Talking Tax – Issue 109

Case law

Taxpayer entitled to PAYG withholding credits not remitted or notified by employer to ATO

The Federal Court case of Cassaniti v Federal Commissioner of Taxation [2018] FCA 92 considered a taxpayer’s entitlement to pay as you go (PAYG) withholding credits, where those amounts purportedly withheld from the taxpayer’s salary were not remitted or notified to the ATO by the employer.

The taxpayer was an office clerk employed in a tax and accounting firm.  She was employed by three different companies in the same firm during the 2012, 2013 and 2014 years. The companies did not remit or notify any PAYG withholding to the ATO for the taxpayer and, therefore, the Commissioner denied her claim for withholding credits in her income tax returns. The Commissioner argued there was insufficient evidence to prove the amounts had been ‘withheld’ to qualify for a credit under section 18-15 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (Administration Act).

To this end, the taxpayer’s evidence included her contracts of employment which showed the gross amount of her salary and bank statements which showed the net amount of her salary received into her bank account. The taxpayer submitted that the difference between the two comprised the amounts withheld for which she was entitled to a credit. The taxpayer also provided her payslips, payment summaries and payroll advice.

However, the Commissioner submitted that the taxpayer’s evidence was unreliable and relied strongly on evidence showing that the amounts claimed to have been withheld from the taxpayer’s salary had not been paid to the ATO. The taxpayer had not placed wage records or books of account of the companies into evidence. Additionally, the companies had almost no compliance with the tax withholding and reporting obligations imposed on a payer of salary and wages. Accordingly, the Commissioner contended that the taxpayer could not prove that there was a ‘contemporaneous arithmetical subtraction or deduction’ from her salary at the time each withholding was made.

Justice Robertson concluded that the matter was ultimately a fact-finding exercise, holding that the taxpayer was entitled to relief on the basis that the amounts were withheld from her salary under section 18-15(1) of Schedule 1 of the Administration Act. The evidence that the taxpayer provided could satisfy, on the balance of probabilities, that PAYG had been withheld. Therefore, there was clear contemporaneous evidence of PAYG being withheld from the taxpayer.

The main issues, in this case, were fact dependent. The case highlights the importance of evidence in legal proceedings and the strength that contemporaneous records have in substantiating facts.

Land acquisition made by The Salvation Army exempt from stamp duty

In the case of The Salvation Army (New South Wales) Property Trust v Chief Commissioner of State Revenue [2018] NSWSC 128, Chief Justice Ward held that The Salvation Army was exempt from duty on the purchase of property used as its regional headquarters, on the basis that it is a charitable institution and most of its resources are predominantly used for the relief of poverty and on social work programs.

The taxpayer sought relief for the assessment of duty on the acquisition of property in Redfern for use as new regional headquarters. The headquarters were purchased to accommodate, in one building, all 440 employees, of which 84% were employed for social work and 16% for general work.

The issue for determination was whether an exemption applied under section 275 of the Duties Act 1997 (NSW) (Duties Act) for a transfer made to a charitable or benevolent body.

The taxpayer paid duty on the purchase and made an application for exemption under section 275 of the Duties Act. The Chief Commissioner exempted the taxpayer as to 65% of the dutiable value of the property (and not 100%), on the basis that 35% of the property was subject to long-term commercial leases.

The court accepted that the taxpayer was an exempt charitable organisation notwithstanding submissions made by the Commissioner that rental income received from the commercial leases would be applied towards repaying internal loans that funded the purchase.

Charities continue to remain a focus for Revenue Offices. Charities should seek advice when intending to claim duties and land tax exemptions, particularly where land is wholly or partly leased to third parties for the purpose of generating income for charitable objects.

Special Leave to Appeal - Placer Dome

On 16 February 2018, an application for special leave by the Commissioner of State Revenue was granted by the High Court in Commissioner of State Revenue v Placer Dome Inc (Now an Amalgamated Entity named Barrick Gold Corporation) [2018] HCATrans 25 regarding the valuation principles endorsed as forming part of a landholder duty assessment for gold mining tenements in Western Australia.

ATO updates

Australians on notice to keep their receipts

The ATO is taking a strict approach to substantiation of claims for work-related deductions. The ATO is targeting ‘other work related expenses’ on the basis that 6.7 million taxpayers claimed a record $7.9 billion in deductions for other work related expenses in the last income year.

Work-related claims will only be deductible if:

• the taxpayer has paid for the expense (and was not reimbursed) and
• the expense is directly related to earning income in connection with their work and is not a private expense and
• the taxpayer has a record to substantiate the claim.

Taxpayers should be mindful that a deduction may only be claimed for the work-related portion of an expense.

Diverted Profits Tax PCG Consultation

The ATO is seeking public comment on the draft Practical Compliance Guideline PCG 2018/D2 in respect of diverted profits tax.

The due date for comments is 9 March 2018.

Revenue Office updates

Victorian SRO warns taxpayers to declare vacant residential properties

The State Revenue Office of Victoria (SRO) has been issuing compliance letters to taxpayers that own two or more properties in one or more affected council areas subject to the Vacant Residential Land Tax (VRLT), providing those taxpayers with a last chance to notify the SRO as to whether their residential property is vacant and subject to the tax.

Notifications by taxpayers were due on 15 January 2018.

Where a notification is not made, a taxpayer may face an investigation and penalties where the Commissioner determines that VRLT in fact applies. VRLT is an additional land tax charged annually, at a rate of 1% of the capital improved value of the vacant residential land.

Please contact Marina Raulings for advice on whether the VLRT applies to you.

Legislation and government policy

ATO Cryptocurrency Technical Workshop

Joni Pirovich attended the ATO Cryptocurrency Technical Workshop on 22 February 2018 to discuss recent developments in the cryptocurrency industry.

Discussions involved:

• the emergence of initial coin offerings (ICOs) and the potential tax implications of the issuing entity from an income tax and GST perspective
• the spectrum of rights attaching to tokens provided to investors and how this may impact the tax treatment of the ICO proceeds, as well as how tokens (and any returns received from holding them) may be treated at the individual, business and fund levels
• the common queries from clients regarding these arrangements to raise capital and
• how the ATO could improve existing guidance on the taxation of cryptocurrencies and ICOs.

ATO representatives from the Tax Counsel Network, Indirect Tax, Private Groups and High Wealth Individuals, Individuals and Small Business, and Public Groups and International were all in attendance. A representative from ASIC was also present.

Further targeted consultation with key stakeholders across the industry will occur in the coming months.