Thinking | 19 June 2020

Talking Tax – Issue 185

By Bradley White

Practical tips: Signing documents remotely - what can and can’t I do?

Many companies that are trustees of a discretionary trust will be starting (or if you’re organised - you’ve finished, good on you!)  the process around financial year-end trust distributions. Private companies will also be considering dividend resolutions. Recording these decisions correctly is important from an evidentiary aspect.

COVID-19’s impact has meant that many industries, organisations and processes have needed to adapt and change as they are no longer viable in a world that requires social distancing.

On 6 May 2020 temporary modifications were made to the Corporations Act 2001 (Cth) (The Act). Importantly the amendments:

  • deems participating via virtual technology as being present at the meeting (this applies to all meetings not just AGMs);
  • confirms that virtual technology can be used to provide a person with a reasonable opportunity to speak at the meeting;
  • allows notices of a meeting and other information regarding the meeting to be provided electronically, or by providing the details of the location where it can be downloaded/viewed; and
  • provides that the assumptions provided under s 127(1) and 129(5) apply to documents that are signed electronically, as copy and in counterparts.

You will still need to ensure the meeting meets the quorum requirements that are outlined in the company constitution.

For our accountant and advisor clients who prepare minutes, you should consider how these changes may apply. For example in this year’s minutes, you may need to consider who will be meeting, and whether it is practical (or possible!) for them to meet in person. If the meeting is held electronically, you should note the meeting was held ‘electronically’.

If you have any questions about this year’s minutes, please get in touch with us.

COVID-19 declared a disaster

On 6 May 2020 the Federal Government declared the COVID-19 pandemic a ‘disaster’.

This means that Australian disaster relief funds established to help those affected by COVID-19 will be able to attain DGR status.

The Federal Government also announced further changes to public and private ancillary fund guidelines to incentivise philanthropic spending. For our detailed article on this aspect, please see  our article here.

PS LA 2005/24 amended

On 7 May 2020 the ATO released an updated version of Practice Statement PS LA 2005/24. This practice statement provides guidance on how the ATO will apply its anti-avoidance powers under Part IVA.

The updated version now incorporates the integrity measures that relate to the JobKeeper and Cashflow Boost payments. Ultimately, the update provides that measures ‘operate subject to the discretion of the Chair of the Panel for the time being in respect of them.’

The ATO also recently updated Practical Compliance Guideline 2020/4 ‘Schemes in relation to the JobKeeper payment’ providing further information on the schemes that will attract the ATO’s attention. For more information on these guidelines, see this article.

State taxes: JobKeeper payments exempt from payroll tax

From its inception there has been a great amount of uncertainty surrounding the JobKeeper payment.  Part of this uncertainty was its treatment for payroll tax purposes.

As payroll tax is a state and territory based tax, confusion can arise where there is an inconsistent approach.  The table below sets out the approach in each relevant state and territory.

State or TerritoryPayroll tax treatment of JobKeeper
VictoriaPayments made to employees under the JobKeeper program will be exempt from payroll tax to the extent that the payments exceed the employee’s normal wages. For example if your employee would ordinarily receive $700 per fortnight and you are now required to pay them $1500 per fortnight under the JobKeeper scheme, the additional $800 would not be subject to payroll tax.

Where an employee has been stood down and is receiving JobKeeper, the full $1,500 will be exempt from payroll tax.
New South WalesPayroll tax is payable on the JobKeeper payment except to the extent that the JobKeeper payment is in excess of what the employee would ordinarily have been paid. See the example for Victoria above.

Where an employee has been stood down and is receiving JobKeeper, the full $1,500 will be exempt from payroll tax.
Western AustraliaPayroll tax will only be payable on the wages paid in excess of the JobKeeper payment amount.
TasmaniaPayroll tax will only be payable on the wages paid in excess of the JobKeeper payment amount.
South AustraliaPayroll tax will only be payable on the wages paid in excess of the JobKeeper payment amount.
QueenslandPayroll tax will only be payable on the wages paid in excess of the JobKeeper payment amount.
Northern TerritoryPayroll tax will only be payable on the wages paid in excess of the JobKeeper payment amount.
Australian Capital Territory Payroll tax will only be payable on the wages paid in excess of the JobKeeper payment amount.

As the table above demonstrates, the payroll tax exemptions in NSW and Victoria are narrower than elsewhere. In these jurisdictions, JobKeeper payments to employees are largely subject to payroll tax, whereas, the rest of the states and territories have fully exempted the payment.

Draft trust distribution minutes: Donkin & Ors v FC of T [2019] AATA 6746

The Administrative Appeals Tribunal’s (Tribunal) decision in Donkin & Ors v FC of T [2019] AATA 6746 serves as a timely reminder of the importance of correctly drafting trust distributions.

The applicants were beneficiaries under the Joshline Family Trust (Trust). The beneficiaries of the Trust consisted of five individual beneficiaries and the trustee of the Trust, Joshline Investment Pty Ltd (Trustee).

The practice of the Trustee was to distribute specific amounts to the individual beneficiaries and any remaining residual funds would be retained by the Trustee. The wording the resolutions used were the ‘necessary proportion’ of so much of its ‘trust law income’.

After disallowing certain deductions claimed by the Trust in an audit, the Commissioner issued an amended assessments for the 2010 to 2013 income years to the individual beneficiaries, increasing their assessable income proportionate to their original distribution.

The Tribunal determined that the resolutions distributed income by reference to the amounts specified as “assessable income” rather than as a portion of the net income as amended by the ATO. This resulted in the application of the principle in FCT v Bamford [2010] HCA 10, increasing each individual beneficiaries assessments proportionate to their original share of the income. The ATO’s position was also supported by a clause in the trust deed, which provided that it was a condition that the beneficiary ‘include [in] his or her assessable income the proportion of the net income of the Trust Fund for that Financial Year (as defined in section 95 of the ITAA 1936) that the Beneficiary’s share of Applied Income bears to total income’.

The applicants were able to have the penalties sought by the Commissioner under s284-75(1) of Sch 1 to the Taxation Administration Act 1953 (Cth) (the Act) set aside on the basis that they had acted reasonably in accordance with s284-75(5) of Sch 1 of the Act by obtaining professional legal advice in each of the relevant years.

There are two key takeaways from the case:

  1. Read the deed - every deed is different and the wording of the resolution should reflect the wording in the trust deed. 
  2. There is a risk to both clients and advisors if resolutions are not correctly drafted, and there is a subsequent amendment to the trust’s assessable income. In this case, this let down the clients, and the advisors!

Year-end tax planning in light of COVID-19

For those that may have missed it, we recently published a series of articles that flag some of the key things to keep in mind this end of financial year.

The articles address the following topics:

This end of financial year is certainly not the same as the last (or any before it).  The above topics are just a few of the new issues that COVID-19 may force you to consider. What is abundantly clear however, is that the ‘business as usual’ approach may not cut it.

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