Thinking | 31 July 2020
Talking Tax – Issue 188
It’s a whole new world: individual taxpayers flock for early refunds
The Australian Taxation Office (ATO) has received a substantial increase of individual tax return lodgements and refund requests during July, estimated to be in excess of 12% for the same period last year.
Assistant Commissioner, Karen Foat noted that despite needing to process a record number of individual tax returns in early July, tax refunds have begun arriving in bank accounts. The ATO has seen the biggest 1 July ever, with the ATO receiving over 740,000 online lodgements on the day.
In this chaotic period, the ATO reminds taxpayers about avoidable errors which may result in slowing down returns or lead to an unexpected debt down the track.
Ms Foat has said that it is important for early lodgers to get it right and that there are some trends in the issues the ATO has been seeing. The ATO's Top 3 trends that could lead to potential lodgement errors for tax time this year are:
- Claiming multiple working from home methods for the same period – if taxpayers are claiming under the working from home shortcut method for 1 March 2020 - 30 June 2020, they cannot claim any other expenses for working from home for that period.
- Copying and pasting from prior years – the ATO noted trends of taxpayers increasing deductions where they have spent more but forgetting to reduce claims in areas they have cut spending. Working reduced hours or not working at all means less or nil travel expenses or not wearing work uniform means nil laundry expenses.
- Forgetting to include income – taxpayers forgetting to include cash wages, foreign sourced income, or even gains from cryptocurrency can delay their returns.
From 27 September 2020, there will be some significant changes to the JobKeeper Scheme. Existing eligibility criteria, where not specifically modified and will remain in place.
These changes are summarised in our detailed article 'JobKeeper 2.0'.
It’s final - What is a ‘restructuring’ for the purposes of subsection 125-70(1) of the Income Tax Assessment Act 1997?
On 22 July 2020, the ATO released Taxation Determination TD 2020/6 (Determination), finalising its views regarding the meaning of the word ‘restructuring’ for the purposes of Division 125 of the Income Tax Assessment Act 1997 (Act), a fundamental condition to determine whether demerger tax relief can be accessed.
For demerger relief to be available, the first element in subsection 125-70(1) requires a ‘restructuring’ of the demerger group. The Determination clarifies what constitutes a ‘restructuring’ for these purposes.
In essence, the Determination indicates a departure from the objects of the demerger rules and will likely prevent all but the most simple demerger transactions from occurring in the future.
Following the enactment of the demerger relief rules provided for under Division 125 of the Act, it was not uncommon in the context of mergers and acquisitions and capital raisings to utilise demerger relief to facilitate a reorganisation prior to, or after, the relevant transaction taking place.
The ATO accepted that transactions structured in a way where a demerger was followed by an acquisition, could access demerger relief.
However, in April 2018 the ATO adopted a different position after refusing to rule favourably in respect of the proposed AMA / Blackstone transaction that comprised of a demerger followed by an acquisition.
The AMA / Blackstone decision created uncertainty in the market and on 20 March 2019, the ATO released the determination in draft form as TD 2019/D1 which confirmed the expectation that the ATO would no longer accept these transactions.
Summary of the ATO’s view
A 'restructuring' of the demerger group has its ordinary business meaning, referring to the reorganisation of a group of companies or trusts. The scope of restructuring is a relevant consideration in determining if tax relief for a demerger may be available, with some key principles highlighted below.
- The ATO has accepted that all steps that occur under a single plan of reorganisation will usually constitute the restructuring. The Commissioner will consider all facts and circumstances in determining the scope of that plan, which include any contracts and deeds executed by, or affecting, relevant entities.
- A key factor in determining what steps form part of a single plan for the Commissioner is the proposal that is presented to the affected owners of original interests in the head entity of the demerger group.
- The ATO has stated that, as a demerger happens, if there is a restructuring, the scope of the restructuring is also relevant to (amongst other things) the “nothing else” and “ownership” tests contained in section 125-70.
- The Commissioner will consider temporal proximity as a relevant factor determining the objective inferred plan for the reorganisation of a demerger group.
We recommend that Taxpayers carefully consider their business restructuring plans in light of the ATO’s position and examples provided in the Determination.
Restructuring moving forward
The Determination applies to years of income commencing both before and after 22 July 2020 with reference to the following:
- The Determination will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before 22 July 2020.
- The Commissioner does not intend to devote resources to a specific compliance project to examine whether claims for demerger roll-over under Division 125 for capital gains tax events occurring before 20 March 2019 are compliant with this Determination.
The new Superannuation (Unclaimed Money and Lost Members) Act 1999
There have been a number of changes introduced to the Superannuation (Unclaimed Money and Lost Members) Act 1999 (SUMLMA) by the Treasury Laws Amendment (2019 Measures No. 3) Bill 2019, which received Royal Assent on 22 June 2020.
These changes will affect reporting obligations to the ATO under the SUMLMA.
Assessment of an Inactive Low Balance Account
The definition of ‘inactive low balance account’ has been amended. Under the amended definition, an account is not an ‘inactive low balance account’ if the member has elected to maintain insurance on that account by making an election under subsection 68AAA (2) of the Superannuation (Industry) Supervision Act 1993.
The provision that stated an account is not an ‘inactive low balance account’ if the superannuation provider is owed an amount in respect of the member has been repealed.
Lodgement of member election
A member is no longer obligated to make an election to the Commissioner if they do not want their account to be an ‘inactive low balance account’. Under the amendments, the member must make an election directly to the super provider.
Removal of redundant reporting
There is no longer an obligation to report accounts identified on the unclaimed money day that cease to be either unclaimed money or inactive low balance accounts or lost member accounts by the scheduled statement day to the ATO.
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