Talking Tax – Issue 22

Case law

AAT affirms Commissioner’s finding on taxpayer’s deduction claims relating to a range of expenses

The taxpayer, a professional sales commission agent for IBM, spent much of his time travelling around NSW visiting customers and targets, sometimes ‘hotdesking’ at the IBM office, or working from his home office. The taxpayer kept records of his use of the home office in his diary.

The AAT held that:

• the taxpayer’s home office was not used exclusively for work-related purposes;
• the ‘home office percentage’ proposed by the taxpayer as a method for determining the percentage of outgoings (such as home loan interest, building insurance, council rates, water rates and maintenance costs) that could be deducted, was zero because no part was incurred in the course of gaining or producing his assessable income;
• the taxpayer’s overtime meal expenses were private expenses ‘pure and simple’;
• the taxpayer’s claimed deductions for ‘staff and client amenities’ were being consumed by his family, and his claimed deductions for heating, lighting, carpeting and air-conditioning were excessive;
• the taxpayer’s claimed deductions for sun protection products were unsubstantiated; and
• the taxpayer’s claimed deductions for rubber-soled shoes due to the occupational health and safety concern of static electricity required further scientific explanation.

Overall, the AAT was unimpressed with the taxpayer’s claimed deductions stating that his evidence had ‘ranged from the exaggerated to the implausible’, and remitted the assessments to the Commissioner for reconsideration with its reasons.

As an aside, it should be remembered that if a taxpayer claims outgoings on the use of part of the family home for income producing purposes, they will not be entitled to a full main residence exemption on the future sale of the house.

Commissioner to appeal Normandy Finance and Investment Asia Pty Ltd & Anor v Federal Commissioner of Taxation

The Commissioner appealed to the Full Court the Federal Court’s findings in the Normandy Finance case, reported here. The Federal Court ruled that payments made from non-resident companies to Australian resident companies were not ‘sham borrowings’ and as a consequence were not assessable income.

Taxpayer to appeal Federal Court ruling in Thomas v Federal Commissioner of Taxation

The ‘epic’ 140 page Federal Court judgement that ruled against Mr Thomas – reported here – will be appealed to the Full Court. The Federal Court held that the rules that dictate how franking credits can be passed by a trustee to a trust beneficiary create a link between a trust income distribution, which must include part of the dividend which the franking credit is attached to, and the franking credits which are passed through to the trust to the beneficiary.

ATO updates

Agricultural Land Register deadline is fast approaching

The ATO has released a reminder that under the new Register of Foreign Ownership of Agricultural Land Act 2015 (Cth) passed on 1 December 2015, you must notify them if you meet the definition of ‘foreign person’ and have existing Australian ‘agricultural land’ holdings by 29 February 2016. Penalties apply if the deadline is missed.

Briefly, a ‘foreign person’ is, amongst other things an individual or corporation not ordinarily a resident in Australia, and ‘agricultural land’ is any land in Australia used, or that could reasonably be used for a primary production business.

If you would like assistance regarding this disclosure deadline, please contact a member of our tax team.

Legislation and government policy

Information sharing agreement signed as part of OECD Base Erosion and Profit Shifting Project

Last week, 31 countries, including Australia, signed the Multilateral Competent Authority Agreement (MCAA) that provides for Country-by-Country reports and an ‘important milestone’ toward the implementations of the OECD’s G20 Base Erosion and Profit Shifting Project.

According to the OECD Secretary-General Angel Gurria:

Under this multilateral agreement, information will be exchanged between tax administrations, giving them a single, global picture on the key indicators of multinational businesses. This is a much-needed tool towards the goal of ensuring that companies pay their fair share of tax, and would not have been possible without the BEPS Project.

The Federal Government recently passed new multinational tax avoidance laws – see our update here – that require large multinational corporations to submit Country-by-Country statements to the ATO for income years on or after 1 January 2016.