Non-commercial loan rules: Government responds to farmers concerns

The government has clarified aspects of its 2009-10 Federal Budget proposal to tighten the non-commercial loan rules to ensure rural and small business communities are not unintentionally impacted, in particular, where a residence in located at the business itself. The measure will now include two new features:

• An 'otherwise deductible rule' for certain payments — any 'business use' assets that are provided to a shareholder under a right-to-use or a licence (but not a lease of real property) will be disregarded from the amount of any 'payment' made to shareholders as they will be deemed to be otherwise deductible.
• A 'residence exemption' for certain payments — any residence that is an integral part of the business real property and is owned by a private company but is lived in under a right-to-use or a licence as part of the carrying on the business is disregarded.

Draft legislation amending Division 7A of the ITAA 1936 to give effect to the final form of this measure will be released shortly for public consultation.

GST administration reforms: second consultation paper

The Assistant Treasurer, Senator Nick Sherry, has released a second consultation paper on reforms to GST administration aimed at improving the operation of the tax law. He said the measures address a range of concerns raised by business, large and small. The second paper includes GST self-assessment, adjustments, general law and tax law partnerships, bare trusts and running balance accounts.

The majority of the measures will apply from 1 July 2010 and consultation closes on Friday 9 October 2009.

Members who have comments on the proposed administrative reforms can email us at tax@cpaaustralia.com.au by Friday 2 October 2009 for inclusion in a possible CPA Australia submission.

Employee share schemes: further draft legislation

Treasury has released for comment further draft legislation to implement the government's reform to the taxation of employee share schemes. The further draft legislation covers the application and transitional provisions, which were not included in an earlier package of exposure draft legislation. Submissions are due by Tuesday 22 September 2009.

CPA Australia would welcome any comments by members on this draft legislation which can be emailed to us at tax@cpaaustralia.com.au by Monday 21 September 2009.

Abolition of CGT trust cloning exception: ATO treatment

The ATO has released details of its administrative treatment regarding the government's proposal to abolish the CGT trust cloning exception and provide a limited CGT roll-over for the transfer of assets between fixed trusts. The ATO says taxpayers affected by the announcement that are self-assessing before the proposed change becomes law, should apply the existing law. When the law is enacted, the ATO says taxpayers will then need to seek an amendment to their assessment.

Draft legislation on removal of the ‘trust cloning’ exception was released for public comment on 2 September (see CPA Tax News of 3 September 2009) with comments due by Wednesday 30 September 2009. Copies of the consultation materials are available from the Treasury website.

Upcoming consultations and meetings

• NTLG meeting (17 September)
• Building & Construction Industry Forum (22 September)
• NTLG meeting on Division 7A/UPE issues (25 September)
• ATPF Accounting Working Group (2 October)
• NTLG TOFA Working Group (20 October)
• ATPF Active Compliance Working Group (22 October)

Member enquiries or issues for these meetings can be sent to tax@cpaaustralia.com.au

ATO technology to identify tax fraud

The Commissioner of Taxation, Michael D'Ascenzo, has warned taxpayers against claiming refunds they are not entitled to and says the ATO has invested in new technology to identify sophisticated and basic scams. 'Of the 3.6m tax returns already lodged up to last week, this new technology has identified more than 25,000 high risk returns worth approximately $260m, which we are currently investigating,' said Mr D'Ascenzo.

ATO as a model litigant

The Commissioner of Taxation, Michael D'Ascenzo, recently delivered a speech on the ATO being a model litigant. Mr D'Ascenzo said the ATO's practices and procedures help ensure that the ATO acts as a model litigant. However, he said in many cases it is in the best interests of all to have matters resolved before they get to that stage.

Five ATO Decision Impact Statements

The ATO has released the following five Decision Impact Statements:

• Lilyvale Hotel Pty Ltd v FCT [2009] FCAFC 21 — in this case, the Full Federal Court allowed the taxpayer's appeal from the decision in Lilyvale Hotel Pty Limited v FCT [2008] FCA 1031. In that case, the Federal Court held the taxpayer was not entitled to a deduction for prior year losses because it did not satisfy the 'same business' test as it used a hotel management company to manage the daily operations of the hotel after the relevant change in ownership of the business. The ATO said the case essentially involves the application of established principles to particular facts.

• Finerty v DCT [2008] FCA 1136 — the Federal Court affirmed the Commissioner of Taxation's decision in respect of the assessments of income tax and penalty namely for the years ended 30 June 2001 to 30 June 2003 inclusive. However, the court set aside the Commissioner of Taxation's decision to the extent it pertained to tax shortfall penalty for the year ended 30 June 2000 which was conceded as improperly imposed by the Commissioner of Taxation.

• AAT Case [2009] AATA 368, Re WRBD and FCT — the AAT confirmed that a taxpayer was not entitled to a deduction of over $830,000 under s 70B of the ITAA 1936 for the loss on the disposal of a traditional security. The ATO said the Commissioner of Taxation considers that the case confirms his view on the interpretation of s 70B(4) and will be applied in any case with similar facts.

• AAT Case [2008] AATA 1138, Re Berghofer and FCT — the tribunal held the payments received by the taxpayer were assessable as ordinary income and not as a bounty or subsidy. The ATO said the decision to classify the payments received by the taxpayer as ordinary income was open to the tribunal on the facts. However, it said if the payments received were not ordinary income, the Commissionerof Taxation maintains the payments received would be included in assessable income under s 15-10 of the ITAA 1997 as bounties or subsidies received in relation to carrying on a business.

• AAT Case [2008] AATA 3, Re Sonntag and FCT (2008) 68 ATR 354 — the tribunal found the taxpayer's income tax assessment for the year ended 30 June 2002 was excessive. The tribunal also reduced the shortfall penalties in view of extenuating circumstances. The ATO said the decision turns on its facts.

ATO IDs: four new; eight withdrawn

The ATO has released the following IDs:

• ATO ID 2009/100: complying superannuation fund: deductibility of premiums on 'whole of life policy' s 295– 465(1) of the ITAA 1997

• ATO ID 2009/101: capital allowances: tax break — use of an asset merely for the purposes of reasonable testing or trialling

• ATO ID 2009/102: consolidation: second element of cost base of shares — blackhole expenditure

• ATO ID 2009/99: complying superannuation fund: deductibility of premiums on 'whole of life policy' — para 279(1)(a) of the ITAA 1936

The ATO has withdrawn the following IDs:

• ATO ID 2001/489: superannuation contributions surcharge assessment — calculation of a member's surchargeable contributions and adjusted taxable income

• ATO ID 2001/516: superannuation contributions surcharge assessment — calculation of a member's surchargeable contributions and adjusted taxable income

• ATO ID 2002/606: superannuation contributions tax: employer contract payment and the calculation of adjusted taxable income

• ATO ID 2003/1006: assessability of Japanese age pension paid to resident of Australia

• ATO ID 2004/239: assessability of salary and wages received by an Australian resident working in Japan

• ATO ID 2004/564: capital allowances: hold — assets attached to land by licensee

• ATO ID 2004/771: assessability of employment income derived by Australian resident individual working in Japan

• ATO ID 2004/772: assessability of employment income derived by a dual resident of Australia and Japan from working in Japan

ATO website updates

From the ATO website:

• Personal tax advisory group minutes of 9 July meeting — issues discussed included: Federal Budget update; tax bonus payments; natural disasters; global economic downturn; e-tax and pre-filling 2009 update; and more

• Information on using the Tax Agent Portal to register GST and ITW tax types and to cancel specific tax types

• Pre-filling 2009 — updated to reflect the increased amount of information which is now available in the 2009 pre-filling report on the Tax Agent Portal

• Employee share schemes — answers to frequently asked questions by employees

• Australian Health Management Group Pty Limited (AHM) demutualisation payments — how tax applies to payments received under the demutualisation of AHM

• Agreements for the allocation of taxing rights with respect to certain income of individuals — explains what is an Agreement for the Allocation of Taxing Rights with Respect to Certain Income of Individuals

• Non-profit news service no 0253 — private ancillary funds: legislation passed — the ATO said it will advise of new publications, or updates of existing publications, as a result of the amendments

• Excise and brew on premises shops — provides information on how to apply for a brew on premises shops licence and how to comply with excise obligations

• Amended definition of grape wine product — FAQs

• ATO Practice Statement Law Administration program has been updated as at 7 September

• ATO Public Rulings Program has been updated as at 11 September

• GST rulings update — 1 May 2009 to 31 July

• Leaders that make a difference — speech by the Commissioner to the Public Sector Management Program Graduation Ceremony, Canberra, 10 September

GIC and SIC rates for Oct-Dec 2009

The ATO has advised that the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) rates for the second quarter of the 2009-10 financial year (ie 1 October 2009 – 31 December 2009) are as follows: 

• GIC rate — 10.30 per cent

• GIC daily compounding rate — 0.02821918 per cent

• SIC rate — 6.30 per cent

• SIC daily compounding rate — 0.01726027 per cent

Tax Bill (No 4) awaits assent

The Tax Laws Amendment (2009 Measures No 4) Bill 2009 has passed all stages without amendment and awaits royal assent. The bill contains amendments concerning: prescribed private funds; demutualisation of friendly societies; consolidation (transferred losses); R&D tax offset; other minor amendments.

Tax Bill (No 5) introduced

The Tax Laws Amendment (2009 Measures No 5) Bill 2009 has been introduced in the House of Representatives. It contains amendments relating to: GST and representatives of incapacitated entities; interest withholding tax exemption for Commonwealth issued debt; PAYG and TOFA interaction; use of Victorian bushfire appeal donations; remote children payment exemption; and Continence Aids Payment Scheme exemption.

Private health insurance rebate changes: Bills defeated in the Senate

The package of bills designed to give effect to 2009 budget changes concerning the private health insurance rebate and consequential medicare levy surcharge changes was defeated in the Senate on 9 September.

The bills proposed to give effect to 2009 budget changes to effectively income test the private health insurance rebate and to increase the medicare levy surcharge for people earning over certain income amounts.

Lost members' super accounts: draft legislation

Treasury has released draft legislation to implement the government's 2009-10 budget measure to require superannuation funds to transfer certain small and unidentifiable accounts of lost members to the Commissioner of Taxation as unclaimed monies. Submissions are due by Friday 25 September 2009.

SMSFs: social security waiver for asset-test exempt income streams

The following legislative instruments have been registered to waive any debt due to the Commonwealth in respect of income streams sourced from a self-managed superannuation fund (SMSF) that are no longer able to meet the 'high probability' actuarial test for a social security asset-test exemption:

• Social Security (Waiver of Debts - Self Managed Superannuation Funds) (FaHCSIA) Specification 2009, registered 10 September.

• Social Security (Waiver of Debts - Self Managed Superannuation Funds) (DEEWR) Specification 2009 (No 1), registered 11 September.

These instruments allow for this class of debts to be waived until 30 June 2010.

The following rulings were released by the ATO on 16 September:

• Draft TD 2009/D8: to obtain a deduction under s 25-90 of the ITAA 1997 for a cost in relation to a debt interest does the taxpayer have to actually derive a dividend to which s 23AJ of the ITAA 1936 applies in the same income year as that in which the cost is incurred?

• PR 2009/49: Macquarie Almond Investment 2009 - Late Grower

• CR 2009/50: Department of Human Services (Vic) Disability Support Direct Payments Project

• CR 2009/51: Scrip-for-scrip: merger of Australian Wealth Management Limited and IOOF Holdings Limited

• CR 2009/52: FBT: employer clients of Australia and New Zealand Banking Group Limited (ANZ) who are subject to the provisions of s 57A of the FBTAA or who are rebatable employers under s 65J of that Act and whose employees make use of the ANZ Meal Entertainment Card facility

• CR 2009/53: FBT: employer clients of Australia and New Zealand Banking Group Limited (ANZ) who are rebatable employers under s 65J of the FBTAA and whose employees make use of the ANZ Salary Packaging Card facility

• Withdrawal of CR 2006/84: Department of Human Services (Vic) Disability Support Direct Payment Plan (replaced by CR 2009/50)

• Addendum to CR 2008/91: Provision of security camera systems to Queensland taxi service licence holders.

No grounds to impose 'avoidance scheme' penalties

In FCT v Star City Pty Limited (No 2), the Full Federal Court ruled that the Commissioner of Taxation could not rely on s 226L of the ITAA 1936 and s 284-145 of the TAA 1953 ('avoidance schemes penalties') to impose 50 per cent tax shortfall penalties of some $16m on the taxpayer in relation to its unsuccessful claim for a deduction for the prepayment of rent.

Tax agent registration refused

In AAT Case [2009] AATA 688, Re Cameron and Tax Agents' Board of Western Australia, the AAT confirmed the decision of the Tax Agents' Board of Western Australia to refuse to register the applicant as a nominee of a tax agent. In doing so, it agreed that the applicant had not satisfied the relevant academic qualifications as set out in the board's 'guidelines'.

NSW land tax: principal place of residence exemption allowed

In Hyde Page v Chief Comr of State Revenue, the NSW Administrative Decisions Tribunal held that two adjacent strata lots comprised 'a lot' and therefore allowed the principal place of residence (PPR) land tax exemption for a taxpayer in respect of the lots for the 2008 land tax year.

Taxation and budgeting programs

Public accounting fundamentals (claim up to 51.5 CPD hours upon completion of the full program)

This essential induction tool will prepare you for working in a public practice. Combining a fully revised set of learning manuals and a half-day workshop, you will progressively be taken through all the basics for day-to-day completion of tax accounts.

Program information – Learning manual

Transforming your operation's budgeting process (claim up to 12 CPD hours upon completion)

Remove the challenges in your budgeting process by aligning qualitative and quantitative budget techniques. Throughout this program, you'll explore case studies, complete budgets and observe techniques that will help you to produce higher quality budget information that is more useful for decision making.

Program information – CD-ROM and online

Congress 2009

Congress 2009

Featuring a world-class speaker line-up and a wide variety of highlight sessions at your fingertips, CPA Congress 2009 will provide you with the strategies, ideas and practical skills you need to tackle today's challenges.

Program information – Adelaide, Brisbane, Canberra, Melbourne, Perth, Sydney

Other programs

Financial management using Microsoft® Excel (claim up to 7 CPD hours per workshop)

Learn to effectively use spreadsheet applications and pivot tables to develop financial models that increase the accuracy of your forecasting, budgeting and strategic planning.

Program information – Brisbane, Melbourne, Sydney

On the pulse with Peter Switzer webinar (claim 1 CPD hour)

Join Peter Switzer as he interviews some of the country's most successful business leaders and CPAs in this webinar series.

Program information - webinar

More training and events

For information on other CPA CPD activities being held throughout Australia please visit the training and events section on our website and use the search facility. To register click onto the activity you wish to attend and follow the prompts.

Company cars: the alternatives DVD

This program examines the taxation of company cars and cars used for work purposes. It starts with a review of the two methods of taxing cars under the Fringe Benefits Tax Act and the five methods available for private individuals claiming a tax deduction for business use. It also deals with car allowance and salary packaging of company cars.

Reserve from CPA Library

Australian Financial Review

'Row over super savings' (Report of a dispute between treasury and the super industry over definition of an 'adequate' retirement income) AFR [p 1], Wed 16.9.2009

'Waiver lifts Centrelink payback fear' (Legislation has been introduced so that DIY super funds don't have to repay any government age pension if they have to restructure) AFR [p 31], Wed 16.9.2009

'Farmers to be exempt from 'deemed dividend' rule' (Farmers will be exempt from budget tax changes concerning the non-commercial loan rules) AFR [p 10], Tue 15.9.2009

'Wickenby win' (Report that federal court dismisses claim to have evidence thrown out in Wickenby tax case) AFR [p 11], Tue 15.9.2009

'Identity thieves lay siege to online tax returns' (Tax Office targets tax refund fraud with new technology) AFR [p 31], Tue 15.9.2009

'Help that boosts the bottom line' (Claim that relationships between accountants and SMEs are not as strong as might be believed) AFR [p 48], Tue 15.9.2009

'Carbon tax would be a backward step' (Opinion against imposing a carbon tax) AFR [p 63], Tue 15.9.2009

'Crackdown on duty-free rules' (Report of a federal government crackdown on big projects claiming tariff and import duty concessions) AFR [p 5], Mon 14.9.2009

'Tax breaks for company cars targeted' (Report that business, unions and green groups campaign for a rewrite of tax breaks for company cars) AFR [p 6], Mon 14.9.2009

'Bid to boost super for women' (A parliamentary committee looks at extending compulsory super to those who earn less than $450 a month and those over 70) AFR [p 14], Fri 11.9.2009

'Senate rejects health bill' (Bills to income test health insurance rebate defeated in the Senate) AFR [p 9], Thur 10.9.2009 

'High-profile investors lose tax fight' (Investors lose fight with Tax Office re deductions for investment in a retirement village scheme) AFR [p 10], Thur 10.9.2009

The Australian

'In search of tax perfection' (Article on tax academics' views on tax research and study and its place in academia and policy-making) AUSTRALIAN [p 31], Wed 16.9.2009

'CPA spreads out to Singapore' (Report that CPA Australia is offering accreditation courses for tax accountants working in Singapore) AUSTRALIAN [p 31], Wed 16.9.2009

'One strike and you're out under new rules' (Article on the new pension income test coming into effect on 20 September 2009 and effect on higher earning retirees) AUSTRALIAN [Wealth, p 8], Wed 16.9.2009

'New partnership encourages extra cover option' (Report of a super fund offering automatic income protection insurance as part of default arrangement) AUSTRALIAN [Wealth, p 8], Wed 16.9.2009

'Exceed limit and risk tax' (How much should be refunded if an SMSF exceeds the contribution caps?) AUSTRALIAN [Wealth, p 8, Wed 16.9.2009

'Beware the clawback' (Article on protecting super in the event of bankruptcy) AUSTRALIAN [Wealth, p 9], Wed 16.9.2009

'Tabcorp's $16m win against tax office' (Report that a taxpayer has been successful in the Full Federal Court regarding penalties and dispute over deductibility of prepayment of rent) AUSTRALIAN [p 25], Mon 14.9.2009

'Retirement village investors lose big taxation case' (Report that the High Court has refused to hear a tax dispute re deductions) AUSTRALIAN [p 21], Thur 10.9.2009

CPA Australia seeks your input on issues it should take up on the members' behalf. If you would like to contact us please email us at tax@cpaaustralia.com.au.

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