NTLG minutes, March 2008

QC: 21035 Content revised: No Abstract revised: No

Abstract:

Minutes of the NTLG meeting held 26 March 2008.

Meeting details

Venue:	McKay Board Room Level 10 Amungula Building 26 Narellan Street CANBERRA ACT 2600
Date:	26 March 2008
Start:	9.30am	Finish:	2.45pm
Chair:	Michael D'Ascenzo
Contact:	Louise Jameson	Contact phone:	(07) 3119 9394
Secretariats:	Geoffrey Besgrove, and Louise Jameson

Attendees

Garry Addison	CPA Australia
Steve Allan	CPA Australia
Brenda Berkeley	Treasury
Chris Branson	LCA
Annamaria Carey	Tax Office
Grant Cathro	CPA Australia
Michael D'Ascenzo	Tax Office
Michael Dirkis	TIA
Frank Drenth	CTA
Bob Duncan	ATMA
Kevin Fitzpatrick	Tax Office
Jennie Granger	Tax Office
Tony Greco	TA
Tony Jones	NTAA
Michelle de Niese	CTA
Ali Noroozi	ICAA
Andrew O'Bryan	CPA Australia
James O'Halloran	NTAA
Ann Previtera	ICAA
Bruce Quigley	Tax Office
Joan Roberts	TIA
Vicki Stylianou	NIA
Linda Wang	ICAA
Sue Williamson	TIA

Apologies

Steve Cane

NTAA

Guests

Bruce Collins	(Items 11-14)	Tax Office
Stephanie Martin	(Items 11-14)	Tax Office
Margaret Haly	(Item 16)	Tax Office
Cheryl-Lea Field	(Item 7)	Tax Office
Stuart Forsyth	(Item 7)	Tax Office

Professional bodies represented at the National Tax Liaison Group

Association of Taxation and Management Accountants	ATMA
Australian Taxation Office	Tax Office
Corporate Tax Association	CTA
CPA Australia	CPA Australia
Institute of Chartered Accountants in Australia	ICAA
Law Council of Australia	LCA
National Institute of Accountants	NIA
National Tax and Accountants Association	NTAA
Taxation Institute of Australia	TIA
Taxpayers Australia Incorporated	TA

^[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. These minutes have been formally endorsed by the members.

1.1 Introductions, apologies, confirmation of minutes of 28 November 2007 meeting

Opening comments and introductions

Second Commissioner, Compliance, Jennie Granger opened the meeting at 9.40am and welcomed all present. The Commissioner's apology for his absence at the commencement of the meeting was offered.

Members were advised that the Easter deployment of the Change Program had been successful, however, the processing of fringe benefit tax (FBT) returns was likely to take longer while the rollout of the new FBT system is fully implemented. FBT information on the portal is expected to be fully up to date after 6 May 2008. The new integrated core processing (ICP) system for income tax originally planned for March is expected to be deployed in the last quarter of 2008 to minimise disruption.

Second Commissioner, Law, Bruce Quigley advised members of the release of the Tax Office/Treasury protocol and its publication on both the Tax Office and The Treasury websites. Copies of the protocol which was previously discussed at the June 2007 NTLG meeting were distributed to members.

Apologies

Steve Cane

NTAA

Guest attendees

Tony Jones, NTAA is attending in lieu of Steve Cane.

Previous minutes

The minutes of the 28 November 2007 NTLG meeting were formally accepted without further amendment. Michael Dirkis commented on issues log item NTLG0703/10 (page 20 of the open issues log), advising that information was forwarded prior to Christmas and that further discussion had occurred regarding the Decision Impact Statement (Brown's case). He extended his thanks on behalf of the TIA to Tim Dyce, Chris Hood and Robert Puckridge and their team for the work on a range of issues associated with climate change (agenda item 5, 28 November 2007 NTLG meeting).

1.2 Commissioners welcome

The Commissioner welcomed all attendees to the NTLG meeting.

1.3 Interpretation and administration

Complex and non-complex private binding rulings

There are two parts to this agenda item, representing the issues raised.

Part 1: Service standards

In the September 2007 minutes of the NTLG, the Tax Office provided figures relating to the turnaround time of Private Binding Ruling (PBR) requests. It is encouraging that the Tax Office was able to report that these figures indicated that the turnaround times met the Tax Office service standards in 93.3% of cases for private binding rulings finalised during the 2006-07 income year.

Further information that would be useful, is the percentage of private binding rulings finalised that met the relevant service standard where the matter was referred to a specialist area, such as to a centre of excellence or tax council network, as compared to those that met service standards in circumstances where the issue was not complex in nature and therefore was not referred to a specialist area.

Typically, rulings referred to a specialist area would involve issues of complexity or precedence and are hereinafter referred to as 'complex' rulings.

In order for the profession to gain a better understanding as to the percentage of complex rulings that met service standards for the 2006-07 income year, can the Tax Office provide a further analysis of its performance against service standards in respect of the number of complex and non-complex rulings lodged and finalised for the 2006-07 income year (please refer to table)?

Table - 2006-07

Description	Figures	Complex	Non-complex
Number of private rulings lodged	11,569
Number of private rulings finalised	12,618
Percentage of cases passing service standards (that is, finalised within 28 days of receiving all information or within negotiated due date)	93.3%
Number of cases passing service standards	11,772
Percentage of cases failing service standards	6.7%
Number of cases failing service standards	1,925

Response

The Tax Office generally classifies Private Written Binding Advice (Private Rulings) as complex where a case requires the formation of an ATO view where no view currently exists, or where multiple issues, entities or transactions are involved.

The following breakdown of complex and non-complex private rulings finalised for the 2006-07 income year is based on indicative information available through current Tax Office systems.

Please note that a breakdown for the number of complex and non-complex private rulings lodged has not been provided because cases are classified during the course of actioning, rather than on receipt of the case.

Description	Figures	Complex	Non-complex
Number of private rulings lodged	11,569
Number of private rulings finalised	12,618	1,445	11,173
Percentage of cases passing service standards1 (that is, finalised within 28 days of receiving all information or within negotiated due date)	93.3%	88.4%	93.9%
Number of cases passing service standards	11,772	1,278	10,494
Percentage of cases failing service standards	6.7%	11.6%	6.1%
Number of cases failing service standards	846	167	679

1 The service standard benchmark target for 2006-07 was 83%.

Part 2: Lodging complex private binding ruling requests by non-large business taxpayers

The process when lodging a private binding ruling relating to a Large Business and International (LB&I) taxpayer is reasonably understood. In some cases, where the ruling request is relatively complex with regards to either the transaction or the technical issues relating to the transaction, a meeting with the Tax Office is requested in order to explain the transaction and provide the Tax Office with the opportunity to identify further information needs and whether other specialist areas need to be involved in order to resolve technical aspects of the ruling request. The intent of these meetings is to resolve issues early so that a ruling response can be obtained within the appropriate timeframe. This process has worked quite well in the past and is to be encouraged going forward.

The private binding rulings process may not be as clear when a private binding ruling request is managed by another business service line, particularly in circumstances where the issue is complex in nature, for example, the private ruling request is complex as to its facts and involves an interpretation of a complex capital gains tax or international tax matter.

Can the Tax Office indicate whether the private binding ruling request and escalation processes are the same for all business lines, and if these processes are different in the case of non-large business taxpayers, could the Tax Office outline the rulings request and escalation process for such taxpayers seeking a private binding ruling on a complex issue?
Could the Tax Office indicate, in particular:

¦ if a matter is referred to a centre of excellence, is priority given to LB&I cases over referrals of complex matters from other business lines?

¦ whether the Tax Office supports an initial meeting in respect of complex ruling requests where a non-large business taxpayer wishes to discuss a private binding ruling request, and specifically, in circumstances where the ruling has yet to be lodged or has just been lodged, support such a meeting in order to allow all parties to gain an understanding of any aspects requiring further clarification, information requests, and how the process for resolution will move forward?

¦ whether the process for private binding rulings has been communicated to all business lines within the Tax Office and externally to the profession?

Response

The Tax Office has issued a number of practice statements that describe the administrative processes that all staff must follow when providing private rulings. Three practice statements, relevant to the matters raised, are:

¦ Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the Tax Office . Issued on 28 February 2008, this new practice statement, which replaces two earlier practice statements, explains the advice and guidance the Tax Office provides to all taxpayers, including the level of protection that is available, and many of the practices that staff need to observe
 

¦ Law Administration Practice Statement PS LA 2005/10 Priority Private Binding Rulings . This practice statement advises the process to be followed for applications that meet the criteria for priority private binding rulings; and
 

¦ Law Administration Practice Statement PS LA 2004/4 Referral of interpretative issues to Centres of Expertise for the creation of the precedential ATO view, and early engagement of internal technical specialists in active compliance cases . This practice statement will have particular relevance for more complex cases which often involve technical issues for which there is no ATO view (precedent).

Consistent treatment of taxpayers who have been transferred from Large Business and International to Small and Medium Enterprises

The Tax Office has developed an approach to the tax risks of taxpayers in the large market that is set out in the 2006 version of the Large Market and Tax Compliance booklet. That approach is one of mutual obligation and clarifies what can be expected in terms of working together with business to manage tax risks through advice and compliance work. The booklet was prepared preceding an administrative decision to move responsibility for taxpayers with turnovers in the range of $100m - $250m to Small and Medium Enterprises (S&ME).

The approaches in the booklet were developed having regard to the nature and relative significance of the risks. The administrative decision to move reporting responsibility for some taxpayers to S&ME does not affect the nature of those risks, nor does it affect the needs of the taxpayers in that group. Where an S&ME taxpayer has a request for advice that is complex, there is no distinction in the way that matter is handled purely because responsibility for that matter is in S&ME. This includes any decisions about the need to engage relevant technical experts or to make specific arrangements to enhance our ability to deal with urgent and significant matters. Such decisions are made having regard to the risks, issues and particular circumstances of a case. Therefore, taxpayers should not notice any change in their dealings with the Tax Office as a result of the new administrative arrangements.

Communication between the Tax Office and the taxpayer before and during ruling applications

Pre-ruling discussions

Two elements of the priority private rulings process that have proved beneficial in progressing matters more quickly are:

¦ early notification of the need for a ruling, and

¦ the pre-ruling discussion.

In the priority process, these elements are mandatory. However, they have become increasingly common for complex matters outside the priority process as they:

¦ help to clarify the facts and issues in a case

¦ often result in a more comprehensive application which may also reduce the need for further information, and

¦ increase the likelihood that any significant concerns will be identified much earlier.

Recognising the benefit that such discussions generally bring, the Tax Office will endeavour to meet all reasonable requests by applicants for a pre-ruling discussion for complex matters. Where we cannot accommodate such requests in the applicant's desired timeframe, or we feel that alternative ways of progressing the matter could be more beneficial, we will work with the applicant and taxpayer to determine the most productive approach.

Communication with applicants and taxpayers once rulings are lodged

It is a long standing practice for tax officers who are considering applications for private rulings to contact taxpayers, where appropriate to do so, irrespective of the market segment to which they belong. This practice is confirmed in PS LA 2008/3 , with some relevant paragraphs being paragraphs  100 , 143 and 192 to  204 . Tax officers are encouraged to have discussions with taxpayers and/or their advisers to clarify issues and better understand the taxpayers' positions. Discussions about a particular scheme can be undertaken prior to, or following the receipt of a private ruling. The form that these discussions take would be a matter for the parties to resolve, having regard to location, travel costs, effectiveness, urgency, etc.

Communication of private rulings' practices and processes

All tax officers, who provide advice or guidance, are required to follow relevant practice statements. The Tax Office also has comprehensive internal on-line reference material to assist these staff.

As far as the community is concerned, guidance on how to apply for a private ruling, including the relevant forms that can be used, and the information that should be provided, are available on www.ato.gov.au and from our access sites. The practice statements are also available on our website.

Meeting discussion

It was noted that the ICAA continues to show interest in the response times associated with resolving complex private binding ruling requests. It was also noted that the more complex ruling requests may take longer to resolve and require additional information during the process. Further analysis of response times is occurring and members will be advised.

Members accepted the response provided.

Action item:

NTLG0803/01 Members are to be advised of the results of further analysis of response times associated with private binding ruling requests.

1.4 Personal services income rules

The personal services income (PSI) rules were introduced with effect from 1 July 2000 to make it administratively easier for the Tax Office to deal with potential tax avoidance via the alienation of personal services income by contractors and other small business taxpayers.

The effect of the PSI rules is that those taxpayers who do not met various tests prescribed in the law (such as the results tests or other relevant tests including the 80% rule) are subject to the PSI rules (unless the taxpayer obtains a personal services business (PSB) determination from the Tax Office) and thus the relevant income is included in the assessable income of the individual concerned regardless of whether it is derived via a separate entity such as a partnership, company or trust.

An individual or other entity that satisfies the PSI rules will be taken to be conducting a PSB. However, the Tax Office has indicated that the general anti-avoidance provisions in the income tax law (Part IVA) may still prevent the alienation of such income via splitting with associates and/or retention of income in a company (which is of itself a form of income splitting). Unfortunately, the potential application of the anti-avoidance provisions in this area creates considerable uncertainty and compliance costs for many contractors/small business entities. This problem actually extends back over two decades or more and the PSI rules have not done much to address the uncertainty.

In March 2003 the Tax Office agreed to develop an appropriate test case program to seek to clarify the law in this area through the courts. The Tax Office subsequently conducted a review of the Part IVA provisions (including in respect to their application to PSB's) and the Tax Commissioner subsequently announced that the Tax Office would no longer seek to apply Part IVA in either of the following two situations:

¦ ordinary 'husband and wife' partnerships which constitute a PSB (unless unusual features are present such as where a disguised employment relationship is involved or the use of a partnership is prohibited by regulatory or other laws), and

¦ retention of profits by companies, unless the remuneration paid to the relevant principal is not commensurate with the value of the services provided, or it is otherwise apparent that the purpose of the retention is to avoid/defer tax.

In this light, a revised test case program was commenced with a focus on the following:

¦ disguised employment cases

¦ income splitting via trusts where the beneficiaries make no contribution to the derivation of the income

¦ use of more than one entity by a service provider where a single entity would be adequate for commercial purposes, and

¦ profit retention by companies outside of the limits outlined above.

Early clarification of this matter for PSB's still remains a priority though in order to bring greater certainty into this area. The necessity of this arises from:

¦ the likelihood that currently many taxpayers are pressured into taking adverse positions (for example, by following long-standing Tax Office rulings such as Taxation Ruling IT 2503 Income tax : incorporation of medical and other professional practices and Taxation Ruling IT 2639 Income tax : personal services income) that arguably are contrary to the law as they do not have the capacity to fight the Tax Office through the courts at some point in the future, and

¦ the need to reduce compliance costs for affected taxpayers.

It is of interest in this regard that some recent cases on the PSI rules have related to the 'results test' (Skiba v. Federal Commissioner of Taxation, Administrative Appeals Tribunal (AAT), August 2007, and IRG Technical Services Pty Ltd and Owen as trustee of the Owen Family Trust v. Deputy Commissioner of Taxation, Federal Court, December 2007) while an upcoming appeal against an AAT decision (Fowler v. Federal Commissioner of Taxation, September 2006) relates to a Part IVA issue.

We also understand that ATO Tax Practitioner Forum (ATPF) practitioners have recently raised some additional administrative issues around the PSI rules although these still remain to be further clarified at this stage.

Given the length of time that has elapsed since the PSI test case program was originally announced and the impact of recent developments, it is now unclear as to whether the litigation approach is the most appropriate means to achieve the desired objective of bringing greater clarity and certainty into this area.

Could the Tax Office please provide an update on its current PSI test case program to enable members to assess its effectiveness and possibly consider other options in this area.

Response

The proposal to seek to clarify the law in this area by means of litigation was originally announced in March 2003. The test case program was then refocused on the more contrived cases in December 2005. While the test case program is underway, the Tax Office will not be running a specific audit program in this area. However, cases arising from the Tax Office's ongoing audit operations will be progressed normally. The test cases are being funded by the Tax Office. The Tax Office will meet the legal fees of participating taxpayers and tax agent (accounting) costs based on the Commonwealth schedule of fees.

The Commissioner's speech of 14 March 2003 titled Tensions in tax administration acknowledged that drawing the line on when income splitting is possible for tax purposes has been, and probably always will be, a source of tension. In recognition of that tension he announced the test program as the means to provide greater certainty. It was decided that law clarification through litigation was the best way to test the boundaries of the provisions and that a ruling rewrite without guidance obtained from the courts would not be the best means of clarifying the issue.

The Tax Office has also released a fact sheet titled General anti-avoidance rules and how they may apply to a personal services business , which outlines the basic principles of how and when Part IVA applies. In particular the fact sheet outlines how taxpayers can obtain certainty in relation to their individual circumstances by applying for a private binding ruling. As an alternative, the fact sheet also outlines steps to take to avoid the potential operation of Part IVA.

Update on Part IVA Income Splitting Test Case Program

There are two identified test cases under the program to test the application of Part IVA to the alienation of personal services income. Part IVA determinations have recently been made in these matters. Objections are to be lodged and determined. Appeals would be lodged in the Federal Court of Australia. The Tax Office is working with the taxpayers and their representatives to ensure that these matters progress appropriately.

One of these matters involves the retention of profits by a company, in a factual context where there is an issue as to the commerciality of the wages paid to the principal provider of personal services and to the spouse.

The other matter involves the distribution of income resulting from the personal services of a skilled tradesperson through a trust to family members and a non-profit organisation.

Practitioners have requested that the test case program include a professional person. The Tax Office is attempting to identify a third case, possibly in the medical profession.

Other litigation in relation to Part 2-42 of Income Tax Assessment Act 1997, personal services income provisions

The Tax Office has been administering Part 2-42 of Income Tax Assessment Act 1997 (ITAA 1997), the personal services legislation, in accordance with the relevant taxation rulings. Some taxpayers have sought to challenge the Tax Office view by exercising their right to seek a review of a decision made by the Commissioner.

There have been several cases before the AAT and courts which test the operation of Part 2-42 of ITAA 1997. The cases, to date, have involved the relevant taxpayer seeking a review of the Commissioner's decision not to issue a personal services business determination, and consideration of whether one or more personal services business tests have been satisfied by the taxpayer.

In seeking to exercise their rights of review, taxpayers are entitled to apply for test case funding. Each application is considered by the Test Case Funding Panel and assessed on its own merits. The Commissioner has granted test case funding in two litigation matters concerning the personal services income legislation.

Assistance for practitioners

eLink issue number 09/08 of 12 March 2008 advised tax professionals of the first of a new series of tax practitioner webcasts. A Personal services income webcast containing key messages about personal services income was released as part of the initial series.

A Decision Impact Statement (DIS) regarding the outcome of two test cases, IRG Technical Services Pty Ltd and Kenneth Daniel Owen as trustee for Owen Family Trust was published on the Tax Office website on 19 March 2008. The cases were funded to test the application of 'the results test' (one of the four personal services business tests in the personal services income legislation) and whether artificial arrangements operated to defeat the legislation for individuals working in employee-like circumstances.

Meeting discussion

The members appreciated the above response.

It was acknowledged that clarifying issues through litigation can take longer than expected. Members were advised that currently there are two matters on foot and it is hoped that their resolution will assist in clarifying the application of Part IVA.

Members were advised that current rulings will not be reviewed until such time as the cases are resolved.

1.5 Medical expenses tax offset - expenses paid from a joint bank account

Subsection 159P(1) of the Income Tax Assessment Act 1936 (ITAA 1936) states as follows:

An amount paid by the taxpayer in the year of income as medical expenses in respect of himself, or in respect of a dependant who is a resident, less any amount paid to the taxpayer or any other person, and any amount which the taxpayer or any other person is entitled to be paid, in respect of those medical expenses, by a government or public authority or by a society, association or fund (whether incorporated or not) shall, for the purposes of this section, be treated as a rebatable amount in respect of that year of income.

ATO Interpretative Decision ATO ID 2004/272 Income Tax Medical Expense Tax Offset: expenses paid from a joint bank account states that there is a general presumption that holders of a joint account have joint beneficial ownership of the moneys in equal share, although this presumption can be rebutted by evidence to the contrary.

In the case which gave rise to this ATO ID, the taxpayer showed that the entire amount deposited in the account was derived from their income. No amount was deposited by their spouse. As such, it is accepted that the taxpayer has the beneficial ownership of the funds.

Accordingly, the ATO ID concludes that the taxpayer is entitled to the entire medical expense tax offset under the relevant provisions mentioned above. It is noted, however, that if the taxpayer was unable to show to whom the funds in the account belonged, then they would only be entitled to 50% of the tax offset.

Members have concerns about this ATO ID since, from a practical standpoint; it would appear to throw doubt on most medical expense offset claims. The approach, in our view, simply does not reflect the way that families work. We also note in this regard that question T10 in the TaxPack 2007 supplement (there is no reference to the medical expenses tax offset (METO) in the main TaxPack) makes no mention to the abovementioned ATO ID.

Moreover, the Tax Office's approach to METO claims seems inconsistent with its general approach to normal family dealings where it is generally assumed that family business and investment income can be split where the funds are held in a joint account without there being any further inquiry into the origin of the funds in the account. There is also nothing in the METO provisions which would imply that a different standard should apply in such cases.

In this light, can the Commissioner comment on the above concerns including the view that ATO ID 2004/272 should either be withdrawn or incorporated into a formal ruling product such as a Taxation Determination.

Response

We have reviewed ATO ID 2004/272, and, although the decision in relation to the factual circumstances of the case which gave rise to the ATO ID is correct, we agree that aspects of the ATO ID may be incorrect or misleading.

Our position in relation to the 20% tax offset for net medical expenses is explained in TaxPack. A taxpayer is entitled to claim a tax offset for net medical expenses in excess of $1,500 paid by the taxpayer in respect of himself or herself, or in respect of a dependant who is an Australian resident.

We also accept that, where the medical expenses are paid from a joint bank account, the spouse who is responsible for paying medical expenses in respect of himself or herself and any dependants, including the other spouse, is entitled to claim the tax offset. This is consistent with relevant authorities who acknowledge that, in the absence of facts or circumstances which indicate that a joint account was kept for a specific or limited purpose, either spouse can draw on the funds in the account for the benefit of both spouses.

ATO ID 2004/272 will be withdrawn.

Meeting discussion

Members sought clarification and were advised that one spouse is able to claim the medical expenses tax offset from a joint account on their tax return without the need to split the offset.

The response was accepted by all.

1.6 Deductibility of fees for financial planning advice

This matter was initially raised in a submission to the then NTLG Technical Issues Management Sub-committee (TIMS) on 1 May 2006. The main rationale for the submission was our concern with the uncertainty and limited deductibility of financial planning fees under the Tax Office's current Taxation Determination TD 95/60 Income tax: are fees paid for obtaining investment advice an allowable deduction under subsection 51(1) of the Income Tax Assessment Act 1936 ('the Act')for taxpayers who are not carrying on an investment business? which we consider to be outdated and in urgent need of review.

At a meeting in November 2007 with CPA Australia and ICAA representatives, the Tax Office tabled an issues paper as a basis for discussion with us to determine the deductibility of financial planning advice fees under the general deduction provisions in section 8-1 of the ITAA 1997. This paper canvassed the tests arising from the major Australian case law on the general deduction provisions, including particularly Sun Newspapers Ltd v. Federal Commissioner of Taxation and BP Australia Ltd v. Federal Commissioner of Taxation, and how these tests applied to the deductibility of financial planning fees both in Australia and New Zealand.

The more extensive papers on the New Zealand position reflected more recent decisions in that country in this area by both the New Zealand High Court and the Taxation Revenue Authority as well as a significant rewrite by the New Zealand Internal Revenue Service (IRS) of its position on this topic in the form of an interpretation statement issued in May 2000 which replaced its earlier Public Ruling (BR Pub 95/10).

In comparing developments in both countries though in respect to the deductibility of financial planning fees, it should be borne in that while there are no doubt many similarities between the financial planning industries in both countries (as reflected in the summary of the various fee categories applicable in the New Zealand industry), it is unclear as to what precedential value the relevant cases and other developments have for Australia given the apparent significant differences in both the relevant New Zealand case law and its legislative framework in this area. This position is clearly reflected in the IRS interpretative statement (IS) mentioned above.

In particular, in considering the tax treatment of financial planning fees to individual investors in Australia, the primary or sole focus should be on the nature or type of fee involved rather than the 'tax status' of the individual investor.

Under this approach, there is a strong argument that most, if not all, financial planning fees incurred by individual investors should be fully deductible under the general deduction provisions of the income tax law for the reasons outlined in the earlier Technical Issues Management Sub-committee (TIMS) submission.

A practical approach of this kind would also have the following benefits:

¦ simplification of the law for individual investors, financial planners and also tax practitioners involved in this area, and

¦ alignment of the tax treatment of financial planning fees under fee-for-service arrangements (which are becoming more common in the financial planning industry and clearly favoured by government and relevant private sector bodies) with commission type arrangements.

In any event, to move forward on this matter it is imperative in that the Tax Office gives priority to clarifying its position on the tax treatment of financial planning fees. Once this is done, the professional bodies can then determine whether they need to approach the Government for a legislative solution.

Response

Following the meeting on 29 November 2007, the representatives of CPA Australia and the ICAA agreed to provide comments to the Tax Office in relation to the examples and scenarios in the issues paper discussed at that meeting, including some typical financial planning scenarios, and to provide details of standard fees charged by financial planners.

We received comments on the issues paper and some examples of standard financial planning fees from CPA Australia on 18 and 19 February 2008. We anticipate a response from the ICAA shortly.

We are currently reviewing the comments from CPA Australia and, when we have received comments from the ICAA, we will determine the best way to clarify our position on the tax treatment of financial planning fees. We anticipate that it will be necessary to have a further meeting with the professional bodies before finalising our position in relation to this matter.

Meeting discussion

The ICAA advised that they support the comments from CPA Australia, and it was unlikely that they would submit a separate response.

Members accepted the above response.

Action item:

NTLG0803/02 Members are to be advised of the progress of the review of the deductibility of fees for financial planning advice.

1.7 Instalment warrants

In response to superannuation industry concerns about the ramifications of the amendment to section 67 of the of the Superannuation Industry (Supervision) Act 1993 (SISA 1993) allowing use of instalment warrants (subsection 67(4A)), the Minister for Superannuation and Corporate Governance, Senator Nick Sherry, recently indicated that he would seek information on the use of instalment warrants and would ask for reports from the Tax Office, the Australian Prudential Regulation Authority and the Treasury (AFR, Thursday 31 January 2008).

Whilst members of the NTLG appreciate that this issue is currently being looked at by the NTLG Superannuation Sub-committee, given the above investigation by Senator Sherry, the importance of the issue and its ramifications for the superannuation industry, as well as the apparent lack of an agreed view at present on the scope and application of these changes, we believe that it is appropriate to table the issue at the NTLG to discuss the Tax Office's proposed strategies for clarifying its position on this issue and its timely communication with the superannuation industry and all parties affected by it.

Response

Scope of legislative amendments

With effect from 24 September 2007 subsection 67(4A) of the SISA 1993 has allowed the inclusion of instalment warrants as an exception to the borrowing rules. The arrangement described in the amendments to section 67, while describing an instalment warrant typically created over listed company securities, are not limited to listed securities.

The amendments reflect the policy contained in the announcement by the then Minister for Revenue and Assistant Treasurer in May 2007 that superannuation funds would be allowed to invest in instalment warrants of a limited recourse nature over any asset a fund would be permitted to invest in directly.

Subsection 71(8) and (9) of SISA 1993 were also inserted at that time and ensure that an instalment warrant arrangement which meets the requirements of subsection 67(4A) will only be an in-house asset where the underlying asset would itself be an in-house asset of the fund if it were held directly.

The requirement in paragraph 67(4A)(a) that the borrowed money must be 'applied for the acquisition of an asset' means that instalment warrant investments by way of shareholder application are still not allowed.

The Tax Office view is that the 2007 amendments are not, nor were they intended to be, limited to:

¦ investments made by self managed superannuation funds (SMSF) - the new rules apply to all regulated superannuation funds

¦ exchange traded instalment warrants over Australian Securities Exchange (ASX) listed securities

¦ particular types of underlying assets apart from assets that the fund would otherwise be prohibited from acquiring, and

¦ the particular structure adopted by traditional investment warrants.

Clarification of the law and Tax Office assistance

For those seeking comfort about the compliance of their own products with the new rules we are providing written non-binding 'product advice'.

The NTLG Superannuation Technical Sub-group is the key avenue for identifying and ranking technical issues for possible future clarification by the Tax Office.

With the assistance of NTLG Superannuation Technical forum participants, we have identified and prioritised several issues. We are currently considering the most appropriate manner in which to resolve and publish the Tax Office view of these issues. As part of this process a paper will be distributed to the NTLG Superannuation Technical Sub-group members for discussion, before the next meeting on the 31 March 2008.

We will continue to liaise with the NTLG Superannuation Technical Sub-group to progress the resolution of technical issues in a timely manner. After discussion at our next meeting on the 31 March 2008, an out of session update will be provided to the national NTLG.

Meeting discussion

Assistant Commissioners, Stuart Forsyth and Cheryl-Lea Field attended the meeting to address this item. NTLG members were provided with a draft copy of Instalment warrants and super finds - questions and answers which was to be distributed to the Superannuation Technical Sub-group members later that day.

It was agreed that the issue of instalment warrants will be progressed out of session and NTLG members input was encouraged. The current mixed reaction to instalment warrants in the market place was noted, and there was acknowledgment for the need to provide clarity as soon as possible to address misconceptions.

The question and answer document was to be discussed at the sub-group meeting of 31 March 2008. Members were advised that the question and answer document is to be published on the website. Members of the Superannuation Technical Sub-group and the regulators have collaborated on relevant issues and guidance for the market place. Some of the more extreme arrangements that have been brought to the attention of the sub-group did not appear to be in the spirit of the legislation.

There was further discussion regarding the provision of guidance. Members suggested that guidance from the Tax Office to assist taxpayers, SMSF auditors and financial planning advisors would be appreciated. The need to distribute messages quickly was emphasised, and their release on a progressive basis was also acknowledged. Members were invited to advise Superannuation of any areas of concern to enable them to be addressed.

Members advised that they were happy with the response provided and looked forward to further information following the sub-group meeting.

The Commissioner advised members that their feedback is appreciated and acknowledged the need to provide information and guidance.

Action item:

NTLG0803/03 Members are to be provided with an update on Instalment warrants following the Superannuation Technical Sub-group meeting of 31 March 2008.

Post meeting update

NTLG members were advised of the release of taxpayer alert numbers TA 2008/3 and TA 2008/4 on 27 March 2008.

The NTLG Superannuation Technical Sub-group met on 31 March 2008 and the members supported the issuing of an alert together with the questions and answers document.

Copies of Taxpayer Alert TA 2008/5 - Certain borrowings by self managed superannuation funds and the Instalment warrant and super funds - questions and answers document were distributed to members of the NTLG Superannuation Technical Sub-group and the Superannuation Consultative Forum on 4 April (coinciding with their public release) together with the Commissioner's media release Certain borrowings by self-managed superannuation funds under review .

The three Taxpayer Alerts which have issued recently are available on the web site:

¦ TA 2008/3 Uncommercial use of certain trusts

¦ TA 2008/4 Self managed superannuation funds deriving income from certain uncommercial trusts

¦ TA 2008/5 Certain borrowings by self managed superannuation funds

The Instalment warrant and super funds - questions and answers document was published to the website on 4 April 2008.

1.8 Alternative dispute resolution in Tax Office disputes and litigation PS LA 2007/23

The professional bodies request the Tax Office to provide a report on the application of PS LA 2007/23 Alternative Dispute Resolution in Tax Office disputes and litigation - intended to provide instruction to Tax Office staff on what policies and guidelines must be followed when attempting to resolve or limit disputes by means of alternative dispute resolution (ADR) (effective from 22 September 2007).

We request the Tax Office's feedback on the application of this practice statement, in particular whether it is current Tax Office administrative policy to assess all disputes to determine whether they qualify for ADR within the terms of this practice statement?

Response

We are currently actively reviewing our approach to tax technical dispute management generally. We are aiming to identify a broader range of disputes which may be able to be resolved in accordance with our relevant policies and procedures and where this is the case attempt to resolve them as early as appropriate and practicable in the dispute process.

It needs to be emphasised though that while the Tax Office is fully supportive of ADR this does not mean that we will be entering into what might be called 'commercially based' settlements. The Tax Office has clearly stated policies that are enunciated in public rulings and Law Administration Practice Statements as to how we believe various areas of the tax laws should be interpreted. Disputes involving the application of the ATO view are treated as matters of principle that cannot be negotiated should an issue be disputed. The Tax Office's policy on settling cases is set out in our Code of Settlement Practice which can be accessed on the Tax Office's website.

The code was recently revised and two practice statements have also been issued, PS LA 2007/5 Settlements and PS LA 2007/6 Guidelines for settlement of widely-based tax disputes .

The withdrawal of PS LA 2002/9 Mediation of disputes to which the Tax Office is a party and the publication of PS LA 2007/23 in September 2007 was one step in reinforcing our business processes in this area. In this regard paragraph 21 of PS LA 2007/23 is relevant.

Alternative dispute resolution is strongly supported by the Tax Office and regularly used to resolve disputes in tax technical and debt litigation. The Tax Office's case management processes in tax technical litigation and debt recovery litigation specifically require consideration as to whether ADR is appropriate and therefore satisfies the requirements of PS LA 2007/23.

A trial involving the application of ADR methods to goods and services tax (GST) disputes is currently being established. In addition a Dispute Resolution/Alternative Dispute Resolution Network consisting of staff in most business lines is being set up. We expect that some training will be necessary to provide the members of the network with a more specialised knowledge of negotiation skills and alternative dispute resolution processes. The Legal Services Branch of Law and Practice will be responsible for identifying and implementing initiatives in this area including the Dispute Resolution Network. Any particular questions on alternative dispute resolution can be made to Julie Coates, Principal Litigator in Legal Services Branch via email to Julie.Coates@ato.gov.au .

Meeting discussion

The extent of the use of PS LA 2007/23 in resolving disputes across the office was queried. Members were advised that the practice statement considered ways of resolving matters without the need to proceed to litigation and this included settlements in appropriate circumstances. ADR is a way of resolving disputes without litigation. A greater percentage of cases that taxpayers are involved in don't result in litigation. It was considered that it would be useful to form a picture of the alternative methods used to resolve matters. Further administrative procedures are being developed connected to ADR. These will be shared with NTLG members and any feedback is welcomed.

GST is conducting a pilot to review dispute resolution processes prior to litigation. Members were advised that a sample of almost 200 objection cases were identified as being possibly suitable for negotiation using ADR principles. This number was reduced to 78 due to a number of factors. The use of ADR with these remaining cases is to be analysed to determine the level of success and identify relevant learnings and application.

There was discussion regarding approaches to mediation, and it was resolved that the Tax Office would not endorse a list of 'approved mediators'. Members views were canvassed regarding any specific resolution approaches, and suggestions may be forwarded to the NTLG secretariat. Members expressed frustration with the current level of authority of Tax Office personnel during the settlement at mediation process.

Action item:

NTLG0803/04 Members are to be provided with information on: ¦ how disputes are resolved if the matter does not proceed to litigation ¦ what processes are followed at the litigation stage, and ¦ the number of cases that have been resolved using ADR.

Post meeting update

The draft ADR checklist was forwarded to NTLG members on 7 April 2008 for comment by 30 April 2008. Responses have been received from three of the member bodies.

1.9 Tax Office focus on international transactions

At a recent tax summit in Sydney in February 2008, Deputy Commissioner, Jim Killaly outlined a number of key issues arising in the large corporate sector that were currently under the scrutiny of the Tax Office. During the course of his presentation, he advised that one of the Tax Office's areas of focus was international transactions and hybrids, including the pricing of guarantees between related entities, indicating that the Tax Office was preparing a paper on these issues.

Would the Tax Office please provide more detail about its current work in this area, including an update of the paper referred to by Jim Killaly?

Response

LB&I business line is currently examining a range of cases to identify whether hybrid structures or hybrid financial instruments are being used either internationally or domestically to create arbitrage or generate tax benefits not intended by Australian tax law.

The Tax Office is also currently preparing a discussion paper (Transfer pricing implications of Guarantee Fees) on the application of Australia's transfer pricing rules in Division 13 of the ITAA 1936 and the Associated Enterprises Article of Australia's tax treaties to intra-group finance guarantees and loans. The paper will focus primarily on the questions of whether and in which circumstances a parent company is entitled to charge a mark-up on its own cost of funds when it borrows to provide debt funding to an offshore subsidiary and whether it is entitled to charge a fee for the provision of a finance guarantee to an offshore subsidiary to support borrowing by the subsidiary. The paper will address cases where the subsidiary is creditworthy in its own right and cases where it is not. The paper will also discuss the principles involved in making decisions on these issues and how transfer pricing methodologies might be specifically tailored to the setting of margins on intra group lending and fees for guarantees.

The purpose of the paper is to encourage and facilitate discussions with tax professionals and industry bodies on the relevant principles and methodologies. The paper is expected to be released by 18 April 2008 and, following a period for comments, will be the subject of discussions within the National Tax Liaison Sub-group on Transfer Pricing on 15 July 2008.

Meeting discussion

Members accepted the above response.

There was some discussion of the Draft Taxation Determination TD 2007/D20 Income tax: where there is no excess debt under Division 820 of the Income Tax Assessment Act 1997 can the transfer pricing provisions apply to adjust the pricing of costs that may become debt deductions, for example, interest and guarantee fees? issued in November 2007. The Chief Tax Counsel advised that he was still considering whether to release the final tax determination before feedback is received on the proposed discussion paper.

Members were advised that the discussion paper was expected to be issued around 18 April 2008. The confidential nature of the paper was discussed. At this stage it was planned to release it to the Transfer Pricing Sub-committee members, and it was agreed that NTLG members could receive the paper.

It was agreed that the sub-committee should consider whether the discussion paper should be publicly released. In making its decision, the sub-committee should have regard to the likely media reaction if the paper was publicly released. Some members were of the view that likely media coverage of the issues raised in the paper might hinder effective consultation.

Action item:	NTLG0803/05 Advise the chair of the Transfer Pricing Sub-committee of the NTLG views.
Update:	This action item has been referred to the chair of the Transfer Pricing Sub-committee who has noted the NTLG views.
Action item:	NTLG0803/06 NTLG members to be provided with a copy of the confidential Transfer pricing implications of guarantee fees paper and the Business restructures paper.
Update:	Members were provided with a copy of the business restructures paper on 10 April, and will receive a copy of the Transfer pricing implications of guarantee fees paper in early June.

1.10 Employee share schemes ATO ID 2007/218

There are concerns that the views expressed in ATO ID 2007/218: Acquisition of shares from a trustee pursuant to rights acquired under an employee share scheme could give rise to double taxation.

The ATO ID deals with a situation when a share is 'acquired under an employee share scheme' (as determined under section 139C(4) of the ITAA 1936 and the application of section 130-90 of the ITAA 1936. The view expressed in the ATO ID means that any capital gain or capital loss the trustee of the employee share trust makes when the shares are withdrawn by a participant in the scheme is not disregarded. This may give rise to double taxation as the participant will usually also be taxed at the time the shares are withdrawn from the employee share trust. This outcome has significant implications for the common arrangement where a company has issued rights under an employee share scheme and the shares to be provided on exercise/vesting of the rights are held in an employee share trust.

Would the Tax Office please explain the basis for their in view expressed in this ATO ID? If this view is a correct reflection of the law, would the Tax Office explain how the resultant double taxation is consistent with the intent and purpose of the legislation?

Response

Section 130-90 of the ITAA 1997 disregards a capital gain or capital loss that a trustee makes under capital gains tax (CGT) event E5 as a result of a beneficiary becoming absolutely entitled to a share or right in a company. However, the capital gain or capital loss is only disregarded if the share or right is acquired by the beneficiary under an employee share scheme (subsection 139-90(3) of the ITAA 1997).

Under subsection 139C(4) of the ITAA 1936 a share is not acquired under an employee share scheme if the share is acquired as a result of exercising a right that was acquired under an employee share scheme.

As the rights described in ATO ID 2007/218 were acquired under an employee share scheme within the meaning of section 139C of the ITAA 1936, any shares acquired pursuant to those rights are not acquired under an employee share scheme in accordance with subsection 139C(4) of the ITAA 1936. For this reason, section 130-90 of the ITAA 1997 cannot apply to disregard the capital gain or capital loss that the trustee makes as a result of the beneficiary becoming absolutely entitled to the shares held by the trustee for the purpose of satisfying the rights acquired by the beneficiaries under an employee share scheme.

The Tax Office considers the ATO ID to be a relatively straightforward application of the law. The decision is also consistent with statements in the Explanatory Memorandum to the Taxation Laws Amendment Bill (No.2) 1995 which introduced section 160ZYJD of the ITAA 1936 (subsequently rewritten as section 130-90 of the ITAA 1997). Those statements indicate that CGT relief was only intended to be available under section 160ZYJD in relation to a share or right that was provided under an employee share scheme.

The Tax Office understands that arrangements of the kind illustrated by ATO ID 2007/218 are relatively recent, and involve the use of employee share trusts in a different way from how they have been used in the past. Traditionally, trusts have been used to hold a share (rarely involves rights) acquired by the employee under the employee share scheme until such time as certain conditions, such as a restriction on the sale of the share, cease to apply. At that time, the trustee ordinarily transfers the share to the employee.

Where an employee share trust is used in that way, the trustee can avail themselves of the CGT relief in section 130-90 of the ITAA 1997 to ensure that no capital gain or capital loss is made upon the beneficiary/employee becoming absolutely entitled to the share.

The issue that is the subject of ATO ID 2007/218 has been an agenda item at the NTLG Losses and Capital Gains Tax Sub-committee (November 2004) and subsequently escalated by the ICAA to the NTLG TIMS (November 2005).

The Tax Office provided formal advice to Treasury in December 2007 confirming that the law currently operated in the manner indicated by the ICAA in their submission to the NTLG TIMS.

We consider that this issue can be resolved only by legislative amendment, which, ultimately, is a matter for Government.

Meeting discussion

Members were advised that this matter has been discussed recently with Treasury, however, the Tax Office view is reflected in the response.

The concept of a public register of issues referred to government or Treasury was raised. Second Commissioner, Bruce Quigley confirmed that issues referred to Treasury from the Tax Office are monitored. A number of issues that remain unresolved, such as McNeil and TOFA were mentioned. These issues may require legislative amendments which take time.

The recently established Tax Design Review Panel, which is reviewing current processes and announced but unenacted legislation, was briefly discussed.

Members were further advised that an announcement at the time of the federal budget is expected on a range of issues which may include employee share schemes.

1.11 Interest deductibility generally and the application of section 51AAA

The ability for superannuation funds to now borrow in certain circumstances has caused a focus on the underlying principles of interest deductibility. In many cases, funds will come to grief if they are in tax free pension mode but still paying interest on loans which have funded assets with modest income returns in the meantime.

There is also a continued use of a variety of forms of hybrid trust for investment or business purposes where there are presumptions of interest deductibility in blissful ignorance of the general principles arising from Fletcher and Ors v. Federal Commissioner of Taxation (Fletcher's case), the Tax Office's opinion reflected in Taxation Ruling IT 2684 Income tax: deductibility of interest on money borrowed to acquire units in a property unit trust and section 51AAA. We suspect many practitioners are not aware that section 51AAA existed or still exists, albeit hidden in the ITAA 1936.

A typical hybrid trust structure which ignores section 51AAA involves a person - usually with other top tax rate assessable income - borrowing and subscribing capital for units in the trust. The capital is used to purchase an income producing asset. A discretionary class will be entitled to the income of the trust, often at the direction of the person who subscribed the capital.

The overall intention is that the capital unit holder will essentially negatively gear and claim a deduction for the interest again other income. The income from the trust will be generally applied in favour of members of the discretionary class who will usually be on lower tax rates of course. The capital unit holder may receive some income during the life of the trust but the main intention is to receive any capital gain on the subsequent sale of the underlying trust asset.

The above example is just one of many permutations and combinations of hybrid trust structures in use.

The professional bodies believe that is timely to revisit and highlight the existence of section 51AAA and IT 2684.

Response

The item raises an important issue relating to the income tax consequences of certain flexible trust arrangements, sometimes referred to as 'hybrid trusts'. The Tax Office is currently conducting a general review of the availability of interest deductions in relation to these arrangements.

The arrangements under consideration involve the claiming of deductions for expenditure which, in effect, gains or produces income or capital gains for other people or entities. They cover a diverse range of different trust structures. Commonly, the structures involve a separation of beneficiary entitlements to revenue income and capital gains. Further, that separation may change over time as a result of decisions made by the trustee. Because of the complexity and diversity of the arrangements, it is difficult to issue a single statement which comprehensively encapsulates the Tax Office view on hybrid trusts.

Despite this, the Tax Office is currently preparing guidance of a general nature which it is hoped will assist most taxpayers. This guidance will consider issues relating to interest deductibility, including the operation of section 51AAA of the ITAA 1936.

The Tax Office welcomes the input of members in the development of this guidance. We would like to work with members so as to gain a better understanding of the structures being used, their rationale, and the concerns which they are considered to raise. To that end, it would assist the Tax Office if members could provide examples of the arrangements covered by the agenda item, or permutations of such arrangements, which are considered to raise significant concerns or uncertainties.

In the meantime, the Tax Office is encouraging taxpayers to be cautious before claiming negative gearing deductions in respect of borrowings used to fund interests in trusts with discretionary features. Before claiming such deductions, consideration should be given to whether the relevant expense is commercially explicable by the income and capital gains that the taxpayer reasonably expects to receive from their investment.

Meeting discussion

Members advised that there appears to be limited understanding of section 51AAA in the community and thought it timely to highlight it.

Section 51AAA relates to interest deductibility and Fletchers case ( Fletcher and Ors v. Federal Commissioner of Taxation, 91 ATC 4950 ) highlighted its application.

The Commissioner appreciated the approach and directed members' attention to the cautionary message in the last paragraph of the response above. He advised that a taxpayer alert connected to hybrid trusts may issue shortly which should provide additional guidance.

Post meeting update

Taxpayer alert TA 2008/3 Uncommercial use of certain trusts issued on 26 March 2008 and is available on the website.

1.12 Division 376 Income Tax Assessment Act 1997

Under the new Division 376 ITAA 1997, the Arts Minister or the film authority can issue certificates that appear to be conclusive for the location offset, post, digital and visual effects production (PDV) offset and the producers offset in respect of qualifying Australian production expenditure (QAPE). Under section 376-250(3), any entity whose interest are affected by a decision of Arts Minister or film authority can seek review of the decision in the AAT. This will include decisions in respect of the level of QAPE.

What steps does the Commissioner intend to take in relation to the administration of this Division, including:

¦ will the Commissioner respond to private ruling requests involving Division 376

¦ will the Commissioner be issuing any public rulings involving Division 376, and

¦ how does the Commissioner see the application of Part IVA interacting with the application of Division 376?

In a situation where the Commissioner has decided that the approach of the decision maker was incorrect as a matter of law, does the Commissioner believe that he is an interested party and is entitled to apply to the AAT to have the decision reviewed?

If so, in what circumstances would the Commissioner seek to intervene in this manner?

Are there circumstances in the past where the Commissioner has been forced under other legislation to intervene in conclusive certification processes and if so, do they provide any guidance for the Tax Office's potential intervention under Division 376?

Response

Subsection 376-250(3)

The context of the legislation and paragraph 10.141 of the Explanatory Memorandum of the Tax Laws Amendment (2007 Measures No.5) Act 2007 indicates that an 'entity whose interests are affected' refers to the 'company' the interests of which are affected by the decision. Accordingly, the Commissioner is not an interested party who is entitled to apply to the AAT to have decisions of the film authority or Arts Minister reviewed.

Private and public rulings

Division 376 provides distinct powers to the Arts Minister, the film authority and the Commissioner of Taxation. Matters relating to certification, including the determination of QAPE are not within the powers of the Commissioner. Accordingly, the Commissioner will not rule on those matters or any other matters that he does not have general administration of. This is consistent with section 357-55 of Schedule 1 to the Taxation Administration Act 1953 which only gives the Commissioner the power to make rulings on provisions he has general administration of.

Part IVA

It is considered that the entitlement to a Division 376 offset amount is not a tax benefit that can be cancelled by Part IVA, although it may form part of the circumstances relevant to other tax benefits that are covered by Part IVA.

Meeting discussion

Chief Tax Counsel, Kevin Fitzpatrick advised members that it was likely there would be some circumstances where a claim could be made for the offset in circumstances where tax law concepts or compliance issues might be unclear.

There was some discussion of the mechanisms that should be used to resolve such lack of clarity through liaison with the relevant film authority.

The Commissioner appreciated the raising of the issue, and suggested that this issue may require further consideration. Treasury were requested to consider the matter from a tax design perspective.

1.13 Promoter penalty referrals

On 19 February 2008 the Australian Financial Review reported that there have been approximately 100 promoter penalty (PP) referrals to the Tax Office.

Can the Tax Office give details of what types of matters are being investigated as PP matters?

Can the Tax Office confirm whether the investigations are directed at persons who are/were involved in mass marketed type transactions or in boutique arrangements which are not widely marketed that is, what arrangements have been targeted thus far?

Response

Our Promoter Intelligence area within our Aggressive Tax Planning business line has received over 100 referrals so far this financial year. The majority of these referrals come from other areas in the Tax Office, such as the advice and audit areas in GST, Superannuation and the Income Tax compliance areas.

In recent times, we have been seeing an increasing willingness on the part of external tax professionals to call us and let us know when they are seeing promotion of aggressive arrangements. In our view, this is due in part to our increased presence in the market including field activities (we have undertaken 20 risk reviews so far this year and have a further 50 underway).

Timely intelligence from the tax profession is essential if the promoter penalty laws are to be effective in deterring tax exploitation schemes. We are including messages to this effect in our tax agent communications and products encouraging referrals to be made to the Tax Practitioner Integrity Service by phoning 1800 639 745 .

We follow up on all of referrals received. Some are assessed as low risk and not actioned further where there is no evidence that the promoter penalty laws have been contravened. Some are moderate risk matters and are maintained on a watching brief and other higher risk matters are referred for risk review and further investigation. Some of these high risk matters have involved consideration of possible urgent injunctive action, but we have not needed to take this step so far.

From the referrals received our risk review processes are following up on matters that include:

¦ variations of employee benefit arrangements and employee remuneration schemes

¦ implementation of managed investment schemes not in accordance with product rulings

¦ financial products and financing of other schemes

¦ aggressive capital gains tax planning

¦ aggressive trust and partnership planning, and

¦ superannuation and GST matters.

In relation to the financial sector our activities also seek to better understand the nature of governance and internal controls and the role they play in deterring the promotion of tax exploitation schemes. In this regard, we are more likely to be concerned about certain features of otherwise legitimate arrangements as opposed to the arrangement or product as a whole. For example, in widely offered arrangements we could be concerned about representations made by the financial service provider about the tax consequences of the product or options that they might expect to be exercised.

Our taxpayer alert process will continue to provide greater insights into the types of arrangements the Tax Office is currently encountering and which cause us concern.

Update on promoter penalty practice statements

Since the last update to the NTLG, the two draft practice statements on the administration of the promoter penalty laws have been significantly revised. A number of written submissions were received from the public consultation process undertaken earlier in 2007. Further delay was largely due to the development within the Tax Office of our internal practices and procedures to support administration of the promoter penalty laws.

A meeting of the NTLG Promoter Penalty Sub-committee was held by teleconference on 5 February 2008. At this meeting the revised drafts were discussed (which are to issue shortly) and further work was agreed to be undertaken on the development of a good governance guide, application of the promoter penalty laws in a tax consolidation environment and sharing of a draft enforceable voluntary undertaking.

Meeting discussion

Deputy Commissioner, Stephanie Martin and Assistant Commissioner, Bruce Collins attended to discuss this item.

Members were advised that the two Promoter Penalty practice statements are due to be released on 17 April 2008.

There was some discussion regarding voluntary undertakings, and members were advised that no voluntary arrangements had been entered into at this stage.

Members were advised that a number of the promoter penalty referrals resulted from professionals providing information, as well as from internal risk assessment and the results of audit activities. The promoter intelligence is focussed on risk reviews which may result in further investigations. The staff of the promoter compliance area have received specialist training to undertake reviews and field visits. A range of remedies are available for potential promoters and the practice statements will provide guidance on the choice of appropriate remedies.

There was some discussion regarding the development of Law administration practice statements and time taken to finalise them. Members were advised that the delay was due to re-engineering of a number of associated processes, including the skilling of staff.

Post meeting update

The Commissioner in a media statement of 17 April 2008 released the two practice statements referred to above. Practice statements PS LA 2008/7 Application of the promoter penalty laws to promotion of tax exploitation schemes and PS LA 2008/8 Application of the promoter penalty laws to schemes involving product rulings are available.

1.14 Non-forestry managed investment schemes

This is to provide an update on the topic.

Issues log item NTLG0503/4 refers.

Deputy Commissioner, Aggressive Tax Planning, Stephanie Martin and Assistant Commissioner, Bruce Collins will attend the meeting to address the issue.

Response

Since our last update to the NTLG, we have continued to work with industry to get our reconsidered view tested before the courts as quickly as possible.

Due to delays in developing and progressing industry's test case it is now highly unlikely that a decision on the test case will be obtained before 30 June 2008. We are concerned by this as timing has been largely in the hands of industry (see ' Summary of chronology of test case process ').

However, while the timing of a decision will be a matter for the court, we remain hopeful that a hearing can be held before 30 September 2008 and that a decision might be delivered by the end of the calendar year. Relevantly, industry have agreed with us to jointly request an early hearing and for the case to be heard by the Full Federal Court, while recognising that both will be subject to the agreement of the Federal Court.

The delays have prompted industry to request the Commissioner to extend the (nearly 16 month) transition period beyond 30 June 2008. Any extension of the existing transitional period would preclude a dispute for that year which would further delay the test case.

Consistent with our publicly announced position, we intend to cease to issue Product Rulings from 30 June 2008 in the absence of a court decision on our reconsidered view. However, we will consider accepting requests for Product Rulings for the 2008-2009 year but will hold off issuing them pending the decision by the Full Federal Court. The profile of Product Rulings issued in recent years is that relatively few requests are made and issued during the first half of the financial year (chart attached). We would, of course, review the matter as we get closer to the end of the calendar year.

Industry have stated that they remain committed to the test case process, and provided this results in the matter being expedited from now on, such a strategy should give industry sufficient time in the second half of the financial year or earlier to market products in accordance with the court's decision.

We also note that some parts of industry have already restructured their financial arrangements to deal with our change in view and hope that other members of the industry consider following the same course.

The Commissioner has invited industry to further discuss the matter and a meeting will take place in early April.

Summary chronology for test case process

The Tax Office invited the managed investment scheme industry to assist in identifying candidates for the selection of an agreed case to test in the courts in March 2007 - shortly after the Commissioner announced the transition period.

No candidates were received and an industry representative body declined to meet with the Tax Office to discuss at that time. In May 2007 the Tax Office did meet with an industry representative body and agreed at that time on a timeline for completion of the test case process, which included a draft PBR request to be provided early in July 2007 which the parties would settle together at the end of July 2007.

As things turned out, a draft of the PBR request was not received until mid September 2007, and a final request not received until 16 November 2007 (a month after the final Taxation Ruling TR 2007/8 issued). Despite several communications over time between the Tax Office and industry representatives about material information that the Tax Office considered necessary to test the matter and that would enable the Tax Office to make a quick decision on the PBR request, this was not forthcoming. Additional information had to be sought after the receipt of the final PBR request.

Agribusiness non-forestry Product Rulings issued in recent years

Month	2004-05	2005-06	2006-07
July	0	1	3
August	2	4	3
September	4	0	3
October	3	1	5
November	1	0	1
December	0	2	4
January	0	0	2
February	7	3	5
March	7	11	4
April	15	12	7
May	8	20	9
June	7	6	6

Taxation Ruling TR 2007/8 Income tax: registered agricultural managed investment schemes was released in October 2007 and is available on the Tax Office legal data base.

Meeting discussion

The Commissioner advised members that it seemed unlikely that the test case would be resolved this financial year, and that the previously agreed transition period won't extend beyond 30 June 2008. The Commissioner commented that it would be beneficial to have a test case to assist the resolution of issues before there was a significant impact on the market place.

Members were welcome to submit any cases for review.

Post meeting update

The Chief Justice of the Federal Court has agreed for the matter to be heard by the full Federal Court and indicated a preference for this to occur as soon as possible. The matter is listed for hearing in August.

1.15 Public Ruling Steering Committee update

At the 28 November 2007 NTLG meeting, it was agreed that updates from the Public Ruling Steering Committee would be provided at future NTLG meetings.

Issues log item NTLG0711/08 refers.

As the committee last convened on Monday 17 March 2008, an update will be provided at the NTLG meeting of 26 March 2008.

Meeting discussion

Members were advised that a number of issues associated with rulings panel process were discussed at the committee's recent telephone hook-up on 17 March 2008. The Chief Tax Counsel advised that TD's were referred to the panel for advice where a Deputy Chief Tax Counsel considered it appropriate to do so. Approximately 30% of TD's are referred to the panel. It is also open for professional bodies to request that a draft or final Determination be referred to the panel. Members were invited to advise Assistant Commissioner, Michael Smith if they believed that a specific Determination should be referred to the panel.

The composition of the panels was also discussed. There is one rulings panel for tax matters with a separate panel for superannuation regulatory matters. External members attend panel meetings based on the subject matter being considered and the member's areas of expertise and experience.

The steering committee also considered the possibility of the professional bodies having discussions with the Tax Office and/or the panel on particular rulings in addition to the provision of written comments on a draft ruling. It was agreed that this would be helpful on occasions and members were invited to request a discussion either in the written submission or by contacting the Tax Office contact officer for a ruling.

Members were advised that the steering committee also discussed some issues for inclusion on the rulings program. These issues had been raised by NTLG sub-committees and were presently under consideration by the Tax Office.

1.16 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 Losses and CGT Sub-committee will provide a report at the 26 March 2008 meeting.

Governance reports have been provided by the Trust Consultation Group (TCG), GST, Consolidation, Foreign Source Income, Superannuation Technical and Transfer Pricing Sub-committee at previous NTLG meetings.

The Fringe Benefits Tax Sub-committee has been nominated by members to provide a report at 17 June 2008 NTLG meeting.

Process

Assistant Commissioner, Losses and CGT, Margaret Haly, Chair of the Losses and CGT Sub-committee will attend the meeting to discuss the report.

A comprehensive report has been provided in the following pages.

The report includes:

¦ history of the sub-committee

¦ composition and operation of the sub-committee

¦ explanation of Issues management processes, and

¦ overview of the significant current issues before the sub-committee.

Background

History

The Tax Liaison Group Capital Gains Tax Sub-committee was established on 3 December 1986 by the Tax Liaison Group (TLG) (now called the National Tax Liaison Group (NTLG)) to facilitate consultation between the Tax Office and tax practitioners on the legal and administrative aspects of the capital gains tax provisions.

The first meeting was held on 23 February 1987. A proposal to expand the CGT Sub-committee to include loss issues (both income and capital) was considered and agreed at the NTLG meeting on 3 June 2003. Since that date it has been known as the NTLG Losses and Capital Gains Tax Sub-committee (the sub-committee).

To date the sub-committee has met on 40 separate occasions to discuss CGT or loss issues. A copy of the meeting schedule is available from the NTLG secretariat.

Role

The sub-committee:

¦ operates as a consultative forum to facilitate the development of Tax Office interpretative views and to resolve and/or facilitate the resolution of administration issues

¦ provides an opportunity to identify, discuss and jointly resolve significant technical issues

¦ exchanges information about potential future issues and events, and

¦ provides a quick and simple market testing forum for developing ideas.

The main focus of the sub-committee is the discussion and/or resolution of losses and capital gains tax issues - both administrative and tax technical. This covers a broad range of law and the following are examples of issues/topics discussed at recent meetings:

¦ interaction of CGT and controlled foreign company rules

¦ consolidation leaving automated call attendant (ACA) and CGT event L5

¦ raxation of rights

¦ continuity of ownership test (COT) tax losses for companies with superannuation fund shareholders

¦ impact of share capital tainting provision on carry forward losses

¦ same business test and consolidated groups

¦ capital gains tax and consolidated groups: straddle sale transactions

¦ guidance on the meaning of the word 'part' in subsection 115-215(3)

¦ liability of a non-resident to capital gains tax

¦ assets disregarded in determining the net value of CGT assets of an entity

¦ reducing the net value of CGT assets of an entity by a provision

¦ requirement to make a payment under the retirement exemption

¦ can the payment of the amount disregarded under the retirement exemption, of itself, create a significant individual?

¦ payment to a significant individual through interposed entities

¦ small business CGT concessions

¦ Dick Smith case

¦ TR 2007/D10 and earnouts

¦ application of section 109 to payments made by private companies to CGT concession stakeholders under the retirement exemption

¦ Draft Ruling TR 2007/D7 wash sales and Part IVA consequences, particularly relating to CGT

¦ first home owners grant scheme (and like payments from State governments)

¦ carry forward tax losses, discount capital gains and CGT event E4, and

¦ application of section 152-20(2) to superannuation fund assets.

The most recent meeting was held on 14 November 2007, and the next meeting is scheduled for 11 June 2008. The sub-committee meets bi-annually usually June and November in Sydney and Melbourne respectively.

If issues considered by the sub-committee involve interactions with a range of business lines, or other Centres of Expertise or NTLG sub-committees, the Chair arranges for appropriate consultation and input to achieve resolution. Where appropriate issues are escalated within the Tax Office and/or referred to Treasury for consideration and advice. In the past the following business lines have been involved in resolving issues raised by the sub-committee:

¦ Large Business and International

¦ Small Medium Enterprises

¦ Micro Enterprises and Individuals

¦ Goods and Services Tax

¦ Operations, and

¦ Law and Practice.

Some issues raised by the sub-committee and escalated to Treasury have resulted in legislative amendments.

1. Composition of the sub-committee

Members must be nominated by their professional association, have expertise in losses and/or CGT tax technical issues and be able to provide input to related administration matters. Nominations are considered and endorsed by the Chair of the sub-committee after consultation with the Stakeholder Relations Unit and the Professional Association Liaison and Listening Unit (PALLU) acting on behalf of the NTLG.

The current membership reflects a broad range of expertise and apart from me as the Chair and a representative of Tax Counsel Network, Martin Keating, there are external representatives of the tax professions:

¦ Institute of Chartered Accountants in Australia -three representatives

¦ National Institute of Accountants - one representative

¦ CPA Australia - two representatives

¦ National Tax and Accountants Association - one representative

¦ Taxation Institute of Australia - two representatives, and

¦ Law Council of Australia - two representatives.

A Treasury officer also attends all meetings in an ex-officio capacity and is a valuable addition to the meetings. A representative from Capital Gains Tax and Losses, LB&I also attends meetings and provides a report on a range of administrative issues of interest to members.

The work of the sub-committee is primarily supported by the Losses and CGT Centre of Expertise. However, from time to time, it is necessary for the Chair to call on other resources of the Tax Office in order to address/resolve issues brought to the sub-committee.

2. Governance

The sub-committee is complying with the requirements set out in the Corporate Management Practice Statement PS CM 2006/06 - Committee Management.

Charter

As outlined in the practice statement, the sub-committee has established and published a NTLG Losses and CGT Sub-committee charter .

Minutes

Draft and final NTLG Losses and CGT Sub-committee minutes are regularly published to the web as soon as possible after each meeting.

Reviews and feedback

Reviews of membership occur regularly - generally initiated by the professional associations. For example, a number of membership changes took place prior to the two previous meetings which were initiated by the professional associations.

An annual review of the sub-committee is intended to take place in order to evaluate performance and the need for the continuation of the sub-committee. The sub-committee is currently consulting with PALLU about the appropriate process to be adopted in this regard.

In feedback received from members early last year, it was noted that the sub-committee should spend more time discussing issues raised. To try and stimulate discussion, we included initial draft responses to questions in the agenda for the June 2007 meeting. I hoped that this would support more discussion especially if the view taken by the Tax Office was not the same as that of members. Unfortunately, it had the opposite effect and seemed to stifle discussion and brought the meeting to a close early. For the November 2007 meeting, the agenda did not have initial responses to questions. This seemed to generate a lot more discussion and interaction and I do not intend to include any draft responses in future agendas. I am also ensuring that members have ample opportunity to speak to their own agenda items.

Membership listing

Member listings and contact details are regularly kept up to date. Members of the sub-committee are not listed on www.ato.gov.au . However, they are identified in the draft and final minutes of the meetings.

Issues register

Although it is the goal of the sub-committee to address and resolve issues at the meeting they are tabled at, an issues register is used to assist with the recording and tracking of issues where this is not possible. The minutes identify all unresolved issues and they are reported on at each meeting until they are resolved. The sub-committee also seeks to finalize items out of session where possible to avoid delays and all members are kept informed of such developments. The register is not available on the web, as all unresolved items are captured in the agendas and minutes of meetings.

3. Work issues

The sub-committee's charter identifies the chair as being responsible for determining the priority to be ascribed to agenda items. There is no documented timeline for the resolution of issues. However, the sub-committee aims, where possible, to resolve all matters at the meeting they are set down for. The majority of issues referred to the sub-committee are successfully addressed at the meeting they are scheduled for. Some are resolved out of session or if that is not possible at a subsequent meeting.

In cases where issues are raised where the Tax Office considers that legislative change may be appropriate, the issues are escalated to Treasury and may take a longer time than usual to resolve. Confidentiality issues affect the nature and extend of the updates that can be provided to members in such cases. Sometimes complex issues are raised which require input from multiple Centres and/or require escalation within the Tax Office before an ATO view can be established or before the sub-committee can record an informal Tax Office position. Such cases are in the minority and the sub-committee follows through until finalization is achieved.

If urgent issues arise, the sub-committee accepts references outside the meeting process, and these may be actioned outside the scheduled meeting process where possible, or included in the agenda for the upcoming meeting.

4. Further information

Website:	For Tax Professionals- National Tax Liaison Group essentials
Chair:	Margaret Haly
Secretariat:	Sean Bielanowski

Meeting discussion

Assistant Commissioner, Margaret Haly provided an overview of the operations of the Losses and CGT Sub-committee.

It was mentioned that there are still a number of issues for the sub-committee to consider even though the sub-committee has been in operation for some time. There are interactions between a number of the NTLG sub-committees, for example, Consolidations and Finance and Investment Sub-committees. There is a reliance on members of the sub-committees to bring issues forward.

The sub-committee provides an opportunity to discuss a range of issues. Sub-committee members appreciate the opportunity to discuss a broad range of topics, including new and proposed measures. It meets bi-yearly which is considered appropriate, and the meetings are held when parliament is not sitting to enable the Treasury representative to attend.

A collaborative approach is adopted to develop an ATO view of some issues that cross over a number of sub-committees, such as Consolidation. The meeting minutes are used to report on the progress of issues since the time of the meeting.

Members were directed to the key issues for the sub-committee at page 38 of the agenda (see previous action items/hot topics ). The draft minutes of the November 2007 sub-committee meeting contain the most up to date information of the issues discussed at that meeting.

Issues are referred to the Trusts Working Group depending on their nature. The minutes of that sub-group will be published on the website.

The inclusion of the Dick Smith case on the list of key issues was queried and members were advised that there are tax implications arising from that case that require consideration. These issues have arisen more recently than at the time of the case.

The Indofood matter was also raised and the Commissioner invited members to forward any issues on this case to the NTLG secretariat for consideration. Members were advised that consideration of this case was continuing. NTLG issues log item NTLG0706/05 refers.

The issue of dealing with both losses and capital gains issues in the one committee was discussed. Members were advised that combining the topics provides certain synergies and maximises research opportunities. The majority of issues are CGT rather than losses, and there is a good mix of staff with expertise in losses and CGT matters to deal with issues.

Draft minutes from the Losses and CGT Sub-committee are published on the web, and subsequently replaced with endorsed minutes.

Hot topics - previous action items

Issue number:	2006/6 - 5.0 and 2007/11 - 3.2
Issue/application:	Application Dick Smith case.
Status:	Progressing
Outcome - action to date:	We are developing an ATO view product dealing with the application of the Dick Smith decision.
Issue number:	2006/11 - 9.0 and 2007/11 - 3.1
Issue/application:	Interposition of a new company between notional stakeholders and the application of Division 166.
Status:	Progressing
Outcome - action to date:	This issue has been referred for Treasury's consideration. Treasury will endeavour to take the issue forward as a part of the consultation process involving multiple share classes.
Issue number:	2007/6 - 5.0 and 2007/11 - 3.3
Issue/application:	The definition of 'taxable Australian property' in section 855-15 ITAA 1997 includes at item 3, a CGT asset that you used at any time in carrying on a business through a permanent establishment in Australia. The question relates to whether goodwill of a business carried on through a permanent establishment is 'used' in carrying on that business?' Could the Tax Office please confirm whether goodwill and other intangible assets would be seen as being 'used' in the context of the definition of taxable Australian property in section 855-15.
Status:	Progressing
Outcome - action to date:	This matter is still under active consideration within the Tax Office, involving many areas, and a response will issue out of session once the ATO view is established. The issue has also been brought to the attention of Treasury.
Issue number:	2007/6 - 15.0
Issue/application:	Liability of a non-resident to capital gains tax and the meaning of 'real property'.
Status:	Ties in with the issue above. Progressing.
Outcome - action to date:	Same comment as for item 2007/6-5.0 above.
Issue number:	2007/6 - 6.0
Issue/application:	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?
Status:	Referred to the TCG.
Outcome - action to date:	Agenda items 2007/6-6 and 2007/11-5, 2007/11-6 and 2007/11-7 are related and raise issues re the interactions between Division 6 of Part III of the ITAA 1936, the capital gains tax provisions in Parts 3-1 and 3-3 of the ITAA 1997, and the provisions in Division 855 of the ITAA 1997 that disregard capital gains and losses made by foreign residents. The manner in which these provisions interact can be complex and the outcomes may sometimes seem at odds with that which might be expected. Some of these issues have already been considered by the Tax Office representatives on the TCG and some have been raised with Treasury. Therefore, these agenda items have been transferred to the TCG with the consent of its Chair. This will allow them to be considered by the TCG at a holistic and systemic level. The TCG met recently and will provide a report back to the NTLG Losses and CGT Sub-committee for distribution to members.

Hot topics - current action items

Issue number:	2007/11 - 5.0, 2007/11 - 6.0 and 2007/11 - 7.0
Issue/application:	Several action items referred to the subcommittee that are similar to the previous two listed items, regarding: ¦ non Australian sourced capital gain distributed to non-resident ¦ non-resident CGT exemption and Trusts, and ¦ how does the section 855 exemption in this case align with the treatment of the capital gain under Division 6 ITAA 1936?
Status:	Referred to the TCG.
Outcome - action to date:	Same comment as for item 2007/6-6 above.
Issue number:	2007/11 - 12.0 and 13.0 and 25
Issue/application:	Draft Taxation Ruling TR 2007/D10 - CGT consequences of earnout arrangements.
Status:	Progressing
Outcome - action to date:	Questions were taken for this issue at the NTLG Losses and CGT Sub-committee meeting on 14 November 2007. These comments, as well as those received during the consultation process, will be taken in to consideration for the final product, which will be finalised very soon.

1.17 Brady King Pty Ltd matter

The decision in Brady King Pty Ltd v. Commissioner of Taxation (2008) FCA 81 has raised concerns within the profession and the commercial community.

In the event that the taxpayer does not appeal from the decision will the Tax Office support the reasons for decision of the trial judge or seek to have the legislation amended so as to restore what was previously regarded as the true and proper construction of the relevant statutory provisions.

Response

The Tax Office has released a Decision Impact Statement to the effect that taxpayers who rely on the current rulings will be protected from retrospective adjustments. The initial DIS has been amended to reflect the lodgment of an appeal by the taxpayer, and will be updated when the outcome of the appeal to the Full Court is known.

A copy of the amended DIS was forwarded to NTLG members and NTLG GST sub-group members on 11 March 2008.

Comments may be forwarded via email to robert.olding@ato.gov.au by 20 May 2008. After that date any comments on the consequences of this case for any Tax Office publication should be forwarded via email to ato.coenmt@ato.gov.au .

Meeting discussion

Members accepted the above response.

1.18 Deferred purchase agreements

The Tax Office was scheduled to release the following two draft Taxation Determinations on Deferred Purchase Agreements (DPA's) at the end of January (and before that in November and then in December).

¦ Are gains and losses made on a DPA assessable and deductible under sections 26BB and section 70B respectively?

¦ Does CGT event C2 happen when an investor's rights under a DPA are satisfied by the delivery of the delivery assets?

The Draft Taxation Determinations on DPA's have not been released.

We understand that the author of the draft Taxation Determinations has left the Tax Office and that the release of the draft Taxation Determinations may be pushed back until late February or early March. There has been no further word as to progress and this is causing issues in the market.

What is the present position, in particular, when is it expected that the draft TD's will be issued.

Response

The draft Taxation Determinations have been delayed due to a review of the issues by the Chief Tax Counsel following advice from the rulings panel.

The Chief Tax Counsel's review has included consideration of a 1996 ruling - TR 96/14 - which is relevant to one of the Tax Determinations. The drafts are now scheduled to issue on 2 April 2008.

Meeting discussion

Chief Tax Counsel, Kevin Fitzpatrick advised members that the two draft tax determinations expected to be released for comment on 26 March 2008.

Post meeting update

The draft tax determinations referred to above have been released for comment.

TD 2008/D4 Income tax: is a Deferred Purchase Agreement warrant, an investment product offered by financial institutions, a traditional security for the purposes of sections 26BB and 70B of the Income Tax Assessment Act 1936?

TD 2008/D5 Income tax: capital gains: does CGT event C2 happen as a result of the satisfaction of an investor's rights under a Deferred Purchase Agreement warrant, an investment product offered by financial institutions, by the delivery of the Delivery Assets?

Comments are invited on both draft tax determinations and should be forwarded to the relevant contact officers by Friday 2 May 2008 via email to dpa_Warrants@ato.gov.au .

1.19 GAAR Panel report

This is a standing agenda item and is included in the agenda twice yearly, at the March and September NTLG meetings. Issues log item NTLG0609/10 refers.

This report covers the period 1 July 2007 to 31 December 2007.

The membership of the General Anti-Avoidance Rules (GAAR) Panel at 31 December 2007 was:

¦ Peter Walmsley (Chair)

¦ Nick Oliver

¦ Andrew England

¦ Stephanie Martin

¦ Ray Conwell (external member)

¦ Tony Pane (external member), and

¦ David Williams (external member).

The panel met four times during the period July to December 2007 considering a total of twelve issues, two of which were considered four times during the relevant period and three of which had been considered previously by the Panel in early 2007 and 2006.

Two of the meetings (October and December) were two day meetings; the August meeting was held over four days and the November meeting was a one day meeting.

During the relevant period, Nick Oliver commenced to be an internal member of the GAAR Panel replacing Debbie Hastings.

In accordance with the processes set out in Practice Statement 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 three occasions an invitation extended to a taxpayer to attend a panel meeting was declined. In relation to two of the matters, the taxpayer will be invited to address the Panel at a future meeting.

Examples of the types of arrangements considered by the panel during the relevant period included:

¦ arrangements involving redeemable preference share financing

¦ withholding tax arrangements

¦ inter company loan arrangements

¦ capital reduction arrangements

¦ arrangements involving self managed superannuation funds

¦ offshore asset transfer, and

¦ alienation of personal services income.

Of the matters considered by the panel, one 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 five of the matters considered, the panel advised that the relevant GAAR would find application.

In one matter the panel suggested that the Tax Office team develop a draft discussion paper that explains the types of tax planning the present law may accommodate and discusses examples of when Part IVA may have application.

In a further matter the panel advised that while the Commissioner had arguments available under the relevant GAAR, Part IVA would not find application primarily because there was insufficient evidence to establish the existence of a tax benefit.

Of the remaining four matters, the panel deferred providing advice pending consideration of submissions to be made by the taxpayers at a future meeting.

Meeting discussion

Members accepted the response provided.

1.20 Outsourcing - implications for the tax profession

The topic of outsourcing has been discussed at the NTLG and Chief Executive Officer (CEO) forums previously. Tax Agents' Board (TAB) members participated in the discussion at the November 2007 NTLG meeting.

Following the 28 November 2007 NTLG meeting, the professional associations were invited to provide feedback to a discussion paper in early 2008.

Issues log item NTLG0711/01 refers.

Response

The Tax Office is appreciative of the information and matters raised through the submissions from the professional associations.

A summary of these is available and agreement has been obtained to circulate the submissions to NTLG members. The summary and submissions have been forwarded to NTLG members with the agenda papers. Detailed examination of the various issues raised is not completed as yet and will require consultation.

The Tax Office is continuing to confirm its approach on the matters raised, as they impact on the role of the Commissioner.

Subject to a fuller review a summary of the Tax Office considerations are outlined.

Tax Office

The Commissioner's role includes examining outsourcing arrangements to see if they conform with the requirements of the tax laws, especially section 251N of the ITAA 1936. On identifying any breaches (of section 251N), and depending on the specific circumstances, the Commissioner may initiate prosecution activity in the courts and/or refer cases to the TAB for their consideration.

The current tax law does not preclude onshore or offshore outsourcing by an agent where such is of an incidental nature, for example, the simple keying of data.

Where outsourcing is more than incidental, registered tax agents or persons exempt under section 251L of the ITAA 1936 cannot arrange for any person other than an employee, another registered tax agent or a member of a registered agent partnership (see section 215N(1)) to prepare income tax returns or undertake any part of their business concerning income tax matters.

Even then, an employee, another registered tax agent or a member of a registered tax agent partnership is required to be under the supervision and control of the registered tax agent, part of whose business is being conducted by that other party. In determining whether the supervision and control test is met, factors such as the expertise and experience of the employees, other agents or partnership members will be considered, as well as the means by which supervision and control are exercised.

Portal and digital certificates

Only those persons authorised by a taxpayer are permitted to access that taxpayer's tax information. An agent is unable to authorise other entities or persons (other than employees) to have access to that taxpayer's information.

To ensure improved levels of understanding on this, the Tax Office will be undertaking in the next weeks and months substantial communication activities advising tax agents about the policy and law, and encourages associations to do likewise.

We will be asking agents to review their digital certificate holders and advise us when certificate holders are identified as being not in accordance with this policy and/or law.

In addition, there are to be small but important changes to the digital certificate application forms.

We are also checking what information we may have on current application forms etc to identify possible offshoring arrangements.

On identifying such parties, an inquiry on the bona-fides of these certificate holders would seem appropriate.

The proposed tax agent services legislation

It is inappropriate for the Tax Office to comment on what might be included in the proposed legislation.

Domestic and offshore

It is our view that in considering outsourcing arrangements, there is no difference in the application of section 251N to an offshore or onshore arrangement, other than in determining whether the supervision and control is adequate. Of course, this can be a consideration only once the threshold issue of the relationship of the outsourced party to the tax agent has been determined.

Meeting discussion

Deputy Commissioner, James O'Halloran thanked members for their responses to the discussion paper. A number of the examples provided assisted understanding and aided discussion of the issues.

While a summary of the submissions has been compiled, it is recommended that it be read in conjunction with the full responses. A number of the issues were raised at a recent national Tax Agents' Board Chairs conference. Information from this conference regarding outsourcing is anticipated shortly.

A number of NTLG members and others attended a meeting with the Queensland TAB where this topic was discussed. The Queensland TAB had obtained a legal opinion of supervision and control, which members would appreciate a copy if possible.

The issue of supervision and control was briefly discussed, including the current interpretation and application of the legislation.

It was agreed that there were aspects of this issue that were the province of the TAB's. The potential for change due to the current draft legislation was another factor for consideration. The approach to service entities is not finalised and continues to create a degree of uncertainty.

It was agreed that little more could occur with this issue at present.

Action item:

NTLG0803/07 The Queensland TAB is to be approached regarding the sharing of the legal opinion on supervision and control with NTLG members.

Post meeting update

A copy of the Memorandum of Advice on supervision and control was forwarded to NTLG members on 16 April 2008.

Following a meeting of the combined chairs of the state based Tax Agents' Boards in March, a decision was made to form a working group to further examine issues associated with supervision and control and the outsourcing of taxation services. Nominations for working group members have been sought.

1.21 Tax Office Compliance program

In light of additional funding for its compliance activities, the professional bodies are seek clarification from the Tax Office as to the emphasis and areas of target in their Compliance program.

In the context of the Tax Office's compliance activities, the professional bodies also seek an update on the outcomes to date and future direction of Project Wickenby.

Response

The Government's election commitment to fund extra compliance activity in the large business and high wealth individuals markets is in addition to the expanded income tax compliance program funded in the 2007-08 mid year economic and fiscal outlook process. Under that previous allocation the Tax Office will undertake more income tax compliance work in all markets. This will involve:

¦ better and more targeted help and education products

¦ a greater focus on prevention of non compliance by early detection and advice

¦ improved intelligence and early risk detection using approaches such as data mining and strategic risk research programs, and

¦ increased enforcement activity, especially in pockets of blatant non compliance.

The intent behind this program is to further support underlying levels of voluntary compliance across the income tax system so as to maintain the long term sustainability of that system.

The additional funding to be received over three years, from 1 July 2008 is to support greater compliance coverage in the large business and high wealth individuals sectors.

In the large business market, the strategies we expect to ramp up include:

¦ expanded coverage in the large market - greater visibility and leverage through tailored, issue and industry sector based compliance projects

¦ real time compliance approaches - working with the large market sector to take a preventative approach, resulting in a reduced number of disputes

¦ responding to increasing complexity - increased marketing and education so taxpayers and advisers know what is acceptable, and

¦ Offshore Compliance Program - an expansion of this program which will see increased marketing and education, and increased publicity around enforcement activities, including prosecutions.

In the high wealth individuals market, the additional funding will be used to both build and expand on certain initiatives which were commenced with additional funds provided in the 2006 federal budget for high wealth individual compliance. These include:

¦ improving intelligence gathering and risk identification and assessment - the development and usage of more sophisticated economic and analytical tools to risk profile Australia's wealthiest individuals and their associated closely held private company groups

¦ expanded coverage - increase in audit and risk assessment activity, and

¦ increased marketing and education.

Information can be found in the Large business and tax compliance 2006 booklet and the Compliance program 2007-08 .

Project Wickenby

(An extract from A fair and effective tax superannuation administration speech by Michael D'Ascenzo, Commissioner of Taxation presented on 13 March 2008).

Project Wickenby also sends a clear message to participants and promoters involved in abusive tax haven schemes that they can expect to face the full force of the law if they do not come forward now.

Recent developments include the arrest and charging of a Sydney businessman over an alleged multi-million dollar tax evasion scheme. The alleged offences concern obtaining property by deception and dealing with proceeds of crime. The Australian Federal Police's statement of facts in relation to the bail hearing of Mr Michael Milne alleges that shares to the value of $30 million were transferred and sold to various tax haven entities for the benefit of Mr Milne.

Events to date support views in the community, which in turn have been reflected by the judiciary 4 that tax fraud is not a victimless crime.

There has been a significant improvement in the voluntary compliance of people identified through Project Wickenby. Compliance rates have increased by some 49%, resulting in increased revenue in the order of $35 million.

In summary, Wickenby has 20 criminal investigations underway, nine by the Australian Crime Commission, nine by the Australian Federal Police and two by ASIC. We have completed 168 audits and raised assessments in 124 cases. We are currently auditing a further 353 cases with liabilities raised to date of around $80 million.

4 His Honour Judge Wood in sentencing Mr Glen D. Wheatley on 19 July 2007 said that 'all tax payers are victims of your offending'. He went on to say '[y]our offending diminishes the ability of government to provide for community needs, also it requires and imposes unfair burdens on honest citizens who pay their taxes'.

Meeting discussion

Members accepted the response provided.

Deputy Commissioner, James O'Halloran advised members that a briefing session would be held prior to the launch of the Compliance program later this year, as has been the practice for the past two years. Members were invited to provide any suggestions that may enhance the process as a result of the previous pre-briefing sessions. Any suggestions may be forwarded to the NTLG secretariat.

Post meeting update

A briefing session was provided for NTLG members on 3 April 2008 regarding the release of the Wealthy and wise A tax guide for Australia's wealthiest people booklet.

Copies of the brochure Wealthy Australians and tax compliance and the booklet Wealthy and wise A tax guide for Australia's wealthiest people were forwarded to NTLG members on 11 April 2008.

The Australian Federal Police's media release of 28 April 2008 Project Wickenby dismantles $100 millionmoney laundering scheme provided information on recent outcomes from the Project Wickenby taskforce and can be found on the AFP website .

1.22 Approved forms

At the December 2006 NTLG (agenda item 5), the Tax Office:

¦ undertook to publish a register of approved forms on its website (NTLG 0612/01), and

¦ to consult with the Treasury and advise the NTLG about appropriate wording to include in legislation in the future in relation to use of approved form clauses (NTLG 0612/03).

Would the Tax Office please provide an update on the above issues as well as any other matters arising from the approved form project?

Response

Register of approved forms - NTLG issues log item NTLG0612/01:

The Tax Office has listened to the community and professional associations about the need to provide a single access point for approved forms on the Tax Office external website. In so doing, a level of certainty as to how information is required to be provided to the Tax Office can be achieved.

The approved form requirements are found in paragraph 388-50(1)(d) in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) and provide that a document is an approved form if it is given in the manner that the Commissioner requires. The approved form is not limited to paper lodgment, but may also extend to include transmission of information electronically or by telephone in a particular format.

All business areas have been consulted and a list of approved forms has been compiled and will be located on an easy to navigate page on the internet. This co-design has been done with the collaboration of the publishing arm in the Tax Office.

The web information developed provides a list of forms approved by the Commissioner of Taxation and intended for use by registered tax agents and taxpayers.

The list will display:

¦ the name of the form

¦ related tax topic, and

¦ the legislative reference which requires the information to be forwarded in the approved form.

The list is an extensive one and covers the various virtual and paper forms. For example, telephone lodgment forms along with the tax file number (TFN) paper application forms are all listed.

Please note however that, at this stage, this list is not exhaustive and will continue to be developed until we are satisfied that all Tax Office forms have been included.

The list will be updated regularly when changes occur. Regular maintenance of the web list will ensure the approved forms are kept up to date with any changes that have been made either to the content or format and style, and any obsolete forms are removed.

The web list will offer a functionality to order an approved form, hyperlink to the screen based version of the form or download a copy. Contact phone numbers will also be made available for any enquiries around the forms.

Included in the list will also be those forms which are required to be in the approved form by another government body but are developed and provided by the Commissioner of Taxation. For example, the family tax benefit (FTB) is administered by another agency and not the Commissioner of Taxation. However, the relevant legislation provides that the claim for FTB must be made in the form and manner stipulated. Whilst the Commissioner does not need to approve the FTB claim form, the Tax Office develops and provides the form to clients; hence these forms will also be incorporated into the list to provide a complete service.

The draft web page has been created. We are refining the product to take account of suggestions from various business lines. The web page will allow taxpayers and their representatives to search for approved forms by: title; topic and nat number. Both paper and portal forms will be available for searching.

External web placement is currently being arranged. Although this has taken longer than anticipated, the site is expected to be available late March 2008. Members will be advised when this occurs.

Offshore voluntary disclosure

This topic was discussed at the 28 November 2007 NTLG meeting and generic examples of situations were provided in the meeting minutes (refer pages 43-44, 28 November 2007 minutes).

A virtual form has been developed which sets out the requirements of a voluntary disclosure approved form. This approach has been taken (rather than a single pro-forma) to ensure the form will allow for a variety of requirements, for example, different tax types, market segments, projects, audits, etc.

Instruments of approval have been developed and approved for:

¦ the voluntary disclosure approved form, and

¦ telephone and electronic signatures.

An external web page is being developed to inform clients of various options for making a voluntary disclosure. The intent is to have this published concurrent with, or as soon as possible after, release of the Draft Miscellaneous Taxation Ruling on voluntary disclosure. This is expected to occur in April 2008. Until this is available, a voluntary disclosure statement and information regarding its use is available on the Tax Office website.

Consultation with Treasury regarding appropriate wording - NTLG issues log item NTLG0612/03.

This action item resulted from discussion at the 7 December 2006 meeting and was referred to Treasury following the meeting for consideration regarding the reference to 'approved forms' in future legislation.

In response to the action item in February 2007, Treasury advised that they are aware of the issue and will take into account, in consultation with the Tax Office, in developing future legislation.

During the development of the approved forms website, discussions occurred between Treasury and the Tax Office on this matter. Some issues were identified that require legislative action and others required administrative action. Most of these directly address a review of the terminology to ensure clarification and certainty.

The issues requiring administrative action are:

¦ the need for a legislative link to be incorporated for all forms listed on the approved forms list. This had been incorporated into the design of the approved forms website and is now completed, and

¦ the second issue addresses the need to identify areas in the law which make reference to 'approved form' but for which no approved form currently exists. This had also been identified in the early stages of the project and Tax Office business lines have been advised of the need to identify these gaps. However, it is expected that completion of this will require a considerably longer timeframe. In the interim, we are providing the undertaking that if a form is not located on the approved forms website, then the client can provide the information in any reasonable manner without penalty.

Meeting discussion

The Commissioner advised members of the progress of the approved forms project.

It is anticipated that the forms will be available on the web site shortly, and that it will be an iterative process.

Members were pleased with the progress of the project and accepted the above response.

1.23 McNeil case and the transparency of the Tax Office's consultation process

At the 28 June 2007 NTLG meeting, there was a useful discussion of the McNeil case. At the request of the Tax Office, shortly after that meeting professional bodies provided comments on the former government's announcement in relation to this case and how any resulting legislation might deal with the issues.

We understand that the Tax Office was going to forward these comments to Treasury and that consultation would follow between the two government departments on this matter.

In the interest of transparency and enhanced consultation processes which seems to be a particular focus of the new government, the professional bodies would appreciate an update on this matter particularly as a significant amount of time has elapsed since the announcement and taxpayers and their advisors still remain in the dark.

Response

The comments of the professional bodies, and other public external comments, have been drawn to the attention of the Treasury. The other legislative matters in the timetable of the former government meant that no draft of resulting legislation or of instructions for such legislation were available for public or for limited confidential consultation before the election of the new government.

There is as yet no draft of resulting legislation and no basis for further consultation about how any resulting legislation might deal with the issues. However discussion between the Tax Office and the Treasury is continuing and the issues referred to Treasury will be re-examined in light of the policies of the incoming government and as the priorities of the new government permit.

Meeting discussion

Members were advised that this matter is under consideration, and is expected to be included in an announcement by the government, possibly as part of the budget process.

Work is continuing between the Tax Office and Treasury. The Commissioner commented that the matter may be addressed by the Tax Design Review Panel, and that the Tax Office supports the process.

Post meeting update

The Treasurer, Honorable Wayne Swan MP, advised in his media release of 8 April 2008 Taxation of call options issued by companies , that the government will amend the income tax law to restore the long-standing taxation treatment of call options issued by companies.

The amendments will provide certainty for taxpayers by restoring the taxation treatment of call options issued by companies that existed before the decision of the High Court of Australia. Legislation to give effect to this announcement was introduced on 29 May 2008 in the Tax Laws Amendment (2008 Measures No.3) Bill 2008.

1.24 General interest charge and late payment

In response to a question raised at the September 2007 NTLG meeting in relation to general interest charge (GIC) and late payment (agenda item 6), the Tax Office advised that it was currently reviewing the position outlined in paragraph 93.7.15 of PS LA 2006/11 ATO Receivables Policy in relation to the timing of the GIC deduction.

The Tax Office anticipated that a final position would be notified to the NTLG by early 2008 (agenda item 22.1, NTLG minutes November 2007).

Would the Tax Office please provide an update on this issue.

NTLG issues log item NTLG0709/02 refers.

Response

We have reviewed our answer on the issue of the timing of deductibility of the GIC and confirm that GIC is not incurred until an assessment is made and a notice is served.

We consider that the proper construction of the Act is that the assessment of income tax and service of notice thereof is a necessary condition for any amount of income tax to be owing to the Commonwealth. No GIC can accrue on unpaid income tax until it is in existence as a debt owing to the Commonwealth. A debt is a sum certain. Under an assessment system of taxation, there is no imposition of tax in a definite sum payable as a debt due to the Commonwealth in the absence of an assessment.

When income tax is assessed, the assessed tax is taken to have been due from the relevant date prescribed by section 204 of the ITAA 1936, which, therefore, has retroactive force. However, the Commissioner cannot sue for tax, or GIC, until he has made an assessment and served notice of it on the taxpayer; nor can the Commissioner sue for a sum that is not the amount assessed as due in the notice.

The link between liability and assessment has always been a fundamental part of the structure of the tax law. We do not consider that parliament intended to break that link by the amendments made in 2000 to section 204 of the ITAA 1936. In amending section 204, the words 'income tax assessed shall be due and payable by the person liable to pay the tax on the date specified in the notice' were replaced with the words 'the tax payable by a taxpayer … becomes due and payable … in any other case, 21 days after the date due for lodgment. However, the Explanatory Memorandum to the A New Tax System (Tax Administration) Act (No 2) 2000 at paragraphs 1.182 to 1.185 clearly shows that parliament did not have any purpose, by amending section 204, of altering the fundamental principle that liability to income tax is created by the assessment.

The form of words adopted in the amended section 204 may be misleading when read in isolation from the scheme of the Act, so we will raise with Treasury the need for a legislative amendment to clarify the words currently used in the law.

Meeting discussion

Members were advised that the Chief Tax Counsel, Kevin Fitzpatrick and Peter Walmsley reviewed the response provided at a previous NTLG meeting (5 September 2007, agenda item 6), and provided the revised response above.

Chief Tax Counsel, Kevin Fitzpatrick advised members that a purposive approach was adopted with the response above and that it should be read in conjunction with the scheme of the Act. The Law Council agreed.

It was explained that our purposive approach cannot change the meaning of the words of the Act but the purpose of a provision when looked at in the context of the scheme of the Act informs the interpretation of words used by Parliament.

1.25 Definition of 'family'

This item was included on the 28 November 2007 agenda under other business, refer agenda item 23.

A response was not able to be included in the agenda at that time. Action item NTLG0711/09 was raised to provide members with a response.

The new extended definition of 'family' in section 272-95(1) Schedule 2F ITAA 1936 now includes any lineal descendant of a nephew, niece or child of the test individual or the test individual's spouse (section 272-95(1)(b) and (c)). Whilst the term 'lineal descendant' is used in other areas (for example, section 70E), it is not defined in the tax laws. As a matter of interpretation, would the Tax Office please advise whether they are of the view that section 272-95(1)(c) is limited to 'lineal descendants' who are persons in a direct line of descent from the same bloodline along the patriarchal line only down the generations, or does it also include the matriarchal line?

Response

In the context of paragraph 272-95(1)(c) of Schedule 2F to the ITAA 1936, the term 'any lineal descendant' encompasses all of the descendants of a nephew, niece or child of the test individual or the test individual's spouse, such as a child (including an adopted child, step-child or ex-nuptial child), grandchild, great grandchild, and so on, of the nephew, niece or child.

It is not restricted to descendants on either a patriarchal or matriarchal basis. The extended definition came into effect from 1 July 2007.

Meeting discussion

Members accepted the above response, and queried if the definition could be made more widely available in addition to the meeting minutes.

The Commissioner advised that the suggestion to publish the definition more widely would be considered, such as its likely inclusion on the website.

Action item:

NTLG0803/08 The wider publication of the definition of family is to occur.

1.26 Organisation for Economic Cooperation and Development work with intermediaries update

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.

An update was provided to NTLG members at the 27 November 2007 meeting.

In January 2008 the Federation of Tax Administrators met in Cape Town and 35 Commissioners signed a joint communiqu  endorsing recommendations of the study.

The report noted the diverse experiences of each country and recognised that the conclusions set out in the report may be more relevant for some countries than others.

The Organisation for Economic Cooperation and Development position papers and Fourth OECD Forum on Tax Administration: Cape Town Communique are available on the Organisation for Economic Cooperation and Development (OECD) website.

Meeting discussion

The item was included on the agenda to provide an update on the OECD work.

The Commissioner and Second Commissioner, Jennie Granger attended the OECD Forum on Tax Administration meeting in Cape Town from 10-11 January 2008. The meeting provided an opportunity for all to discuss emerging trends and issues, formulate global perspectives, and share information about various approaches being used to address issues and risks.

The Forum on Tax Administration communiqu  from the Cape Town meeting includes a link to the report from previous meetings. The report's conclusions were the basis of substantial discussions.

Australia, the United Kingdom, Mexico and others agreed to undertake a review of the role and activities of investment banks in the promotion of aggressive tax planning. Australia is also leading work to develop guidelines on tax risk in corporate governance frameworks, with assistance from Canada and Chile. Many of the 45 countries attending the Forum on Tax Administration acknowledged the Tax Office's position as a leading tax administration.

The report Study into the Role of Tax Intermediaries sets out the conclusions of the OECD Tax Intermediaries Study that commenced in September 2006 and can be found on the OECD website .

1.27 Matters referred to sub-committees, National Tax Liaison Group work program and management of issues

27.1 Report on action items arising from 28 November 2007 National Tax Liaison Group meeting

Action item:	NTLG0711/01 Professional association members will provide feedback on the discussion paper outsourcing and off-shoring by 31 January 2008 to PALU. The feedback will also include examples of scenarios. Refer agenda item 3 - November 2007 meeting.
Status:	Ongoing
Outcome to date:	Professional association members have provided feedback on the discussion paper which has been summarised. The summary and copies of the comments have been provided to NTLG members. The topic of outsourcing is included on the agenda for the NTLG meeting of 26 March 2008.
Action item:	NTLG0711/02 The Tax Office will consider the most appropriate channel to publicise the main points of the rulings associated with trusts (TR 2006/4). Refer agenda item 6 - November 2007 NTLG meeting.
Status:	For consideration at 26 March 2008 meeting as completed.
Resolution:	An article 'Flexibility for family trusts' has been published in the December 2007 edition of the quarterly TAX AGENT magazine. Additional information links and resources are included in the article.
Action item:	NTLG0711/03 Consideration is to occur as to the appropriate form of guidance connected to the release of funds and audit requirements for self managed superannuation funds. Refer agenda item 8 - November 2007 NTLG meeting.
Status:	Ongoing
Outcome to date:	Two examples so far have been received, of which neither involved the issues discussed. Superannuation welcomes any further examples from NTLG members and practitioners. Superannuation is continuing to review this issue.
Action item:	NTLG0711/04 Generic examples and criteria for guidance in voluntary disclosure situations are to be provided. Refer agenda item 11 - November 2007 NTLG meeting.
Status:	For consideration at 26 March 2008 meeting as completed.
Resolution:	An article containing information for tax agent's clients about offshore voluntary disclosure initiative is included in the December edition of the TAX AGENT magazine. Additional information links and resources are also included in the article. Three generic examples have been provided, showing how the Tax Office is moving on the voluntary disclosures received. Please see NTLG minutes of 28 November 2007 meeting pages 43 to 44.
Action item:	NTLG0711/05 NTLG members to be informed of developments of the OECD work with intermediaries. Refer agenda item 14 - November 2007 NTLG meeting.
Status:	Ongoing an update will be provided at the March 2008 NTLG meeting.
Outcome to date:	This item is included as an agenda item 26 March 2008 meeting.
Action item:	NTLG0711/06 Results of the Priority Private Binding Ruling (PPBR) review, and its application to the class ruling process, are to be provided to NTLG members at the meeting following the review's finalisation (approximately 30 June 2008). Refer agenda item 15 - November 2007 NTLG meeting.
Status:	Ongoing
Outcome to date:	It is expected that the PPBR review will be finalised by 30 June 2008. NTLG members will be advised following completion of the review.
Action item:	NTLG0711/07 Members will be provided with an update on the CGT pilot following its completion. Refer agenda item 20 - November 2007 NTLG meeting.
Status:	For consideration at 26 March 2008 meeting as completed.
Resolution:	An article regarding the new advice process for complex CGT issues in included in the December 2007 and March 2008 editions of the TAX AGENT magazine. The March 2008 edition is due out 26 March 2008.
Action item:	NTLG0711/08 An update from the Public Ruling Steering Committee will be provided at each NTLG meeting as a standing agenda item. Refer agenda item 22 - November 2007 NTLG meeting.
Status:	This will be a standing agenda item from the March 2008 meeting.
Outcome to date:	This is a standing agenda item and a report will be provided at the NTLG meeting.
Action item:	NTLG0711/09 Members to be provided with a response to the question on definition of family. Refer agenda item 23 - November 2007 NTLG meeting.
Status:	For consideration at 26 March 2008 meeting as completed.
Outcome to date:	A response has been included in the agenda for the meeting of 26 March 2008 at agenda item 25 for consideration by members. The issue may be finalised at the meeting.

1.27.1 National Tax Liaison Group issues log (ongoing action items)

A copy of the NTLG issues log, updated as at 19 November 2007 will be forwarded to members prior to the 28 November 2007 meeting.

The issues log has been structured into three parts:

Part A	Contains responses to action items for consideration for finalisation at the 26 March 2008 meeting. There are nine items put forward for consideration as completed. Those items are included below.
Part B	Contains the ongoing action items.
Part C	Contains the standing agenda items.

Action items for consideration as completed at this meeting are:

Item:	NTLG0711/02
Description:	The Tax Office will consider the most appropriate channel to publicise the main points of the rulings associated with trusts (TR 2006/4). Refer agenda item 6.
Outcome or resolution:	An article 'Flexibility for family trusts' has been published in the December 2007 edition of the quarterly TAX AGENT magazine. Additional information links and resources are included in the article.
Item:	NTLG0711/04
Description:	Generic examples and criteria for guidance in voluntary disclosure situations are to be provided. Refer agenda item 11.
Outcome or resolution:	An article containing information for tax agent's clients about offshore voluntary disclosure initiative is included in the December edition of the TAX AGENT magazine. Additional information links and resources are also included in the article. Three generic examples have been provided, showing how the Tax Office is moving on the voluntary disclosures received. Please see NTLG minutes of 28 November 2007, pages 43 to 44.
Item:	NTLG0711/07
Description:	Members will be provided with an update on the CGT pilot following its completion. Refer agenda item 20.
Outcome or resolution:	An article regarding the new advice process for complex CGT issues in included in the December 2007 and March 2008 editions of the TAX AGENT magazine. The March 2008 edition is due out 26 March 2008.
Item:	NTLG0711/08
Description:	An update from the Public Ruling Steering Committee will be provided at each NTLG meeting as a standing agenda item. Refer agenda item 22.
Outcome or resolution:	This will be a standing agenda item from the March 2008 meeting.
Item:	NTLG0711/09
Description:	Members to be provided with a response to the question on definition of family. Refer agenda item 23.
Outcome or resolution:	A response is included in the agenda for 26 March 2008 meeting, see agenda item 25.
Item:	NTLG0706/07
Description:	Members to forward examples of difficulties associated with resolution of issues and appropriate access to the secretariat to enable improvements. Refer agenda item 11.
Outcome or resolution:	As no feedback has been received this item is considered as finalised.
Item:	NTLG0612/13
Description:	The Tax Office to consider updating the Minor Benefits concession. Refer agenda item 12.
Outcome or resolution:	The Tax Office confirms that the final Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits issued on 19 December 2007.
Item:	NTLG0612/09
Description:	The Tax Office is to work with the professional associations regarding communicating the possible degradation of service during the implementation phase of ICP. Refer agenda item 11.
Outcome or resolution:	Regular updates are provided through the through the portal regarding product release and/or delays of ICP. Updates on the implementation of the Change program are also included on the website and the Tax Office and the professional associations continue to address issues together. These activities are now regarded as 'business as usual' concerning the progressive implementation of the Change program.
Item:	NTLG0512/10 Note: also recorded as NTLG0412 - agenda item 20.1.
Description:	The Tax Office to provide an update on the review of the access manual. Refer agenda item 20.1.
Outcome or resolution:	The access manual has been progressively published to the Tax Office website from June to November 2007. All seven chapters have been published, including appendices. The templates of notices and directions are the last set of documents in the total suite to be published and are now available in chapter 2.13. It is recommended that this action item be finalised.

1.27.2 ATO Tax Practitioner Forum

Meetings held since the last National Tax Liaison Group meeting

The last meeting was held on 29 February 2008.

Next meeting

The next meeting is scheduled for 16 May 2008.

Minutes

The draft ATPF minutes - 9 November 2007 were endorsed at the 29 February 2008 meeting.

The ATPF minutes - 10 August 2007 have been published.

Significant or 'hot' topics

Agenda item:	3
Issue:	Change program Release 3.1 and 'Making it Easier to Comply 2007-08' Members were provided with a copy of the Making it Easier to Comply (MIETC) 2007-08 booklet and key information in the booklet was brought to the attention of members. Members were given an update on the changes to the deployment of the change program Release 3.1 with an emphasis on what the key changes to the deployment were, why the Tax Office changed their approach, what this means for tax practitioners, and how the community was informed. Mention was made of the key outcomes from the Change Program Advisory Group conference held on 11-12 February 2008.
Status:	The next change program presentation to the 16 May 2008 ATPF will focus on superannuation simplification impacts from a systems perspective. Feedback was sought from ATPF members on the MIETC booklet and what sort of penetration the 'easier cheaper, more personalised' message has had in the community. Members expressed satisfaction with the timeliness and quality of the change program communication messages.
Agenda item:	7
Issue:	Application by Tax Office of extra compliance funding A response was provided in the agenda papers but members were seeking more detail. A similar question has been raised for the NTLG.
Status:	Members will be provided with details on extra compliance funding allocation, with a focus on the impacts on small tax agents in particular, once the compliance funding allocation has been finalised.
Agenda item:	8
Issue:	Letter Improvement process A presentation and discussion was held on the letter improvement process to seek engagement with and feedback from ATPF members on the letter improvement process.
Status:	The Tax Office to send a briefing paper to ATPF, Regional Tax Practitioner Forum and ATPF working group members outlining the Letter Improvement team's focus and scope, to seek engagement with tax practitioners in the letter improvement process.
Agenda item:	9
Issue:	Centrelink issues Presentation and discussion from Centrelink representative on two Centrelink compliance projects that may have impacts on tax agents in 2008. Members were invited to provide feedback on a draft letter prepared by Centrelink.
Status:	Tax Office to work with Centrelink to explore the suitability of using the Families Working Group to deal with Tax Office/Centrelink issues. Members asked to provide feedback on what type of engagement they consider is appropriate and what type of opportunities they would like to explore to deal with Tax Office/Centrelink issues.
Agenda item:	10
Issue:	Cash Economy benchmarks Presentation and discussion on the Tax Office's overall cash economy response, outlining the way in which trade benchmarks are intended to work and seeking feedback from members.
Status:	Members expressed an interest in having a product they can use with clients (that is, a range of financial ratios for certain industries). It was agreed that individual circumstances should always be considered and the benchmarks would not be regarded as a safe haven for clients in those industries.
Agenda item:	11
Issue:	Standard business reporting Presentation and discussion from Treasury representative on standard business reporting. Confirmation given that the portal would retain the functions it has now.
Status:	An update will be provided at the 8 August 2008 ATPF meeting.

1.27.3 Consolidation Sub-group

Meetings held since the last National Tax Liaison Group meeting

The last meeting was held on 21 November 2007.

Next meeting

The next meeting is scheduled for 12 June 2008.

Minutes

The NTLG Consolidation Sub-committee minutes - 28 June 2007 were approved at the meeting of 21 November 2007 and have been published on the website.

The Draft NTLG Consolidation Sub-committee minutes - 28 June 2007 have been distributed to members and will be published on the website.

Significant or 'hot' topics

Issue number:	Action item 1/28JUN07 (agenda item 2 of the November 2007 meeting)
Issue:	Tax Sharing Agreements (TSA) and the clear exit provisions.
Status:	Chapter 35 of Law Administration Practice Statement 2006/11 ATO Receivables Policy to be expanded to clarify some of the Tax Office views expressed therein. In progress.
Outcome - action to date:	Written responses have been provided to the TIA and ICAA in respect of their feedback document and their concerns regarding the single liability/multiple liability issues have been escalated to Treasury. This issue was discussed at the meeting held on 21 November 2007 and members were asked to provide suggestions for solutions to the single/multiple liability issue.
Issue number:	Action item 2/28JUN07 (agenda item 4 of the November 2007 meeting)
Issue:	Single entity rule/intra-group assets and third party interactions.
Status:	Members were asked to provide feedback relating to following: ¦ whether the relevant issues have been identified ¦ if there are other issues which should be considered, and ¦ the relative priority of the issues.
Outcome - action to date:	Lists of intra-group asset/single entity rules and third party/single entity rules that may require further consideration and a summary of product that address some aspects of intra-group assets and third party interactions with consolidated groups were distributed to members at the meeting held on 21 November 2007.
Issue number:	Action item 3/28JUN07 (agenda item 3 of the November 2007 meeting)
Issue:	Debt forgiveness and commonly owned groups (NTLG Consolidation Sub-committee issue 17.14).
Status:	The issue of subdivision 245-G applying to a third party related company on forgiveness of intra-group debt will be raised with Treasury.
Outcome - action to date:	A second discussion paper, 'Commercial debt forgiveness; related companies and intra-group transactions' was distributed at the meeting held on 21 November 2007.
Issue number:	Action item 5/28JUN07 (agenda item 2 of the November 2007 meeting)
Issue:	Trust joining and leaving a consolidated group during an income year.
Status:	The Tax Office will consult further with the working party once the alternative views raised at the phone hook-up have been fully considered.
Outcome - action to date:	Phone hook-up was held on 23 November 2007 to discuss interpretative approaches.
Issue number:	Action item 7/28JUN07 (agenda item 2 of the November 2007 meeting)
Issue:	Addenda for certain Taxation Determinations where their application may be affected by measures announced in the 2007 Budget.
Status:	Members requested that their concerns regarding this issue be brought to the attention of the main NTLG committee, as the issue concerns all legislative announcements.
Outcome - action to date:	Issue discussed at the meeting held on 21 November 2007. Members advised that it is not appropriate for the Tax Office to issue addenda to public rulings based on legislative measures foreshadowed in Budget announcements.
Issue number:	Action item 5/28JUN07 (agenda item 2 of the November 2007 meeting)
Issue:	Division 705-C for non-consolidated groups (NTLG Consolidation Sub-committee issue 17.08).
Status:	Subsequent to the meeting, this ruling topic has been withdrawn from the Public Rulings Program and will be considered as a part of ongoing discussions between the Tax Office and Treasury in relation to the consolidation regime.
Outcome - action to date:	Issue discussed at the meeting held on 21 November 2007. Members were requested to provide examples/scenarios where they think subdivision 705-C should apply.
Issue number:	Action item 13/28JUN07 (agenda item 2 of the November 2007 meeting)
Issue:	Straddle contracts (NTLG Consolidation Sub-committee issue 14.01a).
Status:	A paper setting out the draft views being considered by the Tax Office on the issues have been circulated to members for comments.
Outcome - action to date:	A number of Draft Tax Determinations are being developed and it is expected that limited consultation will be conducted with the members prior to their release.
Issue number:	Agenda item 5/21NOV07
Issue:	Trade debts and potential double taxation (ATO ID 2005/211).
Status:	The issue will be further review by Consolidation Centre of Expertise (CoE). In progress.
Outcome - action to date:	Issue was discussed at the meeting held on 21 November 2007.
Issue number:	Agenda item 8/21NOV07
Issue:	The implications for consolidations of the view expressed in the recently released Draft Taxation Ruling TR 2007/D10, Capital gains tax consequences of earnout arrangements.
Status:	A technical discussion paper regarding effect of subsection 705-65(5B) having regard to TR 2007/D10 will be prepared for June 2008 sub-committee meeting.
Outcome - action to date:	Issue was raised and discussed at the 21 November 2007 meeting.

Blocked issues summary

Issue number:	Action item 7/28JUN07 (agenda item 2 of the November 2007 meeting)
Issue:	Addenda for certain Taxation Determinations where their application may be affected by measures announced in the 2007 Budget.
Status:	Members requested that their concerns regarding this issue be brought to the attention of the main NTLG committee, as the issue concerns all legislative announcements. Matter referred accordingly.
Outcome - action to date:	Issue discussed at the meeting held on 21 November 2007. Members advised that it is not appropriate for the Tax Office to issue addenda to public rulings based on legislative measures foreshadowed in Budget announcements.

1.27.4 Division 7A Working Group

Meetings held since the last National Tax Liaison Group meeting

The Division 7A working group held a meeting on 13 February 2008. The intent of the meeting was to present and discuss matters as documented in two discussion papers. The Tax Office is considering the development of additional income tax products to support existing products that will further encourage taxpayers to take up the one off opportunity to take corrective action prior to the expiration of the 30 June deadline and to assist taxpayers who may intend to seek a formal exercise of the Commissioner's discretion. The subject matter of the two discussion papers (note these documents are in draft and not for distribution beyond forum members) presented are as follows:

¦ practical guidance on circumstances likely to be regarded as constituting an 'honest mistake' or 'inadvertent omission' for the purposes of section 109RB of Division 7A of Part III of the ITAA 1936, and

¦ technical discussion - interpretation of concepts such as honest mistake and inadvertent omission as detailed in section 109RB(1)(b) of Division 7A of Part III of the ITAA 1936.

The discussion papers were developed to elicit feedback from practitioners with regards to the interpretational meaning of 'honest mistake' and 'inadvertent omission' as applied within section 109RB and to gain feedback around practical circumstances encountered by taxpayers.

This feedback would be reconciled against the case examples prepared by the Tax Office to test for realism, currency and authenticity for the objective purpose of advising taxpayers under what circumstances they can take corrective action and under what circumstances they will need to ask the Commissioner to apply the discretion to disregard a deemed dividend or to frank an unfranked dividend.

Furthermore the Tax Office wants to know what irritants maybe preventing taxpayers taking up this 'one off' opportunity to take self corrective action so that additional support measures can be put in place to alleviate undue concerns.

The Tax Office is considering the feedback provided by forum members.

Also the Tax Office has asked that forum members provide factual case examples which currently may cause some concern amongst tax practitioners, in that there is some doubt as to whether the Commissioner's discretion may be exercised, as cases the Tax Office would consider in a potential income tax product.

Also the forum received an update of the Division 7A calculator tool. A demonstration of its operation was presented to the forum. It is anticipated that the calculator will be ready for release before 30 June 2008.

1.27.5 Finance and Investment Sub-group

Meetings held since the last National Tax Liaison Group meeting

The last meeting was held on 27 February 2008.

Next meeting

The next meeting is scheduled for early June 2008 - to be confirmed.

Minutes

The minutes of the sub-group meeting on 12 November 2008 have been finalised and were distributed to members on 21 December 2007.

The draft minutes of the sub-groups meeting on 27 February 2008 are being prepared.

Significant or 'hot' topics

Three significant topics were identified at the 28 August special meeting of the sub-group and were discussed at the 12 November 2007 meeting (notified to the NTLG in the report of that meeting).

1. Effectively non-contingent obligation (ENCO).

2. Foreign Exchange (Forex) issues.

3. Section 974-80 of the ITAA 1997.

The first two issues were on the 27 February meeting agenda.

Issue number:	1
Issue:	ENCO
Status:	Submissions on the ENCO discussion paper were received from professional bodies represented on the sub-group. The submissions and a summary of the points raised were circulated with to all members. The meeting agreed that it would be desirable to identify and address discrete aspects of ENCO, rather than attempt to develop an omnibus interpretative product. After discussion, three action items were agreed for completion by the next meeting of the sub-group.
Outcome - action to date:	The three action items for completion by the next meeting of the sub-group are: 1. The Tax Office to consider formal guidance on whether 'obligation' in ITAA 1997 section 974-135 is confined to a legal obligation. 2. External members of the sub-committee to consider relevance of economic compulsion in the debt test and illustrate the issues to be considered by practical examples. 3. External members of the sub-group to consider the relevance of limited recourse in the debt test and illustrate the issues to be considered by practical examples.
Issue number:	2
Issue:	Foreign Exchange (Forex) issues: ¦ announced and not yet enacted amendments ¦ law changes identified but no government announcement, and ¦ other items on the Forex issues register.
Status:	The Tax Office had compiled and circulated for comment a prioritised 'compilation of outstanding forex issues'. The meeting considered the issues nominated and the relative priorities. It was agreed that 'Forex issue register 1.9 'functional currency - extended range of entities/part of entities that qualify' should be elevated to 'Priority 1', and that Treasury should be advised of the sub-group's views.
Outcome - action to date:	The action item emerging from the discussion is: that the Tax Office now advises Treasury as soon as possible of the issues and the priorities agreed by the sub-group.
Issue number:	3
Issue:	Debt/equity - section 974-80 of the ITAA 1997.
Status:	(Refer the report of the sub-group's 12 November meeting to the NTLG's 28 November meeting.) The Tax Office had released a discussion paper on section 974-80 for public comment. By agreement, the paper was withdrawn after consultation and approaches to Treasury by the professional bodies. The Tax Office is to provide its formal advice to Treasury.
Outcome - action to date:	The Tax Office's advice to Treasury has been drafted, and is to be signed off and sent to Treasury in the week ended 14 March 2008.

A summary of work program undertaken since last National Tax Liaison Group

Completed action items from 12 November 2007 meeting:

Action item 1:	ENCO discussion paper amended as discussed in the minutes and released as an attachment to the settled minutes.
Action item 2:	A brief list of identified debt/equity 'related schemes' issues released with the minutes of the 28 August meeting seeking comments on issues to be included in a proposed discussion paper on related schemes.
Action item 3:	Section 974-80 discussion paper withdrawn from website.
Action item 4:	Forex issues - Tax Office confirmed the application of scenario 2 of practice statement 2007/11, and put forward its order of Forex issues for members' consideration and comment.

All actions for Tax Office members have been undertaken as agreed at the August meeting.

Potential Ruling topics identified by National Tax Liaison Group Sub-committee/sub-group

Potential Ruling topic	Sub-committee priority high/medium/low	Action taken or proposed to be taken, that is, does a risk assessment of the issue suggest a ruling may be appropriate
Whether 'obligation' in ITAA 1997 section 974-135 must be a legal obligation.	High	Determination under consideration - issue arises from further discussion of the ENCO discussion paper.

1.27.6 Foreign Source Income Sub-group

Meetings held since the last National Tax Liaison Group meeting

The last meeting was held on 4 December 2007.

Next meeting

The next meeting is scheduled for 8 April 2008.

Minutes

The minutes of the Foreign Source Income Sub-group meeting held on 4 December 2007 are currently in draft form and have been forwarded for publishing to the web.

Significant or 'hot' topics

Issue number:	FSISC0905/7.7
Issue:	Foreign hybrids - guidance on various issues concerning interpretational and operational aspects of the foreign hybrids regime. Division 830 ITAA 1997.
Status:	In progress
Outcome - action to date:	The last sub-group meeting further discussed the issues and associated risks. Three of the issues have been resubmitted to the International Centre of Expertise with a view to requesting PTIC/DTC approval for their placement on the Public Rulings Program. External members have been asked for further information in relation to another one. This information will assist in determining the degree and size of the risk and the appropriate product to mitigate that risk. One issue has been accepted as a priority technical issue (PTI) with work currently being undertaken to issue a practice statement. It was further agreed by members that one of the other issues was not a priority for resolution at this time. An appropriate advice product may be developed in the future.
Issue number:	FSISC0906/04
Issue:	Section 768G ITAA 1997 regarding interposed partnerships and the participation exemption.
Status:	In progress
Outcome - action to date:	The draft CGT participation exemption TD (D6) received submissions as a result of the consultation process and was reconsidered by the Rulings Panel. The authoring team was requested by the Panel to send a minute to Treasury inviting its comments on policy intent as part of the consultation process. A decision had also been made that the final publication date for this TD would be aligned with two other related TDs considering similar issues.
Issue number:	FSISC1104/08
Issue:	Availability of section 23AJ ITAA 1936 exemption through a chain of foreign entities were one of those entities is a foreign partnership or trust.
Status:	In progress
Outcome - action to date:	In relation to TD 2007D14 and D15, a number of submissions have been received by the Tax Office. Time extensions regarding the due date for submissions, were allowed, in view of the 31 October lodgment deadlines. Due to these extensions and material received from externals the TDs will need to go back to the rulings panel for consideration.

A summary of work program undertaken since last National Tax Liaison Group

Guidance on foreign hybrids

Previous to the last meeting of the Foreign Source Income (FSI) Sub-group, six PTI proposals had been written and submitted to the relevant CoE, senior executive service and Deputy Chief Tax Counsel (DCTC) for approval and registration on the PTI register. At the FSI sub-group meeting on 4 December 2007, discussion took place on a number of the issues focussing on the degree of risk (or prevalence) within the tax industry. These discussions provided the Tax Office with a better understanding of the risks.

With regard to one issue, external members considered the industry practice in this area was fairly well accepted and in this respect, whilst a Tax Office ruling would provide clarity, the members did not consider that this issue was now a priority.

In relation to another submission the Tax Office asked members for further information including the significance and prevalence of the problem. The provision by externals of 'real world' examples where the application of the law was causing problems would assist in forming a view, in determining the right product to articulate the view and to ensure a range of scenarios are covered.

Work on the remaining issues has continued using the priorities set by members as a framework to plan for appropriate resources to be allocated to the issues. So far one of the PTI proposals has been approved and entered onto the PTI register and work is progressing.

At the December 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 on what has been happening on the progress of international new measures.

On other matters, 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.

1.27.7 Fringe Benefits Tax Sub-committee

Meetings held since the last National Tax Liaison Group meeting

The last meeting was held on 14 February 2008.

Next meeting

The next meeting is scheduled for 8 May 2008.

Minutes

The NTLG FBT Sub-committee minutes - 15 November 2007 have been published on the website. Minutes of the February meeting are not yet available.

Significant or 'hot' topics

Agenda item:	3.1
Issue:	Cost of compliance submission.
Status:	Submitted by the ICAA on behalf of signatories to Treasury (2 November 2007).
Outcome - action to date:	Now the responsibility of representative members who are signatories to that submission and Treasury to progress the issues raised.
Agenda item:	3.2
Issue:	Group FBT returns/forward compliance agreements.
Status:	Ongoing. Tax Office to keep members informed of progress in this area.
Outcome - action to date:	Tax Office and Treasury have discussed grouping of returns. It has been agreed that the Tax Office will consider whether this is possible administratively as part of forward compliance agreements.
Agenda item:	5.3
Issue:	Inspector General of Tax Review of Tax Office's management of complex issues - case study on living away from home allowances (LAFHA).
Status:	Ongoing
Outcome - action to date:	Tax Office progressing the undertakings given in response to the recommendations.
Agenda item:	6
Issue:	Status of Slade Bloodstock case.
Status:	Full Federal Court Appeal allowed.
Outcome - action to date:	Consistent with the consent orders made by the Full Federal Court, the Commissioner accepts that, on the facts as found by the Tribunal, the payments in question to Mr and Mrs Slade were not fringe benefits.
Agenda item:	7
Issue:	Indooroopilly and subsequent withdrawal of Taxation Ruling TR 1999/5 - Tax Office requested to provide an update on the progress of developing a replacement product.
Status:	No submissions were received from members of the professional bodies.
Outcome - action to date:	Members were invited to submit submissions setting out the issues members would like to see in a replacement product. From an FBT perspective the Federal Court Decision in Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd  [2007] FCAFC 16 can be relied on and further ATO Interpretative Decision ATO ID 2007/194 sets out the Commissioner of Taxation's acceptance on the point that a fringe benefit cannot arise unless a specific employee can be identified.
Agenda item:	14
Issue:	How is the reasonable food component of a LAFHA calculated for one adult and one child?
Status:	Updates of annual taxation determination to include this family grouping.
Outcome - action to date:	In light of surveys conducted that revealed families comprising only adults or adults and one child spent more per head on food and drink than those with more than one child, the Tax Office agreed that the correct calculation would be based on the family grouping of one adult and then adding an additional child.

A summary of work program undertaken since last National Tax Liaison Group

Taxation Ruling TR 2007/12 Fringe benefits tax: Minor benefits issued on 19 December 2007.

FBT Cost of Compliance joint submission signed by all professional body signatories. ICAA forwarded submission to Treasury.

1.27.8 Goods and Services Tax Sub-group

Meetings held since the last National Tax Liaison Group meeting

The last meeting was held on 4 March 2008.

Next meeting

The next meeting is scheduled for 4 June 2008.

Minutes

The minutes of the GST sub-group meeting held on 14 November 2007 were ratified at the 4 March 2008 meeting and are expected to be published by the end of March 2007.

Significant or 'hot' topics

Agenda item:	13.26
Issue:	Management of GST technical issues.
Status:	Review in progress.
Outcome - action to date:	Deputy Commissioner GST briefed the meeting on progress and early findings.
Agenda item:	1.50
Issue:	Margin scheme valuation issues.
Status:	Legislative determination proposal being considered.
Outcome - action to date:	Transparency of Australian Valuation Office processes improved. Discussion of proposed approach.
Agenda item:	1.51
Issue:	Margin scheme scope: Federal Court Decision in Brady King Pty Ltd v. Federal Commissioner of Taxation [2008] FCA 81.
Status:	Awaiting possible appeal.
Outcome - action to date:	Decision impact statement published.
Agenda item:	7.3
Issue:	Requirements for issuing recipient created tax invoices and opportunities to more easily meet these requirements.
Status:	Feedback on approach at 4 March meeting.
Outcome - action to date:	Further consideration to be given to initial proposals.
Agenda item:	2.10
Issue:	Application of GST to managed investment schemes (MISs) in the property sector.
Status:
Outcome - action to date:	Draft ATO ID published with draft GSTR Ruling on agricultural schemes.
Agenda item:	4.5
Issue:	Proof of identity for non resident registration.
Status:	Changes in place, www.ato.gov.au to be updated early March.
Outcome - action to date:	Simplified requirements developed with member input now being administered.
Agenda item:	13.19
Issue:	Practice statements on application of four year time limits on collecting GST debts and refunds.
Status:	Draft practice statements with members for comment.
Outcome - action to date:	Drafts of two practice statements given to sub-group members prior to 4 March meeting. Comments sought by 11 April 2008.
Agenda item:	13.22
Issue:	Application of penalties and interest to transactions that are revenue neutral for GST.
Status:	Draft practice statement being revised.
Outcome - action to date:	GST specific changes to policy identified.
Agenda item:	16.7
Issue:	Publication of EANnet GST classification decisions.
Status:	Public ruling aspects still being considered.
Outcome - action to date:	Negotiations with EANNet providers (GS1 Australia) continuing.
Agenda item:	New
Issue:	Federal Court decision in KAP Motors Pty Ltd v. Federal Commissioner of Taxation [2008] FCA 159.
Status:	Tax Office appeal being considered.
Outcome - action to date:	Federal Court decision handed down 28 February 2008. Briefly discussed 4 March meeting.

Blocked issues summary

Publication of EANnet GST classification decisions: Identified as a blocked issue in the report to the June 2007 NTLG meeting. Since then a pilot website has been developed and member feedback has been obtained. Difficult issues surrounding public ruling status are being worked through.

A summary of work program undertaken since last National Tax Liaison Group

Significant progress has been made on a number of aged issues, with drafts made available to members on the following:

¦ practice statements on four year time limit on collection of GST debts and payment of refunds

¦ changes to GSTR ruling on vouchers, and

¦ public ruling and ATO ID on managed investment schemes in the agricultural and property sectors respectively.

Status of potential ruling topics identified by National Tax Liaison Group Sub-committee

Potential Ruling topic	Sub-committee priority high/medium/low	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	PTI has been raised to support changes to ruling on GST and grants (GSTR 2000/11). External counsel advice received late February 2008 and being considered on multi party payments (GSTR 2006/9 and GSTR 2006/10) with possibility of minor changes to GSTR 2006/9.
1. Operation of five year limitation on residential premises ceasing to be new residential premises. 2. Application of Division 129 of the GST Act where new residential premises intended for sale are leased out.	Medium	Prioritisation of issues was discussed on 4 March and members advice on priorities is being sought out of session. 1. This issue relates to GSTR 2003/3 (new residential premises) rather than GSTR 2000/20 (commercial residential premises). 2. The five year rule issue is inter-related. The product to be issued following the review is yet to be determined but an addendum to GSTR 2003/3 and possibly GSTR 2000/19 and/or a GST determination is the most likely outcome. However members may regard aspects of GSTR 2000/20 as warranting higher priority.
Clarification of GSTR 2002/5 in light of the decision in Debonne Holdings v. Federal Commissioner of Taxation 2006 ATC 2467.	High	The GST business service line has committed to creating a PTI in relation to this issue. Further information is to be provided by members on relevant arrangements.
Managed investment schemes and property sector issues.	Not stated	An ATO ID (2008/37) has been published.
Residential premises (commercial and residential) - GSTR 2000/20.	High	Members have expressed a strong desire for GSTR 2000/20 to be reviewed and revised and Tax Office has now committed to a review. Further discussions are to occur with subcommittee members following the March 4 meeting on the scope of changes and the process for that review.

1.27.9 Losses and Capital Gains Tax Sub-committee

Meetings held since the last National Tax Liaison Group meeting

The last meeting was held on 14 November 2007.

Next meeting

The next meeting is scheduled for 11 June 2008.

Minutes

The draft minutes of the Losses and Capital Gains Tax Sub-committee meeting held on 14 November 2007 will be published on the website shortly.

Significant or 'hot' topics - previous action items

Issue number:	2006/6 - 5.0 and 2007/11 - 3.2
Issue:	Application Dick Smith case.
Status:	Progressing
Outcome - action to date:	We are developing an ATO view product dealing with the application of the Dick Smith decision.
Issue number:	2006/11 - 9.0 and 2007/11 - 3.1
Issue:	Interposition of a new company between notional stakeholders and the application of Division 166.
Status:	Progressing
Outcome - action to date:	This issue has been referred for Treasury's consideration. Treasury will endeavour to take the issue forward as a part of the consultation process involving multiple share classes.
Issue number:	2007/6 - 5.0 and 2007/11 - 3.3
Issue:	The definition of 'taxable Australian property' in section 855-15 ITAA 1997 includes at item 3, a CGT asset that you used at any time in carrying on a business through a permanent establishment in Australia. The question relates to whether goodwill of a business carried on through a permanent establishment is 'used' in carrying on that business?' Could the Tax Office please confirm whether goodwill and other intangible assets would be seen as being 'used' in the context of the definition of taxable Australian property in section 855-15.
Status:	Progressing
Outcome - action to date:	This matter is still under active consideration within the Tax Office, involving many areas, and a response will issue out of session once the ATO view is established. The issue has also been brought to the attention of Treasury.
Issue number:	2007/6 - 15.0
Issue:	Liability of a non-resident to capital gains tax and the meaning of 'real property'.
Status:	Ties in with the issue above. Progressing.
Outcome - action to date:	Same comment as for item 2007/6-5.0 above.
Issue number:	2007/6 - 6.0
Issue:	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?
Status:	Referred to the TCG.
Outcome - action to date:	Agenda items 2007/6-6 and 2007/11-5, 2007/11-6 and 2007/11- 7 are related and raise issues regarding the interactions between Division 6 of Part III of the ITAA 1936, the capital gains tax provisions in Parts 3-1 and 3-3 of the ITAA 1997, and the provisions in Division 855 of the ITAA 1997 that disregard capital gains and losses made by foreign residents. The manner in which these provisions interact can be complex and the outcomes may sometimes seem at odds with that which might be expected. Some of these issues have already been considered by the Tax Office representatives on the TCG and some have been raised with Treasury. Therefore, these agenda items have been transferred to the TCG with the consent of its Chair. This will allow them to be considered by the TCG at a holistic and systemic level. The TCG met recently and will provide a report back to the NTLG Losses and CGT Sub-committee for distribution to members.

Significant or 'hot' topics - current action items

Issue number:	2007/11 - 5.0, 2007/11 - 6.0 and 2007/11 - 7.0
Issue:	Several action items referred to the sub-committee that are similar to the previous two listed items, regarding: ¦ non Australian sourced capital gain distributed to non-resident ¦ non-resident CGT exemption and trusts, and ¦ how does the section 855 exemption in this case align with the treatment of the capital gain under Division 6 ITAA 1936?
Status:	Referred to the TCG.
Outcome - action to date:	Same comment as for item 2007/6-6 above.
Issue number:	2007/11 - 12.0, 2007/11 - 13.0 and 2007/11 - 25
Issue:	Draft Taxation Ruling TR 2007/D10 - CGT consequences of earnout arrangements.
Status:	Progressing
Outcome - action to date:	Questions were taken for this issue at the Losses and Capital Gains Tax Sub-committee meeting on 14 November 2007. These comments, as well as those received during the consultation process, will be taken in to consideration for the final product, which will be finalised very soon.

1.27.10 Promoter Penalty Co-design Sub-committee

The Promoter Penalty Co-design Sub-committee has provided an update on their activities since the 28 November 2007 NTLG meeting.

Teleconference Sub-committee meeting 5 February 2008

We have continued to work on the two practice statements on the administration of the promoter penalty laws. We distributed drafts in December 2007 and January 2008 to the NTLG members and held a teleconference sub-committee meeting on 5 February 2008 to discuss them. As a result of these discussions, we are now making final adjustments and plan to issue the practice statements shortly (mid April).

In addition, at the sub-committee meeting teleconference on 5 February, the members agreed to:

¦ share experiences and governance approaches for the development of a good governance guide for establishing internal controls and processes to minimise exposure to the promoter penalty laws. The good governance guide is expected to have particular relevance to financial service providers, and law and accounting firms. The existence and effectiveness of such internal controls and processes may also be a relevant criterion in the Tax Office's choice of appropriate remedy where there is a contravention of the promoter penalty laws

¦ further work being undertaken to clarify the operation of the promoter penalty laws in a tax consolidation environment, and

¦ the Tax Office sharing a draft of the types of matters that the Commissioner might want to see included in an enforceable voluntary undertaking under the promoter penalty laws. This would be to assist entities that may be considering offering such an undertaking to the Commissioner.

Tax Office promoter penalty activities

By way of update, Tax Office activities undertaken in relation to the promoter penalty laws include:

¦ Referrals

Our Promoter Intelligence area has received over 100 referrals. The vast majority of these have come from compliance activities undertaken by tax officers. Some have come from tax agents and others expressing concern about what they are seeing in the market. We follow up on all of these. Some are 'not further actioned' where there is no evidence that the promoter penalty laws have been contravened, some are maintained on a watching brief and others are referred for risk review and further investigation.

¦ Risk reviews

We are undertaking risk reviews of entities that are potentially subject to the promoter penalty laws. We have undertaken over 20 of these so far this year. We have a further 50 currently under review. These review cases include visits to high risk promoters as well as cases that provide an opportunity to educate and warn entities that promoter penalties may apply.

¦ Potential enforceable voluntary undertakings

There are seven cases that have been considered or are currently being considered for possible voluntary undertakings. In all of these cases the entities have ceased promoting the schemes, indicating that the objectives of the promoter penalty laws have largely been met.

We are also planning to visit some large market entities to better understand the nature of governance and internal controls and the role that they play in avoiding contraventions of the promoter penalty laws.

1.27.11 Superannuation Technical Sub-group

Meetings held since the last National Tax Liaison Group meeting

The last meeting was held on 4 December 2007.

Next meeting

The next meeting is scheduled for 31 March 2008.

Minutes

The NTLG Superannuation Technical Sub-group minutes - 4 December 2007 have been published on the website.

Significant or 'hot' topics

Issue number 040907-1
Issue	Status	Outcome - action to date
Super interest	Ongoing	The Tax Office tabled a draft super interest paper at the 4 December 2007 meeting. Based on the comments received from members, the Tax Office has published a fact sheet on How many superannuation interests does a member of a superannuation fund have in their fund ? which went live 25 February 2008.
Instalment warrants/borrowings	Ongoing	At the December 2007 meeting, it was discussed with members that the NTLG sub-group would hold an 'out of session' discussion on instalment warrants/borrowings. Members were asked to notify the secretariat if they wished to participate. Based on nominations only seven externals were selected to participate. The out of session discussion was held on Thursday 14 February 2008. A report from the out of session discussion will be circulated for discussion.
Current pension liability - death benefits	Ongoing	A PTI has been created to deal with the income tax exemption available to complying superannuation funds in relation to income earned on assets that are used to discharge the 'current pension liabilities' of the fund. Through external meetings such as the NTLG Superannuation Technical Sub-group, the Tax Office has become aware that some in the superannuation industry are concerned that the Tax Office view, as expressed in ATO ID 2004/688, as to the scope of the exemption is narrower than the perceived intended operation of the law in such circumstances and the way they apply the law in practice. In particular, they do not consider the views expressed in relation to the case of the death of the only member of a single member self-managed superannuation fund, even if correct for the particular facts, is appropriate to larger funds. While this issue pre-dates the simpler super reforms, those measures and the rewrite of Part IX of the ITAA 1936 (including the exempt current pension income provisions) that was done as part of that process has led to changes in many key concepts that the exemption relies on for its effective operation. As a result, the risk in relation to the practical application of this exemption has increased due to a lack of clarity around the intended operation and interpretation of the re-written exemption provisions in Division 295 of the ITAA 1997. Current status An invitation has been extended to members of the NTLG Superannuation Sub-group to provide relevant details from trust deeds to enable the Tax Office to undertake further, more refined analysis of the issues identified so far in the PTI process. Within the Tax Office, relevant stakeholder groups continue to progress towards a Tax Office view on the broader issues the subject of PTI via a rigorous project management approach to ensure the resolution of those technical issues.

A summary of work program undertaken since last National Tax Liaison Group

Since the last meeting the secretariat and the Chair have received various requests from externals to become a member of the NTLG Superannuation Technical Sub-group. The requests have been from:

¦ Australian Bankers Association (ABA)

¦ National Australia Bank, and

¦ MLC.

After various discussions, it has been decided to seek nominations for membership from the ABA, as they will be in the position to represent the bankers more broadly and MLC is already represented through Investment and Financial Services Association Ltd (IFSA) membership.

It is expected that the ABA will attend their first meeting in Canberra on 31 March 2008.

Potential Ruling topics identified by National Tax Liaison Group Sub-committee

The NTLG Superannuation Technical Sub-group has a standing agenda item that reviews the top technical issues in superannuation and the proposed action, which may involve writing a ruling or determination. These items are being considered for inclusion on the Rulings Program and are usually considered by the Super Rulings Panel. The current list is below.

Self managed superannuation fund - Rulings and Determinations

Rulings program item	Title (abbreviated)	Status
SMSFD 2007/1 (previously SMSFD 2007/D1)	When is a dividend or trust distribution received for the purposes of paragraph 71D(1) of the SISA.	Final Determination published 19 December 2007.
SMSFD 2008/1 (previously SMSFD 2007/D2)	Scope of application of sub-regulation 13.22D(3) of the SISR.	Final Determination published 20 February 2008.
SMSFR 2007/D1 (Item 1983)	The nature of the sole purpose test in section 62 of the SISA and incidental benefits.	Draft published on 5 September 2007. Final version to be discussed at Superannuation Rulings Panel 13 and 14 March 2008. Final Ruling due to be published June 2008.
SMSFR 2007/D2 (Item 1982)	Giving financial assistance prohibited under paragraph 65 (1)(b) of the SISA.	Draft published on the 26 September 2007. Final version to be discussed at Superannuation Rulings Panel 13 and 14 March 2008. Final Ruling due to be published June 2008.
SMSFD 2007/D3 (Item 2429)	Valuation of assets for in-house asset purposes.	Draft was published 19 December 2007. Final Determination is due for publication on the 16 April 2008.
Ruling (Item 1981)	Application of section 6 of the SISA to in specie contributions.	Draft Ruling due to be published 26 March 2008.
Ruling (Item 2225)	Business real property in relation to self managed superannuation funds.	Draft due to be published 9 April 2008.
Rulings (Item 2486)	Unpaid trust distributions	Draft Ruling due to be published 19 March 2008.
Determination (Item 2508)	Death benefit nominations	Draft discussed at 6 and 7 December 2007 Superannuation Rulings Panel. Draft being revised after industry consultation.

1.27.12 Transfer Pricing Sub-group

Meetings held since the last National Tax Liaison Group meeting

The last meeting was held on 21 November 2007.

Next meeting

The next meeting is scheduled for 10 April 2008.

Minutes

The minutes of the Transfer Pricing Sub-group meeting held on 25 July 2007 will be published on the website shortly.

Draft Minutes from the meeting held on 21 November 2007 have been circulated to members for comment and will be signed off at the next meeting.

Significant or 'hot' topics

Issue number:	04/010307
Issue:	Business restructures
Status:	Ongoing
Outcome - action to date:	A second version of the draft discussion paper on this issue has been circulated to members. The deadline for comment was the end of February 2008. The final draft paper is to be reviewed by Jim Killaly and sent to the Public Rulings Panel to decide on the form of taxpayer guidance to be issued. It is not clear whether another round of consultation will be necessary.
Issue number:	02/010307
Issue:	Guarantee fees
Status:	Ongoing
Outcome - action to date:	A discussion paper has been prepared by the Tax Office on this issue and is expected to be released by 18 April 2008 for comment.

A summary of work program undertaken since last National Tax Liaison Group meeting

Advance Pricing Arrangement (APA) Program

The external review of the APA program being conducted by PricewaterhouseCoopers (PWC) Legal has reached the final recommendation phase. A draft final report is expected to be circulated to key Tax Office stakeholders in early March 2008 for comment/review.

Business restructures - see report under significant or 'hot' topics above.

¦ Interaction of Transfer Pricing and Customs
A draft Australian Customs Service (ACS) Practice Statement on the interaction of customs and transfer pricing issues has been placed on the ACS website and members were invited to provide feedback before the 31 January 2008 deadline.

¦ ACS and Tax Office staff are preparing a plan for future cooperation in streamlining processes for taxpayers engaged in international related party imports and exports of tangible goods. Some ACS staff have undertaken Tax Office transfer pricing training and Tax Office staff have participated in customs training in an effort to improve understanding between the two agencies.

OECD update - Marc Simpson attended OECD meetings in early December 2007 including:

¦ Working Party No.6's Steering Group on transfer pricing. This meeting was dedicated to progressing the project on attribution of profits to permanent establishments focussing on the key issues of Part IV (Insurance) of the guidelines being developed on the application of Article 7 OECD Model Tax Convention.

¦ Working Party No.6. This meeting progressed the project on review of profit methods and developed a work program for 2009-2010.

¦ Working Party 1/Working Party 6 Joint Working Group. This was a four day meeting to progress the work on business restructures.

Potential ruling topics identified by National Tax Liaison Group Tax Practitioner Sub-group

Potential ruling topic	Sub-committee priority high/medium/low	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	As above. Second version of draft paper circulated to members for comment by the end of Feb 08. Is likely to go to Public Rulings Panel for decision on next step.
Guarantee fees - Tax Office view	High	As above. A discussion paper on the topic is being finalised by the Tax Office and is expected to be released by 18 April 2008. (see table above).

1.27.13 Trustee Beneficiary Rules Working Party

Chair:	Michael Hardy, Trustee Beneficiary Project Sponsor, Assistant Commissioner, S&ME
Secretariat:	Jo Beard, Trustee Beneficiary Project Manager

Meetings held since the last National Tax Liaison Group meeting

The first meeting of the Trustee Beneficiary Rules Working Party (TBRWP) was held on 5 December 2007.

Second meeting was held on 26 February 2008, but is not covered in this report.

Next meeting

The next meeting is scheduled for May 2008.

Minutes

The draft minutes have been prepared. As this is a limited life working party the minutes have not been published to the Tax Office website. They were agreed at the second meeting.

Background

The TBRWP provides key stakeholders in the professional communities dealing with the taxation of trusts and senior Tax Office leaders with a forum for consultation and discussion on administrative issues in relation to the implementation of the new trustee beneficiary provisions. This group has been formed to facilitate the implementation of the new provisions. The group recognises that interpretative products may be required to provide guidance and that interpretative issues may be referred to other forums for resolution.

This working party will assist with:

¦ resolution of practical and administrative issues relating to the changes required to the reporting processes for trustees

¦ development of a communication strategy relating to the new provisions, and

¦ development of supporting information products for tax practitioners and taxpayers.

Type of forum and length of term

Category:	External environment
Length of term:	12 months

Governance and relationships

The TBRWP has a subsidiary relationship with the NTLG. This forum will report regularly to the NTLG.

Justification for establishment

The TBRWP was established as a result of an action item from the NTLG. The action item states:

Action Item NTLG0709/01:
The NTLG recommends that the Small and Medium business line establish a working group to progress the issues associated with Tax Laws Amendment Bill No 4 following Royal Assent.

The working group will consider and address issues relating to the implementation of the new rules which will require development of different reporting requirements, communication strategies and various information products.

Members at the meeting on 5 December 2007

Member name	Representing	Role
Michael Hardy	Australian Taxation Office	Chair/Project Sponsor
Josephine Beard	Australian Taxation Office	Secretariat/Project Manager
Vicki Squires	Australian Taxation Office	Secretariat/Project Officer
Ellen-May Eaton	Australian Taxation Office	Facilitator
Richard Smith	Australian Taxation Office	Member
Rodney Collins	Australian Taxation Office	Member
Michael Dirkis	Taxation Institute of Australia	Member
Moira Merrick	Institute of Chartered Accountants	Member
Nick Saverimuttu	Trustee Association of Australia	Member
Tony Riordan	Law Council Australia	Member
Graeme Halperin	Taxation Institute of Australia	Member

Members appointed after the meeting on 5 December 2007

Member name	Representing	Role
Mark Molesworth	BDO Kendalls	Member
Ray Cummings	Pitcher Partners Melbourne	Member

A summary of work program undertaken since last National Tax Liaison Group

The trustee beneficiary reporting rules require that the trustees of closely held trusts will report details of trustee beneficiaries that are presently entitled to a share of income or capital of the trust in a trust beneficiary (TB) statement by the due date for the lodgment of the trust return. These rules apply to the 2009 income year.

At the inaugural meeting of the TBRWP on 5 December 2007, members raised issues in relation to the administration of the trustee beneficiary reporting rules.

The following action items were recorded in the minutes of this meeting:

¦ the Tax Office is to explain the intent of the TB legislation, as understood by the Tax Office

¦ the working party considered the form of the TB statement and whether this statement could be included in the distribution statement of the trust tax return. Members who represent organisations agreed to consult with their organisation's members to provide the organisation's view of the form of the TB statement. This is the preferred approach of external representatives, but other approaches are possible if this does not prove to be feasible

¦ the Tax Office agreed to give consideration to the development of interpretation and communication products which would clarify certain definitions in the TB legislation. It is noted that the TBRWP is not the forum to resolve interpretational issues and that some of the issues may be under consideration elsewhere with wider implications than just TB reporting requirements, and

¦ All members agreed to consider what communication products and what timeframes were appropriate to inform trustees and tax practitioners of the requirements of the TB legislation.

1.27.14 Trust Consultation Sub-group

Trust Consultation Sub-group (since the last NTLG meeting the group has adopted the new naming conventions).

Meetings held since the last National Tax Liaison Group meeting

The last meeting was held on 18 February 2008.

Next meeting

The group meets on an 'as needs' basis. No date has set for the next meeting.

Minutes

Minutes of the meeting held on 18 October 2007 have been confirmed.

Draft minutes of the Trust Consultation Sub-group meeting held on 18 February 2008 have been circulated to members for comment. As a result of changes to the group's Charter, minutes of this and subsequent meetings will be published on ato.gov.au .

Significant or 'hot' topics

Issue:	TR 2006/4 - should the Tax Office issue an addendum to the Ruling to provide further examples about the application of the exception?
Status:	Ongoing
Outcome - action to date:	Discussed with group on 18 October 2007. Advice has been published alerting practitioners to circumstances in which a CGT event may be triggered when assets are transferred between two trusts. The Trust Cloning link is provided. Chief Tax Counsel is considering the issue, including representations which have been made by practitioners.
Issue:	Meaning of the expression 'presently entitled to a share of income' in section 97 of the ITAA 1936.
Status:	Ongoing
Outcome - action to date:	On 18 February 2008, the group discussed the Tax Office's decision impact statement in respect of the Cajkusic matter and the practical implications that the Commissioner's views about what is 'income' can have for determining what is a beneficiary's 'share' of that income. The range of views expressed by members highlighted the uncertainty which exists in relation to this issue. It was agreed that the Tax Office would consider what practical guidance it can provide in respect of the issue.

Blocked issues summary

Issue:	Fixed entitlement test for trust losses.
Outcome - action to date:	Legislative amendment required.
Issue:	Fixed entitlement test for determining entitlement to franking credits.
Outcome - action to date:	Legislative amendment required
Issue:	Absolute entitlement
Status:	Draft Ruling issued (TR 2004/D25).
Outcome - action to date:	Legislative amendment required.

A summary of work program undertaken since last National Tax Liaison Group

Administrative issues

Since the last meeting of the NTLG, an annual review of the work of the sub-group has been completed. The review resulted in a number of changes being made to the group's Charter. The main changes relate to:

¦ terms of reference - the terms of reference are to be extended to all significant trust issues. The terms of reference will also clarify how issues are to be referred to the group

¦ length of term - consistent with the changes to the group's terms of reference the term has changed from a set period to one which is reviewed annually

¦ decision making authority - the role of the group in relation to the resolution of issues has been clarified, and

¦ minutes - minutes of future meetings will be published.

The changes were endorsed by the group at its meeting on 18 February 2008. The revised Charter has been sent for publication.

Technical issues

At its 18 February 2008 meeting, the group considered the following issues referred from other NTLG forums:

Referred from	Issue	Status
NTLG Finance and Investment Sub-committee 28 August 2007	What is an appropriate method for apportioning indirect expenses against different types of trust income following the repeal of section 50 of the ITAA 1936?	Members noted that this is not a matter relating solely to trusts. They recommended that the Commissioner issue some guidance (possibly in the form of a practice statement) premised on reasonable allocation with some examples of what is reasonable.
NTLG Losses and CGT Sub-group 14 November 2007	Does the analysis in ATO ID 2003/231 in relation to 'assets without the necessary connection with Australia' also apply to assets that are not 'taxable Australian property' in Division 855?	The Tax Office indicated that if the approach in the ATO ID is correct, then it would apply equally in respect of Division 855.
NTLG Losses and CGT Sub-group 14 November 2007	To determine whether paragraph 98(2A)(c) or 98(2A)(d) of the ITAA 1936 applies to a capital gain made by a trustee, it has to be determined whether the gain is attributable to a period when the beneficiary was a resident. Could the Tax Office give some guidance on determining the period to which a capital gain is attributable?	The Tax Office indicated that it tended to agree with the view that a capital gain is attributable to the time when a relevant CGT event happens (rather than for example, the end of a trust's income year or the entire ownership period for an asset).
NTLG Losses and CGT Sub-group 14 November 2007	Does the section 855-40 ITAA 1997 exemption apply where a fixed trust distributes a capital gain to a discretionary trust, which in turn distributes the capital gain to a non-resident beneficiary?	The Tax Office advised that it does not consider that section 855-40 has any application in these circumstances.

Potential ruling topics identified by National Tax Liaison Group Sub-committee/sub-group

Potential ruling topic	Sub-committee priority high/medium/low	Action taken or proposed to be taken, that is, does a risk assessment of the issue suggest a ruling may be appropriate
Apportionment of indirect deductions	Low	At its 18 February 2008 meeting, the group recommended that the Commissioner publish some guidance in relation to this matter. The issue will be referred to the business lines for risk assessment.

1.27.15 Public Rulings Panel

Meetings held since the last National Tax Liaison Group meeting

November panel:	21 November 2007 (phone hook-up)
December panel:	13 December 2007 (phone hook-up)
February panel:	28 to 29 February 2008

Next meetings

March panel:	20 March 2008
March panel:	27 to 28 March 2008

Summary of panel meetings

21 November 2007

Ruling ID:	2271
Application:	Income Tax: Division 7A of Part III of the ITAA 1936 - what is the meaning of 'because' in the context of the expression 'because the entity has been such a shareholder or associate at some time' in relation to payments, loans or debt forgiveness with former shareholders of a private company? The panel reviewed the following issues in the proposed draft determination: ¦ whether a 'real and substantial' test was preferable to a 'sole and dominant' test, and ¦ the interaction between the fringe benefit tax provisions and Division 7A.
Status:	The determination was amended in line with panel discussion and released as draft determination TD 2008/D2 on 27 February 2008.

13 December 2007

Ruling ID:
Application:	Goods and services tax: Vouchers. Addendum to GSTR 2003/5. The panel discussed the following key issues: ¦ the extent to which the GST legislation in relation to vouchers covers multi-function phone cards as well as the traditional single use cards ¦ the intent of the legislation, and ¦ the scope of consultation to occur with industry regarding current practice.
Status:	The addendum is to be amended in line with panel discussion and then affected industry groups will be consulted. The addendum may be referred to an out-of-session panel prior to release.

28-29 February 2008

Ruling ID:	2430
Application:	Income tax: can section 177EA of the ITAA 1997 apply to the issue of 'dollar value' convertible notes of the type described in the taxation determination? The panel reviewed the following issues: ¦ the interaction of section 177EA with Division 974 generally - including the scope of section 177EA ¦ the weighing up of the relevant factors in subsection 177EA(17) and paragraph 177D(b) ¦ potential application of section 177EA to the convertible notes described in the draft TD including an examination of specific features of the notes which are indicative of contrivance, and ¦ the need for a more comprehensive public ruling to explain the above three points.
Status:	The determination is to be rewritten as a draft taxation ruling and published for comment in the usual way. The ruling is to be circulated to panel members out-of-session. Industry bodies who commented on the draft determination will be consulted.
Ruling ID:	2221
Application:	Miscellaneous taxation: poenalty relating to statements: meaning of reasonable care, recklessness, intentional disregard. The panel considered the following issues: ¦ the use of the terms agent and tax agent ¦ references to the law of negligence, and ¦ whether to clarify that the onus of proof rests with the taxpayer at the objection stage.
Status:	Amend ruling in line with panel discussion and release draft for comment. Scheduled issue date is 30 April 2008.
Ruling ID:	2222
Application:	Miscellaneous taxation: shortfall penalties: administrative penalty for taking a position that is not reasonably arguable. The panel reviewed the following: ¦ the distinction between reasonable care and reasonably arguable position, and ¦ inclusion in the ruling of other cases concerning a reasonably arguable position.
Status:	Amend ruling in line with Panel discussion and release draft for comment. Scheduled issue date is 30 April 2008.
Ruling ID:	2223
Application:	Miscellaneous taxation: shortfall penalties: voluntary disclosures. The panel discussed the following issues in the draft ruling: ¦ the need for the inclusion of a discussion about the Commissioner's discretion, and ¦ whether the meaning of 'voluntarily tell' should include a reference to prompting or reasonable apprehension.
Status:	Amend ruling in line with panel discussion and release draft for comment. Scheduled issue date is 30 April 2008.
Ruling ID:	2506
Application:	Income tax: meaning of 'Australian superannuation fund' in subsection 295- 95(2) of the ITAA 1997. The panel considered these key issues: ¦ issues determining whether a fund is established in Australia ¦ the relationship between the central management and control remaining in Australia and the residency status of the trustees, and ¦ the implications of executing a power of attorney.
Status:	The ruling is to be amended in accordance with panel comment and released as a draft. Scheduled issue date is 30 April 2008.
Ruling ID:	2507
Application:	Petroleum resource rent tax: application of the Petroleum Resource Rent Tax Regulations to an integrated gas to liquid operation. The panel discussed these issues: ¦ the old and new definition of sales gas and the definition of natural gas, and ¦ the need for the ruling to be more user friendly by including at the start of the ruling an explanation of the pricing arrangements.
Status:	The ruling is to be amended in accordance with panel comment and released as a draft. Scheduled issue date is 30 April 2008.

Rulings considered by panel out of session

Ruling ID:	879
Application:	Goods and services tax: when do you acquire anything or import goods solely or partly for a creditable purpose?
Status:	Final ruling GSTR 2008/1 issued 5 March 2008.
Ruling ID:	1203
Application:	¦ Goods and services tax: general law partnerships and the margin scheme. ¦ Goods and services tax: general law partnerships (proposed addendum/rewrite of GSTR 2003/13 as a consequence of the general law partnership and margin scheme draft ruling).
Status:	Panel member comments being considered.
Ruling ID:	2092
Application:	Goods and services tax: registered agricultural managed investment schemes.
Status:	Draft ruling GSTR 2008/D1 issued 27 February 2008.
Ruling ID:	2270
Application:	Income tax: tax consequences to a company of issuing shares for assets.
Status:	Draft ruling TR 2008/D1 issued 16 January 2008.
Ruling ID:	2407
Application:	¦ Income tax: is a Deferred purchase agreement warrant, an investment product offered by financial institutions, a traditional security for the purposes of sections 26BB and 70B of the ITAA 1936? ¦ Income tax: capital gains: does CGT event C2 happen as a result of the satisfaction of an investor's rights under a deferred purchase agreement warrant, an investment product offered by financial institutions, by the delivery of the delivery assets?
Status:	Scheduled to issue 2 April 2008 but will issue on 26 March 2008.
Ruling ID:	2417
Application:	Income tax: can an Australian-formed unincorporated association of persons who do not carry on a business in common with a view to profit be a corporate limited partnership within the meaning of section 94D of the ITAA 1936?
Status:	Draft determination TD 2008/D1 issued 13 February 2008.

1.27.16 Superannuation Public Rulings Panel

Meetings held since the last National Tax Liaison Group meeting

During this period, the Superannuation Rulings Panel convened one meeting (on 6 and 7 December 2007 in Canberra).

Last meeting

The last meeting was held on 13-14 March 2008 (not reported in this report).

Summary of significant issues discussed

Issue 1: Business real property

The panel discussed the three elements of the nexus test. - in particular the circumstances where physical use of the land is acceptable, when initial development of land is approved but doesn't proceed and the treatment of residential property under the business use nexus test and the treatment of property subject to land development under the business use nexus test. The panel also discussed the limitations of the 'wholly and exclusively' test.

The panel noted that business real property issue impacts upon many other rules that impact upon SMSFs.

Issue 2: Death benefit nominations

¦ The panel discussed the legislative intent of subsection 59(1A) and whether it was constrained by the context of subsection 59(1). The panel also discussed if subsection 59(2) indicated that subsection 59(1) excluded SMSFs from the operation of subsection 59(1A). The difficulty for the authoring team and for panel is in trying to ascertain legislative intent from available extrinsic material when subsection 59(1A) was introduced. General trust rule is that the trustees' discretion shouldn't be fettered; subject to the trust deed and prior to subsection 59(1A) a non-SMSF member could only make a death benefit nomination where the trust deed for the SMSF provided for it.

¦ The panel discussed that a breach of the rules would result in a breach of operating standards of the SMSF potentially resulting in the trustee being guilty of an offence.

Issue 3: Interest in a unit trust

The panel discussed if an unpaid trust distribution is brought into the extended definition of a loan. Further, the panel discussed:

¦ if an unpaid distribution can be considered an investment if the money is sitting in the trust and, for example, not purchasing more units, and

¦ can inaction by the trustee be included in 'required to deal' or 'required in your capacity as trustee'?

Other matters

Rulings published since the last NTLG meeting:

SMSFD 2007/D3 Self Managed Superannuation Funds: when calculating the market value ratio of in-house assets for the purposes of section 75 of the Superannuation Industry (Supervision) Act 1993 is it permissible for a self managed superannuation fund to value units held in a related unit trust at historical cost (purchase price)?

Released 19 December 2007

SMSFD 2007/1 Self Managed Superannuation Funds: when is a dividend or trust distribution 'received' before the end of 30 June 2009 for the purposes of paragraph 71D(d) of the Superannuation Industry (Supervision) Act 1993?

Released 19 December 2007

1.27.17 Test Case Litigation Panel

Meetings held since the last National Tax Liaison Group meeting

The last meeting of the Test Case Litigation Panel was 10 December 2007.

Next meeting

The next meeting is scheduled for 27 March 2008.

Four applications for test case funding were submitted for the 10 December 2007 panel meeting. In all cases the funding decisions were consistent with the recommendations of the panel.

Case summary:	07/19503 This case considers the interpretation of 'mining operations' in paragraph 11(1)(a) of the Energy Grants (Credits) Scheme Act 2003.
Funding decision:	Funding approved.
Panel reasons:	The panel agreed that test case funding be offered due to the relative importance of the issue.
Case summary:	07/18716 This case considers the penalty provisions under section 266L of the ITAA 1936.
Funding decision:	Funding declined.
Panel reasons:	The panel considered there is no point of legal contention to be tested in this appeal. Rather, the appeal has been made to correct a fundamental error in the decision below in the application of a penalty provision to a tax avoidance arrangement. The panel agreed that there is no greater public interest to be served in funding this matter that would outweigh the general policy against funding cases involving tax avoidance arrangements.
Case summary:	07/19599 This case concerns consideration of the personal services income measures and the results test.
Funding decision:	Funding declined.
Panel reasons:	The panel declined funding on the basis this proceeding would likely turn on its facts and that there is another test case funded to explore this area of the law.
Case summary:	07/20159 This case concerns deductibility of expenses incurred in entering and participating in a scheme.
Funding decision:	Funding declined.
Panel reasons:	The panel noted the taxpayers had not established a point of contention in their application requiring law clarification. On the basis that the matter did not raise a point of contention sufficient to warrant the grant of public funding and given the proceeding also concerns a tax avoidance scheme, the panel recommended funding be declined.

1.28 Other business

Proposed new Federal Court procedures for managing tax disputes.

Meeting discussion

Chief Tax Counsel, Kevin Fitzpatrick mentioned that the Federal Court was introducing new procedures for the management of tax disputes which will impact on litigation processes. The new Federal Court of Australia: Notice to practitioners and litigants (taxation) issued by the Chief Justice for tax appeals will require all parties to have the appropriate arrangements and documents in place within specific time frames. The aim of the practice statement is to streamline the processes in tax appeals before the courts.

The new procedures emphasise the need for a more detailed knowledge of the case at an earlier stage than previously, as the court will set specific time frames. Taxpayers will be expected to be able to have a detailed discussion with the court within 45 days of lodging the appeal. The objective is for a trial date to be set as soon as possible and no later than 12 months from the date of the scheduling conference. Other significant changes include the narrowing of issues at the scheduling conference, and a pre-trial schedule. A significant amount of the preparatory work to clarify the issues and facts will need to be completed at an earlier stage. A reduction of interlocutory processes is anticipated due to the new processes.

There may be some challenges associated with the new procedures, particularly in respect of more complex issues.

The new directions were issued in early April 2008.

1.29 Next meeting and close

The next meeting is scheduled for Tuesday 17 June 2008, commencing at 9.30am.

Meeting discussion

The Commissioner thanked members for their valuable and insightful comments which contribute overall to a more effective tax administration system.

The meeting was closed at 2.45pm.

^[H49]Summary of action items

NTLG0803/01	Members are to be advised of the results of further analysis of response times associated with private binding ruling requests. Refer agenda item 3.
NTLG0803/02	Members are to be advised of the progress of the review of the deductibility of fees for financial planning advice. Refer agenda item 6.
NTLG0803/03	Members are to be provided with an update on instalment warrants following the Superannuation Technical Sub-group meeting on 31 March 2008. Refer agenda item 7.
NTLG0803/04	Members are to be provided with information on how disputes are resolved if the matter does not proceed to litigation, what processes are followed at the litigation stage and the number of cases that have been resolved using Alternate Dispute Resolution. Refer agenda item 8.
NTLG0803/05	Advise the Chair of the Transfer Pricing Sub-committee of the NTLG views. Refer agenda item 9.
NTLG0803/06	NTLG members to be provided with a copy of the confidential Transfer pricing implications of guarantee fees paper and the business restructures paper. Refer agenda item 9.
NTLG0803/07	The Queensland TAB is to be approached regarding the sharing of the legal opinion on supervision and control with NTLG members. Refer agenda item 20.
NTLG0803/08	The wider publication of the definition of family is to occur. Refer agenda item 25.