Talking Tax – Issue 19

Case law

Taxpayer to appeal Full Federal Court decision that found deferred compensation for services rendered as income – Blank v FC of T

In October last year, the Full Federal Court affirmed a decision of Edmonds J in the Federal Court and held that payments received by a taxpayer under a profit participation plan were deferred payments for services rendered and therefore income.

The taxpayer argued that it was the receipt of the contractual rights to the payments that was the reward for services and not the actual payment, and as a consequence the subsequent payments were to be taxed as capital gains.

The taxpayer has now applied for special leave to appeal the decision to the High Court.

ATO updates

Administrative treatment of earnout rights

The ATO has provided details on how it will treat earnout rights in light of the proposed Tax and Superannuation Laws Amendment (2015 Measures No 6) Bill 2015 (Bill) that was introduced to the House of Representatives on 3 December 2015. The Bill, which we discussed in our earlier update here, introduces ‘look-through’ income tax treatment for certain earnout arrangements and does not treat the earnout as a separate asset for CGT purposes.

There are three categories of treatment provided by the ATO depending on the date on which the eanout rights are created. The final category ensures that any earnout right created on or after 3 December 2015, but before commencement of the Bill, can apply the draft Bill.

Legislation and government policy

Federal Budget submissions

The Federal Government is inviting submissions from individuals, businesses and community groups regarding expenditure in the 2016/2017 Budget. The Government clearly indicates that it will continue to focus on restraining expenditure and lifting revenues. Submissions should be lodged as soon as possible, and no later than 5 February 2016. Please contact us if there is an issue you would like to discuss and we can assist with making a submission.

Reporting red tape removed in private and public ancillary fund guidelines draft amendments

The Commonwealth Treasury has released draft amendments to the Private Ancillary Fund Guidelines 2009 and the Public Ancillary Fund Guidelines 2011 for public consultation. The amendments aim to:

  • update the Private Ancillary Fund Guidelines 2009 to reflect improvements incorporated in the later made Public Ancillary Fund Guidelines 2011;
  • introduce portability into the Private Ancillary Fund Guidelines 2009;
  • update both sets of Guidelines to reflect the introduction of the Australian Charities and Not-for-profits Commission (ACNC);
  • remove red tape by ensuring that material provided to the ACNC is not also requested separately by the ATO and allow smaller private funds to seek a review instead of an audit;
  • update the investment strategy rules to, amongst other things, ensure funds must consider both their status as a registered charity and conflicts of interest in preparing and maintaining a strategy;
  • allowing ancillary funds to provide loan guarantees over borrowings of deductible gift recipients; and
  • reduce the minimum annual distribution rate.

The amending guidelines are due to commence on 1 July 2016 and the closing date for submissions is 12 February 2016.

We have prepared a detailed summary of the changes to the guidelines, if you are one of our Private and Public Philanthropy clients, or just interested in the changes, please contact us.


Michael Parker

Michael is a tax lawyer who specialises in tax disputes, capital gains tax, business sales and acquisitions and restructuring.

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