Talking Tax – Issue 27

Case law

Duty enforced on transfer of property to beneficiary of a discretionary trust – Chiang v Commissioner of State Revenue [2016] VCAT 304

VCAT has upheld the Commissioner’s stamp duty assessment that a taxpayer was not exempt from stamp duty for the transfer of a property to the beneficiaries of a discretionary trust.

The taxpayer was the trustee of the YHC Family Trust (Principal Trust) and owned the property on Little Bourke Street. In 2014, the taxpayer sought an exemption on the transfer of the property to the taxpayer as the trustee of the HLC Trust (Receiving Trust), because it had identical beneficiaries to the Trust.

Exemption for transfer to a beneficiary

Under section 36A of the Duties Act 2000 (Vic) (Act), an exemption is available for a transfer of dutiable property that is subject to a discretionary trust to a beneficiary of a trust if:

• duty was paid on the acquisition of the property by the trust;
• the beneficiary was a beneficiary at the time when the trust acquired the property; and
• the transfer is to the beneficiary as trustee of another trust of which all the beneficiaries are relevant beneficiaries.

A ‘relevant beneficiary’ is a ‘natural person who was a beneficiary of that trust at the relevant time’.

The taxpayer argued that ‘trust’ in the above definition of ‘relevant beneficiary’ referred to the Principal Trust. However, VCAT held that it referred to the Receiving Trust, and therefore the exemption could not apply because the Receiving Trust was only formed after the Principal Trust acquired the property.

Exemption due to no change in beneficial ownership

The taxpayer also argued that it was not a dutiable transaction because there was no change of beneficial ownership of the property. This is because under section 7(4) of the Act:

• the property had not become the ‘subject of a trust’ because this only applied when there had not previously been a trust declaration over the property; and
• the property had not ceased to be the subject of a trust because this form of dutiable transaction was focussed on transfers to a third party.

VCAT rejected these arguments, clearly declaring that the property was owned legally and controlled by the taxpayer through different trusts and in different capacities before and after the transfer occurred.

ATO updates

FBT year comes to and end

Fringe Benefits Tax (FBT) returns must be lodged by 21 May 2016, if done by paper, or 25 June 2016, if done electronically through a tax agent. Payment will be due on 28 May 2016.

It is important to note that the FBT rate has increase from 47% last year to 49%.

The categories of expenditure that constitute fringe benefits are extensive. Some common examples include when an employer provides an employee:

• a car to use for private use;
• car parking at or near work;
• a benefit for a reduction in salary (salary sacrifice agreement);
• food and drink at a staff party; or
• with a living away from home allowance.

Previously, employees of not-for-profit organisations could salary sacrifice certain fringe benefits with no FBT liability. From 1 April 2016, these salary sacrifice benefits have been capped at $5000 and will now have to be reported.

Legislation and government policy

FIRB and the ATO – hand in hand on tax compliance

New standard conditions imposed on all foreign investment approvals will aim to ensure that all foreign investors are complying with Australian tax laws. The Federal Treasurer, Scott Morrison, announced that the following summarised conditions must be met by an applicant, and their associates, for an application to be found to be not against the national interest:

• compliance with Australia’s taxation laws, including the payment of any outstanding tax;
• the provision of any documents and information requested by the ATO in connection with the application of Australia’s taxation laws;
• notification to the ATO of any transactions to which Australia’s transfer pricing or anti-avoidance tax rules may potentially apply; and
• the provision of an annual report to the FIRB on compliance with the tax conditions.

There are two additional conditions that will be imposed if a significant tax risk is identified by the FIRB.

Small business restructure bill awaits royal assent

The Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016 (Roll-ver Bill) has passed both houses and awaits Royal Assent. The Roll-over Bill aims to assist small businesses undergoing a genuine restructure by allowing gains and losses that would ordinarily arise, to be deferred. The key eligibility test is whether the restructure is ‘genuine’ and not a tax avoidance scheme.

Specifically, these amendments apply to:

• transfers of depreciating assets, where the balancing adjustment event arising from the transfer occurs on or after 1 July 2016;
• transfers of trading stock or revenue assets, where the transfer occurs on or after 1 July 2016; and
• transfers of capital gains tax (CGT) assets, where the CGT event arising from the transfer occurs on or after 1 July 2016.

Please refer to our previous publication on the draft Roll-over Bill for a more detailed explanation of the proposed rules.

If you feel that this roll-over relief may be available to you or your clients, please contact a member of the tax team and we can assist you in assessing any advantages the new Roll-over Bill may present.

Federal Government to release tax plan before Budget

Assistant Treasurer, Kelly O’Dwyer, has briefly announced that the Federal Government’s tax plan will be announced before the budget in May, with an eye to an election later in the year.

Australian Accounting Standards Board (AASB) amends accounting standard on income taxes

The AASB’s amended AASB 112 Income Standards clarifies the requirements on recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value. The amendments apply to annual periods on or after 1 January 2017, with earlier application permitted.

ACNC survives

After extensive consultation, the Federal Government has announced that the Australian Charities and Not-for-profits Commission (ACNC) will continue to operate with an intention to remove duplication and increase accountability and transparency within the organisation. The Assistant Treasurer, Kelly O’Dwyer, stated that:

The Government will continue to work with the ACNC, states and territories and the sector to identify areas where we can reduce the burden of red tape for charities and not-for-profit organisations.

This is great news for charities and not-for-profits and the sector more broadly.

‘Cents per kilometre’ method for calculating deductions amended

The recently registered Treasury Laws Amendment (2016 Measures No 1) Regulation 2016 repeals certain provisions in the 1997 Act that provide the method used for calculating a deduction for car expenses within an income year. This makes way for the reformed method provided by the Tax and Superannuation Laws (2015 Measures No 5) Bill 2015 late last year which allows the Commissioner to set the rate of cents per kilometre deductions under the 1997 Act.