue Fund within the meaning of the Constitution in respect of payments by the Commissioner required by s 7 of the Bonus Act.

Word Investments Ltd

High Court (3 December 2008)

Adverse

Concerns the meaning of the words “charitable institution” in item 1.1 of the table to s 50-5 ITAA 1997 and the meaning of the expression “pursues its objectives principally in Australia” in paragraph 50-50(a) ITAA 1997.

High Court held that the taxpayer was a charitable institution on the basis that its commercial object of profit was only in aid of its charitable purposes.

Asciano Services Pty Ltd

Full Federal Court (13 March 2009)

Favourable

Whether the applicant was entitled to off-road credits under s 53 of the Energy Grants (Credits) Scheme Act 2003 for diesel fuel purchased for use in equipment being used by the applicant and operated adjacent to the rail tracks in connection with its rail transport enterprise.

The Court upheld the decision of the primary judge that s 38 EG(C)S Act is limited to circumstances in which the fuel is used in the rail vehicle or in equipment in or on a rail vehicle.

Brian Cumins

Full Federal Court (9 December 2008)

Favourable

Concerns the validity of a sequestration order made by the Federal Court.

Of significance from this decision is that s 33(1)(c) of the Bankruptcy Act does not authorise an extension of time for giving a s 41(5) notice where an act of bankruptcy has already been committed, and s 306 can be used to cure a defect relating to an overstatement in the bankruptcy notice.

Hannebery and Hance

Full Federal Court (19 December 2008)

Adverse

Examined TR 2007/8 in relation to allowable deductions for agricultural managed investment schemes.

Whether the relevant outgoings (rent, management fees and responsible entity fee) would be incurred as operating expenses in carrying on each applicant's business and deductible under s 8-1, ITAA 1997, or precluded because they were on capital account.

The Court held that the relevant outgoings would be incurred in the course of carrying on a business, would be incurred as operating expenses in carrying on each applicant’s business, and would be deductible under s 8-1.

Hastie Industries Pty Ltd and Ors

Full Federal Court (9 December 2008)

Favourable

Concerns the rules surrounding quarantined franking credits generated during a period when a company is effectively owned by non-residents, and the adaptation of these rules to the circumstances of consolidated groups.

Specifically, whether an entity was a “former exempting entity” pursuant to s 709-165(1)(c) ITAA 1997 at the time it was acquired by the taxpayer and, if it was, whether the taxpayer was also a “former exempting entity” under s 709-165(2), thereby preserving restrictions on the use of transferred franking credits.

Full Federal Court held that the taxpayer became a ‘former exempting entity’ and the restrictions on the use of the transferred franking credits were preserved.

Lilyvale Hotel Pty Ltd

Full Federal Court (6 March 2009)

Adverse

Whether the taxpayer, as owner of a leasehold estate on which it constructed a hotel, could deduct prior year tax losses during a period after a change in ownership of the company. The central issue was whether the activities of the taxpayer satisfied the same business test. Before the change in ownership, the operation of the hotel was the responsibility of another group company, as agent for the taxpayer, under a management agreement. After the change in ownership, the management agreement was terminated and the taxpayer commenced to operate the hotel business directly.

The Court set aside the decision of the primary judge and held that the taxpayer satisfied the same business test – the fact that at one stage the taxpayer conducted its hotel business without the intervention of a hotel management group and at another did so with the assistance of such a group is a distinction without difference.

Overseas Aircrew Basing Limited (OABL)

Federal Court (15 January 2009)

Favourable

Whether Australian-based pilots engaged by the taxpayer, a company incorporated in Hong Kong to provide the air crew for Cathay Pacific around the world, qualify for an exemption under s 23AG ITAA 1936. S 23AG operates to exempt income where a natural person is a resident of Australia, and that person is engaged in foreign service for a continuous period of not less than 91 days.

The Court held that a resident of Australia whose home is in Australia and whose duty cycles begin and end in Australia is not engaged in service in a foreign country in the capacity of an employee within the meaning of s 23AG.

St George Bank

Full Federal Court (25 May 2008)

Favourable

Whether the “interest” paid by the taxpayer to another related entity on the debentures was deductible under s 8-1 ITAA 1997; Whether the “interest” paid after 1 July 2001 was a non-share distribution for the purposes of Division 974 and s 26-26 ITAA 1997; and whether the election that Division 974 applies was valid.

Full Federal Court held that the payments of interest were capital and that the election under the Debt and Equity Act was invalid. Consequently, it was not necessary to decide the Division 974 issue.

Sydney Refractive Surgery Centre Pty Ltd

Full Federal Court (19 December 2008)

Adverse

Whether compensatory damages for defamation received by a corporation is income according to ordinary concepts, and assessable under s 6-5 ITAA 1997, if calculated solely by reference to lost profits attributable to the defamatory publications.

The Court held in favour of the taxpayer on the basis that the damages were awarded for impairment of earning capacity and not for loss of income. The Court said that whether a payment of compensatory damages is assessable should be determined by looking to the nature of the cause of action in respect of which the payment is made, rather than the way in which damages are calculated.

Worsnop

Full Family Court (16 January 2009)

Adverse

Commissioner intervened in family law financial proceedings seeking an order that the wife sell the former matrimonial home and that the whole of the net proceeds be paid to the Commissioner in partial satisfaction of the husband’s outstanding tax liabilities.

Issue was whether priority should be given to satisfy the Commissioner’s claim on the basis that both parties benefited from the husband’s tax evasion, particularly in relation to enabling the purchase of the matrimonial home.

The Court held that the decision at first instance to divide the net proceeds equally between the Commissioner and the wife came within the parameters of a reasonable exercise of discretion and the Commissioner’s appeal was dismissed.

Woodside Energy Ltd

Full Federal Court (12 February 2009)

Favourable

Whether the taxpayer’s hedging losses of approximately $550 million should be taken into account in calculating the taxpayer’s liability to pay petroleum resource rent tax.

The Court upheld the decision of the primary judge, concluding that the broad construction for which the taxpayer contended would undermine the essential scheme of the legislation and its specific provision for deductible expenditure.

Branson, Michael

Federal Court (1 December 2008)

Favourable

Whether a single lump sum employment termination payment, which related in part to a period of employment during which the taxpayer was not an Australian resident, could be apportioned so that part of the lump sum payment was capable of being treated as an Exempt Non-Resident Foreign Termination Payment (ENRFTP).

The Court held there was no error in law in the AAT concluding that the payment did not relate solely to a period of employment when the taxpayer was not an Australian resident. While apportionment may have been possible, the taxpayer and employer did not apportion the payment between the respective periods of employment and the dissection of the payment was not permissible in the circumstances.

Caltex Australia Petroleum Pty Ltd

Federal Court (19 December 2008)

Adverse

Whether excise is payable on various residual oils produced by Caltex during the course of its refining operations and used as a source of supplementary fuel to power its refineries. 

The Court held in favour of Caltex that the residual oils were not “refined” or “semi-refined” products and, therefore, not subject to excise duty under item 11 of the Tariff Act. The Commissioner’s objection decision was set aside.

Although the decision was adverse, it confirms the Commissioner’s view of the meaning of ‘manufactured or produced’ for the purposes of the Excise Act and the Tariff Act, and explains the meaning of the expression ‘delivered for home consumption’, both of which are concepts fundamental to the operation of the excise system.

Lean, David

Federal Court

(14 May 2009)

Favourable

Concerns deductions claimed by the applicant in respect of losses incurred when investment funds were misappropriated by the taxpayer’s financial advisor based in Hong Kong.

The Court held that once money received as income is deployed by the taxpayer personally or by way of agent for expenditure or investment, the characterisation as income is no longer appropriate and the loss cannot be said to have been incurred in respect of money included in assessable income.

PM Developments

Federal Court (12 December 2008)

Adverse

Whether Division 147 of the GST Act imposes a personal liability for GST on liquidators in respect of taxable supplies made in the course of liquidation.

The Court held that the liquidator was not liable for GST payable on the sale of property pursuant to a contract made after the liquidator’s appointment on the basis that under the general law a liquidator acts as agent for the company in liquidation and, therefore, the company makes the supply and has the GST liability.

Suntory (Aust) Pty Ltd

Federal Court (15 April 2009)

Full Federal Court (4 May 2009)

Favourable

Whether the continued collection by the Commissioner of the increased excise on ‘alcopops’ under Excise Tariff Proposal (No. 1) 2008, following the rejection of validating legislation by the Senate, was unlawful.

Primary judge found in favour of the Commissioner and ordered that the proceedings be stayed until after midnight on 13 May 2009 (12 months from when the tariff proposal was moved in Parliament).

Full Federal Court granted leave for the applicant to appeal and ordered that the appeal be dismissed.

Swansea Services

Federal Court (24 April 2009)

Adverse

Whether the taxpayer’s acquisition of artworks and antiques constituted the carrying on of an “enterprise” as defined in s 9-20 GST Act.

The court rejected the Commissioner’s argument that there was no basis upon which the AAT could have reached a conclusion that the taxpayer was carrying on an enterprise. It was a conclusion open to the Tribunal ‘even if reasonable minds may reach a different conclusion’.

Undershaft No 1 (formerly CGNU Holdings Australia Ltd) and Undershaft No 2 (formerly Norwich Union Overseas Holdings BV)

Federal Court (3 February 2009)

Adverse

Whether the relevant pre-CGT Double Taxation Agreements (DTAs), specifically the 1967 UK and the 1976 Netherlands DTAs, operate to exclude the gain made by the non-resident taxpayers on the disposal of shares held in Australian resident subsidiary companies from the taxpayers' assessable income.

The Court held, consistently with the earlier Federal court decision in Virgin Holdings, that capital gains were included in the taxes covered article in both DTAs and the Commissioner was denied a right to assess the capital gains in these cases.

Hornsby Shire Council

AAT (26 November 2008)

Adverse

Whether the acquisition of land by the applicant by way of compulsory acquisition is a creditable acquisition entitling the applicant to an input tax credit.

AAT held that the consequence of making a request under the Local Environment Plan meant that the owner of the land made a supply by way of entry into legal obligations and also by way of surrender of land.

The AAT agreed with the Tax Office view in GSTR 2006/9 that a positive act is required for the making of a supply.

[_Toc231636545][_Toc231636634]WRBD

AAT( 20 May 2009)

Favourable

Whether losses on the disposal of convertible notes are deductible and whether such losses in future years are deductible as a carried forward loss.

The AAT held that the Commissioner had correctly applied s 70B(4) ITAA 1936 to deny the taxpayer a deduction for the loss on disposal of the convertible notes.

Significant litigation matters - heard in the Tribunal, Federal and High Court Cases and awaiting decision

Venue/

Date Heard

Case Issue

High Court

(11-12 March 2009)

Whether the superannuation contributions surcharge legislation was constitutionally invalid in its application to members of the South Australian Parliament. Taxpayer argues that the High Court's decision in Austin v Commonwealth (2003) applies to him.

High Court

(21-22 April 2009)

Whether expenditure connected with negotiating new employment contracts between professional AFL/NRL football players and their football clubs is deductible and whether the principles established in the High Court decision of Federal Commissioner of Taxation v Maddalena (1971) apply in these circumstances.

Full Federal Court

(11 February 2009)

Whether the taxpayer is not a charitable institution pursuant to Division 50 ITAA 1997 on the basis that its principal “charitable” activity involves the lobbying of governments to ensure that government expenditure is made in accordance with what the taxpayer considers to be the most appropriate.

Full Federal Court

(24 November 2008)

Whether ‘that share’ in s 97(1)(a) ITAA 1936 refers to a beneficiary’s proportionate or fractional share of the income of the trust estate or whether it takes its meaning from the way a beneficiary’s entitlement is fixed for trust purposes.

Whether a trustee, acting under authority of a trust deed, can determine what constitutes income of the trust estate for the purposes of s 97.

Examines the application of the decision in Zeta Force Pty Ltd.

[_Toc210812964]Full Federal Court

(23 February 2009)

Concerns the deductibility of interest on funds used to acquire units in a hybrid trust; whether a payment made to a charity (subject to certain conditions), at the direction of the taxpayer, was an ETP assessable to the taxpayer; and whether the payment to the charity should be treated as a deductible gift made by the taxpayer.

Full Federal Court

(21 August 2008)

Whether the commercial debt forgiveness provisions apply in the circumstances and, if so, the calculation of the “notional value” of the debt forgiven and hence the “net forgiven amount”.

Whether the advances are debts; whether the advances are commercial debts and whether they were forgiven; whether the debt was used by the creditor in carrying on a business through a permanent establishment in Australia.

Federal Court

(20-21 April 2009)

Whether amounts received by the taxpayer in the form of “late payment fees” in respect of credit card transaction, and “liquidated damages” in respect of charge card transaction, form consideration for input taxed financial supplies.

Federal Court

e-trial

(3-13 June 2008)

Whether the taxpayer is entitled to claim a deduction in the 2001 income year for losses transferred to it from another entity pursuant to s 170-20 ITAA 1997.

Examines the application of s 25-35 ITAA 1997 and s 8-1 ITAA 1997 to the loan transactions. Alternatively, whether Part IVA applies to the claim for a bad debt deduction.

Federal Court

(23-27 March 2009)

The arrangement involves the use of the scrip for scrip roll-over provisions. The Commissioner’s view is that the arrangement attempts to circumvent the intended operation of Subdivision 124-M ITAA 1997 and, alternatively, attracts the application of Part IVA ITAA 1936.

Federal Court

( 29 January 2009)

Whether the trust of which the taxpayers are the trustees is entitled, for the purposes of s 50-110 ITAA 1997, to be endorsed as exempt from income tax.

This case challenges the Commissioner’s view of the exemption provisions and may include a challenge to the operation of s 50-60 as set out in paragraph 21 of TR 2000/11 and TR 2005/21.

Federal Court

(9-11 March 2009)

Whether a trust that claims to have made capital losses in the 1991, 1992 and 1993 years can offset those losses against a net capital gain which it made in the 2001 year. Assuming the trust can substantiate the losses, the question is whether the trust that made the losses is the same taxpayer as the trust which made the capital gain. This question concerns the application of the principles as to the continuity of trusts which was discussed by the High Court in Commercial Nominees.

Federal Court

(16-17 April 2009)

Whether the taxpayer’s supply of fermented wine that has had the alcohol content reduced through a manufacturing process is GST-free on the basis that the wine is a non-alcoholic non-carbonated beverage consisting of at least 90% by volume of juices of fruit or a non-alcoholic carbonated beverage consisting wholly of juices of fruit.

Federal Court

(7 May 2009)

Whether an amount received by the taxpayer from the Commonwealth by way of reimbursement is “a payment made by a government related entity to another government related entity … specifically covered by an appropriation under an Australian law” within the meaning of s 9-15(3)(c) GST Act.

Whether an amount received by the taxpayer from the Commonwealth by way of reimbursement is consideration within the meaning of s 9-15 GST Act for the supply of those services.

Administrative Appeals Tribunal

(16 March 2009)

Whether vacant premises, which are zoned residential and able to be connected to facilities such as water, sewerage and electricity, are residential premises as defined.

If so, whether such premises are 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' and whether the sale is input taxed?

Current Part IVC Litigation – Case Analysis – Market Segment

Market segment

Cases on hand

% of Total

Excise

10

1%

GST

204

12%

Large Business

309

18%

Mass Marketed Schemes

643

37%

Micro Enterprise and Individuals

251

15%

Other

49

3%

Small Medium Enterprises

195

11%

Superannuation

64

4%

Grand Total

1725

100%

Current Part IVC Litigation – Case Analysis – Venue Basis

Venue

Cases on hand

% of Total

AAT

1232

71%

County District Court

1

0%

Court of Appeal/Full Court

2

0%

Federal Court First Instance

266

15%

Federal Court from AAT

9

1%

Federal Magistrates Court

2

0%

Full Federal Court

47

3%

High Court

13

1%

Magistrates/Local Court

1

0%

Not Applicable

102

6%

STCT

16

1%

Supreme Court

4

0%

Other

30

2%

Grand Total

1725

100%

Meeting discussion:

Members accepted the report provided.

In response to a query, members were advised that several of the AAT cases related to a common issue, i.e. schemes, and the number should reduce once a decision is made in relation to the common issue.

Members queried the ‘Not applicable’ category of the Part IVC litigation matters. Members were advised that the majority of the cases (100) related to advices.

The remaining 2 cases are Part IVC litigation matters that have been allocated to the Magistrates/Local court.

[_Toc240443287] 17 Dispute Resolution – a holistic approach

At the Legal Practitioners working party Litigation Issues workshop of 7 May 2009, information was provided on developments in the Tax Office’s dispute resolution process.

Assistant Commissioner, Law and Practice, Mike Bond will provide NTLG members with an overview of the work being done to improve the process.

Response:

First Assistant Commissioner Law and Practice, Sue Sinclair and Assistant Commissioner Law and Practice, Mike Bond attended the meeting to discuss the improvements. A handout was provided at the meeting.

Meeting discussion:

First Assistant Commissioner Sue Sinclair explained that the genesis for the improvements to dispute resolution included concerns around the client experience, including timeliness, the number of cases conceded before hearing, the new Federal Court Tax Directions on time frames, and the Government’s initiative on Alternative Dispute Resolution.

Assistant Commissioner Mike Bond outlined a number of additional drivers, including the number of objections being allowed and opportunities provided by the Change Program, all of which influenced the review of the end to end dispute resolution process.

Discussion focussed on the information in the handout, which outlined the approach to dispute resolution. Collaboration was acknowledged as a key component, plus better tools to understand the causes of disputes and litigation. A summary of the previous process and the move to the desired process was addressed. The intent is to streamline the process making it easier for all concerned, improve communications with taxpayers and agents, and make it more cost effective. An IT system based tool, with associated instructions, to assist officers to identify ongoing disputes has been deployed recently in the objections area of the Tax Office, and a similar tool is planned for deployment at the audit stage. Earlier interactions with a number of key areas within the office are forming part of the improvements.

A concern was raised that the Tax Office may seek to confirm facts once the case in question has reached the objection stage, which is late in the overall process. It was questioned whether the agreement of facts could occur at an earlier stage, such as prior to the Tax Office providing a position paper. This would ensure that position papers more accurately reflect the agreed facts earlier in the process, and alleviate disagreement on critical facts. As the approach to early dispute resolution in the context of an audit is developed, processes to clarify facts to the extent possible, including areas of disagreement, are under consideration

Improved communication with taxpayers and tax agents to aid understanding is also an important part of the process in appropriate cases. There is a need to publicly explain the new approach, including the expectations and obligations of all parties involved, and it is planned to publish a statement to the Tax Office website. One of the challenges is gaining a common understanding of all the facts and issues associated with a case, and there was general support for processes that would assist.

Members welcomed the improvements. The Commissioner commended the improvements that are occurring.

[_Toc240443288] 18 Public Ruling Steering Committee update

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 NTLG0711/08.

Response:

The Steering Committee is due to next meet on 12 June 2009, prior to the NTLG meeting.

At the June meeting, the Steering Committee proposes to discuss the following items:

· minutes and action items from 23 March 2009

· new issues raised by NTLG subcommittees

· other issues considered to be a priority by NTLG rulings steering committee members

· public rulings program, including issues added and finalised

· other issues of the Charter and committee governance

An update from the steering committee meeting will be provided at the NTLG meeting.

Meeting discussion:

Members were provided with an update from the previous week’s meeting of this committee. Two members of the committee were complimented on the feedback that they provided at the meeting. There were few issues that came forward for discussion at the meeting. A “stocktake” of issues will occur with the NTLG sub forums to ensure that relevant issues are being refered. Members were encouraged to refer any technical issues that required clarification to this committee.

Members suggested that the TOFA measures might give rise to some significant issues. Another suggestion included an examination of linked TD’s or ATOID’s that might be suitable to consolidate into a ruling. It was acknowledged that a number of these may be based on specific facts and not be appropriate for a more general approach. It was thought that there was value in this suggestion and warranted further consideration.

Members were advised that six PBR’s were expected to issue as finalised by the end of the month.

The Commissioner commented that the committee played a valuable role and appreciated its links to the NTLG. Additional membership of the committee was welcomed.

Post meeting update : Additional nominations for membership of the steering committee have been received from NTLG members.

[_Toc240443289] 19 Matters referred to sub-forums, NTLG work program and management of issues

[_Toc81996419]

Meeting discussion:

There was a discussion regarding the composition of committee members in general, and the acknowledgment that it was desirable to achieve the best match of skills and knowledge for the committees. It was recognised that this is a shared responsibility between the Chair and all members of the committees. The management of the committee allows for reviews of membership when appropriate or as part of the annual review. it was acknowledged that there may be instances where the purpose of the committee has changed, ie stepped up, which may then benefit from a review of the membership.

Members were encouraged to raise any specific issues initially with Deputy Commissioner TPALS, James O’Halloran or Assistant Commissioner Annamaria Carey.

Transfer Pricing sub forum :

Members queried the availability of Counsel’s opinion in respect of the discussion paper on intra-group finance guarantees and loan. They were advised that it has been received; however the Tax Office is currently waiting on supplementary advice and will consider the most appropriate way to take the matter forward.

The Commissioner referred members to his speech “ In the best interests of Australia” of 15 June 2009 in relation to the comments on the interaction of transfer pricing and thin capitalisation rules. There are also comments on the power to assess under the Treaties. The Tax Office holds the view that the treaties provide a separate power to assess independently of Division 13.

Members were advised that the Tax Office will ultimately be guided by the Courts.

19.2 Action items :

The 12 action items listed at 19.2 were accepted without discussion as finalised.

19.0 [_Toc240443290] 19.1 Report on action items arising from 27 March 2009 NTLG meeting

Action item NTLG0903/01:

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

Status: For consideration as finalised

Outcome: [OLE_LINK5][OLE_LINK6] The Tax Office agreed to review the wording in future Alerts to provide greater clarity about the arrangements covered by warnings. This includes adopting the NTLG members' suggestion to use "arrangements with features substantially equivalent to the following" instead of "arrangements with some or all of the following features".

Action item NTLG0903/02:

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

Status: Closed (duplication of existing action item)

Outcome: This issue directly relates to existing action item NTLG0811/03 ‘Division 7A issues’. To reduce the risk of duplication, NTLG0811/03 will continue to monitor issues relating to Division 7A. Arrangements for a meeting in early July 2009 to discuss the issues and the way forward are in progress.

Action item NTLG0903/03:

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

Status: Ongoing

Outcome: Arrangements for a meeting in early July 2009 are in progress.

Action item NTLG0903/04:

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.

Status: For consideration as finalised

Outcome: Information currently available on the website on the tax treatment of Bonus shares and Tax Determination TD 2003/3 was provided to the member who raised the issue. This resolved the issue and no additional guidance is required.

Action item NTLG0903/05:

NTLG members will be advised of the progress of the draft ruling TR2007/D10.

Refer agenda item 17 – CGT consequences of earnout arrangements.

Status: Ongoing

Outcome: Following consideration of feedback on the draft ruling, the Chief Tax Counsel has decided to defer finalisation of the ruling pending discussions with the Treasury.

Action item NTLG0903/06:

The Tax Office will consider the feasibility of producing a CD for tax agents, containing references used in TaxTime products.

Refer agenda item 19 – TaxPack 2009

Status: For consideration as finalised

Outcome: Consideration of producing a CD containing Tax time references has occurred. Information on Tax time products is available on the web, and is revised and updated to ensure its currency. Electronic products such as TaxPack 2009 and Tax Time 2009 essentials are available on the website. Tax Time information is also provided through national seminars to be held on 23 June 2009, supported by a DVD, booklet and video streaming. Copies of the DVD and booklet are available at the seminar venues or via the online ordering system. A PDF version of the booklet will be available on the website in late June 2009. As a result, it has been decided not to proceed with a separate product.

Action item NTLG0903/07:

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.

Status: Closed (duplication of existing action item)

Outcome: This issue directly relates to existing action item NTLG0811/05 ‘Amendment period for individuals or STS taxpayers’. To reduce the risk of duplication, NTLG0811/05 will continue to monitor the issue of publishing guidance information to the web on Amendment period for individuals or STS taxpayers.

Action item NTLG0903/08:

A guidance product for the treatment of FBT and donations will be considered.

Refer agenda item 25 – Other business: FBT and donations.

Status: For consideration as finalised

Outcome: The following information is provided as guidance on the matter. The Tax Office will apply the existing law in the period between the announcement and enactment of the proposed law. We are not planning to undertake any specific compliance activity to enforce the existing law during the period between the announcement and enactment of the proposed law. If enacted as announced any compliance action would recognise the law as applicable to the period under review. Should a period prior to the 1st April 2008 be reviewed the ATO view established prior to new law will prevail. The Tax Office currently does not have any plans to undertake specific compliance action in respect of these arrangements. Employers who consider that their practices prior to 1st April 2008 are contrary to the established ATO view may voluntarily seek amended assessments which will be subject to reduced penalties.

[_Toc240443291] 19.2 NTLG action item log (ongoing action items)

A copy of the NTLG action item log, updated as at 12 June 2009 is forwarded to members as part of the agenda papers.

The action item log has been structured into three parts:

Part A contains responses to action items for consideration for finalisation at the 17 June 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:

Item reference no.

Description

Outcome or resolution

NTLG0903/01

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”.

Finalised

The Tax Office agreed to review the wording of future Alerts to provide greater clarity about the arrangements covered by warnings. This includes adopting the NTLG members' suggestion to use "arrangements with features substantially equivalent to the following" instead of "arrangements with some or all of the following features".

NTLG0903/02

A workshop is to be arranged to progress the draft PS LA or appropriate guidance product in respect of Division 7A issues.

Closed (duplication of existing action item)

This issue directly relates to existing action item NTLG0811/03 Division 7A issues. To reduce the risk of duplication, NTLG0903/02 will be closed and NTLG0811/03 will continue to monitor issues relating to Division 7A.

NTLG0903/04

Practical guidance is to be provided by the Tax Office on the treatment of bonus share plans.

Finalised

Information currently available on the website on the tax treatment of Bonus shares and Tax Determination TD 2003/3 was provided to the member who raised the issue. This resolved the issue and no additional guidance is required.

NTLG0903/06

The Tax Office will consider the feasibility of producing a CD for tax agents, containing references used in TaxTime products.

Finalised

Consideration of producing a CD containing Tax time references has occurred. Information on Tax time products is available on the web, and is revised and updated to ensure its currency. Electronic products such as TaxPack 2009 and Tax Time 2009 essentials are available on the website. Tax Time information is also provided through national seminars to be held on 23 June 2009, supported by a DVD, booklet and video streaming. Copies of the DVD and booklet are available at the seminar venues or via the online ordering system. A PDF version of the booklet will be available on the website in late June 2009. As a result, it has been decided not to proceed with a separate product.

NTLG0903/07

Information to assist with determining which amendment period for individuals or STS taxpayers is applicable will be published to the website.

Closed (duplication of existing action item)

This issue directly relates to existing action item NTLG0811/05 ‘Amendment period for individuals or STS taxpayers’. To reduce the risk of duplication, NTLG0903/07 will be closed and NTLG0811/05 will continue to monitor the issue.

NTLG0903/08

A guidance product for the treatment of FBT and donations will be considered.

Finalised

The following information is provided as guidance on the matter. The Tax Office will apply the existing law in the period between the announcement and enactment of the proposed law. We are not planning to undertake any specific compliance activity to enforce the existing law during the period between the announcement and enactment of the proposed law. If enacted as announced any compliance action would recognise the law as applicable to the period under review. Should a period prior to the 1st April 2008 be reviewed the ATO view established prior to new law will prevail. The Tax Office currently does not have any plans to undertake specific compliance action in respect of these arrangements. Employers who consider that their practices prior to 1st April 2008 are contrary to the established ATO view may voluntarily seek amended assessments which will be subject to reduced penalties.

NTLG0811/02

A workshop to discuss issues associated with the 2009-2010 Compliance Program is to be scheduled in early 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

Finalised

Consultation with NTLG members regarding the 2009-2010 Compliance Program was included as an agenda item for the 27 March 2009 NTLG meeting in lieu of the workshop.

NTLG0811/10

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

Finalised

Response was provided to members 17 May 2009. Members were invited to provide comments by COB 9 June 2009. No comments or feedback have been received.

NTLG0709/03

Two topics, Debt equity issues and ENCO to be included on the agenda for the 28 November 2007 meeting.

Refer agenda item 11

Finalised

Both these issues are being progressed by the Finance and Investment sub-group. Reports on the progress of these issues are included in the sub-group report of each NTLG agenda.

The ENCO issue has been finalised through the sub group with issue of Tax Determination TD 2009/1 issued on 14 January 2009.

This item is put for consideration to be finalised on the NTLG action items register to avoid duplication of reporting by the Finance and Investment Sub-group.

NTLG0703/05

The ATPF is requested to monitor the implementation of the recommendations of the ANAO report and provide updates to the NTLG.

Finalised

The ANAO completed an audit on Tax Office management of its relationship with tax practitioners. The ANAO report was tabled in parliament on 14 March 2007. Six recommendations were identified and have now been implemented.

For a copy of the report, please contact the NTLG Secretariat.

NTLG0609/06

A progress report is to be provided at the December 2006 NTLG meeting regarding the withdrawal of the GST practice statements (sections 105-50 and 105-55).

Finalised

The practice statements that were withdrawn have been replaced; refer Miscellaneous taxes: notification requirements for an entity under section 105-55 of Schedule 1 to the Taxation Administration Act 1953 as MT 2009/1 on 29 April 2009.

The update on the fact sheet Time limits on GST refunds (NAT 11645) is complete and is available on the website.

Draft Practice Statement Law Administration PS LA 2529 was issued on 29 April 2009 in final as PS LA 2009/3 entitled 'Time limit on recovery by the Commissioner'. The PS LA explains the requirements of a valid notice. It also clarifies the Commissioner's administration of period of review provisions in section 105-50 in the Taxation Administration Act 1953 in relation to indirect tax and will provide certainty to all taxpayers on when the Commissioner will recover unpaid amounts or overpaid refunds.

NTLG0606/09

An update on the work with the Law Institute of Victoria is to be provided at the September 2006 NTLG meeting.

Service trust booklet discussion and incorporation of legal practices

Finalised

The service trust booklet has been finalised. The incorporation process for legal practices is managed by the Small and Medium Enterprises (SME) business line.

SME anticipate that incorporation of legal practices will occur progressively. As a result, SME will provide any relevant significant updates to the NTLG.

NTLG sub-committee and panel reports

[_Toc240443292] 19.3 ATO Tax Practitioner Forum

Chair:

James O’Halloran, Deputy Commissioner, Tax Practitioner and Lodgment Strategy

Secretariat:

Rana Cobbin, Tax Practioner and Lodgment Strategy

Last meeting held:

The last meeting was held on 15 May 2009.

Next meeting:

The next meeting will be held on 7 August 2009.

Minutes:

The draft minutes of the ATPF meeting held on 27 February 2009 were endorsed at the
15 May 2009 meeting and are published to the web.

New significant topic:

Agenda item

3.1

Issue/Application

Tax Bonus

Meeting discussion

Discussion on the progress of the issuing of the Tax Bonus payment, approximately 7.9 million tax bonus payments have been issued.

[Content]Members commented that the Tax Office has been very proactive during this process of issuing the tax bonus and that the separate line on the portal was very good.

A member raised the point of tax practitioners charging a fee for processing the tax bonus. The Chair advised that this is a commercial matter between tax practitioners and their clients.

Agenda item

3.2

Issue/Application

Budget

Meeting discussion

Tax Office representatives provided brief overviews on several of the 2009-2010 Commonwealth budget initiatives to be implemented by the Tax Office. The Tax Office advised it is unable to discuss specifics from the budget as the initiatives are pending passing of legislation.

Members highlighted the need for the Tax Office to provide extensive education material, through various channels, to ensure tax practitioners and the general public become aware of the changes as a result of the budget initiatives.

The Tax Office advised it is working on providing educational material through multiple channels, including the June 2009 Tax Seminars, ato.gov.au, e-link and will also be developing on-line calculators for several initiatives.

Agenda item

5

Issue/Application

Tax Office debt pattern and trends

Meeting discussion

Tax Office delivered a presentation on Tax Office debt patterns and trends and provided information on re-raised debts.

The Tax Office advised they are in the process of trialling priority queues for tax practitioners with one debt collection agency and developing a payment arrangement calculator to assist tax practitioners and clients in calculating a payment arrangement.

Agenda item

6

Issue/Application

Centrelink

Meeting discussion

A Centrelink representative attended the meeting and delivered information on Family Tax Benefit (FTB).

Centrelink advised that, at this stage, Centrelink is not authorised to work directly with third party representatives. The Social Security Act 1991 requires individuals to provide written authorisation to Centrelink to discuss their details with a third party representative including tax practitioners.

Agenda item

8

Issue/Application

Tax Evasion, Avoidance and Crime (TEAC) e-magazine

Meeting discussion

Tax Office provided information on the overarching strategy for a TEAC e-magazine.

Several members commented that it was a good product and made suggestions for improvements. Several members had some concerns about the e-magazine being another communication product on the market and some suggestions were made.

The Tax Office advised that the initial e-magazine is due to be launched prior to the compliance launch in June 2009. Members suggested linking future e-mag articles back to the compliance program.

Agenda item

9

Issue/Application

Tax Agents Service legislation

Meeting discussion

Tax Office provided an update on the work being undertaken in preparation for the new national tax board. The national board will be independent of the Commissioner of Taxation and will only provide admin support. The chair advised that Geoff Robinson has been appointed by the Commissioner to act as the interim Secretary to ensure senior level support and expertise for the New Tax Practitioners Board into the future.

A member advised that several professional associations have asked and will continue to ask for involvement in the consultation process in the set-up and transitional process. Professional associations want to be involved in the process to ensure the board is independent.

The Chair advised that the professional associations will need to put their request for involvement in the consultation process to the new chair of the national board.

Agenda item

12

Issue/Application

Accountants certifying Tax Office documents, including a briefing on identity theft and fraud

Meeting discussion

Tax Office advised that there has been no change to the Tax Office policy on accountants verifying Tax Office documents. This item was first raised and addressed through the NTLG in 1995.

CPA advised they see the current policy as being both inappropriate and erroneous. Tax Office noted CPA comments, however re-iterated the Tax Office has not changed the policy and it is the Tax Office official position.

Tax Office provided information on some of the strategies the Tax Office has implemented to reduce the risk of identity theft and fraud.

Agenda item

14

Issue/Application

Reforms to Income Test

Meeting discussion

Tax Office provided information on the reforms to income test measures.

Agenda item

18.1

Issue/Application

ATPF Action items

Meeting discussion

Professional associations are keen to work with the Tax Office in the event of an emergency, similar to the recent natural disasters.

Tax Office agreed to facilitate a workshop between Tax Office, Centrelink and professional accounting associations to share information and discuss how the parties can effectively work together in the event of any future disasters.

A workshop (possibly through video conferencing) will be organised with the relevant groups.

[_Toc240443293] 19.4 Alienation and Part IVA Working Group

Co-Chairs:

Peter Nash, Assistant Commissioner, Micro Enterprises and Individuals

Euan Campbell, Assistant Commissioner, Tax Counsel Network

Secretariat:

Briony Andrew, Micro Enterprises and Individuals

Last meeting held:

The last meeting was held on 27 March 2009.

Next meeting:

The next meeting will be held on 2 July 2009.

Minutes:

The minutes of the Alienation and Part IVA Working Group meeting held on 15 December 2008 were approved by members at the 27 March 2009 meeting and are being published to the web. Draft minutes of the 27 March 2009 meeting were circulated to members for comment on 30 April 2009.

A summary of Work Program undertaken since last NTLG:

Prior to the 27 March 2009 meeting of the Alienation and Part IVA Working Group, members made submissions in relation to 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. At that meeting, there was detailed discussion of members’ views on the following issues:

· the relevance of section 260 of the Income Tax Assessment Act 1936 cases to Part IVA;

· whether the enactment of Part 2-42 of the Income Tax Assessment Act 1997 means that Part IVA no longer applies to income splitting;

· whether the degree to which income of a business is generated by the efforts and skills of one person is relevant to the application of Part IVA;

· retention of profits in a company;

· use of a discretionary trust;

· non-arm’s length remuneration and narrow scheme arguments (that is, where the Part IVA scheme involves the level of distribution, rather than including the interposition of the entity);

· sham;

· employee-like situations where Part 2-42 might not apply;

· what might be situations/occupations where income is necessarily derived by a person and cannot be alienated.

Members generally were of the view that the existing rulings ought to be withdrawn and replaced by one new ruling. The Tax Office undertook to draft and circulate a discussion paper as a means of obtaining detailed feedback from members as to what ought to be the content of a possible new ruling.

[_Toc240443294] 19.5 Consolidation Sub-group

Chair:

John Evans, Assistant Commissioner, Centre of Expertise - Consolidations

Secretariat:

Shirley Cooper-Dixon, Centre of Expertise - Consolidations

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 on 4 August 2009.

Minutes:

The draft minutes of the 26 February 2009 meeting have been distributed to members and are in the process of being published to the Tax Office website. Final minutes of the 12 June 2008 meeting have been published to the web.

Ongoing 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

Input from members requested.

Issue no.

Agenda item 4/26Feb09

Issue/Application

Deferred Tax Liabilities (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

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

Single entity rule (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

A further paper concerning thin capitalisation, transfer pricing and tax implications of attribution is to be presented at the next meeting.

Issue no.

Action item 2/28Jun07

(agenda item 3 of the 12 June 2008 meeting)

Issue/Application

Single entity rule/Intra-group assets and third party interactions (NTLG Consolidation sub-group issues (17.19 and 17.20).

Status

This issue will be considered as part of single entity rule 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

Current Tax Office thoughts in relation to the SER was presented by the Deputy Chief Tax Counsel at the recent TIA Consolidation Symposium.

Issue no.

Action item from agenda item 5/28Jun07

(agenda item 2 of the 12 June 2008 meeting)

Issue/Application

Trust joining and leaving a consolidated group during an income year (NTLG Consolidation Sub-group issue 17.22).

Status

Issue discussed at the meeting on 26 February 2009.

Outcome

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 Consolidation Sub-group 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

The Tax Office has expressed its concerns to Treasury.

Outstanding issues summary:

Issue no.

Action item from agenda item 5/28Jun07 (agenda item 2 of the 12 June 2008 meeting)

Issue/Application

Division 705-C for non-consolidated groups (NTLG Consolidation Sub-group 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

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

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 Consolidation sub-group issue 17.21).

Status

Taxation Ruling 2007/D10 remains in draft form.

Outcome

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.

[OLE_LINK19][OLE_LINK20][_Toc240443295] 19.6 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:

Following a workshop on 30 January 2009 to discuss PS LA (PTI 983, ID 2843) members lodged a submission with the Tax Office on 16 March 2009 detailing their concerns.

As discussed at the 27 March 2009 NTLG meeting, the Tax Office is working through issues in the submission with a view to holding another meeting of the Division 7A Working Group.

The position paper relating to the draft practice statement PS LA 2843 is being finalised. This document will be provided to Division 7A working group members for consideration shortly. Arrangements for a meeting in early July 2009 to discuss the issues and the way forward are in progress.

[_Toc240443296] 19.7 Finance and Investment Sub-group

Chair:

Colin Walker, Assistant Commissioner, Centre of Expertise - Finance and Investment

Secretariat:

Robin Halls, Centre of Expertise - Finance and Investment

Last meeting held:

The last meeting was held on 6 March 2009.

Next meeting:

The date for the Sub-group’s next meeting is to be determined by the Chair in consultation with the members.

Minutes:

The minutes of the 6 March 2009 meeting have been finalised, circulated and sent for publication to the Tax Office website.

Ongoing significant issue:

Of the three significant topics identified at the 28 August 2007 special meeting of the Sub-group, one topic remains ongoing.:

The Debt/Equity issue - Effectively non-contingent obligation (ENCO) - continues.

1. Effectively non-contingent obligation (ENCO);

Issue/Application

ENCO

Status

Ongoing

Outcome – action to date

Submissions on the ENCO Discussion Paper from professional bodies represented on the subgroup 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:

1. The Tax Office further develop formal guidance on whether ‘obligation’ in ITAA 1997 section 974-135 is confined to a legal obligation.

Status: Completed A Tax Determination issued on 14 January 2009 as TD 2009/1.

2. Relevance of economic compulsion in the debt test. After considerable discussion of this matter at successive meetings, it was resolved at the 6 March 2009 meeting that the Tax Office will now propose a Ruling be accepted on the Public Rulings Program that explains the Tax Office’s views on the extent to which economic compulsion is relevant in finding an ENCO.

Status: In progress . At the 6 March meeting it was noted that the Tax Office would consider preparing a public ruling on economic compulsion at a high level of principal. Accordingly, a proposal for a Priority Technical Issue is in course of development and if approved, will be included on the Public Rulings Program for preparation and issue of a draft public Ruling.

3. Limited recourse in the debt test: A draft discussion paper on matters relevant to the treatment of some limited recourse financing arrangements under the debt test was circulated to members in confidence before the 6 March 2009 meeting.

Status: In progress . Members have been invited to provide comments on the paper circulated at the 6 March 2009 meeting.

A summary of Work Program undertaken since last NTLG:

Emerging Issues / activities of Working Groups

Division 250 Working Group

The Division 250 Working group met on 7 April 2009. The following issues from the December 2008 meeting were resolved.

Identification of the relevant asset

The Tax Office confirmed the asset in a multi tenanted building is the building and not the portion of the building that is subject to tax preferred use. An exception would be where only part of a building is owned by a taxpayer such as under strata title legislation.

The meeting agreed the Tax Office approach was to be adopted and was consistent with the operation of Division 250-150. The meeting supported the issue of a Taxation Determination to clarify the issue.

Section 51AD switch off

The Tax Office confirmed in the minutes of the December meeting that neither section 51AD nor Division 16D applied to arrangements where the use started and contracts for the use were entered into after 1 July 2007. The Tax Office advised in the April meeting that it would review whether a TD could be issued.

Outstanding issues from the December meeting were discussed and advanced. Members also raised a number of possible policy issues with Mr Roger Paul, who attended the meeting as the Treasury representative for Division 250.

TOFA 3 and 4 Working Group

Royal Assent was granted on 26 March 2009 and the Working Group met for the third and fourth times on 6 April 2009 and 19 May 2009. The main purpose of these meetings was to agree on a process to identify, prioritise then analyse interpretative issues emerging from the new law. To assist with this task Assistant Commissioner Ross Brookes as Chair of the Working Group, decided and members agreed, to establish three specialist teams to focus on issues relating to hedging, securitisation and swaps. These specialist teams use their financial accounting, commercial product, legal and tax expertise (members of the specialist teams are not limited to members of the Working Group) to prepare recommendations for the Working Group.

Of the 105 identified Working Group issues: 33 are presently under consideration or are to be considered by Treasury as policy issues; 21 have been assigned for consideration to the securitisation, swaps or hedging specialist teams; and officers from the Law and Compliance sub-plans are working collaboratively on a further 15 issues agreed as having 'top priority' by the Working Group. This work is being undertaken with a view to preparing a number of specialist technical papers for circulation and discussion at the next planned meeting of the Working Group on 28 July 2009.

Members of the NTLG TOFA Working Group:

John Bills, AELA, Patrick Broughan, CPAA, Julian Cheng, CPAA, Simon Clark, PCA, Phillip Cole ABA, Michael Croker, ICAA, Fiona Dillon, ICAA, Michael Dirkis, TIA, Tony Frost, TIA,
Jonathan Harrex, AFMA, Mathew Hayes, ICAA, Dudley Heywood, IFSA, Alexis Kokkinos ICAA, Larry Magid, LCA, Tim Oner, ABA, Matt Osmond, ACSA, Roger Paul, Treasury, Reuben Pace, ABA, Lise Rawlings, AFMA, Hayden Scott, NIA, Tony Stolarek, ICAA, Steven Vrontis, LCA, Jenny Wong, AFMA, Andrew White, PCA, Rhys Manley, Treasury, Aaron Saint, Treasury;

Tax Office representatives: Leo Astete, James Beeston, Ross Brookes (chair), Joe Campana, Euan Campbell, Harsh Datt, David Hume (Secretariat), Fiona Joneshart, Eddie Koit, Andy Milton, Laine Simpson (ATO consultant), John D Smith, Elena Stamatovska, Mat Umina, Andrew Werbik

Hedging Specialist Team:

Richard Hayes, Deloitte, John Kidd, Deloitte;

Tax Office representatives: Leo Astete, Laine Simpson (ATO consultant), Elena Stamatovska, Andrew Werbik

Securitisation Specialist Team:

Charles Armitage, Allens Arthur Robinson, Daryl Choo, Ernst & Young, Andrew Dickinson, KPMG, Phil Lee, Deloitte, Reuben Pace, ANZ, Liz Tromans NAB, Steven Vrontis, LCA,
Neil Ward, Deloitte;

Tax Office representatives: Ross Brookes, Stuart Coppock, Walter Gianotti, David Hume,
Edwina Mclachlan, Geoff Merritt, Laine Simpson (ATO consultant)

Swaps Specialist Team:

Phillip Cole, CBA, Andrew Dickinson, KPMG, Matt Osmond, PWC, Tim Oner, Westpac, Ashley Rockman, PWC;

Tax Office representatives: Euan Campbell, Ainslie Chapman, Patrick Do Rosario, Mathew Kim, Jeff Stitz

Action items:

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 ID 2007/197 and 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

After 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, a Priority Technical Issue proposal for inclusion of draft Taxation Determinations on the Public Rulings Program is in course of development.

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

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 Sub-group members after receipt of advice from the Internationals Centre of Expertise .

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

The Government through the Budget announced that it will allow Australian managed investment trusts (MITs), except those that are taxed like companies, to make an irrevocable election to apply the capital gains tax (CGT) regime as the primary code for taxing certain disposals of assets, with effect from the 2008-09 income year.

This measure implements the interim advice of the Board of Taxation in its review of taxation arrangements of MITs.

This measure will ensure that the taxation treatment of disposals of assets (primarily shares in a company, units in a unit trust and real property investments) by MITs is consistent with the taxation treatment of disposals of similar investments by complying superannuation funds, subject to appropriate integrity rules. These include that the investments meet the eligible investment business rules in Division 6C of the Income Tax Assessment Act 1936.

The release of the draft TD had been deferred while the Board of Taxation urgently reviewed this matter and provided its interim advice to the government ahead of its recommendations on its broader review of the Taxation Arrangements applying to Managed Investment Trusts expected to be completed by mid 2009.

The Tax Determination when released will provide public ruling guidance to all trustees on the range of factors the Tax Office sees as relevant to determining the character of trust gains and losses on disposal of investment assets. It will have application to MIT trustees that do not irrevocably elect into the statutory capital gains treatment by the first year of income on or after the 2008-09 year of income.

The Tax Office is currently considering release of the draft Tax Determination for comment under its usual processes.

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

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. Accordingly, a proposal for a Priority Technical Issue is in course of development and if approved, will be included on the Public Rulings Program for preparation and issue of a draft public ruling.

Action item

121208-2

Issue/Application

Application of section 98(2A) of the Income Tax Assessment Act 1936 – member to provide a paper setting out views on additional matters raised for consideration by the sub-group.

Status

In course

Member has advised that the issues paper is in course of preparation for circulation to members

[_Toc240443297] 19.8 Foreign Source Income Sub-group

Chair:

Anne Van Loon, Assistant Commissioner, Internation Strategy and Operations, Large Business and International

Secretariat:

Geoff Tarran, International Strategy and Operations, Large Business and International

Last meeting held:

The last meeting was held on 3 April 2009. The meeting was conducted as a combined video and telephone conference. Members appreciated this format as it reduced their travelling time and costs.

Next meeting:

The next meeting will be held on 8 July 2009.

Minutes:

The minutes of the Foreign Source Income (FSI) Sub-group meeting held on 3 April 2009 are currently in draft and will soon be published to the web.

New significant topics:

Issue no.

FSISG 0309/9.1

Issue/Application

Offshore Banking Unit (OBU) applications – processing section 128AE (ITAA36) applications.

During 2008, Australian Prudential Regulation Authority (APRA) advised the Tax Office that they would no longer be part of the review process for OBU applications. Members have concerns that any new process maybe unduly delaying the processing of OBU applications.

Status

The matter is closed in relation to the NTLG Foreign Source Income’s contribution.

Outcome –
action to date

Although this issue does not sit within the NTLG FSI Sub-group the Chair advised that in early 2009, the Tax Office had referred the matter to Treasury for resolution and it is currently under consideration. The Tax Office is in close contact with Treasury and together the departments are actively seeking a solution to the issue.

Issue no.

FSISG 0309/9.4

Issue/Application

The interaction of section 25-90 (ITAA97 and section 23AJ (ITAA36).

The issue concerns the application of section 25-90 and the notion of “tracing” and/or “matching” requirements of that provision and the operation of section 23AJ in terms of Australian company law/accounting standards and the equivalent rules applicable to Controlled Foreign Companies.

Status

In progress

Outcome –
action to date

A similar issue was raised at the last meeting of the NTLG Finance and Investment Sub-group meeting. The member who raised the concerns was requested to provide further information. The Tax Office is currently reviewing the concerns raised by external members. The NTLG FSI Sub-group will update our members at our next meeting.

Ongoing significant topics:

Issue no.

FSISC 0905/7.7

Issue/Application

Foreign Hybrids

Guidance on various issues concerning interpretational and operational aspects of the Foreign Hybrids Regime. Division 830 Income Tax Assessment Act 1997, (ITAA97).

Status

In Progress

Outcome –
action to date

Four Priority Technical Issues (PTIs), 984, 1005, 1006 and 1007 have been raised as a result of issues discussed in previous meetings.

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 dealing with the ‘entitlement to foreign income tax offsets under section 770-10 of the Income Tax Assessment Act 1997 where income is derived from investing in fiscally transparent foreign entities’ has been addressed with the release of TR 2009/D1 on 25 March 2009.

PTI 1007 is being dealt with through the release of a tax determination which is currently being drafted by the International Centre of Expertise.

PTI (984) dealing with a general administration issue is currently being addressed with a recommendation being made to amend the Legislative Instrument (which calls for 2009 income tax returns to be lodged) and a business case recommending amendment to the Partnership Return instructions for the 2010 tax year.

Issue no.

FSISG 0408/06.3

Issue/Application

Foreign Income Tax Offset (FITO) Issue:

Comprehensive Communication product on the operation of the FITO regime and Facts sheets.

Status

In Progress

Outcome –
action to date

The comprehensive administratively binding information guide now forms part of the normal 2009 Tax Time product development with the necessary guidance on the operation of the FITO regime reflected in various Tax Time advice products to be released from 1 July 2009.

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

· A draft taxation ruling for the PTI topic (1006) covering the issue of entitlement to foreign income tax offsets under section 770-10 of the Income Tax Assessment Act 1997 where income is derived from investing in fiscally transparent foreign entities has been addressed by the released of TR 2009/D1 on 25 March 2009. The public consultation period on the draft closed on the 8 May 2009.

· The 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. This has been 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 lodgement of partnership returns by certain partners with an interest in a Foreign Hybrid, a report containing recommendations was finalised between meetings. The recommendations were accepted by the Chair and an internal endorsement process was undertaken to seek comments and endorsement of those recommendation from affected Tax Office internal stakeholders. Following the acceptance by stakeholders a submission has been made to make appropriate changes to the Legislative Instrument (which calls for the lodgement of income tax returns), for the 2009 year and a business case has been entered into the Tax Time process for 2010 to make relevant changes to Tax Time advice products for the 2010 year.

Foreign Income Tax Offsets (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 anticipated for the next income year.

· The comprehensive administratively binding information guide foreshadowed in earlier meetings has progressed and now forms part of the normal 2009 Tax Time product development. Various Tax Office advice products and publications will be updated to include guidance on the operation of the FITO regime in various circumstances. It is anticipated these products will be available in line with the 2009 Tax Time release timetable.

Other

· An issue has been raised concerning the interaction of the foreign exchange gains and losses regime and the conduit foreign income regime. The issues raised by external members will be further scoped and analysis of issues will be provided by the external members to the Tax Office’s International Centre of Expertise.

[_Toc240443298] 19.9 Fringe Benefits Tax Sub-committee

Chair:

Lee Beaver, FBT Technical Leader, Centre of Expertise - Admin Business and PTax

Secretariat:

Joanne Dibetta, Centre of Expertise - Admin Business and PTax

Last meeting held:

The last meeting was held on 14 May 2009. The previous meeting, to which this report relates, was held on 26 February 2009.

Next meeting:

The next meeting will be held on 13 August 2009.

Minutes:

The minutes of the NTLG FBT Sub-committee meeting held on 26 February 2009 are published on the web.

New significant topics:

Issue no.

6.1, 6.2, 6.3

Issue/Application

Salary sacrifice donations to disaster relief appeals.

Status

Completed subject to amendment to the Fringe Benefits Tax Assessment Act 1986.

Outcome – action to date

On the eve of this meeting the Assistant Treasurer announced in Media Release No.10 that the Government would amend the fringe benefits tax (FBT) law to ensure that donations made under salary sacrificing arrangements do not result in an employer incurring a FBT liability.

· There was some discussion on this point and in particular whether the proposal will only apply to the Victorian Bushfire Appeal. The Tax Office advised that it can only refer to the announcement made by the Assistant Treasurer.

· The Tax Office advised that the media release stated ‘the Government will amend the Fringe Benefits Tax (FBT) law from the beginning of the 2008-09 FBT year to ensure that donations made under salary sacrificing arrangements do not result in an employer incurring a FBT liability.’

· Although the context is the Victorian bushfires, the announcement did not appear to be limited to that disaster only.

The Tax Office advised members it had acted quickly to advise Government of the FBT consequences of an employer and an employee entering into a salary sacrifice arrangement for a donation in relation to the natural disasters in both Victoria (bushfires) and Queensland (floods). This was acted upon when the magnitude of the disasters became apparent and the Tax Office became aware that a number of large employers had entered, or were considering entering, into such arrangements.

The Tax Office confirmed its current view that in circumstances involving a salary sacrifice arrangement, subsection 148(2) would be triggered to deem a recipient of the benefit as an associate for purposes of the FBTAA.

Further issues raised and discussed included:

· Whether FBT would apply to ‘matching employer contributions’;

· Situations where employers have employees who are directly impacted by a natural disaster and the employer passes a bucket collection to the employee; and

· Direct assistance to an employee impacted by a natural disaster.

Issue no.

7 and 8

Issue/Application

Joint benefits and the ‘otherwise deductible’ rule’ and ‘substantiation requirements’.

Status

Completed

Outcome – action to date

Taxation Laws Amendment (2008) Measures No 5) Act 2008 amended the FBTAA in relation to the application of the otherwise deductible rule to joint benefits. The law was considered to be incorrect at a policy level following a recent review of the Federal Court’s decision in National Australia Bank v FCT (1993). The Tax Office clarified the application of the transitional rules up to 1 April 2009 and the record keeping requirements.

Issue no.

9

Issue/Application

Requirement for travel diaries

Status

Completed

Outcome – action to date

The Tax Office clarified the requirement for a travel diary and advised that Fringe benefits tax: a guide for employers will be updated to provide clarification on this point.

Issue no.

14.2

Issue/Application

Electronic lodgment of FBT returns for corporates.

Status

Ongoing

Outcome – action to date

The Tax Office advised there will be a new business portal deployment in 2010 but there has been no decision regarding the range of forms available on the portal. Tax Office will advise members when the range of forms on the new portal has been decided.

Ongoing significant topics:

Issue no.

4.3

Issue/Application

Income tax and fringe benefits tax: what is the treatment of bonus units by an employee as part of remuneration arrangement.

Status

Ongoing

Outcome – action to date

This draft taxation ruling is being prepared to clarify the ATO view in respect of arrangements identified in Taxpayer Alert TA 2008/14 . The matter was considered by the Public Ruling Panel on 11 December 2008 together with two related income taxation determinations.

A summary of Work Program undertaken since last NTLG:

The following FBT taxation determinations have issued:

· Taxation Determination TD 2009/6 Fringe benefits tax: for the purposes of Division 7 of Part III of the Fringe Benefits Tax Assessment Act 1986 , what amount represents a reasonable food component of a living-away-from-home allowance for expatriate employees for the fringe benefits tax year commencing 1 April 2009?

· Taxation Determination TD 2009/7 Fringe benefits tax: what are the rates to be applied on a cents per kilometre basis for calculating the taxable value of a fringe benefit arising from the private use of a motor vehicle other than a car for the fringe benefits tax year commencing on 1 April 2009?

· Taxation Determination TD 2009/8 Fringe benefits tax: for the purposes of section 28 of the Fringe Benefits Tax Assessment Act 1986 what are the indexation factors for valuing non-remote housing for the fringe benefits tax year commencing on 1 April 2009?

· Taxation Determination TD 2009/9 Fringe benefits tax: for the purposes of section 135C of the Fringe Benefits Tax Assessment Act 1986 , what is the exemption threshold for the fringe benefits tax year commencing on 1 April 2009?

· Taxation Determination TD 2009/10 FBT: what is the benchmark interest rate to be used for the fringe benefits tax year commencing on 1 April 2009?

· Taxation Determination TD 2009/11 FBT: for the purposes of section 39A of the Fringe Benefits Tax Assessment Act 1986 what is the car parking threshold for the FBT year commencing on 1 April 2009?

The following ATO interpretative decision has issued:

· ATO Interpretative Decision ATO ID 2009/24 – Fringe benefits tax reportable fringe benefits: excluded fringe benefit – ‘occasional’ travel.

[_Toc240443299] 19.10 GST Sub-group

Chair:

Paul Tregillis, Assistant Commissioner GST

Secretariat:

Owen Clancy, Technical Legislation GST

Last meeting held:

The last meeting was held on 19 March 2009.

Next meeting:

The next meeting will be held on 19 June 2009.

Minutes:

The minutes of the GST Sub-group meeting held on 3 December 2008 have been published on the web. Draft minutes of the 19 March 2009 meeting are with members for ratification at the June 2009 meeting, and are available from the secretariat pending publication. Regular updates for all unresolved issues are provided to members and published on the web.

New significant topics:

Topics below are those which were discussed at the March 2009 meeting.

Issue no.

Issue raised at meeting by Tax Office.

Issue/Application

Tax Office Compliance Program 2009-10.

Status

Members to advise out of session, any changes they proposed in the compliance program.

Outcome – action to date

Member feedback sought on matters that should or should not be included in the Compliance Program for the ensuing financial year.

Issue no.

6.12

Issue/Application

Apportionment of input tax credits on the basis of net interest revenue.

Status

PTI has been raised to address issue.

Outcome – action to date

A discussion paper was circulated to members in February 2009 and the issue was considered at the March 2009 meeting.

Ongoing significant topics:

Issue no.

9.18

Issue/Application

GST impacts of current economic climate.

Status

Issue raised regarding refunds being offset against other amounts not yet payable was outside this forum’s role and has been escalated to the ATPF.

Outcome – action to date

Follow up discussion at March meeting with Debt representative regarding emerging debt related issues, outline of Tax Office GST activity in response to economic downturn and further discussion of impacts on specific groups and particular industries.

Issue no.

14.19

Issue/Application

Publication of edited versions of public rulings.

Status

Tax Office response for the NTLG meeting of 27 March 2009 provided to members on 8 April 2009.

Outcome – action to date

This matter was raised at the 3 December 2008 meeting and escalated to the NTLG.

Issue no.

9.16

Issue/Application

Cancellation fees ruling.

Status

GSTR 2009/3 Goods and services tax: cancellation fees published on 29 April 2009.

Outcome – action to date

Finalisation of GST ruling.

Issue no.

6.10

Issue/Application

Changes to ‘Belvedere’ example in Financial Supplies Ruling GSTR 2002/2 .

Status

Further consultation in progress to resolve issues.

Outcome – action to date

Working group 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

Amending legislative instrument to be implemented July 2009.

Outcome – action to date

Legislative instrument registered on 14 May 2009 with Attorney General and currently in parliament for viewing.

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

Further work and research being undertaken as a result of consultative workshop.

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

MT 2008/D4 - Miscellaneous taxes: notification requirements for an entity under section 105-55 of Schedule 1 to the Taxation Administration Act 1953 was issued in final as MT 2009/1 on 29 April 2009. Draft Practice Statement Law Administration PS LA 2529 was also issued on 29 April 2009 in final as PS LA 2009/3 .

Outcome – action to date

Finalisation of draft ruling and draft practice statement.

Issue no.

14.8

Issue/Application

Publication of EANnet GST classification decisions.

Status

System development by a third party provider.

Outcome – action to date

Tax Office is working on a food classification tool, which is currently being co-designed and user tested with industry and expected to be in place by the end of June 2009.

Issue no.

4.6

Issue/Application

Retrospective GST registration cancellation.

Status

Review of relevant forms and publications is continuing in consultation with members.

Outcome – action to date

Draft changes circulated for member comment at March 2009 meeting.

Property issues

Issue no.

1.42

Issue/Application

GST implications of decision impact statement for Debonne Holdings Ltd v FCT [2006] AATA 886.

Status

Addendum being drafted.

Outcome – action to date

Draft addendum to GST Ruling GSTR 2002/5 , addressing this issue, to be published for comment in May 2009.

Issue no.

1.46

Issue/Application

Residential premises – revision of GSTR 2000/20 Commercial Residential Premises.

Status

Draft ruling to replace GSTR 2000/20 being developed.

Outcome – action to date

Draft ruling considered by the public rulings panel in April and is proposed to issue in June 2009.

Issue no.

1.50

Issue/Application

Margin scheme determination – valuation issues.

Status

Awaiting member comment.

Outcome – action to date

Draft legislative determination and draft explanatory statement circulated to members for comment on 2 April 2009.

Issue no.

9.10

Issue/Application

In specie distributions and associates rule in Division 72.

Status

GSTD 2009/1 Goods and services tax: is a supply by way of an in specie distribution of an asset that is applied in an enterprise carried on by a discretionary trust to a beneficiary of the trust made 'in the course or furtherance of' the trust's enterprise? was published on 8 April 2009.

Outcome – action to date

Finalisation of GST Determination.

A summary of Work Program undertaken since last NTLG:

The last meeting occurred on 19 March 2009 and, in anticipation of the Board of Taxation Review report, the number of issues to be reported on was reduced by 48%. In particular, a number of significant ongoing property issues were finalised and removed from the agenda due to draft rulings and addendums to draft rulings being published.

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 was being piloted and the implementation of this strategic shift in agenda setting processes was completed at the March meeting.

[_Toc240443300] 19.11 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 on 19 November 2008 in Melbourne.

Next meeting:

The next meeting will be held on 10 June 2009 in Sydney.

Minutes:

The minutes of the NTLG Losses and Capital Gains Tax Sub-committee meeting held on
19 November 2009 have been published on the web.

New significant topics:

Issue no.

2008/11 – 2.0

Issue/Application

Establishment of a Working Group to consider issues arising in relation to Division 855.

Status

Deferred until further notice.

Outcome – action to date

The formal establishment of the working group has been deferred. However, sub-committee members are 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 Panel’s suggestions have been incorporated into the draft. That amended draft is currently being reviewed by Deputy Chief Tax Counsel Walmsley.

Issue no.

2008/11 – 4.2

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 Chief Tax Counsel 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 2008 meeting, so the item has been held over 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 4 questions. Questions 1 and 2 were resolved at the meeting in November 2008. Questions 3 and 4 required further research by the Tax Office which has now been completed and the responses will be provided to the sub-committee out of session in week ended 22 May 2009.

[_Toc240443301] 19.12 Promoter Penalty Co-design Sub-committee

Chair:

Stephanie Martin, Deputy Commissioner, Aggressive Tax Planning

Secretariat:

Tony Poulakis, Aggressive Tax Planning

Last meeting held:

The last meeting was held on 19 March 2009 by way of teleconference.

Next meeting:

The next meeting date is yet to be determined.

Minutes:

The minutes of the meeting held on 19 March 2009 have been finalised and will be published on ato.gov.au in the near future.

New topic:

Issue no.

2009-01

Issue/Application

Whether a member of a tax consolidated group can be a promoter of a tax exploitation scheme to another member of that group?

Status

In progress. The Tax Office provided an initial verbal response to this issue at the meeting of 19 March 2009. Our preliminary position is that there is nothing in the legislative structure to exclude the promotion within a consolidated group from the promoter penalty regime. However, it is unlikely as a practical matter to arise as all three elements of the test would need to be satisfied, that is, we would need to demonstrate promotion, consideration and a tax exploitation scheme. Nevertheless, some subcommittee members were concerned as it was their view that the regime was never intended to apply to wholly-owned consolidated groups.

Outcome – action to date

At the meeting of 19 March 2009, the Tax Office agreed to share with sub-committee members our initial written views so that we can explore an appropriate outcome, including an administrative solution. This is planned to be done in the near future.

Ongoing topic:

Issue no.

2008-01

Issue/Application

Creation of a Good Governance Guide for promoter penalties.

Status

In progress. The creation of a good governance guide had been floated in the teleconference meeting of 5 February 2008.

Outcome – action to date

At the meeting of 19 March 2009, the Chair sought feedback on the general approach contained in the draft Guide that was distributed with the meeting agenda, stating that the Tax Office wants the product to be practical and to meet members’ needs.

Action Item: Secretariat to seek member nominations for Good Governance Guide Working Group.

[OLE_LINK7][OLE_LINK8][_Toc240443302] 19.13 Superannuation Technical Sub-group

Chair:

Gwen Miller, Technical leader, Centre of Expertise - Superannuation

Secretariat:

Cindy Baker, Centre of Expertise - Superannuation

Last meeting held:

The last meeting was held on 23 March 2009.

Next meeting:

The next meeting will be held on 16 June 2009.

Minutes:

The minutes of the NTLG Superannuation Technical Sub-group meeting held on 23 March 2009 have been finalised and will be published to the web.

New significant topics:

The following rulings have been published since the last NTLG Superannuation Sub-group meeting:

· SMSFR 2009/2 – The meaning of ‘borrow money’ or ‘maintain an existing borrowing’ of money for the purposes of section 67 of the SISA.

· TR 2009/2 – Income Tax: Genuine redundancy payments.

· SGR 2009/2 - Superannuation Guarantee: Meaning of the terms ‘ordinary time earnings’ and ‘salary or wages’.

Ongoing significant topics:

Issue/Application

S.67(4A) Borrowings (Instalment Warrants).

Status

Ongoing

Outcome – action to date

An advice embargo has been put in place until further notice.

The Tax Office is currently working with Treasury in relation to possible announcement of law change

A summary of Work Program undertaken since last NTLG:

At the 23 March 2009 meeting, issues regarding pre 12 August 1999 Unit Trusts and the 30 June 2009 in house assets transitional deadline was flagged, and it was agreed that Industry would provide their issues and further background information on their view so that the Tax Office can provide an out of session response.

Since receiving the Industry’s issue, work has been done to provide Industry with a Tax Office response. It is anticipated that the Tax Office response will be sent to members by 20 May 2009 to allow time for further comments prior to the 16 June 2009 meeting.

PTI 960 – Exempt Current Pension Income has been closed, and two new Priority Technical Issues will be created to deal with these issues.

Rulings progress report

Ruling

SMSFR 2008/D5 - Meaning of ‘in house asset’ for the purpose of s 71 of the SIS Act.

Sub-committee priority high/medium/low

Low

Outcome – action to date

Draft ruling published 5 November 2008.

Final Ruling currently due for publication 24 June 2009.

Ruling

SMSFR 2008/ D1 – Unpaid Trust Distributions.

Sub-committee priority high/medium/low

Low

Outcome – action to date

Draft published 19 March 2008.

Final Ruling currently due for publication 24 June 2009.

Ruling

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

Outcome – action to date

Draft ruling expected to be published 3 June 2009.

Ruling

SMSFR - Can an SMSF be considered to be carrying on a business of trading in financial instruments for income tax.

Sub-committee priority high/medium/low

Low

Outcome – action to date

Draft determination expected to be published 24 June 2009.

Ruling

Draft SMSFR - Enduring Power of Attorney; ATO view of the scope and operation of subparagraph 17A(3)(b)(ii) of the SISA. Discussion paper noted 2 views - (i) limited to situations of legal disability; (ii) applies in any situation in which an enduring power of attorney has been executed.

Sub-committee priority high/medium/low

Low

Outcome – action to date

Approval being sought to extend the publication for the draft ruling to 8 July 2009.

Ruling

Public Ruling -:How the sole purpose test will operate in relation to a business real property investment which has been specifically treated as an exception for the purpose of other investment rules (i.e. in house assets and acquisition of assets).

Sub-committee priority high/medium/low

Low

Outcome – action to date

Draft determination expected to be published 16 September 2009.

[_Toc240443303] 19.14 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:

A meeting was scheduled for 31 March 2009, in the anticipation that the Tax Office would have received advice from Senior Counsel on the legal authority for its approach in the discussion paper entitled Guarantee Fees and Intra Group Loans, and would have considered it. Counsel’s opinion was dealyed and the meeting was deferred at the request of members who did not wish to meet until the Tax Office is in a position to discuss the advice.

Counsel’s opinion has now been received. The Tax Office needs to clarify a number of issues with Counsel and is treating the issue as a priority. No date has been set for the deferred meeting. The next scheduled meeting is on 5 August 2009.

Minutes:

The draft minutes of the Transfer Pricing Sub-group meeting held on 5 December 2008 were distributed to NTLG members for comment and will be endorsed as final minutes at the next meeting.

Ongoing significant topics:

Issue no.

04/010307

Issue/Application

Business Restructures

Status

Ongoing

Outcome – action to date

A final draft of the Business Restructures discussion paper was prepared last year, but was not released pending Counsel’s opinion. The approach taken in the draft final paper was agreed in principle with NTLG TP members and an example of the approach to be taken was illustrated in a case study which was discussed with them.

Counsel’s opinion has been received on 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 on Guarantee Fees and Intra Group Loans.

The Tax Office has identified points in the opinion on which clarification is required and will consider the total advice received before issuing the final discussion paper and preparing advice for taxpayers and case officers. The matter is being treated as a priority by the Tax Office.

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.

A financial markets working group has been formed by the Deputy Commissioner LB&I Case Leadership. The purpose of the working group is to provide advice on the assumptions about the operation of financial markets underlying the discussion paper. Two meetings have been held already and the working group is expected to complete its task by 30 June 2009.

As stated above, Counsel’s opinion has been received and clarification has been requested on some points. Advice on the policy aspects of the interaction between the thin capitalisation and transfer pricing legislation was received from Treasury on 7 May. Advice on all the aspects of the discussion paper raised in the submissions will be considered by Kevin Fitzpatrick and Jim Killaly before finalising it and preparing guidance for taxpayers. The matter is being treated as a priority by the Tax Office.

Advance Pricing Arrangement (APA) Program

The PwC Legal Report on the review of the APA Program was discussed on a confidential basis at the NTLG TP meeting 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.

A Co-design Committee comprising representatives of Big 4 and second tier accounting firms and the Corporate Tax Association and Tax Office staff has been established as a sub committee of the NTLG TP to co design aspects of the APA Program in accordance with recommendations in the PwC Legal report. Co design committee meetings started in January 2009.

Positions on all co-design topics will be discussed at the next Co-design Committee meeting scheduled for 3 June with a view to reaching agreed positions on the six priority issues selected by the committee as having the greatest impact on the future APA Program.

The Tax Office response to the PwC Legal report is expected to be released shortly.

Interaction of Transfer Pricing and Customs (ACS)

ACS staff attending the NTLG TP meeting in April 2008 advised that the ACS would be unable to progress the harmonisation of valuation methodologies between Transfer Pricing and Customs until problems had been resolved with processes for adjusting GST on imported goods following a transfer pricing adjustment. The harmonisation of valuation methodologies is of primary importance to members.

A paper was circulated to members in February explaining the GST problem and asking them to provide an estimate of the extent of the problem for feedback to Customs to assist them in prioritising the issue. No members identified the problem as significant.

Organisation for Economic Cooperation and Development (OECD) update

In September 2008 Working Party 6 (WP6) of the OECD released its business restructuring discussion paper for public comment, with comments due by February 2009. WP6 is intending to hold a consultation session with business commentators in June 2009.

Further discussions on the substantiative content of the proposed changes to Chapters I and III of the Transfer Pricing Guidelines took place at the meeting in March 2009. Once the substance of the text is finalized, the format of the changes (i.e. a new chapter or an Annexure) will be decided. It is intended that 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.

[_Toc240443304] 19.15 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 meeting of the Sub-group

Minutes:

The draft minutes of the Trust Consultation Sub-group meeting held on 1 December 2008 have been published to the web.

Ongoing significant topics:

Issue no.

Application of Division 6 of the ITAA 1936.

Issue/Application

Calculating the share of the section 95 net income of a trust estate in respect of which a beneficiary should be assessed.

Outcome – action to date

This issue was discussed at the February, June and December 2008 meetings of the Sub-group.

The Tax Office circulated some draft guidance material on this issue to NTLG and Sub-group members for comment in mid-December 2008. At the March NTLG meeting, the Tax Office indicated that it was extending the period for the making of submissions to 27 March 2009.

The Tax Office has considered the submissions made by a number of professional bodies and has compiled a compendium of issues raised by those submissions. The draft guidance material has been revised, in part to include a more detailed discussion of the types of arrangements which would be of concern to the Commissioner.

The revised guidance material and compendium will be circulated to NTLG and Sub-group members shortly. The Tax Office will undertake a further round of consultation in respect of a number of specific issues identified in the compendium.

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.

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:

Issue 10

The Tax Office has considered comments made by Sub-group members in relation to the application of the Tax File Number (TFN) withholding tax provisions in respect of distributions to non-resident trust beneficiaries.

The Tax Office has prepared a discussion paper outlining various issues that arise from the interaction of the various withholding tax regimes that apply in respect of distributions to non-resident trust beneficiaries for consideration by the Board of Taxation as part of its review of managed funds.

[top][_Toc240443305] 19.16 Public Rulings Panel

Chair:

March: Peter Walmsley, Deputy Chief Tax Counsel

April and May: Andrew England, Deputy Chief Tax Counsel

Secretariat:

Gabi Janus, Law and Practice

Last meetings held:

March Panel: 27 March 2009

April Panel: 30 April and 1 May 2009

May panel: 28 and 29 May 2009

Next meeting:

The next meeting is scheduled for 30 and 31 July 2009.

Minutes:

The minutes of the Public Rulings Panel meeting held on:

§ 27 March 2009 have been finalised.

§ 30 April and 1 May 2009 have been finalised.

§ 28 and 29 May are being finalised.

Sunmmary of issues discussed:

March 2009

Issue no.

ID 2686

Issue

INCOME TAX: application of section 177EA of the Income Tax Assessment Act 1936 to non-share distributions on certain `dollar value` convertible notes

The ruling issued in draft form as TR 2008/D8 on 17 December 2008 (considered by the Panel in June 2008).

The Panel considered the comments received on the draft ruling including:

· The interaction between Division 974 and section 177EA, including that section 177EA may still apply to an arrangement that arises under Division 974.

· The factors to take into account in considering whether section 177EA applies, including the purpose of the parties and the level of debt/equity held in an instrument.

Status

The ruling is being amended to take into account the Panel discussion and is scheduled to issue on 17 June 2009.

April 2009

Issue no.

ID 2908

Issue

GST: residential premises and commercial residential premises

The Panel discussed whether there is a need to rewrite GSTR 2000/20 (which currently sets out the Tax Office view on these issues) following recent court decisions, as well as the Marana decision and subsequent amendments to the GST law. Stakeholders have also identified a number of difficulties applying the ruling. Issues considered included:

· How to interpret the phrase ‘to be used predominantly for residential accommodation’ in paragraph 40-35(2)(a) and subsection 40-65(1).

· The affect of the words in the provisions that mean the length of occupation is disregarded.

· The meaning of the terms ‘intended to be occupied’ and ‘capable of being occupied’.

· The factors to be taken into account in characterising the nature of the supply such as ‘design’ characteristics, judicial decisions and the intent with which the premises were designed, built or modified.

Status

Following consideration at the Panel, issues have arisen which require further research and consideration. The Tax Office has also decided to wait until after the appeals in the Sunchen and South Steyne cases have been decided before progressing with the ruling, given their central importance to the issues to be dealt with in it.

April 2009

Issue no.

ID 2828

Issue

GST: new residential premises and adjustments for changes in extent of creditable purpose

The ruling issued in draft form as GSTR 2008/D5 on 17 December 2008 (considered by the Panel in July 2008).

The Panel considered comments received on the draft ruling and the approach taken including:

· Whether there can be concurrent dual applications of new residential premises, such that they are being held for sale while being rented.

· Appropriate apportionment methodologies for determining the extent of creditable purpose where such a dual purpose exists.

· The level of guidance that the ruling should provide about the evidence needed to demonstrate, on an objective assessment, that an entity is holding new residential premises for the purpose of sale.

· Proposed consequential addenda to GSTR 2003/6 (in the context of tax law partnerships) and GSTR 2004/6 (in the context of property distributions under the Family Law Act 1975).

Status

The ruling is being amended to take into account the Panel discussion and is scheduled to issue on 24 June 2009.

April 2009

Issue no.

ID 2728

Issue

WINE EQUALISATION TAX: the operation of the wine equalisation tax system

The ruling issued in draft form as WETR 2008/D1 on 17 December 2008 (considered by the Panel in October 2008).

The Panel considered comments received on the draft, including:

· The meaning of ‘beverage’ in the context of the WET Act and whether ‘raw wine’ is a beverage for those purposes.

· What constitutes an indirect marketing sale and whether it includes wholesale sales of wine by auction or via an on-line agent.

Status

The ruling is being amended to take into account the Panel discussion and is scheduled to issue on 24 June 2009.

April 2009

Issue no.

ID 2729

Issue

WINE EQUALISATION TAX: operation of the producer rebate for other than New Zealand participants

The ruling issued in draft form as WETR 2008/D2 on 17 December 2008 (considered by the Panel in October 2008).

The Panel considered the comments received on the draft ruling including:

· What constitutes ‘manufacture’ in the context of eligibility for the producer rebate under the WET Act.

· The application of the general interest charge to wine equalization tax liabilities.

Status

The ruling is being amended to take into account the Panel discussion and is scheduled to issue on 24 June 2009.

April 2009

Issue no.

ID 3036

Issue

WINE EQUALISATION TAX: what are the results for WET purposes for entities engaging in an arrangement described in Taxpayer Alert TA 2009/6?

The Panel considered the purpose of the indirect marketing provisions in the WET Act and the application of Division 165 of the GST Act to these arrangements.

Status

The draft determination is being amended to take into account the Panel discussion and is scheduled to issue on 24 June 2009.

May 2009

Issue no.

ID 3073

Issue

GST: the application of subsection 11-15(5) of the GST Act to bank accounts.

The Panel considered the following issues:

§ Whether subsection 11-15(5) is limited in its application to non-bank entities.

§ Whether a ’financial supply consisting of a borrowing’ means a financial supply that is a borrowing.

§ Whether an amount owed by an Australian authorised deposit-taking institution to a customer who makes a deposit to his or her account is a separate financial supply consisting of a borrowing.

§ What would be appropriate apportionment methodologies for determining which acquisitions relate to any such borrowings.

Status

A draft ruling (instead of a draft determination as originally planned) is being amended to take into account the Panel discussion and is scheduled to issue on 15 July 2009.

May 2009

Issue no.

ID 2974

Issue

GST: the application of the margin scheme to supplies of real property that the supplier acquired on or after 9 December 2008: as part of a GST-free going concern; as GST-free farm land; or from an associate without consideration

The Panel considered the following issues:

§ The impact of the 2008 legislative amendments to applying the margin scheme to supplies of real property.

§ Whether any interpretative issues arise from the amendments that warrant the preparation of a ruling.

Status

Following the Panel discussion, further consideration is required, including whether a ruling or some other product is more appropriate to provide guidance on the issues arising.

May 2009

Issue no.

ID 2938

Issue

GST: grants and payments of financial assistance

The Panel considered a number of issues and different scenarios involving grants and other financial assistance, including when something is a supply and the circumstances in which a payment will have sufficient nexus to be consideration for that supply.

Status

Given the complexity of the issues involved, further research and consideration is needed. The current timeline and expected issue date for the draft ruling will need to be extended following scoping of these issues.

May 2009

Issue no.

ID PTI 1080 (no ruling on the public rulings program)

Issue

GST: retirement villages

The Panel considered a number of issues in relation to the sale of premises that are a retirement village enterprise including:

§ Factual variations in retirement village arrangements which may affect how the consideration is calculated, and the GST character of the supply.

§ The nature of the ‘ingoing contribution’ paid by a resident in relation to that sale and the entitlement of a retirement village operator to input tax credits.

Status

Following discussion at the Panel, further research and consideration of the issues arising is required, including whether a public ruling is needed.

[_Toc240443306] 19.17 Superannuation Public Rulings Panel

Chair:

Andrew England, Senior Tax Counsel, Tax Counsel Network

Secretariat:

Sue Chadwick, Law and Practice

Last meeting held:

The last meeting was held on 27 March 2009. The ‘Ordinary time earnings’ ruling was also considered by panel out of session in April 2009.

Next meeting:

The next meeting is scheduled for 18 and 19 June 2009.

Minutes:

The minutes of the Superannuation Rulings Panel meeting held on 16-17 March 2009 and
27 March 2009 have been finalised.

New significant topics:

Issue no.

2951

Issue/Application

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 Superannuation Industry (Supervision) Act 1993 (SISA) to transfer the trustee’s duties and responsibilities to a legal personal representative?

Status

The panel discussed if the enduring power of attorney must either be a general one or one where the duties relate to trustee finances and / or to the superannuation affairs.

There was some discussion on whether a requirement that the enduring power of attorney (EPOA) be relevant to the superannuation affairs of the donor is a requirement for the definition of legal personal representative in subsection 10(1) or only for 17A(3)(b)(ii). Panel asked that a further search of other parts of the SISA be undertaken where the definition of ‘Legal personal representative (LPR) is used to make sure that there aren’t any unintended consequences.

Panel considered whether the draft ruling should be changed to state that, where there are multiple LPRs in respect of one member, only one can be trustee in the place of the member. It was agreed that a new example should be included to cover the situation where a member has multiple LPRs holding EPOAs but only one is appointed trustee in their place.

Panel also felt that the draft ruling should be set out so that it covered both individual trustees and corporate trustees.

Outcome – action to date

Draft ruling referred to APRA for their comments.

Ongoing significant topics:

Issue no.

2726

Issue/Application

Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'.

Status

This Ruling had been issued as a draft in late 2008. Substantial external comment was received. The issue of greatest concern, especially to employers and associated groups, was the view expressed in the draft Ruling that hours of work paid at an overtime rate could, in some situations, count as ordinary hours of work for SG purposes even though these overtime hours exceeded the “ordinary hours” stipulated in the relevant industrial instrument. This was different from the view the Tax Office had expressed in SGR 94/4.

The Rulings Panel considered this issue during March and April 2009. In the result, the Tax Office decided not to proceed with the view in the draft Ruling. The view eventually published relevantly preserves the effect of the view in SGR 94/4.

During the Panel process, and with the benefit of the substantial comments that had been received on the draft, the Tax Office carefully reviewed the legislative history and the relevant case law. We also focussed on the practical implications of the view in the draft ruling. On balance it was decided that there was not a sufficiently compelling case to alter the view in SGR 94/4 on this subject.

The Panel also considered some other issues arising from the comments on the draft Ruling, including notably the SG status of the following kinds of payment:

· Certain leave payments such as salary or wages paid to workers while they are on parental leave;

· Various termination payments and sign-on payments;

· Performance bonuses and “ex gratia” bonuses;

· Non-cash benefits such as fringe benefits.

The outcomes on these issues are reflected in the final Ruling. Note however that the question of the SG status of parental leave and certain other leave was the subject of a policy announcement in the recent Budget, so the final Ruling expressly does not deal with those matters. The Ruling will be amended to do so as soon as possible after that Budget measure is enacted.

Outcome – action to date

SGR 2009/2 published 13 May 2009.

Issue no.

2577

Issue/Application

The meaning of `asset`, `loan`, `investment in`, `lease` and `lease arrangement` in the definition of an ‘in-house asset’ in the Superannuation Industry (Supervision) Act 1993.

Status

Panel discussed the meaning of the term ‘asset’ in the revised ruling to align with the meaning of the term as described in SMSFR 2008/D2 . Panel discussed the issue of whether a house affixed to land is an interest in that land.

The panel also discussed the term ‘investment in’ and suggested further examples to clarify the meaning.

Panel discussed the potential overlap between the terms ‘loan to’, ‘investment in’ and ‘lease’ and whether Part 8 of the SISA should be read as not having an overlap between these terms and whether the more specific term would apply where there is conflict. Specifically, it was discussed whether, if an asset is a ‘loan to’ the related party, it would not also be an ‘investment in’ that party. Likewise, it was discussed whether, where an asset of the fund is subject to a ‘lease’ or ‘lease arrangement’, a second asset, being the rights under the contract itself, would not also be an investment in the lessee for section 71(1).

Panel suggested that the authoring team look at other instances where the term ‘investment’ is used in the SISA to consider whether there are conflicts with other parts of the SISA.

Outcome – action to date

Final ruling referred to APRA for their comments.

Issue no.

2486

Issue/Application

Application of the Superannuation Industry (Supervision) Act 1993 to unpaid trust distributions payable to a Self Managed Superannuation Fund

Status

In line with the discussion on the in-house asset ruling, it was considered whether the ruling should be modified to remove the overlap between the terms ‘loan to’ and ‘investment in’ for the purposes of Part 8 (see issue 2577 above). Hence, where it is concluded that the unpaid trust distribution amounts to a ‘loan to’ the related party, will it also not be an ‘investment in’ that related trust?

Outcome – action to date

Final ruling referred to APRA for their comments.

[_Toc240443307] 19.18 Test Case Litigation Panel

Chair:

Kevin Fitzpatrick, Chief Tax Counsel

Secretariat:

Jill Gatland, Legal Services, Law and Practice

Last meeting held:

There has been one meeting since the last NTLG meeting, convened on 4 May 2009.

Next meeting:

The next meeting will be held on 27 July 2009.

Meeting of 4 May 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

09/2636

The issue raised in this application concerned whether the sale of real property is the supply of a going concern.

Funding Decision

Funding Approved

Panel Reasons

The Panel recommended funding on the basis that:

· the matter raised issues which were sufficiently contentious to warrant funding; and

· it is in the public interest to provide funding because the issues would have significance, not only for the property development industry but for a broader section of the community.

Case Summary

09/4437

Whether each specific arrangement entered into by the various applicants constitute partnerships at general law or tax law partnerships and whether each arrangement should be considered a partnership for GST purposes.

Funding Decision

Funding Declined

Panel Reasons

The Panel concluded that these matters would turn on the particular facts in each case and there was only limited application for the broader community. The panel recommended that funding be declined.

Case Summary

09/3758

The Applicant sought funding under deed in respect of the Commissioner’s appeal to the Federal Court from a decision of the Administrative Appeals Tribunal to partially remit the penalty imposed by the Commissioner.

Funding Decision

Funding Declined

Panel Reasons

The panel noted that this matter is currently receiving funding on a party/party basis in respect of the Commissioner’s appeal to the Federal Court in accordance with our policy to generally provide funding when we appeal against a decision of the Administrative Appeals Tribunal.

The panel considered that it was not in the public interest to provide funding in this case other than on the basis already agreed to by the Commissioner, because the question of law in the matter is not sufficiently contentious and the outcome of the appeal may have only limited application for other cases. Therefore, it would not have significance for a broad section of the community.

The panel recommended that funding be declined.

Case Summary

09/2862

The applicant sought test case funding in respect of its application for special leave to appeal to the High Court against a decision that a notice issued under s 260-5 of the Tax Administration Act 1953 was valid.

Funding Decision

Funding Declined

Panel Reasons

The panel had regard to the Tax Office’s policy under the test case program that a decision of the Full Federal Court achieves the level of law clarification that the program has been established to obtain.

The panel concluded that the matter was unlikely to bring further clarification because of the uncertainty in relation to other subsidiary issues in this case that would not warrant funding, and recommended that funding be declined.

Case Summary

09/3032

The primary issue in this application concerned Division 6 of the Income Tax Assessment Act 1936 and the power of the trustee to determine the income of the trust estate.

Funding Decision

Funding Declined

Panel Reasons

There were factual matters to be resolved, including the valuation of capital proceeds, and that the primary contentious issue in this matter in relation to Division 6 of the Income Tax Assessment Act 1936 is being tested in the matter of Bamford and Ors which the Full Federal Court has heard and reserved its decision.

Accordingly, the panel recommended that funding be declined.

Case Summary

09/3509

This matter raised this issue of whether a partnership is a connected entity for the purpose of the maximum net asset value test under Division 152 of the Income Tax Assessment Act 1997 which may have qualified the applicant for one of the small business capital gains tax concessions available under that division.

Funding Decision

Funding Declined

Panel Reasons

There was a factual question as to whether the applicant would be over the threshold net asset value amount in any event. Aside from this factual issue, the Panel concluded that the issue in contention is no longer evident because it has been dealt with by a change to the relevant law.

The panel recommended that funding be declined.

[_Toc151890501][_Toc151890502][_Toc240443308] 20 Other business

No other business was received prior to the meeting.

Meeting discussion:

Two issues were raised :

Guidance for taxpayers in light of the collapse of corporations associated with Managed Investment Schemes was raised, in respect of deductions allowed. Members were advised that Aggressive Tax Planning was reviewing this. It was suggested that a reference group from the NTLG might be formed to consider relevant issues.

Members were invited to forward any issues of concern.

Amendments to s23AG were also mentioned, in that there may be flow on impacts where tax is withheld. The main impact will occur for 2010 financial year. Members were advised that the Tax Office is aware of this issue and addressing it.

[_Toc240443309] 21 Next meeting and close

The next meeting is scheduled for Thursday 17 September 2009, commencing at 9.30am.

Meeting discussion:

In closing, there was a brief discussion of current issues affecting practitioners. Members advised that practitioners are monitoring debt levels, and that most are busy at this time. The Tax Agent legislation is seen as the main emerging issue, and members were advised that the consequential amendments Bill and regulations were in progress.

The Commissioner thanked all members for their contributions and suggestions. He advised members that the 25th anniversary of the NTLG occurs in August, and will be marked at the September meeting.

The September meeting will occur shortly after the actual 25th anniversary of the formation of the NTLG forum. The Commissioner regarded this as a significant achievement, commending the consultation that’s occurred over the period of time.