Thinking | 25 October 2019

Talking Tax – Issue 175

Treasury Measures (No 2) Bill 2019 - Changes and impacts

The Treasury Laws Amendment (2019 Measures No 2) Bill 2019 (Bill) was passed by the Senate and House of Representatives without amendment and it now awaits Royal Assent.

The Bill amends various legislation, impacting the age limit for genuine redundancy payments, luxury car tax (LCT) refund entitlements and interest on ATO superannuation payments.

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In particular, schedules one, two and five of the Bill cover the following amendments:

Pension age limit for genuine redundancy payments (Schedule one)

The Bill amends the Income Tax Assessment Act 1997 (Cth) to align the existing age limit of 65 with the pension age for genuine redundancy and early retirement scheme payments.  This means the concessional tax treatment will only be accessible to employees who retire or are made redundant before they reach their pension age.

The current pension age is 66 years.  It will progressively rise to 66 years and 6 months in 2021 and 67 years in .  This amendment will apply to payments received by employees who are dismissed or retire on or after 1 July 2019.

LCT refund entitlements (Schedule two)

The Bill amends the A New Tax System (Luxury Car Tax) Act 1999 (Cth) to provide a full refund of up to $10,000 for eligible primary producers and tourism operators who have borne luxury car tax on the supply or importation of a refund-eligible vehicle. 

The amendment will apply to refund-eligible cars supplied or imported on or after 1 July 2019.

Interest on ATO superannuation payments (Schedule five)

The Bill amends the Superannuation (Unclaimed Money and Lost Members) Act 1999 (Cth) to ensure that if the ATO makes a payment to an active fund under section 24NA(2), the ATO must also pay the relevant amount of interest (if any) worked out in accordance with the regulations.

The amendment will take effect the day after the Royal Assent.

Untaxed capital gains excluded from FITO limit

Recently released Draft Taxation Determination TD 2019/D10 (Draft TD) expresses the Commissioner of Taxation’s (Commissioner) view that capital gains are not included when calculating the foreign income tax offset (FITO) limit under section 770-75 of the Income Tax Assessment Act 1997 (Cth) (1997 Act) if no foreign income tax has been paid in respect of those gains.

This is based on the Commissioner’s view that a net capital gain (in contrast to the individual capital gains it may comprise) cannot have a source other than an Australian source.

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A FITO may be available under Division 770 of the 1997 Act to reduce or eliminate a taxpayer’s Australian income tax that would otherwise be payable on amounts included in their assessable income, where foreign income tax has also been paid on the same amounts.  However, the amount of this offset is capped at the ‘FITO limit’.

The FITO limit is calculated as the amount of income tax payable by the taxpayer in that year less the amount of income tax that would be payable by the taxpayer in that year on the assumption that:

  • the taxpayer’s assessable income did not include any amount on which they paid foreign income tax, or any other amount of ordinary income or statutory income from a source other than an Australian source; and
  • they are not entitled to certain deductions, including those relating to income on which they paid foreign income tax.

Conceivably, if a taxpayer realises a capital gain relating to a CGT asset located in a foreign jurisdiction but they pay no foreign tax on that gain, they could argue that this capital gain should be included in calculating their FITO limit as an amount of ordinary or statutory income from a source other than an Australian one.

In the Draft TD, the Commissioner takes the view that this is not possible for two reasons:

  • Individual capital gains realised by a taxpayer are not amounts of statutory income: rather, their ‘net capital gain’ is an amount of statutory income, which is calculated by reference to their individual capital gains and losses for the year; and
  • Individual capital gains may have a source other than an Australian one but a net capital gain does not. A net capital gain is merely a product of individual capital gains and losses made during the income year from Australian and non-Australian sources, and the application of unapplied net capital losses from earlier income years and applicable discounts

So, in the Commissioner’s view, taxpayers can’t disaggregate their net capital gain to identify the individual capital gains realised in that year, for the purposes of calculating their FITO limit.  If you haven’t paid foreign income tax on a capital gain, you can’t get it into your FITO limit.

The final Taxation Determination is proposed to have retrospective effect once it is issued.  Comments on the Draft TD are due by 8 November 2019.

Taxpayer fails to prove excessive assessments

In Ke and FCT [2019] AATA 4057, the Administrative Appeals Tribunal (Tribunal) found that the Taxpayer (a registered tax agent and chartered accountant) had not discharged her burden of proof in demonstrating, on the balance of probabilities, that certain of the ATO’s assessments were excessive.

This case serves as a reminder that in order for a court or tribunal to overturn an amended or default assessment issued by the ATO, the onus is on the taxpayer to:

  • demonstrate that the assessment is excessive or otherwise incorrect; and
  • positively show what correction should be made to the assessment.

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The Taxpayer was a registered tax agent who carried on the business of providing tax agent services.  For the 2013 and 2014 income years, the Taxpayer reported nil taxable income.  

Following an audit of her tax affairs, the ATO issued amended assessments increasing the Taxpayer’s taxable income by $110,116 for 2013 and $162,742 for 2014.  In doing so, the ATO asserted that certain unexplained deposits into the Taxpayer’s bank account constituted assessable income.

The ATO also issued the Taxpayer with GST assessments totalling $13,096.  The ATO determined that the Taxpayer should have been registered for GST (and accordingly, collected and remitted GST) as her income exceeded the GST registration turnover threshold of $75,000. 

On appeal, the Taxpayer argued that the bank deposits in question were from other sources including gifts, loan repayments and financial support from family members.  

The Tribunal determined that the Taxpayer had not satisfied her burden of proof in relation to most of her claims and largely upheld the amended assessments, with a minor variation.  The Tribunal found that there was a lack of evidence to support the Taxpayer’s claims, stating that some documentary evidence provided was a ‘fiction’.

Significant penalties were levied against the Taxpayer for acting with intentional disregard of the taxation laws, particularly given her position as a registered tax agent and chartered accountant.

 

This article was written with the assistance of Anne Wong, Law Graduate. 

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