Thinking | 26 February 2016
Talking Tax – Issue 25
Commissioner of State Revenue’s decision that taxpayer was not entitled to primary production exemption is upheld by VCAT
Earlier this month VCAT upheld the decision of the Victorian Commissioner to disallow a Taxpayer’s objection to assessments in respect of land owned by the taxpayer that was claimed to be used primarily for the business of primary production and thus attracted a land tax exemption under the Land Tax Act 2005 (Vic) (LTA). VCAT asserted that the word business as used in the LTA denotes ‘activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis’1.
The Tribunal member noted that the Taxpayer’s land was not used for the business of primary production because of:
- a lack of identified profit;
- in a history of lossmaking, there was no objective evidence establishing a profit-making purpose or prospect;
- a lack of evidence of any businesslike system or organisation (a mere intention to carry on a business not being enough);
- the small size and scale of the relative activities (including some hay sales, livestock, landfill and land rental), which in many respects do not complement each other; and
- the general paucity of documentary and other evidence produced by the applicant to the Commissioner and the Tribunal.
VCAT additionally rejected arguments by the Taxpayer for land tax exemptions relating to:
- A trustee owner of land undertaking the sole primary production business on the trust’s land.
- A trustee of a discretionary trust undertaking the principal business of primary production on its trust’s land.
- A beneficiary of a trust undertaking substantially fulltime capacity in the primary production business on land owned by the trustee of the trust.
ATO lessons on statutory interpretation
Based on internal training documents, the ATO has released eight ‘episodes’ of Interpretation NOW!, a sequence of PDF information sheets that aim to promote an understanding of the court’s contemporary views on statutory interpretation.
Each ‘episode’ comments briefly on relevant cases, and provides some practical tips. They are explicitly not a public ruling or legal advice, and are clearly stated to not be binding on the ATO.
Potential new ATO Ruling on the meaning of ‘alteration, extension or improvement’ in the context of capital works deductions
The ATO is proposing a new ruling on the phrase ‘alteration, extension or improvement’ in Division 43 of the 1997 Act. The ATO is seeking to consider:
- the meaning of the phrase ‘alteration, extension or improvement’ for the purposes of the 1997 Act;
- the interaction between this aspect of Division 43 of the 1997 Act and:
- section 40-45(2) of the 1997 Act, which excludes from Division 40 of the 1997 Act those capital works for which an amount can or could be deducted under Division 43 of the 1997 Act; and
- section 40-760 of the 1997 Act, which provides that a deduction for environmental protection expenditure is not available under section 40-755 for capital expenditure for constructing an extension, alteration or improvement to a building, structure or structural improvement or expenditure to the extent it can be deducted under a provision other than subdivision 40-H of the 1997 Act.
- the difference between a ‘repair’ for the purposes of sections 8-1 and 25-10, and an ‘alteration, extension or improvement’ for the purposes of Division 43 of the 1997 Act; and
The ATO is requesting views on:
- whether the ruling (and any other alternative product) should cover any additional circumstances;
- the potential consequential impacts on other ATO views; and
- practically, what factors make it difficult to apportion costs between a repair and an alteration, extension or improvement, where the work undertaken encompasses both aspects.
Comments are due on 15 April 2016.
Legislation and government policy
The Foreign Investment Review Board and tax compliance
This week, Treasurer Scott Morrison announced that the Federal Government will apply new requirements on foreign investment applications as a means to ensuring that multinational companies are paying sufficient tax. He stated that:
'Foreign investment applications will have to comply with Australian taxation law, Australian Taxation Office (ATO) directions to provide information in relation to the investment and advise the ATO if investors enter into any transactions with non residents to which transfer pricing or anti avoidance measures of Australian tax law may potentially apply.'
According to Treasurer Morrison, the above change adds to the foreign investment review measurers already recently enacted including:
- Increased compliance powers for the ATO and strict new penalties for those caught breaching the rules.
- A new agricultural land foreign ownership register – see the deadlines discussed in this week’s article - and reduction of the screening threshold for proposed foreign purchases of agricultural land by private investors to $15 million.
- FIRB screening of direct interests in agribusinesses valued at $55 million or more.
- The appointment of Mr David Irvine (a former Director General of both ASIO and ASIS) to the FIRB, strengthening its ability to advise on national security issues.
- The forced divestment of 27 properties, worth more than $76 million, illegally acquired by foreign nationals.
Bill amending CGT treatment of earnouts and providing a new foreign resident CGT withholding regime awaiting assent
Foreign owners of agricultural land must register by 29 February 2016
This week, the Deputy Prime Minister and Minister for Agriculture and Water Resources, Barnaby Joyce, and Treasurer, Scott Morrison reminded foreign owners of agricultural land in Australia to register their holdings with the ATO’s Agricultural Land Register by 29 February 2016. As of 1 July 2015, all existing foreign-owned agricultural land must be registered with the ATO by this date and any new interests must be registered within 30 days of purchase.
As of 1 December 2015, ‘agricultural land’ is defined in the Foreign Acquisitions and Takeovers Act 1975 (Cth) as ‘land in Australia that is used, or that could reasonably be used, for a primary production business’. A ‘primary production business’ is defined in section 995-1 of the 1997 Act to include:
- cultivating or propagating plants, fungi or their products or parts;
- maintaining animals for the purpose of selling them or their produce;
- manufacturing dairy produce from raw material;
- catching fish, turtles, dugong, bêche‑de‑mer, crustaceans or aquatic molluscs;
- taking or culturing pearls or pearl shell; and
- planting, tending, felling or transportation associated with trees in a plantation or forest.
The Treasurer emphasised that the development of the ATO’s Agricultural Land Register is part of the Government’s commitment to increase scrutiny and transparency in relation to foreign investment in Australian agriculture.
1Hope v Bathurst CC  HCA 16;  144 CLR 1 at [8-9] per Mason J.