Thinking | 11 May 2018

Talking Tax – Issue 118

Federal Budget announcements

On Tuesday 8 May 2018, the Federal Budget was released. Treasurer Scott Morrison announced a series of tax reforms including:

  • Personal income tax cuts
  • changes to Superannuation rules
  • changes to the R&D tax incentives
  • measures to combat illegal phoenixing
  • measures to tackle the black economy and
  • various integrity measures.

For a succinct look at the proposed changes, check out Hall & Wilcox’s 2018 Australian Federal Budget insight next Monday.

Western Australian State Budget announcements

The WA State Budget was presented on 10 May 2018 and confirmed certain tax changes for foreign investors and large employers as outlined below.

The McGowan Government will introduce a Foreign Buyers Duty Surcharge from 1 January 2019 in relation to residential property transactions. However, rather than the 4 percent surcharge that was originally stated, the surcharge rate will instead be7% in addition to general rates of duty. This mirrors South Australia’s approach of originally announcing a surcharge of 4 percent but increasing the initial rate to 7 percent after Victoria, New South Wales and Queensland all announced an increase to their existing surcharges to 7 or 8 percent. Significant residential developments are expected to be exempt but it is unclear at this point what the conditions will be for an exemption from the surcharge.

From 1 July 2018, Western Australia will also have a new temporary progressive payroll tax scale for large employers for a finite period of 5 years, which is expected to increase the amount of payroll tax revenue by 4.2 percent after three consecutive years of declining collections. Western Australian employers with Australia-wide taxable wages above $100 million will pay an increased marginal rate of 6 percent and employers with payrolls that exceed $1.5 billion will pay an increased marginal rate of 6.5 percent. Western Australian employers with Australia-wide payrolls of $100 million or less will continue to pay payroll tax at 5.5 percent, which is currently the equal-highest rate in Australia.

The Budget Papers can be viewed here.

Similar to other jurisdictions with a duty surcharge (Vic, NSW, Qld and SA), if you are contemplating a transaction involving WA property, we recommend you seek advice regarding whether the vehicle contemplated for the transaction could be a foreign trust or company triggering the surcharge. Please contact Marina Raulings if you require further advice.

Case law

Was the form lodged on time? VCAT confirms the Commissioner’s imposition of land tax surcharge on a Victorian trust

In Polux Pty Ltd as trustee for Iatrou Business Trust No 2 v Commissioner of State Revenue (Review and Regulation) [2018] VCAT 528, the Victorian Civil and Administrative Tribunal (VCAT) dismissed the taxpayer’s objection to the Commissioner of State Revenue (Commissioner)’s assessment imposing the land tax surcharge for trusts on the taxpayer’s Victorian landholdings (pursuant to section 46A of the Land Tax Act 2005). In reaching this view, VCAT relied upon the Commissioner’s version of events and found that the taxpayer had not lodged a Nomination of Beneficiary form (Nomination Form) with the Commissioner prior to 30 September 2006, in respect of the relevant property.

By way of background, in 2005, legislation was introduced to set up a regime for the taxation of trusts, under which a surcharge rate of land tax is payable by trustees subject to various exclusions. In this regard, any trustee that owned Victorian land on or before 31 December 2005 was required to lodge a Notification of Land Held on Trust Form by 31 March 2006.

Trustees of a discretionary trust were given a “once off” opportunity to nominate a beneficiary of the trust by also lodging a Nomination Form by 30 September 2006. If a Nomination Form was received within the required timeframe, the trustee was assessed at the general rate of land tax.  Failure to notify the Commissioner by the required date would result in the surcharge rate of land tax being imposed on the trustee.

Polux Pty Ltd as trustee for Iatrou Business Trust No 2 (Taxpayer) acquired Victorian land in a discretionary trust in 2002 and objected to the Commissioner charging land tax at the surcharge rate for the 2007 - 2017 land tax years.  The Taxpayer successfully lodged its Notification of Land Held on Trust Form by facsimile prior to 31 March 2006. The question in this proceeding is whether the Taxpayer had lodged a Nomination Form prior to 30 September 2006, in order to be assessed at the general rate of land tax.

The Taxpayer ‘maintained that he remembered posting’ it to the Commissioner prior to 30 September 2006, although the Commissioner advised that he did not receive the Nomination Form.

 

According to section 110 of the TAA, the onus of proof is on the Taxpayer to satisfy that the form was lodged correctly.  VCAT did not accept the Taxpayer’s representations regarding the submission of forms, due to the inconsistencies in the Taxpayer’s version of events. For example, the Taxpayer produced a copy of the completed Nomination Form that appeared to be signed and dated on 23 September 2006 whereas, according to the SRO:

  • the version of that Nomination Form purportedly executed by the Taxpayer on 23 September 2006 was not the version of the form available at that date (it was a version that only became available in 2007) and
  • there was a client reference number on that Nomination Form which was not given to the Taxpayer until 29 June 2007.

Further, according to the SRO, other than the Taxpayer’s Statutory Declaration, there was no contemporaneous evidence to show that the Nomination Form had been lodged and provided.

In particular, the SRO had advised the Taxpayer by letter dated 26 June 2007 that no Nomination Form had been received and the Taxpayer had taken no corrective action.

Taking all of the background facts into account, Senior Member Robert Davis of VCAT did not accept the evidence of the Taxpayer and confirmed the Commissioner’s decision in respect of the assessment.

ATO updates

ATO starts issuing ETB tax assessments

The ATO has begun to issue excess transfer balance (ETB) tax assessments to self-managed super fund (SMSF) members (or their agents) who had previously received an ETB determination and rectified the excess.

According to the ATO, these paper ETB tax assessments are sent to SMSF members (or their agents), and not to the fund. In determining how to cover the liability, members can use assets from outside Superannuation, or they can access their Superannuation and either:

  • make an additional commutation of their income stream;
  • make a larger than usual one-off pension payment; or
  • take a lump sum from any accumulation interest they hold.

The ATO has warned that SMSF members who did not receive an ETB determination may still receive an ETB assessment.

The ETB tax is due and payable 21 days after the assessment is issued. A general interest charge will accrue if any amount remains unpaid after the due date.

Draft Law Companion Ruling LCR 2018/D1 (LCR 2018/D1) - Purchaser’s obligation to pay an amount for GST on taxable supplies of certain property

LCR 2018/D1 relates to changes introduced to the GST law by Schedule 5 of Treasury Laws Amendment (2018 Measures No. 1) Act 2018  which require a purchaser of certain types of real property to make a payment to the Commissioner that represents the GST payable by the vendor. Specifically, LCR 2018/D1 addresses:

  • the date from which the new measures will apply;
  • the types of supplies for which a liability will arise for purchasers;
  • when a purchaser is required to pay;
  • the amount the purchaser is required to pay;
  • the requirement for a vendor to provide a notice to the purchaser, and
  • the penalties that may apply to vendors and purchasers.

Legislation and government policy

Pay-roll Tax Assessment Amendment (Exemption for Trainees) Bill 2018

On 21 March 2018, the Pay-roll Tax Assessment Amendment (Exemption for Trainees) Bill 2018 (Bill) was introduced into the Western Australian Parliament and proposes to amend the Pay-roll Tax Assessment Act 2002 (WA) retrospectively from 1 December 2017, to tighten the payroll tax exemption for wages paid to trainees. In particular, this Bill seeks to limit the exemption to new employees who are trainees earning up to $100,000 per annum. According to the WA Department of Finance, the exemption for wages paid to apprentices is not affected by these amendments.

Under the current law, the wages of all trainees paid under an approved training contract with the Department of Training and Workforce Development (Department) are exempt from payroll tax. The current exemption is available to both new and existing employees undertaking training, and there is no upper salary cap at which exemption ceases to apply. The policy rationale behind this was to encourage businesses to hire and train new staff. However, according to the WA Government, a significant proportion of the cost of providing the exemption has been subsidising training of existing workers and immediate changes to the current laws were necessary to re-align the laws with the original legislative intent.

The employers who lodged a training contract for their existing employees with the Department prior to 1 December 2017 will not be affected by these proposed changes. Transitional provisions will continue to provide an exemption from payroll tax for the remaining term of the contract, provided that the employee’s ordinary annual wage did not exceed $100 000 at the time the contract was lodged.

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