Talking Tax – Issue 42

Case law

Rawson Finances Pty Ltd v Federal Commissioner of Taxation [2016] FCAFC 95

The Full Federal Court has unanimously allowed a taxpayer’s appeal. In doing so the Court set aside a previous court order which authorised the issue of a draft letter of request to an officer of a foreign bank regarding evidence in relation to loans provided from the bank to the taxpayer, which was sought by the Federal Commissioner of Taxation.

The previous order was made having regard to section 7 of the Foreign Evidence Act 1994 as the Court at first instance found that the documents were in “aid of, or ancillary to, the request to examine” the officer of the bank about the nature of the loans. The Full Federal Court rejected this argument as it found that the questions attached to the court order were instead, “ancillary to the production of the documents”. Further, the Full Court found that the Court at first instance erred in concluding that the officer at the bank would be able to give evidence material to the issues in the proceeding as there was no indication that she had any personal knowledge of the arrangements.

At this point, it is not clear whether the Commissioner will appeal the decision. While the ATO lost this appeal, it is a further reminder of the ATO’s ability to access information held offshore through formal and informal channels. As more taxpayers expand their activities offshore, they are no longer ‘out of reach’ and should be cognisant of the fact that the ATO won’t just give up once the information trail leaves Australia.

Deputy Commissioner of Taxation v Fitzgerald [2016] NSWSC 971

The NSW Supreme Court has determined in favour of the Commissioner against Fitzgerald (Director) for a directors penalty notice of nearly two million dollars for unremitted PAYG amounts. The Court rejected the Director’s defence, that he did not receive the penalty notice and hence he did not have the opportunity to comply with the notice and appoint an administrator to the company within 21 days pursuant to section 269-25 (Notice) to Schedule 1 of the Tax Administration Act 1953.

This Court further confirmed that the service of a penalty notice on a director by the Commissioner will comply with section 269-50 if it is left at, or posted to an address that appears, from information held by ASIC to be, or have been within the last seven days, the place of business of the director. The Court also found that it is sufficient for the Commissioner to rely on ASIC records for this purpose.

This decision highlights the Commissioner’s reliance on ASIC records and the heavy, but imperative, burden placed on taxpayers to ensure that their contact details are regularly updated.

Arrigo v Commissioner of State Revenue [2016] VCAT 1111

The Victorian Civil and Administrative Tribunal (VCAT) has determined in favour of a taxpayer who sought a duty exemption in relation to a transfer of land under section 36 (Property passing to beneficiaries of fixed trusts) of the Duties Act 2000. The facts of the case were somewhat complex. A trustee of a unit trust purchased property consisting of five units on a “parent title” and paid stamp duty on these prior to the registration of subsequent child titles. The taxpayer was a unit holder of the trust. Subsequently, the five units were subdivided and one of the “child titles” reflective of a single unit was transferred to the taxpayer.

In coming to its decision that a duty exemption applied under section 36 of the Duties Act 2000, VCAT accepted the taxpayer’s argument that the original trust deed did not create a single trust to benefit each of the described unit holders, but rather an initial unit trust and subsequent fixed trusts which came into existence upon the creation of the child titles. Significantly, VCAT noted that the trust deed ensured that from the date of subdivision, the trust operated solely in relation to the taxpayer as the beneficiary of the subdivided property. Prior to that date the trust operated jointly for all five beneficiaries or groups of beneficiaries in relation to the un-subdivided property.

ATO updates

ATO releases Law Companion Guidelines on small business restructure rollover

LCG 2016/2 explains the tax consequences and adjustments that occur when a transferor and transferee choose to apply the small business restructure rollover in Subdiv 328-G of the Income Tax Assessment Act 1997 (ITAA 1997). The Guideline applies to transfers that occur on or after 1 July 2016 which involve a balancing adjustment event for a depreciating asset, trading stock, revenue asset, or a CGT event in respect of a CGT asset. The Guidelines sets out six practical examples to outline various scenarios involving small business restructures.

LCG 2016/3 explains the meaning of the term "genuine restructure of an ongoing business" in Subdiv 328-G of the ITAA 1997. The guideline also provides examples of features that are indicative of a restructure that falls within scope and features of a restructure that fall outside the scope of the subdivision. The examples that fall within the scope of that term include asset protection, maintaining essential employees, raising new capital and simplifying your affairs.

The LCGs reinforce that the rollover is available in a ‘genuine’ restructure. To the extent that a planned or unplanned sale or exit occurs soon after the restructure will give rise to heightened risk that the rollover is not available.

Legislation and government policy

 NZ Government to set up a foreign trust register

On 13 July 2016, The New Zealand Government announced that it will act on all recommendations from the Shewan Inquiry into foreign trust disclosure rules. The inquiry made a number of recommendations which proposed improvements to registration and disclosure requirements for the purpose of anti-money laundering and increased information sharing between government agencies. In the coming months, the Government intends to introduce legislation which will require a register to be kept, that is searchable by the NZ Internal Affairs and the Police and further imposing annual disclosure requirements.

NSW Land Tax Clearance Certificate Changes

From 1 July 2016, changes to the Conveyancing (Sale of Land) Regulation 2010 require a vendor, under a contract for sale of land, to provide a current Land Tax Clearance Certificate (known as a section 47 certificate under the Land Tax Management Act 1956) to a purchaser. This applies to all contracts entered into on or after the 1 July 2016. From this date, paper applications for a Land Tax Clearance Certificate will no longer be accepted at an Office of State Revenue (OSR) and must be lodged electronically through an OSR approved Client Service Provider. These certificates must be provided to the purchaser 14 days prior to settlement or if settlement occurs within 14 days from signing the contract, on the day of settlement.


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