Thinking | 27 September 2018

Talking Tax – Issue 135

Case law

Are we skiing on leased or licenced land?

In Living and Leisure Australia Ltd v Commissioner of State Revenue [2018] VSCA 237, the Full Court of the Supreme Court of Appeal had to consider whether the Taxpayer was the owner of Crown land as lessee under an alpine lease at Falls Creek. In this case, the legal characterisation of the occupancy rights would determine whether the Taxpayer should be chargeable with land tax being the lessee with exclusive possession of Crown land in accordance with sections 10 and 79 under the Land Tax Act 2005 (Vic) or alternatively, not chargeable with land tax if the lease was in fact a mere licence.

The statutory arrangement between the Taxpayer and the Crown granted the Taxpayer the right to establish and operate ski lifts and associated infrastructure to the exclusion of other parties with commercial interests and secure such rights under a 50 year term. However, the arrangement contained reservations for public access provided it did not interfere with the Taxpayer’s operations.

At first instance, the judgement in the Supreme Court by Justice Croft held that the instruments were leases of Crown land such that the lessee was chargeable with land tax. The Taxpayer submitted that the instruments were not leases as the right to exclusive possession was precluded by reservations to permit public access.

On appeal, the majority of the Full Court of Supreme Court (Chief Justice Ferguson and Justice Whelan) took the view that the arrangement constituted a leasing arrangement consistent with Radaich v Smith1 having regard to the following factors:

  • The terminology within the instruments where terms such as ‘lease’, ‘demise’, ‘rent’, ‘lessor’ and ‘lessee’ were used. Whilst the terminology is not a determinative factor, it is relevant as the clauses contained within the leasing arrangement provided effective control of the land to the lessee.
  • The Taxpayer did not need exclusive possession of all the land but of the critical parts and the business could not reasonably be carried out without exclusive possession of those critical parts and those critical parts are not fixed or delineated.
  • The public access provisions assume the existence of a right to exclude and maintained by the relationship between the operators and the land, as public access is provided to other parts of the land for non-commercial recreational use and enjoyment.
  • The Taxpayer is able to control the conduct of members of the public on the land which is consistent only with having control over the land. This is evinced by provisions preventing conduct which is riotous, disorderly, offensive or illegal.

The Court held that reservations in a lease for public access are a significant consideration but not given determinative weight when deciding whether a grant constitutes a lease or a licence. Ultimately, the terms must be considered in relation to the relevant circumstances.

In a lengthy dissent, Justice Niall took the view that the reservations in the lease were so extensive that they precluded the making of a finding that the lessee had exclusive possession of the land on the basis that the reservation in favour of all members of the public to enter and enjoy the land at any time was inconsistent with the existence of a general right to exclude. Niall J took the view that the lessee was able to limit access to its commercial operation not by having exclusive possession over the land.

In this case, it was necessary for the ski lift operators to have exclusive control over the parts of the land on which its infrastructure operates and the right for public access be restricted to recreational purposes only, with the ski lift operators having the power to exclude access on the grounds of nuisance, disorderly, offensive or illegal conduct. The Taxpayer did not need exclusive possession of all the land, rather, only needed exclusive possession of the critical parts of it which had been granted for a 50 year term.

We agree with the majority decision that the commercial imperative for the operator would have warranted that exclusive possession be conferred for use and occupation of the land the subject of the lease which should not preclude a Taxpayer from paying its share in land tax through its exclusive use and occupation of land.

Not apparent the Taxpayer was the purchaser of land

In Nikoiee v Commissioner of State Revenue [2018] VCAT 1425, the Tribunal had to consider whether a transfer of property from the Taxpayer’s sister to the Taxpayer was exempt under section 34 of the Duties Act 2000 (Vic) (Duties Act) invoking the apparent purchaser provision.

The Tribunal Member R Tang confirmed the decision and the assessment of the Commissioner of State Revenue (Commissioner) thereby rejecting the Taxpayer’s application.

On 25 May 2010, the sister of the Taxpayer, Ms Negar Nikoiee, entered into a house and land package with Devine Homes which was financed through a secured mortgage.

On 25 May 2015, Ms Negar Nokoiee executed a transfer document in order to transfer the property to the Taxpayer.  The transfer was never registered and the sister sold the property to a third party for $380,000. The net proceeds after adjustments and repayment of the loan were paid to the Taxpayer.

The transfer document was assessed to duty on the basis that it did not meet the requirements of the ‘apparent purchaser’ exemption under section 34(1)(b) of the Duties Act, to which the Taxpayer objected.

On 29 January 2016, the Commissioner disallowed the objection on the basis that the transfer from the sister to the Taxpayer was not a failed instrument under section 260 of the Duties Act, and that the transfer was not exempt under section 34(1)(b) on the basis that the Commissioner was not satisfied that the sister held the property on trust for the Taxpayer or that the Taxpayer had provided all of the money for the purchase of the property.

The Taxpayer relied on the following evidence:

  • a NAB bank statement showing a withdrawal of $30,000;
  • receipts of invoices for Council rates; and
  • a Westpac Fixed Rate Investment Loan.

The applicant alleged the NAB withdrawal was to pay for the deposit of the property and that she had funded the repayments of the Westpac loan taken out by her sister to fund the acquisition of the property. Loans repayments were made by the Taxpayer’s parents which were provided by the Taxpayer for this purpose. In evidence, the transaction documents for the property showed no deposit was payable. The Taxpayer then suggested that the withdrawal was for acquisition costs, before suggesting they were for renovations.

In relation to the Westpac loan, further examination led the Taxpayer to concede that the statement was inaccurate and that the statement may have been doctored. The Tribunal confirmed the Commissioner’s decision on the grounds that the Taxpayer had no credible evidence to discharge the onus of proving she provided the purchase money for the purchase of the dutiable property as required by section 34(1)(b) of the Duties Act.

This case serves as a reminder for the need to provide accurate and robust evidence when attempting to rely on an exemption from tax or duty. We consider that the Taxpayer should have applied for a private ruling prior to executing a transfer of land and incurring unnecessary duty.

ATO updates

When a supply of goods is ‘connected with’ Australia

On 19 September 2018, the ATO issued GST Ruling GSTR 2018/2 (Ruling) which sets out the ATO’s view on when supplies of goods (other than low-value imported goods) are connected with the indirect tax zone, being Australia.

Specifically, the ruling considers the operation of the following provisions of the GST ACT:

  • sub-section 9-25(1) (supplies of goods wholly within Australia);
  • sub-section 9-25(2) (supplies of goods from Australia); and
  • sub-section 9-25(3) (supplies of goods to Australia).

Supplies of goods wholly within Australia

Goods are delivered in Australia or made available in Australia where they are physically delivered or made available in Australia. The terms ‘delivered’ and ‘made available’ look at the place where the goods are at the relevant time.

‘Made available’ refers to the situation where goods are not actually delivered to the recipient but rather, the supplier makes the goods physically available to the recipient in Australia.  Where the recipient imports goods into Australia, the supply of goods is not connected with Australia.

Supply of goods from Australia

A supply of goods is connected with Australia if those goods are being removed from Australia. ‘Removed’ refers to the ordinary meaning of moving from one place to another.

Supply of goods to Australia

A supply of goods is connected with Australia if the supply involves those goods being brought to Australia and the supplier imports the goods into Australia. However, if a supply of goods involves the goods being delivered, or made available, to the recipient outside of Australia and the recipient subsequently imports the goods into Australia, the supply is not connected with Australia. Despite this, the importation can be a taxable import and the recipient would be liable to pay GST.

The Ruling also describes the treatment of supplies of good involving installation and assembly services and exceptions involving leased goods between non-residents and continued lease of goods.

Legislation and government policy

Government ensures multinationals pay their fair share

On 20 September 2018, the Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018 (Bill) was introduced in the House of Representatives by the Hon. Stuart Robert MP.

According to the second reading speech, the Bill proposes to continue to strengthen integrity rules and close loopholes while ensuring taxpayer’s funds are spent prudently and amending the R&D Tax Incentive to ensure it is well targeted and cost effective.

The Bill proposes to make the following amendments:

Thin capitalisation

Amend the Income Tax Assessment Act 1997 to tighten Australia’s thin capitalisation rules by:

  • requiring an entity to use the value of the assets, liabilities (including debt capital) and equity capital that are used in its financial statements;
  • removing the ability for an entity to revalue its assets specifically for thin capitalisation purposes; and
  • ensuring that non-ADI foreign controlled Australian tax consolidated groups and multiple entry consolidated groups that have foreign investments or operations are treated as both outward investing and inward investing entities.

The amendments relating to the valuation of assets, liabilities (including debt capital) and equity capital would generally apply from 7:30 pm by legal time in the Australian Capital Territory, on 8 May 2018. The amendments relating to non-ADI foreign controlled Australian tax consolidated groups and multiple entry consolidated groups will apply to income years beginning on or after 1 July 2019.

Research and Development (R&D) Tax Incentive (the ‘Incentive’) changes

The Bill proposes to the following amendments to R&D Tax Incentives:

  • overall reform the Incentive to better target the program and improve its effectiveness, integrity and fiscal affordability;
  • ensure R&D entities cannot obtain inappropriate tax benefits and effectively clawing back the benefits of the Incentive to the extent the entity has received another benefit in connection with an R&D activity;
  • improve the administrative framework supporting the Incentive by making information about R&D expenditure claims transparent, enhancing the guidance framework to provide certainty to applicants and streamlining the administrative process.

The Bill also proposes to make additional amendments to other tax legislation as a consequence of the proposed amendments.

Online hotel bookings and GST

The Bill will amend the GST Act to require offshore suppliers of rights or options to use commercial accommodation in Australia to include these supplies in working out their GST turnover. These amendments would apply in relation to supplies where consideration is first received, or before consideration is received an invoice is issued, on or after 1 July 2019.

Significant global entity definition

The Bill will replace the definition of ‘significant global entity’ (SGE) in the Income Tax Assessment Act 1997 with ‘Country by country reporting entities’ so that it:

  • applies to groups of entities headed by an entity other than a listed company in the same way as it applies to groups headed by a listed company; and
  • is not affected by the exceptions to requirements applying to consolidation or materiality rules in the applicable accounting rules.

The amendments also modify the rules that identify which entities must undertake country by country reporting under the tax law to ensure these rules are aligned with Australia’s international commitments.

The proposed amendments will apply in relation to income years or periods commencing on or after 1 July 2018. However, the amendments do not apply for the purposes of penalties in relation to entities that would not have previously been significant global entities in periods starting before 1 July 2019.

Government strengthens Black Economy Taskforce

On 20 September 2018, the Treasury Laws Amendment (Black Economy Taskforce Measures No 2) Bill 2018 (Bill) was introduced in the House of Representatives by the Hon. Stuart Robert MP.

According to the second reading speech, the Bill proposes to make amendments to the laws surrounding non-compliant payments, third party reporting and tobacco taxing to ensure that businesses and individuals who operate outside the tax and regulatory system do not avoid their withholding and reporting obligations.

Non-compliance payments

The Bill proposes to amend the Income Tax Assessment Act 1997 (Cth) to deny an income tax deduction for certain payments if the associated withholding obligations have not been complied with. This will provide a greater incentive for employers and entities engaging contractors to comply with their withholding obligations.

These amendments are intended to apply on or after 1 July 2019.

Third party reporting

The Bill will amend the Taxation Administration Act 1953 (Cth)  to require entities providing road freight, IT or security, investigation or surveillance services that have an ABN to report to the ATO information about transactions that involve engaging other entities to undertake those services for them.

Tobacco taxing

The Bill will amend the Excise Act 1901 (Cth) to make excise duty payable on tobacco at time of manufacture which has been proposed together with the newly introduced Excise Tariff Amendment (Collecting Tobacco Duties at Manufacture) Bill 2018, which would establish a broader framework in respect of collecting tobacco duties at the time of manufacture.

Trans-Pacific Partnership agreements implemented

On 17 September 2018, the House of Representatives passed the Customs Amendment (Comprehensive and Progressive Agreement for Trans-Pacific Partnership Implementation) Bill 2018 (Customs Amendment Bill). According to the Explanatory Memorandum, the Customs Amendment Bill proposes to amend the Customs Act 1901 (Cth) to introduce new rules of origin for goods imported into Australia from a Party to the Comprehensive Agreement for Trans-Pacific Partnership (TPP-11).

On the same day, the House of Representatives also passed the Customs Tariff Amendment (Comprehensive and Progressive Agreement for Trans-Pacific Partnership Implementation) Bill 2018 (Customs Tariff Amendment Bill).  According to the Explanatory Memorandum, the Customs Tariff Amendment is to amend the Customs Tariff Act 1995 (Cth) to implement the TPP-11 and provide preferential  rates of customs duty.

The TPP-11 amendments in the Customs Amendment Bill will enable eligible goods that satisfy the new rules of origin to be entered into Australia at preferential rates of customs duty. The amendments will also impose obligations on exporters of eligible goods to a Party to the TPP-11 for which a preferential rate of customs duty is claimed, and on manufacturers who produce such goods.

The Customs Tariff Amendment Bill proposes to amend the Customs Tariff Act 1995 to implement the Comprehensive and Progressive Agreement for the TPP-11 by:

  • providing preferential rates of customs duty for all goods, excluding excise-equivalent goods, that are Trans-Pacific Partnership originating goods;
  • providing for excise-equivalent rates of duty on certain alcohol, tobacco and fuel products for phasing rates of customs duty; and
  • amending certain concessional items to maintain customs duty rates in line with applicable concessional item and in accordance with the TPP-11.

The TPP-11 is a new treaty that incorporates, by reference, the provisions of the original Trans-Pacific Partnership as signed by Ministers on 4 February 2016 in Auckland, New Zealand. Under the TPP-11, signatories will implement the TPP between them, with the exception of a limited number of provisions, which will be suspended. Suspensions will remain in place until the Parties agree to end them by consensus.

Further amendments

On 20 September 2018, the Treasury Laws Amendment (2018 Measures No 5) Bill 2018 was introduced in the House of Representatives by the Hon. Stuart Robert MP.

According to the Explanatory Memorandum, the Bill proposes to amend the Taxation Administration Act 1953 (Cth), Income Tax Assessment Act 1997 (Cth) (ITAA 97), Income Tax Assessment Act 1936 (Cth) and other Acts to make a number of technical refinements to the income tax law so that an attribution managed investment trust (AMIT) operates under the regime as intended.

Specifically the Bill proposes to:

  • allow a managed investment trust (MIT) with a single unitholder that is a specified widely-held entity to access the AMIT regime;
  • extend the list of eligible investors in MITs to include the Future Fund Board of Guardians and its wholly owned entities;
  • ensure that, in calculating rounding adjustments and trustee shortfall tax under the AMIT regime, discount capital gains are treated appropriately;
  • clarify that, in relation to an amount that is a discount capital gain that is not attributed to members, the trustee of an AMIT is liable to pay income tax on the amount as though it were not a discount capital gain; and
  • make modifications to the operation of the transitional rules.

Deductible gift recipients

The Bill also proposed to amend the ITAA 97 to update the list of specifically listed Deductible Gift Recipients (DGRs).

These organisations include Victorian Pride Centre Ltd, the entity that will be responsible for building and then operating Australia’s first pride centre, scheduled to open its doors in 2020. Hall & Wilcox is a proud supporter of the Victorian Pride Centre and has predominantly been involved on a pro bono basis in assisting with organisation structuring, tax advice, fundraising and site selection and procurement. As a result of this support, Hall & Wilcox is recognised as a Gold Partner to the Pride Centre.

ASIC takes action on misleading initial coin offerings and crypto-asset funds

On 20 September 2018, ASIC announced it has taken action to stop several proposed initial coin offerings or token-generation events targeting retail investors.

In addition, ASIC issued a final stop order on a Product Disclosure Statement (PDS) for a crypto-asset managed investment scheme issued by Investors Exchange Limited for units in the New Dawn Fund.

ASIC has identified the following recurring issues in relation to initial coin offerings and crypto-asset funds:

  • the use of misleading or deceptive statements in sales and marketing materials;
  • operating an illegal unregistered managed investment scheme; and
  • not holding an Australian financial services licences.

Taxpayers and consumers should be aware of these issued before making speculative investments.

Inquiry into the implications of removing refundable franking credits

On 19 September 2018, the Treasurer, the Hon. Josh Frydenberg MP, asked the House of Representatives Standing Committee on Economics (Committee) to hold an inquiry into the implications of removing refundable franking credits.

The terms of reference for the Committee’s inquiry will include analysing who currently receives franking credits, their uses and benefits in supporting tax principles, and the potential impact of removing the refundable franking credit regime having regard to the implications for investors. A particular focus of the enquiry will be the impact on retirees’ financial security where they have made long term retirement savings decisions based on their ability to claim refundable franking credits.

The Committee invites interested persons and organisations to make submissions by 2 November 2018.

Submissions can be made online or by emailing

1(1959) 101 CLR 209.


Anthony Bradica

Anthony specialises in taxation planning and structuring for corporate clients, including advising on capital raisings and M&A.

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