Talking Tax – Issue 100
100th issue of Talking Tax in the 100th year of Hall & Wilcox
When we embarked on a quest to find out more about the history of Hall & Wilcox tax publications, we discovered that while this issue is formally the 100th issue of Talking Tax, it certainly is not the 100th issue of like publications.
Keith James tells us the team were industry pioneers in preparing tax updates titled Legal News for Accountants. It began as a quarterly publication and had a significant impact on the variety of work we received and the people it touched. These updates took different forms over the years and were issued much more frequently as the age of digital communication took hold and it became necessary to respond quickly to issues as they arose.
In August 2015, we relaunched it as a weekly publication and published our first edition of Talking Tax, a publication that has continued to evolve with the Hall & Wilcox Tax team as the firm and the Tax group have undergone a period of significant rejuvenation and growth.
Throughout its history, and particularly in recent years, the Hall & Wilcox Tax team has evolved in terms of the clients we service and the areas of tax law in which we operate. We are proud to provide specialist input across the full spectrum of Australia’s taxation laws including income tax, capital gains tax, goods and services tax, tax consolidation, thin capitalisation, transfer pricing, research and development tax concession, stamp duty, land tax and other Federal and State taxes.
We strive to provide our clients with innovative tax structuring, advisory and dispute management services with a commercial focus and work hand in hand with Hall & Wilcox’s commercial teams on significant tax disputes, transactions and other major projects.
As with anything, it is essential that we continue to evolve and respond to our ever changing capital markets and the impact of technology on the tax industry.
Commissioner’s notice for security for unpaid GST liability found constitutionally valid
On 13 October 2017, in Keris Pty Ltd (Trustee) v Deputy Commissioner of Taxation  FCAFC 164, the Full Federal Court dismissed a Taxpayer’s appeal, holding that the Commissioner's notice to the Taxpayer to give security for an unpaid GST liability was constitutional and valid.
The Taxpayer, as the corporate trustee of a trust, owned land it intended to subdivide. The Commissioner estimated that upon the sale of the subdivided land the Taxpayer would incur a significant GST liability and there was a risk that the Taxpayer would not pay those liabilities.
The Commissioner therefore exercised his power under section 255-100 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA) to require the Taxpayer to give a security deposit (in the form of a mortgage over specific land) of $355,000 in relation to the estimated tax-related liability, as a ‘future tax related liability’ (Security).
At first instance before the Federal Court, and on appeal to the Full Federal Court, the Taxpayer argued that the Commissioner’s construction of the phrase ‘future tax related liability’ was incorrect and this phrase should not be characterised as referring to ‘a prospective tax related liability’ or an amount which ‘may in the future become due and payable by way of tax’. The Taxpayer argued the amount must be a known liability that will occur, rather than an amount that the Commissioner surmises or speculates may occur. In this regard the Taxpayer further contended that the exercise of the Commissioner’s power under section 255-100 is conditional upon the occurrence of a taxable event, thereby allowing the Commissioner to determine the likely tax liability arising from it.
The Full Federal Court concluded that the use of the phrase ‘future tax related liability’, in the context in which it appears, is intended to allow the Commissioner to look to future events and hypothesise the possibility of a future tax related liability arising. The Court noted that there was nothing to suggest that the Commissioner’s exercise of the power conferred by section 255-100 is conditional upon the occurrence of taxable events.
Further, the Taxpayer advanced a series of contentions that related to the construction of 255-100 and the constitutional validity of the scope of the powers under that section (having regard to section 51(ii) [being the taxing power] and section 51(xxxi) [being the power to acquire property on just terms] of the Constitution).
The Full Federal Court rejected the Taxpayer’s arguments regarding constitutional validity, concluding that section 255-100 falls within the scope of section 51(ii) of the Constitution and falls outside section 51(xxxi) of the Constitution.
Draft taxation rulings
Draft Tax Ruling TR 2017/D7: when does a company carry on a business within the meaning of section 23AA of the Income Tax Rates Act 1986 (Rates ACT) (TR 2017/D7)
TR 2017/D7 sets out the Commissioner's preliminary views on whether a corporate tax entity is carrying on a business for the purpose of section 23AA of the Rates Act.
Section 23AA of the Rates Act is intended to determine whether an entity is a ‘base rate entity’ for an income year and therefore eligible to access the reduced corporate tax rate of 27.5%.
This Draft Ruling provides the following key indicia of when a company carries on a business in the context of s23AA of the Rates Act:
- the nature of the activities, particularly whether they have a profit-making purpose
- whether the person intends to carry on a business
- whether the activities are
- repeated and regular, or
- organised in a business-like manner, including the keeping of books, records and the use of a system
- the amount of capital employed in those activities and
- whether the activity is better described as a hobby or recreation.
It may be that this document is made redundant before it is finalised, or shortly thereafter. As discussed below, the Government has introduced a Bill to repeal and replace section 23AA. Under the proposed amendments, the requirement that the entity is carrying on a business is to be replaced with a ‘passive income test’.
Draft Taxation Ruling - TR 2017/D8: Tax treatment if long term construction contracts (TR 2017/D8)
TR 2017/D8 explains the methods acceptable to the Commissioner for returning income derived, and recognising expenses incurred, in long term construction projects. These are:
- The Basic Approach - by which payments received or receivable are returned in the income year in which they are derived and expenditure is deductible in the year in which it is incurred.
- The Estimated Profits Basis - by which the ultimate profit or loss on a long term construction project is spread (on a fair and reasonable basis) over the years taken to complete the contract.
Further, TR 2017/D8 acknowledges the Commissioner’s view that the ‘completed contracts’
method (which returns profits and losses on completion of contract) and the ‘emerging profits’ method are not acceptable for determining taxable income from long term construction contracts. This Draft Ruling does not affect the existing income tax treatment of long term construction contracts.
Legislation and policy updates
Bill introduces a test in relation to qualifying for the lower corporate tax rate
On 18 October 2017, the Federal Government introduced the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 to Parliament (Bill). The Bill proposes to modify the requirements that must be satisfied for a corporate tax entity to qualify as a ‘base rate entity’.
The Bill seeks to replace the ‘carrying on a business test’ with a ‘passive income test’. Under this new requirement, in order for a corporate tax entity to be deemed a base rate entity, no more than 80% of their total assessable income may be comprised of ‘base rate entity passive income’.
The Bill provides that base rate entity income includes sources of income such as interest income, net capital gains, distributions from a corporate tax entity other than a non-portfolio dividend and franking credits of such distributions.
Distributions received by a company from a trust where the income represents active income will retain that characterisation in the corporate beneficiary.
NSW state revenue legislation Bill introduced
On 17 October 2017, the State Revenue Legislation Amendment (Surcharge) Bill 2017 (NSW) (Bill) was introduced into the NSW Parliament.
The Bill will amend the Duties Act 1997 (NSW), the Land Tax Act 1956 (NSW) and the Land Tax Management Act 1956 (NSW).
The object of this Bill is to:
- Provide an exemption from, or refunds of, amounts of duty and land tax surcharges in respect of residential land owned by an Australian corporation deemed to be a ‘foreign person’, where:
- a new home is constructed on the land and sold without the home having been used or occupied before it is sold or
- the land is subdivided and sold for the purposes of new home construction.
- Provide that the small business declaration (for the purposes of the small business exemption from duty on an insurance policy) is to be provided in a manner approved by the Chief Commissioner (this replaces the current requirement that the declaration be provided in writing).
- Enact consequential savings and transitional provisions in relation to the amendments above.
If you would like more information about these changes please contact us.
Digital currency - a step closer to receiving the same GST treatment as money
On 19 October 2017, the Treasury Laws Amendment (2017 Measures No 6) Bill 2017 (Bill) passed the Senate. The Bill has now passed all stages without amendment and awaits Royal Assent. The Bill amends the A New Tax System (Goods and Services Tax) Act 1999 (Cth) to ensure that supplies of digital currency receive equivalent GST treatment of supplies of money, particularly foreign currency. Recently, we have experienced that tech startups in the cryptocurrency space are seeking to obtain certainty on a wide range of digital currency types and are navigating through a moving technological landscape whilst trying to understand the implications of this Bill. If you have experience with digital currencies that may not fall within the scope of the provisions of the Bill (to receive equivalent GST treatment as money), please contact us to consider the implications for your business.