In this edition of the Monthly Tax Update, we provide the recent updates in legislation along with tax developments in the areas of corporate tax, individual tax, indirect tax and international tax. We also include the ATO’s recent activities, including its publications, rulings issued in the past month, latest Australian tax cases and other news in this edition.
Since our last update, the following are the legislation / regulations that have been passed / issued:
Legislation to provide vulnerable veterans and their families more flexible support and expand access to financial support has been enacted.
The Defence, Veterans’ and Families’ Acute Support Package Bill 2022 has received assent as Act No 40 of 2022. The Bill includes necessary amendments to the Income Tax Assessment Act 1997 to ensure that family support payments for veterans and their families are exempt from income tax and also not included as income for the purposes of social security law.
These amendments will apply for the 2022–23 income year and later income years.
Regulations for the Australian Charities and Not-for-profits Commission (ACNC)
- Australian Charities and Not-for-profits Commission Regulation 2013 (F2013C00451) (the existing Regulation). This regulation outlines the requirements of the ACNA, the governance standards and external conduct standards applying to charities registered with the ACNC and requirements for registered charities’ annual financial reports. It is due to sunset on 1 April 2023.
- Australian Charities and Not-for-profits Commission Regulations 2022 (F2022L01301) (the new Regulations). These regulations remake the existing Regulation with revisions to update and remove redundant provisions. The language, format and numbering of the existing Regulation have largely been maintained in the new Regulations as they are used extensively in the ACNC’s administrative guidance for the sector. The new Regulations will commence on 1 April 2023. They were originally issued in draft form on 18 July 2022 for consultation.
Regulations have been made to give effect to the superannuation measure to expand the eligibility for downsizer contributions by reducing the eligibility age from 60 to 55 years.
When enacted, Sch 5 to the Treasury Laws Amendment (2022 Measures No 2) Bill 2022 will amend ITAA 1997 to allow individuals aged 55 years or over to make downsizer contributions to their complying superannuation plan from the proceeds of selling their main residence.
A legislative instrument (F2022L01272) has been issued to ensure taxpayers are able to substantiate and account for GST adjustments associated with taxable supplies. It describes what additional information should be included in an adjustment note and a recipient created adjustment note, in addition to the requirements set out in s 29-75(1) of the GST Act.
F2022L01272 sets out the additional information requirements for a document to be an adjustment note or a recipient created adjustment note under s 29-75(1). Unless an exception applies, a supplier or a recipient must hold an adjustment note to attribute a decreasing adjustment from an adjustment event when completing their GST return for a tax period.
Taxation Administration: Withholding Variation to Nil for Low Income Minors Legislative Instrument 2022 (No. F2022L01145)
Taxation Administration: Withholding Variation to Nil for Low Income Minors Legislative Instrument 2022 (No. F2022L01145) has been issued and commenced on 1 October 2022.
This instrument varies to Nil the amount of pay as you go (PAYG) withholding for low income minors (i.e. individuals under 18 years of age at the time of payment), who do not provide a tax file number (TFN) declaration or quote their Australian business number (ABN) to a person making a payment to them.
This is a remake of a previous Legislative Instrument (Legislative Instrument No. F2012L00884) which will sunset on 1 October 2022
For further details, please refer here.
Targeted support to replace pandemic leave disaster payment
After the discussion at the National Cabinet meeting held on 30 September 2022, it has been agreed that the Pandemic Leave Disaster Payment (the PLDP) will end on 14 October 2022, while financial support will continue for casual workers in specific sectors.
BEPS – OECD/G20 Inclusive Framework on BEPS: Progress Report
The OECD has published its sixth annual progress report of the OECD/G20 Inclusive Framework on BEPS. This report sets out an overview of the progress made by the OECD/G20 Inclusive Framework, covering the period from September 2021 to September 2022.
The report contains an overview (part 1) and four sections of substantive content.
BEPS 2.0 – Tax Incentives and the Global Minimum Corporate Tax (Pillar Two)
In October 2021, the international community agreed a landmark deal on the two-pillar solution to the tax challenges arising from the digitalisation and the globalisation of the economy. As part of this plan, Pillar Two establishes a global minimum effective corporate tax rate of 15% for large multinational enterprises (MNEs) which has important implications for the use of tax incentives around the world.
A new OECD report on tax incentives was prepared at the request of the Indonesian G20 Presidency, provides a number of concrete considerations for countries to take into account as they prepare for the implementation of Pillar Two. Wherever tax incentives drive an MNE’s effective tax rate (ETR) in a jurisdiction below 15%, the MNE would potentially be subject to top-up taxes under the GloBE Rules, a core component of Pillar Two. These rules may have an impact on the effectiveness of certain tax incentives.
Country-by-Country Reporting – Compilation of 2022 Peer Review Reports
Under the Action 13 Minimum Standard, jurisdictions have committed to foster tax transparency by requesting the largest multinational enterprise groups (MNE Groups) to provide the global allocation of their income, taxes and other indicators of the location of economic activity. This unprecedented information on MNE Groups’ operations across the world has boosted tax authorities’ risk-assessment capabilities.
BEPS 2.0 – Australian Treasury Consultation Paper: Global agreement on corporate taxation addressing the tax challenges arising from the digitalization of the economy
The implementation and operation of globally agreed Pillar One and Two corporate tax reforms into Australian domestic law is open for public consultation.
On 8 October 2021 Australia and over 130 other countries endorsed proposed international corporate tax reforms to address the challenges arising from the digitalisation of the economy. These reforms were developed by the OECD Inclusive Framework on Base Erosion and Profit Shifting and presented as a two pillar solution that would help ensure that multinationals pay their fair share of tax in the jurisdictions in which they operate.
Treasury is seeking input on the domestic implementation issues of the reforms, including the implementation of a Domestic Minimum Tax.
ATO Rulings and Activity
CGT exemption for dwelling acquired from deceased estate
The ATO has updated its practical compliance guideline on the discretion to extend the 2-year period allowed to dispose the main residence of the deceased without triggering CGT, to reflect consultation feedback.
Practical Compliance Guideline PCG 2019/5 outlines a safe harbour compliance approach that allows taxpayers to manage their tax affairs as if the Commissioner had exercised the discretion to allow them a longer period.
Tax Residency: Draft ruling on residency test for individual
The ATO has issued fresh guidance (draft Taxation Ruling TR2022/D2) on its interpretation of the individual tax residency rules to reflect key case law developed in the matters of Harding, Pike and Addy.
The draft Taxation Ruling TR 2022/D2 consolidates the ATO’s views on 3 of the tests involved: the ordinary concepts test, the domicile test and the 183-day test. It replaces IT 2650 Income tax: residency – permanent place of abode outside Australia and TR 98/17 Income tax: residency status of individuals entering Australia. IT 2650 and TR 98/17 are withdrawn with effect from 6 October 2022.
TD 2022/14 – Deductible liabilities to be excluded from cost base of CGT asset
The ATO has issued a determination finalising its position on the exclusion of deductible liabilities from an asset’s CGT cost base.
This determination states that if the CGT cost base of an asset includes, either under s 112-35 or s 110-25(2) of ITAA 1997, a non-contingent liability to pay an amount, and the amount has been deducted or can be deducted, then s 110-45(2) of ITAA 1997 will operate to exclude that amount from the asset’s cost base.
TD 2022/D3 – Income tax: use of an individual’s fame by related entities
The ATO has issued a draft tax determination, TD 2022/D3 for public comment. The draft determination applies to arrangements where an individual with fame establishes an entity (for example, a family trust or company) and enters into an agreement with that entity for the use of their name, image, likeness, identity, reputation and signature.
The guidance confirms that income from the use of an individual’s fame cannot be alienated to a related entity, such as a family trust or company.
Fringe benefits tax – record keeping exposure draft legislation
The Government is introducing legislation to reduce fringe benefits tax (FBT) record keeping compliance costs for employers who maintain good corporate records.
In this regard, exposure draft legislation and associated draft explanatory material have been released for public consultation.
FBT guide for employer – car fringe benefits
The ATO has rewritten Chapter 7 – Car fringe benefits guide to provide a step-by-step guide to identifying and calculating the taxable value of car fringe benefits.
The rewritten chapter does not provide a new “ATO view” on car fringe benefits, however the content has been revised to make the information and examples easier to follow and apply to employer’s circumstances.
For further details, please refer here.
Non-commercial business losses
Division 35 of the Income Tax Assessment Act 1997 prevents an individual’s losses from non-commercial business activities being offset against the individual’s other assessable income in the year the loss is incurred.
In recent years, special circumstances such as flood, bushfire and COVID-19 impacts may have caused the non-commercial loss rules to apply to a taxpayer’s business. If this happens, and a taxpayer does not meet one of the other requirements for the loss to be offset against their other income, the taxpayer will need to seek the Commissioner’s discretion to allow them to do so.
GST – Universities and Residential Colleges: Draft practical compliance guideline for supplies of accommodation, meals, courses, and religious services to resident students
The ATO has issued draft Practical Compliance Guideline PCG 2022/D3 Goods and services tax and residential colleges, setting out the Commissioner’s compliance approach for universities and residential colleges supplying accommodation, meals, tertiary residential college courses and religious services to resident students and claiming input tax credits. The purpose of the Guideline is to assist residential colleges to determine if supplies of accommodation, meals, tertiary residential college courses and religious services satisfy section 38-250 of the A New Tax System (Goods and Services Tax) Act 1999 and can be treated as GST-free supplies.
Market valuation for tax purposes
The ATO has updated its guidance on market valuation, after consulting with tax, accounting and valuation professionals. The ATO guide is intended to assist taxpayers and their advisers in understanding the Commissioner’s general expectations on market valuation for tax purposes. It includes information on what market value means for tax purposes and the evidence and processes the ATO generally expect to see to support a valuation.
We cover the 3 internationally-defined valuation approaches in our update.
Income tax: ascertaining the right to tax United States (US) and United Kingdom (UK) resident financial institutions under the US and the UK Taxation Conventions in respect of interest income arising in Australia
The ATO has issued a draft update (TR 2005/5DC2) to its Taxation Ruling TR 2005/5 on the right to tax United States (US) and United Kingdom (UK) resident financial institutions under the US and the UK double tax agreements (DTAs) in respect of interest income arising in Australia.
The further draft update replaces a previous draft update issued by the ATO on 28 November 2018, which has since been withdrawn with effect from 21 September 2022.
Top 1000 combined assurance review program for large super funds.
The ATO has commenced the combined assurance review (CAR) program for large super funds.
Funds under management in the large fund sector has hit $2.4 trillion. These funds have evolved to not only play an important role in our economy as taxpayers, but also as major investors. According to the ATO, they continue to focus their efforts on data governance to provide government and community confidence that large funds are meeting their tax and reporting obligations.
The CAR program will use the 4 pillars of justified trust, focusing on governance over third party data, as well as the funds’ GST and member reporting obligations.
Class rulings issued:
- Class Ruling CR 2022/83 Prospect Resources Ltd – return of capital and special dividend. This ruling applies from 1 July 2022 to 30 June 2023.
- Class Ruling CR 2022/84 SGH Australia Plus – scrip for scrip roll-over. This ruling applies from 1 July 2022 to 30 June 2023.
- Class Ruling CR 2022/85 ATI Global Ltd – demerger of Commercial Credit Holdings Ltd. This ruling applies from 1 July 2022 to 30 June 2023.
- Class Ruling CR 2022/86 Slack Technologies, Inc – employee share scheme — exchange of rights and shares for rights and shares in salesforce.com, inc. This ruling applies from 1 July 2021 to 30 June 2022.
- Class Ruling CR 2022/87 Iluka Resources Ltd — demerger of Sierra Rutile Holdings Ltd. It applies from 1 July 2022 to 30 June 2023.
- Class Ruling CR 2022/88 Firefly Resources Ltd — demerger and scrip for scrip roll-over. It applies from 1 July 2021 to 30 June 2022.
- The addendumto Class Ruling CR 2022/14 Cardno Ltd — return of capital and special dividend to clarify the assessability of the special dividend for non-residents.
Other rulings issued:
Product Ruling PR 2022/9 Challenger Life Company Ltd CarePlus Annuity and Insurance. This ruling applies from 1 July 2022.
Latest Australian Tax Cases
- Trust income – The Federal Court has upheld an assessment issued to the trustee of a trust after a beneficiary was deemed not to have been presently entitled to trust income. [BBlood Enterprises Pty Ltd & Anor v FC of T 2022 ATC – 19 September 2022]
- Customs; anti-dumping – The AAT has held that certain imported steel pallet racking met the description of goods the subject of a dumping duty notice and were therefore liable for dumping duties. [One Stop Pallet Racking Pty Ltd v Comptroller-General of Customs 2022 ATC – 7 September 2022]
- Deductions; rental expenses. The AAT has held that certain expenses incurred in regard to extensive water damage to a taxpayer’s rental property were to be allowed as deductions on the basis of the evidence of the carpenter who performed the work, which enabled the AAT to ascertain what constituted repair and what constituted improvement. [Wulf v FC of T 2022 ATC – 21 September 2022]
- Deductions; rental expenses. The AAT has upheld amended assessments that denied a taxpayer’s claim for unsubstantiated rental property expenses where the relevant property was leased to her husband well below the market rate, but exercised the discretion to remit the imposed penalties by 25% due to her particular circumstances. [Rizkallah v FC of T 2022 ATC – 16 September 2022]
- GST; input tax credits. The AAT has upheld a decision by the Commissioner to disallow input tax credits claimed in business activity statements (BAS) lodged outside the 4-year time limit set out in s 93-5 of the GST Act. [JHKW v FC of T 2022 ATC – 5 September 2022]