Talking Tax – Issue 14

This week we’re talking tax about..

Legislation and government policy

Report on corporate tax avoidance delayed again

The Senate Economics References Committee (Committee) has again extended the due date for its report on corporate tax avoidance. The report was initially to be tabled in June 2015 but is now due late February 2016.

The Committee is tasked with looking into the tax avoidance and aggressive tax minimisation measures employed by both corporations registered in Australia and also multinational corporations which operate in Australia.

Specifically, the report will consider whether Australia’s current laws are adequate and explore the need for greater transparency to deter tax avoidance.

Two foreign investment framework Bills await assent

Two foreign investment Bills have passed through Parliament without amendment and are now awaiting Royal Assent.

The Bills are part of a package that will amend and improve the operation of Australia’s foreign investment framework. The third Bill is currently before the Senate.

The Bills which have been passed include:

• The Foreign Acquisition and Takeovers Legislation Amendment Bill 2015, which adapts and updates the existing rules and improves enforcement of the foreign investment system; and
• The Register of Foreign Ownership of Agricultural Land Bill 2015, which establishes a register for foreign ownership of agricultural land.

The Bill which is currently before the Senate, The Foreign Acquisitions and Takeovers Fees Imposition Bill 2015, proposes the introduction of fees on all foreign investment applications and is still being considered.

Tax reform green paper to be released in 2016

The Treasurer has confirmed that the Government will be releasing a Green Paper on the 2016 Budget and other related issues next year.

The paper will focus on tax reform in light of economic growth, rather than purely focusing on improvements to the tax system. An innovation statement will be released before the end of the year addressing the same issues.

House of Representatives passes Tax and Superannuation Amendment Bill

The Tax and Superannuation Laws Amendment (2015 Measures No 5) Bill 2015 was passed by the House of Representatives on 23 November 2015 without amendment and will now move to the Senate for consideration.

The Bill proposes the following amendments:

• modernising the methods for calculation of work-related car expense deductions by reducing the permissible calculation methods from four to two;
• limiting the fringe benefit tax concessions on salary packaged entertainment benefits by introducing a cap on the total amount of salary packaged entertainment benefits an employee can be provided at concessional tax rates;
• improving taxpayer compliance by increasing the information reported to the Commissioner by requiring third parties to report on a number of additional transactions, including
  • transfers of real property;
  • transfers of shares;
  • transfers of units in unit trusts;
  • business transactions which are made through payment systems;
  • onsideration for services provided to government entities;
  • payments of government grants; and
• ensuring the Zone Tax Offset is properly targeted to people who are genuinely living in those geographical zones by limiting access to the offset so it is only available to people whose usual place of residence is within a zone.

ATO updates

ATO forces sale of seven properties illegally held by foreign residents

A newly established ATO foreign investment task force has identified a number of investments which were held in breach of the foreign investment framework and has forced the sale of these properties.

Responsibility for enforcement of residential real estate has recently been transferred to the ATO, and the Government says this is a critical feature of the new foreign investment compliance measures.

Some properties were purchased without approval entirely, such as a $5 million Hawthorn East property. Other properties were initially purchased within the rules as the purchaser was a temporary resident, but when the purchaser later became a foreign resident, the property had to be sold.

Foreign investors have until 30 November to voluntarily disclose their purchase of established residential real estate to the Foreign Investment Review Board (FIRB). After this date, FIRB will be approaching investors directly.

ATO releases Law Companion Guideline on the multinational anti-avoidance law (MAL)

The ATO has released the Law Companion Guideline LCG2015/2 (LCG), which discusses the proposed multinational anti-avoidance law. The Law Companion Guideline is a new kind of guidance material offered by the ATO and this one is the first of its kind.

Notably, the multinational anti-avoidance law is not yet law – the Tax Laws Amendment (Combating Multinational Tax Avoidance Bill) 2015 is still currently before Parliament. An earlier update about the Bill can be accessed here. If Parliament passes the Bill unamended, the ATO has said the LCG will become a Public Ruling.

The LCG includes a number of guideline questions intended to help taxpayers determine if the proposed MAL will apply, including:

• determining the ‘purpose’ of a particular scheme and whether that purpose would contravene the MAL;
• how a ‘direct connection’ is established between activities undertaken in Australia and foreign supplies; and
• what it means to be ‘commercially dependent’ on a foreign entity.

The ATO is also developing further compliance material relevant to the MAL, which is intended to clarify the purpose and status of an LCG before the end of 2015.

The LCG can be accessed here.

Case law

Priestley and Commissioner of Taxation [2015] AATA 893

The Administrative Appeals Tribunal (AAT) has found that the taxpayer, Mrs Priestley (Priestley) failed to discharge the onus of proving that the assessment issued by the Commissioner of Taxation (Commissioner) was excessive. Priestley sold a property in Hawthorn and shares in 2011 resulting in a capital gain of $258,500. She failed to lodge a tax return and later claimed that the capital gain was fully offset by capital losses.

Priestley said the capital losses arose from loans made to a company of which she was a director and a company of which her husband was a director. Both companies were trustees of trading trusts. In both cases, Priestley said the loans were written off because the trusts were unable to repay the loans and ceased trading, resulting in CGT event C2 occurring (ownership of an intangible CGT asset ending).

The Commissioner was not satisfied Priestley had adequately demonstrated the existence of the loans or the transactions which were said to have resulted in the capital losses. The Commissioner issued an assessment for the full $258,000 and also assessed a penalty of 75% for Priestley’s failure to lodge the 2011 return.

The AAT affirmed the Commissioner’s assessment, saying Priestley’s evidence was ‘so at odds with contemporaneous documents and so lacking in logic as to make the evidence inherently implausible and unreliable’, adding that Priestley’s evidence left a distinctively unfavourable impression of her reliability. The AAT was well short of being satisfied on the balance of probabilities that Priestley made the loans to the trustee companies as she alleged, and therefore she failed to discharge her onus of showing the Commissioner’s assessment was excessive. The AAT was equally not satisfied that the penalty should be remitted.