Tax integrity changes and other measures
The Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019 (Cth) (Bill) was introduced to the House of Representatives on 24 July 2019 and proposes to make a raft of legislative changes to improve the integrity of Australia’s tax system.
Amongst other things, the Bill seeks to make changes to the CGT small business concession as it applies to ‘Everett assignments’ of partnership interests, the process of disclosing business tax debts and the availability of deductions for vacant land. These proposed changes are discussed below.
Small business CGT concession
If passed, the Bill will result in fundamental changes to the availability of the small business CGT concession for the assignment of partnership interests known as Everett Assignments.
Under the proposed changes the small business CGT concession will remain available for genuine disposals of membership interests in a partnership. For instance, the transfer of a membership interest in a partnership to an incoming partner or the cessation of an individual’s partnership interest.
However, the small business CGT concession will no longer be available for assignments of other rights or interests that merely result in the transfer of rights to income or capital that a partner receives from the partnership without making the other entity a partner. This captures Everett Assignments where a member of a partnership assigns a portion of their right to the income of the partnership to their spouse or other entity in order to reduce their overall tax liability.
Limiting deductions for vacant land
The Bill proposes to amend Schedule 3 of the ITAA97 to deny deductions for losses or outgoings incurred in relation to holding vacant land.
The proposed amendments will not apply to deny losses or outgoings in relation to vacant land to the extent to which the land is:
- used or available for use in the course of carrying on a business in order to earn assessable income by the taxpayer, an affiliate, spouse or child of the taxpayer or an entity connected with the taxpayer;
- owned by a corporate tax entity, superannuation plan (but not SMSF), managed investment trust or public unit trust; or
- owned by unit trusts or partnerships of which all members are entities of the above types.
Disclosure of business tax debts
Lastly, the Bill seeks to amend the Taxation Administration Act 1953 (Cth) to enable taxation officers to disclose the business tax debt information of a taxpayer to credit reporting bureaus provided that specific safeguards are satisfied, including where the entity:
- has not entered into a payment arrangement with the ATO;
- does not have a complaint with the Inspector-General of Taxation about the disclosure of debt information; and
- has total tax debts of at least $100,000 which have been payable for more than 90 days.
This measure is intended to strengthen the incentives for businesses to pay their tax debts on time in order to prevent their tax debt information being disclosed.
The changes are also intended to contribute to more informed decision making within the business community by enabling credit providers and businesses to make a more comprehensive assessment of the creditworthiness of a business.
$10,000 cash payment limit – Draft legislation released
The Government has released exposure draft legislation and explanatory materials for the Currency (Restrictions on the Use of Cash) Bill 2019 (Cth) (Bill), relating to the proposed economy-wide $10,000 cash payment limit.
These changes arise out of the Final Report of the Black Economy Taskforce which recommended that the Federal Government introduce a $10,000 cash payment limit for transactions between businesses and individuals.
If passed, the Bill will create new offences that apply if an entity makes or accepts cash payments with a value that equals or exceeds the cash payment limit of $10,000.
The proposed offences will be strict liability offences. This means that the offence of making or accepting a cash payment that equals or is in excess of $10,000 will be committed regardless of whether the entity intended or was reckless about whether the payment or series of payments included cash that equalled or exceeded the case payment limit.
Matching hybrid mismatches
On 24 July 2019, the Australian Taxation Office (ATO) released the new Law Companion Ruling (LCR) 2019/3 which focuses on specific elements of the hybrid mismatch rules contained in Division 832 of the Income Tax Assessment Act 1997 (Cth) (ITAA97).
The hybrid mismatch rules under Division 832 of the ITAA97 are intended to neutralise the effects of hybrid mismatches so that unfair tax advantages do not accrue for multinational groups as compared with domestic groups.
Specifically, LCR 2019/3 provides guidance on the phrases ‘structured arrangement’ and ‘party to the structured arrangement’ giving rise to the hybrid mismatch under section
832-210 of the ITAA97.
Where a payment is made under a structured arrangement, and an entity is considered a party to the structured arrangement, Division 832 of the ITAA97 will apply to neutralise the hybrid mismatch by either disallowing a deduction or by including the amount in the entity’s assessable income.
LCR 2019/3 clarifies that the test for whether an arrangement is a ‘structured arrangement’ under section 832-210(1)(a) and (b) is an objective assessment based on the facts and circumstances that would indicate to an objective observer that a hybrid mismatch was either ‘priced into the terms’ or a ‘design feature’ of the arrangement.
A taxpayer will be considered a ‘party to the structured arrangement’ unless they can satisfy all three of the condition contained in section 832-210(3) of the ITAA97. According to LCR 2019/3, whether these criteria are satisfied is determined objectively based on the information that would reasonably be available to the taxpayer at the time they entered into the structured arrangement or when the payment is made.
ATO decision impact statement – assessing improperly paid super benefits
The ATO has released a decision impact statement following the recent Administrative Appeals Tribunal (Tribunal) decision in the case of Wainwright v Federal Commissioner of Taxation  AATA 33 (Wainwright).
The Wainwright decision, which was delivered in March 2019, handed the Commissioner both a win and a loss in respect to its ability to assess the taxpayers on superannuation benefits paid out of a self-managed super fund, otherwise than in accordance with the Superannuation Industry (Supervision) Regulations 1994 (SISR).
The taxpayers in Wainwright were a husband and wife (together the Taxpayers) who acted as trustees of their self-managed super fund (Fund). The Taxpayers purchased a property (Property 1) in their own names for $700,000 and used $700,000 in cash from the Fund’s bank account to pay for the property plus a further $24,995 from the Fund’s account to pay the stamp duty on the transaction.
At a later date, the Taxpayers, as trustees, caused the Fund to enter into a contract with the husband to purchase the husband’s farming property (Property 2) for $1.1million. The $700,000 the Taxpayers had already withdrawn from the Fund’s account was to be treated as the Fund’s deposit for Property 2. Circumstances arose that inhibited the Taxpayers from completing the contract for the sale of Property 2 but the deposit of $700,000 was never returned to the Fund.
The Commissioner sought to include both the $24,995 and the $700,000 in the Taxpayer’s assessable income under Division 304 of ITAA97 for the relevant period.
The Tribunal affirmed the Commissioner’s assessment of the $24,995 withdrawn to cover the stamp duty payable on the Property 1 transaction. This was on the basis that the $24,995 amounted to a superannuation benefit paid in breach of the legislative requirements pursuant to subsection 304-10(1) of the ITAA97. The Taxpayers had not met any of the applicable conditions of release prescribed by the SISR.
However, the Commissioner’s decision in relation to the $700,000 was, set aside by the Tribunal. It concluded the Commissioner should have exercised his discretion under subsection 304-10(4) of the ITAA97 to exclude the $700,000 from the Taxpayer’s assessable income.
The Commissioner has a general discretion to exclude improperly obtained superannuation benefits from being assessed where the Commissioner is satisfied that it is unreasonable to do so having regard to any matter it considers relevant. A Law Administration Practice Statement will be developed to provide further clarity on this discretion.
This article was written with the assistance of Charlie Renney, Law Graduate.
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