Thinking | 4 July 2019

Talking Tax – Issue 161

The Taxpayer by a nose: the extended definition of ‘employer’ under the SGGA

In Scone Race Club Limited v Commissioner of Taxation [2019] FCA 967, Justice Logan of the Federal Court of Australia, allowing the appeal, concluded that Scone Race Club Limited (Taxpayer) was not deemed to be an employer under section 12(8)(a) and (b) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (Act). Consequently, the Taxpayer was not liable to make superannuation contributions to jockeys in respect of fees for riding in horse races and barrier trials.

While this result may have been unsurprising to some, it demonstrates the Commissioner’s willingness to pursue taxpayers for unpaid superannuation contributions. Moreover, it is a reminder of the extended definition of employer and employee for the purpose of the Act in determining whether an obligation to pay superannuation contributions exists.

The Taxpayer was a horse racing club in country New South Wales (NSW). Pursuant to the regulations that govern racing in NSW, the Taxpayer paid fees to jockeys for riding horses in races and barrier trials (riding fees).

The Commissioner of Taxation (Commissioner) determined that the Taxpayer ought to have been making superannuation contributions in relation to the riding fees that were paid to jockeys.

The Commissioner relied on the extended definition of employee/employer within section 12(8)(a) and (b) of the Act. The definition of ‘employee’ includes:

“…a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment.”

In light of sections 12(8)(a) and (b), Justice Logan acknowledged how the Commissioner might reasonably have formed the view that the Taxpayer was liable to make superannuation contributions. However, having regard to the industry regulations and customs, Justice Logan found that no race club, especially the Taxpayer, engaged a jockey to ride in a race. In fact, Justice Logan found that this would be contrary to the evidence led as to the established and ongoing practice in the NSW thoroughbred racing industry.

Further guidance on general purpose financial statements

The Australian Taxation Office (ATO) has recently released an updated guide to general purpose financial statements (GPFS).

For each income year, a company that is a corporate tax entity and which is also a significant global entity with an Australian presence must give the ATO a GPFS unless it has already been provided to ASIC. This GPFS will be placed on the ASIC register where it will be accessible to the public.

The decision to release an update is in response to feedback from external stakeholders, and includes information on the following areas:

clarification about how to prepare a GPFS and meet the relevant reporting requirements under the Corporations Act 2001 (Cth);
information on what accounting principles the ATO considers to be commercially accepted accounting principles (CAAP) including a list of standards that the ATO will accept in circumstances where the Australian Accounting Standards do not apply;
an explanation of the phrase ‘effective consolidation or aggregation of the operations of your entire multiple entry consolidated (MEC) group’ together with guidance on the correct consolidation principles to apply when preparing financial statements for MEC groups; and
examples that demonstrate the meaning of the phrase ‘financial year most closely corresponding to the income year.’

New Law Companion Ruling (LCR) 2019/D2 for foreign investors

On 26 June 2019, the ATO released the extensive LCR 2019/D2 (Draft Ruling) regarding non-concessional managed investment trust (MIT) income. The Draft Ruling was released to address, and provide guidance in relation to, Schedules 1 and 5 of the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 (the Act).

The Act is designed to improve the integrity of the income tax law for arrangements involving stapled structures, and to limit tax concessions for foreign investors in MITs. Importantly, to the extent that fund payments are attributable to non-concessional MIT income (NCMI), the amendments in the Act increase the MIT withholding to 30%.

The Draft Ruling focuses on MIT cross staple arrangement income and provides guidance on:

determining when an amount derived, received or made by a MIT is attributable to NCMI;
the meaning of ‘cross staple arrangement’ for the purposes of determining MIT cross staple arrangement income;
the scope and application of exceptions to MIT cross staple arrangement income;
the interpretation of the terms ‘facility’ and ‘economic infrastructure facility’;
integrity rules, particularly in respect of economic infrastructure facilities where the income is attributable to rent from land investment;
the meaning of MIT trading trust income, MIT residential housing income and MIT agricultural income; and
transitional provisions, which allow pre-existing MIT withholding rates to apply for certain periods of time.

While this ruling is currently in draft, the ATO has expressed that it will be effective from 1 July 2019.

This article was written with the assistance of Charlie Renney, Law Graduate.