Tax on the Couch

TAX ON THE COUCH TOPICS HOT TOPICS – MONTH-BY-MONTH (2012) 2012 December 2012 Hot Topic Tax consequences of X-mas Parties and Gifts November 2012 Hot Topic The borrowing concessions for SMSFs (LRBAs) and related party lending October 2012 Hot Topic Common tax issues for individuals coming to Australia (‘inbound individuals’) September 2012 Hot Topic Anti-detriment payments August 2012 Hot Topic CGT Roll-over by an individual/trust or partnership to a company July 2012 Hot Topic Tax and Superannuation changes commencing 1 July 2012 June 2012 Hot Topic 2012/2013 Federal Budget May 2012 Hot Topic New developments for claiming personal superannuation contributions April 2012 Hot Topic Benefits of splitting superannuation contributions with a spouse March 2012 Hot Topic The New Personal Property Securities Regime January/February 2012 Hot Topic Taxation of Trusts

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Tax on the Couch ATO TOPICS – MONTH-BY-MONTH 2012 December 2012 ATO Hot Topic Changes to the tax treatment of living away from home allowances and benefits November 2012 ATO Hot Topic Contractors vs. Employees and the Tax Practitioner Action Plan October 2012 ATO Hot Topic Superannuation reforms September 2012 ATO Hot Topic Tax compliance for SMEs and wealthy individuals August 2012 ATO Hot Topic Taxable payments reporting and work-related expenses July 2012 ATO Hot Topic Cash Economy – Registered Agent Strategy June 2012 ATO Hot Topic Illegal Early Release and other Superannuation Schemes May 2012 ATO Hot Topic Tax Losses April 2012 ATO Hot Topic FBT and Trusts March 2012 ATO Hot Topic The ATO’s Online Services January/February 2012 ATO Hot Topic Superannuation Reforms

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Tax on the Couch ALL TOPICS COVERED 2012 December 2012 Monthly Legislative Update • Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Bill 2012, Superannuation Auditor Registration Imposition Bill 2012, and Draft regulations relating to audits of SMSFs • Tax Laws Amendment (2012 Measures No. 5) Bill 2012 (which includes the phase out of the mature age worker tax offset from 1 July 2012 and the conservation tillage refundable tax offset) • Australian Charities and Not-for-profits Commission Bill 2012 and the Australian Charities and Not-for-profits Commission (Consequential and Transitional) Bill 2012, and the consultation paper regarding ‘Tax concessions for the not-for-profit sector’ Monthly Rulings Update • TD 2012/21: Trust resettlements – Does CGT event E1 or E2 in S.104-55 or 104-60 of the ITAA 1997 happen if the terms of a trust are changed pursuant to a valid exercise of a power contained within the trust's constituent document, or varied with the approval of a relevant court? • TD 2012/22: Taxation of trust income – For the purposes of S.97(1)(a) of the ITAA 1936, is a beneficiary's share of the net income of a trust estate worked out by reference to the proportion of the income of the trust estate to which the beneficiary is presently entitled? • PS LA 2012/6: Exercise of the Commissioner's discretion under S.8AAZLGA of the Taxation Administration Act 1953 to retain an amount that would otherwise have to be refunded Monthly Case Update • Sale of commercial property still a “supply of a going concern” even though the contract did not refer to a going concern – SDI Group Pty Ltd and Commissioner of Taxation [2012] AATA 763 • Although documentation for Div.7A loans did not meet the technical requirements, discretion exercised so that most loans not treated as deemed dividends – Building Company Owner and Commissioner of Taxation [2012] AATA 755 • No special circumstances for taxpayer that made excess contributions into a superannuation fund – Dickinson and Commissioner of Taxation [2012] AATA 762 • Special circumstances did exist for taxpayer that made excess contributions into a superannuation fund, so that contributions made by their employer in July 2009 should be attributed to the 2009 income year – Hamad and Commissioner of Taxation [2012] AATA 530 Other Developments • Mid-Year Economic and Fiscal Outlook 2012-13 • Taxation of trust income – Options for reform Hot Topic • Tax consequences of X-mas Parties and Gifts ATO Hot Topic • Changes to the tax treatment of living away from home allowances and benefits

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Tax on the Couch NOVEMBER 2012 Monthly Legislative Update • Transfers of Australian and New Zealand Superannuation, Superannuation Legislation Amendment (New Zealand Arrangement) Bill 2012 • Withholding for non-residents for eligible clean building managed investment trusts, Tax Laws Amendment

(Clean building managed investment trust) Bill 2012 •

Draft SIS regulations released under the SuperStream reforms to require electronic contributions and rollovers as well as the establishment of an ATO central register of information. Superannuation Data and Payment Regulations (Rollover and Contributions).

Monthly Rulings Update • TD 2012/D8: Reasonable food and drink amounts for the 2014 FBT year (LAFHA) • TD 2012/D6: Must income tax have been assessed before an agent or trustee has an obligation under section 254 of the ITAA36 to retain sufficient money to pay tax which is or will become due as a result of their agency or trusteeship? • TD 2012/D7: Does a receiver who disposed of a CGT asset as an agent for a debtor have an obligation under S.254 of the ITAA36 to retain from sale proceeds sufficient money to pay tax which is or will become due as a result of disposing of that asset. Monthly Case Update • Tax agent registration terminated for submitting unverified returns, Tung and Tax Practitioners Board [2012] AATA 615 (14 September) • ATO wins appeal GST payable on forfeited flight fares , Commissioner of Taxation v Qantas Airways Ltd [2012] HCA 41 (2 October) • Commissioner incorrectly calculated tax payable on ETP, Boyn and Commissioner of Taxation [2012] AATA 660 (28 September) • Excess super contributions tax - financial hardship not "special circumstances", Lynton and Commissioner of Taxation [2012] AATA 667 (2 October) Other Developments • Inspector General of Taxation - work forward program released – 5 reviews pending • Tax Practitioners Board: Information sheets issued on tax practitioner conduct and qualification requirements • ATO Benchmarking – Inspector General of Taxation and recent ATO fact sheet (see example 3) • Data matching project on contractor payments Hot Topic • The borrowing concessions for SMSFs (LRBAs) and related party lending ATO Hot Topic • Contractors vs. Employees and the Tax Practitioner Action Plan

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Tax on the Couch OCTOBER 2012 Monthly Legislative Update • Company loss carry-back reforms: Benefits of the boom legislation amendments (Loss carry-back) Bill 2012 • Latest proposals to Living away from home allowance (LAFHA) reforms: Tax Laws Amendment (2012 Measures No 4) Bill 2012 • New administrative penalty regime for SMSF trustees and civil and criminal penalties for the promotion of illegal early release schemes: Tax Laws Amendment (Stronger Super Self Managed Superannuation Funds) Bill 2012 and Tax Laws Amendment (2012 Measures No 6) Bill 2012 • Charities and not for profit and tax-exempt entity Bills released: Australian Charities and Not-for-profits Commission Bill 2012, Australian Charities and Not-for-profits Commission (Consequential and Transitional) Bill 2012 and the Tax Laws Amendment (Special Conditions for Not-for-profit Concessions) Bill 2012. Monthly Rulings Update • PS LA 2012/4 and PS LA 2012/5 – Practice statements on penalties for making a false or misleading statements • GSTD 2012/D3 - Draft GST waiver of requirements to hold a tax invoice to claim ITC in Appendix 2 Monthly Case Update • Demonstration of special circumstances leads to an ‘Excess Contributions Tax Assessment’ being set aside. Longcake and Commissioner of Taxation [2012] AATA 576 (30 August 2012) • Benchmark audit (cash economy) cases get their day in court. Vita Hot Bread Pty Ltd and Commissioner of Taxation [2012] AATA 570 (29 August 2012) and Siddiqi and Commissioner of Taxation [2012] AATA 589 (31 August 2012) • A Taxpayer held not to be carrying on a primary production business. Nelson and Commissioner of Taxation [2012] AATA 579 (30 August 2012) • ATO’s Section 264 notice held to be valid. Binetter v Deputy Commissioner of Taxation [2012] FCAFC 126 (6 September 2012) Other Developments • Trust TFN reporting measures – Planned ATO compliance action. • Tax-free threshold can be claimed for more than one employer in 2013. • Clarification on the Taxable payments reporting system for the Building and Reporting system for the Building and Construction industry. Hot Topic • Common tax issues for individuals coming to Australia (‘inbound individuals’) ATO Hot Topic • Super reforms

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Tax on the Couch SEPTEMBER 2012 Monthly Legislative Update • Discussion Paper: A more workable approach for fixed trusts, which proposes various options to provide greater certainty and reduce complexity for fixed trusts • Exposure draft legislation which proposes to introduce a registration regime for SMSF auditors • Discussion paper: Bad debts: Ensuring consistent treatment in related party financing arrangements, which contains proposed measures to ensure consistent treatment in related party bad debts • New regulations, Superannuation Industry (Supervision) Amendment Regulation 2012 (No.2) which amends the SIS regs to require, amongst other things, that SMSF assets be valued at market value Monthly Rulings Update • GSTR 2012/D3 – Tax invoices • GSTD 2012/6 – Calculating input tax credits on the taxable supply of second-hand goods by way of lease and then by sale Monthly Case Update • Commissioner not out of time to amend assessment of a trust beneficiary – Yazbek v Commissioner of Taxation [2012] AATA 477 • Employer contributions made via a clearing account in June 2007 were properly allocated to the 2008 income year when they were credited to the member’s superannuation account – Colless v Commissioner of Taxation [2012] AATA 441 • Input tax cedits denied for taxpayer who could not provide records of carrying on an enterprise – Campbell v Commissioner of Taxation [2012] AATA 473 • Taxpayer with no records denied input tax credits claimed in relation to a thoroughbred horse racing and breeding business – Trnka and Commissioner of Taxation [2012] AATA 492 • Taxpayer fails to provide records to prove income was not understated – Armirthalingam and Commissioner of Taxation [2012] AATA 449 • Taxpayer failed to provide records to prove that assessments based on taxi industry benchmarks were excessive – Baini and Commissioner of Taxation [2012] AATA 440 Other Developments • The ATO and the Punter’s Club • ATO Compliance Program for 2012/13 Hot Topic • Anti-detriment payments ATO Hot Topic • Tax compliance for SMEs and wealthy individuals

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Tax on the Couch AUGUST 2012 Monthly Legislative Update • New Bills, including the Tax Laws Amendment (2012 Measures No. 4) Bill 2012, which contains amendments relating to living-away-from-home allowances, GST and consolidation • New legislation, including the passing of the FOFA Bills (i.e., the Corporations Amendment (Future of Financial Advice) Act 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Act 2011) Monthly Rulings Update • TR 2012/5 – S.254T of the Corporations Act 2001 and the assessment and franking of dividends paid from 28 June 2010 • TD 2012/8 – What types of temporary absences from foreign service form part of a continuous period of foreign service under S.23AG of the ITAA 1936? • TR 2012/6 – Deductibility of premiums paid by a complying superannuation fund for an insurance policy providing Total and Permanent Disability cover in respect of its members • PS LA 2012/2 – Change of trustee Monthly Case Update • Trustee company of family trust not able to claim a deduction for superannuation paid for the directors – Kelly v Commissioner of Taxation (No 2) [2012] FCA 689 • Income derived from sale of commercial leased properties taxed as ordinary income and not capital gains – August v Commissioner of Taxation [2012] FCA 682 • Taxpayers in a partnership, not a non-entity joint venture, and therefore jointly and severally liable for the GST for all of the activities of the partnership – Yacoub v Commissioner of Taxation [2012] FCA 678 • Concessional contributions made in 2008 income year reallocated to the 2007 income year due to "special circumstances" – Bornstein and Commissioner of Taxation [2012] AATA 424 • SMSF still a complying fund despite serious breaches of the in-house asset rules – Pabian Park Pty Ltd Superannuation Benefits Fund and Commissioner of Taxation [2012] AATA 375 Other Developments • New Form of Licence Expands Access to Financial Advice • SMSF Auditor Registration • Audit Report: Small Business Superannuation Clearing House • Audit Report: The Engagement of External Debt Collection Agencies Hot Topic • CGT Roll-over by an individual/trust or partnership to a company ATO Hot Topic • Taxable payments reporting and work-related expenses

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Tax on the Couch JULY 2012 Monthly Legislative Update • New Bills, including: o Tax Laws Amendment (2012 Measures No. 2) Bill 2012, which extends the director penalty regime by, e.g., making directors personally responsible for their company’s unpaid superannuation guarantee amounts o Tax Laws Amendment (2012 Measures No. 3) Bill 2012, which contains the measures to retrospectively clarify that trust beneficiaries who are minors cannot receive the low income tax offset for unearned income earned through trust distributions, and make the ETP tax offset dependent on an individual’s total taxable income • Legislative Instruments, including the A New Tax System (Goods and Services Tax) Amendment Regulation 2012 (No.1), which treats all components of a hire purchase transaction as taxable supplies • Draft legislation and regulations, including: o Exposure Draft: Fringe Benefits Tax (FBT) Reform living-away-from-home benefits o Exposure Draft Regulations: SMSFs – Consideration of Insurance, Separation of Assets and Valuation of Assets at Net Market Value Monthly Rulings Update • SMSFR 2012/1 – Limited recourse borrowing arrangements - application of key concepts • TD 2012/10 – When is income tax of a private company a 'present legal obligation' for the purposes of the distributable surplus calculation in Division 7A? • TD 2012/12 – Do the rules in Subdivision D of Division 7A (which exclude certain payments or loans from being treated as deemed dividends) necessarily affect the circumstances in which a deemed payment or notional loan arises under Subdivision E of Division 7A (regarding interposed entities)? Monthly Case Update • For the purposes of the 10% test when trying to claim a deduction for a personal superannuation contribution, only a proportionate amount of the net capital gain included in a trust distribution, not the grossed-up capital gain, is included in the calculation – Commissioner of Taxation v Greenhatch [2012] FCAFC 84 • Evidence shows trustee of a trust did not make effective resolutions to distribute trust income by 30 June, and therefore the income of the trust was distributed in accordance with the default beneficiary clause – Hopkins and Anor and Commissioner of Taxation [2012] AATA 324 • Court awards the payment of compound interest as compensation for a breach of an enforceable undertaking by the trustee of an SMSF to pay out the benefits of a bankrupt former member – Commissioner of Taxation v Interhealth Energies Pty Ltd as Trustee of the Interhealth Superannuation Fund (No 2) [2012] FCA 516 Other Developments • Tax Practitioners’ Board – Continuing professional education (CPE) policy • Expert Roundtable to assist in clarifying the operation of the Income Tax General Anti-avoidance rule (Part IVA) • Board of Taxation to Conduct a Post-Implementation Review of Division 7A • Canberra engages in actual tax reform!! Hot Topic • Tax and Superannuation changes commencing 1 July 2012 ATO Hot Topic • Cash Economy – Registered Agent Strategy

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Tax on the Couch JUNE 2012 Monthly Legislative Update • Exposure Draft released: Restating and standardising the special conditions for tax concession entities (including the 'in Australia' conditions) • Exposure Draft released: Amendments to the director penalty regime. Monthly Rulings Update • TR 2012/D1 – Income tax: meaning of ‘income of the trust estate’ • MT 2012/13 – Administrative penalties: Voluntary disclosures Monthly Case Update • Taxpayer a share trader despite relying upon advice derived from such sources as newspapers, investment magazines and stock market reports – Mehta and Commissioner of Taxation [2012] AATA 208 (as well as another case involving a taxpayer being held to be a share trader - Wong and Commissioner of Taxation [2012] AATA 254) • $11.6 million worth of bonuses included as assessable income on, fundamentally, a constructive receipts argument – Sent v Commissioner of Taxation [2012] FCA 382 • Interest in a partnership assigned to discretionary family trust – Kelly v Commissioner of Taxation [2012] FCA 423 • Paying for the private health insurance policy of employees by employer subject to FBT as it was not an exempt benefit – Lake Fox Limited and Commissioner of Taxation [2012] AATA 265 Other Developments • Withdrawal of the ATO’s Trust Resettlement - Statement of Principles • ATO compliance activities regarding SMEs: Tax Inspector-General's report released • ATO’s Litigation Statistics • Year-end tax planning Hot Topic • 2012/2013 Federal Budget ATO Hot Topic • Illegal Early Release and other Superannuation Schemes

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Tax on the Couch MAY 2012 Monthly Legislative Update • Update of Bills that have received Royal Assent, including Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Act 2012 (dealing with, e.g., the new small business instant asset write-off and simplified depreciation rules, abolition of the entrepreneurs' tax offset, and the new low income superannuation contribution), the package of Fairer Private Health Insurance Incentives Acts (which reduce a person’s entitlement to the 30% Private Health Insurance Rebate if their income for surcharge purposes exceeds the relevant threshold under new income tiers), and the Superannuation Guarantee (Administration) Amendment Act 2012 (which increases the superannuation guarantee rate from 9% to 12%). • New Bills, including the Tax Laws Amendment (2012 Measures No. 1) Bill 2012 which makes amendments to ensure that expenses incurred in gaining or producing a rebatable benefit are not deductible, provide that complying superannuation entities cannot account for gains and losses on certain assets on revenue account using the trading stock exception, and commence the phase out of the dependent spouse tax offset by restricting eligibility for the offset to taxpayers with a dependent spouse born before 1 July 1952. Monthly Rulings Update • TR 2012/D2 – Assessability of amounts received in respect of legal costs incurred in disputes concerning termination of employment • TD 2012/2 – When is the shortfall interest charge incurred for the purposes of S.25-5(1)(c) of the ITAA 1997? • New FBT rates and thresholds for the 2012/13 FBT year • TD 2012/D3 – Can a New Zealand citizen who was present in Australia as the holder of a temporary visa that ceased to be in effect when they departed Australia still be a 'temporary resident'? Monthly Case Update • A payment of $4.1 million that was directed to a related party on disposal of certain assets pursuant to an Asset Sale Agreement should be included in the capital proceeds for the disposal when calculating the capital gain – Quality Publications Australia Pty Limited v Commissioner of Taxation [2012] FCA 256 • A taxpayer who moved overseas while remaining a Commonwealth employee and a member of the Public Sector Superannuation Scheme was still an Australian resident – Baker and Commissioner of Taxation [2012] AATA 168 Other Developments • Application for Registration of R&D Activities under the R&D Tax Incentive • Inspector-General's Review into the Australian Taxation Office's Administration of Class Rulings • Reporting requirements – building and construction industry Hot Topic • New developments for claiming personal superannuation contributions ATO Hot Topic • Tax Losses

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Tax on the Couch APRIL 2012 Monthly Legislative Update • New Bill – Indirect Tax Laws Amendment (Assessment) Bill 2012 • New Bill – Tax and Superannuation Laws Amendment (2012 Measures No. 1) Bill 2012 Monthly Rulings Update • GSTR 2012/D1 – Goods and services tax: residential premises and commercial residential premises • ID 2012/16 - Superannuation Excess Contributions Tax: concessional contributions - allocation of contributions • GSTD 2012/1 - Goods and services tax: what are the goods and services tax consequences following the sale of residential premises that are subject to a lease? • GSTD 2012/2 - Goods and services tax: what are the goods and services tax consequences following the sale of commercial premises that are subject to a lease? • TD 2012/1 - Income tax: can Part IVA of the Income Tax Assessment Act 1936 apply to deny a deduction for some, or all, of the interest expense incurred in respect of an 'investment loan interest payment arrangement' of the type described in this Determination? Monthly Case Update • AAT affirms Commissioner’s refusal to exercise discretion to exclude illegal release of funds from assessable income of taxpayer – Mason v FCT [2012] AATA 133 • AAT affirms that a taxpayer operating a business of providing tandem parachuting services was liable for the super guarantee charge – General Aviation Maintenance Pty Ltd v FCT [2012] AATA 120 • Taxpayer a resident of Australia and therefore tax assessments and penalties are affirmed – Gunawan v FCT[2012] AATA 119 • Excess contributions tax assessment upheld. AAT affirms Commissioner’s decision that there are no “special circumstances" – Tran v FCT [2012] AATA 123 Other Developments • ATO small business benchmarks updated Hot Topic • Benefits of splitting superannuation contributions with a spouse ATO Hot Topic • FBT and Trusts

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Tax on the Couch MARCH 2012 Monthly Legislative Update • General legislative update, including Legislation Proposed for Introduction in the 2012 Autumn Sittings • Draft legislation, including Exposure Draft - Corporations Amendment Regulations 2012 (No. ) - Limited Recourse Borrowings by Superannuation Funds (Instalment Warrants) Monthly Rulings Update • TR 2012/1 – Retail premiums paid to shareholders where share entitlements are not taken up or are not available • TD 2012/D2 – Streaming capital gains: Can a beneficiary of a trust estate be reasonably expected to receive a share of the net financial benefit referable to a capital gain made by the trust estate in an income year if the fact that the capital gain was made is not established until after the end of the income year? Monthly Case Update • CGT small business concessions: Certain liabilities not include in maximum net asset value test – Bell and Commissioner of Taxation [2012] AATA 45 • SMSFs that made related party loans made non-complying for breaching the in-house assets rule and the sole purpose test – Montgomery Wools Pty Ltd as trustee for Montgomery Wools Pty Ltd Superannuation Fund [2012] AATA 61 and The Trustee for the R Ali Superannuation Fund and Commissioner of Taxation [2012] AATA 44 • Excess contributions tax: Superannuation contribution made in July 2007 could not be re-allocated to June 2007 – Schuurmans-Stekhoven and The Commissioner of Taxation [2012] AATA 62 • Taxpayer could not prove that trusts existed – Aston (Aust) Properties Pty Ltd & Ors v Commissioner of State Revenue (Taxation) [2012] VCAT 48 Other Developments • ASIC releases investor guide and disclosure guidance for agribusiness schemes • Superannuation roundtable announced Hot Topic • The New Personal Property Securities Regime ATO Hot Topic • The ATO’s Online Services

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Tax on the Couch JANUARY/FEBRUARY 2012 Monthly Legislative Update • New Acts and New Bills, including Tax Laws Amendment (2011 Measures No. 9) Bill 2011, which makes amendments in relation to CGT and certain business restructures, GST and the financial acquisitions threshold, borrowings, hire purchase, and the sales or lease of new residential premises for goods and services tax purposes, and other technical (including superannuation) amendments. • Draft legislation, including Exposure Draft – Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012 and Exposure Draft – Refund of Excess Concessional Contributions Monthly Rulings Update • TR 2011/6 – Business related capital expenditure – S.40-880 of the ITAA 1997 core issues • TR 2011/D6 – Deductibility of premiums paid by a complying superannuation fund for an insurance policy providing Total and Permanent Disability cover in respect of its members • PS LA 2011/29 – Exercise of the Commissioner's discretion under S.109RB of Division 7A of Part III of the ITAA 1936 to either disregard a deemed dividend or to permit a deemed dividend to be franked Monthly Case Update • Special leave to appeal denied: ATO to refund GST “forthwith” – FCT v Multiflex Pty Ltd [2011] FCAFC 142 • No nexus between taxpayer’s claimed expenses and the production of any assessable income – Knox and Commissioner of Taxation [2011] AATA 906 • ATO’s assessment based on industry averages, benchmarks and an estimation of expenses based on the assumed cost of personal or private living upheld – Mold and Commissioner of Taxation [2011] AATA 823 • Compensation paid under a deed of release due to perceived harassment an employment termination payment – Luke and Commissioner of Taxation [2011] AATA 801 • Off-market buy-back of shares in private company an unfranked dividend – Fitzgerald and Commissioner of Taxation [2011] AATA 878 Other Developments • Mid-Year Economic and Fiscal Outlook, including FBT reform (Living-away-from-home allowance and benefits), further restrictions to Dependent Spouse Tax Offset and deferrals of new measures and indexation of existing rates and thresholds • Discussion Paper on Reform to Dividends Payment Test

Hot Topic • Taxation of Trusts ATO Hot Topic • Superannuation Reforms

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