Tax Round Up - PinnacleHPC Pty Ltd, Accountants, Griffith, NSW

TAXROUNDUP
KNOWLEDGE SHOP – MAY 2011
INSIDE MAY 2011
Knowledge Shop PD starts this
month! ......................................... 1
FROM GOVERNMENT .............................. 2
Taxation of trust income - draft law
released ....................................... 2
Professional privilege for tax advice
– discussion paper ....................... 2
Simplification of the GST rules in
relation to taxes, fees and charges2
FROM THE ATO ........................................ 3
Changes to the ATO Receivables
Policy guidelines format .............. 3
RULINGS, DETERMINATIONS &
INTERPRETATIVE DECISIONS .................... 3
Fringe benefits and cars destroyed
in a natural disaster ..................... 3
Termination payments – unused
long service leave payments and
overseas employment ................. 3
CASES ....................................................... 4
Excess contributions tax levied on a
future member of an SMSF.......... 4
Notice served by Commissioner
ambiguous and not enforceable .. 4
LEGISLATION ............................................ 5
Hello,
The Government has decided to defer the proposed re-write of the trust
income definitions as a result of industry concern over the complexity of the
changes and the relatively short time available for taxpayers to adjust to the
new rules. Instead, the Government has opted to include some specific
provisions aimed at clarifying the rules around streaming of franking credits
and capital losses as well as addressing concerns around the operation of
primary production businesses through trust structures following the
Bamford decision.
Another interesting development is the release of a discussion paper which
considers the potential application of professional privilege for accountants
and tax advisors who are not legal advisors. Professional privilege is
currently only allowed to legal advisors and the paper considers its
application to other advisors providing tax advice.
If you have any questions about any of the information contained in the Tax
Round Up, please contact the help desk online (you will need to log in first)
or call us on 1800 800 232.
Adnan Sibai
Tax Adviser
Knowledge Shop PD starts this month!
04/05/2011
Brisbane
SMSF Training 2011
Online | Brochure
04/05/2011
Melbourne
Cross border essentials
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19/05/2011
Newcastle
Knowledge Shop PD
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23/05/2011
Sydney
Knowledge Shop PD
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24/05/2011
Brisbane
Knowledge Shop PD
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25/05/2011
Brisbane
Cross border essentials
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26/05/2011
Parramatta
Knowledge Shop PD
Online
30/05/2011
Melbourne
Knowledge Shop PD
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01/06/2011
Adelaide
Knowledge Shop PD
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08/06/2011
Perth
Knowledge Shop PD
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09/06/2011
Perth
Cross border essentials
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17/06/2011
Brisbane
Management shocks
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20/06/2011
Melbourne
Future Proof
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22/06/2011
Brisbane
Future proof
Online | Brochure
24/06/2011
Sydney
Future Proof
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30/06/2011
Melbourne
Management Shocks
Online
26/07/2011
Melbourne
Advanced Tax & Business
Services
Online | Brochure
TAXROUNDUP
KNOWLEDGE SHOP – MAY 2011
FROM GOVERNMENT
Taxation of trust income - draft law
released
Following on from last month’s discussion paper and
subsequent submissions from interested stakeholders,
the Government has deferred the re-write of the
legislation relating to the taxation of trust income until
a broader update of Division 6 of the Income Tax
Assessment Act 1936 can be undertaken. The
proposed changes were aimed at aligning the concept
of ‘income from the trust estate’ (i.e., distributable
income) with ‘net income of the trust estate’ (i.e.,
taxable income) under the current rules. The changes
were proposed in order to deal with the uncertainty
that surrounds the taxation of trust income in light of
the High Court decision in the Bamford case.
The proposed changes have been deferred primarily
due to concerns raised in relation to the costs
associated with dealing with such a substantial change
to the tax law in such a short period of time (the rules
were intended to be effective for the 2011 income
year).
In the meantime, the Government has issued draft
legislation to clarify the rules relating to the streaming
of franking credits and capital gains to specific
beneficiaries. The draft rules also deal with concerns
that were raised in relation to primary production
businesses that operate through trust structures. The
aim of these changes is to ensure that beneficiaries of
a primary production trust can still access the
averaging rules and farm management deposit rules in
a loss year.
More information
 Press release No. 52 – Improving the taxation of trust
income
advice documents from the information gathering
powers of the ATO.
The paper considers the implications of providing
accountants and tax advisors with the same type of
privilege that is given to legal advisors for documents
they prepare for the sole purpose of providing legal
advice or in preparation for litigation.
The Government is seeking submissions in relation to
the discussion paper by 15 July 2011.
More information
 Press release – Discussion paper released on privilege
for tax advice
Simplification of the GST rules in
relation to taxes, fees and charges
The Government has proposed simplified ‘principlesbased’ legislation in relation to the GST treatment of
taxes, fees and charges. The proposed legislation aims
to replace the prescriptive rules contained in a
number of Rulings and Determinations that list the
GST treatment of such amounts.
In broad terms, regulatory charges that do not relate
to particular goods and services are exempt from GST.
However, supplies of goods and services by
government related entities are generally intended to
be subject to GST.
The new regulations are intended to apply from 1 July
2011.
More information
 Press release – Making it easier to exempt taxes, fees
and charges from the GST – Exposure draft
regulations
Professional privilege for tax advice –
discussion paper
The Government is once again exploring the potential
benefits and implications of applying a limited form of
professional privilege to tax advice provided by tax
practitioners and accountants to shield certain tax
© Knowledge Shop Pty Ltd 2011
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TAXROUNDUP
KNOWLEDGE SHOP – MAY 2011
FROM THE ATO
Changes to the ATO Receivables Policy
guidelines format
The ATO has transferred most of the “ATO Receivables
Policy” document to a suite of Law Administration
Practice Statements. There has been no change to the
content of the policy or the intent of the policy
statement. The key aim was to streamline the delivery
and documentation of this policy going forward in line
with other administrative position taken by the ATO
whereby the administrative position of the ATO is
detailed in Practice Statements.
More information
 Changes to the ATO Receivables Policy
RULINGS, DETERMINATIONS &
INTERPRETATIVE DECISIONS
Fringe benefits and cars destroyed in a
natural disaster
ATO ID 2011/28: Fringe benefits tax: Car fringe
benefits: car destroyed in natural disaster
Facts
 A car is provided by an employer to an employee for
their exclusive use as a private vehicle
 During the year, the car is burnt out in a bushfire
when it was parked at the employee’s residence
 Due to the natural disaster, the insurance assessors
cannot determine any claims for a considerable time
after the bushfire and hence the car remains parked
at the employee’s premises for some time
A car fringe benefit only arises where the car is
available for private use by the employee. Given the
car no longer satisfies the definition of a road vehicle,
the destroyed car is no longer capable of satisfying the
car fringe benefit condition. Hence, the holding period
of the car for the purposes of determining the taxable
value of the fringe benefit ends at the time the car is
destroyed.
More information
 ATO ID 2011/28: Fringe benefits tax: Car fringe
benefits: car destroyed in natural disaster
Termination payments – unused long
service leave payments and overseas
employment
ATO ID 2011/29: Income tax: Termination of
employment: unused long service leave payments
and periods of overseas employment
Facts
 The taxpayer is an individual who worked overseas
for a continuous period of at least 91 days
 The taxpayer remained a tax resident during this time
 The taxpayer’s employment was terminated after the
taxpayer returned to Australia
 Upon termination, the taxpayer received a lump sum
payment for unused long service leave which related
to the total period of employment
Issue
Is any part of a termination payment which is
attributable to unused long service leave exempt from
income tax where a part of the payment is
attributable to a period of overseas employment?
Issue
Where a car is destroyed in a natural disaster, is it still
considered a car which is available for private use to
the employee?
Decision
Yes, the portion of the lump sum amount attributable
to overseas service is exempt under the foreign
employment earning rules in s23AG(1) of ITAA 1936.
Decision
No, due to the destruction of the car, it cannot be
available for private use because it is no longer a car
capable of operating as a road vehicle.
Provided the general conditions in s23AG(1) are
satisfied, the amount in respect of the long service
leave is also exempt foreign earnings. This is because
the long service leave accrues daily and the portion
accrued for the foreign service tenure would also be
exempt along with foreign earnings. Hence, the
© Knowledge Shop Pty Ltd 2011
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TAXROUNDUP
KNOWLEDGE SHOP – MAY 2011
taxpayer would only be assessed on the payment
attributable to the Australian service. This is
irrespective of whether the taxpayer’s employment is
terminated during the period of foreign service or
Australian service.
Notice served by Commissioner
ambiguous and not enforceable
Commissioner of Taxation v De Martin and
Gasparini Pty Ltd [2011] FCA 286
More information
 ATO ID 2011/29: Income tax: Termination of
employment: unused long service leave payments
and periods of overseas employment
CASES
Excess contributions tax levied on a
future member of an SMSF
The Federal Court dismissed the Commissioner’s
application to the court to enforce a notice served on
the taxpayer on the grounds that it was deemed
ambiguous.
By way of background, the respondent (DMG) owed
money to a third party (Arndell). Arndell owed money
to the ATO. The Commissioner served a notice on
DMG under section 260-5 of Schedule 1 of the
Taxation Administration Act 1953 requiring DMG to
pay money it owed to Arndell directly to the ATO.
The Taxpayer v Commissioner of Taxation [2011]
AATA 168
The Commissioner applied excess non-contributions
tax to a $1 million payment made to a SMSF in 2007.
The taxpayer argued that this payment was actually
paid in part towards the $450,000 personal
contributions cap. The balance was paid in respect of
other members of the fund which had not joined at
the time the contribution was received. The taxpayer
contended that the instructions provided to their
former accountant to have those members join the
fund had not been carried out by the accountant.
The Court found that the notice issued by the
Commissioner left DMG in doubt as to its obligations
with respect to the specified time for payment. The
key issue was that page 1 of the notice specified that
payments were to be made every 4 weeks while page
2 of the notice specified that payments were due
every 2 weeks.
The Tribunal affirmed the Commissioner’s decision
that despite the evidence provided that the member
joined the fund prior to this date, the Commissioner
was unable to make this decision at the time of issuing
the assessment and hence the taxpayer was still liable
for the excess contributions tax. The legislation
required that the contributions received be allocated
to a member of the fund at that time and there is no
provision to allow the Commissioner to modify this
position given subsequent information in relation to
membership of the fund.
More information
The Court held that the notice issued by the
Commissioner to DMG was ambiguous and was
therefore invalid. As a result, DMG was not required
to comply with the notice.
 Commissioner of Taxation v De Martin and Gasparini
Pty Ltd [2011] FCA 286
More information
 The Taxpayer v Commissioner of Taxation [2011]
AATA 168
© Knowledge Shop Pty Ltd 2011
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TAXROUNDUP
KNOWLEDGE SHOP – MAY 2011
LEGISLATION
Bills that have received Royal Assent:
Tax Laws Amendment (Temporary Flood
Reconstruction Levy) Bill 2011; and
Income Tax Rates Amendment (Temporary Flood
Reconstruction Levy) Bill 2011
Royal Assent date is 12 April 2011.
These bills give effect to the progressive one-off ‘flood
reconstruction levy’ that will apply for the year ending
30 June 2011 and will apply to both residents and nonresidents of Australia for income tax purposes. As
noted in previous Tax Roundups, the aim of this oneoff levy is to increase capacity to assist in rebuilding
the disaster affected regions of Australia.
© Knowledge Shop Pty Ltd 2011
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