Talking Tax – Issue 202

In this edition of Talking Tax, we discuss the Full Federal Court appeal of Clough v The Commissioner of Taxation over whether the cancellation of employment share schemes is income tax deductible. We also look at the meaning of employment agency contract and NSW payroll tax in E Group Security Pty Ltd v Chief Commissioner of State Revenue.

Lastly, we examine research and development expenditure through a trust in XQDX and Commissioner of Taxation.

Case law

Cancellation of employee rights under a share scheme not deductible – Full Federal Court confirms

The Full Federal Court in Clough Limited v Commissioner of Taxation [2021] FCAFC 197 has upheld the Federal Court’s decision in Clough Ltd v Commissioner of Taxation [2021] FCA 108 that a payment in consideration for the cancellation of entitlements under an employee option plan and incentive scheme is not deductible under s 8-1 of the Income Tax Assessment Act 1997.

Instead, the Court found that because the payments were made in conjunction with the takeover and delisting of the Taxpayer from the ASX, they were capital in nature.

Security company business model not subject to NSW payroll tax

The NSW Supreme Court in E Group Security Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 1190 has held the arrangements between the Taxpayer (a security company) and their client was not an employment agency contract as defined in s 37(1) of the Payroll Tax Act 2007 (NSW) and were therefore not taxable wages subject to payroll tax.

AAT deems R&D expenditure not incurred by the taxpayer, but by the trust

In XQDX and Commissioner of Taxation (Taxation) [2021] AATA 4070, the Taxpayer was the trustee of a trust that was unsuccessful in claiming research and development (R&D) expenditure. Here, the Administrative Appeals Tribunal (AAT) was not satisfied that the Taxpayer had ‘incurred’ the relevant expenses due to a number of contingencies that existed.  The Taxpayer was able to receive a partial remission of penalties due to the AAT finding that they had relied on professional advice in making the relevant claim.

ATO updates

TR 2021/8 – Income tax – value of goods taken from stock for private use for the 2021–22 income year

This ruling provides an update of amounts that the Commissioner will accept as estimates of the value of goods taken from trading stock for private use by taxpayers of specific industries.

Legislation and government policy

Remake of Public Ancillary Fund Guidelines

With the current Public Ancillary Fund Guidelines 2011 (2011 Guidelines) scheduled to sunset on 1 April 2022, the Treasurer has released submissions for the remake of the Public Ancillary Fund Guidelines 2022 (2022 Guidelines).

The majority of the 2022 Guidelines are proposed to remain the same as the 2011 Guidelines aside from a few changes to reflect current drafting practice. The important proposed changes are:

  • Section 9: a public ancillary fund must now be established and maintained as a valid trust under common law, State law, Territory law, Commonwealth law and foreign law – not just under State or Territory law.
  • Section 15 and Schedule 1: public ancillary funds that are seeking a reduction in their annual distribution rate and are dissatisfied with the Commissioner’s rejection of their request can now seek a merits review of the decision.
  • Section 24: introduces a specific administrative penalty amount.
  • Section 29: provides guidance regarding the rules referring to the establishment and maintenance of public ancillary funds as deductible gift recipients transition from the 2011 to 2022 guidelines.
  • Section 30: introduces a reduced minimum annual distribution rate in the 2021-22 financial years (and potentially also for the later years) for donations that sufficiently exceed the minimum required distributions during the 2019-20 and 2020-21 financial years.

This article was written with the assistance of Michelle Benington and Gabrielle Terliatan, paralegals.



Jim Koutsokostas

Jim is a experienced lawyer and Chartered Tax Advisor, providing expert advice on corporate and trust tax matters.

Bradley White

Bradley White


Bradley is a taxation lawyer in our Melbourne team.

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