Talking Tax – Issue 11

This week we’re talking tax about…

ATO updates

ATO releases application form for test case funding

The ATO has released a test case litigation funding form which taxpayers can use to apply for test case funding.

The ATO test case litigation program assists taxpayers to fund cases:

• which involve issues that create uncertainty or contention about how the law operates; and
• in which it is in the public interest to litigate.

The program assists taxpayers to meet their reasonable litigation costs and, in limited cases, pre-litigation costs. The program is intended to be used to clarify tax, superannuation and debt related issues.

Only cases which satisfy a number of criteria will be considered for test case ligation funding. Cases in which the application of the law is ambiguous, those that involve disagreement amongst the profession about how the law operates or those in relation to which little case law exists may be ideal for test case litigation funding.

You should consult our experienced tax disputes team to assist in identifying if your case satisfies the criteria for test case funding and to assist in making an application for funding.

Proposed public ruling on deductibility of legal expenses under section 8-1 of the ITAA

The ATO has announced plans to review various rulings, interpretative decisions and tax determinations it has published about the deductibility of legal expenses, with an intention to consolidate these products into a single public ruling, including detailed examples.

The consolidated ruling will be binding in nature and will therefore offer taxpayers a greater degree of certainty on whether legal expenses would be deductible under section 8-1 of the ITAA.

The ATO has asked for comments from stakeholders about any additional circumstances the ruling should cover and any potential consequences of consolidating the rulings.

The proposed consolidated ruling would consider factors such as the application of section 8-1 of ITAA to legal expenses and whether they are deductible under that section, and also apportionment.

Case law

Commissioner of State Revenue v Konann Pty Ltd [2015] VSCA 278

The Commissioner of State Revenue (Commissioner) has been unsuccessful in the Court of Appeal, with the Court of Appeal ultimately deciding that the taxpayer, Konann Pty Ltd, (Konann) was exempt from paying stamp duty and land tax assessed at $2.7 million.

Konann disputed the $2.7 million assessment on the basis that stamp duty was exempt under section 33(3) of the Duties Act 2000 (Vic) (Duties Act). Under that section no duty is chargeable if the Commissioner is satisfied that the transfer is made only because of the retirement of a trustee or the appointment of a new trustee.

In this case, the property had been transferred from two individual trustees (who were retiring) to the new corporate trustee, Konann. There was no change in the beneficial ownership of the land. Konann also argued that the primary production exemption applied, with the effect that no land tax was payable.

The Victorian Civil and Administrative Tribunal (VCAT) held initially that the transfer of property was dutiable and subject to land tax, but this decision was later overturned by the Supreme Court of Victoria.

The Supreme Court of Victoria agreed with Konann, and held that the exemption under the Duties Act and the primary production exemption both applied. The Supreme Court pointed out that a transfer from individual trustees to a corporate trustee, completed to effect the retirement of the individual trustees, was permitted within the section 33(3) exemption. This was because there was no change in beneficial ownership of the property, in accordance with section 33(3).

The Court of Appeal upheld the decision of the Supreme Court of Victoria.

Re Moignard and FCT [2015] AATA 841

The AAT has refused to allow a taxpayer to adduce further evidence at a rehearing. The rehearing was ordered by the Federal Court and concerned whether a taxpayer was presently entitled to trust income which was deposited into the account of a corporate trustee, of which the taxpayer was the sole director.

The taxpayer sought leave in an interlocutory hearing to give ‘fresh’ oral evidence, submitting that the ATO had changed their case and that as a self-represented non-professional litigant the ‘trial by ambush’ heavily prejudiced him.

The AAT refused to grant leave because the taxpayer had already raised the evidence at the original hearing and the Commissioner’s argument was not new, it had already been raised.