Talking Tax – Issue 7

This week we’re talking tax about…

Legislation and government policy

Tax Reform

Prime Minister Malcolm Turnbull met with business, union and community leaders on 1 October 2015 to discuss tax reform and other economic issues. The Prime Minister made it clear that “everything is on the table” in terms of tax reform, including superannuation tax concessions and GST reform.

The Prime Minister also indicated that the Green Paper on tax reform will be released shortly, but has not provided a timetable.

Accounting standard on income taxes registered

The Australian Accounting Standards Board (AASB) has reissued AASB 112, the accounting treatment standard for income taxes.

The new standard is substantially the same as its predecessor and incorporates the International Financial Reporting Standards, which allows editorial changes and minor clarifications to be made.

Case law

Commissioner of State Revenue v EHL Burgess Properties Pty Ltd

In Issue 5 of Talking Tax, we noted that the ATO had announced an application for leave to appeal from the Supreme Court’s decision in this matter. In that case, the Supreme Court of Victoria held that the taxpayer’s properties in Whittlesea, Kilmore and Bulla were outside of “greater Melbourne”, with the effect that no land tax was payable on those properties through the primary production exemption.

In the Supreme Court, the taxpayer successfully submitted that the definition of “greater Melbourne” in the legislation prior to 2015 was flawed because it was defined by reference to local government councils, most of which have been abolished. The Commissioner submitted that the reference to the local councils was intended to specify a physical area and although the municipal boundaries no longer exist, the physical boundaries are still ascertainable.

The Victorian Court of Appeal has allowed the Commissioner’s appeal, deciding that the taxpayer’s properties were not outside “greater Melbourne”, with the effect that the primary production exemption no longer applies.

The Court of Appeal preferred the Commissioner’s construction of “greater Melbourne” and held that the areas of land relevant to the definition were those which were within the shires before they ceased to exist. The Court of Appeal said the Commissioner’s submissions about the interpretation of “greater Melbourne” were more consistent with the key statutory interpretation principles because they aligned with the purpose of the provision, which was to give land tax exemption to properties situated in rural areas. The taxpayer’s construction, however, would have extended the exemption to urban Melbourne suburbs, which was not intended by parliament.

Lipton v FC of T

Two taxpayers have been unsuccessful in their application to the Administrative Appeals Tribunal (AAT) to have their application for release from a tax debt set aside on the basis that they would suffer serious hardship if required to pay the $25,000 debt.

The taxpayers applied to be released from the debt under section 340-5(3) of Schedule 1 of the Taxation Administration Act 1953, saying that paying the debt would cause serious hardship due to serious family difficulties. The Commissioner refused the request.

The AAT upheld the Commissioner’s refusal for the following reasons:

• the taxpayers regularly had a surplus of income over expenditure;
• the taxpayers could have entered into a payment arrangement with the ATO but didn’t;
• one of the taxpayers stood to inherit a substantial amount of money;
• both taxpayers were capable of working to earn income;
• the taxpayers were able to draw down on their home loan to pay off some of the debt; and
• the taxpayers’ son was becoming less financially dependent, allowing more income to be apportioned to the tax debt.

Sunraysia Harvesting Contractors Pty Ltd as trustee of the Sunraysia Harvesting Contractors Trust & Ors v FC of T

The AAT has affirmed the Commissioner’s decision to disallow income tax credits claimed by Sunraysia, impose GST shortfall penalties and impose other penalties for failure to deduct and remit PAYG amounts. The Commissioner imposed the penalties and disallowed the tax credits on the basis that Sunraysia had entered into a corporate arrangement which was a ‘sham’.

Sunraysia was the trustee of a discretionary trust of which the taxpayer and his spouse were the beneficiaries. Sunraysia asserted that it did not engage employees, but contracted with three other companies to engage and pay employees. Sunraysia argued that those other companies accounted for PAYG deductions and payroll tax if necessary.

The AAT agreed with the Commissioner’s view that the arrangement was a sham, going so far as to call it an “elaborate charade” to avoid GST and income tax liabilities. The Tribunal noted that the taxpayer behind Sunraysia also had control of the financial and business affairs of all other three companies, and the contracts were not intended to create legally enforceable obligations, only to permit Sunraysia to avoid remitting PAYG deductions.

ATO materials

ATO ID 2015/25 - Exempt residual benefits - the provision, or use, of a recreational facility

In this Interpretative Decision, the Commissioner states his view that a residual benefit from an employee participating in a fitness class provided by their employer at the employer’s premises is not an exempt benefit under s 47(2) of the Fringe Benefits Tax Assessment Act 1986.

Ride sourcing activities

Through consultation with relevant stakeholders, the ATO issued guidance to assist ride-sourcing providers to comply with their taxation obligations and assist with the uncertainty.

The guidance says that if you provide ride-sourcing services, you are providing ‘taxi travel’ services. This is because you make a car available for public hire and use it to transport passengers for a fare. The guidance says that by provide ride-sourcing services to the public you are likely to be carrying on an enterprise and should therefore register an ABN and for GST.