14 April 2016

Talking Tax – Issue 30

Case law

Summary judgment given for directors’ penalties of $1.7m

The Queensland Supreme Court has granted the Deputy Commissioner’s  application for summary judgment in Deputy Commissioner of Taxation v Rablin; Deputy Commissioner of Taxation v Shaw [2016] QSC 68. The defendants in each of the proceedings were directors of the same company. The Commissioner had imposed penalties on the directors in the amount of $1.7m in respect of PAYG amounts that the company had failed to remit to the ATO in respect of employee wages. The amounts had been withheld from the payments made to its employees.

Both directors argued that penalties should be remitted on the following grounds:

  • Operation of the law (section 269-30 of the Taxation Administration Act 1953 (Act))

The directors argued that the obligation to pay PAYG directors’ penalties had stopped before the Commissioner notified them of their outstanding tax obligations (the company had commenced to be wound up on 3 October 2013 and the notice of penalty issued on 21 January 2014). However the court held that section 269-30(2) applied so that the remission did not apply in circumstances where the company had failed to put the Commissioner in a position of knowing the requisite details to allow it to determine the amount payable prior to winding up. The information in the BAS statements was insufficient to determine the amounts owing.

  • All reasonable steps (section 269-35)

The directors argued that the penalties should be remitted as they had taken all reasonable steps to ensure that the company paid the withheld PAYG tax by the due date, or had promptly gone into voluntary administration or liquidation. The court held that while the directors did make attempts to meet their tax obligations, they had not taken ‘all reasonable steps’ to do so.

ATO updates

‘Panama Papers’ leak

On 4 April 2016 the ATO issued a statement regarding the release of a significant amount of taxpayer data held by the Panama law firm Mossack Fonesca. The data is understood to have come from an investigation by the International Consortium of Investigative Journalists (ICIJ) and includes information regarding various offshore companies, its shareholders and directors. The data includes more than 11.5 million documents and affects around 800 Australian taxpayers.

Pursuant to various multilateral agreements, the ATO regularly shares information and works closely with banks and other tax administrations to improve its compliance work. It recently concluded ‘Project DO IT’ under which taxpayers could voluntarily declare undisclosed or incorrectly reported offshore financial activities, in order to avoid penalties and the possibility of criminal charges. Hall & Wilcox has assisted various taxpayers in preparing a number of Project DO IT disclosures to the ATO.

The ATO is analysing the data from the Panama Papers against information it already has to determine whether there have been any failures by Australian taxpayers to disclose offshore income or assets. It is also working with the Australian Federal Police, Australian Crime Commission and AUSTRAC to cross-check the data. The ATO has stated that some cases may be referred to the Serious Financial Crime Taskforce.

So far, the ATO has confirmed that the leaked information includes some taxpayers who have previously faced ATO investigations, as well as some who have already disclosed their offshore arrangements under Project DO IT. The ATO has also identified a large number of taxpayers who haven’t previously declared these offshore arrangements and they are looking into these cases.

ATO website updates

Small business tax concession reminder

The ATO has published a reminder to tax advisors about the tax concessions available for small businesses. A number of these tax breaks are available only to businesses with a total turnover of less than $2m. These include a 1.5% company tax cut, immediate deductions of professional expenses for start-ups and no Fringe Benefits Tax payable for providing multiple electronic devices to employees. Access to accelerated depreciation for primary producers is available regardless of turnover. These concessions were discussed in detail in our previous publication Some Welcome Tax Relief for Small Businesses.

Speech by Commissioner: 31 March 2016

The Commissioner of Taxation Chris Jordan recently delivered an address to the 12th International Conference on Tax Administration at the University of New South Wales. In the speech titled ‘Better services and a better experience for Australians’ he discussed the mission and future direction of the ATO. He also highlighted issues such as a reduction in red tape, promoting a user-driven design and a greater focus on technology, as being key areas in which the ATO has focused in recent years.

Foreign residents and CGT withholding

New rules will soon come into effect under the Tax and Superannuation Laws Amendment (2015 Measures No. 5) Bill 2015 regarding foreign residents who dispose of certain taxable Australian property. These changes have been discussed in our recent publication Foreign Resident CGT Withholding Tax. The types of property affected include real property, lease premiums, mining rights, interests in companies that hold these types of properties and interests or rights to acquire these types of property. When they dispose of the asset, the purchaser will be required to withhold 10% of the purchase price and pay that amount to the ATO. This regime will apply to contracts entered into on or after 1 July 2016. This withholding regime has certain exceptions including real property transactions with a market value less than $2m, so most residential property sales should be unaffected.

FBT: cents per km

The ATO has announced a special arrangement for Fringe Benefits Tax returns for the year ended 31 March 2016. The ATO has stated that the correct cents per km rate for employee’s cars is 66 cents per km for all cars. Due to uncertainty it will be accepting FBT returns based on the 2014/15 cents per km rates, which vary according to the car’s engine size.

ATO reviews trust distributions

The ATO is reviewing certain trust distributions to Self-Managed Super Funds where they believe that income diverted to these funds are non-arm’s length. They are looking at complex arrangements between related entities in a private group, which result in large capital gains or inflated income being distributed to these funds which is then taxed at the 15% concessional tax rate, rather than the top marginal rate.

Holiday homes and deductions

The ATO has issued an online publication regarding tax issues taxpayers may face when renting their holiday homes to others including the treatment of expenses and whether deductions can be claimed will be affected by your particular circumstances. This guide sets out four main areas.

Where a holiday home is not rented out

 

If a holiday home is not rented out, a taxpayer would not include anything in its tax return until it is sold, however records must be kept from the time of purchase to work out capital gain

Is your holiday home genuinely available for rent?

 

Deductions are only available for expenses in respect of properties that are genuinely available for rent to the public. Factors showing whether it is genuinely available include:

  • the advertisement of the property and whether it limits exposure to potential renters;
  • the location, condition or accessibility of the property;
  • whether unreasonable conditions are placed on the property, which make it unlikely that the property will be rented; and
  •  the refusal to rent the property to interested people without good reason.
Claiming deductions for a holiday home that you use and also rent to others Where a property is used for private purposes and also rented to the public deductions are limited to the proportion of expenses that relate to the rental use, based on the amount of time that is dedicated to each use of the property. Please be aware that ‘private purposes’ includes use by you or your family, relatives and friends free of charge. Importantly, if you also rent the property to these people at below market rates, your deductions will be restricted.
Claiming deductions for the cost of travel to inspect or repair a holiday home that you rent to others

The rule of thumb is that you can claim reasonable costs relating to inspecting, maintaining and making repairs to the property. You may only claim travel expenses where the maintenance was the sole purpose of the trip. Where you make the trip to undertake maintenance but also for private purposes, then you will not be able to claim a deduction for your travel expenses.

 

Legislation and government policy

Legislation released – increased access to company losses

The Federal Government has released the draft legislation Tax and Superannuation Laws Amendment (2016 National Innovation and Science Agenda) Bill 2016, which looks to implement part of its National Innovation and Science Agenda. One of the measures under this agenda is to allow businesses that have changed ownership, to access past year tax losses under certain circumstances.

Under the current law, businesses that have changed ownership must satisfy the ‘same business test’ to access past year tax losses. This amendment acts to supplement this test with a more flexible ‘similar business test’. The aim of this new test is to allow businesses to seek out new opportunities to return to profitability.

This test will be satisfied where the new business is a “similar business” to the former one. Whether you have satisfied this test will depend upon each particular set of circumstances, taking into account:

  • the extent to which the business generates assessable income from the same assets or sources; and
  • whether any changes that were made to the business are changes that would reasonably be expected to have been made to a similarly placed business.

Please note that where your business has not undergone any real change following a change in ownership, the same business test is still accessible to businesses.

Contact

Melinda Woledge

Marketing & Communications Manager

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