Thinking | 1 July 2016
Talking Tax – Issue 39
Victorian Supreme Court denies taxpayers primary production land tax exemption
In CDPV Pty Ltd & Ors v Comr of State Revenue  VSC 322, the Supreme Court of Victoria (Court) dismissed the taxpayers’ appeal, denying them the primary production land tax exemption under sections 66 and 68 of the Land Tax Act 2005 (Vic) (Act).
The Court was required to determine whether, from 2009 to 2012, the land in question had ‘the character of land that is used primarily for cultivation for the purpose of selling the produce of cultivation’, so as to satisfy the definition of primary production in section 64 of the Act. The land had been sold in 2009 to a land developer. The taxpayers alleged that this sale was made subject to a share farming agreement, however the evidence to substantiate such an agreement was vague and inconsistent.
The Court formed the view that the taxpayers and/or the land developer were simply trying to take the bare minimum action required to satisfy the primary production land tax exemption. The Court found that the only relevant activities were the controlling of weeds, general maintenance, rock clearing and the planting of wheat, but that the wheat had not been harvested nor used to generate income. The Court stated that weed control and rock clearing activities were not primary production activities, and accordingly dismissed the taxpayers’ appeal.
The ATO’s proactive approach to early engagement reviews
As part of its theme of ‘reinventing’ itself, the ATO has introduced a new, proactive approach aimed at early engagement with taxpayers. The ATO intends to make early inquiries into, and review, particular transactions before they are reported in an end of year tax return. The purpose of this early engagement is gain more information and understanding of the relevant transaction, and use the taxpayer’s response to determine whether it will then undertake a formal audit or risk review of the transaction.
In its inquiry, the ATO is likely to request information relating to the details of the transaction, the relevant parties and the related tax issues and consequences.
The ATO provides guidance on the ‘in Australia’ condition for DGRs
The ATO has recently released guidance for certain deductible gift recipients (DGRs), such as public benevolent institutions (PBIs) and health promotion charities (HPCs), which are intending to expand their activities overseas. The guidance provides greater flexibility and certainty for these entities.
In the past, the ATO has adopted a strict interpretation of the ‘in Australia’ condition in the Income Tax Assessment Act 1997, which effectively restricted PBIs and HPCs from expanding internationally and providing relief to beneficiaries overseas. Under the ATO’s guidance, these entities may now have activities, purposes and beneficiaries overseas, but nevertheless still satisfy the ‘in Australia’ condition so long as they are ‘established and operated’ in Australia.
ATO guidance on the preparation of 2016 unit trust distribution statements
The ATO has released interim guidance on the application of subsection 104-71(4) table item 7 of the Income Tax Assessment Act 1997. That is, where the trustee of a unit trust has applied capital losses against capital gains and then distributes those gains, it will need to determine the assessable, tax deferred and CGT concessional components of those distributions. The ATO considers the part of the distribution that has been offset against capital losses should be classified as a tax deferred distribution and not treated as a CGT concessional amount.
The ATO has outlined that it plans on issuing a draft tax determination and receiving comments before it releases its final view on the relevant law. Nevertheless, this guidance is still relevant for trustees completing 2016 distribution statements for unit trusts.
Legislation and government policy
Queensland State Budget introduces transfer duty surcharge on foreign purchasers
Budget Paper no.2 of the Queensland State Budget, released on 14 June 2016, introduces a 3% transfer duty surcharge which will apply to the acquisition of residential property by foreign investors, effective from 1 October 2016. This surcharge, which is anticipated to raise $25 million per year in revenue, will be imposed in addition to the usual duty payable on such acquisitions. The purpose of the surcharge is to ensure that foreign purchasers of residential land, who benefit from Government services and infrastructure, are making a fair contribution to their delivery.
As the legislation giving effect to the surcharge is not yet available, there are a number of uncertainties regarding the proposal, in particular:
- whether any exception will be made to acquisitions on or after 1 October 2016, which are referable to the exercise of options which were acquired prior to 1 October 2016
- whether the surcharge will apply to commercial residential premises such as hotels, motels and retirement village
- how the proposal will be applied to residential development sites.
The introduction of this transfer duty surcharge mimics the actions of the Victorian Government, which initially introduced a 3% foreign purchaser duty applying from 1 July 2015 and has recently increased this to 7% from 1 July 2016.
NSW Budget update – Foreign property buyers to be hit with stamp duty and land tax hikes
On 21 June, the NSW Treasurer Gladys Berejiklian handed down the NSW Budget for 2016-17. The State Revenue Legislation Amendment (Budget measures) Bill 2016 (NSW) introduces a 4% surcharge purchaser duty on the purchase of residential real estate by foreign persons to commence on 21 June 2016. The surcharge is in addition to the duty payable on the purchase of residential property. In an additional hit foreign persons will no longer be entitled to the 12 month deferral for the payment of stamp duty for off-the-plan purchases of residential property.
The Bill also introduces a 0.75% surcharge land tax of the taxable value of residential land owned by a foreign person at midnight on 31 December in any year commencing in this calendar year. This tax is in addition to any other land tax otherwise payable by a foreign person. In relation to this surcharge, there is no tax threshold to exempt land below a specified value nor is there an exemption for land occupied as a principal place of residence.
As part of the Jobs Action Plan the payroll tax rebated for the second year of employment has increased from $3,000 to $4,000 for eligible employment commencing on or after 31 July 2016. The amendment restricts the rebate payable to employers that have 50 or less full time equivalent employees.
Labor announces proposals for tax reform
On 8 June 2016, Opposition leader Bill Shorten, released details of Labor’s 10 year plan. The key taxation features of the plan include:
- reducing the small business tax rate to 27.5% as proposed in the 2016/17 Budget
- not increasing the small business turnover threshold to $1 billion as proposed in the 2016/17 Budget
- not increasing the GST tax rate to 15%
- reducing the CGT discount from 50% to 25%
- restricting negative gearing to new housing from 1 July 2017
- closing multinational enterprise (MNE) tax loopholes related to profit shifting (e.g. by moving to a worldwide gearing ratio approach)
- reducing the R&D tax offset rates by 1.5 percentage points.
ACNC announces that charities are at risk of losing registration
The Australian Charities and Not-for-profits Commission (ACNC) has released a list of 2,000 registered charities that are at risk of having their charity status revoked for failure to comply with their obligation to submit an Annual Information Statement for two or more years. These charities, if they do not submit their 2015 Annual Information Statement by 30 June 2016, will be considered ‘double defaulters’ and the ACNC will issue them with notice of intention to revoke their charity status.
The ACNC has also noted that a number of charities have been informed about potential errors in their 2015 Annual Information Statement, and have been requested to review and correct any identified errors. To assist charities in doing so, the ACNC has provided a guide explaining the errors and outlining the necessary action that must be taken.
This article was written with the assistance of Tim Hutton, Paralegal
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