Talking Tax – Issue 80

Case law

In affirming assessment, Tribunal finds taxpayer not entitled to primary production exemption from land tax

In D W Tolson Management Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 173, R L Hamilton SC  affirmed the Chief Commissioner’s assessments in respect of the 2011-2015 years (Relevant Period) by determining that the primary production exemption under section 10AA(3)(f) Land Tax Management Act 1956  (LTMA) was not applicable to the taxpayer’s land (Subject Land) on the basis that the dominant use of the Subject Land was not for the propagation for sale of mushrooms.

The matter was considered by the Civil and Administrative Tribunal of New South Wales (Tribunal) following a disallowance of the taxpayer’s objections to assessments of the Subject Land.

Subsection 10AA(3)(f) of the LTMA provides that ‘land used for primary production’ means land the dominant use of which is for ‘the propagation for sale of mushrooms, orchids or flowers’.

The Tribunal found that the exemption under section 10AA (3)(f) did not apply in this instance and confirmed the Commissioner’s assessments for the Relevant Period. The relevant features of the land in this matter are noted below.

• The Subject Land:
  • was leased to a commercial mushroom grower (Grower)
  • was used by the Grower together with two other separate parcels of land located at Vineyard (Vineyard Land) and Ebenezer (Ebenezer Land) and
  • was located approximately 15km from the Vineyard Land and 24km from the Ebenezer Land.
• The Vineyard Land contained a mushroom growing facility (operated by the Grower to produce mushrooms) that was surrounded by land on which there were cattle belonging to the Grower.
• The Ebenezer Land:
  • was located approximately 18km from the Vineyard Land;
  • was used by the Grower to keep cattle for the purpose of consuming mushroom by-products produced during the propagation of mushrooms on the Vineyard Land.
  • had a primary use of providing a location for the removal of mushroom waste products from the Vineyard Land, which was necessary for hygienic reasons.

The taxpayer raised the following alternative arguments:

• the Subject Land was used as part of the process of mushroom propagation and disposal of resultant waste product on the basis that the cattle are maintained on all three parcels of land for that purpose and
• the Subject Land was being dominantly used for the propagation for sale of mushrooms (in the future) on the basis that it had undertaken activities involved in gaining approvals for the development of a new mushroom growing facility by an established mushroom grower.

The Tribunal rejected the first argument for the following reasons:

• the exemption under section 10AA(3)(f) of the LTMA is not to be used in a restrictive manner only to that part of the land which was physically used for mushroom propagation facilities;
• mushroom eating cattle may be akin to waste disposal ‘machines’ and the land upon which they are situated while operating could be said to be used for mushroom propagation it is part of the process by which propagation occurs and
• notwithstanding the previous comment, the connection between use of the Subject Land and the process of mushroom propagation was too remote, particularly having regard to the fact that the cattle on the Subject Land were not actually fed the mushroom by-product.

The Tribunal rejected the second argument for the following reasons:

• there is a distinction between activities which are preparatory to a future use of land and activities which are part of an intended use of that land (i.e. beyond the preparatory phase)
• despite the money and time spent on obtaining development consents and on associated studies and investigations, no earthworks were conducted in the Relevant Period and the Tribunal was unable to conclude that the dominant use was for the propagation of mushrooms for sale
• it could be argued that the exemption is restrictive and that physical acts involved in the process of the actual propagation of mushrooms are required for the exemption to apply.

Supreme Court overturns Commissioner’s decision to deny section 48(1)(a)(iii) Payroll Tax Act 2007 (Vic) exemption

In Telecommunications Industry Ombudsman Ltd v Commissioner of State Revenue [2017] VSC 286 (1 June 2017), Justice Croft held that wages paid by the Telecommunications Industry Ombudsman (TIO) were exempt from payroll tax as the organisation operates as a non-profit organisation with a charitable purpose.

This was an appeal against the determination of the Commissioner of State Revenue (Commissioner) disallowing TIO’s objection to the decision of the Commissioner to deny its application for an exemption from payroll tax for the period from 1 July 2012 onwards (Relevant Period).

The Supreme Court of Victoria allowed the appeal. TIO argued that that it was entitled to the exemption from payroll tax under section 48(1)(a)(iii) of the Payroll Tax Act 2007 (Vic) (PTA). The issues for the Court to determine were:

1. whether, pursuant to section 48(1) of the PTA, wages paid by the TIO were exempt from payroll tax as TIO was a ‘“non-profit organisation having as its whole or dominant purpose…a charitable purpose…” (the first limb of section 48(1)(a)(iii))
2. whether the wages paid to TIO employees were paid to persons ‘engaged exclusively in work of a charitable nature for the non-profit organisation” (being the second limb under subsection 48(1)(b)).

In confirming satisfaction of the first limb, the Court accepted that from establishment of the TIO, its whole or dominant purpose has been to provide a free and independent dispute resolution service to residential and small business consumers of telecommunications services, being an essential consumer service. The Court held that TIO’s charitable purpose went beyond expressed objects of the constitution and that the TIO dispute resolution service was beneficial to the community.  In the analysis of the Court, it was noted that the narrow approach to determining the purposes of the TIO (dominant, or otherwise) is not appropriate.

As an industry ombudsman, the Court noted that TIO is different to a regulatory body such as the ACCC. It was held that the corporate structure of the TIO did not affect whether its dominant purpose is charitable.

In confirming satisfaction of the second limb, the Court accepted that all wages paid by the TIO to its staff were exempt wages under section 48(1) of the PTA. This view was driven by the finding that TIO had a charitable purpose and the Court accepted TIO’s submission that all of the TIO staff were involved in activities related to the charitable purpose of the TIO, being the provision of a free, independent dispute resolution service (an essential service). Further, to the extent that the TIO staff were involved in activities that may not be considered intrinsically charitable—such as administrative support—the Court agreed that the activities were ‘charitable in character because they were carried out in furtherance of a charitable purpose’.

ATO updates

GST Registration – ‘simplified’ system for non-residents doing business with Australia from 26 June 2017

From 26 June 2017, eligible entities that are not residents for Australian income tax purposes can register for simplified GST in Australia via an online portal on the ATO website.

This digital system will allow non-residents to register, lodge and pay GST, manage account details and authorise others to access their accounts. A non-resident can register in the simplified GST system if it makes:

• sales of one or more inbound intangible consumer supplies or
• taxable supplies of low value imported goods (this is subject to parliamentary approval).

Features of the simplified GST system for non-residents include:

• no requirement to prove your identity
• ATO Reference Number (ARN) instead of an ABN
• the ability to utilise tax invoices or adjustment notes
• GST credits cannot be claimed
• GST returns must be lodged and paid quarterly and
• Payments can be made electronically via SWIFT bank transfer or credit card.

This measure comes as another reform aimed at simplifying cross-border GST compliance. Non-residents should consider the above system and its relevance in light of the changes to the GST system which took effect from 1 October 2016.

Simpler BAS for small businesses from 1 July 2017

The ATO has introduced a simplified GST reporting method, Simpler BAS, for the purpose of reducing the amount of information required on a business activity statement (BAS). Simpler BAS will apply to small businesses with a GST turnover of less than $10m.

Effective 1 July 2017, the ATO will automatically transition eligible small businesses’ GST reporting methods to Simpler BAS and the eligible small businesses will only need to report total sales, GST on sales and GST on purchases.

The ATO has noted that this Simpler BAS will not change reporting cycles, record-keeping requirements or how other taxes are reported on the BAS.

Legislation and government policy

ACT Budget announcement snapshot

The 2017-18 Australian Capital Territory (ACT) budget was released on 6 June 2017 by the Chief Minister and Treasurer of ACT and contains the following key measures:

Stamp duty

From 1 July 2017 commercial properties worth less than $1.5 million will be subject to a reduced rate of duty subject to a sliding scale and from 1 July 2018 no duty will be payable in relation to commercial properties worth less than $1.5 million.

The Government is investing in new information technology systems designed to improve the efficiency of revenue collection and improve the quality of services provided to the Territory’s population.

The Government is in the process of implementing a ‘barrier free’ model for conveyance (stamp) duty collection, whereby property buyers and solicitors will pay stamp duty after the settlement of a property when a change in title is registered with the Land Titles Office. The new model will allow customers to complete their conveyance process at a single government agency (namely Access Canberra), and provide a cash flow benefit to a property purchaser.

Land tax on vacant properties

From 1 July 2018 the Government will extend land tax to all residential dwellings that are not the owner’s principal place of residence, whether or not they are rented. Under the current system, land tax is only charged on residential properties that are rented or owned by a company or a trust. This initiative is aimed at increasing the number of residential properties available for rent and therefore helping to put downward pressure on living costs.

Payroll tax

The Government is implementing a number of initiatives to reduce red tape within the tax system, including allowing the Commissioner for ACT Revenue to adjust an employer’s outstanding payroll tax balance of less than $20 to $0 after an annual reconciliation and not imposing penalty tax and interest where the amount is less than $20.