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FINAL Meeting minutes |
NTLG members |
5 APRIL 2010 |
Unclassified |
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format |
Audience |
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Classification |
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National Tax Liaison Group
FOR THE MEETING of 2 December 2009 Venue : McKay Board Room, Level 10 Amungula Building, 26 Narellan Street, Canberra (commencing at 9.30am) |
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unclassified |
For further information or questions, contact
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Members:
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Garry Addison Angie Ananda Brenda Berkeley Christopher Branson David Butler Steve Cane Annamaria Carey Keith Clissold Lance Cunningham Michael D’Ascenzo (Chair) Frank Drenth Yasser El-Ansary Andrew England |
CPA Australia TIA Treasury LCA Tax Office NTAA Tax Office ATMA NIA Tax Office CTA ICAA Tax Office |
Kevin Fitzpatrick Tony Greco Michael Hay Alexis Kokkinos Andrew O’Bryan James O’Halloran Frank O’Loughlin Bruce Quigley Joan Roberts Tony Stolarek David Williams |
Tax Office NIA CPA Australia ICAA CPA Australia Tax Office LCA Tax Office TIA ICAA TIA |
Apologies:
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Bob Duncan Michelle de Niese |
ATMA CTA |
Roger Timms Gerry Bean |
TA LCA |
Guests and Agenda item:
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Dale Boucher (Item 13)
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Chair, Tax Practitioners Board Tax Office |
John Smith (Item 15) |
Tax Office |
Secretariat:
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Brianne Casey |
Tax Office |
Please note: National Tax Liaison Group (NTLG) agendas, minutes and related papers are not binding on the Tax Office or any of the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change. These minutes have been formally endorsed by the members.
Agenda Summary
1 Introductions, apologies, confirmation of minutes of 17 September 2009 meeting 7
Design Topics 9
2 Tri-partite tax design process 9
3 Draft Strategic Statement 2010-2015 12
Interpretation and administration 14
4 High net wealth individual questionnaires 14
5 Tax Office initiatives to help small businesses struggling with debt 17
6 FBT exemption 19
Updates 20
7 Division 7A and unpaid present entitlement 20
8 Division 7A - Section 109E time restrictions for repayment of Div 7A loans 22
9 Draft Law Administration Practice Statement PSLA 2843 24
10 International Dealings Schedule 25
11 Deductions for Superannuation contributions 27
12 Tax Treatment of Earnouts - draft TR2007/D10 29
13 Tax Agent Services Regime 31
14 Change Program 35
15 NTLG sub-forum governance report – Finance and Investment Sub-group 40
16 Litigation case report 50
17 Public Ruling Steering Committee 66
18 Matters referred to sub-forums, NTLG work program and management of issues 67
18.1 Report on action items arising from 17 September 2009 NTLG meeting 69
18.2 NTLG action item log (ongoing action items) 70
18.3 ATO Tax Practitioner Forum 71
18.4 Consolidation Sub-group 78
18.5 Division 7A Working Group 82
18.6 Finance and Investment Sub-group 83
18.7 Foreign Source Income Sub-group 84
18.8 Fringe Benefits Tax Sub-committee 86
18.9 GST Sub-group 90
18.10 Losses and Capital Gains Tax Sub-committee 93
18.11 Promoter Penalty Co-design Sub-committee 95
18.12 Superannuation Technical Sub-group 96
18.13 Transfer Pricing Sub-group 99
18.14 Trust Consultation Sub-group 102
18.15 Public Rulings Panel 103
18.16 Superannuation Public Rulings Panel 107
18.17 Test Case Litigation Panel 110
19 Other business 113
19.1 Annual review 113
19.2 Private equity structures 121
20 Next meeting and close 122
Professional bodies represented at the NTLG
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Association of Taxation and Management Accountants |
ATMA |
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Corporate Tax Association |
CTA |
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CPA Australia |
CPA Australia |
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Institute of Chartered Accountants in Australia |
ICAA |
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Law Council of Australia |
LCA |
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National Institute of Accountants |
NIA |
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National Tax and Accountants Association |
NTAA |
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Taxation Institute of Australia |
TIA |
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Taxpayers Australia Incorporated |
TA |
Summary of Action Items – 2 December 2009
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Action Item |
Details of item |
Page no. |
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NTLG0912/01 |
Members to provide issues which arise from the preparation of their 2010 budget submissions to the NTLG Secretariat via the PALU mailbox at PALU@ato.gov.au by 29 January 2010. Refer agenda item – 3 Draft Strategic Statement 2010-2015 |
13 |
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NTLG0912/02 |
Members to provide thoughts on the Tax Office Strategic Statement to the NTLG Secretariat via the PALU mailbox at PALU@ato.gov.au by 19 February 2010. Refer agenda item – 3 Draft Strategic Statement 2010-2015 |
13 |
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NTLG0912/03 |
Members are to be provided with clarification as to whether s100A, and the interaction between Division 6 and 7A is covered in the draft ruling for Division 7A loans - trust entitlements. Refer agenda item – 7 Division 7A and unpaid present entitlement |
21 |
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NTLG0912/04 |
Members to provide examples of the UPE questionnaire in order for the Tax Office to consider whether the questionnaires should continue to be issued to taxpayers. Refer agenda item – 7 Division 7A and unpaid present entitlement |
21 |
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NTLG0912/05 |
Further explanation regarding the classification of an “honest mistake” associated with the application of section 109E will be forwarded to members prior to the March 2010 NTLG meeting. Refer agenda item – 8 Division 7A - Section 109E time restrictions for repayment of Division 7A loans |
23 |
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NTLG0912/06 |
The final Tax Office view of the McIntosh matter will be provided to members once it has been reached. Refer agenda item – 11 Deductions for Superannuation contributions |
28 |
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NTLG0912/07 |
The Finance and Investment Sub-group Chair to provide a report to the March 2010 NTLG meeting on the progress in identifying and prioritising TOFA ruling topics at the December 2009 TOFA Working Group, and an update on the progress of ENCO issues before the Sub-group. Refer agenda item – 15 NTLG Sub-forum governance report - Finance and Investment Sub-group |
48 |
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NTLG0912/08 |
Tax Office to consider suggestions and adopt appropriate improvements for future Litigation reports. Refer agenda item – 16 Litigation case report |
63 |
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NTLG0912/09 |
Tax Office to follow up the progress of the status of the Promoter Penalty Co-design Sub-committee and its ongoing need by the March 2010 NTLG meeting. Refer agenda item – 18 Matters referred to sub forums Promoter Penalty Co-design Sub-committee |
65 |
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NTLG0912/10 |
Tax Office to investigate the status of instalment warrants and advise members. Refer agenda item – 18 Matters referred to sub forums Superannuation Technical Sub-group |
65 |
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NTLG0912/11 |
Member to identify issues regarding trust loss issues and non-managed investment trust cases with the Chair of the Trust Consultation Sub-group by 29 January 2010. Refer agenda item – 18 Matters referred to sub forums Trust Consolidation Sub-group |
65 |
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NTLG0912/12 |
NTLG Secretariat is to include action items arising from NTLG meetings in the post meeting summary. Refer agenda item – 20 Next meeting and close |
120 |
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.
[_Toc255376481] 1 Introductions [_Toc201042915] , apologies, confirmation of minutes of 17 September 2009 meeting
· Chair’s opening comments
· Welcome to participants
· Changes to NTLG membership
· Introduction of guest participants
· Apologies
o Apologies have been received from:
§ Bob Duncan (ATMA)
§ Michelle de Niese (CTA)
§ Roger Timms (TA)
§ Gerry Bean (LCA)
· Members stepping down from Forum
§ Heather Fisher (TA)
· Confirmation of the minutes for the 17 September 2009 meeting.
Meeting discussion:
The Commissioner, Michael D’Ascenzo, opened the meeting at 9.30am.
The Commissioner welcomed members and began a brief discussion about the Institute of Public Administration Australia Prime Minister’s Awards function he attended the previous evening. The Tax Office received the silver award for "Excellence in Public Sector Management for the rapid coordination and swift delivery of the tax bonus payments". The Commissioner thanked all Tax Agents and the Professional Associations for the support and active assistance.
The tax bonus initiative provided a great outcome, with $7.5 billion transferred in three months to the right people. There was a desire for all to share in the recognition. The award was handed around the table for members to view. Members expressed interest in receiving communication on the award so they could cascade to their particular associations and clients.
The Commissioner provided a brief update on his availability and that of Second Commissioner Bruce Quigley for the remainder of the day as both needed to attend urgent meetings. Acting Second Commissioner Kevin Fitzpatrick would take over the chair responsibilities.
Apologies were accepted from:
Bob Duncan (ATMA)
Michelle deNiese (CTA)
Roger Timms (TA)
Gerry Bean (LCA)
Acknowledgement of alternative members:
Angie Ananda attended on behalf of Michael Dirkis (TIA)
Keith Clissold attended on behalf of Bob Duncan (ATMA)
Frank O’Loughlin attended on behalf of Gerry Bean (LCA)
The three alternative members represented at the forum on the day were welcomed.
Members stepping down from Forum:
The chair acknowleded outgoing member Heather Fisher for her work on the forum and accepted the request to step down from the NTLG.
Previous minutes:
Members accepted the draft minutes of the 17 September 2009 meeting without amendments. The 17 September 2009 minutes were published to ato.gov.au on 22 December 2009.
Post meeting update:
The Commissioner issued an email on 9 December 2009 to the professional bodies regarding the Public Administration Australia Prime Minister’s Award and further expressed his thanks to all members for the support of their members' in the administration of the tax bonus payments.
[_Toc183510919][_Toc255376482] Design Topics
[_Toc245012840][_Toc255376483] 2 Tri-partite tax design process
It has been recognised over the years that the optimum tax design process involves joint co-operation and collaboration between the Treasury, Tax Office and the private sector. One of the recommendations in the Review of Business Taxation, A Tax System Redesigned report (Ralph Report) back in July 1999 was:
“1.1 Integrated taxation design process
That a more systemic and integrated taxation design process be formalised between the Treasury, the Australian Taxation Office and the Office of the Parliamentary Counsel – the three Commonwealth agencies with responsibilities relating to the design and administration of taxation law.”
Integration was further described in the Ralph Report as follows (p95-96):
“This concept of integration embraces not only the design process itself but also, and at least as importantly, the way the various tax-related government agencies relate with each other and with the business sector and wider community . There must be a shared sense of ownership of the issues, clear accountabilities, open communication, a commitment to consultation and cooperation and an ability on all sides to think systematically and work across organisational boundaries. The maintenance of these consultative and cooperative relationships will be a major factor in ensuring the improved design processes are able to be sustained.”
On a similar note, the more recent report by the Tax Design Review Panel, Better Tax Design and Implementation, A Report to the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, recommended:
“Recommendation 2: Tri-partite design teams
Substantive tax changes should be developed by a tri-partite team led by the Treasury, which includes tax officers and private sector experts. The team should have carriage of the measure throughout the design phase and should also monitor its implementation. Where appropriate, the Office of Parliamentary Counsel (OPC) should also be involved at the policy design stage.”
(We note that the Government has accepted all the recommendations in the Tax Design Review Panel Report.)
In implementing the above recommendations, we understand that a protocol exists between the Tax Office and Treasury which describes the responsibilities for various aspects of the tax design process. Given the above recommendations encompass a tri-partite arrangement between the Treasury, Tax Office and private sector; is there also a protocol which describes how all three parties are to interact with each other during the whole tax co-design process to ensure that there is effective collaboration? If there is no such protocol, would the Tax Office agree to a dialogue with Treasury and NTLG members to discuss and agree on an appropriate framework for one?
Response:
Treasury is happy to discuss with NTLG members any issues they have regarding the Government's consultation arrangements.
The recommendations of the Government's 2008 Tax Design Review Panel are now in place. Public consultation on tax changes now generally occurs at both the policy and legislative design stages. At least 4 weeks is usually provided for consultation at each stage. When legislation is introduced, a consultation summary is posted on the Treasury website, and consultation participants are invited to provide feedback on the process.
A Tax Design Advisory Panel has recently been established from which Treasury can engage private sector experts to provide advice on the development and design of new tax policy and legislation. This arrangement does not displace the arrangements for public consultation. Working arrangements for the Panel are reflected in contractual arrangements between Treasury and the Panel members.
The Tax Design Review Panel recommended substantive tax changes be developed by tri-partite design teams, comprising Treasury, the Tax Office and private sector experts engaged by Treasury (ie, via the Tax Design Advisory Panel). This approach will complement the consultation with the private sector and broader community through the public consultation process.
Meeting discussion:
Treasury provided an overview of how the tri-partite tax design process between Treasury, the Tax Office and the private sector is expected to work. Treasury has been funded to engage private sector experts, on a confidential and fee-paying basis, to enable the early input of practical private sector knowledge of tax law, industry and commercial practices into analysing policy issues and finding appropriate and workable policy responses. A panel of experts (the Tax Design Advisory Panel) has been selected by public tender and the composition of the Panel was announced by the Assistant Treasurer on 19 October 2009 .
Members of the Panel are invited to tender to provide advice on substantive, new proposals at the policy design stage (with some exceptions, such as the formulation of the budget or changes to tax rates). The obligations of the successful tenderer in the tri-partite design team (which also includes Treasury and Tax Office participants) are governed by the contractual arrangements under which the panel member is retained, and complement the already close working relationship between Treasury and the Tax Office.
The tri-partite design process is in addition to, and does not replace, the consultation Treasury undertakes with the wider community on new tax proposals. Panel members will, at times, be subject to obligations of confidentiality and may also be tasked by Treasury to participate in that wider public consultation. This may thus limit their availability to represent their professional and industry associations in the public consultation process.
In response to an NTLG member’s suggestion that the four week period of public consultation should be longer, Treasury confirmed its aim was to provide a minimum of four weeks, but where legislative and other timing allowed, six weeks would be provided. Another member raised a concern that the process could become “ad-hoc”. Treasury noted that the Forward Work Program for Tax Measures, published on the Treasury website at the start of each parliamentary sitting, details the program of consultation the Government plans for announced tax measures, as well as the tax legislation it plans to introduce in the near future. Members expressed interest in providing input to the timetabling of the Government’s Forward Work Program and a preference the Government consult, where possible, on budget measures.
The meeting agreed the tri-partite approach seemed sound and suggested the process would be most efficient with active Tax Office participation. The Tax Office’s active participation in consultation on the rewrite of the attribution rules was welcomed. The Commissioner agreed the Tax Office can and should play an active role and that Tax Office participants are empowered to comment.
Members were encouraged to raise any items with Treasury directly.
[_Toc255376484] 3 Draft Strategic Statement 2010-2015
The Tax Office Strategic Statement Steering Committee has requested external consultation on the draft Strategic Statement 2010-2015.
The Commissioner will lead this discussion and ask for feedback on the draft new strategic statement, specifically surrounding the vision and themes.
Response:
This item is for discussion at the meeting.
Meeting discussion:
Members showed great interest in understanding the purpose of the Strategic Statement. The Commissioner explained that the purpose is to focus employees on where they see their role in conjunction with corporate values and on an emotional level, see the direction the Tax Office is trying to take. There is a need to be aligned to the values. People need to be able to carry out their roles.
It was discussed that voluntary compliance and participation is dependant on the community perception that all are paying their fair share of tax. The perception appears to be the opposite and members said this needs to be changed. The Commissioner commented that there is actually a growing trend of people that are paying their fair share and are paying their way. Tax Office surveys indicate that individuals agree they need to pay their fair share.
A member commented there has to be a reasonable apprehension that if you are doing something wrong the Tax Office will find out.
Another member stated that practitioners who advise the smaller end of the market do accept the Tax Office presence. It was also noted that not all advisers are able to detect evasion.
The Commissioner responded that while aspirational, he would like to set goals that the professional bodies can accept. Compliance activity should be seen as supporting taxpayers who are trying to do the right thing rather than being “out there to find the crooks”. We need to tap into the influential people who can lead the charge with a strategic focus. Voluntary Compliance is good for the community.
On reflection, members accepted the overall direction and theme of the Strategic Statement. There were no major concerns with the approach.
The Strategic Statement is seen as a positive step, especially for the Tax Office's centenary year in 2010. The "Support" and "Champion" themes were especially popular with members. The Commissioner agreed that there is a need to have direction and principles.
The Commissioner was also keen for opportunities for joint work and joint ideas within the NTLG membership.
Deputy Commissioner James O’Halloran mentioned that as budget submissions are due in January 2010, there may be issues and strategies that come up in the process.
Members were advised that if the Tax Office could benefit from any of members’ thought processes associated with their budget submissions, we would be happy to work with them.
The Commissioner advised members that if they wanted a special meeting to progress issues within the community, then this could be arranged.
The Commissioner thanked members for their comments.
[NTLG091201][Pg13] Action Item NTLG0912/01:
Members to provide issues which arise from the preparation of their 2010 budget submissions to the NTLG Secretariat via the PALU mailbox at PALU@ato.gov.au by 29 January 2010.
[NTLG091202] Action Item NTLG0912/02:
Members to provide thoughts on the Tax Office Strategic Statement to the NTLG Secretariat via the PALU mailbox at
PALU@ato.gov.au
by 19 February 2010.
[_Toc255376485] Interpretation and administration
[_Toc245012846][_Toc255376486] 4 High net wealth individual questionnaires
The professional bodies are referring to the “private group structure questionnaire” being sent to high net wealth individuals.
The professional bodies have concerns in relation to the high net wealth individual questionnaires being sent by the Tax Office.
These questionnaires are not targeted and are creating undue compliance burdens for taxpayers. These questionnaires need to be refined so that the questions are targeted to specific risk areas and are limited to relevant time frames.
For example, to ask for details of all loans a taxpayer has ever made without putting appropriate time frames or other limitations is inappropriate.
The professional bodies request the Tax Office to refine these questionnaires.
Response:
The High net wealth individual questionnaire was discussed at the ATPF on 6 November. Deputy Commissioner Small and Medium Enterprises, Mark Konza, provided the following response to the ATPF:
· As informed at the previous Forum, the questionnaire has been in use in the High Wealth Individuals Taskforce since 1997. A form of it is now in use, more generally, in the Small and Medium Enterprise business line. It was designed to obtain information in respect of private entity group structures.
The questionnaire requests information based on entities an individual “effectively controls”. Not aligning the group structure with legal ownership combined with the lack of publicly available information in respect of private groups makes it difficult to ascertain all entities within a private group. The ‘whole of group’ approach, adopted by the Tax Office in assessing compliance, requires an understanding of all entities associated with an individual.
Understanding the compliance behaviour of individuals and their private group entities requires a holistic approach, which brings all associated entities, both business and private into the analysis. We will assess the tax risk of these private groups on a relative basis using automated means. This informs our differentiated compliance approach based on the circumstances of the individual and their group. This ensures that review activity, if commenced, is appropriately founded.
Private groups generally consist of private companies, trusts, and other entities both in Australia and overseas. Many of these are not subject to the stock exchange disclosure requirements on public companies and not overly affected by the Australian Securities and Investments Commission requirements. As the publicly available information in respect of these groups is limited in scope and quality, our information gathering techniques include the use of detailed questionnaires.
· Whilst the Tax Office has enhanced its information collection and data-matching capability so that we can better link taxpayers, the groups they control and their assets, this information is not always complete. However, it has assisted in identifying potentially wealthy recipients of these questionnaires. Following the return of completed questionnaires, wealth calculations are undertaken, and internal systems updated. This allows for appropriate management of taxpayers, using differentiated compliance strategies, by either the High Wealth Individuals Taskforce, or the Wealthy Australians ($5 - $30m net wealth) compliance teams.
· As mentioned above, it is intended that the information provided about private groups and assets will ensure that review activity, if commenced, is appropriately founded. Consultation with advisors of wealthy Australians suggested that information requested earlier in a process may obviate the need to progress to a risk review or audit. This approach is intended to minimise compliance costs for tax agents and their clients as previously this information would only have been requested once we had commenced a risk review. The questionnaire solely seeks information which should be readily available concerning entities controlled as well as personal assets and liabilities.
· As indicated at the previous Forum, we consulted with members of the High Wealth Individuals Taskforce Consultancy Group, and have made minor amendments to the covering letter to better reflect its intention. We are currently working with Marketing Communications to further enhance the covering letter.
· Whilst the covering letter states that only current information is being sought, the text of the questions does imply that information is sought in respect of an unspecified period. This error will be corrected.
The Small and Medium Enterprises working party is scheduled to meet on 27 November 2009 to review the questionnaire. Members will be updated on outcomes of this meeting.
Meeting discussion:
Members accepted the response provided. It was acknowledged that similar information had been provided at the 6 November 2009 ATO Tax Practitioner Forum (ATPF). Some minor amendments had been made to the response since the ATPF meeting.
A member commented that the professional bodies would provide further thoughts on this issue following the NTLG meeting. Second Commissioner Bruce Quigley advised that questionnaires only ask for information that the Tax Office a) needs and b) intends actioning.
A member mentioned that similar questionnaires are in place within Large Business and International and that it is often better to have a specific questionnaire on a particular topic rather than “scattergun” questionnaires issuing.
It was questioned whether the $5-20 million category needs further tiering to further focus questions.
Members were asked to identify any other issues and to provide feedback.
It was highlighted there could be a useful discussion at an NTLG meeting on the range of questionnaires planned over a 12 month period, and that this could perhaps link in with discussions on the Compliance Program.
Members were provided with a two page hardcopy document illustrating the outcomes of the Small and Medium Enterprises (S&ME) ATPF of 27 November 2009, during the NTLG meeting.
Post meeting update:
An electronic version of outcomes of the S&ME ATPF was provided to members on 10 December 2009.
The suggestion that the $5-20 million category needs further tiering to further focus questionnaires within the S&ME market has been referred for consideration to the Deputy Commissioner S&ME.
[_Toc245012845][_Toc255376487] 5 Tax Office initiatives to help small businesses struggling with debt
In a speech to the COSBOA National Small Business Summit on 10 June 2009, the Commissioner of Taxation announced initiatives to help small businesses struggling with debt which include 12 month interest-free payment arrangements, interest-free deferral of the payment due date on activity statement liabilities and cash flow relief for businesses by reducing the GDP uplift factor for GST quarterly instalments.
5.1 Recent media coverage on these initiatives indicated that according to Tax Office data, small businesses have entered into 85,000 interest-free payment arrangements worth almost $1.9 billion and have deferred more than 1500 activity statements. Can the Tax Office provide an update on the statistics for the take up of the different initiatives and how do these statistics compare to the Tax Office’s projected take up of these initiatives by small businesses?
The Commissioner also indicated in his speech that about 706,000 micro businesses (with a turnover under $2 million) owe the Tax Office $6.5 billion and the Tax Office expected that number would increase in the coming months.
5.2 As the Tax Office expects the number of small businesses owing tax debts to increase, is the Tax Office considering any change to the way in which it works with small businesses in order to ensure an appropriate debt payment arrangement is put in place?
Response:
The Tax Office provides an update on the initiatives announced in June 2009 to assist small businesses.
Response 5.1: Updated take up rate for new measures
The take up of the new measures to assist small businesses at 31 October 2009 has resulted in:
· over 112,000 twelve month GIC-free payment arrangements worth $2.5 billion
· 2,638 deferrals of payment due dates for activity statements.
The take up is in line with expectations.
The Tax Office advises that with respect to payment arrangements:
Response 5.2: Appropriate payment arrangements
At 31 October 2009, businesses with a turnover under $2 million owed the Tax Office $7.2 billion. This reflects the significant increase in new tax debt recorded towards the end of 2008-09 and early 2009-10.
The Tax Office has a well established framework to assist small businesses in meeting their tax payment obligations.
A key element of this framework is our community first approach, which ensures that we make fair and consistent decisions based on a consideration of the circumstances of each business.
We will continue to offer flexible payment arrangements, often over an extended period, that align with cash flow.
Our approach is responsive to changing economic conditions and we work with small businesses and their representatives to ensure a good understanding of the challenges they face.
We will continue to review the assistance provided to small businesses in meeting their tax payment obligations, and make changes whenever necessary.
Balancing our approach to helping taxpayers through hard times is part of our ongoing effort to promote a level playing field and ensure fairness for all taxpayers including the need to take firmer action with those who fail to engage with us.
Meeting discussion:
Members accepted the response provided.
[_Toc255376488] 6 FBT exemption
Recently, there has been a significant amount of media coverage relating to inappropriate use of the partial FBT exemption for public benevolent institutions.
The professional bodies request the Commissioner to outline what compliance activities are being undertaken to deal with this issue.
Response:
The Fringe Benefits Tax (FBT) system is designed to provide a range of concessions and exemptions to public hospitals, not for profit hospitals, public ambulance services, health promotion charities and public benevolent institutions. The legislation exempts certain benefits, including meal entertainment benefits provided to employees of public hospitals and public benevolent institutions.
The Commissioner is aware of recent media coverage alleging abuse of these concessions, including the meal entertainment benefits concession, by some employees of not for profit and public benevolent institutions.
Where an employee has claimed a reimbursement of meal entertainment benefits and they have not incurred the meal expense, then the payment received from their employer is salary and wage income and should be included as such on their payment summaries.
When an employer notifies the Tax Office of a change to an employee's payment summary this information may be matched to what was returned in the employee's income tax return. When the information in the employee's income tax return does not match that on the amended payment summary, an audit or other review may be initiated.
A number of matters relating to the alleged abuse of these concessions have been examined and appropriate action has been taken to address non-compliance where it has been identified. The matter has also been referred to Treasury for consideration as to whether the law is operating in accord with policy intent.
Meeting discussion:
Members accepted the response provided.
[_Toc255376489] Updates
[_Toc255376490] 7 Division 7A and unpaid present entitlement
The professional bodies thank the Commissioner and the NTLG members for agreeing to consult on this issue. The professional bodies consider that the consultation process in relation to this process has been very productive.
The professional bodies seek an update on the outcomes of the joint NTLG and Division 7A working party meeting held on 25 September 2009 concerning the discussion paper issued by the Tax Office which contended that section 109D of the Income Tax Assessment Act 1936 could apply to treat an unpaid present entitlement as a loan and therefore a deemed dividend in certain circumstances.
Response:
A joint meeting of members of the NTLG and the Division 7A working group was held on 25 September 2009. The meeting was chaired by Mark Konza, Deputy Commissioner, Small and Medium Enterprises. Deputy Chief Tax Counsel Des Maloney also attended the meeting.
Discussion at the meeting addressed the interaction between Division 6 and Division 7A, in what circumstances might a UPE be or become a loan for the purposes of Division 7A, the meaning of the term ‘financial accommodation’, and the interaction between subsection 109D(3) and subdivision 109EA.
The Tax Office emphasised that the paper issued to the working group for its meeting in July was issued for consultative purposes and did not represent an ATO view. The ATO view would be developed in a public ruling. Members considered that any view should be applied prospectively.
The drafting of the public ruling is now well-underway. The draft is expected to be released for comment prior to Christmas 2009.
The post meeting summary was issued to members on 1 October 2009. The draft minutes were issued to members on 16 November 2009 with an expected due date for comments by COB 30 November 2009.
The issue will continue to be reported on through the NTLG Division 7A Working Group and action item 0903/05.
Meeting discussion:
Acting Chief Tax Counsel Andrew England advised this issue was considered at the last Rulings Panel on 25 November 2009 and the intent is to issue a ruling prior to Christmas for comment. It was acknowledged there will be very tight deadlines and that both Deputy Commissioner Mark Konza and Deputy Chief Tax Counsel Des Maloney have been involved in the ruling and are working to have this completed and issued as expected.
Members enquired about the consultation process. Acting Chief Tax Counsel Andrew England responded that an eight week consultation period would occur on the assumption the ruling issued prior to Christmas 2009.
Members also enquired whether s100A is covered in the draft ruling, and also the interaction between Division 6 and 7A.
A member raised the issue of the UPE questionnaire - the member thought it was decided at the Division 7A working group meeting, in September 2009, to put on "hold" these questionnaires, however there have been more issued. The member was asked to provide examples of the UPE questionnaires to enable the issue to be followed up. The member agreed to do this.
[NTLG091203][Pg21] Action Item NTLG0912/03:
Members are to be provided with clarification as to whether s100A, and the interaction between Division 6 and 7A is covered in the draft ruling for Division 7A loans - trust entitlements.
[NTLG091204] Action Item NTLG0912/04:
Member to provide examples of UPE questionnaire. The Tax Office to consider whether the questionnaires should continue to be issued to taxpayers.
Post meeting update:
1. Draft Taxation Ruling
The Draft Taxation Ruling “ TR 2009/D8 Income tax: Division 7A loans - trust entitlements” issued on 16 December 2009. Members were advised on 17 December 2009 that the draft ruling had been issued. Member comments are invited by 12 February 2010.
2. Unpaid Present Entitlement (UPE) questionnaire
A sample UPE questionnaire was forwarded to the Tax office on 10 December 2009 for consideration. The following response is provided for members:
“The NTLG member's example confirms that an inquiry has been made with respect to an unpaid present entitlement (UPE). However, the case concerns the application of Sub-Division EA rather than whether a UPE is itself a Div 7A loan pursuant to section 109D.
This was explained to the adviser.
The undertaking given by the Tax Office at the NTLG Division 7A working group meeting on 25 September 2009 was about questionnaires concerning the matters being discussed at that meeting - the potential application of s109D to UPE's.”
[_Toc245012848][_Toc255376491] 8 Division 7A - Section 109E time restrictions for repayment of Div 7A loans
At the NTLG meetings in December 2008 and June 2009 the issue of the timing of repayment of amalgamated loans under section 109E was discussed. The professional bodies understand the Commissioner is considering a discussion paper on this issue that was provided by the professional bodies following the December 2008 meeting. This discussion paper proposes an alternative construction of the section 109E that could resolve these timing issues. The professional bodies seek an update on the outcome of the Commissioner’s review of this discussion paper.
As summary of the two issues of concern can be described as follows:
8.1 Does section 109E require that only repayments of an amalgamated loan made after the lodgment due date for the company’s tax return for the year of making the loan, be taken into account in calculating whether the taxpayer has made their minimum yearly repayment? (issue raised in the December 2008 meeting)
8.2 If the answer to question one is yes, what is the effect of the company obtaining an extension of time to lodge its tax return for the year of making the loan where the new due date of lodgment is after 30 June of the year after making the loan? Does it mean the taxpayer can not make any qualifying minimum repayment for that year? (issue raised at the June 2009 meeting)
The Tax Office advises that with respect to Section 109E – time restrictions of Div 7A loans:
Response 8.1: Yes
Response 8.2:
The Tax Office's view is that pursuant to the law as currently drafted, it is not possible for a taxpayer to make a minimum yearly repayment where the return is lodged after 30 June of the year after making the loan. This view applies whether or not an extension has been granted to the private company to lodge its tax return. In such circumstances there will be a failure to make a minimum yearly repayment by the end of the current income year. In the absence of the loan being repaid in full at the end of the current year, a deemed dividend will arise. The amount of the deemed dividend will be the shortfall, that is the amount of the minimum yearly repayment.
The Tax Office recognises that in some cases this could cause an anomaly and we will be advising Treasury of this.
We are currently considering the operation of the Commissioner's discretion in S109RB as part of the process of issuing a public ruling and the public ruling should clarify the application of the discretion in this situation.
The issue will continue to be reported on through the NTLG Division 7A Working Group and action item 0811/03.
Meeting discussion:
The response to this agenda item requires additional clarification, especially regarding the classification of an “honest mistake”. A member commented that alternative views had been previously raised by the professional bodies.
Second Commissioner Bruce Quigley replied that an alternative view was duly considered and an explanation as to why this was not adopted will be included in the minutes.
[NTLG091205][Pg23] Action Item NTLG0912/05 :
Further explanation regarding the classification of an “honest mistake” associated with the application of section 109E will be forwarded to members prior to the March 2010 NTLG meeting.
Post meeting update:
The Tax Office has further reviewed the interpretative position as it relates to S109E. The Tax Office can advise that it intends to issue an ATOID that will enable the inclusion of repayments of a loan that are made at the start of the second year but before lodgment day as being included in the minimum yearly repayment with respect to that loan. The ATOID will also clarify what is an amalgamated loan.
[_Toc255376492] 9 Draft Law Administration Practice Statement PSLA 2843
The professional bodies understand that the Commissioner is preparing a ruling in relation to the issues raised in the joint submission lodged in respect of Draft Law Administration Practice Statement PSLA 2843 concerning the application of the Commissioner’s discretion under section 109RB of the Income Tax Assessment Act 1936. The joint submission listed various concerns which the professional bodies did not believe were adequately addressed by the Division 7A working party meeting held on 17 July 2009.
The professional bodies request an update on the progress of the preparation of the ruling.
Response:
Following a meeting with some representatives from the working party in September, the Tax Office has agreed to issue a public ruling addressing the meaning of the terms 'honest mistake' and 'inadvertent omission'. In this context, the professional bodies' submission provided earlier this year will be reconsidered. The drafting of a public ruling on S109RB is well-underway and it is anticipated that a draft will issue to the working group for consultation early in 2010.
Members of the working group have been invited to provide examples for inclusion in the draft ruling, no later than 17 December 2009.
Further to the above public ruling, a Law Administrative Practice Statement (LAPS) will be developed to clarify the factors that the Commissioner must have consideration {as per sub section 109RB(3)} to when making a decision.
The issue will continue to be reported on through the NTLG Division 7A Working Group and action item 0903/02A.
Meeting discussion:
There was a discussion about the timing of this draft ruling and that the Tax Office would like this ruling finalised. A member requested that copies of the draft Practice Statement be forwarded to all recognised Professional Associations.
Members had previously been asked to provide examples and there had been some uncertainty as to how the examples would assist with the drafting of the ruling. The expectation is now clear and members will work on providing examples to assist with the draft ruling.
The Practice Statement is being prepared and a draft public ruling is to be referred to the Division 7A working group.
The issue will continue to be reported on through the NTLG Division 7A working group and action item 0903/02A.
[_Toc255376493] 10 International Dealings Schedule
The professional bodies have concerns surrounding compliance expectations for the taxpayers who will be expected to complete the IDS-FS for the 2010 income year and in particular for early balancers.
Further, there are concerns regarding the likely need for taxpayers to implement systems upgrades to tailor and collate information, as required for the new IDS-FS.
Lastly, the professional bodies have concerns regarding the complexity and drafting in the current draft schedule and instructions.
Accordingly, the professional bodies request an update in relation to the improvements or changes that have occurred since the meeting to discuss the international dealings schedule on 8 October 2009.
Response:
By way of background, the Tax Office is seeking to replace the existing Schedule 25A and thin capitalisation schedule with a new form or forms that will capture information better suited to assessing risks arising from modern international dealings. The Tax Office recognises that these changes have to be implemented in a staged way over several years, with extensive consultation and co-design occurring at each step.
The Tax Office is keen to commence the implementation process with a 'pilot' arrangement (using a new tailored schedule called the 'IDS-FS') for larger Financial Services Industry (FSI) taxpayers, a number of whom have expressed difficulty in completing the existing schedules. We have been consulting on this pilot for a number of months.
Since 8 October 2009, there has been significant further consultation, both on the pilot process and on the content and design of the form and instructions. In particular, a number of well-attended small focus groups have improved the content and design of the IDS-FS form. There has also been further consultation through the NTLG Foreign Source Income Sub-group.
There has been extensive consultation with industry and professional associations about the strategic reasons for, and particular content of the new IDS-FS form. The aim has been to make the form and instructions as clear and concise as possible. Significant effort has been made and consultation undertaken with a view to aligning the IDS-FS with existing FSI taxpayer business systems that are used for other purposes (consistently with the principles of Standard Business Reporting), and to minimise any required changes to existing systems. Further consultation will be undertaken to integrate this system into the new Standard Business Reporting interface, as well as working with software providers, to allow auto-population of as many fields as possible from accounting software.
The information being requested is what we reasonably need to have to assess our risks in the international dealings area and to allocate our compliance resources accordingly. One of the important effects of the change is that the Tax Office will be in a better position to assess risk more strategically, with the result that low risk taxpayers are not further subjected to compliance activity in relation to these dealings, including specific issue audits. Several taxpayers have also commented to us that the information they are being asked to provide will assist them in their own internal tax risk assurance and corporate governance processes for their international financial dealings.
More general issues in relation to the IDS, including the prospect of a roll-out of new arrangements for all taxpayers with significant international dealings for the 2011/12 income year, was discussed at a meeting of the Large Business Advisory Group on 15 October 2009.
The Tax Office has listened to all the concern raised about implementation and has decided that the new IDS-FS will be piloted on a purely optional (voluntary) basis for the 2009/10 income year. It may be completed by those FSI taxpayers who have a turnover in excess of $250 million for the 2008/9 income year, as well as by all foreign banks. This approach will cater for those taxpayers who have indicated a preference for completing this form rather than Schedule 25A and the thin capitalisation schedule (e.g. because it will save them costs), but taxpayers who prefer to complete the existing schedules can still do so for 2009/10. The pilot will provide valuable information to the Tax Office, both in terms of forms design for later years and the information received will inform significantly our risk assessments, and risk assessment processes, of international dealings for 2009/10 and later years.
We propose that the IDS-FS will be mandatory in relation to the 2010/11 income year for FSI taxpayers with a turnover in excess of $250 million for the 2009/10 income year and for all foreign banks. We recognise the need to advise taxpayers (including early balancers) promptly about this, and to make it clear what information the form will require so that any taxpayer system changes can be implemented in time. Steps will be taken to advise affected taxpayers formally of the arrangements for 2009/10 and 2010/11, and the form and instructions will be posted on ato.gov.au before the end of this calendar year.
For the 2011/12 income year, we expect that the IDS-FS will continue to be mandatory for the FSI sector, and that other taxpayers with a significant level of international dealings (whether or not they are large businesses) will also be required to complete a new schedule that differs from the current Schedule 25A and thin capitalisation schedules. The level of dealings required and the content of this form have not yet been determined. The Tax Office recognises the need to consult very widely on this matter, and to commence consultation as soon as practicable, preferably early in 2010. We have asked members of the Large Business Advisory Group to assist us in identifying optimal consultation processes, and we are also keen for NTLG members to assist us with that.
Members of the Large Business Advisory group have also indicated that they wish to discuss more generally with the Tax Office the priority the new IDS would have in relation to other forms and information requests that the Tax Office makes. They also wish to discuss the Tax Office's risk assessment processes, and the role that such a form would have in assessing risk, including how taxpayers who complete the form would receive feedback in relation to their risk assessment on international dealings.
Meeting discussion:
Members accepted the response provided.
Members are aware the International Dealings Schedule won't be rolled out more broadly until post 2010. The Tax Office will test a more "practical" approach before rolling out further.
There were no other comments.
[_Toc245012844][_Toc255376494] 11 Deductions for Superannuation contributions
In relation to Item 4 of the September NTLG meeting agenda, the professional bodies seek confirmation as to whether or not the Commissioner considers there is power to extend the time for the lodgment of the relevant notice under section 290-170 (in relation to deductions for superannuation contributions).
Response:
Section 290-170 of the ITAA 1997, which is the subject of this specific query, provides that a taxpayer must give a trustee of a superannuation fund or a retirement savings account provider a valid notice in the approved form of the taxpayer’s intention to claim a deduction for a personal superannuation contribution. This is one of up to four conditions that must be satisfied before a taxpayer is entitled to such a deduction.
Paragraph 290-170(1)(b) of the ITAA 1997 requires such a notice to be provided by the end of the day of which the taxpayer’s income tax return is lodged for the income year in which the contribution is made or the end of the following income year, whichever is the earlier.
The decisions of Graham J at first instance and of the Full Federal Court on appeal in McIntosh both carefully considered the statutory context surrounding the choice to consolidate before concluding that the section 388-55 power was not available to extend the time to make a choice to consolidate.
Consistent with those decisions, the importance of the statutory context to the question of whether the section 388-55 power is available in a given case was recognised in the Tax Office’s response to the September NTLG meeting agenda item regarding McIntosh, as set out below:
As a general proposition, the discretion in section 388-55 of Schedule 1 to the Tax Administration Act 1953 (TAA) cannot be exercised to extend the time for giving an approved form to the Commissioner in circumstances where the taxpayer has no obligation to give the form to the Commissioner, such as when making a choice or an election. However, the statutory context and purpose of each provision permitting a taxpayer to make a choice or election must be considered to ascertain whether, in respect of each provision, Parliament intended that the Commissioner could exercise his discretion under section 388-55.
In strict terms, the notice required to be given under section 290-170 is not obligatory. The consequence of not giving the notice within the stipulated time is that the taxpayer would lose their entitlement to a deduction for the contribution. Accordingly, this might suggest that the general proposition identified in our September response would apply and the section 388-55 power would not be available in this case.
However, we recognise that there are a number of important elements within the statutory context of section 290-170 that differ from the choice to consolidate considered in McIntosh. It is arguable that these elements may be sufficient to distinguish the circumstances applying to the time limits for the section 290-170 notice from those applying to the choice to consolidate and therefore may point towards the section 388-55 power being available in this case.
These elements include the fact that a deduction for a personal superannuation contribution is only available in the income year that the contribution is made (contrast the choice to consolidate, which can be made at a later point in time); and that the systemic impacts of deferring the time by which a section 290-170 notice can be given are not as significant, relative to the choice to consolidate.
On the other hand, there are also elements common to both situations, including a time period that ends with the lodgment of the taxpayer’s income tax return and that administrative penalties do not apply.
The Tax Office is currently in the process of settling its position on this issue. We do consider it is important to factor in the final outcome in the McIntosh matter, which is still before the courts. We will provide our final view on the issue in an appropriate form once that view is reached.
Meeting discussion:
Members accepted the response provided.
It was discussed that as the Tax Office is still in the process of settling its position, a final view will be provided once it has been reached.[Pg28]
[NTLG091206] Action Item NTLG0912/06:
The final Tax Office view of the McIntosh matter will be provided to members once it has been reached.
[_Toc255376495] 12 Tax Treatment of Earnouts - draft TR2007/D10
There are ongoing challenges in relation to the tax treatment of earnout arrangements which are causing difficulty in relation to providing certainty for taxpayers.
TR2007/D10 deals with the tax treatment of earnouts and has been the subject of extensive consultation involving the Tax Office.
The tax treatment of earnouts for vendors has been a known problem for many years, since TR93/15.
However, TR2007/D10 took a position that the treatment of purchasers of businesses, where earnouts arise, should be treated symmetrically to the position of purchasers. This new position, not previously taken by the Tax Office, has created a technical problem in relation to a recently introduced tax consolidation provision (s.705-65(5B)) which had been introduced expressly to formalise the tax treatment of earnout payments from the viewpoint of acquirers.
The professional bodies recognise that the Tax Office organised a meeting with Treasury to consider the issues, and the professional bodies thank the Tax Office for this meeting.
However, it seems clear that any tax policy development by Treasury will take time. There are various potential models which could be considered, the tax policy development would need a consultation process and, given the other competing tax priorities for government, the professional bodies are concerned that a legislative policy solution could be many months or even years away.
In the circumstances, the tax treatment of earnouts needs to be clarified as soon as possible. In particular, the disruption caused for purchasers by the position taken in relation to purchasers in TR2007/D10 needs to be dealt with.
The draft ruling has not been finalised but the professional bodies understand that the Tax Office has been applying this approach in dealing with taxpayers on individual transactions.
The professional bodies would like to discuss the potential mechanisms to resolve this challenge with the Tax Office including:
· adjustment of the draft ruling;
· use of practice statements; or
· other administrative measures.
Response:
Treasury met with members of the NTLG Losses and CGT Sub-committee and other interested parties on 14 August 2009 to consult re the embedded legislative policy position in TR 2007/D10 on earnout arrangements. Since then, Treasury has continued its analysis and information gathering work and expects to provide advice to Government shortly.
The Tax Office will finalise TR2007/D10 in the first quarter of 2010 subject to any government announcement.
The issue will continue to be reported on through the NTLG Losses and Capital Gains Tax Sub-committee and action item 0903/05.
Meeting discussion:
Members accepted the response provided.
TR2007/D10 is to be finalised in the first quarter of 2010 subject to any government announcement.
A member suggested that perhaps a retrospective law change should be considered, depending on outcome of the Tax Office’s interpretive work.
The Tax Office advised that input would be provided to Treasury. It was also questioned whether the timing of the law could trigger a Blackhole situation and whether there had been any consideration of this within this Taxation Ruling.
Treasury commented that as they would be providing advice to government shortly, members were encouraged to submit any concerns on this draft taxation ruling as soon as possible.
[_Toc255376496] 13 Tax Agent Services Regime
The professional bodies request an update on the Tax Agent Services Regime. In particular, the professional bodies would like an update in relation to the start date.
Further, the professional bodies request an update on the transition arrangements that the Tax Office has in place.
Lastly, the professional bodies are interested to hear the Tax Office’s view on how the ‘safe harbour’ provisions for taxpayers may be administered and whether there will be further liaison with the profession on developing some workable practices in this area as between the Tax Office, the Tax Practitioners Board and the profession.
Response:
Legislation has now been passed. A proclamation date has been announced as 1 March 2010 (announced by Assistant Treasurer Press Release No. 96 dated 26 November 2009 ).
The Tax Agent Services (Transitional Provisions and Consequential Amendments) Bill 2009 received Royal Assent on 16 November as Act No 114 of 2009. The new tax agents' regime will commence on the proclamation date of 1 March 2010.
An interim Secretary of the Tax Practitioners Board has been appointed and staffing provided to support the Board.
The new safe harbour provisions were included in the same Bill. The safe harbour provisions will become operative immediately after the commencement of Part 2 of the Tax Agent Services Act 2009. The likely commencement date of effect is 1 March 2010, however this is subject to confirmation.
The proposed safe harbour provisions recognise that taxpayers should not be subject to an administrative penalty as a result of any careless actions made by their agent.
This approach is now possible because the new regulatory framework allows effective action to be taken to improve the performance of tax agents or BAS agents where necessary.
The Commissioner and the Tax Office are currently finalising the procedures, systems implications and guidance for the approach to safe harbour.
The safe harbour provisions apply to false and misleading statements given on or after the proclamation date or to a return notice or statement required to be lodged on or after the date of effect. The initial principles, subject to confirmation will be:
The design principles for the false and misleading statement penalty safe harbour are:
· The Commissioner will explain the safe harbour decision in tax office penalty decisions
· Safe harbour will not apply where there is insufficient information for the Commissioner to make a decision
· Safe harbour can apply to one statement in a tax return or activity statement. That is, an administrative penalty can apply to one part of the total shortfall amount, and safe harbour to another
· During audits where we meet with taxpayers or phone and write to them on a number of occasions, safe harbour is to be investigated by the compliance officer
· The burden of proof is on the taxpayer, and the elements of safe harbour must be proved ‘on the balance of probabilities’
· We will explore safe harbour in all cases where it looks like safe harbour could apply
· We will not change existing guidelines for contacting clients of agents
· It is a strongly recommended (but not mandatory) that the tax practitioner is contacted when safe harbour is apparent, or the taxpayer claims agent error, to establish the facts of the situation
Where safe harbour does not apply, we will still apply our current remission policy.
Where safe harbour does not apply, the taxpayer may object to the assessment of the penalty.
The safe harbour provisions for failure to lodge on time apply to statements given due for lodgment on or after the proclamation date. The principles for the failure to lodge on time penalty safe harbour are:
· FTL safe harbour will be considered post the application of the FTL penalty
· A specific request will need to be made to the Tax Office to consider an application of the FTL safe harbour provisions
· The FTL penalty notices will include information on FTL penalty safe harbour
· Safe harbour will not apply where there is insufficient information for the Commissioner to make a decision
· There will not be any change to existing guidelines for contacting clients of agents
· We will still consider remission when safe harbour does not apply.
These guidelines are still being refined and we will be seeking feedback and consultation on the administrative arrangements for the safe harbour provisions.
Planning for implementation of the safe harbour provisions is well advanced and a workshop was conducted with ATPF members to gather professional association and tax practitioner input into our high level design.
Consultations will continue with professional associations and tax professionals through channels including the NTLG, ATPF and the Active Compliance Working Group. A Draft Practice Statement on penalties and safe harbour will be circulated to the NTLG and ATPF for comment in January 2010.
Meeting discussion:
Dale Boucher, Chair Tax Practitioners Board presented this item and commented that the new regime is seen as a significant watershed for the profession with significant ramifications.
The newly appointed Board will meet for the first time on 10 December 2009, with legislation commencing on 1 March 2010. There is a great deal of work being done in the meantime.
There are two key points to mention at this stage: Consultation and Recognition of professional associations.
While the Board welcomes opportunities for consultation, the formal processes for consultation are not yet in place. However, consultation will occur with professional associations and key stakeholders. Subject to the deliberations of the Board, a number of Board committees and working groups to discuss Board and compliance issues are likely to be established. Working groups will comprise some Board members and external stakeholders and will need to consist of the right people. There is value in consulting with the NTLG and some members have already contacted the Board about issues.
An issue that has arisen is “in-house tax advice” and the Board is taking a neutral stance on these matters. The making of new Regulations is a matter for Treasury but the Board will express a view on any proposal, including on this issue.
Regarding s20(10)of legislation - recognition of professional associations, the Board has not as yet approved a form for accreditation and it may not be a form as such. But matters in the schedules need to be addressed and in the order in which they are set out in the schedule. The Board is aware that Guidance needs to be provided as soon as practicable. In the meantime it is accepted that if things are done in the manner described it is likely to be taken to be a form accepted by the Board. The aim is to finalise any ‘form’ as soon as possible.
A member asked about the timing of the consultations. The response indicated that some may start this year, but this is dependant on calendars. The aim is to establish working groups and general consultation forums expediently.
The timing of the guidelines was also raised. The Board expects these to be in effect next year but would like to get input from the professional associations as to priority items, which was invited.
A member commented they have been inundated with questions about registration as people do not know where they fit. Members were advised that the website and other communications will provide as much information as possible.
A member asked where the Board would be located. The Chair will be based in Canberra in the interim, and employees assisting the Board are located in Canberra, Melbourne, Sydney and Brisbane. Location will not have any impact on the work as the Board intends to operate an on line application system.
Members asked whether there is anything the Board can’t do prior to the commencement date. The Chair indicated that the Board cannot exercise formal powers until the Act commences. In the meantime the Board can consult and prepare plans. If members have any priorities they should be advised to the Board as quickly as possible.
Safe Harbour was raised as an issue, with one member commenting that “Safe Harbour” is the second top question after "Registrations”. There is a need to discuss the issue and work together. Deputy Commissioner James O’Halloran mentioned that the Tax Office is still working towards finalising the issues and systems for Safe Harbour, with the project being led by Assistant Commissioner, Jim Collins, who was in attendance.
The possibility of having an extra-ordinary meeting prior to the March 2010 NTLG was discussed. It was noted that ATPF members are also interested in this matter. Members were happy with the offer of a special Safe Harbour meeting. There was also a request for guidance of “reasonable care”.
The Commissioner concluded that while there are still things to be done, there is strong support of the Board. The professional bodies also need to be involved. The tri-partite process is good for the profession generally. For the longer term, the higher standards will attract younger people into the profession.
Post meeting update:
On 12 January 2010 the NTLG and ATPF members were invited to attend a meeting in Canberra on 28 January 2010 to discuss the application of Safe Harbour.
[_Toc255376497] 14 Change Program
This is a standard agenda item. Members have also requested an update on the Change Program.
Issues log item NTLG 0603/02 refers.
Response:
This will be the largest release the Tax Office has undertaken. The release depends on the outcomes of all our testing and monitoring
The Commissioner will not commence with deployment if there is any significant risk to the administration of the tax system. However, even if this deployment meets acceptable standards, there will be issues and challenges for practitioners and the Tax Office that will arise from full production. Therefore, the Tax Office would like to apologise in advance where any such incidents occur.
Naturally, we will be seeking to speedily resolve these issues to minimise the impacts on professional associations, practitioners and the community.
Current plan for deployment dates:
· It is expected that the last issue date for income tax returns will be 8 January 2010.
· In order to maximise the likelihood of a refund being processed by this date agents have been advised that income tax returns need to be lodged during December (at the very latest prior to Christmas 2009). This is provided that there are no errors in the return.
· Large corporates have been advised that they need to have returns lodged by 7 December 2009 if they need the returns processed before the system closure.
· Tax Office internal systems to close down from 22–27 January 2010 and deploy new Income Tax system functionality over the 2010 Australia Day long weekend.
· Tax Agent and Business Portals will be unavailable for transactions between 22 January 2010 and 27 January 2010.
· ELS will be available however no validation reports will be issued. Lodgments will be stockpiled at the gateway.
· Commence processing income tax returns from 1 February 2010. Anticipate full rollout of the new system will commence by 8 February 2010 but there will be ongoing delays as we start up and familiarise ourselves with the new system and process. This may take some weeks to get to full capacity.
· FAQ’s will be available on ato.gov.au in the coming weeks, which subject to review, will seek to confirm these types of details.
· Members and associations were asked to manage their client’s expectations during this period. If your clients want their refunds early then they must lodge complete and accurate information during December 2009.
· Professional Associations were asked to provide their communication officer contacts so the Tax Office can send any information directly to them as well as forum representatives.
External readiness
Overview of Release 3 Income Tax
· Release 3 Income Tax is a critical part of our Change Program.
· This Release introduces a replacement system, with associated business process changes, for the processing of income tax returns. Our current system (The National Taxpayer System (NTS)) has been operating since the mid 1970’s. Switching off one system, particularly one as critical as NTS, and starting a new system will always need to be carefully considered.
· The deployment of income tax products into integrated core processing (ICP) is the largest release we have undertaken so far and is a huge step for the Tax Office.
IT Deployment update
· The Change Program Steering Committee (CPSC), chaired by the Commissioner, recently endorsed recommendations of a change in target date for conversion and close down of NTS to commence from 22 January 2010 and deploy new Income Tax system functionality into ICP over the 2010 Australia Day long weekend.
· Our plan is to commence processing income tax returns in our new system from 1 February 2010.
· The CPSC decision to move the deployment date back comes as a result of continuous monitoring, extensive consultation, and ongoing input from business, as well as advice from our independent assurors (CapGemini and Aquitaine Consulting).
· As with all previous Change Program releases, the timing of this release depends on the outcomes of all of our testing and monitoring.
Release 3 Income Tax Shutdown Rationale – Key timeframes for Client impacts
We have key timeframes for the Income Tax Shutdown period as we prepare for the conversion to the new system to try and minimise impacts to clients and manage their expectations.
First week of January 2010
· The last group of Income Tax returns to be received so that refunds can be issued in the old system before shutdown/ conversion period.
· It is expected the last issue date of returns (lodged prior to January 2010) will be 8 January 2010.
· This is provided there are no errors in the lodgment of these returns.
· It is recommended that clients be advised to lodge as early as possible (ie end of December 2009) to increase the likelihood of their refund issuing prior to shutdown.
Mid January 2010
In mid January the Tax Agent and Business Portals will be unavailable for transactions eg BAS lodgement or change of address. This is to allow us to commence our systems shutdown for the data conversion to the new system.
Australia Day long weekend (22-27 January 2010)
The system will be shutdown for finalisation of accounts in legacy systems, data conversion and deployment of the new systems. The Tax Agent Portal and IVR will be unavailable for clients during this time.
From Monday 1 February 2010
· Staff to commence using new ICP system functionality for Income Tax work.
From Monday 8 February 2010
· The full rollout of the new system will commence to the wider audience.
· There will be some delays in processing in the couple of weeks from this date as the new system goes close to full level of service.
IT Deployment – steps moving forward
· Given the scale of the IT deployment there are obvious risks involved. Our previous release deployments have proved the value of user acceptance testing (UAT) and a pre-production pilot; both will be undertaken for Release 3 IT.
· We have always taken the position that we will only deploy a system when we are confident it is ready. Therefore the CPSC will formally review progress each month against this plan with final decisions on the deployment to be made in late December 2009.
· We have contingency arrangements in place in case the new Income Tax System is not ready to deploy into our Integrated Core Processing system, including ensuring the successful delivery of Tax Time 2010.
· We will continue consult further with the community, particularly the tax profession about the potential implications for the planned deployment of the new Income Tax System.
This information is current at 25 November 2009. Members will be advised of any changes at the meeting.
Meeting discussion:
An update of the Change Program was provided to members by First Assistant Commissioner John Ryan. The Tax Office is now in the final stages of the biggest phase of Change Program deployment with the Income Tax release. While there are some systems issues which are being worked on to resolve, implementation is still planned for the Australia Day weekend, 2010.
The majority of aspects of the release are working and working well, but some complexities still need to be worked through. There needs to be a good understanding of these issues prior to going live, so while there is a need for a working system it is recognised there will be some initial problems.
The final decision on whether to proceed with implementation as a result of any impacts will occur on or before 22 December 2009.
Specific messages are already in the community regarding implementation dates and impacts of refund processing. Any returns lodged in January 2010 will be held but not processed post 1 January 2010.
A member asked what the ‘call’ would be on whether deployment would occur. The Commissioner advised that the decision depended on the level of defects and potential impacts on the Tax Office and externals. The concern is whether defects could become cumulative.
First Assistant Commissioner John Ryan commented that the only natural date is late January/early February as any later dates mean that a “three month” stabilisation period will start to impact on tax time, and the system needs to be bedded down before the commencement of tax time. Impacts on other systems are also of concern.
It was noted that any system takes time to settle down, and that it could take 18 months. But there is an expectation that the system will be fine in a technical sense in the new year.
Members discussed the need for clear communications regarding the decision as well as details of what could go wrong. Members were advised that communications will continue. The Tax Office appreciates the concerns.
First Assistant Commissioner John Ryan spoke about what will happen after the implementation date - the system will be very controlled and processing will be monitored with full production not expected for about 6-8 weeks to enable stabilising. Members were advised that broadcasts have gone out in the past and will do so again as needed. As an ATPF meeting will occur only days after the deployment there will be early feedback available at that point also. Communications are expected to cascade.
The Commissioner asked for continued cooperation and patience at this time.
The Commissioner also asked that it be put on record that he hopes it will be a joint effort to make this work the best we can. “There will probably be hiccups and for those I apologise upfront. To that extent can we keep the lines of communication open as much as we can. Please tell us what is happening with your issues.” The Commissioner reiterated the need for cooperation from Tax Agents, especially now, with the risks and the difficulties that may be ahead. There was an expectation that in 12-18 months what we will have will be better than what we have now.
There was a discussion about the portals and comparison with other jurisdictions. The United States for example has now commenced work on a national system; Singapore has a system but doesn’t have superannuation and Singapore has a much smaller regime; while Germany, Japan and China don’t have systems. We certainly have a good system - information is available and there are processes around correspondence. Although outbound is an issue, our system has the complexities that other jurisdictions don’t have.
The discussion ended with positive expectations from the Change Program implementation, and in having a system that works expediently.
Post meeting update:
Earlier response provided indicates processing income tax returns will commence from 1 February 2010 and the anticipated full rollout of the new system will commence 8 February 2010, this has now been changed to 15 February 2010.
This should also be noted with the indicated notation that from Monday 8 February 2010 which is now Monday 15 February 2010
· The full rollout of the new system will commence to the wider audience
· There will be some delays in processing in the couple of weeks from this date as the new system goes close to full level of service.
[_Toc255376498] 15 NTLG sub-forum governance report – Finance and Investment Sub-group
This is a standing agenda item which enables the NTLG Sub-forums to provide governance reports and discussions associated with the NTLG Sub-committees.
The Finance and Investment Sub-group has been nominated by NTLG members to provide the governance report at the 2 December 2009 meeting.
Response:
Assistant Commissioner John Smith, chair of the NTLG Finance and Investment Sub-group will attend the meeting to discuss the report.
Chair:
John Smith, Assistant Commissioner, Tax Counsel Network
Secretariat:
Robin Halls, Centre of Expertise - Finance and Investment
Purpose of Sub-group
The Sub-group is a forum at which income tax issues associated with finance and investment are considered. In particular, the Sub-group identifies and addresses tax administrative, interpretative and assurance issues that are directly relevant to finance and investment matters.
This includes:
· discussing the interpretation and application of relevant legislation;
· identifying anomalies and proposing action to resolve them, including escalating them to another forum or agency; and
· providing input to the content of guidance material and interpretive products.
Areas covered include debt/equity, foreign exchange-related issues, imputation, leasing, public infrastructure, insurance and superannuation, and financial products.
Sub-group background and history
The NTLG Finance and Investment Sub-group held its inaugural meeting on 9 September 2003. The Sub-group has held 14 meetings, and last met on 6 March 2009; the next meeting is on 9 December 2009.
Three major legislative measures have been introduced since the Sub-group was first convened, and these have had significant impacts on the Sub-group’s workload. The Sub-group has established separate Working Groups to concentrate on issues arising from the introduction of these measures.
The Working Groups and the measures they are concerned with are as follows:
· Forex Working Party
Divisions 775 and Subdivisions 960-C and 960-D of the ITAA 1997 (provisions relating to the taxation of foreign currency gains and losses, translation of foreign currency and functional currency).
· Division 250 Working Group
Division 250 of the ITAA 1997 (provisions relating to assets put to a tax preferred use).
· TOFA Working Group
Division 230 of the ITAA 1997 (concerned with the taxation of financial arrangements).
The Forex Working Party held the last of its 7 meetings in November 2006. Forex matters are now considered by the Sub-group or the TOFA Working Group. The Working Party can be re-convened if necessary.
The Division 250 and TOFA Working Groups were each established 12 months ago and are still operating. The Division 250 Working Group has held 3 meetings and is presently chaired by Richard Krone of the Tax Office’s Finance and Investment Centre of Expertise. The TOFA Working Group has held 6 meetings and is chaired by Ross Brookes, Assistant Commissioner of the Large Business and International business line’s TOFA unit within the Financial Services Industry Group.
The Working Groups report on their progress at each meeting of the Sub-group and further details of the activities of the two operating Working Groups are included below.
The former Chair of the Sub-group presented a governance report to the NTLG in June 2007. This report concentrates on activities undertaken since then.
Compliance with Corporate Management Practice Statement (CMPS) 2006/06
The Sub-group complies with the requirements set out in the Corporate Management Practice Statement PS CM 2006/06 (the Practice Statement) on committee management. In particular,
· The Sub-group has a published charter and terms of reference . The Sub-group’s working groups also operate under the Sub-group’s charter and terms of reference.
· All meetings of the Sub-group and its Working Groups are minuted and published on www.ato.gov.au on the National Tax Liaison Group essentials page.
· Reports on the Sub-group’s ongoing work, including the activities of its Working Groups, are presented at the NTLG’s quarterly meetings.
· The Sub-group conducted an annual review of its 2008 operations in February 2009. The responses received confirmed that the members saw the Sub-group as having operated to their satisfaction and their expectations in accordance with the Sub-group’s charter and terms of reference over the 2008 year.
Membership
· Industry and professional associations
The following bodies are represented at the Finance and Investment Sub-group and its working groups:
o Association of Superannuation Funds Australia
o Association of Tax and Management Accountants
o Australian Bankers’ Association
o Australian Custodial Services Association
o Australian Equipment Lessors’ Association
o Australian Financial Markets Association
o Corporate Tax Association
o CPA Australia
o Infrastructure Partnerships Australia
o Institute of Chartered Accountants in Australia
o Investment and Financial Services Association
o Law Council of Australia
o National Institute of Accountants
o Property Council of Australia
o Taxation Institute of Australia
The National Tax and Accountants Association and the Insurance Council of Australia are not presently active members of the Sub-group but receive agendas and minutes from the secretariat.
Treasury
A Treasury representative attends meetings of the Sub-group and all Working Groups. Treasury is invited to provide an update at all meetings on items of interest to the members, and particularly on items that have been before those groups and referred to Treasury.
Tax Office
The chair and the secretariat of the Sub-group and the Working Groups are all Tax Office employees. There have been five chairs of the Sub-group. Other Tax Officers that are members of the Sub-group and Working Groups are drawn from the Tax Counsel Network, the Finance and Investment Centre of Expertise and the Financial Services Industry Group. Specific invitations are extended to other Tax Office employees to assist with particular issues wherever appropriate.
Minutes of the Sub-group’s meetings confirm that meetings are well attended by senior members of the various external bodies who contribute actively and productively to the consideration of often difficult issues.
The chair has had to consider requests for increased representation from a number of bodies, and there seems a clear interest in and need for the functions of the Sub-group. Membership of the Sub-group has been largely stable for several years.
Sub-group operations
Meetings
The Sub-group usually meets twice a year, or more frequently as determined by the chair having regard to the views of members. Meetings are held in Sydney and where practicable a Sub-group’s meeting is convened immediately before a Working Group’s meeting.
The Working Groups meet as frequently as their members think is necessary to deal effectively with issues before them.
Prioritisation and Resolution of Issues
Under the Sub-group’s charter, the chair is responsible for determining the priority to be given to all issues and for approving agenda items. The chair is guided by the views of members and determines relative priorities by having regard to the Tax Office risk matrix in Practice Statement PS LA 2003/10.
There is no documented timeline for the resolution of issues. However, the Sub-group aims, where possible, to resolve priority matters at the meeting at which they are first discussed, or agree on a timeframe for the resolution of matters. The majority of issues before the Sub-group are addressed at the meeting they are scheduled for discussion or the one immediately after. Where alternate strategies are agreed to resolve priority issues (for example, if a Public Ruling seems necessary) the timelines adopt the relevant Tax Office timeframes for those actions. If the Sub-group considers that some legislative action is required to adequately deal with an issue, the matter is escalated to Treasury.
Actioning and progress of issues arising from the Sub-group
Matters arising from agenda items and other business at the Sub-group’s meetings that are not resolved at the meeting are recorded in the minutes as action items for the Tax Office or the relevant members.
These action items and the work on them are reported in the Sub-group’s reports for the quarterly meetings of the NTLG.
The current status of outstanding issues before the Sub-group is noted at Appendix A to this report.
Issues addressed by the Sub-group since the June 2007 governance report to the NTLG
Progress on priority issues from the August 2007 Sub-group meeting
An extraordinary meeting of the Sub-group was held in August 2007. The meeting provided an opportunity to take stock of all issues and agree on relative priorities. Members were invited to nominate the key issues of greatest concern. The Sub-group decided that the most important issues in order of priority were:
1. ENCO - Issues concerning the meaning of ‘Effectively non-contingent obligation’ (ENCO) in Division 974 of the ITAA 1997
2. Foreign Exchange (Forex) issues
3. Section 974-80 of the ITAA 1997
Subsequent actions on these issues are summarised below:
1. ENCO
Tax Office members prepared and circulated a substantial discussion paper (titled Division 974 ‘Effectively Non-Contingent Obligation ‘ in the debt test ) in October 2007 to the Sub-group. The representatives of the industry and professional associations responded to the propositions suggested in the paper. After considerable discussion over a number of meetings, the following actions were agreed.
· The Tax Office was to consider providing formal guidance on whether ‘obligation’ in section 974-135 of the ITAA 1997 is confined to a legal obligation.
The Tax Office’s view was subsequently proposed in draft Tax Determination TD2008/D14 on 1 October 2008. The view was settled in TD 2009/1 , which was published on 14 January 2009.
· The Tax Office should consider providing a Ruling to explain the Tax Office’s views on the extent to which economic compulsion is relevant in finding an ENCO. External members of the Sub-group are to consider providing practical examples of instances where economic compulsion falls for consideration.
This issue is now listed on the Public Rulings Program as ID 3184. A draft ruling is currently being prepared by the Tax office. The planned issue date for the draft is 24 March 2010.
· The Tax Office would provide a further discussion paper that considers the consequences under the debt test of limited recourse clauses. External members were to consider providing practical examples.
A draft discussion paper on matters relevant to the treatment of some limited recourse financing arrangements under the debt test was circulated to members before the 6 March meeting. The draft paper is to be further considered at the next meeting of the Sub-group. A decision will then be taken on any need for formal guidance, and the form of that guidance.
2. Forex issues
The Sub-group agreed that it should attempt to arrive at a consensus in ranking the identified forex issues. The previous Government had announced its intention to amend the law to address some of these issues, but other matters had not been the subject of any Government announcement. Agreement was reached over subsequent meetings on the relative priorities of all identified issues and Treasury was duly advised by the Tax Office in June 2008. Interested parties including Tax Office members have since met with Treasury to advance consideration of the proposals.
3. Section 974-80 of the ITAA 1997
Subsequent to the Tax Office’s release of a discussion paper on section 974-80 for public comment, the Tax Office received representations and met with interested parties. It was agreed that:
· the external bodies would approach Treasury to seek consideration of an amendment to the law;
· the discussion paper would be withdrawn by the Tax Office once those representations had been made; and
· Tax Office would separately advise Treasury of its views.
All of these actions have been completed.
Activities of Working Groups since June 2007
ITAA 1936 Division 250 Working Group
Questions relating to the application of Division 250 of the ITAA 1997 were raised by several Sub-group member organisations. Because of the number of issues and the relatively discrete nature of those issues, a Division 250 Working Group was convened and met for the first time on 2 December 2008. The Working Group met twice in 2009.
Of the 25 issues brought before the Working Group, 3 are issues for Treasury, and another 16 were satisfactorily addressed in discussion. Of the remaining issues, the industry and professional organisations are to provide further material to advance the consideration of four issues, and three issues are being considered by the Tax Office members of the Working Group.
No new issues have been referred to the Working Group since April 2009 and it is likely that the Working Group will meet on at least one more occasion.
TOFA Working Group
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 was introduced into Parliament on 4 December 2008. On 12 December 2008 the TOFA Working Group held its inaugural meeting. Subsequent meetings were held on 6 March, 6 April, 19 May, 12 August and 20 October 2009. The next meeting is scheduled for 9 December, after the Finance and Investment Sub-group’s meeting.
Because Royal Assent was not received until 26 March 2009, the agenda items for the first two meetings concentrated on matters relating to the administration of the proposed TOFA measures that did not involve proposing interpretive opinions. Interpretive issues that the Tax Office should consider after Royal Assent was given were also noted, and there was some discussion about the appropriate forms of guidance that might be provided on issues.
The processes and work of the TOFA Working Group were reported in some detail to the NTLG’s last meeting – see the Tax Office’s response to agenda item 10 at the NTLG Meeting on 17 September 2009. That response is now updated by the following comments.
In summary, there have been approximately 107 questions about the new legislation presented for the Working Group’s attention, and these have been ranked by the Working Group members according to their importance. A number of issues related to reasonably discrete topics and the Working Group agreed that teams would be formed within the Working Group to concentrate on considering those issues. These teams work with hedging, securitisation and swaps issues and meet as often as necessary outside the Working Group, but are required to report back to the Working Group.
Of the present total of 107 questions,
o 32 have been accepted to date by Treasury. These range from matters which seem to require technical correction to matters requiring a consideration of a policy nature.
o 33 issues are considered to be of lower priority – six of these appear to require Treasury’s attention.
o The Tax Office members have delivered discussion papers for consideration by members on 24 issues of the highest priority issues - 14 issues have been satisfactorily addressed through the Working Group’s consideration of the papers and are considered to be finalised issues.
o A further eight discussion papers on the next batch of priority issues are to be delivered for discussion at the December meeting.
o Another 10 discussion papers are scheduled to be delivered for the March meeting.
No potential topics for Taxation Rulings or Determinations have been agreed as yet.
Other post - June 2008 activities of the Sub-group
Other matters considered by the Sub-group include issues falling under the following broad headings:
· Consideration of various debt/equity matters, including ‘related schemes’ provisions, convertible notes (TR 2008/3) and the application of section 177EA to certain equity interests (TR 2009/3)
· Imputation issues
· TOFA 3&4 (prior to the formation of the TOFA Working Group)
· Treasury updates on the progress of new law or announced legislative amendments
· Division 250 (prior to the formation of the Division 250 Working Group)
· Financial products/capital protected products, including deferred purchase agreements (TD 2008/21; TD 2008/22)
· Tax file number withholding tax
[H7]· Division 245 – forgiveness of commercial debts
[H8]· Application of section 45B of the ITAA 1936.
[H12]· Offshore Banking Unit matters
· Revenue and capital distinction for managed investment funds
Conclusion
The Chair expects that issues properly before the Sub-group and Working Groups should be able to be adequately addressed in discussion at the meetings of those groups without the need to deliver a Tax Office-prepared discussion paper. Apart from its present undertakings, the Tax Office considers that it should only prepare further discussion papers or pre-Ruling consultative documents for these groups in exceptional cases. As a general rule, our experience suggests that consultation on issues that may require the issue of a public ruling is most productively achieved through discussions and the issue of draft Taxation Rulings and draft Determinations.
In the course of discussions at the groups’ meetings, there may be issues identified where a formal Tax Office response seems appropriate. These will be escalated to the appropriate body so that the need for a Taxation Ruling or Determination and the priority that should be given to the delivery of that view will be properly considered.
The Sub-group and its TOFA Working Group are likely to have a substantial workload for the foreseeable future. It seems that the Sub-group and Working Groups are performing their functions, and the chair acknowledges with gratitude the valuable contribution to our work of all members and, in particular, the assistance provided to him by the chairs of the Working Groups.
APPENDIX A
Progress of outstanding Sub-group issues
Action items from the 6 March 2009 and earlier meetings, with current status:
Action item 270208-6 : Tax Office to consider whether it would be appropriate to provide public guidance on the implications of ATO ID 2007/197 and ATO ID 2007/198 : if proceeds of sales of ‘borrowed’ shares that are trading stock are brought into account in a year before shares are acquired to replace the ‘borrowed’ shares, is the deduction for purchases only allowed in the later year? What is the timing of accounting for profit if the ‘borrowed’ shares that are sold are not trading stock, but are revenue assets?
Status : Ongoing
At the 6 March meeting it was agreed that the Tax Office would draft two Taxation Determinations to provide guidance on the issues and clarify any ambiguity in the ATO IDs. The preparation of draft Taxation Determinations was approved and drafting is at an advanced stage. However, recent changes to the Corporations Act 2001 and ASIC Class Orders issued under that Act have considerably changed the regulatory framework from that which prevailed when the question first arose. In light of these developments, the need for further action is be re-considered at the December meeting of the Sub-group.
Action item 160608-3 : Secretariat to ascertain whether the NTLG Foreign Source Income Sub-group has examined (or may examine) the issue of application of the functional currency rules to trusts.
Status : Ongoing
The secretariat advised that the issue is being considered within the Internationals Centre of Expertise. The International Centre of Expertise has advised the secretariat that there is no reason that the functional currency rules should not apply to trusts but that this will require legislative amendment.
Action item 160608-5 : Tax Office to advise on progress of public ruling on revenue capital distinction for managed investment funds.
Status : Ongoing
In November 2008, the Commissioner deferred the publication of a draft tax determination about the characterisation of gains and losses made by a trustee (including the trustee of a managed fund). The decision was taken to allow the Government time to consider and respond to the Board of Taxation’s interim advice about this issue.
In the May 2009 Budget, the Treasurer announced that the law would be amended to allow Australian managed investment trusts (MITs), except those that are taxed like companies, to make an irrevocable election to apply the capital gains tax (CGT) regime as the primary code for taxing certain disposals of assets. The measure is to take effect from the 2008-09 income year.
Broadly, this means that that MIT trustees who irrevocably elect into the new regime will not be required to apply general case law principles to determine whether gains or losses on shares, units and real property are properly characterised as on revenue or capital account.
The Tax Office anticipates that a number of MIT trustees will not elect into the new regime. As a result they, as well as trustees of other trusts, will still need guidance on the range of factors that are relevant to determining the character of gains and losses on disposal of investment assets by trustees.
A release date of the draft Tax Determination for comment under usual processes has not been determined.
Guidance on the Tax Office’s administrative treatment in the period between the Budget announcement and enactment of the proposed law is on the Tax Office’s new legislation webpage.
Action item 121208-1.3 : Members to advise of specific matters to be considered by the Tax Office in providing any formal advice on ‘economic compulsion’ and ENCO, and provide any additional material to be considered by the Tax Office in any advice.
Status : In course
The 6 March 2009 meeting resolved that the Tax Office should propose a Ruling for the Public Rulings Program that explains its views on the relevance of economic compulsion in finding an ENCO for the purposes of the debt test in Division 974. This issue is now listed on the Public Rulings Program as ID 3184. A draft Public Ruling is currently being prepared by the Authoring team. The planned issue date for the draft is 24 March 2010.
Action item 121208-2 : Application of section 98(2A) of the Income Tax Assessment Act 1936 – member to provide a paper setting out views on additional matters raised for consideration by the Sub-group.
Status : In course
Member has advised that the issues paper is in course of preparation for circulation to members prior to the next Sub-group meeting.
Meeting discussion:
The Chair of the NTLG Finance and Investment (F&I) Sub-group, Assistant Commissioner John Smith spoke about the Division 250 Working Group in general and advised there are six outstanding issues and one further meeting planned, before the Division 250 issues are likely to revert to the F&I Sub-group.
The TOFA Working Group has 107 issues. A number of papers have been prepared and there is a need to finalise the issues contained in these papers - then Discussion Papers can be retired. Most issues have been addressed or are under active consideration. The Working Group will advise which of those issues might be addressed in Rulings and Tax Determinations, and the order of priority of those issues.
The F&I Sub-group is the parent organisation for the Working Groups and handles the remaining F&I matters. It has 4-5 issues outstanding out of 23 issues that have been referred since August 2007. Debt and equity is the main issue with a Draft Ruling on Div 974 due to issue in March 2010. Limited recourse clauses in debt instruments are due to be discussed at the next Sub-group meeting. The Sub-group members will be asked to advise whether this issue should be further addressed by the Tax Office.
[Pg48]A member asked about the future of the Sub-group given the existence of the Working Groups. The Chair mentioned that issues are still being raised with the F&I Sub-group as the head group that would not be appropriate for the specialised Working Groups. He suggested that there is still a preference to keep the working groups going, even if the structure is a little cumbersome, because they allow for a concentrated effort over a shorter term on specialised issues by interested parties. The Forex Working Group might also be re-convened by the Sub-group when Forex amendments come on stream. There is an expectation that issues being handled by Working Groups will eventually be taken on by F&I Sub-group as the workload of those groups drops away, but the TOFA Working Group is expected to be active for some time.
A member mentioned revenue/capital as being of concern. The Sub-group minutes reflect that a draft Tax Determination regarding MITs has not yet been released for comment. Acting Second Commissioner Kevin Fitzpatrick commented that there is still no final decision on this issue. A draft TD may not be required, however a guidance product may be needed for ranking issues.
There was a concern about the delay in publishing minutes. The current process is that a draft is prepared and is sent to Treasury and Tax Officers for comment before going to external members as a draft for comment. Once the draft comes back from those parties it goes through the publishing process. The Chair agreed that the processes will be looked at to see if any improvements can be made.
A member asked whether there could be an update on where F&I taxpayer alerts are up to. The Chair indicated that this would be included in the next F&I Sub-group agenda as “Other business”.
[NTLG091207] Action Item NTLG0912/07:
The Finance and Investment Sub-group Chair to provide a report to the March 2010 NTLG meeting on the progress in identifying and prioritising TOFA ruling topics at the December 2009 TOFA Working Group, and an update on the progress of ENCO issues before the Sub-group.
[_Toc255376499] 16 Litigation case report
This is a standing agenda item and is included in the agenda twice yearly, at the June and December NTLG meetings.
Issues log item NTLG0706/11 refers.
Response:
This update is a summary of all significant litigation matters, as at 18 November 2009, including matters that:
· have received a recent decision;
· are in progress;
· are awaiting a decision.
The last significant litigation update provided to the NTLG was up to and including 29 May 2009.
Significant litigation matters – recent decisions
|
Matter |
Venue/Date handed down |
Outcome (to ATO) |
Case issue |
|
Anstis, Symone |
Full Federal Court (4 November 2009) |
Adverse |
Whether the applicant is entitled to a deduction under section 8-1 of the ITAA 1997 for self-education expenses against the income earned from the receipt of Youth Allowance. The Full Federal Court decided that the taxpayer is paid to undertake the course of study in a particular way. The expenses were incurred in the course of undertaking her course of study, and the activity of undertaking the study was productive of the youth allowance income. The occasion of the expenditure was the taxpayer’s pursuit of her course of study and, because of the way in which she pursued that course, it was productive of the youth allowance income. The appeal period expires 2 December 2009. |
|
Barnes Development Pty Ltd |
Federal Court
|
Partly adverse |
The significance of this case is the threshold legal issue raised by the respondent that s 260-5 does not enable the Commissioner to pursue civil recovery proceedings as it is a penal provision and that non-compliance with s 260-5 does not entitle the Commissioner to recover the amounts specified in the notices. The respondent argued that s 260-20, which provides for a criminal sanction for non-compliance with a s 260-5 notice, with a discretionary power to order payment of monies due, denies the Commissioner the right to sue for recovery that would otherwise arise by implication under s 260-5. The Federal Court rejected that argument, and held that ‘there is no general principle that the availability of civil remedies is excluded by a provision for a criminal sanction with a discretionary power to order payment of monies due’. The Court did not consider that the Parliament intended the criminal sanctions in s 260-20 to be the exclusive means of enforcing a s 260-5 notice. The decision was adverse to the Commissioner to the extent that the Court held that the Commissioner had not established his claim in respect of monies allegedly owed by the respondent to Mr Barnes. This aspect of the decision was based on a consideration of the facts. |
|
Paul Andrew Burness (as trustee for the property of Robert Bottazzi, a bankrupt) |
Federal Court
|
Adverse |
This was the Commissioner’s appeal from an adverse decision of the AAT in which the AAT remitted (under former section 227(3) of the ITAA 1936) a 75% penalty to 25% despite the AAT upholding a finding of evasion. The Commissioner sought review of the decision on the basis that the Tribunal member took into account irrelevant considerations. In rejecting the Commissioner's argument the Federal Court found that the discretion to remit is unconfined, and it is relevant for the AAT to consider the particular circumstances of the taxpayer to determine if there would be a harsh outcome if the penalty were not remitted - a task that the AAT undertook. |
|
Bruton Holdings Pty Ltd |
High Court
|
Adverse |
Whether a notice issued under s 260-5 of the Tax Administration Act 1953 was invalid because it was an attachment under s 500 of the Corporations Act 2001. The Full Federal Court set aside the decision of the primary judge and held that service of the notice was not an attachment for the purposes of s 500 and the notice was valid. On appeal, the High Court held that the Commissioner's general power to issue a notice under s 260-5 is not available if a liquidator has been appointed to a company. In that situation, it is only the more particular provisions of s 260-45 of the TAA that are engaged. That being so, there is no disruption of the operation of Ch 5 of the Corporations Act, and, in particular, no attachment to be rendered void by s 500(1). |
|
Clarke, Ralph |
High Court
|
Adverse |
Whether the superannuation contributions surcharge legislation was invalid in its application to members of the South Australian Parliament. The taxpayer argued that the High Court's decision in Austin (2003) applies to him. In a unanimous decision, the High Court held that the surcharge legislation was invalid in so far as it purported to create a liability for the taxpayer to the surcharge in respect of his membership of the three constitutionally protected superannuation funds of which he was a member. |
|
Commonwealth Bank of Australia |
Full Federal Court
|
Favourable |
Whether partnerships between the savings bank and trading bank entities which were integrated under the Bank Integration Act 1991 (BIA) can continue to exist after integration, and the tax consequences arising from this. Specifically, whether section 22(3) of the BIA has the effect that the partnerships between a bank and its integration counterpart are, for tax purposes, deemed to continue. The Full Federal Court agreed with the finding of the primary judge that s 22(3) of the BIA applied only to partnerships between the transferring bank (in this case CSBA) and third parties, and did not deem a partnership to continue after succession when no actual partnership at all continued after that date. The Court concluded that the provision was directed to circumstances in which there is an ongoing relationship of partnership after integration, and was designed to overcome the ordinary rule of partnership law that a change in the membership of a partnership dissolves the existing partnership and creates a new one for tax purposes. |
|
ConnectEast Management as Trustee for the ConnectEast Investment Trust |
Taxpayer’s application for special leave to appeal to the High Court (4 September 2009) |
Favourable |
Whether s 272-127 in Schedule 2F ITAA 1936 can apply when two higher level trusts together, but neither individually, have fixed entitlements to all of the income and capital of a subsidiary trust, with the consequence that the subsidiary may be able to carry forward losses where otherwise it would not be able to do so. The Full Federal Court upheld the decision of the primary judge in favour of the Commissioner that the section requires the trust to be wholly owned (directly or indirectly) by ‘each of one or more trusts’, and did not specifically mention trusts owned collectively or by a group. The taxpayer's application for special leave to appeal to the High Court was refused. |
|
The Electrical Goods Importer
|
AAT (6 November 2009) |
Favourable |
Whether cash back payments made by the taxpayer to purchasers of goods from retailers has the effect of changing the consideration for or in connection with the supply by the taxpayer to a participating retailer of a product that qualifies for a cash back payment. The Tribunal analysed the arrangement as involving two supplies. The first supply is the supply by the taxpayer to the retailer. That supply is never altered or adjusted. The second supply is by the retailer to the customer, and that is also a transaction that is never altered. The Tribunal concluded that, when the customer claims the amount of the cash back entitlement and the taxpayer makes the payment, that payment is not made in connection with either of the two supplies identified by the Tribunal, both of which remain unaltered. The Tribunal acknowledges that it might be said that there is a link between the payment of the cash back and the transactions which preceded that payment, but it is not made in consideration of either of them. The appeal period expires 4 December 2009. |
|
Lawrence, John Peter |
Taxpayer’s application for special leave to appeal to the High Court
|
Favourable |
Whether the arrangement, which took profits out of two companies controlled by the taxpayer not in the form of dividends, was a scheme 'having substantially the effect of a scheme by way of or in the nature of a dividend stripping' for the purposes of s 177E(1)(a)(ii) ITAA 1936; and Whether Part IVA is limited in its operation by other provisions in the ITAA 1936 and the ITAA 1997. The Full Federal Court upheld the decision of the primary judge that the schemes came within the scope of s 177E(1)(a)(ii). The Court also decided that the scope of s 177E should not be limited on the basis that other provisions of the taxation law deal with distributions of company profits and/or transfers of values between related companies. The taxpayer's application for special leave to appeal to the High Court was refused. |
|
Malouf, Anthony |
Taxpayer’s application for special leave to appeal to the High Court
|
Favourable |
Whether investors in retirement village syndicates were entitled to claim deductions under s 8-1 ITAA 1997 for the unpaid balance of the purchase price of property acquired for development as a retirement village. The Full Federal Court set aside the decision of the primary judge, and held that, in the circumstances of this case, the balance of the purchase price was not incurred upon entering into the contract, but would be incurred only at the time of settlement. The court distinguished the decisions in Raymor and Woolcombers. The taxpayer's application for special leave to appeal to the High Court was refused. |
|
National Mutual Life Association of Australasia Limited |
Full Federal Court
|
Adverse |
The issue in dispute relates to the extent to which a capital contribution made to a subsidiary of the taxpayer’s wholly-owned subsidiary could be included in the calculation of the reduced cost base on the disposal of the shares in the wholly-owned subsidiary on the basis that the capital expenditure was reflected in the state or nature of the wholly-owned subsidiary’s shares at the time of their disposal. The majority of the Full Federal Court overturned the decision of the primary judge on the basis that the expression ‘state or nature of the asset’ encompassed the notion of value. The majority also held that if, at the time of the sale of the shares, the capital expenditure was reflected in the shareholder’s equity in the wholly-owned subsidiary, it was also reflected in the state or nature of the shares in that subsidiary. |
|
Secretary to the Department of Transport (Victoria) |
Federal Court (28 October 2009) |
Adverse |
Whether a state government department is entitled to input tax credits under s 11-1 of the GST Act for the GST component of the payments made to taxi-cab operators under a program to subsidise the transport of disabled passengers. The Federal Court held that the taxpayer acquires a service from the taxi-cab operator, being the carriage of the person. That service is acquired by the taxpayer in implementing the Program. The taxpayer, as an arm of the executive of the State Government, acquires that service for consideration because it agrees to pay and does pay the taxi-cab operator to carry the disabled person, even though the department does not pay the whole of the amount charged by the taxi-cab operator. The taxable supply to the department is the carriage of the disabled person. The Court then concluded, contrary to the Commissioner's contention, that the supply by the taxi-cab operator is not just a supply to the passenger. There is also a supply to the taxpayer - the transport of the disabled person for part of the taxi-cab fare and other fees. In other words, there is an enterprise (a State Government department) that acquires a service (transport) for a creditable purpose (the carrying on of the business of the State Government department), which is a taxable supply made to the department for consideration (the payment under the Program). The appeal period expires 25 November 2009. |
|
Spriggs & Riddell |
High Court
|
Adverse |
Whether expenditure connected with negotiating new employment contracts between professional AFL/NRL football players and their football clubs is deductible, and whether the principles established in the High Court decision of Maddalena (1971) apply in these circumstances. The High Court allowed the taxpayers' appeals and found the taxpayers were engaged in the business of commercially exploiting their sporting prowess and associated celebrity. |
|
St George Bank Limited |
Taxpayer’s application for special leave to appeal to the High Court
|
Favourable |
Whether the “interest” paid by the taxpayer to LLC on the debentures was deductible under section 8-1 of the ITAA 1997; whether the “interest” paid after 1 July 2001 was a non-share distribution for the purposes of Div 974 and section 26-26 of the ITAA 1997; and whether the election that Div 974 applies was valid. With respect to the issue of whether the payments of interest on the debenture issued by SGB to LLC were outgoings of capital, or of a capital nature, for the purposes of subsection 8-1(2) of the ITAA 1997, the Full Federal Court upheld the decision of the primary judge that the payments of interest were outgoings of capital, because the advantage sought and obtained by SGB was not the use by the borrower of the money during the limited term of the loan, but the maintenance and support of the permanent capital raised by LLC. With respect to the issue of whether a valid election was made by SGB pursuant to item 118(6)(b) of Schedule 1 to the New Business Taxation System (Debt and Equity) Act 2001 to invoke the provisions in that Act introduced into the ITAA 1997 as Division 974, the Full Court also upheld the decision of the primary judge that no valid election was made under item 118(6) or (10) of Schedule 1 of the Debt and Equity Act. As a result of the finding that no valid election was made, the Full Court concluded there was no need to consider the question of whether the payments from 1 July 2001 were "a non-share distribution" for the purposes of Division 974 of the ITAA 1997. |
|
Star City Pty Limited |
Taxpayer’s application for special leave to Appeal to the High Court (2 October 2009) |
Favourable |
Whether a one-off pre-payment to the NSW Government for 12 years rental for casino premises was deductible on the basis that the amount was not a capital payment, or, alternatively, whether Part IVA applied. Although the primary judge allowed the taxpayer's appeal on the basis that the payment was on revenue account, and that Part IVA did not apply, the Full Federal Court overturned the decision, concluding that the prepayment of rent was an outgoing of capital or of a capital nature. In separate judgments, the Court concluded that the prepayment was not deductible because the character of the advantage sought was the securing of the casino licence and the exclusive right to operate a casino in NSW rather than the quiet enjoyment of the casino site for 12 years. The taxpayer's application for special leave to appeal to the High Court was refused. |
Significant litigation matters – in progress
A list of strategic issues currently in litigation is provided for information. These are issues that are likely to have wider law clarification implications beyond the particular case:
|
Venue |
Topic |
Issue |
|
Taxpayer's application for special leave to appeal to the High Court |
Charitable status |
Whether the objects and activities of the taxpayer were directed towards the relief of poverty and the advancement of education; and whether its activities, directed at influencing government policy, were political in nature with the result that the taxpayer was disqualified from being classified as charitable. |
|
Cmr’s appeal to the Full Federal Court |
Corporate restructure arrangements |
Whether Part IVA applies to a corporate restructure, a purpose of which was to change the intra-group holding of shares in an off-shore subsidiary from the Australian taxpayer company to a new off-shore head company. During this restructure a series of steps was implemented which included the subsidiary buying back the shares held by the Australian taxpayer company (resulting in a capital loss by operation of Division 16K of the ITAA 1936) in exchange for a debt note. On the same day, the subsidiary then re-issued shares to the new head company in exchange for the debt note which the head company received on the same day from the Australian taxpayer company as a reduction of capital distribution by the Australian taxpayer company in which the head company was the shareholder. The AAT decided that the scheme was not sufficiently contrived to give it a dominant tax avoidance purpose, having regard to the compelling commercial outcome of the arrangement. |
|
Cmr’s appeal to the Full Federal Court |
GST - credit card fees |
Whether fees payable under charge card and credit card facilities for late payment formed consideration for supplies other than input taxed financial supplies. The primary judge decided that the fees were not consideration for input taxed financial supplies as the payments did not have the requisite connection with a supply of an interest in or under a debt, credit arrangement, or right to credit. It was further decided that the card systems operated by the taxpayer constituted ‘payment systems’ for the purposes of the GST Regulations with the consequence that the taxpayer does not make financial supplies in the operation of its charge and credit card facilities. |
|
Cmr’s appeal to the Full Federal Court |
Internal company financing arrangements - loans & bad debts |
The first issue is whether the internal financier for the company group, was entitled to claim deductions in respect of amounts loaned to other companies within the group, on the basis that it was in the business of lending money and the debts were written off as bad. Alternatively, whether Part IVA applied to the claim for a bad debt. The second issue is whether Division 243 ITAA 1997 applies to a particular loan to reduce capital allowance deductions for expenditure funded under limited recourse debt arrangements where the deductions are excessive having regard to the amount of debt that was repaid. |
|
Taxpayer’s appeal to the Full Federal Court |
Charitable status |
Whether the fund was applied for the purposes for which it was established within the meaning of s 50-60. The primary judge rejected the AAT’s conclusion that the ‘is applied’ criterion is satisfied if the fund is administered substantially in accordance with its constituent terms. Although the taxpayer was successful before the AAT, the Commissioner’s appeal to the Federal Court was allowed. |
|
Taxpayer’s appeal to the Federal Court against Cmr’s decision |
CGT reduction arrangement |
Whether Part IVA applies in relation to an internal reorganisation of a corporate group that resulted in an increase in the CGT cost base of shares in a subsidiary company, with a corresponding reduction in the capital gain from the disposal of those shares by way of a public float of the subsidiary. |
|
Cmr’s appeal to the Full Federal Court |
GST – new residential premises |
Whether assignments of long-term leases of residential apartments, constructed pursuant to a development lease arrangement broadly of the kind described in GSTR 2008/2, constitute sales of “new residential premises” for the purposes of s 40-75(1) GST Act, or are input taxed supplies of residential premises that are not new residential premises because they have been previously the subject of a long-term lease. |
|
Taxpayer’s application to the Federal Court |
Validity of notice of assessment |
Whether the production of a notice of assessment for a net amount in proceedings outside Part IVC precludes arguments about the validity of the assessments. The taxpayer has filed an application under s 39B Judiciary Act contesting the validity of a notice of assessment issue outside the 4 year period under s 105-50 TAA. |
|
Taxpayer’s application to the AAT for review of Cmr’s decision |
GST - mixed supply |
Whether the supply of prescription spectacles (frames and lenses) is a single supply that is partly taxable (i.e. the frames) and partly GST-free (i.e. the lenses); and whether the consideration for the whole supply must be apportioned to both the taxable and GST-free parts of the supply on the basis of the respective values of each component. |
|
Taxpayer's application for special leave to appeal to the high Court |
Extension of time to give an approved form to the Commissioner |
Whether the Commissioner has the power to exercise the discretion under s 388-55 TAA 1953 to defer the time within which the taxpayer can lodge a form notifying the Commissioner of a choice to consolidate under s 703-50 ITAA 1997. The Full Federal Court upheld the decision of the primary judge that the general power in s 388-55 TAA 1953 does not enable the Commissioner to extend the period within which to make a choice to consolidate under s 703-50 ITAA 1997. |
|
Taxpayer's application for special leave to appeal to the High Court |
GST - supply of foreign currency |
Whether the supply of foreign currency is ‘a supply that is made in relation to rights’ and, if so, whether the rights were for use outside Australia such that the supply was a GST-free supply by reason of item 4(a) in s 38-190(1) of the GST Act. A majority of the Full Federal Court upheld the decision of the primary judge that the supply of foreign currency is not a supply that is made in relation to rights. |
|
Appeals by the Cmr and taxpayer to the High Court |
Income of a Trust Estate |
The taxpayer's issue in this case is whether ‘that share’ in section 97(1)(a) of the ITAA 1936 refers to a beneficiary’s proportionate or fractional entitlement to the income of the trust estate or can refer to a fixed amount rather than a proportion; The Tax Office's issue is whether a trustee, acting in accordance with the terms of a trust deed, can determine what constitutes income of the trust estate for the purposes of section 97. |
|
Taxpayer's application for special leave to appeal to the High Court |
Consolidations |
Whether the correct construction of the phrase ‘at the leaving time’ in subsection 711-45(1) of the ITAA 1997 means ‘just before the leaving time’ for the purpose of determining the cost base of the membership interests when an entity ceases to be a subsidiary member of a consolidated group. Both the primary judge and Full Federal Court agreed with the Commissioner’s construction that the phrase ‘at the leaving time’ in subsection 711-45(1) of the ITAA 1997 means ‘just before the leaving time’. |
|
Taxpayer’s appeal to the Full Federal Court |
GST - free beverages |
Whether the taxpayer’s supply of fermented wine that has had the alcohol content removed through a manufacturing process is GST-free on the basis that the wine is a non-alcoholic non-carbonated beverage consisting of at least 90% by volume of juices of fruit, or a non-alcoholic carbonated beverage consisting wholly of juices of fruit. The Federal Court held in favour of the Commissioner in relation to both issues. |
|
Taxpayer’s application for special leave to appeal to the High Court |
Commercial debt forgiveness provisions |
Concerns the application of Division 245 of Schedule 2C to the ITAA 1936 in respect of loans advanced by a non-resident parent company to its wholly owned Australian subsidiary. The Full Federal Court held that the advances were debts, they were commercial debts, and they had been forgiven, confirming those aspects of the decision of the primary judge. However, contrary to the decision of the primary judge, the Full Court held that the parent company did not carry on a business through a permanent establishment in Australia and did not use the debts in any such business. Hence, the debts did not have the necessary connection with Australia such that the notional value of the debt forgiven is calculated applying the assumption of solvency. |
|
Cmr’s appeal to the Full Federal Court |
Employee Welfare fund arrangement |
Concerns an employee welfare fund arrangement promoted by a firm of solicitors. In each of the relevant years, the taxpayer claimed a deduction on the basis that amounts had been paid to an Employee Welfare Fund established for the benefit of its employees. The Commissioner disallowed the deductions and issued Determinations under Part IVA. The Tribunal held that the amounts were deductible, and Part IVA was not applicable. The Federal Court held that the AAT made an error of law in the application of the test required by s 177C(1)(b). The Court remitted the matter back to the Tribunal to apply the correct test and to determine whether there was evidence to support the alternate hypothesis that would reasonably be expected to have resulted, and whether that activity would have resulted in an allowable deduction. The Commissioner has appealed against the Federal Court’s decision, on the basis that the court should have held that the taxpayer obtained a tax benefit in connection with the scheme and that the matter should be remitted to the Tribunal to determine the remaining issues under Part IVA accordingly. |
Significant litigation matters – heard in the Tribunal, Federal and High Courts and awaiting decision
|
Venue/Date Heard |
Case issue |
|
Full Federal Court (heard 23 February 2009) |
This is an appeal by the taxpayer against the decision of the AAT. The case concerns the deductibility of interest on funds used to acquire units in a hybrid trust. Further issues in the case are whether a payment made to a charity (subject to certain conditions), at the direction of the taxpayer, was an ETP assessable to the taxpayer, and whether the payment to the charity should be treated as a deductible gift made by the taxpayer. |
|
Full Federal Court (heard 3-4 August 2009) |
This is the taxpayer’s appeal against the decision of the primary judge. The case considers the meaning of ‘commercial residential premises’ and ‘residential premises to be used predominantly for residential accommodation’ for GST purposes. In particular, consideration is required as to whether supplies of strata titled hotel units by the taxpayer by way of lease are taxable supplies of commercial residential premises or input taxed supplies of residential premises, in circumstances where the management lot (which includes the hotel’s reception) is sold to a different although related entity of the recipient of the leases of hotel units. The case will examine the 2005 amendments to the GST Act following the Marana Holdings case. |
|
Federal Court (heard 24-25 September 2009) |
This is the taxpayer’s appeal against a decision to disallow objections against amended assessments. The primary issue in this case is whether the supply of land on which certain works were carried out pursuant to a special condition of the contract of sale is the supply of a going concern under section 38-325 of the GST Act. This case will consider whether the taxpayer has supplied ‘all of things necessary for the continued operation of an enterprise’ under paragraph 38-325(2)(a) of the GST Act and whether the activities of the taxpayer which were stipulated by the contract for sale are within the terms of paragraph 38-325(2)(b) which requires that the enterprise be carried on until the day of supply. A further issue that arises in this case is whether the day of supply under paragraph 38-325(2)(b) is the date on which the contract is entered into or the date of completion of the contract. The case will test the Commissioner’s view as set out in GSTR 2005/5 and GSTR 2002/5. |
|
Federal Court, e-trial (heard 3-13 June 2008) |
This is an appeal by the taxpayer against a deemed disallowance of its objections. This case considers the issue of whether the taxpayer is entitled to claim a deduction for losses transferred to it from a Group pursuant to section 170-20 of the ITAA 1997. However, in determining this issue, the Group are also seeking to have determined the issue of losses previously disallowed by the Commissioner in relation to which amended assessments are yet to be issued. The case also raises Part IVA issues. The appeal will also test the application of paragraph 25-35(1)(a) of the ITAA 1997 and section 8-1 of the ITAA 1997 to loan transactions. |
|
Federal Court (heard 23-27 March 2009) |
This is the taxpayer’s appeal against a decision to disallow an objection to an amended assessment. The arrangement involves the use of the scrip for scrip roll-over provisions in a manner which seeks to obtain the benefit of a capital gain without paying capital gains tax. This case will examine whether the arrangement circumvents the intended operation of Subdivision 124-M of the ITAA 1997 and attracts the application of Part IVA of the ITAA 1936. |
|
Federal Court (heard 9-11 March 2009) |
This is an appeal by the taxpayers against a decision to disallow objections to amended assessments. This is a loss trafficking case involving a closely held trust. The trust in question claims to have made capital losses. It sought to offset those losses against a net capital gain in a later income year. At issue is the continuity of the trust and whether the trust that made the losses is the same taxpayer as the trust which made the capital gain. The continuity of the trust is in question because a change in the trustee of the trust resulted in the control of the trust passing from one family group to another. This case will test whether this arrangement interrupted the continuity in the trust property and the regime of rights and obligations attaching to the trust property which resulted in a change to the identity of the taxpayer. This case will raise the principles as to the continuity of trusts discussed by the High Court in Commercial Nominees. |
|
[RANGE!A57]Federal Court (heard 5-6 October 2009) |
This case concerns the CGT implications on the assignment of a Distribution Agreement. This dispute arose from a review of the taxpayer, where the tax office concluded that the taxpayer had failed to account for any gain in the assignment of a Distribution Agreement for the year of income. At issue is whether the assignment of the Distribution Agreement brought about a disposal for the purpose of subsection 160ZD(4) of the ITAA 1936; or, alternatively, whether subsection 160ZD(2) of the ITAA 1936 would deem the taxpayer to have received market value consideration in respect to the disposal. |
|
Federal Court (heard 1-12 June 2009)
|
This is an appeal by the taxpayers against a decision to disallow objections to amended assessments. This case deals with whether a Unit trust which provides premises, equipment and services to medical professionals for a fee acquires copyright in the medical records acquired with and from the vendors of medical practices that the unit trust has acquired. Secondly, if copyright is acquired, what amount is reasonably attributed to the copyright under the contract of acquisition for unspecified amounts of such copyright? The taxpayer is the sole unit holder in the Unit trust and contends it is entitled to reduce its distributions received from the Unit trust on the basis the trust is entitled to deductions under section 373-10 of the ITAA 1997 for capital expenditure in acquiring copyright on an item of intellectual property, being the medical records, for depreciation/capital allowance on copyright used in gaining the trust's assessable income. |
|
[RANGE!A59]Federal Court (heard 7-18 September 2009) |
This case is a CGT reduction case involving Part IVA of the ITAA 1936 and the use of an exempt s 23AJ dividend paid by way of intra-group round robin debt from an unbooked revaluation to reduce the market value of on off-shore subsidiary that was later sold as part of a major international reorganisation. The substantive issue is whether Part IVA applies to include a capital gain in the taxpayer’s assessable income for the 1999 year. There is a threshold question about whether the amended assessment issued by the Commissioner in 2006 for the 1999 year is a valid assessment with respect to the six year amendment period for Part IVA. This case may provide guidance on the application of Part IVA to these particular arrangements and provide clarification on CGT reduction arrangements. |
|
Federal Court (heard 3 September 2009) |
This is the taxpayer’s appeal to the Federal Court as a result of disallowed objections to amended assessments. The taxpayer was subject to a transfer pricing audit and determinations were made under Division 13 of the ITAA 1936 and the Associated Enterprises Articles of several tax treaties to adjust the consideration for the company’s international related party transactions to reflect an arm’s length amount. At issue is whether Division 13 of Part III of the ITAA 1936 authorises the Commissioner to adjust the purchase price of products acquired by the taxpayer from related parties; and whether the Associated Enterprises Articles of the tax treaties authorise the Commissioner to adjust the purchase price of products acquired by the taxpayer from related parties. |
|
Federal Court (heard 30 June 2009) |
This is the taxpayer’s appeal from a decision of the AAT. This case will test issues raised in Toyama and will examine the meaning of “residential premises to be used predominantly for residential accommodation” for the purposes of subsection 40-65(1) of the GST Act. In particular, the case will test whether the acquisition of property by the taxpayer is for a creditable purpose or relates to an input taxed supply. The property comprised land with an old house which was the subject of a residential tenancy agreement. The property was marketed as a development site which had council approvals. The taxpayer, a property developer, purchased the property but did not undertake any development activity and was attempting to sell the property in its unimproved state. |
|
Federal Court (heard 6 October 2009) |
This is the taxpayer’s appeal from the decision of the AAT. The case concerns the issue of whether the sale of vacant land, zoned residential, able to be connected to facilities such as water, sewerage and electricity, may be an input taxed supply of residential premises. At the time of sale there were no buildings on the land. |
|
Full Federal Court (heard 4 November 2009) |
This is the taxpayer's appeal to the Full Federal Court. The matter concerns deductions claimed by the applicant in respect of losses incurred when investment funds were misappropriated by the taxpayer’s financial advisor.The Federal Court held that once money received as income is deployed by the taxpayer personally or by way of agent for expenditure or investment, the characterisation as income is no longer appropriate and the loss cannot be said to have been incurred in respect of money included in assessable income. |
|
Full Federal Court (heard 5 November 2009) |
This is the taxpayer’s appeal to the Full Federal Court. The case concerns whether an amount received by the taxpayer from the Commonwealth by way of reimbursement is “a payment made by a government related entity to another government related entity … specifically covered by an appropriation under an Australian law” within the meaning of s 9-15(3)(c) GST Act; and whether an amount received by the taxpayer from the Commonwealth by way of reimbursement is consideration within the meaning of s 9-15 GST Act for the supply of those services. |
|
Federal Court (heard 12-16 October 2009) |
This is the taxpayer’s appeal against a decision of the Commissioner to disallow an objection. This case examines whether Part IVA of the ITAA 1936 applies to an arrangement involving the interposition of a “packaging” company between the owner of the majority of the brands and related business assets, and the purchaser. The arrangement utilised rollover relief pursuant to Subdivision 126-B of the ITAA 1997 in respect of the disposal of certain intellectual property. The property was then disposed of, creating a substantial capital gain. The case is expected to clarify the operation of ss 177C(2) & 177C(2A) of Part IVA. Part IVA currently embodies limitations and exclusions that prevent its application in circumstances where a concession is contemplated by the Act. However, the use of these concessions might otherwise give rise to a tax benefit and attract Part IVA. |
Current Part IVC Litigation – Case Analysis – Market Segment
|
Market Segment |
|
% of Total |
|
Excise |
13 |
1% |
|
GST |
196 |
14% |
|
Large Business |
302 |
21% |
|
Micro Enterprise and Individuals |
260 |
18% |
|
Other |
17 |
1% |
|
Small Medium Enterprises |
173 |
12% |
|
Superannuation |
58 |
4% |
|
Mass Marketed Schemes |
429 |
30% |
|
Grand Total |
1448 |
100% |
Current Part IVC Litigation – Case Analysis – Venue Basis
|
Venue |
|
% of Total |
|
AAT |
1050 |
73% |
|
Court of Appeal/Full Court |
2 |
0% |
|
Federal Court First Instance |
297 |
21% |
|
Federal Court from AAT |
13 |
1% |
|
Federal Magistrates Court |
2 |
0% |
|
Full Federal Court |
45 |
3% |
|
High Court |
15 |
1% |
|
Magistrates/Local Court |
3 |
0% |
|
STCT |
15 |
1% |
|
Supreme Court |
6 |
0% |
|
Grand Total |
1448 |
100% |
[Pg63]
Meeting discussion:
Acting Chief Tax Counsel Andrew England led the discussion on this item. Members were advised that special leave to appeal to the High Court in respect of the Anstis matter will be sought. There are potential implications beyond the youth allowance.
An explanation of an “e-trial” was required as the term was unfamiliar to some members. There was a discussion that the “e-trial” wasn’t a success due to technology issues.
There were concerns raised about the format and content of the report. A member suggested including the original citation reference in the report for cases that may now be on appeal. It was also suggested that the language in the document be improved as some responses can be "loose" and interpreted inaccurately, and that the date of the information is included in the Case Analysis tables for future reports.
There are 429 mass marketed schemes mentioned in the Case Analysis tables and a member commented on the high number - members were advised that the figure relates to outstanding cases, not new issues (historical cases in the pipeline).
[NTLG091208] Action Item NTLG0912/08:
Tax Office to consider suggestions and adopt appropriate improvements for future Litigation reports.
[_Toc255376500]
17 Public Ruling Steering Committee
This agenda item is to provide an update on the recent activities of the Public Ruling Steering Committee.
This is a standing agenda item NTLG0711/08 refers.
Response:
The Steering Committee is due to next meet on 25 November 2009, prior to the NTLG meeting.
At the November meeting, the Steering Committee proposes to discuss the following items:
· minutes and action items from 11 September 2009
· new issues raised by NTLG Sub-committees
· Other issues raised by NTLG rulings steering committee members
· Public rulings program, including topics added and finalised
· Governance
o Annual Review
o Meeting dates for 2010
o Update of Charter membership
An update from the steering committee meeting will be provided at the NTLG meeting.
To obtain a copy of the Public Ruling Steering Committee minutes, contact the NTLG Secretariat at mailbox palu@ato.gov.au
Meeting discussion:
Acting Second Commissioner Kevin Fitzpatrick and acting Chief Tax Counsel Andrew England provided an update of the 25 November 2009 Public Ruling Steering Committee (PRSC) meeting and advised that draft minutes will issue shortly. A summary of key matters discussed follows:
1. Follow-up with Chairs of technical Sub-committees has taken place regarding identifying and prioritising potential issues for public rulings. Potential topics for public rulings will be forwarded to the PRSC for review .
2. A draft ruling on retail premium issues ( arising out of the McNeil case ) is expected to be issued in February 2010.
3. Potential ruling issues raised by the TIA are being considered by subcommittees and will be discussed further at the PRSC.
4. A review of the use of Discussion Papers is in place and Andrew England spoke about how the existing processes could be improved. There was a general feeling from members that there is a good opportunity to improve processes.
[_Toc255376501] 18 Matters referred to sub-forums, NTLG work program and management of issues
[Pg66][_Toc81996419]
Meeting discussion:
Members were provided with the opportunity to raise any issues regarding the Sub-forum reports. There were four reports that generated discussion.
18.11 Promoter Penalty Co design Sub-committee report
Member stated that the Sub-committee has largely completed its work and queried what has happened since March 2009, the date of the last meeting. The member agreed to follow up with the Chair of the Sub-committee directly. Tax Office to follow up the progress of the status of the Committee and its ongoing need.
[NTLG091209] Action Item NTLG0912/09:
Tax Office to follow up the progress of the status of the Promoter Penalty Co-design Sub-committee and its ongoing need by the March 2010 NTLG meeting.
18.12 Superannuation Technical Sub-group report
Member queried the status on action associated with instalment warrants. Acting Second Commissioner Kevin Fitzpatrick advised that the issue has been raised. The Tax Office agreed to investigate the status.
[NTLG091210] Action Item NTLG0912/10:
Tax Office to investigate the status of instalment warrants and advise members.
18.14 - Trust Consultation Sub-group report
Member noted there are a number of managed investment trust and non managed investment trust cases on the Trust Sub-group register of issues. The member noted that a number of these were trust loss issues and queried the outcome of non managed investment trust cases. The member agreed to identify issues and advise the Chair to ensure they can be considered.
[NTLG091211] Action Item NTLG0912/11:
Member to identify issues regarding trust loss issues and non-managed investment trust cases with the Chair of the Trust Consultation Sub-group by 29 January 2010.
18.15 - Public Rulings Panel report
The timeframe for the Div 7A/UPE ruling was questioned. Acting Chief Counsel Andrew England advised that 16 December 2009 would be the last day to issue rulings this calendar year. It was expected to issue on that date, but there were no guarantees. Members commented they would prefer no rulings to issue on 23 December 2009. They would prefer to wait until January 2010.
Post Meeting Update:
Refer to Agenda Item 7. The Draft Taxation Ruling “ TR 2009/D8 Income tax: Division 7A loans - trust entitlements” issued on 16 December 2009.
Members accepted the information provided in Action Item registers.
1.1 [_Toc255376502] 18.1 Report on action items arising from 17 September 2009 NTLG meeting
Action item NTLG0909/01:
The Tax Office to advise sub forums chairs to ensure that the content of agendas and minutes is objective.
Refer agenda item 1 – Introduction, apologies, confirmation of minutes of 17 June 2009
Status: Closed
Outcome: [OLE_LINK5][OLE_LINK6] NTLG Sub forums advised to ensure that the content of agendas and minutes are objective and complete in the context of the minutes.
Action item NTLG0909/02:
Further discussion of reduction in compliance and administrative costs is to occur pending the identification of suitable examples by members.
Refer agenda item 3 – Reduction in compliance and administrative costs
Status: Ongoing
Outcome: Members to advise suitable examples of cases in relation to the reduction in compliance and administrative costs. Member responses due 29 January 2010.
Action item NTLG0909/03:
Review the circumstances for the application of the Commissioner’s discretion to extend compliance time frame in light of the High Court decision in the McIntosh case.
Members to identify issues to be addressed as part of this process.
Refer agenda item 4 – Scope of the Commissioner’s discretion post M W McIntosh Pty Ltd v FCT
Status: Ongoing
Outcome: Members to identify issues to be addressed in relation to the high court decision in McIntosh. Member responses due 29 January 2010.
Action item NTLG0803/011:
Action item 0811/03 was raised from the November 2008 meeting in respect of s109E. This action item is to be reviewed and members advised.
Refer agenda item 11 – Division 7A loans – Section 109E (Loans part repayment prior to lodgement)
Status: Ongoing
Outcome: Member advice provided at item 8 of this agenda.
[_Toc255376503] 18.2 NTLG action item log (ongoing action items)
A copy of the NTLG action item register, updated as at 25 November 2009 has been forwarded to members as part of the agenda papers.
The action item register has been structured into three parts:
Part A contains responses to action items for consideration for finalisation at the 2 December 2009 meeting. There are two items put forward for consideration as completed. That item has been included below.
Part B contains the ongoing action items.
Part C contains the standing agenda items.
Action items for consideration as completed at this meeting are:
|
Item reference no. |
Description |
Outcome or resolution |
|
NTLG0909/01 |
The Tax Office (PALU) to advise sub forums to ensure that the content of agendas and minutes is objective. Refer agenda item 1 Introduction, apologies, confirmation of minutes |
Finalised NTLG Sub forums advised to ensure that the content of agendas and minutes are objective in nature. |
|
NTLG0906/01 |
Further information will be provided to members following consideration of practical examples and the application of section 139DD. Refer agenda item 6 Employee Share Schemes |
Finalised Practical examples were received and considered. In accordance with the minutes of the NTLG meeting of 17 June 2009, the Tax Office has considered its view on the operation of section 139DD ITAA 1936 taking into account the example provided. The Tax Office confirms its view that the interpretation of section 139DD is clear and does not require changing. Further, given that the equivalent provision contained in 83A-310 of the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009 currently before Parliament, does not include this issue and that Division 13A ITAA 1936 will be repealed under the consequential amendments, no further consideration of the issue is required. |
NTLG Sub-committee and panel reports
[_Toc255376504] 18.3 ATO Tax Practitioner Forum
Chair:
James O’Halloran, Deputy Commissioner, Tax Practitioner and Lodgment Strategy
Secretariat:
Rana Cobbin, Tax Practioner and Lodgment Strategy
Last meeting held:
The last meeting was held on 6 November 2009.
Next meeting:
The next meeting will be held on 26 February 2010.
Minutes:
The draft minutes of the ATPF meeting held on 7 August 2009 were endorsed at the 6 November 2009 meeting.
The final minutes will be published to ato.gov.au and replace the 7 August 2009 draft minutes.
New significant topics:
|
Agenda Topic |
Opening comments |
|
Issue/Application |
The Chair invited members to provide any general feedback on the industry, comments received: § Busiest tax season, publics’ taxation compliance is increasing. This may be a result from the tax bonus and capital allowance initiative. § Actions from the Tax Office i.e. following up on outstanding debts, is contributing to the accounting industry not being affected by the recession. § Global Finical Crisis (GFC) driving the industry, a lot of reliance on financial information. Banks require current business financial statements for small loan applications. § Tax Bonus, administration of this initiative has increased work in the accounting industry. § Recession - for accountants has not had an adverse impact. § However there is still the issue of finding skilled accounting staff. |
|
Status |
Completed |
|
Agenda Topic |
Change Program |
|
Issue/Application |
Information was provided on the key dates for the Change Program deployment. This information is indicative at this stage and is still subject to change however the key features and timetable is correct. This will be the largest release the Tax Office has undertaken. The release depends on the outcomes of all our testing and monitoring. The Commissioner will not commence with deployment if there is any significant risk to the administration of the tax system. Members and associations were asked to manage their client’s expectations during this period. If your clients want their refunds early then they must lodge complete and accurate information during December 2009. Professional Associations were asked to provide their communication officer contacts so the Tax Office can send any information directly to them as well as forum representatives. Update following the meeting: The Chair has proposed holding an extraordinary ATPF meeting on Thursday 4 February 2010 to deal with any issues following the deployment of the new Income Tax system functionality over the 2010 Australia Day long weekend. The meeting may either be a face-to-face or via teleconference and will be subject to the deployment outcome. |
|
Status |
Ongoing |
|
Agenda Topic |
Tax Office Debt Collection |
|
Issue/Application |
Comprehensive written response provided with agenda papers was discussed. Details were provided on the debt collection figures as at 30 June 2009. There was recognition from some members of the way the Tax Office has managed debt issues, staff are more understanding. Credit Card Pilot: Tax Office advised that 80% of payments are for current liabilities and 20% for old debt. It was also acknowledged that the credit card (CC) pilot was a positive initiative. |
|
Status |
Completed |
|
Agenda Topic |
Paid Parental Leave |
|
Issue/Application |
Meagan Petteit, Section Manager, Implementation and Stakeholder Management, Paid Parental Leave Branch from the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) attended the meeting and provided further information on the Paid Parental Leave (PPL). This was following on from a teleconference held with FaHCSIA and ATPF members, on 7 September 2009, and chaired by the Tax Office. Main issues raised were the administrative burdens and costs for small business and the level of support for employers and tax practitioners. FaHCSIA will provide a report to the Minister on feedback received through consultation and will also be finalising further details on the scheme. ATPF members were invited to provide any further comments to FaHCSIA. |
|
Status |
Completed |
|
Agenda Topic |
Indirect Tax Ruling Regime |
|
Issue/Application |
The Tax Office provided information on the implementation, transitional rules and principles of the income tax ruling system adopting GST, luxury car tax and wine equalisation tax. The Tax Office advised that it has held discussions with industry parties and the NTLG GST Sub-committee to identify which items in the issue registers need to be covered by public rulings. The issue register and product groups were issued to ATPF member. Members were invited to forward any comments on whether: § Issues that are listed as being primary source of the Tax Office view should be incorporated into an existing/new public ruling product, and § The issues have been categorised correctly. |
|
Status |
Ongoing - until members provide comments on the public ruling issue register. |
|
Agenda Topic |
Standard Business Reporting |
|
Issue/Application |
Paul Madden, Project Director, Treasury, delivered a presentation which included the purpose and outcomes of SBR, an update on the TFN declaration pilot, SBR taxonomy, harmonisation, replacement of digital certificates and the implications for tax practitioners. Members did not believe many tax practitioners were aware of SBR. The Tax Office advised that there will be article in the December TAXAGENT magazine on SBR and that information has already been provided in the ICAA, CPA and NIA webinars. |
|
Status |
Completed |
|
Agenda Topic |
Small Business Pro-filing Tool |
|
Issue/Application |
Tax Office provided information on the Small Business Profiling tool strategy. The tool, which has been refined over the last 12 months, combines Tax Office information with data collected from third parties and open sources and presents data that looks at changes over time and highlights possible areas of concern. |
|
Status |
Completed |
|
Agenda Topic |
Pre-filling of Tax Returns |
|
Issue/Application |
Presentation provided to members on the pre-filling reports requests from 2007 to 2009, data availability and enhancements for 2010. There has been a very positive result in 2009, with a 45.46% increase in reports requested compared to the same time last year. Tax Office is continuing to build relationship with third party providers to expand on the information provided. |
|
Status |
Completed |
|
Agenda Topic |
Future Interactions with Closely Held Groups (CHGs) and an update on the High Wealth Individual (HWI) questionnaire |
|
Issue/Application |
A presentation provided with agenda papers was discussed including why the Tax Office focuses on CHGs, how they are identified, strategy for determining compliance approach of CHGs – this includes questionnaires. Questionnaires are needed to provide facts. We acknowledge the questionnaire has caused some concerns however we do need to ask these questions. The government has asked the Tax Office to look at wealthy individuals; this is in addition to High Wealth Individuals (HWI). We need to work on how to progress this well as this process will be part of the Tax Office landscape from now on. The Chair advised members that this item has also been tabled for discussion at the December NTLG, and asked members what was the difference in the issue tabled and discussed at the 15 May and 6 November ATPF. A member advised that their association has recently received several complaints from clients in the ‘5 million dollar net worth’ group. The complaints are not about having to complete the questionnaire, however more about the types of questions being asked. The Tax Office advised that it had recently issued 160 letters to the 5 -30 million wealthy individual market as a pilot. The SME working party is meeting on the 27 November to review the questionnaire, a written update will be provided to the NTLG and the ATPF, following this review. |
|
Status |
Ongoing - Tax Office to provide an update on the HWI questionnaire to the NTLG and ATPF. |
|
Agenda Topic |
Update on Excess Contributions Tax |
|
Issue/Application |
The comprehensive written response provided with agenda papers was discussed. Discussion on ‘honest mistake’ (as provided in the written response), Commissioner’s discretion and the principles (covered in the LAPS) were restated. Tax Office advised that the guidance material will include examples on the Commissioner’s discretion. This will include timing issues e.g. end of financial year, maths errors don’t apply. Another member asked if an error is discovered before an audit, why can’t it be reversed? The Tax Office advised that Superannuation Industry (Supervision) Act 1993 (SISA) applies to complying superannuation funds. Therefore, once a contribution is made for the provision of super benefits for the member the trustees are bound by SISA in regard to preservation and payment of benefits. The member still believes that if funds are deposited incorrectly and identified within 24 hours, they should be allowed to be taken out. The Tax Office advised that the guidance examples will cover these types of scenarios however the ATPF member was invited to provide two scenarios where the money should be allowed to be taken out of the funds and the legal reasoning why SISA would allow this. These scenarios will be reviewed by the Tax Office. |
|
Status |
Ongoing - until members examples are reviewed. |
|
Agenda Topic |
Action item ATPF 0908/16 – Update on Section 23AG – income tax exemption for Australians working overseas. |
|
Issue/Application |
Tax Office advised that there has been further discussion and representation with employers. Key items being progressed: § PAYG Variations – Work is being undertaken with a number of large employers to allow them apply variations that better suit their circumstances; i.e. to allow an employer who has a number of employees working in a specific country to use a flat rate withholding for employees based in that country. § FBT – Consideration to a number of issues raised with us and are aware that representations have also been made to Treasury. § Developing a Tax Office Precedential view to provide further guidance on the circumstances under which the PAYG and FBT provisions may or may not apply to non-resident payers. Tax Office is aware that taxpayers are seeking further guidance on when they cease to be an Australian resident and on their entitlement to other exemptions when working overseas and are reviewing our products to ensure they provide the assistance required. The Tax Office has prepared a Frequently Asked Questions (FAQ) document with answers to the main questions raised with us and will be using this material to develop assistance products for taxpayers and advisors. The Tax Office will provide ATPF members with the FAQ document for their review and comment and is seeking ATPF members’ suggestions on who and how this information can be best disseminated. |
|
Status |
Ongoing - ATPF members to provide suggestions on the channels to provide the FAQ’s and further information on 23AG to. |
|
Agenda Topic |
Action item ATPF 0908/12: Quality Assurance trends |
|
Issue/Application |
The Tax Office has previously suggested the Tax Office and the Professional Associations to share information, on the themes, common faults and key trends identified through QA process. The focus is on processes and in no way is seeking to identify individuals nor compare professional associations but merely to exchange the common findings to improve the performance to assist practices and the tax system. A tax practitioner representative offered to provide a short presentation on the top 10 issues identified during QA at the 26 February 2010 ATPF meeting. |
|
Status |
Ongoing |
|
Agenda Topic |
Other Business: FCT v Anstis [2009] – Dismissal of the Commissioner's appeal: |
|
Issue/Application |
The Tax Office advised that the Commissioner is considering the next options for this case. A member advised that tax practitioners support the Commissioner’s case however if the Commissioner decides to not appeal this decision, the members recommend a working party is brought together to manage the outcome. The Tax Office invited members – should they wish to do so - to provide their position on the case to Andrew England, Chief Tax Counsel. |
|
Status |
Ongoing - The Tax Office to consider establishing a working party to manage the outcome from the Anstis case. This is dependant on if the Commissioner decides to appeal the decision. |
[_Toc255376505] 18.4 Consolidation Sub-group
Chair:
Brett Tyers, Senior Tax Counsel, Centre of Expertise - Consolidations
Secretariat:
Shirley Cooper-Dixon, Centre of Expertise - Consolidations
Karin Collinson, Centre of Expertise - Consolidations
Last meeting held:
The last meeting was held on 7 August 2009.
Next meeting:
The next meeting will be held in February 2010.
Minutes:
The draft minutes of the Consolidation Sub-group meeting held on 7 August 2009 are being reviewed after member feedback received.
Ongoing significant topics:
|
Agenda no. |
3/Aug09 |
|
Significant/Hot |
Yes |
|
Issue/Application |
Administrative impacts of the decision handed down in MW McIntosh Pty Ltd |
|
Status |
Ben Kelly, Assistant Commissioner, Operations Complex Law and Administrative Policy gave a presentation about the administrative impacts of this decision and answered questions from the Sub-group. |
|
Outcome |
The Tax Office proposes to publicly advise its administrative position in a Decision Impact Statement in as timely a fashion as possible. The taxpayer is currently seeking special leave to appeal to the High Court, and the Tax Office will wait for the outcome of the special leave application (and any subsequent hearing) before issuing a decision impact statement. |
|
Agenda no. |
2/26Feb09 |
|
Significant/Hot |
Yes |
|
Issue/Application |
Multiple Entry Consolidated (MEC) groups– current issues |
|
Status |
Sub-group members stated that they had not met as planned to discuss MEC group issues due to other commitments and the legislative program. Sub-group members committed to revisit MEC group issues with the Tax Office before the next meeting. The Sub-group members had an initial phone hook-up on 14 August. An external member proposed that the January 2005 paper be reviewed. It is proposed to use this paper as a template for agenda issues of the Sub-committee. |
|
Outcome |
Sub-group members were requested to raise any further MEC group interaction issues they have encountered in practice. |
|
Agenda no. |
3/26Feb09 |
|
Significant/Hot |
Yes |
|
Issue/Application |
Deferred tax liabilities (DTL) and the Allocated Cost Amount (ACA) |
|
Status |
The Sub-group decided that a smaller steering committee would be established to develop the issue. The steering committee met and the external members decided that the constraint upon the Tax Office of not entering into policy recommendations placed an unacceptable limit on the utility of the steering committee. The matter is now in abeyance pending a decision on how to proceed. |
|
Outcome |
The Tax Office will consider writing a further minute to Treasury on DTL. |
|
Agenda no. |
4/26Feb09 |
|
Significant/Hot |
Yes |
|
Issue/Application |
Single entity rule (SER) and foreign branches |
|
Status |
The interpretative analysis will now be extended to matters such as transfer pricing, thin capitalisation and treaties. There is potential for these interactions to require a Tax Office product in the future. Sub-group members were asked to think about prioritising these interaction issues when they refresh the Issues Registers. |
|
Outcome |
It is expected a replacement ATOID will be published regarding the facts described in withdrawn ATOID 2007/63. |
|
Agenda no. |
4/12Jun08 |
|
Issue/Application |
Foreign Hybrids |
|
Status |
Members were invited to prioritise the issue via the Issues Registers prior to the meeting. A priority rating was not forwarded. Members indicated that the Sub-group Issues Registers would be refreshed once the numerous consolidation amendments currently in the legislative program are enacted. In the meantime, the Tax Office agreed to consider any further material offered by the Sub-group on this topic. |
|
Outcome |
The Tax Office is considering publishing its views on whether a foreign hybrid can be a member of a consolidated group. |
|
Agenda no. |
7/12Jun08 |
|
Significant/Hot |
Yes |
|
Issue/Application |
Convertible notes |
|
Status |
The Tax Office has some concerns with non-share equity instruments and how they are treated in the tax cost setting process. |
|
Outcome |
The Tax Office has expressed its concerns to Treasury. |
|
Agenda no. |
5/28Jun07 |
|
Issue/Application |
Subdivision 705-C for non-consolidated groups, NTLG Sub-group issue 17.08 |
|
Status |
After a discussion with Sub-group members the Tax Office agreed to more closely examine example 4 given that the Sub-group felt that this example highlighted a possible interpretative issue. An update on this example will be provided at the next Sub-group meeting. The other three examples were more properly characterised as policy issues. The fifth example will be discussed with Treasury in the context of the special conversion event draft law, as it involves the conversion of a consolidated group to a MEC group. There was a request from members that a formal Tax Office product be issued in relation to the facts in example 1 (a consolidated group is acquired by a single company) to inform the broader tax profession as to the Tax Office position. The Tax Office agreed to consider this request. |
|
Outcome |
Four examples received on 23 February 2009, just prior to the previous meeting, have been examined by the Tax Office. A fifth example was received and examined briefly before the meeting. Similar Subdivision 705-C issues have previously been raised with Treasury. |
|
Agenda no. |
12/28Jun07 |
|
Significant/Hot |
Yes |
|
Issue/Application |
Trusts joining and leaving a consolidated group during an income year |
|
Status |
In light of the current uncertain state of the law in relation to trust issues and the granting by the High Court of special leave to appeal the decision of the Full Court of the Federal Court in Bamford v. Commissioner of Taxation [2009] FCAFC 66 on 3 November 2009, no products will be issued in the near future. In addition, it was noted that the Board of Taxation may review the interaction of the consolidation and trusts taxation provisions as part of its post-implementation review of the consolidation regime. |
|
Outcome |
This action item will be deferred until further notice. |
Outstanding issues summary:
|
Agenda no. |
6/12Jun08 |
|
Issue/Application |
The implications for consolidations of the view expressed in Draft Taxation Ruling TR 2007/D10 , Capital gains tax consequences of earnout arrangements. |
|
Status |
This Ruling remains in draft form. |
|
Outcome |
It would be premature to pre-empt the final form of the Ruling and the implications of that Ruling on the consolidation cost setting process. |
A summary of Work Program undertaken since last NTLG:
|
Agenda no. |
7/28Jun07 |
|
Issue/Application |
Intra-group assets and the exit history rule - NTLG Sub-group issue 17.10 |
|
Status |
Finalised |
|
Outcome |
Members were asked to forward any additional intra-group asset and single entity rule (SER) issues for consideration. None were received. This issue will be considered as part of the SER project. No further products will be issued in the near future, but the Tax Office will be working with Treasury to consider possible solutions. The Board of Taxation is to undertake a post implementation review of some aspects of the consolidation provisions including the SER. |
Rulings/LAPS under development:
Ruling topic/s listed on the Public Rulings Program :
|
Ruling topic |
Income tax: consolidation: capital gains: does paragraph 40-880(5)(f) of the Income Tax Assessment Act 1997 prevent the deduction, under section 40-880 of that Act, of incidental costs described in subsection 110-35(2) of that Act that the head company of a consolidated group or MEC group incurs, in disposing of shares in a subsidiary member to a non-group entity, before the member leaves the group? |
|
ID# |
3004 |
|
Draft Ref# |
TD 2009/D4 |
|
PTI Ref# |
1078 |
|
Planned final date |
To be advised. The proposed final version of this TD will be considered by the Rulings Panel on 11 December 2009. |
[_Toc255376507][OLE_LINK19][OLE_LINK20] 18.5 Division 7A Working Group
Chair:
Richard Collis, Assistant Deputy Commissioner, Small and Medium Enterprise
Secretariat:
Dominic Belvedere, Small and Medium Enterprise
A summary of Work Program undertaken since the last NTLG
S109RB – Commissioner’s discretion
Following a meeting with some representatives from the working party in September, the Tax Office has agreed to issue a public ruling addressing the meaning of the terms 'honest mistake' and 'inadvertent omission'. In this context, the professional bodies' submission provided earlier this year will be reconsidered. The drafting of a public ruling on S109RB is well-underway and it is anticipated that a draft will issue to the working group for consultation early in 2010.
Members of the working group have been invited to provide examples for inclusion in the draft ruling, no later than 17 December 2009.
Further to the above public ruling, a Law Administrative Practice Statement (LAPS) will be developed to clarify the factors that the Commissioner must have consideration {as per sub section 109RB(3)} to when making a decision.
Potential application of S109D to an unpaid present entitlement (UPE) of a private company beneficiary
A joint meeting of members of the NTLG and the Division 7A working group was held on 25 September 2009. The meeting was chaired by Mark Konza, Deputy Commissioner, Small and Medium Enterprises. Deputy Chief Tax Counsel Des Maloney also attended the meeting.
Discussion at the meeting addressed the interaction between Division 6 and Division 7A, in what circumstances might a UPE be or become a loan for the purposes of Division 7A, the meaning of the term ‘financial accommodation’, and the interaction between subsection 109D(3) and subdivision 109EA.
The Tax Office emphasised that the paper issued to the working group for its meeting in July was issued for consultative purposes and did not represent an ATO view. The ATO view would be developed in a public ruling. Members commented that any view should be applied prospectively.
The drafting of the public ruling is now well-underway. The draft is expected to be released for comment prior to Christmas 2009.
The post meeting summary was issued to members on 1 October 2009. The draft minutes were issued to members on 16 November 2009 with an expected due date for comments by COB 30 November 2009.
[_Toc255376508] 18.6 Finance and Investment Sub-group
Chair:
John Smith, Assistant Commissioner, Centre of Expertise - Finance and Investment
Secretariat:
Robin Halls, Centre of Expertise - Finance and Investment
Last meeting held:
The last meeting was held on 6 March 2009.
Next meeting:
The next meeting will be held on 9 December 2009.
Minutes:
The minutes of the Finance and Investment Sub-group meeting held on 6 March 2009 have been published to ato.gov.au.
A summary of Work Program undertaken since last NTLG:
The Finance and Investment Sub-group has provided a comprehensive report, including the current issues register as agenda item 15 of this agenda.
Please refer to this report for information regarding the current work of the Sub-group. The report will also cover issues being covered by the Sub-group and the status of any outstanding issues.
[_Toc255376509] 18.7 Foreign Source Income Sub-group
Chair:
Anne Van Loon, Assistant Commissioner, International Strategy and Operations, Large Business and International
Secretariat:
Geoff Tarran, International Strategy and Operations, Large Business and International
Last meeting held:
The last meeting was held 8 July 2009.
Next meeting:
The next meeting will be held 2 December 2009.
Minutes:
The minutes of the Foreign Source Income (FSI) Sub-group meeting held on 8 July 2009 have been published to ato.gov.au.
New significant topics:
|
Issue no. |
NTLG FSISG 0708/07 |
|
Issue/Application |
Thin Capitalisation- debt interest not previously giving rise to debt deductions and subsequently does. The issue concerns Step 1 of the adjusted average debt Method Statement in sections 820-85 and 820-185 of the ITAA 1997. The issue is whether at the end of an income year, a taxpayer who has not incurred a debt deduction in respect of a particular debt interest in that year or in an earlier year, includes in Step 1 of the Method Statement, that debt interest. |
|
Status |
In progress - external members to provide a joint response to a Tax Office discussion paper. |
|
Outcome |
At an earlier meeting the Tax Office provided an oral reply which indicated the matter was a straightforward interpretation of the provision in the context of the example presented by members. At the current meeting the Tax Office provided a written response articulating the earlier meetings interpretation. An opportunity has been provided to members to consider the Tax Office's discussion document out of session. The members agreed to consider the document and submit a joint response between meetings for discussion at the next meeting. |
Ongoing significant topics:
|
Issue no. |
FSISC 0905/7.7 |
|
Issue/Application |
Foreign Hybrids Guidance on various issues concerning interpretational and operational aspects of the Foreign Hybrids Regime. Division 830 Income Tax Assessment Act 1997, (ITAA97). |
|
Status |
In Progress |
|
Outcome |
Four Priority Technical Issues (PTIs), 984, 1005, 1006 and 1007 were raised as a result of issues discussed in previous meetings concerning various aspect of the Foreign Hybrids regime in Division 830, (ITAA97). PTI 1005 dealing with the definition of “What is meant by 'foreign tax is imposed' for the purpose of the definition of foreign hybrid partnership” has been finalised by the release of TD 2009/2 on 21 January 2009. PTI 1006 dealing with the ‘entitlement to foreign income tax offsets under section 770-10 of the Income Tax Assessment Act 1997 where income is derived from investing in fiscally transparent foreign entities’ has been addressed with the release of TR 2009/6 on 30 September 2009. PTI 1007 has being dealt with through the publication of a draft tax determination TD 2009/D7 on 9 September 2009. Public comments on the draft closed on 9 October 2009. An additional aspect of this topic which is to be considered at the next meeting is to discuss a joint submission by a number of representative accounting bodies on the impact of this tax determination for complying superannuation funds who relied on ATO ID 2006/40 and consequently made a foreign hybrid election under s 485AA. PTI (984) dealing with a general administration issue concerning lodgment of returns for Foreign Hybrid partnerships, has been finalised by changes being inserted into the annual Legislative Instrument dealing with the lodgment of income tax returns. The changes to the instrument provide relief to partners in a partnership, where certain criteria are satisfied, from the requirement to lodge a partnership return. |
A summary of Work Program undertaken since last NTLG:
All Foreign Source Income Sub-group priority issues have been progressed since the last report to the main NTLG in September 2008.
Guidance on Foreign Hybrids
· The PTI Topic (1007), dealing with “the interaction of Division 830 (Foreign Hybrids) with exemptions under the FIF regime”, has been addressed by the release of Tax Determination 2009/D7.
Foreign Income Tax Offsets (FITO) regime issues
· The comprehensive administratively binding information guide foreshadowed in earlier meetings has been released as various Tax Office advice products and publications which updates the guidance on the operation of the FITO regime.
Other
· At the next meeting members are likely to raise the issue of how the new amendments to section 23AG concerning the employment exemption will operate in practise with regard to the use of a Legislative Instrument and other aspects of its operation.
· At the next meeting the forum will review and update the status of outstanding items on the issues register that have been previously classified as lower priority items.
[_Toc255376510] 18.8 Fringe Benefits Tax Sub-committee
Chair:
Lee Beaver, FBT Technical Leader, Centre of Expertise - Admin Business and PTax
Secretariat:
Annette Wiggins, Centre of Expertise - Admin Business and PTax
Last meeting held:
The last meeting was held on 12 November 2009. The previous meeting, to which this report relates, was held on 13 August 2009.
Next meeting:
The next meeting will be held on 18 February 2010.
Minutes:
The minutes of the NTLG FBT Sub-committee meeting held on 13 August 2009 are published on ato.gov.au.
New significant topics:
|
Agenda no. |
6 Three submissions were received which raised various issues of concern. |
|
Issue/Application |
Section 23AG foreign income exemption change As part of the 2009-10 Budget there has been an amendment of the general exemption in Section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) to provide a better targeted exemption which is only available for income earned: § As an aid or charitable worker employed by a recognised non-government organisation; or § As a government aid worker; or § As a specified government employee (for example, defence and police force personnel deployed overseas) § Further, income earned by an individual employed on an overseas project approved by the Minister for trade as being in the national interest will remain exempt, as provided for by existing rules. At the meeting members of the professional bodies raised concerns in relation of the implications arising from the winding back of the exemption provided previously by section 23AG of the ITAA 1936. Previously, while the foreign employment income was exempt from taxation there was no FBT. Where that income is no longer exempt, as from 1 July 2009 FBT will have to be considered. Had Treasury or the Tax Office considered this consequence? Is this an intended or unintended consequence? |
|
Status |
Update provided, and to the extent possible, the Tax Office provided advice at the meeting on technical issues raised. Otherwise, issues are ongoing. |
|
Outcome |
Members were advised that similar broad issues were raised and discussed at the ATO Tax Practitioner Forum meeting held on 7 August 2009. The Tax Office has identified a range of administrative issues resulting from the changes to section 23AG of the ITAA 1936 that applies from 1 July 2009. The Tax Office is aware that these issues are of concern to advisors, employers and affected individual taxpayers and is working to develop administrative solutions that minimise the impacts of the law change where possible. Some of the issues may raise policy issues not amenable to a purely administrative response. Currently the Tax Office is considering the issues raised and is progressing same. |
|
Agenda no. |
7 |
|
Issue/Application |
Clarification on interpretation and application of subsection 148(2). Further clarification was sought on the interpretation and application of subsection 148(2) of the FBTAA to situations where an employer provides benefits to third parties under arrangements involving an employee being benefits which, if paid for directly by the employee out of after tax income, would be wholly or partly tax deductible to the employee. Many of these situations are quite common in the commercial sector. This clarification is particularly important given the recent enactment of subsection 148(2A) of the FBTAA which gives rise to an implication that the Parliament has endorsed the Tax Office interpretation of subsection 148(2) of the FBTAA in relation to tax deductible gifts. An explanation of the principles which distinguish the examples put forward from the salary sacrifice arrangements involving donations was sought. |
|
Status |
Completed |
|
Outcome |
The issue raised in the submission, which was discussed generally at the meeting, was an ongoing concern about the Tax Office interpretation and application of subsection 148(2). The Tax Office referred to the explanation previously provided at agenda item 6.3 in the minutes of meeting of this forum held on 26 February 2009. Further clarification was provided by the Tax Office at the meeting on 13 August 2009, as recorded in the published minutes. |
|
Agenda no. |
9 |
|
Issue/Application |
Entertainment facility leasing expenses Whilst ATO Interpretative Decision ATO ID 2009/45 Fringe Benefits Tax: Entertainment Facility Leasing Expenses: private function room and hotel room expenses, has been useful in clarifying the classification of certain costs as entertainment facility leasing expenses (EFLE), the examples covered are very limited. Queries regarding other costs and whether they too qualify as EFLE are being raised. Members indicated there are a number of taxpayers who have sought private rulings in relation to this issue, some of whom are employers and some of whom are salary packaging administrators, thus indicating both the confusion surrounding this issue as well as the large number of taxpayers affected. The Tax Office was asked to consider whether a tax determination or other appropriate document could be prepared to provide taxpayer with further guidelines to apply in determining whether cost fall within the definition of EFLE. |
|
Status |
Completed |
|
Outcome |
The Tax Office advised that the recent Western Australian media attention relating to certain salary sacrifice arrangements and purported fraudulent activities by some employees had resulted in the Tax Office undertaking a review of certain issues, including salary sacrifice arrangements involving entertainment facility leasing expenses. The Tax Office stated it would be advising the Treasury of its findings and concerns. The Tax Office advised that requests for further advice subsequent to the issue of the ATO ID 2009/45 are being actioned within the Small and Medium Enterprises interpretative advice area. At this time, given other priorities, cases will be dealt with on the basis of current Tax Office views. If further Tax Office precedent views are required, it was advised that further ATO interpretative decisions would be prepared. The Tax Office also indicated that it will continue to monitor these and related issues. |
Ongoing significant topic:
|
Agenda no. |
4.3 |
|
Issue/Application |
Income tax and fringe benefits tax: what is the treatment of bonus units by an employee as part of remuneration arrangement |
|
Status |
Draft Taxation Ruling TR 2009/D4 issued 26 August 2009. |
|
Outcome |
Comments were due by 9 October 2009. The planned issue date of the final ruling is 24 February 2010. |
A summary of Work Program undertaken since last NTLG:
The following ATO interpretative decision issued on 23 June 2009:
· ATO Interpretative Decision ATO ID 2009/45: Fringe benefits tax: entertainment facility leasing expenses: private function room and hotel room expenses
Ruling topic/s listed on the Public Rulings Program :
|
Ruling topic |
Income tax and fringe benefits tax: What is the tax treatment of the receipt of bonus units by an employee as part of a remuneration arrangement? |
|
ID# |
2911 |
|
PTI Ref# |
1052 |
|
Planned final date |
TR 2009/D4 issued 26 August 2009. Comments were due by 9 October 2009. The planned issue date of the final ruling is 24 February 2010. |
[_Toc255376511] 18.9 GST Sub-group
Chair:
Paul Tregillis, Assistant Commissioner GST
Secretariat:
Donald Lobo, Personal Assistant GST
Last meeting held:
The last meeting was held on 16 September 2009.
Next meeting:
The next meeting will be held on 11 December 2009.
Minutes:
The minutes of the GST Sub-group meeting held on 19 June 2009 have been published on ato.gov.au. Draft minutes of the 16 September 2009 meeting are with the members for ratification at the 11 December 2009 meeting and are available from the secretariat pending publication.
Regular updates are provided to members and published for all unresolved issues raised by members. The link above is to the September 2009 updates.
Ongoing significant topics:
|
Issue no. |
11.5 |
|
Issue/Application |
Board of Taxation Review of the legal framework for the administration of the GST. |
|
Status |
Completed |
|
Outcome |
Tax Office to provide members with the schedules of the various issue logs that do not contain interpretative advice (e.g. straight application of the law), as they have been completed. Members have been requested to provide comment and feedback in relation to the schedules. |
|
Issue no. |
6.10 |
|
Issue/Application |
Changes to ‘Belvedere’ example in Financial supplies Ruling GSTR 2002/2 |
|
Status |
Ongoing |
|
Outcome |
The outcome of the discussions is there was further work needed to be done to resolve the technical issue and get procedural guidance. |
|
Issue no. |
1.59 |
|
Issue/Application |
Tribunal decision in GXCX v FCT [2009] AATA 569 |
|
Status |
Completed |
|
Outcome |
In responding to the members concerns of excessive imposition of penalties by the Tax Office, the Tax Office informed the members of the procedures that have been put in place including the Integrated Quality Framework (IQF) to improve the penalties imposition and remission decision making processes. The implementation of the new procedures has seen a significant reduction in the number of penalty only cases that have proceeded to litigation. |
|
Issue no. |
1.54 |
|
Issue/Application |
Resident loans and consideration for the sale of a retirement village. |
|
Status |
Ongoing |
|
Outcome |
This is an ongoing issue with the GST treatment of supplies in the retirement village sector. The two issues a) is the gross up on sale of a retirement village and b) apportionment of construction costs which are the dispute of this. The Tax Office informed members that discussions had been held with the retirement village association and PCA and are working to create an interim view regarding the gross up question with a ruling to issue in November/December 2009 to deal with a range of issues. |
|
Issue no. |
9.16 |
|
Issue/Application |
Impact of Hance v. FCT; Hannebery v. FC T [2008] FCAFC 196; 2008 ATC 20-085 ( Hance ) in relation to payments to a responsible entity in connection with a managed investment scheme. |
|
Status |
Ongoing |
|
Outcome |
It was agreed that this was not the forum for the ‘nexus’, ‘in connection with and for’ discussion. The outcome was that the Tax Office took on board members concerns that income tax officers do not but should consider the GST implications and give regard to certain GST provisions when arriving at their decisions as was seen in relation to managed investment scheme. |
|
Issue no. |
13.30 |
|
Issue/Application |
GST Refunds in business to business transactions – discussion paper. |
|
Status |
Ongoing |
|
Outcome |
The discussion paper was circulated to the members in an update dated 15 October 2009. Members have been invited to provide their comments by the 13 November 2009. |
|
Issue no. |
13.42 |
|
Issue/Application |
Clarification of GSTR 2002/5 – when is a ‘supply of a going concern’ GST free, in light of Debonne Holdings. |
|
Status |
Ongoing |
|
Outcome |
Further submissions were received from members in relation to this issue and to which the Tax Office responded. The Tax Office informed the members that under the alternative view proposed one can pick and choose what is GST–free. The Tax Office stated that it is not saying the view expressed in GSTR 2002/5 is incorrect but rather taxpayers may have read it incorrectly. The ruling expresses the ATO view, however consideration will be given to amend it to make it clearer. |
A summary of Work Program undertaken since last NTLG:
The last meeting was held on 16 September 2009. Issues raised at the meeting have progressed with the distribution of the discussion paper in relation to GST refunds in business to business transactions, the distribution of the draft margin scheme determination and providing member with the schedules of issue logs in connection with the Board of Taxation Review of the legal framework for the administration of the GST. Further collaborative discussions are under way to resolve the technical issue and get procedural guidance in relation to the “Changes to ‘Belvedere’ example in Financial supplies Ruling GSTR 2002/2.”
[_Toc255376512] 18.10 Losses and Capital Gains Tax Sub-committee
Chair:
Margaret Haly, Assistant Commissioner, Centre of Expertise - Losses and CGT
Secretariat:
Sean Bielanowski, Centre of Expertise - Losses and CGT
Last meeting held:
The last meeting was held on 11 November 2009.
Next meeting:
The next meeting will be held on 9 June 2010.
Minutes:
The minutes of the NTLG Losses and Capital Gains Tax Sub-committee meeting held on 10 June 2009 have been published to the web. The minutes of the meeting held on 11 November 2009 are in course of preparation.
New significant topics:
|
Agenda no. |
2009/11 – 4.0 |
|
Significant/Hot |
Yes |
|
Issue/Application |
Presentation by the Tax Office re incorporation of law firms |
|
Status |
Presented |
|
Outcome |
Simon Le Maistre [Assistant Commissioner, Small and Medium Enterprises (S&ME) High Wealth Individuals] and Linda Skinner [Acting Assistant Commissioner, S&ME] advised members of the current position reached by the Legal Practitioners Working Party (LPWP) concerning the incorporation of law firms. They advised that a decision had been taken by the LPWP that a Public Ruling should be developed. Given this feedback the Tax Office is considering adding it to the public rulings program. They also advised that the Tax Office would be broadening consultation as the issues raised within the LPWP had implications beyond the legal profession. They advised that the Tax Office had concerns regarding the apparent reliance of some advisors on Income Tax (IT) 2540 for arrangements which were not addressed by the IT (which covers the admission and exit of individual practitioners in professional partnerships who pay or receive nothing for goodwill). Members were invited to provide suggestions as to the best means of publicising that the Tax Office disagreed that IT 2540 covered the admission and exit of non-individual practitioners, or structures other than traditional partnerships. The members offered some suggestions, including placing messages in their own bulletins and the Tax Office providing information on ato.gov.au. It was suggested by a member of the Sub-committee that the appropriate consultative forum was the NTLG given the significance and scope of the issues raised. |
Ongoing significant topics:
|
Agenda no. |
2009/06 – 3.1 |
|
Significant/Hot |
Yes |
|
Issue/Application |
Application Dick Smith case |
|
Status |
Progressing |
|
Outcome |
TR 2009/D5 issued 14 October 2009 and comments close on 27 November 2009. |
|
Agenda no. |
2009/06 – 3.2 |
|
Significant/Hot |
Yes |
|
Issue/Application |
Draft Taxation Ruling TR 2007/D10 - CGT consequences of earnout arrangements. |
|
Status |
Progressing |
|
Outcome |
Treasury met with members of the NTLG Losses and CGT Sub-committee and other interested parties on 14 August 2009 to consult re the embedded legislative policy position in TR 2007/D10 on earnout arrangements. Since then, Treasury has continued its analysis and information gathering work and expects to provide advice to Government shortly. The Tax Office will finalise TR 2007/D10 in the first quarter of 2010 subject to any government announcement. |
[_Toc255376513] 18.11 Promoter Penalty Co-design Sub-committee
[Report1811] Chair:
Stephanie Martin, Deputy Commissioner, Aggressive Tax Planning
Secretariat:
Tony Poulakis, Aggressive Tax Planning
Last meeting held:
The last meeting was held on 19 March 2009.
Next meeting:
The next meeting date is yet to be determined.
Minutes:
Minutes of the meeting held on 19 March 2009 have been published to ato.gov.au.
Ongoing topics:
|
Agenda no. |
2008-01 |
|
Issue/Application |
Creation of a Good Governance Guide for promoter penalties. |
|
Status |
In progress |
|
Outcome |
At the meeting of 19 March 2009, the Chair sought feedback on the general approach contained in the draft Guide that was distributed with the meeting agenda, stating that the Tax Office wants the product to be practical and to meet members’ needs. It was agreed the Secretariat would progress the Guide with the assistance of the interested members (Good Governance Guide Working Group). We plan to distribute an updated Guide to the Working Group in the near future. |
|
Agenda no. |
2009-01 |
|
Issue/Application |
Whether a member of a tax consolidated group can be a promoter of a tax exploitation scheme to another member of that group? |
|
Status |
In progress. The Tax Office provided an initial verbal response to this issue at the meeting of 19 March 2009. Our preliminary position is that there is nothing in the legislative structure to exclude the promotion within a consolidated group from the promoter penalty regime. However, it is unlikely as a practical matter to arise as all three elements of the test would need to be satisfied, that is, we would need to demonstrate promotion, consideration and a tax exploitation scheme. Nevertheless, some Sub-committee members were concerned as it was their view that the regime was never intended to apply to wholly-owned consolidated groups. |
|
Outcome |
At the meeting of 19 March 2009, the Tax Office agreed to share with Sub-committee members our initial written views so that we can explore an appropriate outcome, including an administrative solution. This is planned to be done in the near future. |
[_Toc255376514][OLE_LINK7][OLE_LINK8] 18.12 Superannuation Technical Sub-group
[Report1812] Chair:
Steve Martin, Assistant Commissioner, Centre of Expertise - Superannuation
Secretariat:
Cindy Baker, Centre of Expertise - Superannuation
Last meeting held :
The last meeting was held on 8 September 2009.
Next meeting :
The next meeting will be held on 24 November 2009.
Minutes :
Minutes of the meeting held on 8 September 2009 have been published to ato.gov.au.
Blocked/Outstanding issues summary:
|
Agenda no. |
PTI 1019 |
|
Significant/Hot |
Yes |
|
Issue/Application |
S.67(4A) Borrowings (Instalment Warrants). |
|
Status |
Ongoing |
|
Outcome |
An advice embargo has been put in place until further notice. The Tax Office is currently working with Treasury. |
|
Agenda no. |
PTI 1159 |
|
Significant/Hot |
Yes |
|
Issue/Application |
Exempt current pension income of complying superannuation entities |
|
Status |
Ongoing |
|
Outcome |
The Tax Office is preparing a draft ruling as per the rulings program (Ruling ID 3189 Income tax: determining whether a superannuation income stream benefit is payable at a particular time). The draft ruling is scheduled for publication in September 2010. As this issue is being dealt with under the rulings program, it will no longer be treated as a blocked/outstanding issue. |
Rulings/LAPS under development:
Ruling topic/s listed on the Public Rulings Program :
|
Ruling topic |
Contributions Ruling - Income Tax. |
|
ID# |
2702 |
|
Draft Ref# |
TR 2009/D3 |
|
PTI Ref# |
966 |
|
Planned final date |
2 December 2009 |
|
Ruling topic |
Self Managed Superannuation Funds: the application of subsection 66(1) of the Superannuation Industry (Supervision) Act 1993 to contributions of assets to a self managed superannuation fund by a related party of that fund |
|
ID# |
1981 |
|
Draft Ref# |
SMSFR 2008/D2 |
|
PTI Ref# |
551 |
|
Planned final date |
2 December 2009 (in conjunction with the Contributions Ruling) |
|
Ruling topic |
Self Managed Superannuation Funds: the scope and operation of subparagraph 17A(3)(b)(ii) of the Superannuation Industry (Supervision) Act 1993 |
|
ID# |
2951 |
|
Draft Ref# |
[#top] SMSFR 2009/D1 |
|
PTI Ref# |
1071 |
|
Planned final date |
20 January 2010 |
|
Ruling topic |
Can an SMSF be considered to be carrying on a business of trading in financial instruments (in particular shares and options) |
|
ID# |
3020 |
|
Draft Ref# |
Expected to withdrawn from rulings program, and to be replaced with another product |
|
PTI Ref# |
1107 |
|
Planned final date |
Timeframe to be advised |
|
Ruling topic |
Self Managed Superannuation Funds: is an SMSF that holds trauma insurance considered to be in breach of the sole purpose test. |
|
ID# |
3079 |
|
Draft Ref# |
SMSFD 2009/D1 |
|
PTI Ref# |
1127 |
|
Planned final date |
24 March 2010 |
|
Ruling topic |
Self Managed Superannuation Funds: duties or services which trustees, or directors of corporate trustees, of self managed superannuation funds are prohibited from being remunerated for under section 17A of the Superannuation Industry (Supervision) Act 1993 |
|
ID# |
3144 |
|
Draft Ref# |
Draft scheduled to be published 7 April 2010 |
|
PTI Ref# |
1150 |
|
Planned final date |
8 December 2010 |
|
Ruling topic |
Superannuation income streams – when does an income stream commence, in what circumstances does it end? |
|
ID# |
3189 |
|
Draft Ref# |
Draft scheduled to be published September 2010 |
|
PTI Ref# |
1159 |
|
Planned final date |
22 December 2010 |
[_Toc255376516] 18.13 Transfer Pricing Sub-group
Chair:
Anne Connon, Assistant Commissioner, Transfer Pricing Practice
Secretariat:
Justin Bushell, Transfer Pricing Practice Business Manager.
Amanda Brogan, Transfer Pricing Practice, will be taking over the Transfer Pricing Sub-group (TPSG) Secretariat role with effect from the meeting on 1 December 2009.
Last meeting held:
The last meeting was held 5 August 2009.
Next meeting:
The next meeting will be held on 1 December 2009.
Minutes:
The draft minutes of the TPSG meeting held on 5 December 2008 were endorsed by members at the 5 August 2009 meeting and are in the process of being published to ato.gov.au. Draft minutes of the 5 August 2009 meeting have been distributed to TPSG members for comment.
Ongoing significant topics:
|
Agenda no. |
04/010307 |
|
Issue/Application |
Business Restructures |
|
Status |
Ongoing |
|
Outcome |
A draft final Business Restructures discussion paper was agreed in principle with TPSG members last year but was not released pending receipt of Counsel’s opinion on the power to assess under Division 13 and Article 9 of Australia’s double tax treaties. A draft Tax Ruling is being prepared, taking into account Counsel’s opinion. |
|
Agenda no. |
2/010307 |
|
Issue/Application |
Guarantee Fees and Intragroup Loans |
|
Status |
Ongoing |
|
Outcome |
A single draft Taxation Ruling is expected to be published for external consultation on 16 December 2009 covering: § the interaction between transfer pricing and thin capitalization; and § the power to assess under Division 13 and Article 9 of Australia’s double tax treaties. These matters have already been considered by the Rulings Panel. The draft TR will be published with: § the opinions (dated 11 May 2009 and 23 June 2009) from Ron Merkel QC and Diana Harding on the interaction between transfer pricing and thin capitalization. § a disclaimer advising that the opinions are general in nature and do not provide advice or a Tax Office view on the application of any aspect of the law and cannot be relied upon for any purpose. § a draft Practice Statement on the rule of thumb for taxpayers. The planned date for publication of the final TR is 17 March 2010 taking into account the Christmas/New Year Period. The external members of the Financial Markets Working Group are providing their input. The draft report will then be circulated amongst the members for their comments. |
A summary of Work Program undertaken since last NTLG:
Advance Pricing Arrangement (APA) Program
The APA Implementation Committee (APAIC) continues to make progress in agreeing a Tax Office position on contentious issues in the co-design of the APA Program to take to the external APA Co-design Committee meeting to be held on 17 December, including:
· process for the agreeing the treatment of collateral issues to an APA with the taxpayer;
· a consistent approach to the use of rollbacks to address prior year transfer pricing issues;
· the purpose of the APA Program – obtaining a balance between ensuring that the Program remains attractive to taxpayers and that our approach to high risk cases is commensurate with the level of risk.
Interaction of Transfer Pricing and Customs
At the 5 August 2009 meeting, TPSG members confirmed that the administrative problems associated with accounting for additional GST on increases in the value of imports for transfer pricing purposes was not important to them. Vanda Davis, representing the motor vehicle industry, is primarily concerned with the harmonisation of administrative processes for transfer pricing and customs duty.
Members were requested to provide comments on PS2009/21, “Applying for a Valuation Advice relating to Transfer Pricing”, in writing to the TPSG.
The Tax Office has met with senior ACS officers to discuss approaches to the harmonisation of administrative processes and with Vanda Davis to gain an understanding of the concerns of the motor vehicle industry. The Tax Office is discussing with the ACS the most appropriate way to resolve these problems.
Organisation for Economic Cooperation and Development (OECD) update
Since the June meeting of OECD Working Party 6 on the Taxation of Multinational Enterprises (WP6), Marc Simpson, the Tax Office representative at WP6 has progressed the draft Business Restructures Issues Note 4 on recognition of actual transactions in consultation with key WP6 countries (e.g. US, UK, Canada, Netherlands, Germany, Japan). The intention was to achieve a level of consensus between those countries before discussion at the November 2009 WP6 meeting. The current draft is consistent with the approach taken by the Tax Office developed through the TPSG process of consultation.
[_Toc255376517] 18.14 Trust Consultation Sub-group
[Report1814] Chair:
Kate Roff, Assistant Commissioner, Tax Counsel Network
Secretariat:
Lyn Freshwater, Centre of Expertise - Losses and Capital Gains Tax
Last meeting held:
No meeting has been held since the last report.
Next meeting:
No date has been set for the next meeting of the Sub-group.
Minutes:
The minutes of the Trust Consultation Sub-group meeting held on 24 July 2009 have been published on the Tax Office website.
Ongoing significant topic:
|
Agenda no. |
Application of Division 6 of Part III of the ITAA 1936 |
|
Issue/Application |
Calculating the share of the section 95 net income of a trust estate in respect of which a beneficiary should be assessed |
|
Outcome |
The matter is central to the Commissioner and taxpayers appeals to the High Court from the decision of the Full Court of the Federal Court in Bamford v. Commissioner of Taxation . The Commissioner has outlined in Law Administration Practice Statement PS LA 2009/7 the approach that the Tax Office will take to the application of Division 6 pending the resolution of the Bamford litigation. |
Outstanding issues summary:
A register of issues is maintained in respect of all issues that have been referred to the Sub-group. The register is published on the Tax Office website.
Many of these issues are being considered by the Board of Taxation in its review of the taxation arrangements applying to managed funds. It is not proposed to issue any general public ruling in respect of these issues while that review is being undertaken.
[top][_Toc255376518] 18.15 Public Rulings Panel
[Report1815] Chair:
Andrew England, Acting Chief Tax Counsel
Secretariat:
Gabi Janus, Law and Practice
Last meetings held:
§ 24 September 2009
§ 29 and 30 October 2009
§ 16 November 2009
Next meeting:
The next meeting is scheduled for 26 and 27 November 2009.
The topics are:
§ GST: retirement villages
§ GST: application of s11-15(5) of the GST Act to bank accounts.
The final meeting for 2009 is scheduled for 11 and 12 December 2009.
The topics are
§ Income tax: retail premiums
§ Income tax, pay as you go withholding and fringe benefits tax: tax consequences on the issue, holding and redemption of bonus units as part of an employee benefits trust arrangement
§ Income tax: 40-880 consolidation: capital gains: does paragraph 40-880(5)(f) of the Income Tax Assessment Act 1997 prevent the deduction, under section 40-880 of that Act, of incidental costs described in subsection 110-35(2) of that Act that the head company of a consolidated group or MEC group incurs, in disposing of shares in a subsidiary member to a non group entity, before the member leaves the group?
Minutes:
The minutes of the Public Rulings Panel meeting held on:
§ 24 September 2009 have been finalised.
§ 29 and 30 October 2009 are being finalised.
§ 16 November are being finalised.
Summary of issues discussed
September 2009
|
Issue no. |
ID 2702 |
|
Issue |
INCOME TAX: superannuation contributions. The Ruling issued in draft form as TR 2009/D3 on 3 June 2009 (considered by the Panel in August 2008). The Panel considered the following issues: · What constitutes a contribution and how broadly the term is intended to be defined, including when reimbursement of expenses incurred by a fund trustee might be considered to be a contribution. · The relevance of an objective purpose test (from the payer’s perspective) in determining whether or not something would amount to a contribution The interaction between the income tax and superannuation guarantee provisions. |
|
Status |
Following the Panel discussion, the Ruling was revised and sent to members for further comments out of session in November. As a result of this additional Panel consideration, the issue date for the final ruling has been extended from 2 December to 16 December 2009. |
October 2009
|
Issue no. |
ID 3125 |
|
Issue |
MISCELLANEOUS TAX: restriction on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 The Panel considered the following issues: · The meaning of the expressions ‘to any extent’ and ‘to that extent’. · Whether section 105-65 only applies to circumstances where there has been a change in the characterisation of the supply (for example, from being treated as taxable when it was actually GST-free or input taxed). · Whether section 105-65 can apply where the supplier has overpaid GST even if they are not entitled to an actual refund. Whether the Commissioner can exercise his discretion to refund under section 105-65 where the supplier disburses any potential windfall gain through means other than direct reimbursement of the recipient. |
|
Status |
The draft Ruling is being amended to take into account the Panel discussion and is scheduled to issue on 16 December 2009. |
October 2009
|
Issue no. |
ID 3164 |
|
Issue |
INTERNATIONAL: Income tax: where there is no excess debt under Division 820 of the Income Tax Assessment Act 1997 (ITAA 1997), can the transfer pricing provisions apply to adjust the pricing of costs that may become debt deductions, for example, interest and guarantee fees? This draft Determination is intended to replace TD 2007/D20, which issued on 28 November 2007, and which will be withdrawn once the new draft issues. The Panel considered the following: · The inter-relationship between the thin capitalisation provisions in Division 13 of the Income Tax Assessment Act 1936 and the transfer pricing provisions in Division 820 of the ITAA 1997. Whether, despite the existence of a 'safe harbour debt amount' for the purposes of Division 820, the Commissioner can determine an appropriate arm's length price for all of the debt funding. |
|
Status |
The draft Determination is being amended to take into account the Panel discussion, including whether a draft Ruling which incorporates ID 3165 is more appropriate. It is scheduled to issue on 16 December 2009. |
October 2009
|
Issue no. |
ID 3165 |
|
Issue |
INTERNATIONAL: Income tax: [GTopicHeader]is the Associated Enterprises Article of Australia’s tax treaties a separate source of power to make a transfer pricing adjustment independently of Division 13 of the Income Tax Assessment Act 1936? The Panel considered the following: · Whether the effect of subsection 170(9B) of the Income Tax Assessment Act 1936 (ITAA 1936) is that the Commissioner has the power to amend an assessment at any time for the purpose of giving effect to the Associated Enterprises Article in Australia’s tax treaties. Whether the Associated Enterprises Article may therefore be relied upon by the Commissioner as a separate source of power to Division 13 both to amend and make an assessment. |
|
Status |
The draft Determination is being amended to take into account the Panel discussion, including whether a draft Ruling which incorporates this topic and ID 3164 is more appropriate. It is scheduled to issue on 16 December 2009. |
October 2009
|
Issue no. |
ID 3187 |
|
Issue |
In considering the draft Determinations under IDs 3164 and 3165, the Panel also considered a draft Law Administration Practice Statement on the `rule of thumb` approach for the transfer pricing of interest payable by a taxpayer on a cross-border related party loan. The rule of thumb approach will be an interim measure that a taxpayer can adopt pending final resolution of the Tax Office position on the relevant issues. |
|
Status |
The Practice Statement is scheduled to issue in draft form for public comment on 16 December 2009. |
November 2009
|
Issue no. |
ID PTI 1166 |
|
Issue |
INCOME TAX: Division 7A loans: present entitlements to trust distributions The Panel considered the following: · The different circumstances in which an unpaid present entitlement (UPE) of a private company is a loan for Division 7A purposes including the different circumstances in which there could be said to be financial accommodation. · Whether Subdivision EA of Division 7A of the Income Tax Assessment Act 1936 is an exclusive code for dealing with UPE’s of private companies. The proposed date of effect of the Ruling. |
|
Status |
The draft Ruling is being amended to take into account the Panel discussion and is scheduled to issue on 16 December 2009. The draft may issue earlier on 9 December 2009 if this can be achieved. |
[_Toc255376519] 18.16 Superannuation Public Rulings Panel
Chair:
Jonathan Woodger, A/g Deputy Chief Tax Counsel, Tax Counsel Network
Secretariat:
Sue Chadwick, Law and Practice
Last meeting/s held:
The last meeting was held on 22 and 23 October 2009.
Next meeting:
The next meeting is scheduled for 18 and 19 March 2010.
Minutes:
The minutes of the Superannuation Public Rulings Panel meeting held on 22-23 October 2009 have not been finalised.
New significant topics:
|
Issue no. |
3160 |
|
Issue/Application |
Draft SMSFR: Cashing of benefits in the form of a pension or annuity for the purposes of Division 6.3 of the Superannuation Industry (Supervision) Regulations 1994. |
|
Status |
Draft Ruling being written and reviewed |
|
Outcome |
Incorporating panel comments following the October Superannuation Panel meeting. |
|
Issue no. |
3189 |
|
Issue/Application |
Income Tax: Determining whether a superannuation income stream being payable at a particular time. |
|
Status |
Draft Ruling being written and reviewed |
|
Outcome |
Draft ruling to be considered at March 2010 panel. |
Ongoing significant topics:
|
Issue no. |
ID 1981 |
|
Issue/Application |
SMSFR: the application of subsection 66(1) of the Superannuation Industry (Supervision) Act 1993 to the acquisition of an asset by a self managed superannuation fund from a related party. |
|
Status |
SMSFR 2008/D2 published 2 April 2008 |
|
Outcome |
Publication of final ruling delayed to align with the publication of ruling on superannuation contributions. |
|
Issue no. |
ID 2951 |
|
Issue/Application |
SMSFR: can the trustee of a superannuation fund, in situations other than where the trustee becomes subject to a legal disability, apply subparagraph 17A(3)(b)(ii) of the Superannuation Industry (Supervision) Act 1993 to transfer the trustee’s duties and responsibilities to a legal personal representative? |
|
Status |
SMSFR 2009/D1 published 8 July 2009. |
|
Outcome |
Further consultation with Treasury required. |
|
Issue no. |
ID 3079 |
|
Issue/Application |
SMSFR: does the sole purpose test in section 62 of the Superannuation Industry (Supervision) Act 1993 preclude a trustee of a self managed superannuation fund from holding trauma insurance in respect of a member? |
|
Status |
Draft Ruling being written and reviewed.(PTI 1127) |
|
Outcome |
SMSFD 2009/D1 published 4 November 2009. |
|
Issue no. |
ID 3144 |
|
Issue/Application |
Draft SMSFR: duties or services which trustees, or directors of corporate trustees, of self managed superannuation funds are prohibited from being remunerated for under section 17A of the Superannuation Industry (Supervision) Act 1993 |
|
Status |
Draft being written and reviewed (PTI 1150) |
|
Outcome |
Incorporating panel comments following the October 2009 panel meeting. |
|
Issue no. |
ID 3020 |
|
Issue/Application |
Income Tax: Can a self managed superannuation fund be considered to carry on the business of trading in financial instruments for income tax purposes? |
|
Status |
N/A |
|
Outcome |
To be withdrawn. |
[_Toc255376520] 18.17 Test Case Litigation Panel
Chairperson:
Andrew England, A/g Chief Tax Counsel, Law and Practice
Secretariat:
Jill Gatland, Strategic Litigation Unit, Law and Practice
Last meeting held :
The last meeting was held on 12 October 2009.
Next meeting :
The next meeting will be held on 7 December 2009.
Five applications for test case funding were submitted and considered by the Panel. In each case, the Chair accepted the recommendation of the Panel.
|
Case Summary |
Whether the applicant is exempt from taxation on the basis that it is a society or association established for the purposes of promoting the development of one of the Australian resources specified in s 50-40 of the ITAA 1997, and is not carried on for the profit or gain of its individual members. |
|
Funding Decision |
Funding Declined |
|
Panel Reasons |
The Panel recommended that funding be declined because this matter would involve an application of the law to the facts and cirucmstances of the case and would have only limited application for the broader community. Furthermore, it was noted that the applicant has the financial capacity to pursue the litigation. |
|
Case Summary |
The applicant sought test case funding in respect of a proposed application to the Federal Court seeking a declaration that it is entitled to a payment of interest under the Interest on Overpayments Act in respect of the payment by the Commissioner of an input tax credit that was disallowed in an earlier tax period. Alternatively, if there is no statutory entitlement to interest, that the taxpayer should be compensated because of the unjust enrichment conferred on the Commissioner as a result of a legislative anomaly. |
|
Funding Decision |
Funding Declined |
|
Panel Reasons |
The panel considered that the legislative interpretation question has already been the subject of judicial consideration in the NSW Supreme Court decision in Charara. The Panel recommended that funding be declined on the basis that the legislative anomaly issue has been judicially determined and that the unjust enrichment point does not come within the scope of the test case funding program. |
|
Case Summary |
The issue in this case concerned service of and recovery under a Director Penalty Notice (DPN) and specifically whether the Commissioner gave the applicant a notice in accordance with the requirements of section 222AOE of the Income Tax Assessment Act 1936 before commencing recovery proceedings |
|
Funding Decision |
Funding Declined |
|
Panel Reasons |
The Panel discussed the facts and issues raised by the application. The Panel noted that this application is unmeritorious, given the taxpayer’s poor compliance history. The Panel recommended that funding be declined on the basis that this matter would be decided on the factual issues and does not raise any broad principles of public interest. The Panel also noted that the argument relied upon, and upon which funding had been sought, appeared to be a means by which the taxpayer was seeking to avoid liability through the use of technical arguments, and that there had been a lack candour on the part of the taxpayer in the proceedings. |
|
Case Summary |
Whether service of a Director Penalty Notice (DPN) occurred when the DPN was posted, or the date on which it would have been delivered in the ordinary course of post. |
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Funding Decision |
Funding Declined |
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Panel Reasons |
The Panel noted that the issue of when service of a DPN is effected has already been the subject of judicial consideration in the NSW Court of Appeal decision in Meredith, which provides clarification of the law at the superior court level. The Panel recommended that funding be declined on the basis that any decision arising from this case would be of limited potential application to other matters, given its particular facts. It would, therefore, have only limited application for the broader community. |
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Case Summary |
Alienation of Personal Services Income - Whether the taxpayer passes the results test under Division 87 of the Income Tax Assessment Act 1997; whether further deductions should be allowed; and whether the Commissioner should reduce the penalty imposed pursuant to Division 284 of the Taxation Administration Act 1953 for failure to take reasonable care. |
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Funding Decision |
Funding Declined |
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Panel Reasons |
The Panel noted that there did not appear to be any conflict in the decisions which were cited as relevant authority and did not consider that the facts of this case would raise any important principle of tax law or administration. The Panel recommended that funding be declined on the basis that the decision in this case would have limited application for the broader community, as such cases depend essentially on the particular facts in each case. |
One application was received and considered by the panel on an out-of-session basis because the hearing of the matter was listed prior to the next panel meeting.
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Case Summary |
The issue upon which funding was sought concerned the characterisation for GST purposes of payments made under tri-partite arrangements. |
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Funding Decision |
Funding Declined |
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Panel Reasons |
This application was considered out of session, prior to the panel meeting. The panel considered the submissions in support of the application and concluded that any decision in this case was likely to turn on the unique facts of the case, without providing any broader clarification of the law. Therefore, the panel considered that it was not in the public interest for funding to be provided under the test case litigation program. The financial capacity of the taxpayer to fund the litigation was also taken into account in making the decision to decline funding. |
[_Toc151890501][_Toc151890502][_Toc255376521] 19 Other business
[_Toc255376522] 19.1 Annual review
In accordance with the NTLG Charter , an annual review of the NTLG is to be undertaken to ensure the effectiveness of the forum. As part of the discussion of the annual review members are invited to identify the key achievements of the NTLG in 2009, any recommendations for improvement and also to consider the forward focus for the NTLG in 2010.
Annual review questions for consideration:
1. Is the NTLG meeting the Charter and member requirements?
2. Is the NTLG fulfilling its role and responsibilities in accordance with the Charter?
3. Are agendas, meeting papers and minutes of sufficient quality to effectively facilitate discussions?
4. Do members feel issues and action items are progressed appropriately?
5. What were the key achievements of the NTLG in 2009?
For example:
• On 4 September 2009 the Alienation and Part IVA Working Group agreed to wind up as it had achieved the purpose for which it had been set up. The Alienation and Part IVA Working Group was to provide advice to the Tax Office in relation to guidance on Part IVA and the alienation of personal services income. The forum was advisory and not a decision-making forum.
• In September 2009 the National Tax Liaison Group (NTLG) celebrated its 25th anniversary of working together to improve tax design and administration in Australia.
• Open and robust discussion continues to occur.
• Governance reports continue to be provided.
6. Do members have any suggested improvements for 2010?
7. What should the key priorities and forward focus be for the NTLG over the next 6-12 months?
For example:
• Key priorities for the NTLG continue to be determined in conjunction with the professional association members. This is in response to current climate and topical issues.
Environmental scans occur regularly to identify emerging issues.
• Action items from meetings are actively monitored and progressed. Finalisation of some issues is dependent on the legislative processes and/or whole of government approaches.
Extract from the Charter:
Terms of reference
The Australian Taxation Office recognises the important role tax professionals play in the administration of the Australian taxation and superannuation system in maintaining the integrity and efficiency of the system and influencing taxpayer behaviour. Tax professionals contribute through a range of collaborative and consultative forums, such as the National Tax Liaison Group (NTLG).
Role of the NTLG
The role of the NTLG is to:
· raise and address concerns about aspects of the administration of the tax and superannuation system which are not functioning properly (including identifying and providing advice on situations where the tax law is not operating in accordance with existing or intended policy)
· raise and address technical issues associated with policy implementation and application; and
· identify and explore opportunities to:
o improve tax administration
o reduce costs of compliance
o minimise complexity
o maximise certainty, and
o enhance the community’s confidence in the administration and operation of the tax system.
Membership
Responsibilities of members include:
· respecting and abiding by the charter of the NTLG
· contributing to the effectiveness of the forum in meeting its purpose as defined in the terms of reference of the forum
· engaging in constructive, open and frank discussion in bringing a tax industry and taxpayer perspective to forum discussions
· working with the NTLG chair to identify top priorities for the NTLG work program
· fairly and reasonably represent the views of the tax industry and taxpayers in discussions with the Tax Office
· raising systemic issues in tax and superannuation administration, affecting a wider group of taxpayers, rather than specific issues affecting a single individual
· acting with due diligence and good faith
· communicating decisions and activities of the forum as agreed with the chair
· acting in the best interests of the tax system as a whole
· declaring conflicts of interests and roles, as outlined in this charter
· respecting all confidentiality requirements
· dealing with other members and staff ethically and with courtesy and respect, and
· progressing any action items assigned to them.
Meeting discussion:
Deputy Commissioner James O’Halloran opened the general discussion on how the NTLG is working, commenting that he is always interested in the NTLG and the value all members get out of it.
The Commissioner spoke about the need to discuss emerging compliance issues in this forum and especially the tri-partite policy discussion and linkages with the Tax Agent Board’s consultative approach.
Members were asked to provide some initial thoughts about the annual review questions and if desired members could provide feedback more formally.
The initial discussion included comments about the positives of the NTLG forum. Members expressed the need to feel they are influencing and delivering a better tax system and overall outcome.
A member commented that every participant needs to focus on how to improve and not just identify a problem. It was expected that the level of transparency would assist. The genuineness of members to push forward was also seen as a positive feature of the forum. It was noted that while there will not always be agreement between all parties, agreeing on the majority of issues is important.
There was some reflection that there are not a lot of big issues coming in, and that people are doing their jobs well. For some issues, it is the immediacy of the action experienced with the NTLG that is appreciated.
Acting Second Commissioner Kevin Fitzpatrick asked whether the right issues were coming into the forum. There was a general feeling that yes, the right issues are coming into the forum but some may need to be escalated further due to their sensitivity.
The Commissioner commented that it is appropriate for policy issues to be raised at the NTLG. In going forward, the NTLG needs to think more strategically with issues that need a rapid response or whether they are really business as usual issues.
A member commented that there is an obligation on all associations to ensure full communication from Sub committees to determine what issues need to be escalated. Members may benefit from receiving the post meeting summary and action items at the same time to trigger a post meeting review. Acting Second Commissioner Kevin Fitzpatrick said there are ways the Tax Office can look at fast tracking escalations from Sub-committees.
A member asked consideration for an open agenda item such as a Tax Office report on areas of concern or compliance activity. Deputy Commissioner James O’Halloran asked members to consider this as part of preparatory discussions on the Compliance Program but also saw this as a two way agreement. Professional bodies, subject to the sensitivity of the topic, need to share information with Tax Office members as well.
Some examples were raised within the discussion such as the Managed Investment Trust (MIT) ruling and the difficulties that can be experienced with getting the right information at the right levels. Members to advise the Tax Office of any issues and concerns as the professional bodies are relied on heavily in giving an accurate picture of what is happening.
A member commented that the pre-meetings work very well. Members agreed that communications are also working well. The Commissioner said that there is a lot of work done within the office both prior to and after the NTLG meetings.
Deputy Commissioner James O’Halloran commented there is a need to look at the sheer volume of work undertaken, especially with the pack of agenda papers. Currently with 150 or so pages, the number will possibly grow in the coming year. It was recognised however there needs to be a balance between the timeliness of the information and the detail required.
Members were advised the Tax Office is happy to change its processes and that any ideas on restructuring the NTLG would be welcome.
Before leaving the meeting for the day, the Commissioner asked that further feedback be sent to Deputy Commissioner James O’Halloran via the NTLG Secretariat.
Post Meeting Update:
Feedback on the NTLG was forwarded to the NTLG Secretariat.
The first section provides a summary of feedback sent directly to both the Commissioner and Deputy Commissioner James O’Halloran.
The second section is feedback provided from the TIA on behalf of all Professional Associations in response to the NTLG review questions.
Summary of feedback sent directly to the Commissioner and Deputy Commissioner James O’Halloran
· In 2009 the NTLG celebrated 25 years of operation. This longevity in itself indicates that over a period of time people have identified sufficient benefit for NTLG to continue.
· The professional bodies thanked the Commissioner for his commitment to the NTLG in Chairing the meetings, in having senior officers in attendance and ensuring the meetings are appropriately supported by the secretariat. The professional bodies are very appreciative of the effort the Tax Office puts into the NTLG.
· The professional bodies considered that the processes surrounding and supporting the NTLG have matured and generally work well.
· The professional bodies recognised the Secretariat of the NTLG works very effectively and diligently and provides members with information in a timely fashion. The task and time of minute taking was also recognised as ‘not without some complexity’.
· The professional bodies stated they are satisfied with the manner in which the NTLG operates both from the broader perspective and in terms of dealing with specific issues which not infrequently arise on an urgent basis.
· The professional bodies considered minutes of the meetings have achieved a good standard and sees the Tax Office recent willingness to address concerns raised by members concerning the minutes of some of the sub committees as an important development in the ongoing maintenance of the consultative framework.
· The professional bodies regard the establishment of the Public Rulings Steering Committee and the assessment of its operation in September 2009 as significant. This showed the willingness of the Tax Office and the representatives of the professional bodies to frankly examine a forum and agree on how its operation might be modified to better achieve its goals and assist the quality and the direction of the rulings system.
· The professional bodies stressed that consultation is effective where there is real collaboration. It will not be so effective if members are not engaged and one of the most likely causes of non engagement is that members feel they are not able to make a difference. The professional bodies want continued consultation, engagement and involvement across issues which will require co-ordination via the NTLG.
Response to the NTLG review questions from the joint professional bodies with representatives on the NTLG
Is the NTLG meeting the Charter and member requirements?
Yes
Is the NTLG fulfilling its role and responsibilities in accordance with the Charter?
Yes
Are agendas, meeting papers and minutes of sufficient quality to effectively facilitate discussions?
In many situations the information provided as part of the agenda is sufficient to address the issue raised.
Evidence for this is in the number of issues where the explanation proffered is accepted by the meeting as satisfying the issue raised.
Do members feel issues and action items are progressed appropriately? Are there exceptions? List them.
In most cases the view is that the agenda items have been progressed appropriately.
The agenda setting meetings are extremely useful in that the Tax officers involved attempt to obtain an understanding of what the question is actually asking and what is required in order to deliver a response that will address the matters raised by the issue.
In most cases where information has been offered it has been delivered. Sometimes the delivery could be sooner than actually occurs but the issue of timely communication has been addressed and it is clear that, subject to available resources, there is an attempt to deliver relevant information in a timely manner.
It would be useful if a list of action items for the professional bodies (as a whole or individually) to follow up were delivered as soon as possible after the meeting. It is considered that this would mean that the professional bodies would be better positioned to follow these matters up or to raise clarification issues concerning what the Tax Office is actually expecting, eg the provision of examples of particular situations referred to in an issue raised in the agenda to enable consideration of a particular issue in the light of a more detailed description of the facts attaching to the matter.
What were the key achievements of the NTLG in 2009?
The steps taken to review the effectiveness of the operation of the Public Rulings Program in terms of the selection of topics for inclusion in the program conducted by the Public Rulings Steering Committee (the membership of which was supplemented by a number of members of the NTLG for the purpose of providing additional insights). This occurred at the September meeting of the Committee and resulted in a number of suggestions coming forward from the NTLG members. This showed the willingness of the Tax Office and the representatives of the professional bodies to frankly examine a forum (in this case one which had been established about 15 months earlier in order to allocate scarce Tax Office resources to those issues which had been identified as having the highest priority).
One of the key outcomes was a recognition that some of the Sub-committees were much more effective in identifying and then providing priority rating systems to issues identified as needing clarification of the Commissioner’s position. This then led to the observation that what worked best needed to be communicated and adopted across all of the Sub-committees.
The general point this highlights is that consultation will be effective where there is real collaboration. It will not be so effective if members are not engaged and one of the most likely causes of non engagement is if members feel they are not able to make a difference.
It is also very important to note that the continuing commitment of key Tax Office personnel (including those at the highest levels) to attend and participate in as candid a manner as is possible is a significant achievement (even though it is something that has been a feature of the NTLG meetings over past years) as is the continuing commitment to the proper staffing of the secretariat and the commitment to address the issues raised by the professional bodies. Important in this is the sponsorship of and chairing of the NTLG by the Commissioner which sets the scene but importantly sends a message of the level of commitment required from within the Tax Office.
These aspects can be lost sight of but are what make the NTLG effective for the professional bodies and why the volunteers of the various professional bodies are prepared to contribute to the NTLG on an ongoing basis.
Members want to be engaged and a good example of this during the year is the level of involvement in the meetings on the various Division 7A issues. The level and extent of engagement provided on a number of significant issues is a critical achievement. A challenge for the future is to ensure consultation on any significant issues is well co-ordinated via the NTLG with the most appropriate tax professionals to be involved, identified by the professional bodies, rather than people whose skill base is different to that needed to address a specific matter.
Do members have any suggested improvements for 2010?
The review of the operations of the various NTLG Sub-committees to ensure that they are aware of best practice amongst other NTLG Sub-committees with a view to lifting the practice of each NTLG Sub-committee to the best identified.
The work program of the NTLG should be focussed on strategic issues impacting tax interpretation and administration wherever practicable rather than low priority issues which do not have a broad application to taxpayers.
From 2010, it would be useful to include a standing agenda item for each NTLG main committee meeting which centres around a two-way exchange of information and views about trends (particularly those of concern) being observed by the Tax Office and professional bodies in compliance or interpretative guidance. There would not need to be a specific list of issues under this standing item, it would just be discussed at the meeting and any agreed actions coming out of it included in the minutes. This agenda item would provide a general opportunity for any questions or views to be put to the Commissioner and Second Commissioners about what any one of the professional bodies is hearing from its members.
The improvement of the quality (both in coverage and neutrality) of minutes of meetings in various NTLG Sub-committees and associated working parties and groups, eg the PSI Part IVA working party, to meet the standard exhibited in, for example, the minutes of the Public Rulings Steering Committee for the September meeting.
The elevation of issues from an NTLG Sub-committee to the NTLG should occur where mutually agreed issues of high priority have not been adequately progressed on a reasonably timely basis by the relevant NTLG Sub-committee.
Members would also like to note, that ad hoc working groups or other “committees” however described that are created by the Tax Office from time to time, need to have their professional body members appointed by NTLG bodies rather than by the Tax Office contacting people directly. This will enable the professional bodies to ensure that a better tracking of what is occurring is maintained and will permit a better matching of the skills of professionals to the skills needed for the committees.
What should the key priorities and forward focus be for the NTLG over the next 6-12 months?
Next year the High Court will hear the appeals in Bamford. It is important that, whatever the outcome of those appeals, taxpayers (and their advisors) are in a position where there is certainty that if particular treatments are adopted they are not exposed to a different treatment as a result of the High Court decision. This will require ongoing dialogue. If the outcome produces an undesirable treatment then there will be a need to work together constructively to ensure that a workable regime is restored.
The professional bodies recognise that a draft public ruling is being prepared to discuss the tax treatment of unpaid present entitlements which we currently understand will issue prior to year end. As the resolution of this issue is of critical importance to the profession and the broader community, we look forward to consulting on the draft public ruling with the Tax Office as a matter of priority.
Next year, it will be important for both the Tax Office and professional bodies to ensure that sufficient time is devoted to discussion of issues that are more ‘strategic’ in nature amongst the group. This will be of particular relevance next year once the recommendations from Dr Ken Henry’s review into Australia’s future tax system are known. A discussion of more ‘strategic’ level issues will need to encompass a two-way obligation on both sides to raise issues for discussion that fall into this category rather than often focussing only on specific, sometimes micro-level, issues. A discussion of strategic direction issues for the Tax Office (and the profession) would serve as a suitable use of the time of the senior level resources that are around the table at the same time.
The Taxation of Financial Arrangements (TOFA) Part 3 & 4 regime (Division 230) will be mandatory for larger taxpayers from 2010. Because of the significance and breadth of that regime, the NTLG should review with the Tax Office throughout 2010 the assessment of taxpayer community requirements, Tax Office resources to deal with the issues and any shared views on legislative or compliance adjustments which might be needed.
The professional bodies understand that the Inspector General of Taxation will be releasing a report in relation to the Review into the implications of any delayed or changed Tax Office advice on significant issues. The professional bodies would like to discuss the report (following its release) for the purposes of identifying ways of enhancing taxpayer certainty without adverse impacts for the Tax Office.
Australia’s taxation of funds management is going through a significant reform cycle, with managed investment trust (MIT) reforms introduced in each of the past two years and major reforms likely, arising from the Board of Tax review of the proposed MIT tax mechanisms. A strategic discussion about the impact for tax compliance and Tax Office resources to deal with the issues will be useful.
The following issue was received on 25 November 2009 for consideration at this meeting. To enable a properly considered response, information will be provided at the meeting.
[_Toc255376523] 19.2 Private equity structures
Following the recent Victorian Supreme Court decision involving TPG Newbridge Myer, the Professional Bodies request an update on two issues:
1. The Professional Bodies request an update on the Tax Office’s current approach in relation to the use of holding company structures (such as a Luxembourg Co / Netherlands Co or a Luxembourg Co / Belgium Co) to invest into Australia. The Professional Bodies note that these are common structures that have been used for many years by private equity investors and other investors. The Tax Office has not historically sought to apply the general anti-avoidance provisions (ie Part IVA) to such structures. The Professional Bodies request the Tax Office to confirm their current position in relation to Part IVA and the use of such structures to the NTLG. Further, the Professional Bodies request the Tax Office to confirm whether they intend to release a taxation ruling, taxpayer alert or practice statement in relation to this issue.
2. In relation to the TPG Newbridge Myer case, the Professional Bodies note that court action was taken by the Tax Office at a very late stage in the transaction. This surprised the Professional Bodies. The Professional Bodies request the Tax Office to explain whether the delayed court action was the result of a change in the Tax Office’s approach to dual holding company structures.
Meeting discussion:
Acting Second Commissioner Kevin Fitzpatrick addressed the forum advising members that the Tax Office proposes to publish two draft Tax Determinations (TDs) relating to private equity investment arrangements.
The first TD will restate longstanding principles in determining whether gains or losses on disposal of assets are on capital or revenue account. It will cover the relevance of facts and circumstances of identified private equity arrangements. The second TD will cover treaty issues and the potential application of Part 1VA to treaty shopping arrangements. The Tax Office will seek feedback on both draft TDs in the usual way.
The aim is to have both draft TDs issued on 16 December 2009.
There was a general discussion about the issues and members welcomed the imminent publication of the Tax Office’s views. Some members also commented that policy issues relating to private equity investments would need to be considered by the Government.
Post meeting update:
On 16 December 2009
TD 2009/D17
and
TD 2009/D18
issued. Comments are invited by 29 January 2010.
[Pg121][_Toc255376524] 20 Next meeting and close
The next meeting is scheduled for Wednesday 31 March 2010, commencing at 9.30am.
Closing remarks:
Acting Second Commissioner Kevin Fitzpatrick chaired the closing of the meeting.
Louise Jameson, former NTLG secretary was thanked for her tireless work with the forum over the past three years. It was acknowledged that Ms Jameson had put in a sterling and valuable effort during her time with the NTLG.
Joan Roberts (TIA) was recognised for her contribution as an NTLG member for the past two years. It was noted that Ms Roberts had been good to deal with and easy to work with over the period. The Commissioner also passed on his thanks to both Ms Jameson and Ms Roberts.
Members were thanked for their ongoing contributions over the past year. Acting Second Commissioner Kevin Fitzpatrick commented that there is always scope for continual improvement in the NTLG process, and that increasingly the forums are getting better and there is now a recognised intent in continuing to focus on strategic issues.
There is an expectation of a more challenging year ahead especially with the Cooper Review (Superannuation) and the Henry Review as well as a large number of rulings.
Members were once again thanked for their efforts and were wished best wishes for the holiday period. The Commissioner had expressed that his Christmas good wishes be passed on to members.
The meeting concluded at 3.00pm.
[NTLG091212] Action Item NTLG0912/12:
[Pg120]NTLG Secretariat is to include action items arising from NTLG meetings in the post meeting summary.
Post meeting update:
Inclusion of action items within the post meeting summary have been included in business as usual processes.
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