Talking Tax- Issue 48

ATO updates

ATO Corporate Plan

Under the Public Governance, Performance and Accountability Act 2013 the Commissioner must publish an annual corporate plan for the ATO. The 2016/17 corporate plan was released in late August and covers the 2016-17 period. It sets out the purpose, operating environment, risks, capability and planned performance for the ATO over the period.

The ATO Corporate Plan confirms that the plan is to deliver a range of improvements to products and services such as:

• delivering myTax for all individuals who wish to self-prepare
• a new practitioner lodgement service for tax professionals
• improved help and support for all clients
• leadership and contributions to international tax administration reform
• tackling tax avoidance
• streamlining the business registration process.

The initiatives set out in the Corporate Plan are consistent with the ATO’s continued focus in terms of promoting tax transparency and the prevention of tax avoidance (domestic or international). The plan is also in accordance with the ATO’s focus on digital services such as its myTax platform and engagement with tax professionals.

Retirement Village Operators – ATO Practical Compliance Guidelines (PCGs)

The ATO has issued two PCGs on issues affecting retirement village operators.

PCG 2016/14 sets out the acceptable discount to the valuation of housing fringe benefits provided to live-in-managers in a retirement village and outlines the results of collaborations and consultation with industry participants regarding the acceptable discount.

The Guideline confirms that a retirement village operator can apply a valuation discount of 10% to work out the statutory annual value of a live-in-manager’s annual current housing right for FBT purposes.

PCG 2016/15 sets out the effects of the Addendum to Taxation Ruling TR 2002/14 for retirement village operators making capital growth payments.

The Guideline deals with:

• treatment of capital growth payments made before 26 November 2014
• consolidated groups and the tax cost of the assets of an entity who joined a group before 26 November 2014
• amendment requests and objections.

It confirms that when a retirement village operator makes a capital growth payment to an outgoing resident, that payment will be deductible under the general deduction provisions in s 8-1. However for those capital growth payments made prior to 26 November 2014, if the operator relied on the ruling as it existed prior to its amendment, then it can choose to continue to treat those payments as capital.

Legislation and Government policy

PAYG withholding variation for foreign resident withholding tax

The Commissioner has issued an instrument entitled ‘PAYG Withholding variation for foreign resident capital gains withholding payments – deceased estates and legal personal representatives’ (F2016L01396) which came into effect yesterday, 7 September 2016.

The instrument provides for a variation to nil of the amount payable to the Commissioner by:

• a deceased’s legal representative
• beneficiaries of deceased estate
• surviving joint tenants that acquire a deceased tenant’s interest.

The instrument is the result of lobbying from the profession regarding the impact of the foreign resident withholding tax regime that came into effect on 1 July 2016.

Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016

As indicated in previous editions of Talking Tax, we expected a number of tax bills to be introduced as part of the first sitting of the new Parliament on 30 August 2016.

On 1 September 2016, the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 was introduced into the House of Representatives. Schedule 1 to the Bill amends the Income Tax Rates Act 1986 to reduce the corporate tax rate to 27.5% for corporate tax entities that are small business entities (entities that carry on a business and have an aggregated turnover of less than $10 million).

The lower corporate tax rate will progressively be extended to all corporate tax entities by the 2023/24 income year. The corporate tax rate will then be further reduced to:

• 27% for the 2024/25 income year
• 26% for the 2025/26 income year
• 25% for the 2026/27 income year and later income years.

Schedule 3 will amend the ITAA 1997 to increase the aggregated turnover threshold for access to small business tax concessions to $10 million. The threshold for access to the small business income tax offset will be limited to $5 million, and the current threshold of $2 million will be retained for the small business capital gains tax concessions.

Serious Financial Crime Taskforce – Access Visits

Previously we identified that following from the release of the Panama Papers, the ATO would take steps to conduct investigations relating to the affairs of those Australian tax residents and companies said to be involved. In a joint media release between the Minister for Revenue and Financial Services and the Minister for Justice, on 6 September 2016 it was announced that the Serious Financial Crime Taskforce, led by the ATO had conducted 15 unannounced access visits in Victoria and Queensland and executed search warrants based on the available information.

The Government has advised that based on the information in the Panama Papers, the ATO has built a profile of over 1,000 Australian taxpayers and are currently comparing this against information received from other tax jurisdictions to detect whether there has been activity linked to tax evasion. This marks the first steps taken by Australia to use the Panama Papers information to address international tax avoidance in Australia.

Case law

Carr and Commissioner of Taxation (Taxation) [2016] AATA 638

Challenging default assessments

In this case, the taxpayer was unsuccessful in challenging default assessments issued by the ATO under s 167 of the ITAA 1936.

In February of 2011, the Commissioner issued a final notice requiring the taxpayer to lodge income returns for the period of 1 July 1995 to 30 June 2006.

In April 2012 a default assessment was issued as no returns had been lodged.

The taxpayer objected against the default assessments and applied to the Tribunal for review. He claimed that he had in fact lodged all relevant returns (despite having no evidence of such) and that the assessments were excessive.

In deciding that the assessments were not excessive, the AAT noted that the burden of proving that an assessment is excessive is borne by the taxpayer.

It cited the test in Rigoli v FC of T [2013] FCA 784 that “the task for the taxpayer on objection is not to prove that the Commissioner erred but to prove, on the balance of probabilities, the correct amount upon which tax should be levied”.

The taxpayer disputed that certain deposits into his account were income but was unable to provide any documentation for the majority of the payments. The Tribunal decided that the ‘meagre’ amount of evidence provided by the taxpayer left it in ‘a state of considerable uncertainty’ and was insufficient to establish that the assessments were excessive.

This decision is yet another reminder of the powers that the Commissioner has to issue default assessments together with the evidential burden placed on taxpayers to prove that those assessments are excessive. To be successful on any appeal a taxpayer will also need to show what the correct amount should have been.