NTLG minutes - 5 September 2007
[H1]QC: 20078 Content revised: No Abstract revised: No
Abstract:
Minutes of the National Tax Liaison Group (NTLG) meeting held on 5 September 2007.
Meeting details
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Venue: |
Executive Conference Room
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Date: |
5 September 2007 |
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Start: |
9.30am |
Finish: |
3.30pm |
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Chair: |
Michael D'Ascenzo |
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Contact: |
Louise Jameson |
Contact phone: |
(07) 3119 9394 |
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Secretariat: |
Louise Jameson and
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Attendees
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Garry Addison |
CPA Australia |
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Steve Allan |
CPA Australia |
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Annamaria Carey |
Tax Office |
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Grant Cathro |
LCA |
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Michael D'Ascenzo |
Tax Office |
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Michael Dirkis |
TIA |
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Frank Drenth |
CTA |
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Bob Duncan |
ATMA |
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Kevin Fitzpatrick |
Tax Office |
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Mark Friezer |
LCA |
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Jennie Granger |
Tax Office |
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Tony Greco |
TA |
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Karen Liew |
ICAA |
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Peter McGinty |
NTAA |
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Peter Moltoni |
TIA |
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Ali Noroozi |
ICAA |
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James O'Halloran |
Tax Office |
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Andrew O'Bryan |
CPA Australia |
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Ann Previtera |
ICAA |
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Jonathan Rollings |
Treasury |
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Vicki Stylianou |
NIA |
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Sue Williamson |
TIA |
Apologies
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Brenda Berkeley |
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Treasury |
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Steve Cane |
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NTAA |
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Michelle de Niese |
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CTA |
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Tony Pagone |
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LCA |
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Bruce Quigley |
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Tax Office |
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Bruce Thompson |
(Item 12) |
Tax Office |
Guests
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Peter Coakley |
Items 7-9 |
Tax Office |
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Cheryl-Lea Field |
Item 11 |
Tax Office |
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Keith James |
Item 2 |
Board of Taxation |
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Neil Olesen |
Item 2 |
Tax Office |
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Sue Vroombout |
Item 2 |
Board of Taxation |
Professional bodies represented at the National Tax Liaison Group
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Association of Taxation and Management Accountants |
ATMA |
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Australian Taxation Office |
Tax Office |
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Corporate Tax Association |
CTA |
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CPA Australia |
CPA Australia |
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Institute of Chartered Accountants in Australia |
ICAA |
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Law Council of Australia |
LCA |
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National Institute of Accountants |
NIA |
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National Tax and Accountants Association |
NTAA |
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Taxation Institute of Australia |
TIA |
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Taxpayers Australia Incorporated |
TA |
[H2]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.
Disclaimer
National Tax Liaison Group (NTLG) agendas, minutes and related papers are not binding on the Tax Office or any of the other bodies referred to in these papers. The Commissioner of Taxation has instilled a more open philosophy and process with the NTLG. As such, minutes of NTLG meetings are published well before the meeting date on which members accept or modify the minutes under normal meeting protocols. This version of the minutes is available for member associations to share more widely on the understanding that formal endorsement is yet to occur.
1.1 Introductions, apologies, confirmation of minutes of 28 June 2007 meeting
Opening comments and introductions
The Commissioner opened the meeting at 9.35am and welcomed new members and guests. The Commissioner thanked Winnie Kwok for her contributions to the National Tax Liaison Group (NTLG) and wished her well in her future endeavours.
The minutes of the June 2007 meeting were formally confirmed without any further amendments. The Commissioner appreciated the discussion of the minutes at the pre-meeting hook-up to facilitate their early confirmation.
The Commissioner commented that it is important to facilitate good consultation at the NTLG, hence the presence of the Board of Taxation members to discuss the recently released report. It provides an opportunity to commence co-design processes, to discuss what is envisaged and consider the impacts. The Board of Taxation was interested in ways to discuss the issues and the NTLG accords an ideal opportunity.
New members of the National Tax Liaison Group were welcomed
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Geoff Besgrove |
Director, Professional Association Listening and Liaison Unit |
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Karen Liew |
Representing the ICAA. |
Guest attendees
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Keith James and Sue Vroombout |
Representing the Board of Taxation. A warm welcome was extended to both. It was noted that Keith had attended NTLG meetings previously. |
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Jonathan Rollings |
Representing Treasury. |
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Peter McGinty |
Representing the NTAA. |
Apologies
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Brenda Berkeley |
Treasury |
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Steve Cane |
NTAA |
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Michelle de Niese |
CTA |
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Tony Pagone |
Law Council of Australia |
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Bruce Quigley |
Tax Office |
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Bruce Thompson |
Tax Office |
1.2 Tax Office consultation processes
When the professional bodies engage in consultation with the Tax Office, particularly through written submissions, there appear to be differing Tax Office practices as to the extent to which it acknowledges and responds to the consultation (ranging from formal acknowledgment with written explanation of the Tax Office's response to issues raised, to no Tax Office acknowledgment or follow-up). The professional bodies would like to engage in discussion with the Tax Office about its protocols for responding to external consultation, including discussion about existing protocols and what processes the Tax Office has in place to review and maintain the technical accuracy and quality of its responses.
Process
The Board of Taxation's report Improving Australia's Tax Consultation System was recently released and endorsed by government.
Keith James, a member of the Board of Taxation and Sue Vroombout, secretary to the Board of Taxation attended the meeting to discuss aspects of the recently released report Improving Australia's Tax Consultation System.
First Assistant Commissioner Neil Olesen of Policy Management Division was also present for this agenda item.
Meeting discussion
Keith James discussed the recommendations from the report, and in particular recommendation 12. The recommendations included greater cooperation between the Tax Office, Treasury, professional bodies and the community to identify and prioritise possible technical amendments to the law.
The proposal recommended that Treasury, in conjunction with the Tax Office and primarily the profession will be establishing a process, Tax Issues Entry System (TIES) to facilitate the escalation of technical amendments to the tax laws.
There was discussion regarding the more practical and administrative aspects of the process, such as entry points for issues, the use of an issues register, coordination aspects, prioritisation of issues and feedback of information.
The Commissioner commented that the key is to ensure that good communication occurs with consultation to achieve good outcomes, and that appropriate levels of transparency, subject to government protocols, is in place. The Commissioner stated that he is keen to receive feedback from the members and consider their points of view and issues.
Also discussed was the concept of a consultation centre incorporating a panel of experts to progress issues. These panels would not have permanent members, but would have members with the appropriate representation for particular issues. Concerns were expressed by members as to how the panel of experts might be selected and operate, for example, how areas of expertise might be utilised.
It was acknowledged that a high level of confidence in the process, including the confidential discussion phase, and the tripartite arrangement was essential for the success of TIES.
The current Technical Issues Management System (TIMS) process was discussed. It was acknowledged that delays, due to the size of the legislative program, impacted on the ability to address the minor technical amendments. The Tax Office is very supportive and keen to participate in improvements for the technical amendments process.
The Commissioner commented that the Board of Taxation will review the process after 12 months and invited members to advise of any barriers as they became aware of them. The Board of Taxation is committed to the process and welcomes feedback.
Post meeting update
A meeting with the TIMS Sub-committee was held on 27 September 2007 to consider the proposed transition to TIES. It was agreed that there would be no further meetings of the TIMS Sub-committee and that there would be further discussion regarding the operation of TIES.
1.3 Private binding ruling process
Members of the professional bodies report that one of the key considerations to be addressed when taxpayers and their advisers are considering whether to lodge a private binding ruling request is the likely timeframe within which the Tax Office will respond to such requests. While the Tax Office has set a service standard of 28 days from the receipt of all necessary information necessary to make a decision, there are concerns that this standard is not currently being met and as a consequence, taxpayers and their advisers are unable to confidently plan their business around anticipated timeframes.
In order to better understand how long the private binding rulings process is currently taking, is the Tax Office able to provide the professional bodies with the following:
¦ for each service line, the number of private binding rulings lodged for the 2006 and 2007 income years
¦ for each service line, the number and percentage of private binding rulings that have been responded to within the Tax Office service standard of 28 days from the receipt of the necessary information
¦ for each service line, the number and percentage of private binding rulings that have not met the Tax Office service standard, and
¦ for each service line, the average days taken to respond to private binding rulings that have not met the Tax Office service standard.
Further, a priority binding rulings process is available for complex issues that meet certain criteria within the Large Business and International business line. Can the Tax Office provide an indication of the average days taken to respond to private binding ruling requests that meet the criteria under the priority binding ruling process?
Response
Service standards are commitments that the Tax Office aims to achieve in the majority of cases. The service standards and benchmarks for private written binding advice include an expectation that:
¦ we will give a ruling within 28 days from the receipt of all necessary information, but
¦ if we cannot meet the 28 day standard, for example because of the complexity of the matter, we will discuss the application with the client or their representative and negotiate a timeframe that is achievable and reasonable in all the circumstances.
Our performance against service standards is reported in the annual report each year and is also available at Our Service Standards . The following table shows the number of rulings lodged and finalised as well as our performance against service standards:
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2005-06 |
2006-07 |
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Number of private rulings requests lodged |
13,035 |
11,569 |
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Number of private rulings finalised |
14,055 |
12,618 |
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Percentage of cases passing service standards (that is, finalised within 28 days of receiving all information or within negotiated due date) |
86.3% |
93.3% |
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Number of cases passing service standards |
12,130 |
11,772 |
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Percentage of cases failing service standards |
13.7% |
6.7% |
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Number of cases failing service standards |
1,925 |
846 |
In relation to the time taken to complete cases, cycle times take into account delays where further information is required from an applicant and also negotiated due dates arising because of complexity of issues or other causes. We aim to keep the applicant informed of progress and anticipated timeframes wherever possible. The following table outlines the average cycle times for both all finalised cases and those that did not meet service standards.
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2005-06 |
2006-07 |
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Number of days to complete cases for which service standards were not met. |
103 days |
98 days |
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Number of days to complete all cases finalised. |
57 days |
45 days |
The performance for each business line is set out in Attachment A .
The purpose of the priority rulings process is to reduce the risk of the Tax Office being unable to provide certainty to taxpayers on major commercial transactions in timeframes consistent with their business needs where:
¦ the risk of delay is increased by the complexity of the transaction and associated issues, and
¦ the consequences of delays in obtaining certainty are significant for the taxpayer and the Tax Office.
However, the priority rulings process is not about 'fast-tracking' or 'queue jumping' and there are no target turnaround times for cases in the process. The target date is the date when the taxpayer requires the advice. The aim of the process is to work with the taxpayer and applicant from the earliest possible time to progress our analysis of the tax issues.
The process requires that the taxpayer work collaboratively with the Tax Office from the time the transaction is first seriously contemplated. This means that there is often a significant period of work before the application for private ruling is lodged. It would be inappropriate to compare the timeframes which have had the benefit of this 'prelodgment' period of work with timeframes for other applications.
The nature of the matters in the priority process means that each will have very different circumstances and taxpayers will have different timeframes in which they require advice. The significant variances between each case and the small number of cases relative to private rulings generally means that providing average data is unlikely to be helpful in giving insight into how the process works and what it can achieve when used appropriately.
It may be helpful to clarify that the priority process is not restricted to large market taxpayers. However, evidently the nature of the transactions that are eligible and that require the process is such that large market transactions will tend to be more likely to meet the criteria. Each case is assessed separately against the criteria to determine its eligibility for the process and whether it actually requires the process to reduce the risk of delays in providing advice.
The Review of Advice project has been looking at how the Tax Office can improve the technical advice we provide to tax practitioners. The recommendations were signed off by the Commissioner on 14 December 2006 and cover two broad themes:
¦ building self sufficiency for the tax profession, and
¦ enhancing access to Tax Office technical experts.
A number of recommendations may be of interest to NTLG members as they will improve the processes as they relate to private binding rulings.
Advice matrix - assisting self sufficiency
The proposed guide to technical advice is designed to be a concise document that directs tax practitioners to appropriate products and channels, which will help them resolve their technical issues. The guide includes level of protection, how to access the desired service and brief comments about what to expect from this channel or product. We anticipate use of this guide will reduce calls to our call centres and written advice requests as practitioners are accessing the most appropriate service for their query.
User testing has commenced with this product and we expect to have an electronic version available by the end of 2007 with a promotional paper version also being considered.
Enhanced private ruling processes - improving access to experts
The intent of this recommendation is to improve turnaround times for private rulings. Consultation will be an integral part of the design process.
Booking service - improving access to experts
We are trialling a specialist call centre for technical advice calls that includes the option of booking time with a Tax Office specialist for more complex issues. The trial is running in our capital gains tax call centre from 3 September 2007 to mid October 2007. Evaluation will be completed in October with the expectation that other technical topics will roll out progressively. We anticipate that this service will further reduce written advice requests.
In addition to seeking to improve the timeliness of our response to private ruling requests, we have introduced some initiatives to reduce the time spent by tax professionals in preparing and lodging an application, including:
¦ modification of the private ruling application forms and guidance to reduce the amount of information that needs to be provided
¦ provision of more guidance on the information to be provided in the application via our website and in paper
¦ removing the need for tax professionals to provide supporting arguments and legal references. Nevertheless, in a soon to be issued practice statement, we will still encourage the provision of such information as we consider that it enables us to identify the key issues, etc. more quickly with a consequential improvement in response times, and
¦ enabling lodgment of the application via the tax agents and business portals.
Meeting discussion
There was discussion regarding the information provided in the response and the tables in particular. Members advised that this information was useful.
Rulings
The Commissioner commented that he was conscious of the concern associated with the processes and the timeliness of rulings. A new case management system should be able to provide better information and more transparency which is difficult to do at present.
Second Commissioner Jennie Granger explained the quality assurance process and advised members that there has been an improvement in the quality of the private rulings produced. A better understanding of the issues at hand contributes to a faster resolution.
The Commissioner commented that some of the time frames appear long, and we are looking to improve these. But he acknowledged that to give full consideration to more complex issues may require additional time and that in most cases the rulees agreed to a longer process (which sometimes involved an amendment of the original proposal).
The issue of the amount of information required in order to reach the decision was discussed, in that the amount of information required may vary depending on the case, and the timing of the requests. Feedback mechanisms are available to rulees and they are encouraged to use them. One of the members commented that the priority process and the prelodgment discussions were working well. It was also acknowledged some of the complainants may be unhappy because of an unfavourable reply.
It was agreed that the abbreviations used in the table would be explained and information regarding quality assurance would be included in the minutes. Compliance sub-plan changes involving Large Business and International (LB&I), Small and Medium Enterprises (S&ME) and Micro Enterprises and Individuals (ME&I) business lines affected the populations which resulted in differences between the 2005-06 and 2006-07 year figures. These changes came into effect on 1 July 2006.
Advice Working Group
One of the members who had attended the Advice Working Group meeting queried if scripted responses would be able to be expanded. The Commissioner advised that a proposal would be put to the Advice Working Group and outcomes brought back to the NTLG. The proposal reflects some of the concerns that have been expressed. One issue is how we recognise who is calling so they can be assisted appropriately.
Deputy Commissioner James O'Halloran provided an example of the 2 million calls received approximately 10 % are advice related. Of 160,000 calls, approximately 35,000 are requesting advice with a further 5,000 case managed via the call back process.
Capital gains tax pilot
Members were advised that the capital gains tax (CGT) pilot has commenced with some pleasing early results. There are some promising results in the use of a booking service for agents and other infrastructure support.
1.4 Tax Laws Amendment Bill No 4 and the status of PS LA 2001/12
In ATO Practice Statement Law Administration PS LA 2001/12 Lodgment of Ultimate Beneficiary Statements , the Commissioner stated that an ultimate beneficiary (UB) statement need only be lodged where:
¦ the trustee has a ultimate beneficiary non taxable liability for the year under consideration (for example, because there are no ultimate beneficiaries or because the trustee is unable to identify the ultimate beneficiaries), or
¦ the Commissioner has requested lodgment of a UB statement.
Therefore, as a practical matter, section 102UK and section 102UT of the Income Tax Assessment Act 1936 (ITAA 1936) could only have practical application if the Commissioner requests the lodgment of both a tax return and a correct UB statement.
¦ Is it intended to withdraw or amend PS LA 2001/12 in light of the new UB statement rules after Royal Assent is given to Taxation Law Amendment Bill TLAB No 4?
¦ Under the new rules is it intended that a trust beneficiary statement will need to be lodged at the same time the closely held trust furnishes their income tax return to the Commissioner?
¦ Has any thought been given to the form of the new TB statement?
Response
The changes proposed to the ultimate beneficiary rules are currently before parliament.
These amendments would replace the previous requirement for closely held trusts to report the ultimate beneficiaries of certain net income and tax preferred amounts with the requirement for closely held trusts to report only the trustee beneficiary (trustee beneficiary reporting rules).
These amendments would apply from the income year after royal assent. Any law administration practice statements that relate to the previous provisions will then be reviewed and either amended or withdrawn. The Tax Office would be interested in consulting on the administration of the new reporting requirements under these amendments.
Meeting discussion
The agenda response was accepted by members. The Commissioner accepted the suggestion that a working group be formed to progress the issues once the Tax Laws Amendment Bill No 4 has received royal assent.
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Action item |
NTLG0709/01
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Post meeting update
Tax Laws Amendment Bill No 4 received royal assent on 24 September 2007. A limited life working group is being established to progress related issues.
1.5 Tax Office appeal against federal court decision on security deposits
The recent Full Federal Court decision of Reliance Carpet Co Pty Ltd v. Commissioner of Taxation (Reliance Carpet) provides some important guidance on a number of goods and services tax (GST) issues.
First, the decision confirms that a forfeited deposit is not consideration for any supply at all. Until now, it was thought that Division 99 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act and GSTR 2006/2 Goods and services tax: deposits held as security for the performance of an obligation ) resulted in forfeited deposits being treated as consideration for a supply. Division 99, as it is currently drafted, is now of limited relevance if the Full Court's decision stands.
Secondly and perhaps more importantly, the Full Court's decision took a purposive approach to the interpretation of the GST Act. In Reliance Carpet, the Commissioner argued that the forfeited deposit was consideration for the supply of contractual rights under the contract of sale.
The Full Court, in dismissing the Commissioner's argument, stressed that the GST Act should not be construed so narrowly as to find supplies of rights or other things where 'from a practical and business point of view', there is no supply within the ordinary meaning. If the Act was construed that way, it could lead to 'absurd results which conflict with the purpose and the context of the GST Act'.
The Tax Office has stated that its reasons for appealing the Federal Court decision are based on its view that both the definition of supply and the GST treatment of forfeited security deposits are important issues for the community. While the importance of this issue for both affected taxpayers and the Tax Office is not in doubt, the decision to appeal in this case seems to be at odds with the purposive approach to tax law that underlies the current legislative drafting approach adopted by Treasury and presumably endorsed by both the government and parliament.
Could the Tax Office please clarify its view on this issue and its relationship to the considerations which the Tax Office normally uses in deciding whether to appeal against court decisions?
Response
The issues raised by the NTLG deals with the Commissioner's decision to seek special leave to appeal to the High Court from the decision of the Full Federal Court in Reliance Carpet Co Pty Ltd v. Commissioner of Taxation (2007) FCAFC 99.
The Commissioner readily accepts that in interpreting the law it is an accepted principle of statutory interpretation that a purposive approach to the law be taken (see, for example, section 15AA of the Acts Interpretation Act 1901 and CIC Insurance Ltd v. Bankstown Football Club Ltd (1997) 187 CLR 384).
The purpose of any particular provision must be ascertained by looking at the language of the Act in the context in which it appears within the overall operation of the Act and with parliament's intention in mind as indicated, for instance, by extrinsic material such as the explanatory memorandum that accompanied the introduction of the bill into the parliament.
In deciding to seek special leave to appeal a decision from the Full Federal Court, the Commissioner is guided by counsel in considering the limited matters the High Court will have regard to when considering whether to grant an application for special leave (see section 35A of the Judiciary Act 1903). The Commissioner also obtains the views of counsel on the prospects of success in seeking special leave. The final decision to appeal is taken at the highest levels within the Tax Office - presently the decision must be made at least at the Chief Tax Counsel level.
As noted by the agenda item, the Commissioner has stated that his reasons for appealing the Full Federal Court decision are based on his view that both the definition of supply and the GST treatment of forfeited security deposits are important issues for the community. In coming to that view the Commissioner is concerned that the purpose attributed to the Act by the Full Federal Court in relation to those issues is inconsistent with the Commissioner's understanding of that purpose.
In respect of administrative treatment for taxpayers, any requests for refunds of GST paid on forfeited deposits will be held pending the outcome of any High Court proceedings.
Taxpayers who consider they are entitled to a refund of GST should notify the Commissioner of their intention to seek a refund by completing a 'Notification of entitlement to GST refund' which is available on the website. This will ensure that they are not prejudiced by time limits on refunds that may apply under the Taxation Administration Act 1953 (TAA 1953).
Meeting discussion
Acting Second Commissioner Kevin Fitzpatrick led the discussion on this agenda item.
Members were advised that the Chief Tax Counsel makes the decision on an application for special leave to appeal to the High Court. A robust decision making process is followed prior to any decision to appeal. The process includes consideration of advice from external counsel, as well as from senior tax officers. The strategic importance of the issue and the Tax Office's prospects of success on appeal are taken into account.
There was discussion about the commercial and practical implications of decisions and the need to consider these ahead of an actual decision.
The Commissioner acknowledged that it is useful to be thinking ahead and to consider the different consequences that may arise depending on the outcome of cases. The practical consequences of legal decisions are a significant issue and the discussion was useful in exchanging viewpoints. The Tax Office agreed to consider any submissions on this issue from the professional bodies.
Decision Impact Statements relating to Reliance Carpet Co Pty Ltd v. Commissioner of Taxation and Cajkusic & Ors v. Commissioner of Taxation are available on the website.
1.6 General interest charge and late lodgment
Section 25-5 of the ITAA 1936 provides a deduction for expenditure incurred for General Interest Charge (GIC). In looking at when GIC is incurred, sub-sections 204(3) and 204(1) of the ITAA 1936 effectively provide that a person is liable for GIC on the unpaid amount of any tax due and payable 21 days after the due date for lodgment in the case where the return is lodged late. In addition GIC becomes due and payable at the end of each day under section 8AAE of the Tax Administration Act 1953. Accordingly, it would appear that GIC would be expenditure incurred on each day.
This would effectively mean that for the purpose of section 25-5, GIC should be deductible in the year it is incurred notwithstanding that it is actually paid in a later year.
Accordingly, our reading of the provision is that the liability for GIC occurs when there is a liability for income tax (irrespective of whether this has actually been paid). We note that this issue is similar to that contained in the case of Layala Enterprises Pty Ltd (In Liquidation) v. Federal Commissioner of Taxation 98 ATC 4858.
However, we note that the Tax Office's Receivables policy seems to take different view. We refer to ATO Receivables Policy - 93. General interest charge , which states that the liability is not incurred until there is an 'assessment' issued. At that point in time, the Tax Office holds the view that 'accrued interest' then becomes incurred.
93.7.6 GIC for late payment accrues on a daily basis. Hence the relevant expense is incurred daily. What this means in practice is that a debtor is entitled to claim a deduction for the total amount of the GIC for late payment accrued during any particular financial year from the 1999/00 year onwards, notwithstanding that the GIC may not have in fact been paid. This is so whether a taxpayer accounts for expenses on a 'cash basis' or 'accruals basis'.
93.7.15 With regard to the late lodgment of an income tax return for the 2000/01 or later years of income, the GIC which accrues under section 204 of the ITAA 1936 from the statutory due date of the original assessment to the issue date of the assessment is incurred on the day that the assessment is issued. GIC accruing after the issue date of the assessment is incurred on a daily basis.
Could the Tax Office clarify its view on this issue?
Response
Under sub-section 204(3) of the ITAA 1936, if any of the tax which a person is liable to pay remains unpaid after the time by which the tax is due to be paid, the person is liable to pay the GIC on the unpaid amount for each day in the period that:
¦ started at the beginning of the day by which the tax was due to be paid, and
¦ finishes at the end of the last day on which, at the end of the day, the tax or GIC on any of the tax remains unpaid.
For a tax return for the 2000-2001 or later year of income that is lodged after the due date for lodgment:
¦ 'pre-assessment1' GIC is calculated from the statutory due date for payment of the tax payable under the assessment, to the issue date of the assessment
¦ the liability for the pre-assessment GIC is incurred on the day that the assessment is issued
¦ once a notice of assessment is given to the taxpayer, the debt (consisting of any tax payable together with the 'pre-assessment' GIC) is established, and
¦ after the issue date of the assessment 'post-assessment' GIC will accrue daily on the unpaid debt and GIC will be incurred on a daily basis.
For example, if a return of income for the year ended 30 June 2005, which is due for lodgment on 31 October 2005, is lodged on 1 June 2006 and an assessment issues on 1 July 2006, the taxpayer would be entitled to claim the GIC notified in the 2005 assessment in their tax return for the year of income ended 30 June 2007. In addition, if the debt notified in the assessment was unpaid at 30 June 2007, the taxpayer would be able to claim the GIC accrued from 1 July 2006 (the issue date of the 2005 notice of assessment) to 30 June 2007.
However, the taxpayer would not be entitled to claim a pro-rata calculation of the 'pre-assessment' GIC accrued from the statutory due date to the date the assessment issues. For example, if the taxpayer was not a full self-assessment taxpayer, they could not claim a proportion of the GIC for the period 21 November 2005 to 30 June 2006, in the return for the year ended 30 June 2006. The rationale is that the liability for the 'pre-assessment' GIC does not crystallise until an income tax assessment for the relevant year is made. In this example, the assessment was not made until 1 July 2006, therefore 'pre-assessment' GIC does not crystallise until then.
The decision in Layala Enterprises Pty Ltd (in liquidation) v. Federal Commissioner of Taxation 98 ATC 4858, which considered when a deduction was allowable under sub-section 51(1) of the ITAA 1936, was founded on a proper construction of state payroll tax legislation enacted by the Western Australian Parliament. The critical point was whether liability for payroll tax arose immediately after, and as a direct consequence of, the payment by an employer of taxable wages or not until an assessment of payroll tax was made by the Commissioner of State Taxation.
While, in that case, the Full Federal Court held that the critical point was the payment of the wages, we take the view that the critical point when 'pre- assessment' GIC is incurred is when the assessment, which quantifies the liability, is issued. That is, when the taxpayer becomes 'definitively committed' to the payment or 'has completely subjected itself to the liability' (Federal Commissioner of Taxation v. James Flood Pty Ltd (1953) 88 CLR 492 at page 506).
Meeting discussion
There was general discussion regarding the response provided, and it was agreed to clarify the response provided in the agenda papers. Members will be advised following the meeting.
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Action item |
NTLG0709/02
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1 The terms 'pre-assessment' and 'post-assessment' GIC are not legislative terms and are used in this response to differentiate between the GIC which accrues from the statutory due date to the issue date of the assessment ('pre-assessment' GIC)and GIC that accrues after the assessment has issued ('post-assessment' GIC).
1.7 Active compliance enhancement
This item is to provide members with information regarding the notification of taxpayer errors and overpayment of tax.
Response
At times in the course of our active compliance work, the Tax Office identifies errors made by taxpayers which results in the overpayment of tax.
We have advised our active compliance officers to be overt in formally notifying taxpayers and their tax agents of any errors in the taxpayer's favour so they can be corrected for past income years. In addition, this should ensure that the same errors are not repeated in future years.
In particular, we have amended the template for our case finalisation letters (for both risk reviews and audits) to require specific notification to taxpayers of these errors.
Our officers have been directed to clearly describe any error(s) in the case finalisation letters and to provide advice on how the error has been or is to be corrected.
The following advice has been provided to relevant Tax Office staff and is included for information.
To: All Case Management employees
Subject: Taxpayer errors
In the course of your work you may identify errors made by a taxpayer which have resulted in the overpayment of tax.
The Commissioner has asked for all Active Compliance areas that have direct dealings with taxpayers or their agents to be overt in formally notifying them of any errors.
Over the coming weeks we will be working to ensure that this notification is embedded into enterprise work processes.
In the meantime, if you or any of your people detect errors which have resulted in the overpayment of tax, please ensure that the contents of the relevant case finalisation letter (for both risk reviews and audits), specifically recognise these errors. Please ensure that the error is clearly described in the letter together with a statement of how the error is to be corrected.
Meeting discussion
Assistant Commissioner Peter Coakley attended the meeting to address this item.
Members were advised that the Tax Office was being overt in its approach to compliance activities and bringing matters such as these to the attention of taxpayers for their information.
The intention of bringing these errors and the method of their correction to taxpayer's attention is to assist with meeting their tax obligations correctly in future years.
The advice (in the agenda response) was sent to approximately 5,000 staff in July 2007 to ensure that if errors in the taxpayers favour were identified, information was provided to the taxpayer in the audit finalisation letter.
The Active Compliance Working Group is to be briefed at their meeting to be held in the week after the NTLG meeting.
Members commented positively on the approach.
Post meeting update
Members of the Active Compliance Working Group meeting also commented favourably on this initiative.
1.8 Imposition of additional penalties
Where taxpayers, as part of an audit process, agree to meet the tax and associated penalties and in fact pay those in advance, in what circumstances will the Tax Office seek to impose greater penalties at a later date in contravention of the penalty settlement and in absence of any apparent change of circumstances or additional information provided?
Response
Assistant Commissioner Peter Coakley attended the meeting to discuss this issue.
Meeting discussion
Members were advised that there were no circumstances which would lead the Tax Office to depart from published practices.
Information is available through the Compliance Toolkit regarding general compliance activities including reviews and audits.
Members queried how the Tax Office provides notification of an audit. Notification is generally done in writing and information relating to the commencement and How we conduct our compliance activities is available on the website.
Members were invited to provide information of specific instances where recognised practices may not have been followed to facilitate corrective action to be taken.
1.9 Voluntary disclosures
The Tax Office has been working for some time within the Active Compliance Working Group to finalise a practice statement/ruling on voluntary disclosure. To what extent is the position reached within that draft currently incorporated into audit practice, in particular in respect of voluntary disclosures made after the taxpayer is made aware of the Tax Office's interest in their tax affairs?
Response
Assistant Commissioner Peter Coakley attended the meeting to discuss this issue.
Meeting discussion
There was some discussion regarding the definition of voluntary disclosure. Members were advised that the 1994 tax ruling regarding voluntary disclosures was undergoing a revision process, and key stakeholders would be consulted as part of the review process which includes a workshop to be held in October 2007.
The Compliance Toolkit contains information regarding the conduct of compliance activities and outlines review and audit processes. Tax Office compliance work processes link auditors to the Tax Office rulings and practice statements which amongst other things, refer to voluntary disclosures which can be both prompted and unprompted.
The Commissioner emphasised the importance of voluntary disclosure and referred to the Offshore voluntary disclosure initiative which was launched on 18 July 2007. Second Commissioner Jennie Granger commented that the banks were corresponding with clients regarding the initiative and there are some initial promising outcomes. A number of tax agents and individuals have contacted the Tax Office seeking advice as a result.
Members were invited to provide feedback on compliance products at any stage.
Post meeting update
The former Audit Compliance Working Group (replaced by the Active Compliance Working Group) discussed the issue of when a verification process ceases and an audit process commences, and a list of Tax Office verification products was provided to the Audit Compliance Working Group at the 29 March 2006 meeting. Information relating to the commencement and How we conduct our compliance activities is available on the website.
The Active Compliance Working Group agreed to consider approaches to penalties and audit practices as part of its charter. Members of that group have been invited to participate in a workshop to be held 9 - 10 October 2007. Topics include a review of the 1994 series of rulings (TR 94/3 - TR 94/7) and voluntary disclosures.
1.10 Substantiation of work related expenses associated with exempt income
There are three parts to this agenda item, representing the questions raised.
Often when resident taxpayers undertake work offshore for periods in excess of 91 days, they will receive allowances to defer the additional cost of living abroad as part of their remuneration. Some of these allowances are paid on a monthly basis and are usually incorporated in a lump sum payment reflecting both the salary and allowance. Assuming that the taxpayer satisfies the requirements of sub-sections 23AG or 23AF of the ITAA 1936 such amounts are exempt.
10.1 Can the Commissioner confirm that as these exempt amounts are excluded from pay as you go withholding tax (that is, as a result of the operation of sub-sections 12-1 and 12-35 of the Taxation Administration Act 1953 they are not withholding payments)?
Response
The Commissioner confirms that exempt foreign employment income is excluded from pay as you go (PAYG) withholding tax.
10.2 And if so, can the Commissioner confirm that the substantiation provisions in Part 5-30 of the Income Tax Assessment Act 1997 will not apply to expenses claimed against these exempt allowances (section 900-12(1) of the Income Tax Assessment Act 1997)?
Response
The Commissioner confirms that deductions attaching to exempt foreign employment income shown on the tax return are not required to be substantiated.
10.3 On the basis that this analysis is correct, can the Commissioner advise the extent to which this view is reflected in Tax Office assistance materials, such as taxation rulings, for example, TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses, and in TaxPack 2007?
Response
The Commissioner provides advice on what taxpayers need to do to comply with the law, including the type and nature of records which need to be kept for taxation purposes. A variety of information regarding international tax information is available on the website on the Individuals segment.
At this point in time, the need for additional advice products has not been identified. Professional association members are invited to provide advice on any necessary products via the NTLG secretariat for consideration.
Meeting discussion
Members accepted the response provided to the agenda item, no discussion was required.
[H13]11 National Tax Liaison Group Sub-committee governance report
This is a standing agenda item which enables sub-committees to provide governance reports and discussions associated with the NTLG sub-committees.
The Superannuation Technical Sub-committee is providing a report at the September 2007 meeting.
The Transfer Pricing Sub-committee has been nominated to provide a report at the 28 November 2007 meeting.
Process
Assistant Commissioner Superannuation, Cheryl-Lea Field, chair of the Superannuation Technical Sub-committee attended the meeting to discuss the report.
Background
The NTLG Superannuation Technical Sub-committee (the sub-committee) was established in September 2005 and held its first meeting on 26 October 2005, with Stuart Forsyth as the inaugural chair.
Since the sub-committee commenced there has been limited changes to membership, the only changes in membership have been from the Law Council of Australia, Tax Institute of Australia. Representatives of the Financial Planning Association of Australia Limited were added to the sub-committee in June 2007. Cheryl-Lea Field, manager of the Superannuation, Centre of Expertise was appointed chair and attended her first meeting on 5 March 2007.
The main focus of the sub-committee is technical issues in relation to superannuation matters. This covers a broad range of law:
¦ contributions into superannuation - deductions, caps, excess contributions taxes, tax file number quotation
¦ superannuation guarantee - employer obligations, bi-lateral agreements; choice
¦ benefit taxation - annuities, pensions, lump sums, and commutation of superannuation income streams, departing Australia superannuation payment (DASP)
¦ employment termination payments (ETP)
¦ Superannuation Industry (Supervision) Act (SIS) regulator issues - in relations to SMSFs
¦ superannuation fund income tax issues, including the new tax on no-tax file number income
¦ lost member and unclaimed monies
¦ co-contributions
¦ superannuation holdings account (SHA), and
¦ wrap up issues relating to reasonable benefit limit, super surcharge charge.
The Superannuation business line has a peak consultative forum, the Superannuation Consultative Committee, that addresses issues relating to administrative matters and recently, like the NTLG Sub-committee, has been involved in simpler super implementation issues and readiness.
The Superannuation Sub-committee does not set strategy, determine the Tax Office's view of the law or make or change government policy. However, where necessary, the sub-committee may refer issues to Treasury on the basis that legislative action is required.
The sub-committee has assisted in the prioritising of interpretative products, and its focus is on assisting the broader industry, comply with the superannuation regime.
Treasury is a member of the Superannuation Consultative Committee and if technical issues are raised at that forum, they are either referred to the NTLG Superannuation Technical Sub-committee or are addressed out of session, in consultation with Treasury. This was particularly the situation over the last 12 months as part of the implementation of the simpler super changes. On other matters Treasury is consulted regularly to assist in answering various questions that industry may present to the sub-committee. Again given the timing around simpler super, all matters were treated with priority to ensure timely resolution.
There are very effective interactions between the sub-committee and the Superannuation business line and with the Financial Services Industry Group (FSIG) area of Large Business and International. These relationships have been essential in providing timely and coordinated responses on a range of matters. This was essential while significant amounts of superannuation law were changing through simpler super, including the rewriting of the Part IX provisions.
The relevant areas meet before and after meetings to develop the agenda and prepare responses to questions and to prepare an accurate record of the meeting. Any issues that arise out of the minutes are addressed in a timely way.
We negotiate with the members depending on the nature of the issue. Usually if an issue is presented with all the relevant materials, including a proposed answer and technical discussion, issues are resolved very quickly.
The sub-committee is required to provide an update to the main NTLG and Superannuation Consultative Forum about the work undertaken.
To date the sub-committee has:
¦ held eight meetings, with the most recent being 5 June 2007. All minutes of the sub-committee can be found on ato.gov.au under:
¦ Tax Professionals
¦ Strategies and forums, and
¦ National Tax Liaison Group (NTLG)
¦ the next meeting is scheduled for 4 September 2007
¦ the sub-committee meets quarterly, usually March, June, September and December, and
¦ meetings are rotated between Sydney and Melbourne.
Compliance with Corporate Management Practice Statement 2006/06
The sub-committee is complying with the requirements set out in the Corporate Management Practice Statement PS CM 2006/06. As required by the practice statement, the sub-committee has reviewed and published a charter and we have also conducted a review of membership.
The sub-committee also referred to the external stakeholder consultative forum management practice statement when setting up the sub-committee. This document is often referred to in conjunction with the committee management practice statement.
Industry groups and professional bodies represented on the sub-committee
Accounting profession representatives
¦ Institute of Chartered Accountants in Australia (ICAA)
¦ National Institute of Accountants (NIA)
¦ CPA Australia
¦ National Tax and Accountants Association (NTAA)
¦ Taxation Institute of Australia (TIA), and
¦ Association of Taxation and Management Accountants (ATMA).
Superannuation industry representatives
¦ Association of Super Funds Australia (ASFA)
¦ Investment Financial Services Australia (ISFA)
¦ Small Independent Superannuation Funds Association (SISFA)
¦ SMSF Professional Association of Australia Limited (SPAA)
¦ Superannuation Australia Pty Ltd, and
¦ Financial Planning Association of Australia Limited (FPA).
Legal profession representatives
¦ Law Council of Australia
Government representatives
¦ Australian Prudential Regulation Authority (APRA)
¦ Australian Securities & Investment Commission (ASIC), and
¦ Department of Treasury.
The NTLG GST Sub-committee charteralso covers in further detail members' responsibility.
Meeting schedule
¦ The sub-committee holds its meeting on the same day as the Superannuation Consultative Committee (SCC), as there is a member cross over and to keep travel and venue bookings to a minimum.
¦ The secretariat has established a timeline for members to raise technical questions and to ensure minutes are published on the web within three weeks after the meeting.
Meeting discussion
The Commissioner commented that he is keen to progress governance processes associated with NTLG sub-committees and is interested in seeking members input regarding any issues that should be brought to the NTLG's attention.
Cheryl-Lea Field undertook a recent assignment for seven weeks with the Philippines Bureau of Internal Revenue and was invited to provide a summary of her experiences. Cheryl-Lea commented that the Philippines did not have some of the basic frameworks that exist in Australia and administer their tax system in very different ways. Registration within the tax system is a major challenge for them. A report was provided on the conclusion of the assignment which included short, medium and long term goals. Another Tax Office staff member is there for a further six weeks, focussing on debt collection issues. Cheryl-Lea commented that this assignment was a very rewarding experience and was very appreciative of the experience provided by the Tax Office. She encouraged NTLG members to participate in these ventures if opportunities arose as she believed that she was able to add value and share her knowledge and experience with others. Australia has a lot to offer in the region.
Cheryl-Lea, who is also the Superannuation Centre of Expertise Manager, then moved to cover the sub-committee governance report.
An updated report covering the sub-committee's resolved issues was provided at the meeting. More detailed information regarding the issues and their resolution is available in the NTLG Superannuation Sub Committee meeting minutes which are available on the website.
An overview of the sub-committee operation was provided. The sub-committee provided input to the framework for simpler super.
The sub-committee had its most recent meeting on 4 September 2007. Cheryl-Lea mentioned that the sub-committee uses a template to identify issues that are important to industry. The process of calling for items and providing opinions as an aid to meeting conversations ahead of time is well received by members. A better level of involvement, maturity and level of interest and a commitment to address the issues has resulted. It is intended to place the template on the website to make it more accessible and encourage early identification of issues.
The secretariat is willing to accept issue nominations outside of the meeting process and conduct out of session consultation where required. There is a close partnership between the centre of expertise and the business line which assists with the resolution of issues. The chair is keen to make the process as dynamic as possible while maintaining the sub-committee framework.
The 'top ten' issues to be addressed have been identified and a plan to progress the issues has been developed for the next six months. Discussion papers and out of session discussions will be used to progress issues.
NTLG members were provided with advance information of the first draft SMSFD 2007/D1 Draft Self Managed Superannuation Funds Determination and SMSFR 2007/D1 Draft Self Managed Superannuation Funds Ruling that were released publicly on 5 September 2007 for comment by 5 October 2007 and 19 October 2007 respectively. Both publications represent the Commissioner's preliminary view of the application of the legislative provisions of the Superannuation Industry (Supervision) Act 1993 (SIS 1993) or regulations prior to public feedback and consultation. These products, whether draft or final are not legally binding on the Commissioner. If taxpayers act in accordance with the final version of the ruling or determination, it would be a relevant factor in their favour should the Commissioner exercise any discretion in respect of a breach of that law.
Additional similar products are included on the Public Ruling program .
Members were advised that a priority technical issue (PTI) regarding the segregated assets issue and a ruling was envisaged. Five ATO Interpretive Decisions (ATO IDs) listed below, have been published and are available on the website.
The Commissioner commented that it was good to see the process working well and invited members and their associations to provide feedback at the earliest convenience in respect of the draft rulings and determinations. This will facilitate the availability of better products to assist practitioners and taxpayers.
Finance and Investment Sub-committee update
Acting Second Commissioner Kevin Fitzpatrick provided an update on the Finance and Investment Sub-committee which provided the governance report at the June meeting. A workshop was held on 28 August 2007, at which NTLG members Frank Drenth and Ali Noroozi were present.
A range of issues were covered at the workshop, and key priorities were discussed. Further discussion is to occur over the next few months in respect of the Debt Equity (974-80) discussion paper. Consideration of law changes has been referred to Treasury. The Finance and Investment Sub-committee will consider how to take this issue forward at its next meeting in November. The frequency of meetings was also discussed and it was thought that more regular meetings may assist the focus on issues. The sub-committee will retain its current arrangement of meeting twice yearly. The Commissioner suggested that the NTLG may like to maintain an interest in the issue due to its significance and requested that it be included on the agenda for the next NTLG meeting.
The announced, but yet to be enacted, 2004 Forex measures were discussed, with the sub-committee expressing concern to Treasury over the delay. Associated issues were discussed and Treasury was asked to note the support from the NTLG for this issue to progress.
Issues associated with the McNeil case were also considered. The sub-committee questioned the scope of the announcement and the NTLG requested clarification of the scope via Treasury. The Commissioner commented that this would assist the proposed TIES process.
It was thought that the most appropriate approach was for the sub-committee to deal with the detail and for the NTLG to consider the broader issues and the more strategic implications. Discussion at the NTLG will assist with the emphasis and priorities for recommendations for the law setting program.
Overall, the finance and investment meeting day was considered to be very useful and productive, and the presence of the Treasury representative was beneficial.
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Action item: |
NTLG0709/03
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Action item: |
NTLG0709/04
¦ the announced, but yet to be enacted, Forex measures, and ¦ clarify the scope of the announcement relating to the McNeil case.
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Post meeting update
Additional Superannuation products that are included on the Public Ruling program are:
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ID No 1981 |
SMSFR: treatment of contributions to a self-managed superannuation fund under section 66 of the Superannuation Industry (Supervision) Act 1993 (SIS Act 1993). |
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ID No 1982 |
SMSFR: giving financial assistance using the resources of a self managed superannuation fund to a member or relative of a member that is prohibited for the purposes of paragraph 65(1)(b) of the SIS Act 1993. |
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ID No 2225 |
SMSFR: business real property in relation to self managed superannuation funds. |
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ID No 2226 |
SMSFD: when is a dividend or trust distribution 'received' before the end of 30 June 2009 for the purposes of paragraph 71D(d) of the SIS Act 1993? |
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ID No 2310 |
SMSFD: does subregulation 13.22D(3) of the Superannuation Industry (Supervision) Regulations 1994 (SISR) result in regulations 13.22B and 13.22C ceasing to apply to any other assets of the superannuation fund which are interests in companies or unit trusts other than the one to which the subregulation 13.22D(1) event happened? |
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ID No 2429 |
SMSFD: valuation of units in a unit trust related to a self managed superannuation fund. |
Finalised ATO Interpretive Decisions
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ATOID 2007/131 Excess Non-Concessional Contributions Tax: roll over of an employer eligible termination payment between 10 May 2006 and 30 June 2007. |
Finalised
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ATOID 2007/144 Deductibility of superannuation contributions made for directors of a passive investment company. |
Finalised
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ATOID 2007/145 Deductibility of superannuation contributions made for directors of a corporate trustee. |
Finalised
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ATOID 2007/147 Deduction limit for employer superannuation contributions under sub-section 82AAC(2) of the ITAA 1936 - associates for part of the year of income. |
Finalised
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ATOID 2007/163 Transitional termination payments. |
Finalised
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Issues considered by the Superannuation Technical Sub-committee between October 2005 and June 2007 which have been resolved. More detailed information is available in the meeting minutes ( October 2005 - December 2006 ) published on the website.
The major outstanding active issue concerns the calculation of a superannuation fund's exempt pension income following the death of pensioner. This issue will require consideration of the meaning of the expression current pension liability and whether the exemptions extends to income of a fund used to pay a lump sum to a person (such as a dependant of deceased pensioner) after the death of the pensioner. The issue originally raised in relation to an ATO ID that explained the operation of provisions of the ITAA 1936 remains relevant for the simpler super provisions of the Income Tax Assessment Act 1997 (ITAA 1997).
1.11 Organisation for Economic Cooperation and Development work with intermediaries
An update on the progress of the Organisation for Economic Cooperation and Development (OECD) project on tax intermediaries will be provided at the meeting. The Tax Office is one of a number of tax jurisdictions reviewing the approach of worldwide tax administrations with the aim of setting 'level playing field' standards across all tax authorities. It is envisaged that this will result in an overall reduction in compliance costs.
Feedback from members is welcomed.
Process
Assistant Commissioner Bruce Thompson was unable to attend the meeting to provide an update.
The presentation was to cover the following.
¦ The origin of the intermediaries project.
¦ An outline of the study team and consultation.
¦ Two key areas have been identified for consideration, and working papers are available on the OECD website:
¦ Working Paper 5 - Risk Management , and
¦ Working Paper 6 - The Enhanced Relationship .
¦ The process from here.
¦ Feedback closes on working papers.
¦ Papers distributed to OECD Commissioners.
¦ OECD Commissioners meet to consider the papers.
Meeting discussion
Second Commissioner Jennie Granger spoke to this agenda item in Bruce Thompson's absence.
OECD member countries have been asked to provide feedback on the two working papers referred to in the agenda response, and members were invited to provide feedback. Second Commissioner Jennie Granger invited NTLG members to provide feedback on the papers as soon as possible.
The Commissioner and Second Commissioner Jennie Granger will be attending an OECD meeting in January 2008 and are keen to see the work with intermediaries progress further.
It was agreed to defer this agenda item to the NTLG meeting of 28 November 2007 due to Assistant Commissioner Bruce Thompson's absence.
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Action item: |
NTLG0709/05
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1.12 General Anti-Avoidance Rules Panel update
This is a standing agenda item and is included in the agenda twice yearly, at the March and September NTLG meetings. This report covers the period 1 January 2007 to 30 June 2007.
Issues log item NTLG0609/10 refers.
Response
The membership of the General Anti-Avoidance Rules Panel (GAAR Panel) at 30 June 2007 was:
¦ Peter Walmsley (chair)
¦ Debbie Hastings
¦ Andrew England
¦ Stephanie Martin
¦ Ray Conwell (external member)
¦ Tony Pane (external member), and
¦ David Williams (external member).
The panel met six times during the period January to June 2007 considering a total of nine issues, one of which was considered twice during the relevant period.
Three of the meetings (February, March and May) were two day meetings; the remainder were one day meetings.
During the relevant period, Debbie Hastings commenced to be an internal member of the GAAR Panel.
In accordance with the processes set out in PS LA 2005/24 Application of General Anti-Avoidance Rules taxpayers attended panel meetings and gave presentations to the panel on five occasions. In all instances the taxpayers concerned chose to be represented by solicitors; in two instances the taxpayer concerned also chose to be represented by counsel. On one occasion an invitation extended to a taxpayer to attend a panel meeting was declined.
Examples of the types of arrangements considered by the panel during the relevant period included:
¦ arrangements involving disposal of film copyright
¦ property arrangements involving the use of the GST group and margin scheme provisions
¦ arrangements involving offshore financial investments by corporates
¦ arrangements involving joint venture structures
¦ arrangements involving the offshore transfer of assets
¦ lease and leasebacks
¦ split loans.
Of the matters considered by the panel, one involved consideration of the possible application of Division 165 of the A New Tax System (Goods and Services Tax) Act 1999. Another involved a public ruling issue.
The nature of the advice given by the panel on the matters considered by it during the relevant period varied.
In two of the matters considered, the panel advised that the relevant GAAR would find application. In one matter the panel advised the Commissioner had a reasonable basis for applying the relevant GAAR however the taxpayer's case was arguable. In a further matter the panel advised that while the Commissioner had arguments available under the relevant GAAR, the arguments, on balance, were comparatively weak having regard, among other matters, to certain evidentiary difficulties presented by the case and that the more prudent course of action would be not to pursue such arguments.
Of the remaining four audit matters:
¦ in the first matter the panel gave preliminary guidance that on the information thus far available, the arrangement exhibits features suggestive that the relevant GAAR might find application
¦ in the second matter the panel suggested that while the Commissioner has a strong basis for pursuing arguments under the relevant GAAR in the alternative, gaps existed in the Tax Office's understanding of the relevant factual matrix that the team should seek to address to the extent possible
¦ in the third matter, the panel recommended that team consider alternative counterfactuals and the evidence be reconsidered in a tax benefit context, and
¦ the panel is yet to formulate its advice as regards the final matter.
Meeting discussion
Acting Second Commissioner Kevin Fitzpatrick led the discussion on this agenda item.
It was confirmed that all issues are considered by Senior Tax Counsel before they are considered by the GAAR panel.
This report follows the same format as the previous report provided at the March 2007 NTLG meeting.
Members accepted the report provided.
1.13 Non-forestry managed investment schemes
An update on this topic is provided for information. Updates were provided at the previous NTLG meetings of 20 March 2007 and 28 June 2007.
NTLG issues log number NTLG0503/4 refers.
Response
Draft ruling
The Public Rulings Panel discussed the twelve submissions received under the consultative process for draft Taxation Ruling TR 2007/D2 at its meeting on 29 June 2007. We expect the final version of the ruling to be issued by early October 2007, if not sooner.
Test case
Since the last update to the NTLG, we have continued our discussions with the Non-Forestry Managed Investment Schemes (MIS) industry to assist in expediting a case to test in the courts. While timing is in the hands of industry and there have been some delays in the process so far, we still remain confident that it should be possible to obtain a decision on such a test case before 30 June 2008.
The Tax Office has recently received and reviewed some draft documentation relating to a request for a private binding ruling for participation in a registered agribusiness MIS in the 2008-2009 year. We are confident at this stage, based on that documentation, that the structural issue at the heart of our reconsidered view (as expressed in the draft public ruling) of the income tax treatment of investor contributions to agribusiness MIS will be tested. However, we note that there are fact-specific secondary features in the documentation that may have implications for the types of arrangements which would be covered by a court decision.
If the decision in the test case is unfavourable to our reconsidered view, it is possible that fact-specific aspects may have implications for the types of arrangements for which we will provide product rulings for agribusiness MIS arrangements in the future. This will be more likely where the arrangement that is tested varies in material respects from arrangements currently offered in the MIS market.
We have now reached the point where further discussion of the details of the test case and related issues may be constrained by the secrecy provisions in the tax law. We have therefore requested that the industry body representing the largest non-forestry agribusiness MIS managers consider making further details available to the public to assist in communications with the wider industry. We will, however, continue to communicate with the wider industry about the details that we are able to discuss.
Date of effect
Following industry consultation, the Commissioner announced on 27 March 2007 that the reconsidered income tax view will apply to arrangements entered into from 1 July 2008 (or the date of an earlier test case decision favourable to the Tax Office reconsidered view).
Product ruling issues
We have undertaken not to withdraw 2007-2008 Product Rulings solely on the basis of a test case decision favourable to the Commissioner should such a decision be handed down prior to 30 June 2008. We have also undertaken to process 2007-2008 Product Ruling applications before the likely date of such a decision on the test case where applications are lodged in accordance with a set lodgment program.
These undertakings have been given to provide greater certainty to industry on the practical operation of the transitional arrangements and to address industry concerns that might have impacted upon their early involvement in the test case process.
Meeting discussion
Members accepted the response provided and there was no discussion of this item.
1.14 Change program update
An update on this topic is provided for information. The previous update was provided at the NTLG meeting of 20 March 2007.
Response
The Tax Office implementation of release 3.1 is still scheduled to roll out by 7 January 2008. However, due to the extensive testing of the changes, a range of alternative dates has been proposed as a contingency plan should the release need to be delayed.
A range of alternative timings have been raised with key stakeholder forums such as the ATO Tax Practitioner Forms (ATPF), Lodgment Working Party and the Change Program Advisory Group and feedback sought in relation to the potential implications for each option.
These factors will be considered at the next Change Program Steering Committee meeting on 20 September 2007, and should there be a need to communicate about any variation to the current plan, that will be done as soon as possible following any decision.
Meeting discussion
The Commissioner advised that the Tax Office is currently working towards the anticipated date of 7 January 2008 for the implementation of release 3.1 of the change program. Release 3.1 covers aspects of the income tax system. No major obstacles are envisaged at this stage but we have not concluded the testing phase. Delays in testing may require a short deferral of the roll-out of release 3.1 to ensure that we minimise the inconvenience of any hiccups for taxpayers and their agents.
A meeting is scheduled for 20 September 2007 to review the implementation plan and further information will be available following this meeting.
Post meeting update
A letter was forwarded to NTLG members via email on 1 October 2007 advising the deployment of release 3.1 has been deferred from January 2008 to March 2008. Change program release 3.1 scheduled for March 2008 information relating to the deferral is available on the website.
1.15 Matters referred to sub-committees, National Tax Liaison Group work program and management of issues
16.1 Report on action items arising from 28 June 2007 National Tax Liaison Group meeting
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Action item |
NTLG0706/01
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Response: |
A formal response was forwarded to members on 3 August 2007 to finalise the action item. |
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Status: |
For consideration at the September 2007 meeting as completed. |
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Action item: |
NTLG0706/02
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Response: |
The Treasury/Tax Office protocol is currently being reviewed and will be published on the Treasury website once that review is completed. Members will be advised. |
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Status: |
Ongoing |
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Action item: |
NTLG0706/03
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Response: |
This paper is expected to issue to members in early September 2007. |
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Status: |
Ongoing |
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Action item: |
NTLG0706/04
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Response: |
The comments received by the secretariat following the meeting have been forwarded to Treasury for consideration. |
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Status: |
Ongoing |
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Action item: |
NTLG0706/05
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Response: |
The Tax Office is considering the possible issue of a public ruling associated with the Indofood case. Members were asked to advise of the importance and priority of this issue.
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Status: |
Ongoing |
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Action item: |
NTLG0706/06
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Response: |
Additional information has been received by the secretariat and forwarded for consideration. |
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Status: |
Ongoing |
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Action item: |
NTLG0706/07
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Response: |
Further discussion is to occur in respect of this issue. |
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Status: |
Ongoing |
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Action item: |
NTLG0706/08
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Response: |
This issue is included in the Tax Laws Amendment Bill No 4 which is currently before parliament. |
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Status: |
Ongoing |
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Action item: |
NTLG0706/09
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Response: |
A discussion day to progress the Finance and Investment Sub-committee issues was held on Tuesday 28 August 2007. Items discussed included an agreed order of the priority issues and the way forward. A summary of the discussion day meeting will be provided in the September 2007 minutes. |
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Status: |
For consideration at the September 2007 meeting as completed. |
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Action item: |
NTLG0706/10
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Response: |
This issue was considered at the 28 August 2007meeting. It was resolved that meetings continue bi-annually with recognition of the need to meet more frequently as determined, or organise working groups as required, for example, when TOFA 3.4 is released. A summary of the discussion day meeting will be provided in the September 2007 minutes. |
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Status: |
For consideration at the September 2007 meeting as completed. |
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Action item: |
NTLG0706/11
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Response: |
This report is to be included in NTLG agendas at the June and December meetings. |
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Status: |
Ongoing |
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Action item: |
NTLG0706/12
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Response: |
Additional issues were received by the secretariat following the meeting. All known outstanding issues have been forwarded to the relevant area for consideration and an update on progress (as well as scheduled dates for resolution) will be included as part of the action items. |
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Status: |
Ongoing |
Meeting discussion
Members reviewed the action items from the June meeting and agreed that action items proposed for completion at this meeting could be considered as completed.
Further responses were expected shortly on action items NTLG 0706/02, NTLG 0706/03, NTLG 0706/06 and NTLG 0706/12.
Post meeting update
Responses have been forwarded to members in respect of action items NTLG 0706/03 on 14 September 2007 and NTLG 0706/12 on 6 September 2007.
16.2. National Tax Liaison Group issues log (ongoing action items)
A copy of the NTLG issues log, updated as at 31 August 2007 will be forwarded to members prior to the 5 September 2007 meeting.
The issues log has been structured into three parts:
|
Part A |
Contains responses to action items for consideration for finalisation at the 5 September 2007 meeting. There are 13 items put forward for consideration as completed at this meeting. |
|
Part B |
Contains the ongoing action items. |
|
Part C |
Contains the standing agenda items. |
16.3 National Tax Liaison Group Sub-committee and panel reports - ATO Tax Practitioner Forum
Next meeting
The next meeting is scheduled for 9 November 2007.
Minutes
The draft minutes of the ATPF meeting held on 10 August 2007 are being prepared and will be published to the web once they have been sent to the members for comment.
The draft minutes of the ATPF meeting held on 18 May 2007 will be published shortly.
Significant or 'hot' topics
|
Agenda |
Issue/application |
Status |
|
5 |
Tax Office administration of PAYG A detailed response was provided to questions regarding confusion over the lodgment and payment associated with PAYG and PAYG variation forms. An issue discussed at the meeting related to the late lodgment of PAYG variation forms to vary PAYG to nil, by clients who may not understand the implications of not lodging a timely variation form, despite tax agent insistence. There may be no PAYG after the variation is made but the GIC accrued on the instalment is still left on the account and members felt this should be remitted in full. |
Members to provide examples where a late PAYG variation form has been lodged to vary PAYG to nil and GIC has not been remitted. The Tax Office to review the GIC remission decisions made.
|
|
6 |
Tax agents being used as debt collectors A comprehensive response was provided in the agenda papers to comments from tax agents that they were being used to collect tax debts. There was discussion on the prescribed practices that tax officers are required to adhere to when collecting tax debt. The Tax Office noted that where the taxpayer and/or their agent are genuinely making an effort to repay the client's tax debt, the Tax Office will extend a suitably sufficient amount of time to enable a solution to be developed. If the tax agent doesn't want to be contacted about debt matters for their clients they should tell the tax officer. |
The Tax Office agreed to review the current scripting which specifies negotiation with the tax agent of 48 hours to contact their client about payment arrangements.
|
|
7 |
Outsourcing of tax work Members requested some clarification on the Tax Office's position in relation to outsourcing of accounting work overseas. A response was provided in the agenda papers as a lead into further discussion.
|
The Tax Office will commence an examination in relation to the nature of work outsourced overseas and the Tax Office's position in relation to these outsourcing arrangements. The Tax Office will provide an update at the next ATPF and then for reference to the next chief executive officer meeting. |
|
8 |
Change program release 3.1 In-confidence discussion covered some possible contingency plans under consideration in the event release 3.1 of the change program may be delayed past 7 January 2008.
|
Members saw no significant problems with the proposed possible contingency dates provided the final decision was communicated well in advance.
|
|
9 |
Proof of identity procedures Responses were provided in the agenda papers to two of the three identified issues relating to proof of identify (POI) for inbound and outbound calls and the recording of Tax Office calls. Discussion focussed on how the Tax Office had addressed some specific concerns experienced by tax practitioners and to identify if there are other concerns in relation to proof of identity issues for inbound or outbound calls. |
A further specific POI issue raised at the meeting will be investigated.
|
|
10 |
ATPF regional forums An update was provided on the inaugural meetings of the Melbourne, North Queensland and Tasmanian regional forums and the role of the senior representatives. |
Tax Office to provide confirmation of the role of the senior representatives, and if the concept will be expanded to include other regions, at the next ATPF meeting in November 2007. |
|
11 |
Tax agent integrity line Members were provided with a written report on the operation of the tax agent integrity line service. In regard to additional information required for future reports, members asked for: ¦ an evaluation of how effective the line had been, and ¦ details of how many anonymous calls were not pursued by the Tax Office.
|
This will be a standing item for the November 2007 ATPF meeting so an update will be provided at that time.
|
|
12 |
Small Business Assistance Program The Tax Office provided a presentation on the Small Business Assistance Program. Members thought the prepayment option was a good idea. Members noted that people new to business don't understand the difference between Australian business number (ABN) and registering for goods and services tax (GST) and it would be useful if more education material could be developed. |
The Tax Office welcomed member consultation on educational products as they are developed. |
|
13 |
Offshore Voluntary Disclosure Initiative The Tax Office provided an update on the Offshore Voluntary Disclosure Initiative. |
No action items arose. |
|
14 |
Superannuation issues |
|
|
14.1 |
An issue raised by members concerned an error in a mail out sent to tax agents acting as administrators of self managed superannuation funds (SMSF), advising them of the tax file numbers of the fund members. The Tax Office explained that the error was identified and resolved quickly and only involved a small number of administrators. |
Members were comfortable with the action taken to address the error. |
|
14.2 |
In relation to the superannuation seminars the Tax Office is preparing a DVD containing the presentations for the three target audiences which may be available by late September 2007. |
Members agreed that it would very useful to distribute this DVD and would be a good idea for the future. |
|
14.3 |
Feedback was provided by a member on a recent section 131A referral. Overall, it was a positive experience. The member noted the report was very large and it would be useful for the professional association to be contacted prior to sending it out to make sure it went to the right person in the association. |
The Tax Office stated we would work with the associations to work out the best process. |
|
15 |
Division 7A An update on Division 7A and the recent release of the law administration practice statement PS LA 2007/20 was provided to the meeting.
|
The Tax Office will keep the professional associations updated on when the letters are expected to issue.
|
|
16 |
Tax agent registration The Tax Office had discussed with the chairs of the Tax Agents' Boards the possibility of organising a meeting between the chairs, tax practitioners and association representatives to discuss some tax agent registration and section 251N Income Tax Assessment Act 1936 issues. The chairs of the Tax Agents' Boards were willing to meet with the professional associations on a state by state basis. |
The Tax Office will follow up an issue raised by one of the professional associations in regard to arranging a proposed meeting with one of the state Tax Agents' Boards. |
16.4 Consolidation Sub-committee
The new chairperson is John Evans.
The last meeting was held on 28 June 2007
Next meeting
The next meeting is scheduled for 21 November 2007.
Minutes
The NTLG Consolidation Sub-committee: 23 November 2006 meeting minutes were approved at the meeting held on 28 June 2007 and have been published at ato.gov.au
Draft minutes of the 28 June 2007 meeting have been distributed to members for comment, and will be published to the web in due course.
Significant or 'hot' topics
|
Issue number/application |
Status |
Outcome |
|
|
1. |
Tax Sharing agreements (TSA) and the clear exit provisions |
Discussion paper issued to members on 5 April 2007 and associated issues were discussed at the meeting held on 28 June 2007. The ICAA and TIA provided a feedback document in respect of the discussion paper and it was agreed the Tax Office would provide a written response to the ICAA and TIA. Treasury is aware of the issues raised by the Tax Office and ICAA/TIA. |
Response in progress. |
|
2. |
When is a head company taken to 'hold' and 'use' a depreciating asset brought into the consolidated group by a member
|
A discussion paper was provided for the 28 June 2007 sub-committee. The outcome is that, if the joining time of the member was after 9 May 2006, the 200% diminishing value rate could apply to the depreciating asset. |
The issue is finalised. |
|
3. |
Division 705-C for non-consolidated groups
|
The issue was discussed at the 28 June 2007 sub-committee meeting. The view under consideration by the Tax Office is that subdivision 705-C may apply to a single entity purchasing a consolidated group and immediately forming a consolidated group. |
This issue is on the public rulings program with a draft Taxation Determination being anticipated for release in September 2007. |
|
4. |
Whether step 3A applies to a former member of a consolidated group
|
A discussion paper was provided for the 28 June 2007 sub-committee meeting, and addressed at the meeting. While there are some situations in which it is arguable that step 3A should not be reapplied, the paper illustrated a number of situations in which it was consistent with the policy of the provisions that step 3A should continue to apply. |
This issue has been raised with Treasury by external members. |
|
5. |
Intra-group assets and the exit history rule
|
A paper was provided and discussed at the 28 June 2007 sub-committee meeting. |
Further work will be undertaken in relation to the issues addressed in the paper. Members were invited to make further submissions, both in relation to the identification of additional issues and any interpretative issues. |
|
6. |
Debt forgiveness and commonly owned groups
|
A paper was provided for the 28 June 2007 sub-committee meeting canvassing that subdivision 245-G may apply to a third party related company on the forgiveness of an intra-group debt. |
Members raised a number of issues. The Tax Office noted that the issue was part of the broader issue of 3rd party interactions with consolidated groups. The issues raised in the paper and discussion are to be considered further, with members invited to provide input. |
|
7. |
Same Business Test and consolidated groups
|
Taxation Ruling Income Tax: application of the same business test to consolidated and MEC groups - principally, the interaction between section 165-210 and section 701-1 of the Income Tax Assessment Act 1997 TR 2007/2 was released on 20 June 2007. |
Members were generally supportive of the Tax Office response to submissions on the draft tax ruling. The issue is finalised. |
|
8. |
Trusts joining and leaving a consolidated group during an income year |
A discussion paper was provided for the 28 June 2007 sub-committee meeting. Members were invited to nominate for a workshop to further canvass the issues. |
Nominations were received and the first workshop held (24 July 2007). A further workshop will be scheduled. |
|
9. |
Straddle contracts
|
The issue was addressed at the 28 June 2007 meeting. |
Draft Taxation Determination TD 2005/D27 will be re-released as a draft for comment along with other draft Taxation Determinations which will address associated issues such as the relevant asset. |
A summary of work program undertaken since last National Tax Liaison Group
1. On 1 August 2007 the Tax Office released Taxation Ruling TR 2007/7 Income tax: consolidation: errors in tax cost setting amounts of reset cost base assets .
Following the release of TR 2007/7 , the head company of a consolidated group is required to notify the Tax Office of errors discovered in the calculation of the tax cost setting amounts (TCSAs) by completing and lodging a notification form as soon as practicable after becoming aware of the error(s). A notification form and instructions dealing with errors in the calculation of any TCSAs is available at Notification of error(s) in the calculation of tax cost setting amounts for consolidated groups . These changes apply prospectively from 1 August 2007.
The release of the ruling and the change to administrative arrangements for notifications of errors in TCSAs was raised with members at the NTLG Consolidation Sub-committee meeting of 23 November 2006.
2. Action item: 3/28JUN07
At the June 2007 meeting of the NTLG Consolidation Sub-committee, members asked about the scope and details of recent compliance activity relating to consolidation.
An update of the Tax Office's compliance activities in respect of consolidated groups was sent to members with the draft sub-committee minutes.
3. Action item: 5/28JUN07
At the June 2007 meeting of the NTLG Consolidation sub-committee, members questioned how many trusts had joined and left consolidated groups.
A summary of the relevant statistics was sent to members with the draft sub-committee minutes.
16.5 Division 7A Working Group
The new chairperson is Tom Rengers.
Meetings held since the last NTLG meeting
The last meeting was held on 12 June 2007.
Next meeting
The next meeting will be held in late 2007.
Minutes
The minutes of the Division 7A Working Party meeting held on 12 June 2007 have been circulated to members in draft for comment and are now awaiting publishing to the web.
A summary of work program undertaken since last NTLG
The Division 7A Working Party discussed and provided feedback on a draft practice statement which has now been issued as PS LA 2007/20. It was agreed that the working party would meet again late in the year when a discussion around issues arising from the recent amendments can be based on actual experiences of all parties.
16.6 Finance and Investment Sub-committee
The new chairperson is John Smith.
Meeting held since the last NTLG meeting
21 March 2007
Next meeting
The next meeting is scheduled to be held on 28 August 2007.
Minutes
The minutes of the NTLG Finance and Investment Sub-committee meeting held on 21 March 2007 have been finalised and were distributed to members on 26 April 2007. The Finance and Investment Sub-committee minutes - 21 March 2007 have been published on the website.
Significant topics
|
Issue number application |
Status |
Outcome |
|
Special meeting of the Finance and Investment Sub-committee |
A governance report on the operation of the Finance and Investment Sub-committee was presented at the last NTLG meeting on 28 June. The National NTLG committee noted that this report generated a lot of discussion about finance issues such as foreign exchange and debt/equity. The discussion also extended to whether the right issues were getting the right level of priority. Given this conversation and the desire of the Chief Tax Counsel to ensure that the Tax Office is focused on those issues considered to be of the highest priority the chair and the Chief Tax Counsel decided to hold a special one day workshop of the Finance and Investment Sub-committee. The workshop will involve a discussion and prioritisation of key finance issues, whether they are foreign exchange, debt/equity or some other topic. The Chief Tax Counsel will be attending the discussion. The workshop won't be looking to finalise a position on any particular finance issue, but will be restricted to identifying, discussing and prioritising issues raised by sub-committee members. Also discussed at the National NTLG meeting of 28 June was the frequency of Finance and Investment NTLG Sub-committee meetings. In particular, discussions were held as to whether it was necessary to run quarterly meetings rather than bi-annual meetings. |
Arrangements have been made to run the workshop on Tuesday 28 August. An invitation has been sent to all members of the sub-committee. The secretariat has asked all members to nominate any specific finance issues that are causing particular difficulty and which require mention at the workshop. Details of these issues have been requested by close of business Thursday 9 August 2007. Members will be invited to comment on the need for more frequent Finance and Investment Sub-committee meetings at the workshop arranged for Tuesday 28 August. |
A summary of work program undertaken since last National Tax Liaison Group
Action item 1
Follow up on progress of agenda item 3 of 8 August 2006 sub-committee meeting. This item concerned the calculation of delta and derivatives embedded in shares. The item in question is now a priority technical issue. An update was sent to members on 8 May 2007. Since that update was sent to members a Taxation Determination (TD) on the topic has been drafted and approved for issue. The draft is scheduled to issue for comments on 29 August 2007.
Action item 2
Arrange for invitations to be sent to members to nominate for membership of the TOFA working group. This working group has been deferred at the request of Treasury. Advice was sent to members on 23 May 2007.
Action item 3
This item involved the circulation of a suggested debt/equity issue to members to determine if this issue should be considered in preference to any of those issues already being undertaken as a result of the debt/equity discussion day. The chair has decided to defer actioning this item given the special meeting being scheduled in August which will discuss and prioritise key finance issues.
Work has continued on key debt/equity issues since the March meeting of the sub-committee. Externals were invited to respond to the Tax Office's discussion paper on the application of section 974-80 of the ITAA 1997. That response was received on 9 May 2007. A meeting was conducted with external bodies on 29 May 2007 and a process for resolving the issues was determined. The internal consideration of two other priority issues ('related schemes' and the meaning of 'effectively non-contingent obligation') has progressed.
16.7 Foreign Source Income Sub-committee
The new Secretariat is Geoff Tarran.
The last meeting was held on 07 August 2007.
Next meeting
The next meeting is scheduled for 4 December 2007.
Minutes
The draft minutes of the April 2007 NTLG FSI Sub-committee meeting issued to committee members in June 2007. Changes were noted at the August 2007 meeting and these will be incorporated and sent for publishing on the internet.
The draft minutes of the Foreign Source Income Sub-committee meeting held on 7 August 2007 are currently under preparation and are expected to be sent to members soon.
Significant topics
|
Issue number |
Issue/application |
Status |
Outcome |
|
FSISC 0905/7.7 |
Foreign hybrids- guidance on various issues concerning interpretational and operational aspects of the foreign hybrids regime. Division 830 ITAA 1997. |
In progress |
The presentation and discussion of a scoping paper developed by the Tax Office at the last meeting has resulted in members agreeing to the Tax Office initiating the drafting of a number of Tax Office advice products. |
|
FSISC 0906/04 |
Section 768G ITAA 1997 regarding interposed partnerships and the participation exemption. |
In progress |
The final version of the TD has been referred to the Rulings Panel for consideration before publishing. Expected publication date is 16 October. |
|
FSISC 0906/11.1 |
The operation of ATO ID 2003/246, post the introduction of the foreign hybrids regime concerning the availability of foreign tax credits.
|
In progress |
Decision in ATO ID 2003/246 does not consider Division 830 (ITAA 1997), post the introduction of the foreign hybrids regime. The ATO ID will be annotated to reflect this.
|
|
FSISC 1104/08 |
Availability of section 23AJ (ITAA 1936) exemption through a chain of foreign entities were one of those entities is a foreign partnership or trust. |
In progress |
The draft versions of the two section 23AJ TDs are currently being finalised. Due to be published as draft TDs by October at the latest. |
A summary of work program undertaken since last National Tax Liaison Group
Guidance on foreign hybrids
At the last meeting the Tax Office presented to members a scoping paper prepared on Foreign Hybrids. The paper set out and expanded upon issues identified at earlier meetings, and put forward proposals on particular issues that we are considering issuing a Tax Office view on. The paper also discussed strategies to deal with non-technical and non-precedential issues, such as amending website information or tapping into existing administrative processes.
At the meeting members discussed at length the technical elements of the focus areas, addressing the main concerns put forward by industry, such as the availability of foreign tax credits, claiming exemptions, and the effect of 'deeming' a Foreign Hybrid interest as a partnership interest. The members reviewed each of the topic areas and in the process, identified some related issues and agreed on the priority of each. The members were satisfied that identified issues had been covered and agreed with the papers proposal to resolve these issues. These included developing four taxation rulings and two taxation determinations, subject to the Tax Office approval process for registering issues on the register of priority technical issues and the public rulings program. The discussion concluded with the Tax Office agreeing to commence work on the various advice products, using the priorities set by members as a framework to plan for appropriate resources to be allocated to the issues.
Other topics
Further consultation has taken place on how the CGT participation exemption measures (Subdivision 768-G ITAA 1997), apply where a partnership is interposed between the foreign company and the active business assets. Additional comments were supplied by members.
At the August meeting a Treasury representative provided a general update to members on the progress of certain international tax measures and issues.
A representative from the International New Measures team gave a brief overview what has been happening on the progress of International New measures including an update on the Board of Taxation review of the anti-tax deferral regimes.
Members are updated at each meeting on the progress of draft public rulings, tax determination, practice statements and ATO IDs dealing with international matters and of finalised Tax Office advice products.
Consultation with external members has ensued between meetings through the provision of updates on some matters and requests made to members for further information and views to assist the Tax Office's approach.
Potential ruling topics identified by National Tax Liaison Group Foreign Source Income Sub-committee - advice products likely to require a priority technical issue
|
Potential topic |
Sub-committee priority high/medium/
|
Action taken or proposed to be taken that is, does a risk assessment of the issue suggest a ruling may be appropriate |
|
Ruling
|
High |
As part of a scoping report on issues raised by externals concerning foreign hybrids, it was agreed at the last subcommittee meeting that the Tax Office would endeavour to produce a ruling to provide guidance on this topic.
|
|
Ruling
|
High |
As above.
|
|
Ruling
|
High |
As above
|
|
Ruling
|
High |
As above.
|
|
Taxation Determination
|
High |
As part of a scoping report on issues raised by externals concerning foreign hybrids, it was agreed at the last sub-committee meeting that the Tax Office would endeavour to produce a Taxation Determination to provide guidance on this topic.
|
|
Taxation Determination
|
High |
As above.
|
|
Practice Statement
|
High |
As part of a scoping report on issues raised by externals concerning foreign hybrids, it was agreed at the last sub-committee meeting that the Tax Office would endeavour to produce a Practice Statement Law Administration to provide guidance on this topic.
|
16.8 Fringe Benefits Tax Sub-committee
No meetings have been held since the last NTLG meeting.
Next meeting
The next meeting is scheduled for 15 November 2007.
Minutes
The NTLG FBT Sub-committee minutes - 10 May 2007 have been published on ato.gov.au .
Significant or 'hot' topics
|
Agenda |
Issue/application |
Status |
Outcome |
|
3.1 |
Government's final response to the Regulation Taskforce recommendations update. |
|
|
|
3.1.1 |
Recommendation 5.35 - group reporting for fringe benefits tax (FBT) purposes - in April the taskforce on reducing the fegulatory burdens on business recommended that amongst other issues corporate groups should be provided with the option of lodging one group FBT return for the group entity.
|
Ongoing agenda item. |
Tax Office will keep members informed of the progress of this initiative. |
|
3.1.2 |
Recommendation 5.31: increase the FBT minor benefit threshold - general discussion as to whether the draft taxation ruling will address the grey areas of the law. The draft ruling was developed partly in response to the taskforce recommendation as well as explaining the threshold test increase from 'less than $100' to 'less than $300' which has effect from 1 April 2007. The draft ruling was considered by the public rulings panel on 30 March 2007 and the panel agreed to methodologies adopted in the draft ruling. The due date for release of the draft ruling remains 27 June 2007. |
Draft Taxation Ruling TD 2007/D6 - fringe benefits tax: minor benefits issued on 27 June 2007. |
Comments on the draft ruling to be forwarded to the contact officer by 10 August 2007. |
|
3.2 |
Cost of compliance submission (ICAA) - at the February meeting external members discussed the progress of the follow-up joint submission which the ICAA is coordinating. At that meeting two further issues were discussed which it was agreed would be included in the joint submission. Those issues have been incorporated into the joint submission and circulated to members for review and comment. |
When approvals have been received from all signatories the ICAA will send the letter to Treasury. |
Issue ongoing. |
|
6 |
Slade Bloodstock case (CPA Aust and NIA) - members raised concerns as to the practical implications and possible interpretative issues raised by the decision of Heerey J in the Federal Court. There was general discussion of the practical issues that may arise from this case.
|
It is expected the Full Federal Court will hear the matter in October/November sitting. |
Issue ongoing. |
|
7 |
Reporting exemption for pooled cars -CPA Australia raised this issue to advise that, notwithstanding the regulation for the exclusion of pooled cars from reporting had only recently been introduced, the treatment of pooled and shared cars is already causing concern to employers. In further discussion an issue arose that suggested that there may be a view by some people in the not-for-profit sector that as pooled cars are an 'excluded benefit' they are outside the capping threshold of $17,000 and $30,000. |
Response provided in the published minutes. |
Completed. |
A summary of work program undertaken since last National Tax Liaison Group
Draft Taxation Ruling TD 2007/D6 - fringe benefits tax: minor benefits issued on 27 June 2007.
16.9 Goods and Services Tax Sub-committee
The chairperson is David Kuhne (pro tem).
The last meeting was held on 15 August 2007.
Next meeting
The next meeting is scheduled for 14 November 2007.
Minutes
The minutes of the GST Sub-committee meeting held on 15 August 2007 are being finalised and are expected to be distributed to members in early September. The final minutes of the 14 May 2007 meeting were ratified at the 15 August 2007 meeting and are being published.
Significant or 'hot' topics
|
Issue number |
Issue/application |
Status |
Outcome |
|
2.10 |
Application of GST to Managed Investment Schemes (MISs) in the property sector. |
Consideration being given to GST ruling product. |
Discussion on the scope and timing of GST product to complement income tax public ruling. |
|
9.14 |
Tax Office action while the Tax Office's appeal against the decision in Reliance Carpet Co v. Federal Commissioner of Taxation (2007) FCAFC 99. |
Application for special leave to appeal to High Court lodged. |
Discussion of refund claims and approach to be taken by suppliers holding forfeited deposits; matters raised to form part of strategy for managing the litigation. |
|
13.19 |
Practice statements on sections 105-50 and105-55 in schedule 1 to the Taxation Administration Act 1953. |
Draft practice statements being reviewed |
Draft practice statements being rewritten; drafts to be distributed to members September 2007 |
|
13.22 |
Application of penalties and interest to transactions that are revenue neutral for GST. |
Draft issued for consultation. |
Member comments being considered for a further draft to be provided to members September 2007. |
|
16.7 |
Publication of EANnet GST classification decisions (Identified as a blocked issue in report to June NTLG meeting). |
Draft public database being considered by members. |
Following May 2007 meeting Discussion of nature of database and protection available at August meeting. Members currently considering pilot public database. |
Blocked issues summary
Refer comments above in relation to issue 16.7 which was identified as a blocked issue in the report to the June 2007 NTLG meeting.
A summary of work program undertaken since last National Tax Liaison Group
The work program has continued its increased emphasis on providing regular updates on the progress of issues out of session, and a number of updates were provided between the May and August meetings of the sub-committee. There have been discussions with member organisations on providing these on a more regular basis and in a format suitable for member publications, and this initiative is to be progressed following the August meeting.
Members are continuing to raise new issues, and a number of issues were finalised at the August 2007 meeting. A number of new and substitute members attended that meeting and we received positive feedback on our issues management and meeting processes.
The annual review of the forum has commenced and members' views were sought out of session. A review is also being undertaken of GST forums generally and consideration is being given to improvements in consultation processes around GST.
Potential ruling topics identified by National Tax Liaison Group Sub-committee
Some matters raised by GST Sub-committee members are already on the rulings program and being considered by the Public Rulings Panel. This list is restricted to matters raised by members that are currently being considered but are not listed in the August public rulings program.
Priorities shown are those originally nominated by the member organisation raising the issue and may or may not be reflected in the risk level assessed by the Tax Office in relation to the issue.
|
Potential topic |
Member priority |
Action taken or proposed to be taken that is, does a risk assessment of the issue suggest a ruling may be appropriate |
|
Clarification around application of GST to supplies associated with subsidies and co payments. Issue as to whether existing rulings (GSTR 2000/11, GSTR 2006/9 and GSTR 2006/10) provide sufficient guidance. |
High |
Issue raised late July. PTI proposal and strategy for dealing with this issue being considered, including possibility of addendum to GSTR 2000/11. |
|
Operation of five year limitation on residential premises ceasing to be new residential premises; Application of Division 129 GST Act where new residential premises intended for sale are leased out |
Medium (in relation to five year limitation issue). |
PTI proposal approved; changes to GSTR 2000/20 being considered. |
|
Clarification of GSTR 2002/5 in light of the decision in Debonne Holdings v FCT 2006 ATC 2467. |
High |
Addendum to GSTR 2002/5 being risk assessed and PTI has been approved. |
|
Application of GST to managed investment schemes (MISs) in the agricultural and property sectors. Members desire a product or products covering both types of MIS. |
Not stated |
PTI approved in relation to these issues. Assessing scope of any necessary product subsequent to the issue of Income Tax Draft Ruling TR 2007/D2. |
|
Changes to GSTR 2003/5, about GST and Vouchers, subsequent to the changes to the law relating to prepaid phone cards. |
Not stated |
PTI approved to support addendum to the GSTR ruling and review of the ruling has commenced. |
|
Practice statements in relation to the four year limitation on collection of GST debts and claiming GST refunds in sections 105-50 and 105-55 of Schedule 1 of the Taxation Administration Act 1953. |
Not stated |
PTI has been approved in relation to the debts issue and is being assessed in relation to the refunds issue to support reinstatement of these practice statements on the practice statement program. |
16.10 International Financial Reporting Standards Sub-committee
The one remaining issue for the sub-committee concerns the share capital tainting fact sheet.
An update on that issue is provided.
On 26 April 2007 the Tax Office circulated a draft fact sheet, which explained the operation of some key concepts in the share capital tainting rules in Division 197 of the ITAA 1997 to members of the National Tax Liaison Group International Financial Reporting Standards (IFRS) Sub-committee for comment.
The Tax Office received detailed submissions on the draft fact sheet from interested parties on 22 May 2007. It was stated in an update to the 28 June NTLG meeting that the fact sheet would be finalised by the end of July 2007. The Commissioner at that meeting asked that the fact sheet be issued promptly.
Subsequently we met the ICAA on 26 July 2007 to discuss the issues raised in their submission. Their preliminary thinking was to seek a referral of a range of issues to the Finance and Investment NTLG Sub-committee for further consideration. Recently however the ICAA wrote to the Tax Office noting the importance of issuing the fact sheet in a timely fashion, and requesting separate further discussions on the outstanding share capital tainting issues that cannot be accommodated in a general guidance fact sheet. We are also liaising with other stakeholders in relation to this matter.
A revised draft fact sheet with a short turnaround time will be circulated before the end of August to those who provided submissions. We will publish the finalised document on our website in September 2007 and also write to all respondents about their issues.
For those issues that fall outside the scope of the fact sheet, we will discuss with respondents the most suitable form of guidance that will meet their needs. In some cases a private ruling may be the most appropriate guidance product. Another solution may be to refer certain issues to the Finance and Investment or Consolidation NTLG Sub-committee, or other relevant Tax Office forum for prioritisation and advice as to the most suitable Tax Office product to address the issues raised.
Post meeting update
The Share Capital Tainting fact sheet was released on Wednesday 12 September 2007, and a copy was forwarded to NTLG members on Thursday 13 September 2007.
16.11 Losses and Capital Gains Tax Sub-committee
The new secretariat is Sean Bielanowski
The last meeting was held on 6 June 2007.
Next meeting
The next meeting is scheduled for 14 November 2007.
Minutes
The minutes of the Losses and Capital Gains Tax Sub-committee meeting held on 6 June 2007 are currently being finalised with answers to issues raised. They will be distributed to members shortly.
Significant or 'hot' topics - previous action items
|
Issue number |
Issue/application |
Status |
Outcome |
|
2006/11-2 |
Status of ATO IDs and other Tax Office documents. |
Finalised |
A reference to checking the status of ATOIDs and other Tax Office publications was included in the April CGT Update. |
|
2006/11-3 |
Can incidental costs be included in Step 1 of the joined group's ACA calculation for the joining entity? |
Progressing |
This issue has been referred for Treasury's consideration. If there are any further updates on this issue, they will be provided by the NTLG Consolidation Subcommittee |
|
2006/11-6 |
Interposition of a new company between notional stakeholders and the application of Division 166 |
Progressing |
This issue has been referred for Treasury's consideration. |
|
2006/11-7 |
CGT: Cost base of goodwill and black hole expenditure - section 40-880 deductions. |
Progressing |
This issue has been referred for Treasury's consideration. |
|
2006/6-5 |
Dick Smith case.
|
Progressing |
The Tax Office is currently considering a range of matters involving the implications of the reasoning in Dick Smith Case. Members will be updated on the position out of session. |
Significant or 'hot' topics - current action items
|
Issue number |
Issue/application |
Status |
Outcome |
|
2007/4.1 |
Interaction of CGT and Controlled Foreign Companies (CFC) rules. Division 855 wording has been amended and a question was raised if item 210 of schedule 9 of the Income Tax Regulations 1936 no longer has any application, as it wasn't changed. |
Being progressed by International Strategic Operations and the Losses and CGT CoE |
The issue has been referred to Treasury. |
|
2007/15.1 |
Liability of a non-resident to capital gains tax: The question raised was: Can the Tax Office confirm whether a leasehold interest is 'real property' for the purposes of determining whether a non resident has taxable Australian property? |
Progressing |
The issue is still under consideration. It is unclear whether the law aligns with the policy. The response will be advised out of session once the Tax Office view is established. |
|
2007/6.1 |
Interaction of Division 855 and trust provisions. A question was raised: Could the Tax Office confirm that the same rationale used in ATO ID 2003/231 would apply to exclude from the section 95 net income of a trust that is not a resident trust, capital gains made in relation to assets that are not 'taxable Australian property' and therefore exempt under Division 855? |
Progressing |
The issue is still under consideration. The response will be advised out of session once the Tax Office view is established |
|
Four small business capital gains tax concession items - the following issues were raised in relation to changes made by the recently enacted Tax Laws Amendment (2006 Measures No.7) Act 2007 |
|||
|
2007/16.4 |
Sale of asset by trustee of a testamentary trust and section 152-80: if an asset is sold by the trustee of a testamentary trust, can section 152-80 apply to any capital gain derived by the trustee? |
Progressing |
The existing law is clear in that section 152-80 only applies to the LPR or a beneficiary of the estate. However, the issue has been referred to Treasury for consideration. |
|
2007/16.6 |
Payment to a significant individual through interposed entities: Given the new rules now allow for the indirect tracing of a significant individual/concession stakeholder through interposed entities, the concern was raised that entities 'may need to break non-tax laws' to make payments to indirect concession stakeholders under the retirement exemption. |
Progressing |
The Tax Office indicated it was not aware of the problem but would bring the matter to Treasury's attention. |
|
2007/18.1 |
Small business retirement exemption and CGT events J5 and J6: the item noted the apparent intention for the retirement exemption to be available for J5 and J6 gains but raised concerns as to whether the existing law actually allowed for it. |
Progressing |
The Tax Office confirmed the existing law does not allow the retirement exemption to be chosen for gains made from CGT events J5 and J6 and has brought the issue to Treasury's attention. |
|
2007/19.1 |
Section 152-80 and assets held by joint tenants: the question was raised as to whether section 152-80 could apply to a gain made by a surviving joint tenant on the sale of an asset previously owned as joint tenants, after one joint tenant dies. |
Progressing |
The existing law is clear in that section 152-80 does not apply in a joint tenant situation. However, the issue has been referred to Treasury for consideration. |
16.12 Promoter Penalty Co-design Sub-committee
The sub-committee secretariat has provided an update on the two practice statements.
The Promoter Penalty Co-design Sub-committee members have been contacted and advised that updated versions of the practice statements will shortly be provided. An explanation of the major changes as a result of the submissions received will be also provided.
Prior to the finalisation of the practice statements an opportunity to provide further feedback is proposed; initially via a telephone hook up and with the option of a further face to face meeting if considered necessary.
16.13 Superannuation Technical Sub-committee
The last meeting was held on 5 June 2007.
Next meeting
The next meeting is scheduled for 4 September 2007.
Minutes
The Superannuation Technical Sub-committee minutes - 5 June 2007 have been published on ato.gov.au .
Significant or 'hot' topics
|
Issue number |
Issue/application |
Status |
Outcome |
|
050607-1 |
Post circulation of NTLG Superannuation Technical Sub-committee minutes for comment, an issue arose relating to Pension Commencement in relation to the transitional provisions under the new simpler super law. |
Resolved |
Minutes updated with the additional information and view. |
A summary of work program undertaken since last National Tax Liaison Group
Following circulation of the draft minutes on 26 June 2007, a number of sub-committee members (including those representing IFSA) sought to clarify the Tax Office's views as to the implications of pensions where no payment was made before 1 July 2007.
The chair held various phone hook-ups between the Tax Office and a number of sub-committee members, Tax Office and Treasury. Subsequently, the minutes were updated to clarify the Tax Office's views as to the implications of the answer to 5.7 for a transitional pension where no payment was made before 1 July 2007.
16.14 Transfer Pricing Sub-committee
The last meeting was held on 25 July 2007.
Next meeting
The next meeting is scheduled for 21 November 2007.
Minutes
Minutes from the 1 March 2007 NTLG-Transfer Pricing (TP) Sub-committee meeting were circulated to members in draft form soon after the meeting and have now been sent to be published on the website.
Minutes for the meeting of 25 July 2007 NTLG-TP Sub-committee meeting are being finalised and will be circulated to members in draft form in coming weeks.
Significant or 'hot' topics
|
Issue number |
Issue/application |
Status |
Outcome |
|
04/010307 |
Business Restructures |
Ongoing |
Draft discussion paper developed and circulated to externals for comment. More information below. |
|
02/010307 |
Guarantee Fees |
Ongoing |
Draft discussion paper has been developed and is expected to be circulated to members in Sept 07 for comments following internal approvals. |
A summary of work program undertaken since last National Tax Liaison Group
Advance Pricing Arrangement Program (APA)
A report on 2006-2007 achievements was circulated to members at the July meeting. All compliance targets were exceeded and the timeframes for completion were just outside accepted timeframes.
We completed 31 APAs in the 2007 financial year. This comprised 11 renewals, five new APAs which were encouraged by compliance activity and fifteen which were unprompted. Perhaps influenced by the focus on intangibles in the Tax Office Compliance program, many of the unprompted APAs involved the licence or use of intangible property.
Business Restructures
Jim Killaly and Marc Simpson held a discussion with members on the draft discussion paper that had been circulated to members as the first stage in a consultation process leading to a Tax Office view for input into the OECD working party and for guidance of Australian taxpayers. Members were requested to send any further comments to Marc Simpson.
Interaction of Transfer Pricing and Customs
A briefing was provided on the progress of this issue. The Australian Customs Service (ACS) issued guidelines in December 2006 in draft form, received feedback and re-issued guidelines in April 2007, still in draft format. The ACS is looking to dedicate 10 to 15 staff to deal with transfer pricing cases.
The ACS and the Tax Office have developed a memorandum of understanding covering exchange of information and are investigating the possibility of undertaking joint audits in the future.
Organisation for Economic Cooperation and Development (OECD) update
Members were informed of the progress that has occurred in the four key areas of transfer pricing related work being undertaken at the OECD. The four projects that are underway are:
¦ business restructures
¦ comparability and profit methods
¦ profit attribution, and
¦ Article 7 rewrite.
Potential ruling topics identified by National Tax Liaison Group sub-committee
|
Potential topic |
Member priority |
Action taken or proposed to be taken that is, does a risk assessment of the issue suggest a ruling may be appropriate |
|
Business restructures - Tax Office view |
High |
Draft discussion paper developed and circulated to members. Awaiting their feedback before progressing. |
|
Guarantee fees - Tax Office view |
High |
Draft discussion paper and is expected to be circulated to members in September 2007. There are perceived sensitivities related to this issue as there are audits currently in progress. |
16.15 Trust Consultation Group
The last meeting was held on Tuesday 17 July 2007.
Next meeting
Meetings are held on an as needs basis. No date has been set for the next meeting.
Minutes
The minutes of the meeting held on 14 March 2007 have been confirmed.
Draft minutes of the meeting held on 17 July 2007 have been prepared and will be distributed shortly.
Significant or 'hot' topics
|
Issue number |
Issue/application |
Status |
Outcome |
|
1 |
Interaction of consolidation rules with trust provisions in Division 6 of Part III of the ITAA 1936. |
Law change announced in 2007-08 budget. |
Discussed at the June 2007 NTLG Consolidation Sub-committee meeting. A working group from that forum has been established to scope the issue further. The working group met on 24 July 2007 and will meet again soon to discuss the scope of the single entity rule. |
|
2 |
Tax consequences of amending trust deeds as a result of the adoption of Australian equivalents to the International Financial Reporting Standards. |
Guidance material to be published shortly. |
Guidance material discussed at 14 March meeting is to be considered by Technet in August with a view to publication shortly thereafter. |
|
3 |
Application of section 97 of the ITAA 1936 following the decision in the Cajkusic and Anor v. Commissioner of Taxation (2006) AATA 134. |
High Court refused Commissioner's special leave application on 24 April 2007. |
Discussed at 17 July meeting. Views of externals have been taken into account in preparing Decision Impact Statement for Cajkusic Case which is expected to be published in the near future. |
Blocked issues summary
|
Issue number |
Issue/application |
Status |
Reason blocked - action to date |
|
5 |
Fixed entitlement test for trust losses. |
|
Legislative amendment required - Tax Office consulting with Treasury. |
|
6 |
Fixed entitlement test for determining entitlement to franking credits. |
|
Legislative amendment required - Tax Office consulting with Treasury |
|
7 |
Absolute entitlement |
Draft Ruling issued (TR 2004/D25). |
Legislative amendment required - Tax Office consulting with Treasury. |
16.16 Public Rulings Panel
Panels held since the last National Tax Liaison Group meeting
|
June panel |
28 and 29 June 2007 |
|
July panel |
26 and 27 June 2007 |
|
August panel |
Meeting cancelled. |
Next panel
|
September panel |
19 to 21 September 2007 |
Summary of panel meetings 28 and 29 June 2007
|
Ruling ID |
Issue/Application |
Status |
|
1459 |
Income tax: the treatment of shipping and aircraft leasing profits under the shipping and aircraft articles of Australia's tax treaties. The panel reviewed the proposed draft ruling having regard to the changes that had occurred since it was last considered by the panel (in March 2007). The key issues considered included: ¦ whether apportionment is possible where an international journey has a domestic leg which is an 'operation' in its own right ¦ discussion of the meaning of the phrase 'confined solely to places in a state' and the consequences (if any) of the interpretation taken in the draft ruling ¦ how to approach ancillary operations involving the domestic leg of an international journey ¦ whether the relevant articles in the agreements for other countries are sufficiently similar to be covered by the approach taken in the draft ruling, and ¦ whether the ships and aircraft article takes priority over the royalties article in circumstances where the articles might overlap.
|
The draft ruling is being amended in line with the panel discussion before being circulated to industry for comment and proceeding to publication as a draft. |
|
1039 |
Income tax: is an employee's deduction for the decline in value of a depreciating asset used for a taxable purpose affected by section 51AH of the Income Tax Assessment Act 1936 , if they are subsequently reimbursed as amount for the cost of the asset by their employer? The panel reviewed the position in the proposed draft ruling taking into consideration the interaction of section 51AH of the Income Tax Assessment Act 1936 and the Fringe Benefits Tax Assessment Act 1986. |
The draft ruling is being amended in line with the panel discussion and before being sent to Treasury for comment. |
|
2066 |
Income tax: registered agricultural managed investment schemes The panel reviewed the public comments received on the draft public ruling (TR 2007/D2) including: ¦ whether the draft ruling is consistent with long established principles and case law relevant to managed investment schemes (MIS) ¦ the meaning of scheme property ¦ the position of investors as beneficiaries of a trust and the substance of their involvement in a MIS, and ¦ the characterisation of contributions to participate in a MIS.
|
The draft ruling is being amended in line with the panel discussion before proceeding to publication as a final ruling. |
Summary of panel meetings 26 and 27 July 2007
|
Ruling ID |
Issue/Application |
Status |
|
1203 |
GST: partnership and margin scheme The panel reviewed the draft ruling which has also been the subject of consultation with Treasury. The key issues considered included: ¦ whether the margin scheme can apply when a partner of a general law partnership makes a capital contribution of real property to the partnership ¦ how the margin is calculated following dissolution of a general law partnership ¦ the effect, if any, of a reconstitution of the partnership, such as whether reconstitution gives rise to a supply or acquisition of partnership property, and ¦ the effect a dissolution of a partnership and resulting property distribution has on eligibility to apply the margin scheme. ¦ the margin scheme operates in relation to tax law partnerships and the acquisition and disposal of property by co-owners.
|
The draft ruling is being rewritten in line with panel discussion. It will return to the panel for additional consideration as soon as practicable. |
|
2366 |
GST: development leases The panel reviewed the proposed draft ruling. The key issues considered included: ¦ whether the grant of the development lease by the government agency to the developer is a supply for consideration ¦ whether the developer, in undertaking the development works on the land, makes a supply of development services to the government agency ¦ whether the sale or grant of long-term lease of the land to the developer is properly characterised by reference to the character of the land or of both the land and the completed development works ¦ whether the sale or supply of the long-term lease by the developer of a development consisting of completed residential premises is a supply of new residential premises as defined, and ¦ whether the panel had any comments in relation to the proposed Tax Office transitional arrangements.
|
The draft ruling is being amended in line with the panel discussion before proceeding to publication. |
|
2367 |
GST: addendum to GSTR 2003/8 goods and services tax: supply of rights for use outside Australia - sub-section 38-190(1), item 4, paragraph (a) and sub-section 38-190(2). The panel considered the impact of the amendments to sub-section 9-25(5), specifically new paragraph 9-25(5) (c) on the Ruling. The amendment ensures that a supply of a right or option is connected with Australia if the right or option is to acquire another thing, the supply of which would be connected with Australia and it is proposed that the Ruling be amended to reflect this. |
The addendum is being amended in line with the panel discussion before proceeding to publication. |
|
2251 |
Where there is no excess debt under Division 820 of the Income Tax Assessment Act 1997 can Division 13 of the Income Tax Assessment Act 1936 apply to adjust the pricing of the interest/finance costs? The panel considered the proposed draft ruling. The key issues considered included: ¦ whether the panel members agreed with the positions and reasoning in the determination including the analysis concerning the application of the thin capitalisation and transfer pricing provisions ¦ whether panel members consider that paragraph 1.76 of the explanatory memorandum suggests an alternative view to the position taken in the determination, and ¦ how to appropriately phrase the question being asked by the determination so that it accurately reflected the content of the determination.
|
The draft ruling is being amended in line with the panel discussion with further out of session consideration by panel members. |
Rulings considered by panel out of session
|
Ruling ID |
Issue/application |
|
2292 |
GSTD: GST: what are the results for GST purposes of a charitable institution engaging with an associated endorsed charitable institution in an arrangement described in Taxpayer Alert TA 2007/1? |
|
1811 |
TR: income tax: various income tax issues relating to the horse industry; including whether racing, training and/or breeding activities carried out (as stand-alone activities or in combination) amount to the carrying on of a business.
|
|
1808 |
TR: income tax: consolidation: errors in the tax cost setting amounts of reset cost base assets.
|
|
2057 |
TR: international: income tax: application of transferor trust and controlled foreign corporation measures where property or services are transferred to a non-resident company owned by a non-resident trust estate.
|
|
2269 |
Income tax: application of the Commissioner of Taxation v. McNeil to rights issues. |
16.17 Superannuation Public Rulings Panel
Panels held since the last National Tax Liaison Group meeting
|
June panel |
None scheduled. |
|
July panel |
Cancelled. |
Next panel
18-19 October 2007.
Summary of panel meeting 23 and 24 August 2007
|
Ruling ID |
Issue/application |
Status |
|
ID 1981 |
The treatment of contributions to a self managed superannuation fund under section 66 of the Superannuation Industry (Supervision) Act 1993 (the SISA). The panel discussed what this ruling was attempting to achieve, which includes consolidating views expressed in ATO IDs 2003/137, 2003/138 and 2003/1127 and incorporating part of the advice in APRA Superannuation Circular No II.D.3. It also considered: ¦ what is a contribution under sub-section 66(1) of the SISA? ¦ the meaning of the term 'acquire' including whether it includes assets accepted even though no consideration is exchanged between the fund and the member ¦ whether sub-section 66(1) can apply to constructive contributions ¦ the exceptions to sub-section 66(1) found at sub-sections 66(2) and 66(2A), including what constitutes an investment for the purposes of the exceptions ¦ the scope of the term 'money', and ¦ how market value is determined for the purposes of the section.
|
The draft ruling is to be amended in line with the panel discussion before being circulated to APRA for comment. It may return to the panel for additional consideration before proceeding to publication as a draft.
|
|
ID 2225 |
Business Real Property The panel discussed the definition of business real property as used in sub-section 66(5) of the Superannuation Industry (Supervision) Act 1993 including: ¦ the meaning of the requirement that the property be 'used wholly and exclusively in one or more businesses', and ¦ whether the word used, or for the purposes of the discussion use, can be read as contemplating only active use of the property or both active and passive use of the property. The panel also discussed a number of examples set out in the draft ruling to test how different interpretations of these expressions might operate at a practical level. |
The draft ruling is to be amended in line with the panel discussion before being circulated to APRA for comment. It may return to the panel for additional consideration before proceeding to publication as a draft.
|
16.18 Test Case Litigation Panel
Meetings held since the last NTLG meeting
The last meeting of the Test Case Litigation Panel was 30 July 2007.
Next meeting
The next meeting is scheduled for 15 October 2007.
Eight applications were considered for funding at the 30 July 2007 panel meeting. One application had been withdrawn by the applicant prior to the panel meeting. In all cases the funding decisions were consistent with the recommendations of the panel.
|
Case summary |
Funding decision |
Panel reasons |
|
1. 07/10754
|
Funding declined. |
The panel noted that this proceeding was already funded by an independent funder. The existence of a funder weighs against the grant of test case funding, as the test case program is a public interest scheme which is aimed at protecting taxpayers from financial risk when litigating important issues in cases. Financial capacity of the taxpayer is a factor to be considered under the guidelines. The panel also considered that the taxpayer was seeking to obtain a benefit unintended by the legislation. The panel agreed that the relative significance of the issue raised by the applicants in relation to section 105-65 TAA 1953 was insufficient to warrant funding. |
|
2. 07/2027
The applicant sought clarification on the concepts of: ¦ 'entities connected with', and ¦ 'small business capital gains tax affiliates'. Assets being solely used for personal use and enjoyment'. |
Funding declined. |
Although pointing to the areas of dispute that this case will embrace under Division 152, the application fails to identify the law clarification that will be obtained by the case. The panel was not persuaded that a significant issue had been identified that required clarification. The panel considered this case would turn on the application of the law to the particular facts of the case. Having regard to advice received from within the Tax Office, the panel was of the view that that this issue being litigated was unlikely to be an issue of significance to a substantial segment of the public. The panel also considered the jurisdiction of proceedings and noted that the case is progressing in the AAT, providing limited precedential value from the decision. |
|
3. 7/11626
|
Funding declined. |
A key consideration for the panel in relation to this application was that another matter presently in the Federal Court, is currently well advanced and will likely consider the Toyama decision. However, the panel discussed that funding could be reconsidered in this or another case if the lead case does not proceed to hearing or does not fully deal with the issues raised in this application. |
|
4. 7/11627
|
Funding declined. |
The panel had regard to the fact that another matter presently in the Federal Court, is currently well advanced and will likely consider the Toyama decision. However, the panel discussed that funding could be reconsidered in this or another case if the lead case does not proceed to hearing or resolve the issue. |
|
5. 7/8518
|
Funding declined. |
The Commissioner is of the view that the case is not a case of sufficient importance so as to warrant the grant of leave. The decision in the Full Court had provided firm precedent and clarification on the law and consequently does not warrant funding. The panel noted that it would be problematic for the Commissioner to argue against the special leave application, while agreeing the matter is a test case which requires further clarification on a contentious issue. The panel noted that should the High Court grant the taxpayer Special Leave to appeal, costs would likely be awarded against the Commissioner on the leave application. In these circumstances the application can be reconsidered for the costs of the appeal. |
|
6. 7/6049
¦ the Tax Office has lodged a proof for Superannuation Guarantee Charge (SGC) for unpaid contributions or late contributions, and ¦ employees of the liquidated entity have themselves made claims for unpaid superannuation.
|
Funding declined. |
This application was deferred at the last panel meeting, in order to obtain clarification from the taxpayer. The panel had regard to the recommendations and considerations made at the last occasion and the further information the test case program requested from the taxpayer. The panel was not persuaded that the point in contention was of significance as the proposed contention in the law will be solved by legislative change going forward. With this in mind, the number of people to be affected by the proceeding is limited. The panel considered the additional information provided by the applicant but concluded that the applicant's submissions did not highlight a compelling point of contention, given the existing line of authority. |
|
7. 7/13230
|
Funding declined. |
The panel discussed whether there was any contention in the application of section 169A(3) of the ITAA 1936 and whether the AAT has the power to make such a determination in relation to the relevant statutory time limits. The panel had regard to existing authority and considered that the Commissioner and the AAT had properly exercised their respective powers. Overall, the panel considered the points of contention raised by these applicants goes to a legal technicality. |
|
8. 07/6665
|
Funding declined. |
Having regard to existing authorities, the panel did not consider there was sufficient contention in the law about the issue to warrant funding. If the taxpayer was successful, it would be an application of well established principles to the facts. |
1.16 Other business
There are two parts to this agenda item.
A late agenda item was received and a response was not able to be provided prior to the distribution of the agenda papers.
17.1 Pay as you go instalment income and employee share acquisition schemes
The Commissioner in ATO ID 2007/75 Income Tax PAYG Instalment Income and Employee Share Acquisition Schemes states that the discount that a taxpayer receives on a qualifying right acquired under an employee share scheme, in relation to their employment is considered 'ordinary income' of the employee in the year in which the rights are acquired unless the income is deferred under Division 13A of the ITAA 1936. As a result the discount that a taxpayer receives on a qualifying right acquired under an employee share scheme, in relation to their employment, is included in their instalment income if they make an election under sub-section 139E(1) of the ITAA 1936.
Treating such amounts as 'ordinary income' will result in additional unnecessary compliance costs and create cash flow difficulties for taxpayers as illustrated by the following example:
An employee is issued with qualifying shares under an employee share plan in July 2007 which involves a discount (that is, the difference between any consideration provided and the value of the shares) of $2 million. Under section 139E an election must be made before they lodge their 2008 income tax return (which is due for lodgment in May 2009 in this example). If the Commissioner's position in ATO ID 2007/75 was to be followed the employee then has two choices:
Option 1 - make an election now and include the taxable discount amount of $2 million in the September 2007 quarter Instalment Activity Statement (IAS).
Option 2 - wait and make the election before they lodge their 2008 tax return as allowed under section 139E - but this has significant possible cashflow implications.
In option 1 - if the election is made 'now' and included in the September 2007 quarter IAS, this forces the employee to make an election at a time which is significantly earlier than required by sub-section 139E(4). Further, it unfairly curtails the ability of the employee to review their overall 2008 tax position to see if an election is prudent.
In option 2 - where the election is made in conjunction with the lodgment of the 2008 return (assume this occurs at 31 March 2009):
¦ the employee would need to pay the balance of their 2008 year tax obligation including tax on the $2 million discount at the time of, or shortly after, lodgment - giving tax payable for the 2008 year of $930,000 on the discount
¦ on the basis of the Commissioner's position in ATO ID 2007/75, the employee will also need to include the $2 million discount in their March 2009 quarter IAS and pay a second amount of tax of $930,000 on the discount as part of the instalment process
¦ the payment of this second amount of $930,000 on the $2 million discount will be a tax payment for the following 2009 financial year and need to be included in the 2009 return
¦ however, in the 2009 financial year, if the employee is issued no new shares no tax would be payable in relation to employee shares under Division 13A
¦ accordingly, the employee should be entitled to a tax refund for the $930,000 overpayment (arising from the double counting of the $2 million discount) upon lodgment of their 2009 tax return (which may be lodged as late as May 2010), and
¦ the period during which they must cash flow the second payment of $930,000 may be as short as a couple of months (if they lodge their 2009 return in July or August 2009) to potentially up to a year (if they lodge their 2009 return in May 2010).
Why is this an IAS issue in the first place? An election of this type is normally made by including the amount in the ITR. As such, the assessable income would include the discount for that year. It is hard to see how the ATO ID could apply as it assumes that an election is made during the year. By arguing that the amount is an IAS matter because of the nature of the income, it is forcing people to unnecessarily vary instalments in the event they do not have assessable employee share option plans in the next year, whilst leaving themselves exposed to penalties if they underestimate the other IAS income.
Further, given that most shares have restrictions on their sale, the citation of Abbott v. Philbin (1961) AC 352 out of context to justify the discount being classified as ordinary income appears to be erroneous.
Can the Commissioner provide further information to support his position and confirm that this is the correct policy outcome?
Meeting discussion
There was no discussion of this item at the meeting, and the issue will be further considered. Members will be advised.
|
Action item: |
NTLG0709/06
|
17.2 Standard business reporting
The Treasurer launched a long term initiative to reduce red tape for businesses when reporting to government.
Assistant Commissioner, Business Solutions, Darren Menachemson attended the meeting to provide information on the intitative.
Meeting discussion
Assistant Commissioner Darren Menachemson attended the meeting to discuss the standard business reporting (SBR) initiative following the Treasurer's announcement on 30 August 2007. This initiative is designed to reduce the burdens associated with business reporting.
The Commissioner advised members that the Tax Office was taking a strong leadership role with this initiative. This is one of two major initiatives designed to reduce compliance costs for business in terms of reporting at state and federal levels. While this may be a difficult and complex proposal, it has the potential to provide significant compliance cost reductions for business.
Members were provided with an overview of the project with its current focus being on the solution design and information harmonisation. Businesses will continue to report to the same organisations, but will do so based on a harmonised data set and will be able to automatically generate much of their forms and submit electronically from their software.
The benefits and potential impacts of the project were outlined and members were advised that a detailed design consultation process with the community will take place.
Privacy and confidentiality was noted as a key consideration, and members were advised that businesses using SBR would send no more information to the government than they do today. Businesses would be able to review and edit pre-filled lodgments before making the decision to submit the form.
An example of lodging a BAS in the future was provided using information pre-filled from their software. The practical example showed how SBR could work in the future; allowing pre-filling of data based on information held in a business' software according to government certified rules, the use of a single government authentication credential form submission directly from business software and likewise responses such as notifications and exception messages delivered directly to the software.
It was noted that no information other than the form would be sent to the government, and rules would be applied to pre-fill fields from within business' software.
The process will be developed using co-design strategies and will utilise a number of existing forums, include workshops, user observation and user testing. The establishment of a Business Advisory Group is proposed to advise on design and consult on a range of issues.
Members were advised that this system will offer another channel for reporting and will not replace the tax agent portal, and noted that the SBR solution is a whole-of-government initiative rather than a Tax Office system.
There are a number of major milestones throughout the project, with tax file number declaration forms to be released in 2008, followed by a full release of the solution and a wide array of government forms in 2010.
There was discussion regarding the future design, utilisation of the system and software considerations which the Commissioner appreciated. He commented that the design was not resolved at this stage and the comments made were useful.
1.17 Next meeting and close
The next meeting is scheduled for Wednesday 28 November 2007, commencing at 9.30am.
Meeting discussion
The Commissioner commented that the forum could be used to further consider a range of topics as this fits with the NTLG charter. He views the NTLG as an appropriate forum to discuss amongst other things major technical issues that are considered at the sub-committee level. He believes that discussion of these topics at a strategic level adds to the process (and reduces unnecessary misunderstandings or perceptions).
The Commissioner proposed that a review of the NTLG charter should be included as an agenda item for the November meeting to ensure best use of the forum.
The Commissioner thanked the members for their contributions to the discussion during the meeting. He noted that this was to be the last NTLG meeting in these premises as the office was relocating to new premises. He reflected on the significant number of events that had taken place in the current building, and thanked all members for their contributions to discussions since 1986. The move to the new building signified moving forward to the future.
|
Action item |
NTLG0709/07
|
[H21]Summary of action items
|
NTLG0709/01 |
The NTLG recommends that the Small and Medium Enterprises business line establishes a working group to progress the issues associated with Tax Laws Amendment Bill No 4 following Royal Assent. |
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NTLG0709/02 |
The response on general interest charge and late lodgment is to be clarified and members advised. |
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NTLG0709/03 |
Two topics - Debt Equity and ENCO are to be included on the agenda for the 28 November 2007 NTLG meeting. |
|
NTLG0709/04 |
Treasury have been asked to note the support from the NTLG to resolve two issues: ¦ the announced but not yet enacted Forex measures, and ¦ clarify the scope of the announcement related to the McNeil case.
|
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NTLG0709/05 |
The topic Organisation for Economic Cooperation and Development (OECD) work with intermediaries is to be included on the agenda for the 28 November 2007 NTLG meeting. |
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NTLG0709/06 |
Members will be advised regarding a response to the agenda item on pay as you go instalment income and employee share acquisition schemes. |
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NTLG0709/07 |
A review of the NTLG charter is to be included on the 28 November 2007 agenda to ensure best use of the forum. |
Attachment A
BSL explanation: (A more detailed explanation of the organisational structure and respective business lines is available on the website.)
ATP - Aggressive Tax Planning; EXC - Excise; GST - Goods and Services Taxes; LBI - Large Business and International; MEI - Micro Enterprises and Individuals; OCTC - Office of the Chief Tax Counsel; SME - Small and Medium Enterprises; SPR - Superannuation.
Post meeting update
The technical quality of interpretative decisions, such as private rulings, objections and audits are reviewed bi-annually. The information from the reviews is used to improve work practices and the technical and interpretative decision making capability.
Panels, which include experts from outside the Tax Office and experienced tax technical officers, review the cases using the judgment model. This model assesses our performance against the key elements of a good decision, that is, whether we understood the question and provided a correct well-reasoned and clearly communicated decision. The review also includes a range of conformance checks to measure compliance with the policies and practices that support our technical and interpretative decision making activities (source - Commissioner of Taxation Annual Report 2005-06).
Quality assurance results
Table 1 Tax Office ratings for technical advice
|
Category/case selection |
Corporate standard |
February 2006 - July 2006 result* |
August 2006 - January 2007 result* |
|
All finalised 'A' |
85.00% |
87.16% |
92.85% |
|
All finalised 'pass' |
95.00% |
95.79% |
96.98% |
|
Penalty 'A' |
85.00% |
89.77% |
92.09% |
|
Penalty 'pass' |
95.00% |
96.46% |
97.17% |
|
Settlements |
95.00% |
99.76% |
97.70% |
* These figures are calculated without using the Debt business line results.
Bold type indicates the corporate standard of 95% was met.
A case receives an 'A' rating if all elements of the judgment model are met, that is all questions or issues are understood and the taxpayer is provided with a correct, well reasoned and clearly communicated answer. If it shows, at a minimum, that the core questions or issues were understood and the decision was accurate and consistent then the case received a 'pass'.
Table 2 technical advice - pass rating
|
Business line |
February 2006 - July 2006 result |
August 2006 - January 2007 result |
|
Centres of Expertise |
100% |
100% |
|
Compliance Support and Capability |
N/A |
100% |
|
Excise |
98% |
100% |
|
Goods and Services Tax |
98% |
99% |
|
Large Business and International |
100% |
98% |
|
Debt |
96% |
97% |
|
Micro Enterprises and Individuals |
94% |
96% |
|
Small and Medium Enterprises |
97% |
97% |
|
Superannuation |
98% |
98% |
|
Serious Non Compliance |
90% |
90% |
Bold type indicates the corporate standard of 95% was met.
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