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TAX | NEWS | VIEWS & CLUES
This month the focus in the Report reflects the increasing activity of the Tax Office in pursuing revenue protection and compliance. This brings to mind the importance of getting good advice before one enters into transactions. I have been involved in some company structure matters and realised that the possibility of incorporating a company with dividend distribution flexibility, yet with protection for access to the Small Business Capital Gains Tax concessions, is probably beyond the understanding of most people. A salient reminder of this was when a potential client indicated that they could form their own company over the internet, very cheaply. After a brief conversation they realised our law and taxation is much more complex and to have the flexibility of the best options in the future, it is vitally important to get the set up right from inception! Reading in the press of the tax review proposals and the difficulty in extracting tax from large multi-national corporations, this is not about the change. For some interesting developments this month, read on.
As usual, please do not hesitate to call us on (02) 9891 6100 should you wish to discuss how any of the points raised in the report specifically affect you, or click here to send us an email. Warm regards, Martin Liability limited by a scheme approved under Professional Standards Legislation Separate ATO appeals unit needed to resolve tax disputes Single Touch Payroll consultation noted big changes afoot According to the Government, Single Touch Payroll would cut red tape for employers and simplify tax and superannuation reporting. Single Touch Payroll is expected to be launched in July 2016. In a brief public consultation period, the ATO highlighted potential impacts that the implementation of Single Touch Payroll could have on employers. Businesses or their payroll providers may be required to either purchase or upgrade existing software, potentially at an additional cost. Another concern is the immediate impact on cash flow, particularly during transition. Time limits on trustee tax assessments clarified Generally, the ATO notes it will not issue an original trustee assessment more than four years after the relevant trust tax return was lodged, or more than two years after lodgment for the 30 June 2014 and later income years if the trust was a small business entity (and certain specific qualifications under the tax law do not apply). However, the ATO notes that the time limits can be extended in certain cases. The following example illustrates the time limit within which the ATO can raise an original trustee assessment: The 2010 income tax return for the Oak Family Trust was lodged on 9 May 2011. The trust was not a small business entity for the 2010 income year. An audit of the trust reveals that some of the trust net income should be assessed to the trustee. The Practice Statement provides that the Tax Office must issue an assessment to the trustee by 9 May 2015 (unless the time limit is extended).
GST credits for employee accommodation refused The Federal Court has held in the recent decision of Rio Tinto Services Ltd v FCT [2015] FCA 94 (handed down on 19 February 2015) that the taxpayers are not entitled to input tax credits for providing remote region residential accommodation to employees who are required to live remotely in order to carry out their employment duties. Broadly, the Federal Court held that the taxpayer, Rio Tinto, was not entitled to input tax credits for the acquisition made by Hamersley Iron Pty Ltd (Hamersley), a related company in Rio Tinto's GST group, in providing and maintaining heavily subsidised residential accommodation for their employees in the remote Pilbara region of Western Australia, where they conducted mining operations. The Federal Court was prepared to accept that Hamersley's leasing activities may have been wholly incidental to its mining operation and merely a means to carrying on its business. However, the Court denied Hamersley input tax credits in relation to that activity on the basis of a narrower interpretation that the acquisition "relates to" the supply of residential accommodation by way of lease, being an input taxed supply (which means there is no GST credit). At the time of writing, Rio Tinto has appealed to the Full Federal Court against the decision handed down by the Federal Court. The principles followed by the Federal Court could have wide-reaching implications for GST registered businesses, and the appeal process should be followed closely. Penalty for promoting pharmaceuticals donations scheme The ATO noted the penalty of $1.5 million was the "highest civil penalty to date". In commenting on the decision of the Federal Court, ATO Deputy Commissioner Tim Dyce said the scheme involved the purchase and donation of AIDS pharmaceuticals to charities in Africa. "As we discovered, the purchasers only paid 7.5% of the grossly inflated price of the drugs, yet claimed tax deductions of 100%," said Mr Dyce.
Before the AAT, the taxpayers sought to argue that, contrary to the position they took on claiming the tax concessions on the lodgment of their tax returns, they did not qualify for the concessions. However, the AAT held the taxpayers did qualify for the concessions. It also held that, after finding that the steps to "restructure" the business constituted a "scheme", the general anti-avoidance rules under the tax law applied to cancel the "tax benefit". The AAT found the taxpayer entered into the scheme for the dominant purpose of obtaining a tax benefit (reduced tax) and not for any asset "protection purpose". The ATO uses data-matching to identify taxpayers that may be inappropriately seeking the CGT small business concessions. Business "restructures" which occur just prior to a particular transaction which result in significant tax benefits could potentially raise red flags. Where a restructure is effected for purposes such as asset protection (which the courts have said is a legitimate non-tax purpose), such benefits must be real and not simply illusory. |
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