Thinking | 15 November 2019

Talking Tax – Issue 178

Clock is ticking - NSW land tax amnesty

On 14 October 2019, Revenue NSW announced a three month amnesty period for NSW land tax penalties, to be followed by a significant increase in land tax compliance activity (as reported in Talking Tax Issue 174).

Landowners who may have been unaware of their NSW land tax obligations or may have incorrectly accessed a land tax exemption have now been provided with the opportunity to make a voluntary disclosure without incurring any penalties.  The amnesty period will end on Friday, 31 January 2020.

Act now! Hefty penalties with an additional interest rate of 9%-10% (average rates for the past five years) will apply once the amnesty period is over.  As a first step, taxpayers should conduct a quick review of their compliance status. For example, has a taxpayer:

  • Incorrectly claimed the principal place of residence exemption?
  • Incorrectly claimed the primary production land exemption?
  • Failed to notify Revenue NSW of any change in the use of land?

Revenue NSW expects to recoup approximately $100m in unpaid land tax in the first year of this crackdown.  This suggests that there are many instances of self-reporting errors in the system.  Landowners should use this opportunity to review their compliance obligations and avoid any significant penalties before the amnesty period is over.

If you or your clients have any uncertainties concerning land tax compliance, please contact Jim Koutsokostas.

ALERT: Is your trust avoiding CGT through the restructure rollover?

In the recently issued Taxpayer Alert TA 2019/2 (Alert), the ATO raised its concerns with certain arrangements that purportedly allow a unit trust to dispose of a Capital Gains Tax (CGT) asset with no CGT consequences.  In essence, the arrangements seek to exploit the CGT rollover for trust restructures.

The ATO warns that taxpayers who enter into these types of arrangements will be subject to increased scrutiny.  If you have entered, or are looking to enter into a similar arrangement, the ATO recommends that you seek independent professional advice.

Hall & Wilcox can assist with the request for a private ruling and the drafting and submission of voluntary disclosures to reduce any applicable penalties.  These steps have also been recommended by the ATO in the Alert.

What are these arrangements?

Under the arrangements, a trustee of a unit trust (Transferring Trust) sells a CGT asset with a large unrealised capital gain to an arm's length purchaser (Purchaser) for an agreed purchase price by:

  • transferring the asset to a trustee of a new unit trust (Receiving Trust) that is settled for nominal funds and issued units for the agreed purchase price which gives rise to a debt owing to the Transferring Trust; and
  • the trustees of both trusts choosing the rollover-relief under subdivision 126-G of the Income Tax Assessment Act 1997 (Cth) (1997 Act) for the transfer.

As a result, the Transferring Trust disregards the capital gain it makes from transferring the CGT asset to the Receiving Trust.

The Purchaser then subscribes for new units in the Receiving Trust equal in value to the purchase price, and the Receiving Trust repays the debt to the Transferring Trust with the subscription funds.

Finally, the Purchaser acquires the original units in the Receiving Trust for typically nominal consideration and replaces the existing trustee with an entity it controls. 

What are the ATO’s concerns?

The ATO is concerned with certain aspects of the arrangements.  In summary, these concerns include:

  • whether the conditions for subdivision 126-G of the 1997 Act rollover relief are met in respect of the arrangement;
  • the arrangement’s main purpose appears to be to allow the Transferring Trust to avoid tax by exploiting the rollover relief on a capital gain that would otherwise be assessable to the trustee or beneficiaries of that trust;
  • the arrangement results in a change of ownership of the CGT asset without triggering a CGT taxing point, which is contrary to the intent of the subdivision 126-G rollover;
  • a direct sale of the CGT Asset by the Transferring Trust to the Purchaser would have been simple, viable and commercially expected under similar circumstances; and
  • the Transferring Trust receives (and the Purchaser pays) the same amount under the arrangement as would have been the case if the asset were sold directly to the Purchaser.

Phoenix enabling liquidator disqualified

In Commissioner of Taxation v Iannuzzi (No 2) [2019] FCA 1818, the Federal Court disqualified Mr Iannuzzi from practising as a registered liquidator for 10 years as a result of his conduct in  the liquidation of 23 separate companies.

This is the first time the ATO has initiated Federal Court proceedings using the Corporations Act 2001 (Cth) (Act) provisions to take on the facilitators of schemes designed to avoid paying tax.  The ATO published a media release describing the case as a ‘landmark case’.

The ATO Assistant Commissioner Aislinn Walwyn said that this decision demonstrates that ‘the ATO will take firm action to hold facilitators of illegal phoenix activity to account and take steps to remove them from the business environment where they have acted negligently’.

Facts

Mr Iannuzzi was appointed as a liquidator of seven company groups, comprising 23 separate companies, between mid-2014 and September 2017.  The Commissioner formed the view that Mr Ianuzzi engaged in conduct that repeatedly fell short of the standards of conduct that would ordinarily be expected of him as a competent registered liquidator, and in particular failed to exercise reasonable care and diligence in the conduct of the relevant external administrations.

The Commissioner sought that Mr Iannuzzi’s name be removed from the register of liquidators and that he be restrained for 10 years from applying to be a registered liquidator or any other insolvency practitioner.

Decision

The Court stated that when a liquidator falls short of the standards expected of them, the public’s trust in the office of liquidator is eroded.  This has a corrosive effect on the administration of the body of insolvency law, and consequently on the administration of justice.

The Court found that Mr Iannuzzi had been systemically negligent in his responsibilities as a liquidator over an extended period of time and across a large number of companies.  The Court further agreed that the serious and systemic nature of his failures went not only to his competence, but also to his character.

The Court ordered that Mr Iannuzzi’s name be removed from the register of liquidators and that he be restrained for 10 years from re-applying to be a registered liquidator or a trustee in bankruptcy. 

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

Contact

Rachel Law

Taxation lawyer Rachel Law, specialises in direct taxes and tax disputes. She is experienced in domestic and international laws.

Anthony Bradica

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

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