Talking Tax – Issue 3

Key developments

Rio Tinto loses appeal in GST case re ITCs

This was a test case regarding whether section 11-15(2) of the GST Act contains a ‘principal purpose’ test. Under section 11-15(2)(a), taxpayers cannot claim an input tax credit for acquisitions of supplies that would be input taxed.

The Full Federal Court found that the section does not require a consideration of the purpose of the acquisition. Rather, the section is concerned with the extent to which the acquisition relates to a later supply. In this case, the Court found that the taxpayer was not entitled to input tax credits for mining accommodation acquisitions. This was because the acquisitions were viewed as input taxed supplies on the basis that the Taxpayer would make later make a supply of rental accommodation.

Maximum Net Asset Value Test

Breakwell v FC of T

In this case, the Administrative Appeals Tribunal (AAT) considered whether the Taxpayer satisfied the maximum net asset value test contained in section 152-15 of the ITAA97, such that he could access the small business concessions under Division 152 of the ITAA97. If the Taxpayer satisfied the test, the capital gain arising on the sale of the Taxpayer’s business could be reduced or disregarded. The maximum net asset value test would have been satisfied if the net value of the assets of the Taxpayer and his related entities did not exceed $6,000,000 just prior to the sale of the business.

The AAT was required to determine whether a loan as at 30 June 2008 made to the Taxpayer by a family trust – of which he was a beneficiary – was included in the calculation of the value of the net assets of the Taxpayer. If the loan was included in the calculation, the sum of the net value of the assets of the Taxpayer and his related entities would exceed $6,000,000, in which case he would not be entitled to the small business concessions.

The Taxpayer argued that a component of the loan was made to him prior to 1998 and either had been expended through business use, or was no longer payable as a result of the expiry of the relevant limitation period.

The AAT held that the Taxpayer had not satisfied the maximum net asset value test. In reaching this conclusion, the AAT rejected the Taxpayer’s arguments about the payment and use of the pre-loan as he had no business records at the time recording the loan. The Taxpayer’s further argument that the pre-1998 loan was statute-barred also failed because he had signed balance sheets between 2003-2008 acknowledging the loan was an asset of the family trust.

Decision Impact Statement on the AAT decision in Case 5/2015 2015

This Decision Impact Statement considers the AAT decision in Trustee for SBM Trust v FC of T. The issue in that case was whether section 93-5 of the GST Act, applied to impose a time limit on the taxpayer’s entitlement to claim input tax credits.

According to the Decision Impact Statement, the AAT’s decision confirms that section 93-5 of the GST Act imposes a time limit on a taxpayer’s entitlement to claim input tax credits for GST returns lodged or assessed from 12 May 2009, regardless of when the relevant acquisitions were made. If the time limit elapses, there can be no attribution of those input tax credits under subsection 29-10(4).

The Decision Impact Statement also states that the AAT’s decision will not alter the Commissioner’s existing view that subsection 29-10(4) of the GST Act does not prevent an entity revising an earlier GST return to claim input tax credits that the entity is otherwise entitled to claim.

ATO updates

ATO to focus on rental property deductions for holiday homes

The ATO is focusing on excessive deductions claimed for rental properties that are used as holiday homes. The ATO is reminding taxpayers to keep accurate records and only claim deductions for periods that the property is rented out or available for rent. The ATO has also revived concerns about whether taxpayers are fully entitled to deductions where the property is rented out at below market rates, particularly to family and friends.

ATO IDs withdrawn

The following ATO IDs were withdrawn this week:

  1. ATO ID 2005/46 and ATO ID 2005/47 regarding excise regulations;
  2. ATO ID 2007/75 concerning PAYG Instalment Income and Employee Share Acquisition Schemes; and
  3. ATO ID 2004/683 about capital works.


Exposure draft: Treasury Legislation Amendment (Spring Repeal Day) Bill 2015

Treasury’s exposure draft legislation is part of the government’s initiative for deregulation to eliminate redundant laws. The amendments reduce the number of business identifiers, the amount of unclaimed superannuation and inoperative provisions. It has been proposed that tax laws will be amended from 1 July 2016 to allow entities to use an ABN instead of a TFN. The final day to submit comments on the exposure draft is 28 September 2015.

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