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Welcome to the
January 2017 edition of the Spry Roughley Report.

Happy New Year! I am hoping 2017 will deliver a surprising better-than-expected outcome for us all, in spite of the potential for international uncertainty, gyrations in exchange rates and probable rising interest rates. There are some positives out there!

The big story for many at the moment is around the superannuation changes, now legislated. Once again our elected representatives cannot help themselves and have remade the complexity in the superannuation system that had largely been removed. With the proposed definition of the purpose of superannuation as a supplement to, or substitute for, the Aged pension, our esteemed leaders will have no impediment to continually wind back superannuation concessions for people considered to be better off than pensioners. Watch these developments!

At this stage however it seems to me that bulking up ones superannuation to whatever extent is available is the logical opportunity, particularly if you expect to have personal taxable income outside superannuation in retirement. Even amounts above the $1.6 million allowable pension balance will be tax effective within superannuation as accumulation balances for those people. The window of opportunity under the existing ("old") rules runs only until 30th June this year so if you are thinking about your strategy, especially if you can take advantage of the 3 year bring forward contribution rule, now is the time to seek advice and organise the appropriate funding.

Amongst the changes to superannuation contributions, one of the most sensible is the proposal to allow a deduction for personal superannuation contributions without having to ensure that less than 10% of ones income is employment related. Of course, the contribution caps still apply to personal and employer contributions so concessional contributions (tax deductible) will be limited to $25,000 from 1 July 2017. The change in rules regarding deducting personal contributions will apply for the 2017/18 tax year, but note, personal superannuation deductions cannot add to tax losses. Yes – it is complicated!

An insightful holiday read – "Leadership in Action" - by John Cantwell. A short and easy to read book addressing the essence of effective leadership. I particularly liked the concept of "authenticity" as the primary personal attribute of effective leaders. John Cantwell rose through the armed forces to the rank of Major General, serving in the Gulf War, Iraq, and Afghanistan, and was awarded the Distinguished Service Cross. His leadership insights were collected through his experience in the forces and in civilian life and are very insightful. I recommend his book for anyone interested in effective leadership as it is not another "how-to" manual or formulaic prescription.

An interesting development is the move to legislate on the proposal to apply GST from 1 July, 2017 to low-value imported goods purchased by consumers from overseas suppliers. The proposal is that GST will be payable on items costing less that $1,000 if the goods are brought to Australia with the assistance of the supplier. The mechanics are that the overseas supplier will be required to register for GST, using a vendor collection model – a world first, although the EU is also moving in a similar direction.

In other news …

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

Martin Roughley, Director
Spry Roughley Services Pty Limited


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Contrived trust arrangements in ATO sights

The ATO has cautioned taxpayers against arrangements that seek to minimise tax by creating artificial differences between the taxable net income and distributable income of closely held trusts. Deputy Commissioner Michael Cranston said the ATO is investigating arrangements where trustees are engineering a reduction in trust income to allow taxpayers to improperly gain favourable tax breaks, or sometimes to pay no tax at all.

Although he noted that many people use trust structures appropriately and within the law, Mr Cranston said the ATO has seen some trustees exploit the differences between trust net income and distributable income to have the net income assessed to individuals and businesses that pay little or no tax, and allow others to enjoy the economic benefits of the net income tax-free.

The ATO has identified problematic arrangements through the Trusts Taskforce's ongoing monitoring and reviews, and will continue to look for similar arrangements using sophisticated analytics. Please contact our office for further information.

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GST and countertrade transactions

The ATO has issued a Practical Compliance Guideline which sets out the Tax Commissioner's compliance approach, in the context of GST, to entities that enter into countertrade transactions as part of carrying on their enterprise. "Countertrade" refers to the direct exchange of things by one entity for things provided by another entity, and does not include transactions where any of the consideration is monetary.

Each entity to a countertrade makes a supply and an acquisition. The Commissioner is aware of various practical problems in the context of these transactions and notes that the compliance and administrative costs may be unnecessarily burdensome where such transactions have no net revenue effect. Accordingly, the Guideline seeks to apply a practical compliance approach for certain countertrade transactions that are GST-neutral.

The Practical Compliance Guideline is only applicable in relation to GST – not for any other purpose or in relation to any other tax obligations and entitlements. It also only applies in specified circumstances, including where the countertrade transactions account for no more than approximately 10% of the entity's total number of supplies.

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Companies held to be resident and liable to tax in Australia

In a long-running saga, the High Court has unanimously dismissed the appeals of four corporate taxpayers. The Court confirmed the taxpayers were Australian residents for income tax purposes, and therefore liable to tax in Australia on the profits they made from share trading activities on the Australian Stock Exchange. In making this decision, the Court rejected the taxpayers' contention that because Justice Perram had in the first case found that the directors of each taxpayer were resident abroad, and because meetings of those directors were held abroad, then Justice Perram and the Full Federal Court should have held that the central management and control of each company was exercised abroad, and therefore that the companies were not residents of Australia for income tax purposes.

The High Court held that, as a matter of long-established principle, the residence of a company is a question of fact and degree to be answered according to where the company's central management and control actually occurs. Moreover, the Court emphasised the answer was to be determined by reference to the course of the company's business and trading, rather than by reference to the documents establishing its formal structure and other procedural matters.

The High Court further held that the fact the boards of directors of the companies were located in overseas countries was insufficient to locate the companies as "foreign residents" in circumstances where (as found in the first case) the boards of directors had abrogated their decision-making in favour of a Sydney-based accountant, and only met to mechanically implement or rubber-stamp decisions that he made in Australia.

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Payment was assessable as "deferred compensation"

The High Court has unanimously dismissed a taxpayer's appeal and held that payments of US$160 million made to him pursuant to an incentive "profit participation plan" after termination of his employment was income according to ordinary concepts. In particular, the Court found that the payments were "deferred compensation" for the services the taxpayer performed in his employment. At the same time, the Court dismissed the taxpayer's claim that the amount was assessable as a capital gain on the basis that it did not represent the proceeds for the future right to receive a proportion of company profits he was entitled to.

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ATO data-matching programs continue

The ATO has advised that it will continue with the following data-matching programs.

Share transactions

Data about share transactions will be acquired for the period 20 September 1985 to 30 June 2018 from various sources, including stock transfer companies. The ATO will collect full names and addresses, purchase and sale details, and other information. The program aims to ensure that taxpayers are correctly meeting their tax obligations in relation to share transactions. It is estimated that records relating to 3.3 million individuals will be matched.

Credit and debit cards

Data about credit and debit card transactions will be acquired for the 2015–2016 and 2016–2017 financial years from various financial institutions. The ATO will collect details (such as name, address and contact information) of merchants with a credit and debit card merchant facility and the amount and quantity of the transactions processed. The program seeks to identify businesses that may not be meeting their tax obligations. It is estimated that around 950,000 records will be obtained, including 90,000 matched to individuals.

Online selling

Data will be acquired relating to registrants who sold goods and services to an annual value of $12,000 or more during the 2015–2016, 2016–2017 and 2017–2018 financial years. The ATO said data will be sought from eBay Australia and New Zealand Pty Ltd. The data will be used to identify those apparently operating a business but failing to meet their registration and/or lodgment obligations. It is estimated that between 20,000 and 30,000 records will be obtained.

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Tax debt release applications refused

The Administrative Appeals Tribunal (AAT) has recently refused the applications of two individuals who sought to be released from their tax debts under the tax law.

Case 1

An individual suffering from Parkinson's disease had received income protection policy payments and sought to be relieved from the related tax debts, which totalled $130,416. He said he was unable to dispose of his home or an investment property to pay the debts, as there were mortgages over the properties in favour of his wife. The individual also argued that selling the properties would compound his illness and make it more difficult to meet his living needs. Although the AAT accepted that serious illness was a consideration, after reviewing the circumstances it held that the taxpayer would not suffer serious hardship if he was required to pay his tax liability. The AAT said the taxpayer did not make proper provisions to meet his tax liabilities and preferred to pay his other debts. Accordingly, relief was not granted.

Case 2

A Sunshine Coast real estate agent sought to be relieved from his tax debts, which totalled $437,681 as at 11 August 2016. He argued he had an outstanding compliance history and that his circumstances were the result of a catastrophic financial event in 2005, among other things. The Commissioner pointed to the taxpayer's "unusually high level of discretionary spending, including on holidays, dining out and entertainment, which could be reduced". The AAT said the taxpayer had a "poor compliance history" and agreed with the Commissioner's description of his discretionary spending. The AAT was of the view that the taxpayer "simply gave priority to other matters and ignored his tax obligations". The AAT accordingly refused the application for relief.

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Our firm is built on being attentive to and extensively knowledgeable about our clients so we can work with them to help them to both achieve their goals and protect them from risk. We are forward looking in our advice and always aim to be practical and right.

– Martin Roughley, Managing Director

In business, there is so much going on and you don’t always have all the answers. That’s when you need to know who to call. Our clients call us.

– Shaun Madders, Director

Going beyond the compliance and routine is what we do. By maintaining open and frank communication we are able to provide valuable insights and assist in driving the changes required to help our clients achieve their goals.

– Fergus Roughley, Director