tax on the couch · 2012. 12. 9. · tax on the couch – november 2012 statute law revision bill...
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Tax on the Couch – November 2012
Tax on the Couch
November 2012
Tax on the Couch – November 2012
The information in this publication has been developed in consultation with the Australian Taxation Office.
ATO Disclaimer
This general advice has been prepared by the Australian Taxation Office ABN 52 824 753 556 and does not take account of your objectives or financial, legal or taxation situation or needs. Before acting on this general advice you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice in making an investment strategy and investing the assets of any fund.
This material has been prepared based on information believed to be accurate at the time of publication. Subsequent changes in circumstances may occur at any time and may impact the accuracy of the information.
This material or information is not intended as a form of financial advice and should not be treated as such. The Australian Taxation Office does not provide financial, legal or taxation advice.
The above disclaimer also applies to, and in respect of, the NTAA.
Disclaimer
The NTAA and their presenters do not hold an Australian Financial Services Licence to provide financial product advice under the Corporations Act 2001 (Cth). This material covers general taxation information which is only one of the factors to consider when making a decision on a financial product. If you are seeking financial product advice, you should contact a person who is licensed under the Corporations Act 2001 (Cth).
Tax on the Couch is intended to be a guide only. None of the comments contained in the presentation or notes are intended to be advice, whether legal, financial or professional. You should not act solely on the basis of the information contained in these notes because many aspects of the material have been generalised and the tax laws apply differently to different people in different circumstances. Further, as tax and related laws change frequently, there may have been changes to the law since the notes were written. Specific advice should always be obtained from a tax professional.
The NTAA, their directors, employees, consultants, presenters and authors expressly disclaim any and all liability to any person, whether a purchaser or not, for the consequences of anything done or omitted to be done by any such person relying on a part or the whole of the contents of this publication.
Copyright
© Copyright 2012 NTAA
All rights reserved. Except as permitted by the Copyright Act 1968, no part of these notes may be reproduced or published in any form or by any means, electronic or mechanical, including photocopying, recording, or by information storage or retrieval system, without prior written permission from the NTAA.
Feedback Please send any questions or feedback regarding Tax on the Couch to [email protected]
© Tax on the Couch: November 2012
Tax on the Couch – November 2012
Table of Contents Legislative Update....................................................................................................................................2 Bills of interest currently before Parliament (as at 15 October 2012) ......................................................2 Bills of interest that have received Royal Assent......................................................................................3 Draft legislation and discussion papers of interest ...................................................................................4 Rulings Update.........................................................................................................................................5 Rulings .....................................................................................................................................................5
Class Rulings ........................................................................................................................................5 Class Rulings – Notices ........................................................................................................................5 Fuel Tax Rulings ...................................................................................................................................5 Miscellaneous Tax Rulings – Notices....................................................................................................5 Product Rulings – Notices .....................................................................................................................6 Taxation Rulings – Notices....................................................................................................................6
Determinations .........................................................................................................................................6 Taxation Determinations – Notices........................................................................................................6 Draft Taxation Determinations...............................................................................................................6
Taxpayer Alerts ........................................................................................................................................7 Taxpayer Alerts .....................................................................................................................................7
ATO Interpretative Decisions....................................................................................................................7 New ATO Interpretative Decisions ........................................................................................................7 Withdrawn ATO Interpretative Decisions...............................................................................................7
Case Update ............................................................................................................................................8 Decision Impact Statements.....................................................................................................................8 Media Releases: Treasury Ministers and ATO.........................................................................................9 Speeches: Treasury, Treasury Ministers and ATO.................................................................................11 Other Developments ..............................................................................................................................12 H
ot Topic: The borrowing concessions for SMSFs (LRBAs) and related party lending..........................13
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Tax on the Couch – November 2012
Legislative Update Bills of interest currently before Parliament (as at 15 October 2012) If you experience any problems with the Parliament’s website, go to the following website and click on “Bills before Parliament:”http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation#a1.
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 Tax Laws Amendments (Special Conditions for NFP Concessions) Bill 2012These bills seek to establish a new regulatory framework for the not-for-Profit sector and re-state the special conditions for tax concessions entities (including the ‘in Australia’ conditions).
The previously proposed start date of 1 October 2012 for these amendments has been delayed until after the legislation passes parliament. The Senate will consider them after parliament resumes again at the end of October. Carbon pricing legislation The following 7 bills affecting the carbon pricing legislation was introduced to deal with various amendments required in relation to the carbon pricing systems.
These billed passed the House of Representatives on the 11th of October 2012.
Clean Energy Amendment (International Emissions Trading and Other Measures) Bill 2012
Excise Tariff Amendment (Per-tonne Carbon Price Equivalent) Bill 2012
Clean Energy (Charges-Excise) Amendment Bill 2012
Clean Energy (Charges-Customs) Amendment Bill 2012
Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy) Amendment (Per-tonne Carbon Price Equivalent) Bill 2012
Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment (Per-tonne Carbon Price Equivalent) Bill 2012
Clean Energy (Unit Issue Charge-Auctions) Amendment Bill 2012
Customs Amendment (Anti-dumping Improvements) Bill (No. 2) 2012 and the Customs Tariff (Anti-Dumping) Amendment Bill (No. 1) 2012These bills further implement the government's reforms to Australia's anti-dumping regime announced in June 2011.
Personal Liability for Corporate Fault Reform Bill 2012This bill the COAG Directors’ liability reform including director liability, amongst other things, for Superannuation Guarantee.
Superannuation Legislation Amendment (New Zealand Arrangement) Bill 2012
This bill was introduced into parliament on 11 October 2012. The Bill proposes to establish an Australian – New Zealand superannuation portability scheme to permit the transfer of retirement savings between certain Australian superannuation funds and New Zealand KiwiSaver schemes from 1 July 2013.
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Tax on the Couch – November 2012
Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2012This Bill establishes a framework for the introduction of a default superannuation product referred to as ‘MySuper’ to replace existing default products by amending the:
• Superannuation Industry (Supervision) Act 1993 to define MySuper products; generally limit regulated funds to offering only one MySuper product; allow registrable superannuation entity licensees to apply to APRA for authorisation to offer a MySuper product; set out rules on the payment of contributions and account transfers for MySuper products; and set out fees that can be charged to members of a MySuper product; and
• Superannuation Guarantee (Administration) Act 1992 to require employers to make Superannuation Guarantee contributions for employees without a chosen fund to a fund offering a MySuper product.
Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012This is the 3rd tranche of the MySuper legislation to implement and complement the government’s low cost default superannuation product. It deals with issues such as the general fee rules, intra-fund advice, MySuper rules and some insurance requirements.
Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Bill 2012 and Superannuation Auditor Registration Imposition Bill 2012These bills deal with issues such as loss relief and asset rollover for merging superannuation funds, installing ASIC as the registration body for ‘approved SMSF auditors’ from 31 January 2013, expanding information required to be reported to the ATO and the establishment of an electronic register of information for certain superannuation funds.
Tax Laws Amendment (Clean Building Managed Investment Trust) Bill 2012This bill was introduced on the 10th of October 2012 and seeks to provide for a final withholding tax rate of 10% (rather than 15%) on fund payments from eligible clean building managed investment trusts made to foreign residents in information exchange countries.
Tax Laws Amendment (2012 Measures No. 5) Bill 2012This bill was introduced on the 19th of September 2012 to implement a raft of previous announcements including the phase out of the mature age worker tax offset from 1 July 2012, the conservation tillage refundable tax offset, new deductible gift recipients and amendments to the compliance regime for LPG, LNG and GNG as well an Wine equalisation tax rebate amendments.
Bills of interest that have received Royal Assent Tax Laws Amendment (2012 Measures No. 4) Bill 2012This Bill amends the:
• Fringe Benefits Tax Assessment Act 1986 in relation to living-away-from-home allowances with a recent amendment to Schedule 1 to retain these allowances and associated benefits in the FBT regime (unlike previous announcements that sought to put these allowances into the income tax regime);
• A New Tax System (Goods and Services Tax) Act 1999 to clarify the GST consequences when a representative of an incapacitated entity is a creditor of that entity; and
• Tax Laws Amendment (2012 Measures No. 2) Act 2012 in relation to consolidation events so that no interest is payable if an overpayment of income tax arises because of a deduction under the pre-rules and no shortfall interest or administrative penalty is payable if additional tax becomes payable under the pre-rules or interim rules.
Note that this bill was passed by the Senate on the 19th of September 2012 and received Royal Assent on the 2nd of October 2012.
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Tax on the Couch – November 2012
Statute Law Revision Bill 2012 and the Legislative Instruments Amendment (Sunsetting Measures) Bill 2012The first bills main purpose is to correct technical errors that have occurred in Acts as a result of drafting and clerical mistakes and the second seeks to efficiently repeal spent and redundant instruments and provisions up to 10 years earlier than is provided for under the existing sunsetting regime.
Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012This Bill amends the Superannuation Industry (Supervision) Act 1993 to: expand the duties for registrable superannuation entity (‘RSE’) licensees; apply new trustee duties to RSE licensees of an RSE that offers a MySuper product; apply duties to the directors of corporate trustees; provide the Australian Prudential Regulation Authority with the power to issue prudential standards in relation to superannuation prudential matters; and make consequential amendments.
This bill received Royal Assent on the 8th of September 2012 to start 1 July 2013.
Draft legislation and discussion papers of interest Super stream data and payment standardsUnder this scheme, superfunds (including SMSFs) and employers will be required to transfer contributions and rollovers electronically. Also under the draft regulations, the Commissioner will be required to keep a central register of information about regulated super funds (other than SMSFs).
Removing income tax impediments for business restructuresOn 12 October 2012, draft legislation was released to remove income tax impediments for business restructures. In particular, these changes, proposed at this stage for inclusion in the Tax Laws Amendment (2012 Miscellaneous Measures No 1) Bill 2012, would seek to amend the ITAA 1997 to provide revenue asset and trading stock roll-overs where interest holders exchange their units in a unit trust for shares in a company; broaden beyond consolidated groups the existing revenue asset and trading stock roll-overs that apply for an exchange of shares in a company for shares in another company; provide adequate integrity by ensuring that the revenue asset and trading stock roll-overs are only available where the asset acquired under a restructure is of the same tax character as the asset exchanged.
GST treatment of cross border transport: Minor amendmentsFeedback on an approach that could be adopted to amend the GST law to address compliance difficulties for certain segments of the transport and related services industry which find it difficult to comply with the current GST law as it relates to the international transportation of goods and certain services associated with the international transport and importation of goods.
Regulations relating to audits of SMSFsThe Government has released for public consultation an exposure draft of regulations relating to the self managed superannuation fund (SMSF) auditor registration regime and the prescribed period for the provision of an audit report as well as the accompanying explanatory material.
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Tax on the Couch – November 2012
Rulings Update The following lists the Rulings, Determinations, Practice Statements and Interpretative Decisions (and other related documents) issued by the ATO between 16 September 2012 to 15 October 2012.
Rulings Class Rulings CR 2012/80 Income tax: Selective Capital Reduction: Mesbon China Nylon
Limited 19 September 2012
CR 2012/81 Luxury car tax: meaning of 'luxury car' 26 September 2012 CR 2012/82 Income tax: research and development: membership funding for
the Australian Coal Association Research Program 26 September 2012
CR 2012/83 Income tax: proposed return of capital: Domino's Pizza Enterprises Limited
26 September 2012
CR 2012/84 Fringe Benefits Tax: employer contributions to the Australian Construction Industry Redundancy Trust (ACIRT)
3 October 2012
CR 2012/85 Income tax: early retirement scheme - OneSteel Wire Pty Limited 3 October 2012 CR 2012/86 Fringe benefits tax: employer clients of Baptist Financial Services
Australia who are subject to the provisions of section 57, section 57A or section 65J of the Fringe Benefits Tax Assessment Act 1986 and who make use of the BFS Visa Prepaid PayCard facility
10 October 2012
CR 2012/87 Income tax: early retirement scheme - Centennial Park Cemetery Authority
10 October 2012
CR 2012/88 Income tax: Little World Beverages Limited Scheme of Arrangement and Special Dividend
10 October 2012
CR 2012/89 Income tax: Parks Victoria Voluntary Departure Program 2012-13 Early Retirement Scheme
10 October 2012
Class Rulings – Notices CR 2012/82ER1 Income tax: research and development: membership funding for
the Australian Coal Association Research Program 10 October 2012
Fuel Tax Rulings FTR 2012/1 Fuel tax: fuel tax credits for taxable fuel acquired or manufactured
in, or imported into, Australia for use in carrying on an enterprise involving 'agriculture' as defined in section 43-15 of the Fuel Tax Act 2006
3 October 2012
FTR 2012/2 Fuel tax: fuel tax credits for taxable fuel acquired or manufactured in, or imported into, Australia for use in carrying on an enterprise involving 'forestry' as defined in section 43-75 of the Fuel Tax Act 2006
3 October 2012
FTR 2012/3 Fuel tax: fuel tax credits for taxable fuel acquired or manufactured in, or imported into, Australia for use in carrying on an enterprise involving 'fishing operations' as defined in section 43-70 of the Fuel Tax Act 2006
3 October 2012
Miscellaneous Tax Rulings – Notices MT 2010/1A1 Miscellaneous tax: restrictions on GST refunds under section 105-
65 of Schedule 1 to the Taxation Administration Act 1953 19 September 2012
MT 93/2W Petroleum Resource Rent Tax: deductibility of payments made to contractors and others to procure the carrying on or providing of operations, etc. in relation to a petroleum project
5 October 2012
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Tax on the Couch – November 2012
Product Rulings – Notices PR 2012/1W Income tax: 2012 Grain Co-Production Project 19 September 2012
Taxation Rulings – Notices TR 2010/D4W - Notice of Withdrawal
Petroleum resource rent tax: general pre-conditions common to deductibility of expenditure of a kind referred to in sections 37, 38 and 39 of the Petroleum Resource Rent Tax Assessment Act 1987
5 October 2012
TR 2010/D5W - Notice of Withdrawal
Petroleum resource rent tax: excluded expenditure under paragraphs 44(j) and 44(k) of the Petroleum Resource Rent Tax Assessment Act 1987 - administrative, accounting, wages, salary, other work costs, and overhead expenditure; land or buildings for use in accounting or administration not adjacent to the operations site
5 October 2012
TR 2010/D6W - Notice of Withdrawal
Petroleum resource rent tax: deductibility of expenditure to procure the carrying on or providing of operations, facilities or other things by another person in relation to a petroleum project, as provided by section 41 of the Petroleum Resource Rent Tax Assessment Act 1987
5 October 2012
Determinations Taxation Determinations – Notices TD 2012/17A1 Income tax: what are the reasonable travel and overtime meal
allowance expense amounts for the 2012-13 income year? 19 September 2012
TD 2004/24W Income tax: is there a deemed assessment under section 166A of the Income Tax Assessment Act 1936 when a company lodges a 'non-taxable return' for a year of income?
26 September 2012
TD 93/156W Income tax: is a refund notice an 'assessment' for the purposes of the Income Tax Assessment Act 1936 when a taxpayer has a taxable income above the tax-free threshold but is entitled to franking rebates in excess of the amount of tax otherwise payable and a refund notice issues to refund existing PAYE credits to the taxpayer?
26 September 2012
Draft Taxation Determinations TD 2012/D6 Income tax: must income tax have been assessed before an agent
or trustee has an obligation under section 254 of the Income Tax Assessment Act 1936 to retain sufficient money to pay tax which is or will become due as a result of their agency or trusteeship?
19 September 2012
TD 2012/D7 Income tax: does a receiver who disposes of a CGT asset as the agent for a debtor have an obligation under section 254 of the Income Tax Assessment Act 1936 to retain from sale proceeds sufficient money to pay tax which is or will become due as a result of disposing of that asset?
19 September 2012
TD 2012/D8 Fringe benefits tax: reasonable amounts under section 31G of the Fringe Benefits Tax Assessment Act 1986 for food and drink expenses incurred by employees receiving a living-away-from-home allowance fringe benefit, for the period from 1 April 2013 to 31 March 2014
28 September 2012
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Tax on the Couch – November 2012
Taxpayer Alerts Taxpayer Alerts TA 2012/6 Deduction generation from purported purchase of offshore
'emission units' that do not exist at the time of the arrangement 25 September 2012
ATO Interpretative Decisions New ATO Interpretative Decisions ATO ID 2012/75 Superannuation guarantee: work done outside Australia 17 September 2012 ATO ID 2012/76 Eligibility for refund of excise paid on beer manufactured at an
eligible brewery and classified to subitem 1.15 or 1.16 in the Schedule to the Excise Tariff Act 1921
17 September 2012
ATO ID 2012/77 Income tax Division 7A: operation of section 109F of the Income Tax Assessment Act 1936 to forgiveness of amalgamated loan debt by a private company to a shareholders estate while it is in administration
17 September 2012
ATO ID 2012/78 GST and supplies made by endorsed charitable institutions for nominal consideration
21 September 2012
ATO ID 2012/79 Superannuation contributions: the operation of subregulation 7.04(3) of the Superannuation Industry (Supervision) Regulations 1994 in the context of in-specie contributions of listed shares
21 September 2012
ATO ID 2012/80 Hire purchase agreement: holder of an asset 21 September 2012 ATO ID 2012/81 Income tax: ultimate beneficiary - deductions 5 October 2012 ATO ID 2012/82 Income tax: ultimate beneficiary - circular distributions 5 October 2012 ATO ID 2012/83 Wine equalisation tax: producer rebate claims that exceed the
yearly entitlement before the end of the financial year 5 October 2012
ATO ID 2012/84 Excess contributions tax: concessional contributions - allocation from 'pension reserve account' supporting 'complying lifetime pension'
5 October 2012
Withdrawn ATO Interpretative Decisions ATO ID 2003/642 (Withdrawn)
Capital gains tax: demerger relief - cost base of new shares - indexation
12 October 2012
ATO ID 2010/194 (Withdrawn)
GST and supply by way of lease of a building designed to provide tertiary student accommodation
12 October 2012
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Tax on the Couch – November 2012
Case Update Tung and Tax Practitioners Board [2012] AATA 615 (14 September) Following the lodgement of a number of unverified tax returns by a registered tax agent, the AAT has affirmed the Tax Practitioners’ Board’s decision to terminate the registration of the tax agent. The TPB found the agent to not be a fit and proper person to prepare tax returns.
Commissioner of Taxation v Qantas Airways Ltd [2012] HCA 41 (2 October)In a majority decision, the High Court has allowed the ATO’s appeal in holding that Qantas was and is liable for GST on purchased airfares which are subsequently forfeited or not used by the passenger as there is still a taxable supply, namely the relevant contractual promises involved in the issuing of the ticket.
Boyn and Commissioner of Taxation [2012] AATA 660 (28 September) The AAT found that the tax payable on the taxable component of an ETP was incorrectly calculated by the ATO as they did not allocate deductions and prior year losses correctly when applying the relevant offsets applicable to these types of payments.
Lynton and Commissioner of Taxation [2012] AATA 667 (2 October) (not discussed on the couch)
The AAT has confirmed that a taxpayer’s ‘honest mistake’ and financial hardship did not amount to the required ‘special circumstances’ under S.292-465 of the ITAA97 to disregard the issued excess non-concessional contributions tax for a particular financial year.
Decision Impact Statements 2010/3764-3765, 1994
National Jet Systems Pty Ltd v Commissioner of Taxation 17 September 2012
2011/3714, 2011/4808
Confidential v Commissioner of Taxation 17 September 2012
VID 1325 of 2011 MTAA Superannuation Fund (R G Casey Building) Property Pty Ltd v Commissioner of Taxation
17 September 2012
VID 758-763, VID 764 & VID 908 of 2009 (First Instance); VID 195-198 & VID 200-201 of 2011 (Appeal)
Noza Holdings Pty Ltd and Ors v. Federal Commissioner of Taxation; Federal Commissioner of Taxation v. Noza Holdings Pty Ltd
17 September 2012
2011/1834-1841; 2011/0268-0272; 2012/0726-0729
Walsh and Commissioner of Taxation; Wilson and Commissioner of Taxation; Bridge and Commissioner of Taxation
24 September 2012
2011/402144 Atlantis Holdings Pty Limited in its capacity as trustee of the Bruce James Lyon Family Trust
24 September 2012
NSD 1569 of 2010 ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust & Anor v Commissioner of Taxation
28 September 2012
2011/3225-3226 Elliott and Commissioner of Taxation 5 October 2012 2011/5143 Bornstein and Commissioner of Taxation 5 October 2012 WAD 428 of 2011 LVR (WA) Pty Ltd and Anor v Administrative Appeals Tribunal
and Commissioner of Taxation 12 October 2012
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Tax on the Couch – November 2012
Media Releases: Treasury Ministers and ATO Deputy Prime Minister and Treasurer – The Hon Wayne Swan MP
087 17/09/2012 Newman puts Queensland Reconstruction into Doubt
088 20/09/2012 2012 IMF article IV consultation with Australia
089 24/09/2012 Release of 2011-12 Final Budget Outcome
090 25/09/2012 First Jim Stynes scholarships to help young footballers chase their dreams
091 25/09/2012 Findings of first national survey into mature-age workers released
092 28/09/2012 Canberra to host G20 Finance and Central Bank Deputies' meeting
093 28/09/2012 Protocols to assist Parliamentary Budget Officer released
094 03/10/2012 First access to Tasmania's Three Capes track
095 09/10/2012 Australia becomes world's 12th largest economy
096 09/10/2012 IMF World Economic Outlook
097 10/10/2012 Opinion Piece - Australian Growth in The New World Order
098 12/10/2012 Treasurer to Attend IMF and World Bank Annual Meetings
Assistant Treasurer – The Hon David Bradbury MP
103 18/09/2012 Coalition Trying to Wreck Not-For-Profit Reform
104 19/09/2012 Australian Charities and Not-for-profits Commission Passes House of Representatives
105 19/09/2012 Labor Moves to Ban Gag Clauses in Not-for-profit Sector
106 19/09/2012 Reforms to Living-Away-From-Home Allowances and Benefits Passed by the Parliament
107 20/09/2012 Abbott telling tall tales on Economic Growth
108 21/09/2012 Delay to Commencement of Australian Charities and Not-For-Profits Commission
109 25/09/2012 Improving Food Sector Relations
110 27/09/2012 New Inquiry into Exploration
111 28/09/2012 Win for Consumer Rights in Door-To-Door Sales Case
112 03/10/2012 Five interest rate facts Tony Abbott wants to forget
113 04/10/2012 Inspector-General's Review into the Australian Taxation Office’s use of Benchmarking to target the Cash Economy
114 05/10/2012 Australia Ratifies Multilateral Tax Cooperation Agreement
115 10/10/2012 Hockey Keeps on Talking Economy Down
116 11/10/2012 Government Delivering Real Reductions in Red Tape for Charities
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Tax on the Couch – November 2012
Minister for Financial Services and Superannuation – The Hon Bill Shorten MP
061 18/09/2012 Government releases draft legislation for trans-Tasman retirement savings
062 21/09/2012 Government welcomes increasing flood insurance coverage
063 01/10/2012 Appointment of First Female Chair to the Australian Reinsurance Pool Corporation (ARPC)
064 08/10/2012 Fair Work Act Review Consultation with Small Business
065 11/10/2012 Trans-Tasman Super Portability a Step Closer
066 12/10/2012 Productivity Commission Recommends Expert Panel Decide on Suitable Default Super Funds
067 12/10/2012 A Super Milestone for Small Business
ATO
19 Sep 2012 Take care what you declare So far this tax time the ATO has already stopped 58,000 income tax returns containing suspected over claimed or fraudulent refunds.
24 Sep 2012 ATO warns on offshore emission unit schemes The ATO is warning people to be cautious about arrangements promoting the generation of deductions from the purchase of offshore emission units that do not exist at the time of the arrangement.
02 Oct 2012 Make sure you lodge on time With only a month left until the end of tax time, time is running out to lodge your tax return if you are not using a registered tax agent.
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Tax on the Couch – November 2012
Speeches: Treasury, Treasury Ministers and ATO Deputy Prime Minister and Treasurer – The Hon Wayne Swan MP
027 19/09/2012 Opening Speech to the Structural Change and the Rise of Asia Conference - Canberra
028 21/09/2012 Financial Services Council & AMP Political Series - Sydney
029 26/09/2012 Address to the Townsville Chamber of Commerce - Townsville
Assistant Treasurer – The Hon David Bradbury MP
009 27/09/2012 'Benefits and Outcomes of the Seamless National Economy Agenda', Speech to Regulatory Reform Conference 2012, Melbourne
010 04/10/2012 Address to CCH Corporate Tax Managers Network Lunch, Sydney
Treasury
05-10-2012 Challenges and opportunities for the Australian economySpeech to the John Curtin Institute of Public Policy, Breakfast Forum Dr Martin Parkinson
ATO
22 Sep 2012 Issues affecting SMSFs: the ATO perspective Speech by Stuart Forsyth to SISFA 2012 SMSF Forum, Brisbane 14 September 2012.
24 Sep 2012 Our regulation of SMSFs and how super reform measures may impact you and your clients Keynote address by Stuart Forsyth, Assistant Commissioner Superannuation, ATO to the ICAA National SMSF Conference 2012 Finding Solutions, Thursday 20 September, Hilton Hotel, Sydney.
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Tax on the Couch – November 2012
Other Developments The Inspector General of Taxation announced reviews
On the 10th of October, the Inspector General of Taxation announced his new work program.
Tax practitioners Board: Information sheets issued on conduct and qualification requirements
The Tax Practitioners Board has three documents on certain aspects of qualification requirements and the Code of Professional Conduct including:
• Information Sheet TPB(I) 14/2012 on tertiary qualifications in a discipline other than accountancy for tax agents;
• Draft Information Sheet TPB(I) D15/2012 on reasonable care to ascertain a client’s state of affairs under the Code of Professional Conduct; and
• Draft Information Sheet TPB(I) D16/2012 on reasonable care to ensure taxation laws are applied correctly under the Code of Professional Conduct.
ATO benchmarking – Release of the Inspector General’s reportThe Inspector General of Taxation has handed down his report into the ATO’s use of benchmarks in their audits relating to the cash economy.
In addition to this, the ATO have released a fact sheet indicating its views for what it expects from a tax agent and their clients. Some concerns have been raised with respect to this fact sheet, in that it indicates that the ATO would consider reporting a tax agent to the Tax Practitioners Board where they did not conduct further investigations into a low profit reported by one of their clients. This fact sheet is entitled Record Keeping and cash transactions. The NTAA are currently in the process of making a submission to the ATO with respect to example 3 of this fact sheet, requesting further clarification.
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Tax on the Couch – November 2012
Hot Topic: The borrowing concessions for SMSFs (LRBAs) and related party lending Superannuation funds (including SMSFs) are generally prohibited from borrowing or maintaining an existing borrowing under S.67(1) of the Superannuation Industry (Supervision) Act 1993 (‘SIS Act’).
However, with effect from 24 September 2007, former S.67(4A) was introduced as an exception to this general prohibition where certain conditions of a borrowing were met. Borrowing arrangements that comply with these conditions are now commonly referred to as ‘limited recourse borrowing arrangements’ (or ‘LRBAs’). Since the introduction of S.67(4A), there has been confusion within the superannuation industry as to the application of the borrowing exception. This uncertainty led to the Government repealing S.67(4A) and replacing it with a modified borrowing exception contained in new S.67A and S.67B of the SIS Act.
The new borrowing exception contained in S.67A and S.67B applies to LRBAs entered into on or after 7 July 2010 (i.e., the day after Superannuation Industry (Supervision) Amendment Act 2010 (‘Amendment Act’) received Royal Assent).
In response to significant changes that resulted from the modification of the borrowing exception, the ATO issued Self Managed Superannuation Fund Ruling 2012/1 (‘SMSFR 2012/1’) to provide clarification on a number of important issues concerning LRBAs.
Further issues were also raised with the ATO in the NTLG Superannuation Technical Sub-committee meeting of 6 June 2012. In this meeting, the ATO provided guidance regarding the ability of SMSFs to use multiple lenders for LRBAs, and provided more clarity as to whether the use of related party lenders will cause superannuation contribution issues.
New ATO ruling offers more flexibility under the borrowing concessions – SMSFR 2012/1 SMSFR 2012/1 (finalising SMSFR 2011/D1) provides guidance and clarity on a number of practical issues relevant to the ability of SMSFs to enter into or maintain an LRBA. Key issues discussed in the ruling are the concepts of:
• an ‘acquirable asset’ and a ‘single acquirable asset’;
• ‘maintaining’ or ‘repairing’ a single acquirable asset (as opposed to ‘improving’ the asset); and
• When a ‘single acquirable asset’ is changed to such a degree that it becomes a different asset.
SMSFR 2012/1 also discusses the dangers involved when insuring assets that are subject to an LRBA.
The concept of a ‘single acquirable asset’ Under the borrowing concession in S.67A, money borrowed under an LRBA must be applied for the acquisition of a ‘single acquirable asset’. Refer to S.67A(1)(a). Unlike former S.67(4A), a borrowing arrangement to acquire multiple non-identical assets is not permitted.
An asset is regarded as an ‘acquirable asset’ if it is not money (whether it be Australian or foreign currency) and the fund’s trustee is not prohibited from acquiring it under the SIS Act or any other laws.
Although the new rules make reference to a single acquirable asset, a collection of assets can be treated as if they were a single asset where certain conditions are met. To be treated as a single acquirable asset, assets in the collection are required to have the same market value as each other and to be identical to each other. Refer to S.67A(3).
Practically, the definition of a single acquirable asset was extended for certain collections of assets to enable superannuation funds to borrow to acquire parcels of shares in a company or units in a unit trust (where the same fixed rights are attached to the shares/units). A collection of economically equal and identical commodities (e.g., a collection of gold bars, irrespective of whether they have different serial numbers), can also be treated as a single acquirable asset.
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Tax on the Couch – November 2012
TAX WARNING – Disposing of a collection of identical assets
Where a superannuation fund has acquired a collection of assets (that have the same market value and are identical to each other) under an LRBA, the collection must be treated as a single asset after they are acquired.
What this means is that once an LRBA is entered into to acquire a collection of identical assets (e.g., a parcel of identical shares), the assets need to be disposed of as a collection. While the superannuation fund maintains the borrowing, the assets that comprise the collection must not be sold off over time. Refer to paragraph 1.13 of the EM.
For example, if an SMSF entered into an LRBA to acquire 1,000 identical shares, the borrowing would first need to be extinguished if the SMSF wished to dispose of only 300 of those shares without breaching S.67.
Acquiring multiple assets or proprietary rights (including property over multiple titles) Situations will arise where an acquisition by an SMSF will involve:
• Acquiring multiple assets or proprietary rights (e.g., acquiring adjacent blocks of land, fully furnished apartments or acquiring a property with the payment of a deposit and the balance paid at settlement at a later time); or
• Acquiring a ‘single’ property on multiple titles (e.g., acquiring an apartment with a car park both of which have separate titles).
The main issue that these situations raise is whether the acquisition of multiple assets (e.g., adjacent property on separate legal title) can be considered a ‘single acquirable asset’ that can be covered by a single LRBA. Where multiple assets are not considered to be a single acquirable asset, the SMSF would be required to borrow money under separate LRBAs for each asset being acquired.
As per SMSFR 2012/1, when considering whether money borrowed under an LRBA has been applied for the acquisition of a ‘single acquirable asset’, both the legal form (i.e., the proprietary rights) and the substance of the asset (i.e., the object of those proprietary rights) need to be considered. Refer to paragraphs 9 and 10 of SMSFR 2012/1.
The ATO accept that, having regard to both the proprietary rights and the object of those proprietary rights, it is possible to conclude that an SMSF trustee can acquire a single acquirable asset that is a single object of property despite being comprised of separate bundles of proprietary rights (e.g., adjacent blocks of land on separate titles). This will only be the case where the bundle of proprietary rights being acquired is distinctly identifiable as a single asset. Refer to paragraph 11 of SMSFR 2012/1.
When determining whether assets being acquired can reasonably be considered to be a single object of property (i.e., whether the multiple proprietary rights are distinctly identifiable as a single asset) the trustee needs to consider relevant factors such as:
• Whether a unifying physical object exists, such as a fixture attached to the land which is permanent in nature, not easily removed and is significant in relative value of the asset; or
• Whether the law of a State or Territory requires the multiple assets to be dealt with together.
On the other hand, the following factors would not, without further considerations, be sufficient for multiple proprietary rights to be considered a single object of property:
• There is a physical object situated across two or more titles and that physical object:
- Is not significant in value relative to the overall value of the land; or
- Is temporary in nature or otherwise able to be relocated or removed easily (i.e., and therefore not preventing the multiple titles to be dealt with separately);
• A business is being conducted on two or more titles; or
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• The assets are being acquired under a single contract as a matter of convenience. For example, the vendor wants to deal with the assets as a package or the lender will only lend over a group of assets.
Acquiring property ‘off the plan’ using a limited recourse borrowing – ATO offers more flexibility for SMSFs Under a typical off the plan purchase, a purchaser enters into a contract with the vendor (often a builder) for a completed property upon settlement. The property may be a strata titled apartment (that is yet to be built and strata titled) or a vacant block of land that will have a house constructed on it.
In SMSFR 2012/1, the ATO laid to rest concerns that off the plan property purchases may not have been able to satisfy the requirements of being purchased under an LRBA. Refer to paragraphs 38 to 41 of SMSFR 2012/1.
Where an SMSF enters into a contract for the off the plan purchase of a strata titled apartment, and the contract requires a deposit be paid with the balance being payable at settlement when the apartment is completed and strata titled, the ATO considers both payments (i.e., the deposit and the settlement payment) are being made for the acquisition of the apartment. As long as the apartment itself is a single acquirable asset, an SMSF can fund both the deposit and the balance payable at settlement under a single LRBA.
Similarly, where a contract is entered into to purchase a single block of land along with the construction of a home on that land by settlement, an SMSF can acquire the completed house under an LRBA. Again, both the deposit and the settlement payment can be funded by a single LRBA.
On the other hand, if an SMSF acquires an option to purchase an apartment or house off the plan, the option is the relevant single acquirable asset. Although the acquisition of the option may be funded by an LRBA, once the option is exercised and the apartment/house is purchased, the settlement monies would need to be funded under a separate LRBA. The asset acquired upon the exercise of the option (i.e., the apartment or house) is a different asset to the option asset itself.
From a practical perspective, banks would typically not lend 100% of the purchase price of a property to SMSFs. This is particularly the case as banks typically provide loans with a lower loan-to-value ratio (‘LVR’) to SMSFs borrowing under LRBAs. Where this is the case, SMSFs may wish to pay the deposit from their own resources and borrow to fund the settlement payment only.
Borrowings that are applied in repairing/maintaining vs. improving an acquirable asset While SMSFs are allowed to borrow money to repair or maintain acquirable assets, they are prohibited from borrowing money to improve acquirable assets. Refer S.67A(1)(a)(i). As such, it is important to be able to distinguish between ‘repairing’ or ‘maintaining’ an asset and ‘improving’ it. At paragraph 18 of SMSFR 2012/1 the ATO notes that, for the purpose of the LRBA provisions, ‘maintaining’, ‘repairing’ and ‘improving’ are given their ordinary meanings.
The ordinary meaning of the term ‘repairing’ is remedying or making good defects in, damage to, or deterioration of an asset and contemplates the continued existence of that asset. A repair replaces a part of something or corrects something that is damaged, has become worn out or dilapidated or has deteriorated. Repairs may be required due to ordinary wear and tear, accidental or deliberate damage, or due to natural causes during the passage of time.
‘Maintaining’ an asset typically involves work performed in order to prevent or anticipate defects, damage or deterioration.
In contrast to repairing or maintaining, ‘improving’ an asset means significantly altering the state or function of an asset for the better, through substantial renovations, or the addition of further substantial features or rights, to the asset. That is, an alteration or addition of further features or rights to the asset that is substantial in nature results in an improvement to an asset. However, alterations or additions that provide a minor or trifling enhancement in the state or function of the asset will not amount to an improvement.
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Using an SMSF’s own money to improve an asset that is subject to an LRBA As discussed above, SMSFs are specifically prohibited from borrowing under an LRBA to fund improvements to single acquirable assets. Refer to S.67A(1)(a)(i). However, the ATO accepts that an SMSF can potentially use money from other sources to fund improvements to an asset subject to an LRBA.
However, despite being able to use other sources to fund improvements to an asset acquired under an LRBA, any improvements undertaken must not result in the acquirable asset becoming a different asset. As S.67A(1)(b) requires the ‘acquirable asset’ to be held on trust for the SMSF during the duration of the LRBA, the same acquirable asset must continue to be held on trust for the exception in S.67A to continue to apply to the borrowing.
Whether any improvements made to a single acquirable asset result in it becoming a different asset is a question of fact and degree, and requires consideration of whether the character of the asset has fundamentally changed as a result of the improvement. Relevant factors to consider in determining whether an improvement to a single acquirable asset has resulted in a different asset being held on trust include:
• Whether the acquirable asset has been entirely replaced by another asset;
• Whether the function of the acquirable asset has significantly changed through the improvement to the asset; and
• Whether there is no longer a single acquirable asset (e.g., an alteration is made to a single unifying physical object, leading to part of the asset being capable of being sold off).
It should be noted that an SMSF may be permitted to replace the original single acquirable asset with certain ‘replacement assets’ that are specifically defined in S.67B. Broadly speaking, however, only shares in a company or units in a unit trust can be treated as replacement assets for the purposes of S.67B, and only in the case where the replacement occurs as a result of a takeover, merger, demerger or restructure. As such, where improvements made to other assets have resulted in a fundamental change to the character of the asset, that different asset will not meet the requirements of being a ‘replacement asset’ for the purposes of S.67B.
Using multiple lenders to finance acquisition of a single asset – new ATO guidelines In the June 2012 NTLG Superannuation Technical Sub-committee meeting, the ATO was asked whether a single acquirable asset could be financed by two lenders under an LRBA. This may be common in practice where one lender may provide finance for a deposit (e.g., for an acquisition of real property), while the SMSF uses a separate lender for the settlement (e.g., a related party lender). Refer to agenda item 7.5 of the minutes to the June 2012 meeting.
In the meeting, the ATO agreed that there is no specific provision in the SIS Act that prohibits the use of more than one lender in an LRBA. S.67A does not include any restriction on the number of borrowings which may be included in the arrangement, provided they are all part of the arrangement that is entered into, and the requirements in S.67A(1) are met.
It needs to be clear from the arrangement that all monies borrowed (i.e., from all lenders) are being applied as part of a single arrangement for the acquisition of a single acquirable asset. Also, for example, the rights of each lender (or any other person) must be limited to the single acquirable asset that is the subject of the borrowing.
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Using related party lenders to acquire assets on favourable terms – new ATO guidelines The interaction of the LRBA provisions and the arm’s length dealing rules were also discussed in the June 2012 NTLG Superannuation Technical Sub-committee meeting. In particular, the ATO was asked whether an SMSF is able to enter into a borrowing arrangement with a related party if a zero rate of interest is charged by the related party lender, and only principal repayments (with no imputed interest) are made throughout the loan term in accordance with the loan agreement. Refer to agenda item 7.4 of the minutes to the June 2012 meeting.
The ATO had previously released ATO ID 2010/162, which highlighted an arrangement where the related party lender charged an interest rate that was lower than what was available to the SMSF from an arm’s length lender for a similar loan. The ATO’s view was that an SMSF trustee does not contravene S.109 if it borrows money from a related party of the SMSF under a LRBA on terms more favourable to the SMSF. In other words, as long as the SMSF (and not the related party) benefits from the non-commercial terms of the arrangement, it will not breach the arm’s length dealing rules of S.109.
In the June 2012 meeting, the ATO confirmed that the absence of the requirement to pay interest will not prevent the arrangement from being a ‘borrowing’ for the purposes of S.67A. A borrowing provided from a related party to an SMSF interest-free does not cause a contravention of S.109(1)(b), as that fact does not make the terms and conditions of the borrowing more favourable to the related party lender than would be reasonably expected if the parties were dealing with each other at arm's length in the same circumstances.
Once an investment has been made to which S.109(1)(b) applies (e.g., an SMSF has borrowed from a related party, interest free, to acquire an asset), S.109(1A) needs to be considered for dealings between the parties following the initial investment. The ATO further confirmed that once an investment to which S.109(1)(b) applies has commenced, the fact that a borrowing is interest free does not cause a contravention of S.109(1A).
Is the discounted interest amount offered by a related party lender a ‘contribution’ to the SMSF? Following on from the issue of whether related parties could lend to SMSFs interest free, the June 2012 NTLG Superannuation Technical Sub-committee meeting further examined whether a related party lender providing a discount to market interest rates would be making a ‘contribution’ to a superannuation fund. Refer also to agenda item 7.4 of the minutes to the June 2012 meeting.
The issue of whether such ‘interest discounts’ count as contributions needs to be considered in determining whether individuals have exceeded their relevant superannuation contribution caps.
In the June 2012 meeting, the ATO stated that the absence of the requirement to pay interest on a borrowing from a related lender does not increase the capital of the fund and is therefore not a contribution received by the SMSF.
Taxation Ruling TR 2010/1 provides the ATO’s guidance regarding how and when contributions have been made to a superannuation fund. In particular, paragraphs 172 to 174 of TR 2010/1 state that payments of expenses on behalf of the fund are taken to be contributions made to the fund.
However, a saving on an expense of an SMSF does not amount to an increase in the capital of the fund, and is more analogous to examples 2 and 5 of TR 2010/1. These examples deal with the provision of services to an SMSF free of charge.
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