The Monthly Tax Review – October 2016

Copyright Taxpayers Australia Limited T/A Tax & Super Australia, October 2016

(Incorporating Superannuation Australia Pty Ltd)

Published by Tax & Super Australia 1405 Burke Road Kew East, Vic 3102 ABN 96 075 950 284 Reg No: A0033789T P: 03 8851 4555 F: 03 8851 4588 E: info@taxandsuperaustralia.com.au www.taxandsuperaustralia.com.au © Taxpayers Australia Limited T/A Tax & Super Australia– October 2016 All information provided in this publication is of a general nature only and is not personal financial or investment advice. It does not take into account your particular objectives and circumstances. No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional advisor. To the fullest extent permitted by law, no person involved in producing, distributing or providing the information in this publication (including Tax and Super Australia, each of its directors, councillors, employees and contractors and the editors or authors of the information) will be liable in any way for any loss or damage suffered by any person through the use of or access to this information. The Copyright is owned exclusively by Tax & Super Australia (ABN 96 075 950 284). NOTICE FORBIDDING UNAUTHORISED REPRODUCTION So long as no alterations are made unless approved, you are invited to reprint Editorials provided acknowledgment is given that the Association is the source. No other item covered by copyright may be reproduced or copied in any form (graphic, electronic or mechanical, or recorded on film or magnetic media) or placed in any computer or information transmission or retrieval system unless permission in writing is obtained from Tax & Super Australia. Permission to reproduce items covered by copyright will only be extended to members financial at time of request. Permission may be obtained by email to info@taxpayer.com.au, by phone 1300 657 572 or by contacting Member Services for an Application to Reproduce Copyright Material Form. Each issue has been researched, authored, reviewed and produced by Tax & Super Australia staff Technical Reviewer: Letty Tsoi

CONTENTS Headlines 6

Cases ............................................................................................................................................... 6

FKYL and Commissioner of Taxation (Taxation) [2016] AATA 810 ......................................... 6

Edwards and Commissioner of Taxation (Taxation) [2016] AATA 781 ................................. 10

Legislation........................................................................................................................................ 14

Tranche two of the proposed superannuation reforms ...................................................... 14

Tranche three of the proposed superannuation reforms .................................................... 20

The ‘backpacker tax’ legislation introduced into Parliament ............................................... 23

ATO Announcements ...................................................................................................................... 28

Substantiation exception for reasonable travel allowance expenses .................................. 28

Tax Practitioners Board ................................................................................................................... 30

TPB(PN) D37/2016: Cloud computing and the Code of Professional Conduct .................... 30

Tax Bulletin Board ............................................................................................................................... 34

Cases ............................................................................................................................................. 34

Tech Mahindra Limited v Commissioner of Taxation [2016] FCAFC 130 ............................. 34

Landy and Commissioner of Taxation (Taxation) [2016] AATA 754 ..................................... 34

Ward v Commissioner of Taxation [2016] FCAFC 132 .......................................................... 35

G J Brown & Co Pty Ltd and Tax Practitioners Board [2016] AATA 740 ............................... 35

Kishore and Tax Practitioners Board [2016] AATA 764 ........................................................ 35

Moriarty and Commissioner of Taxation (Taxation) [2016] AATA 796 ................................ 36

Legislation........................................................................................................................................ 37

New PAYG withholding tax tables – change in threshold .................................................... 37

Improvements to the Debt and Equity Tax Rules................................................................. 37

GST: Simplified Accounting Method (SAM) for food industry ............................................. 37

ATO Legal Database ......................................................................................................................... 38

TD 2016/16: Non-arm’s length income from an LRBA entered on terms which are

not at arm’s length ............................................................................................................... 38

Updated: PCG 2016/5 – arm’s length terms for LRBAs ........................................................ 38

Draft GST determination: correcting errors – GSTE 2016/D1 .............................................. 38

Withdrawal of guidance on refund of deposit - ATO ID 2009/119 (Withdrawn) ................. 39

Fleet cars: simplified approach for calculating car fringe benefits – PCG 2016/10 ............. 39

Dividends from foreign companies – participation exemption – TR 2016/D2 ..................... 40

ATO Announcements ...................................................................................................................... 41

Lodgment due date concessions .......................................................................................... 41

Tax debts: building and construction industry ..................................................................... 41

Tax obligations deferral – natural disasters ......................................................................... 41

Contribution reserve strategy: How to complete the SMSF annual return ......................... 42

Streamlining private ruling applications .............................................................................. 42

Early engagement for private advice – extended to small businesses ................................ 43

New tools to check individual’s super entitlements ............................................................ 43

Foreign exchange rates ........................................................................................................ 43

Record keeping evaluation tool ........................................................................................... 43

Auskey check ........................................................................................................................ 44

Government Announcements ......................................................................................................... 45

Report on the R&D Tax Incentive Review: consultation is open .......................................... 45

Tax Practitioners Board ................................................................................................................... 46

New webinars ...................................................................................................................... 46

Guidance for tax (financial) advisers .................................................................................... 46

Inspector-General of Taxation ......................................................................................................... 47

Inspector-General of Taxation Work Program 2017 – calls for submission ......................... 47

Rulings & Determinations .................................................................................................................... 48

Bill status at 19 October 2016 .............................................................................................................. 51

Cases at 19 October 2016..................................................................................................................... 66

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WELCOME TO THE MONTHLY TAX REVIEW

OCTOBER 2016 The Monthly Tax Review (MTR) is a compilation of key case law, regulator updates and industry insights for you to easily stay abreast of the ever changing tax landscape.

This edition covers the period from Thursday, 22 September 2016 to Wednesday, 26 October 2016 (inclusive).

To aid your navigation, we have linked all resources and source materials within the MTR. If you require more in depth understanding of an issue, just click through to the additional materials including legislation.

Structure

We have structured the MTR under the following sections:

Headlines

This section includes an in-depth analysis of tax and super matters that have occurred over the past month that will be important to you and your clients. These are must read items!

Tax Bulletin Board

The Bulletin Board contains a snapshot of salient items which have happened during the month that are of relevance to you (which you may have missed).

New tax rates and tables, recently enacted law or messages from regulators are some of the things you will find in this section.

State of Play

The section includes a summary on the status of all tax and super related legislation before Parliament and newly issued ATO pronouncements such as tax rulings and determinations. All references are linked to source if you require further information.

Our traffic light system

We understand that some of you just want to know the progress of a particular development and whether you can rely or depend on it with certainty.

Our traffic light system will help you determine whether the tax development has been finalised, is being progressed, still at early discussion stage or will not proceed. If you only want to know if a measure has passed or an ATO pronouncement has been finalised – then just “Read the Green”.

What the traffic lights mean

GREEN

You can rely with certainty!

For legislation: The Bill containing the relevant tax or superannuation measures has passed through both Houses of the Australian Parliament or has received Royal Assent (ie. enacted as law).

For case law: The decision has been delivered by the relevant Court or the Administrative Appeals Tribunal.

For ATO pronouncements: This has been issued in final form and can be relied upon by taxpayers as the Commissioner of Taxation’s position on, or interpretation of, an issue.

AMBER

Watch this space!

For legislation: The Bill containing the relevant tax or superannuation measures has been introduced and is currently progressing through the Parliament. The measures have not yet been enacted. There is scope for the Bill to be amended or to not pass through Parliament altogether.

For ATO pronouncements: This has been issued in draft form and is currently under consultation. It can still be relied on by taxpayers as the Commissioner’s position on, or interpretation of, an issue until such time as the pronouncement is issued in final form or is otherwise withdrawn.

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Information only

For legislation: The relevant tax or superannuation measure has been released in exposure draft form and is currently subject to consultation. The exposure draft may be amended before being tabled in Parliament as a bill. In some cases, the exposure draft and the measures contained in it may be scrapped altogether.

For regulator updates or Treasury papers: This has been issued in draft form or has been issued in final form as a recommendations paper. There is no certainty that the recommendations will be implemented.

Glossary

Terminology Acronym or abbreviation

Income Tax Assessment Act 1997 ITAA97

Income Tax Assessment Act 1936 ITAA36

A New Tax System (Goods and Services Tax) Act 1999

GST Act

Fringe Benefits Tax Assessment Act 1986 FBTAA

Taxation Administration Act 1953 TAA

Goods and Services Tax GST

Fringe Benefits Tax FBT

Pay As You Go PAYG

Commissioner of Taxation Commissioner

Australian Taxation Office ATO

Tax Practitioners Board TPB

Administrative Appeals Tribunal AAT

Federal Court of Australia Federal Court

Full Court of the Federal Court of Australia Full Court

High Court of Australia High Court

We hope you enjoy this month’s issue.

Warm regards,

The Team at Tax and Super Australia

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Headlines

Headlines CASES

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New residential premises: 5 year rule FKYL and Commissioner of Taxation (Taxation) [2016] AATA 810

Overview The taxpayer constructed 4 properties and rented them out before selling them to the tenants.

The AAT concluded that the properties were ‘new residential premises’ and therefore subject to GST. The properties satisfied the definition of new residential premises as they could not be said to have only been used for residential rent for at least 5 continuous years preceding the supply.

Further, the margin scheme could not apply as the taxpayer could not show the written agreements with the purchasers that the margin scheme should apply.

All legislative references are to the GST Act.

What is the case about? The taxpayer carried on a house construction business as a sole trader. She entered into building contracts to construct four residential properties on vacant blocks. The taxpayer did not claim any input tax credits (ITCs) for the purchases of the properties. She also claimed that they were purchased under the margin scheme. At the time that the taxpayer lodged her application with the AAT, she had not provided the ATO with written agreements which were necessary to show that the margin scheme applied.

The properties were rented upon completion and then sold.

The lease agreements provided that the tenants were to purchase the properties, and could rent the properties while saving for the deposit.

The sale of Property 1 was the only sale that the taxpayer reported in her BAS. She claimed input tax credits (ITCs) totalling $81,635 in relation to that property.

The taxpayer was of the view that the sales of the other three properties were not taxable supplies, and therefore not subject to GST, because they were all purportedly more than 5 years old when they were sold.

The ATO disagreed with the taxpayer. The ATO was of the view that the property sales should be treated as sales of new residential premises and therefore subject to GST. Further, the ATO said that she was not entitled to use the margin scheme and consequently calculated her GST liability as 1/11 of the sale proceeds. The ATO allowed the taxpayer to claim some ITCs for construction costs and non-construction costs, to the extent that they did not relate to the periods of rent.

What is the issue? The key issue before the AAT was whether the properties were ‘new residential premises’ for GST purposes.

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What the AAT concluded New residential premises: 5 year rule

The AAT upheld the Commissioner’s decision that the sales of the properties were taxable supplies of new residential premises.

The AAT concluded that the supplies of Properties 2, 3 and 4 were all supplies of ‘new residential premises’ on the basis that they did not satisfy the ‘5 year rule’. Therefore the supplies were taxable supplies and subject to GST.

The fact that the tenants each signed a contract of sale and were permitted to rent the property while saving for the deposit proves that the premises were not used only for the purpose of making input taxed supplies during that 5 year period. Accordingly, the properties were new residential premises.

Margin scheme: written agreement

The AAT also agreed with the Commissioner that the margin scheme did not apply to the sales of the properties.

The taxpayer was not able to produce a written agreement between her and each of the buyers evidencing that the supply was to be under the margin scheme. Accordingly, the AAT affirmed the Commissioner’s decision to calculate GST on 1/11 of the consideration received for each sale (and not 1/11 of the margin).

Specific concepts

New residential premises: 5 year rule

Subdivision 40-C deals with sales of residential premises. A sale of residential property is generally an input taxed supply which is not subject to GST. However, a sale of residential property is not input taxed if the property constitutes ‘new residential premises’.

What are new residential premises?

The meaning of new residential premises is defined in s40-75.

“(1) Residential premises are new residential premises if they:

(a) have not previously been sold as residential premises (other than commercial residential premises) and have not previously been the subject of a long-term lease; or

(b) have been created through substantial renovations of the building; or

(c) have been built, or contain a building that has been built, to replace demolished premises on the same land.

(2) However, the premises are not new residential premises if, for a period of at least 5 years since:

(a) if paragraph (1)(a) applies (and neither paragraph (1)(b) nor paragraph (1)(c) applies) – the premises first became residential premises; or

(b) if paragraph (1)(b) applies – the premises were last substantially renovated; or

(c) if paragraph (1) applies – the premises were last built;

the premises have only been used for making supplies that are input taxed because of paragraph 40-35(1)(a).”

In other words, a supply of residential premises is subject to GST if the premises have only been used for making supplies of residential rent (which are input taxed supplies) for a continuous period of at least 5 years since:

the premises first became residential premises, where the premises have not previously been sold as residential premises and have not previously been the subject of a long-term lease

the premises were last substantially renovated, where the premises have been created through substantial renovations of a building; or

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Headlines

the premises were last built, where the premises have been built, or contain a building that has been built, to replace demolished premises on the same land.

After the 5 years of that sole usage, the residential premises lose their ‘new’ status. This is known as the 5 year rule.

The ATO has issued some guidance on the application of the 5 year rule in the context of rented housing:

GSTR 2003/3

The 5 years must be a continuous period. A continuous period is not broken by short periods of vacancies between tenancies where the property is actively marketed for rent. However, a continuous period would not include when premises were used for private purposes or left vacant with no attempt to lease it.

Example 6 (from GSTR 2003/3) - residential premises built, rented, restored and then sold

David is a property developer whose enterprise includes the construction of residential rental accommodation, renting those premises for a number of years (never less than 10 years) and the eventual sale of those premises.

Normal maintenance of the premises is undertaken while the premises are rented.

When the decision is made to sell the premises, work is undertaken to restore the premises to their original condition and to rectify damage done by the tenants. As part of this process a new kitchen, bathroom etc may be installed.

Where the restoration work affects most of the rooms in the house, but is largely cosmetic in nature (for example, replastering and repainting) and only the kitchen and bathroom are replaced, we consider there have not been substantial renovations.

The residential premises have been continuously used only for making input taxed supplies (i.e. residential rental) for a period of at least 5 years since the premises first became residential premises and there have not been substantial renovations. Therefore, the sale of the premises will be an input taxed supply.

However, where the damage done is so severe that it is necessary to replace the damaged plumbing, electrical wiring, most of the interior walls, floors, windows, doors, kitchen and bathroom (including fixtures and fittings), and restore the exterior walls and roof, there would be substantial renovations. The painting of the building inside and out is cosmetic in nature, and not a factor in deciding whether substantial renovations have occurred. In this case, the sale of the premises will be a taxable supply as the premises are new residential premises created through substantial renovations.

GSTR 2009/4

New residential premises that are held for sale but are subsequently rented (dual concurrent purpose) will not meet the five year rule because the property will not have been used solely to make input taxed supplies under s40-35(1)(a).

Margin scheme: written agreements

Division 75 allows margin scheme to be applied to work out the amount of GST on a taxable supply of real property. The amount of GST payable under the margin scheme equals 1/11 of the ‘margin’ (ie. the consideration for the supply less the consideration the vendor paid on acquisition) instead of 1/11 of the gross consideration for the supply.

Section 75-5(1) explicitly requires that the vendor and purchaser must have agreed in writing that the margin scheme is to apply. Further, the agreement must be made no later than the making of the supply (ie. no retrospective agreements are permitted) unless the Commissioner allows extra time.

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Therefore if the vendor cannot produce contemporaneous written agreements specifying that both parties agree to the use of the margin scheme, then the eligibility requirements have not been met and the margin scheme does not apply.

Source FKYL and Commissioner of Taxation (Taxation) [2016] AATA 810

Resources GSTR 2003/3

GSTR 2009/4

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Headlines

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Lump sum workers’ compensation payment derived in year received Edwards and Commissioner of Taxation (Taxation) [2016] AATA 781

Overview In 2014-15, the taxpayer received a lump sum payout as statutory workers’ compensation for incapacity. The payment related to 2000-01 to 2005-06. The AAT held that the entire lump sum was derived, and therefore assessable, in 2014-15 and not in the earlier years.

What’s the case about? The taxpayer, Mr Ian Edwards, left his job with the Australian Federal Police (AFP) in 2000 and commenced part-time work as a photographer in 2006. He had sustained injuries in the course of his employment with the AFP.

In February 2015, as a result of an earlier AAT decision, the taxpayer was paid a gross lump sum payment of $86,088.77 by Comcare, pursuant to the Safety, Rehabilitation and Compensation Act 1988 (SRC Act). Broadly, the payment was a compensation for incapacity, and it related to the period from 30 November 2000 to 26 April 2006.

A private ruling confirmed that the lump sum payment was assessable in the year in which it was received.

The taxpayer lodged his 2014-15 income tax return, including the lump sum payment as assessable income. The Commissioner subsequently issued a notice of assessment reflecting the self-assessed taxable income and allowing a tax offset for lump sum payment in arrears (LSPIA tax offset).

Subsequently, the taxpayer objected to the notice of assessment. During the course of the consideration of the objection, it was found that the taxpayer’s income tax liability was excessive, because it did not take into account carry forward losses.

The taxpayer’s objection was allowed in part. As a result, the taxpayer’s assessment was amended to allow for a deduction for the losses, and the LSPIA tax offset was increased.

What were the key issues? The AAT considered several issues. The one that will be discussed herein is whether the lump sum payment was assessable income derived in the 2014-15 income year.

This issue raises two sub-issues:

1. The appropriate characterisation of the lump sum payment. 2. Whether the lump sum payment was derived when it was received.

The characterisation of the lump sum payment It is well established that payments to compensate for loss of earnings have the character of income for tax purposes.

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In determining whether statutory compensation payments have the character of income, it is necessary to look at the words of the legislation, as well as the circumstances.

In determining whether statutory compensation payments have the character of income, it is necessary to look at the words of the statute itself, as well as the circumstances in which the payment was received.

In the present case, s19(2) of the SRC Act provides that compensation for injuries resulting in an employee’s incapacity to work is calculated by deducting from their normal weekly earnings the weekly amount that they earn, or are able to earn. As such, the compensation is directly referable to the amount of earnings that the employee would have received had it not been for his or her injury. It is therefore clear that the character of the payments is income based.

The lump sum form of payment does not alter its character. The lump sum payment was an aggregate of past weekly payments and was made in substitution for the taxpayer's claim for weekly compensation.

According to the AAT, it was clear that the lump sum payment had the character of ordinary income.

Was the lump sum payment derived when it was received? The issue is when the lump sum was derived for the purposes of s6-5 ITAA97.

The derivation issue raises the question as to the appropriate accounting method to be adopted in the circumstances:

the receipts or cash basis (derived in 2014-15), or

the earnings or accruals basis (derived over 2000-01 to 2005-06).

The Commissioner submitted that income from employment is accounted for on a receipts basis, even though it may relate to a past income year. It is derived in the year that it is received.

The taxpayer contended that the lump sum payment was derived and assessable in the years to which the payments related (2000-01 to 2005-06).

The AAT concluded that the lump sum payment was derived in the year of receipt, 2014-15.

In arriving at its conclusion, the AAT addressed the taxpayer’s two key arguments.

First argument: that he was legally entitled to a ‘recoverable debt’ in the 2000-01 to 2005-06 income years

Taxation Ruling TR 98/1 sets out the Commissioner’s view that under the earnings method, income is derived when a ‘recoverable debt’ is created. The ruling then discusses the term ‘recoverable debt’.

The taxpayer argued that the earlier AAT decision allowed the lump sum to be ‘generated’ as a judgment debt which became a ‘recoverable debt’.

The AAT did not accept this argument:

the previous AAT decision did not concern the award of an ascertainable amount of money that could be readily described as a debt; and

in any case, any ‘debt’ which ultimately arose actually crystallised in 2014-15, not in any earlier years. That crystallisation was dependent on a number of things occurring, including the AAT hearing, the reconsideration of the matter by Comcare in light of that decision, and Comcare’s calculation of the back payments.

Second argument: that the assessment for 2014-15 was excessive because the Commissioner denied him the right to use the earnings accounting method.

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Headlines

Consistent with TR 98/1, the taxpayer had been adopting the receipts method as being the most appropriate for him. Salary, wages or other employment remuneration are assessable on receipt.

Under the ruling, a taxpayer who accounts on a receipts basis ‘should continue to adopt that method until it is no longer appropriate’.

In the view of the AAT, the receipt of the lump sum payment in 2014-15 did not provide any reason to change to an earnings accounting method. It was not open to the taxpayer to change to the earnings method for 2014-15.

The AAT’s conclusion Based on the above analysis, the AAT determined that the lump sum was derived in 2014-15 only. The entire lump sum was therefore assessable income in 2014-15.

What is the key message?

Derivation: receipts (cash) method or earnings (accruals) method

The fundamental issue on hand in this case was whether the amount of income was derived on the receipts basis (2014-15) or the earnings basis (2000-01 to 2005-06). It was not disputed that the lump sum was assessable income – only the timing of derivation.

Taxation Ruling TR 98/1 sets out the Commissioner’s views in relation to the receipts versus earnings basis of deriving income.

Key points from the ruling:

Method Description Appropriate situations (subject to exceptions)

Receipts (cash) Income is derived when it is received, either actually or constructively, under subsection 6-5(4) of the ITAA97.

income derived by an employee

non-business income derived from the provision of knowledge or the exercise of skill possessed by the taxpayer

business income where the income is derived from the provision of knowledge or the exercise of skill possessed by the taxpayer in the provision of services

income derived from investments

Earnings (accruals)

Income is derived when it is earned. The point of derivation occurs when a 'recoverable debt' is created. The term 'recoverable debt' is used to describe the point of time at which a taxpayer is legally entitled to an ascertainable amount as the result of having performed an agreed task. A taxpayer may have a recoverable debt even though, at the time, they cannot legally enforce recovery of the debt.

business income derived from a trading or manufacturing business

Key message from TR 98/1: When accounting for income, for tax purposes, a taxpayer must adopt the method of accounting that, in the circumstances, is appropriate. A method of accounting is appropriate if it gives a 'substantially correct reflex' of that income. This is a conclusion to be made from all relevant circumstances.

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Compensation payments

In the case, it was not disputed that the compensation payment was assessable as ordinary income. It is a well-established principle that a payment that is a compensation for loss of income will be assessable as ordinary income. For example, see Taxation Determination TD 93/58, which discusses the assessability of a lump sum compensation payment.

TD 93/58 provides that the lump sum compensation payment is assessable income:

if the payment is compensation for loss of income only e.g. past year profits, and/or interest (even when the basis of the calculation of the lump sum cannot be determined); or

to the extent that a portion of the lump sum payment is identifiable and quantifiable as income. This will be possible where the parties either expressly or impliedly agree that a certain portion of the payment relates to a loss of an income nature.

In other cases, a lump sum compensation payment may be subject to CGT. Taxation Ruling TR 95/35 discusses the CGT treatment of compensation receipts that are on capital account.

LSPIA tax offset

The AAT also looked at the Commissioner’s calculation of the LSPIA tax offset and concluded that it was correct.

The offset is available under s159ZR of the ITAA36 in relation to certain types of lump sum payments in arrears, which relevantly includes salary and wages accrued more than 12 months before payment date.

There may be extra tax payable on the lump sum in the year of receipt compared to the notional tax that would have been payable had the amount been assessed over the years of accrual. Broadly, the offset is designed to refund that difference.

The rebate is calculated as follows:

Tax on arrears – Notional tax on arrears

Tax on arrears: the tax payable (excluding Medicare levy) on the lump sum in the year of receipt

Notional tax on arrears: the tax that would have been payable on the lump sum if it had been taxed in the accrual years.

Source Edwards and Commissioner of Taxation (Taxation) [2016] AATA 781

Resources Taxation Ruling TR 98/1

Taxation Ruling TR 95/35

Taxation Determination TD 93/58

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LEGISLATION

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Tranche two of the proposed superannuation reforms Superannuation reform package - tranche two

Overview The Government has released exposure draft legislation to implement various measures in tranche two of its superannuation reform package.

Summary of proposals Tranche 2 of the superannuation reforms contains exposure draft (ED) legislation implementing the following measures:

Transfer balance cap (this is the $1.6m limit on pension phase) o Transfer balance account

o Transfer balance credits

o Transfer balance debits

o Modifications for certain defined benefit income streams

o Modifications for death benefits dependants who are children

o Excess transfer balance tax

Concessional superannuation contributions

o Cap amount

o Contributions that do not result in excess contributions

o Division 293 tax

Catch-up concessional contributions

o Five year carry forward of unused concessional contributions cap

o Total superannuation balance (proposed s307-230 ITAA97)

Innovative income streams and integrity

Anti-detriment provisions

Administration

o End benefit caps

o Combining notices

Note: Based on information contained in the explanatory memoranda accompanying the EDs, it is expected that all the measures contained in all three tranches will be introduced into the Parliament as a single bill - Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016.

The proposed start date of most of the new measures is 1 July 2017. The “catch-up concessional contributions” measure has a proposed start date of 1 July 2018.

Note: Public submissions in relation to the tranche 2 draft legislation raised as a particular concern the administration costs that superannuation funds will need to expend in order to comply with the new measures. While the Government had widely publicised that the measures would affect only 4% out of all members of superannuation funds, stakeholders have claimed that the administration costs will affect just about every superannuation fund member. It is expected that SMSFs will need to amend their deeds if the measures become law to accommodate the new rules, and this would be a key source of the anticipated administration costs.

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The following discussion will only cover certain aspects of the transfer balance cap.

Commentary on the other proposals can be found in the explanatory memoranda accompanying the exposure draft legislation.

In-depth look at the transfer balance cap proposal

New terms

A long list of new terms is introduced by the new measures. Those relevant for the following discussion are:

general transfer balance cap - for the 2017-18 financial year it is $1,600,000, indexed for later years

transfer balance cap – an individual’s amount based on the general transfer balance cap for a particular year

transfer balance account – an account for tax purposes that is used to track an individual’s transfer balance cap and reflecting at a particular time the total amount they can transfer to the retirement phase

retirement phase – a superannuation member’s interest from which a superannuation income stream benefit is payable at a particular time (excluded are transition to retirement income stream benefits)

excess transfer balance - the amount of the excess of the individual’s transfer balance account over that individual’s transfer balance cap

notional earnings on excess transfer balance – an amount worked out by multiplying excess transfer balance at the end of the day by the rate specified in legislation

Transfer balance cap

There will be a transfer balance account for each retirement phase recipient of a superannuation income stream. Simply put, individuals receiving superannuation income stream benefits will have a transfer balance account.

The use of “accounts” for tax law purposes is not new. The best example and a useful analogy is the franking account that each company has. The franking account is used to track income tax paid by the company, so that the company can pass to its members the benefit of having paid that tax when a distribution is made (s200-15 ITAA97).

Arguably, the “franking account” does not actually account for anything in accounting terms, it is just an analogy employed in the ITAA97 to track an income tax attribute.

Likewise, each individual receiving superannuation income stream benefits will have a transfer balance account. The transfer balance account is used to limit the total amount of an individual’s superannuation income streams that receive an earnings tax exemption.

The franking account has its rules in relation to debits, for instance when the share capital is tainted, and credits, for example when a company receives a franked distribution. A similar set of rules will exist for the transfer balance account.

The transfer balance cap is directed towards net transfers to the retirement phase and is not affected by earnings, losses or draw-downs that occur within the retirement phase.

Start date of an individual’s transfer balance account

An individual’s transfer balance account is created when credits first arise in the account. This is when they first receive a superannuation income stream that is in the retirement phase.

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Transfer balance credits

Credits in an individual transfer balance account arise in the following circumstances:

Condition Value of credit Time of credit

At the end of 30 June 2017, an individual is the retirement phase recipient of a superannuation income stream

The value on 30 June 2017 of the on 1 July 2017 superannuation interest that supports the superannuation income stream

a) On 1 July 2017, unless paragraph (b) applies; or b) if you are a reversionary beneficiary—at the end of the period of 6 months beginning on 1 July 2017

On a day (the starting day) on or after 1 July 2017, an individual starts to be the retirement phase recipient of a superannuation income stream

The value on the starting day of the superannuation interest that supports the superannuation income stream

a) On the starting day, unless paragraph (b) applies; or b) if you are a reversionary beneficiary—at the end of the period of 6 months beginning on the starting day

An individual has excess transfer balance at the end of a day

The individual’s notional earnings on excess transfer balance for that day

At the start of the next day

Example 1 (adapted from the EM) Amy first becomes entitled to superannuation income stream benefits in 2017-18. A transfer balance account is created for Amy at that time. Amy’s personal transfer balance cap is $1.6 million for the 2017-18 financial year.

Amy starts a pension with $800,000 out of her $1m accumulated superannuation balance. Amy’s transfer balance account is credited by $800,000 in 2017-18. At that time, she has used 50 per cent of her $1.6 million personal transfer balance cap.

The pension balance increases though distributed investment returns and through the appreciation in market value of securities. This has no impact on Amy’s transfer balance account.

Note that in case of an individual having an excess transfer balance, a credit arises equal to notional earnings on the excess for that day. This, in effect, penalises this individual for exceeding the cap. Note also, that the notional earnings do not correlate with actual earning, which may be less.

Transfer balance debits

Following is an abridged table outlining the events that result in a debit to the transfer balance account:

Condition Value of debit Time of debit

An individual receives a superannuation lump sum because a retirement phase superannuation income stream is commuted, in full or in part

The amount of the superannuation lump sum

At the time an individual receives the superannuation lump sum

A contribution in respect of an individual is made pursuant to s292-95 ITAA97 (about structured settlements or orders for personal injuries)

The amount of the contribution

At the later of: (a) the time the contribution is made; and (b) at the start of the day you first start to have a transfer balance account

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A transfer balance debit arises because of an event that results in reduced superannuation (events related to fraud or dishonesty and payments under section 139ZQ of the Bankruptcy Act 1966)

The amount of the debit specified in the relevant section

At the time provided by the relevant section

A transfer balance debit arises due to a payment split under the family law

The amount of the debit specified in the relevant section

At the time provided by the relevant section

A superannuation income stream stops being in the retirement phase due to a superannuation fund failing to pay a lump sum as per the commutation authority issued by the Commissioner

The value of the superannuation interest that supports the superannuation income stream at the end of the period within which the commutation authority mentioned in that section was required to be complied with

The value of the superannuation interest that supports the superannuation income stream at the end of the period within which the commutation authority mentioned in that section was required to be complied with

The Commissioner gives you a notice about non-commutable excess transfer balance

The amount of the excess transfer balance stated in the notice

At the time the Commissioner issues the notice

Where the superannuation interest that supports an individual’s superannuation income stream is reduced because of a loss suffered by the superannuation income stream provider as a result of fraud or dishonesty, and the offender is convicted, the individual is able to notify the Commissioner and receive a debit in their transfer balance account to the value of the reduction. According to the ED, without a conviction a debit would not be available.

Also note that structured settlements result in transfer balance account debits, so an individual when starting their superannuation income stream may begin with a debit balance in the transfer balance account.

Example 1.14 from the EM On 1 July 2017, Rebecca commences a superannuation income stream of $1 million from the superannuation fund her employer contributed to (Master Superannuation Fund). On 1 October 2017, Rebecca also commences a $1 million superannuation income stream in her SMSF, Bec’s Super Fund.

On 1 July 2017, Rebecca’s transfer balance account is $1 million. On 1 October 2017, Rebecca’s transfer balance is credited with a further $1 million bringing her transfer balance account to $2 million. This means that Rebecca has an excess transfer balance of $400,000.

On 15 October 2017, the Commissioner issues an excess transfer balance determination to Rebecca setting out a crystallised reduction amount of $401,414 (excess of $400,000 plus 14 days of notional earnings). Included with the determination is a default commutation authority which lets Rebecca know that if she does not make an election within 60 days of the determination date the Commissioner will issue a commutation authority to Bec’s Super Fund requiring the trustee to commute her $1 million superannuation income stream by $401,414.

Excess transfer balance determinations

The Commissioner may make an excess transfer balance determination where an individual has an excess transfer balance in their transfer balance account and is in breach of their transfer balance cap.

The purpose of the determination is to advise the individual of their excess transfer balance and to crystallise the amount of the individual’s excess. The individual’s excess transfer balance is crystallised because further notional earnings that accrue are no longer credited towards the individual’s transfer balance account.

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Where the individual has already taken steps to rectify their breach and has removed their excess transfer balance, it is not necessary for the Commissioner to issue a determination.

If the Commissioner issues a determination, it will state the amount of the individual’s excess transfer balance as at the date the determination is issued. The amount that must be removed is called the ‘crystallised reduction amount’ and is the sum of transfer balance credits relating to superannuation income streams in the retirement phase and notional earnings that remain in excess of the individuals transfer balance cap at the date of the determination.

A notice is included with the determination and the notice outlines the default commutation authority that the Commissioner intends to issue if the individual does not make an election to commute a different superannuation income stream.

Consequences of not complying with a commutation authority

Where a commutation authority has been issued in respect of a superannuation income stream and the superannuation income stream provider is required to comply with the authority but has failed to do so, that superannuation income stream will not be in the retirement phase. Hence, the earnings tax exemption is going to be lost.

The superannuation income stream will cease to be in the retirement phase from the start of the financial year in which the superannuation income stream provider failed to comply with the commutation authority and all later financial years.

This means that an earnings tax exemption cannot be claimed in respect of the superannuation income stream for that financial year (the year in which the commutation authority was not complied with) or any later financial year.

Excess transfer balance tax

Proposed Superannuation (Excess Transfer Balance Tax) Imposition Act 2016

The amount of the excess transfer balance tax is:

(a) for a person who has not previously been liable to pay excess transfer balance tax—15% of the person’s annualised notional earnings on excess transfer balance for the financial year; or

(b) for a person who has previously been liable to pay excess transfer balance tax—30% of the person’s annualised notional earnings on excess transfer balance for the financial year.

Excess transfer balance tax is applied to an individual’s accrued amount of notional earnings over a financial year (annualised notional earnings). The annualised notional earnings may relate to multiple periods when the individual had an excess transfer balance. Moreover, notional earnings are taxable regardless of whether the individual has rectified their breach and removed the notional earnings amount from the retirement phase.

A tax rate of 30% applies to additional excess transfer balance tax assessments the individual receives in a subsequent financial year. An individual who breaches their transfer balance cap after receiving an assessment in an earlier financial year most likely believes their actual earnings will exceed the notional earnings rate. Imposing a higher rate of taxation is designed to discourage such behaviour. That is, the higher rate includes a deterrent effect in addition to a restorative effect.

Example 1.19 from the EM Andrew has a personal transfer balance cap of $1.6 million. His self managed superannuation fund (SMSF) starts a pension for Andrew worth $2 million. On that day, Andrew has an excess transfer balance of $400,000. Andrew realises his mistake 30 days later and decides to make a partial commutation of the pension to remove the excess.

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Over the course of the 30-day period, Andrew’s transfer balance account was credited with notional earnings of $3,036 (assume an annual rate of 9.2 per cent). This brought Andrew’s transfer balance account up to $2,003,036.

Andrew calculates his excess transfer balance at the end of the 30-day period and, on that day, makes a partial commutation in return for a superannuation lump sum of $403,036. Andrew receives a debit for that amount in his transfer balance account. This brings his transfer balance account back in line with the $1.6 million transfer balance cap. Andrew cannot make any further contributions to his retirement phase account.

Andrew starts a second pension worth $1 million. Andrew had no available cap space, meaning he has breached his cap for a second time and has an excess transfer balance of $1 million.

60 days later, the Commissioner issues a determination to Andrew identifying a crystallised reduction amount of $1,015,236 ($1 million excess plus 60 days of notional earnings).

65 days after issuing the determination, the Commissioner issues a commutation authority to Andrew’s superannuation fund.

10 days after the Commissioner issues the commutation authority, Andrew’s superannuation fund complies with the authority and makes a partial commutation of Andrew’s pension, paying Andrew a lump sum of $1,015,236.

Notional earnings accrue to Andrew during the 60-day period before the determination and the subsequent 75-day period before the fund partially commuted the pension.

The Commissioner assesses Andrew for excess transfer balance tax as follows:

Excess Period Notional Earnings $400,000 30 days $3,036

$1,000,000 60 days $13,759

$1,015,236 75 days $19,192

TOTAL: $37,464

Tax (at 15 per cent): $5,620

Note that the notional earnings that accrue during the 75-day period are calculated according to simple interest. This reflects that notional earnings are not credited to Andrew’s transfer balance account once the Commissioner issues the determination. The other notional earnings amounts compound daily.

If Andrew breaches his transfer balance cap again in the subsequent year, the excess transfer balance tax will be applied at a rate of 30 per cent.

Sources Superannuation reform package - tranche two

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RED

Tranche three of the proposed superannuation reforms Superannuation reform package - tranche three

Overview The Government has released exposure draft legislation to implement various measures in tranche three of its superannuation reform package.

Summary of proposals Tranche 3 of the superannuation reform package proposes to make changes in the following areas:

Non-concessional contributions

Release authorities

Broadly, the proposals limit the amount of non-concessional contributions that an individual can make and restrict eligibility to make non-concessional contributions to individuals with a total superannuation balance below a general transfer cap.

The third tranche also introduces a common simplified legislative framework for the release of amounts from superannuation in relation to excess contributions and the related tax liability (excluding amounts relating to Division 293 tax debt account discharge liabilities).

Note: Based on information contained in the explanatory memoranda accompanying the EDs, it is expected that all the measures contained in all three tranches will be introduced into the Parliament as a single bill - Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016.

Non-concessional contributions The following changes are proposed in relation to the non-concessional contributions:

the annual non-concessional contributions cap to be changed from $180,000 to $100,000

new requirement introduced that an individual must have a total superannuation balance immediately before the financial year of less than the general transfer balance cap ($1.6 million in the 2017-18 financial year) to be eligible to make non-concessional contributions up to the cap during the financial year; and

payment of the government co-contribution is restricted only to individuals who are eligible to make non-concessional contributions.

The three-year bring forward rule is retained, albeit with modifications. According to the ED, individuals may be able to bring forward their non-concessional contributions cap of either two or three times the annual cap, depending on their total superannuation balance.

The general non-concessional contributions cap will be equal to four times the concessional contributions cap starting from 1 July 2017. The concessional contributions cap is indexed and increases in increments of $2,500 in line with AWOTE.

When assessing individual’s eligibility to make non-concessional contributions during a financial year, it will be necessary to look at the individual’s total superannuation balance as at 30 June of the immediately preceding financial year.

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The concept of ‘total superannuation balance’ is introduced in the tranche two of the superannuation reforms.

Briefly, an individual’s total superannuation balance comprises the following:

the accumulation phase value of a superannuation interest that is not in the retirement phase

the retirement phase value of a superannuation interest; and

the amount of each roll-over superannuation benefit paid before 30 June and received after 30 June of a given financial year.

There are specific adjustments to the total superannuation balance in respect of defined benefit interests and structured settlements or orders, which are not discussed here.

Bring forward rule The reforms seek to establish a stepped three-year bring forward rule. The amount of non-concessional contributions cap an individual may bring forward for a financial year and the bring forward period depend on their total superannuation balance immediately before that financial year. The following table summarises the proposed rules applicable to the bring forward provisions for an individual who seeks to access these provisions during the 2017-18 financial year:

Total superannuation balance on 30 June 2017

Non-concessional contributions cap for

the first year

Bring forward period

Less than $1.4 million $300,000 3 years

$1.4 million to less than $1.5 million

$200,000 2 years

$1.5 million to less than $1.6 million

$100,000 No bring forward period, general non-concessional

cap applies

$1.6 million or more Nil N/A

An individual will be eligible to access the bring forward non-concessional contributions cap in a particular financial year (the first year) if all of the following are satisfied:

their non-concessional contributions for that financial year exceed their general non-concessional contributions cap

their total superannuation balance is less than the general transfer balance cap

they are under 65 years of age at any time in that financial year

a bring forward period is not currently in operation in respect of the financial year; and

the difference (the first year cap space) between the general transfer balance cap and their total superannuation balance is greater than the general non-concessional contributions cap.

Note: it will be necessary to check the taxpayer’s superannuation balance on 30 June for each of the three years of the bring forward period in order to determine the remaining amount of the three-year $300,000 non-concessional contributions cap brought forward.

Transitional provisions: taxpayers who started a bring forward period in 2015-16 and 2016-17 Transitional rules apply to individuals who have activated the bring forward in the 2015-16 or 2016-17 financial years, to ensure they do not retain the benefit of existing higher caps for the remainder of their bring forward period.

Individuals must have a total superannuation balance of less than the general transfer balance cap ($1.6 million) as at 30 June 2017 to continue to access their bring forward cap in 2017-18, and as at 30 June 2018 to continue to access their bring forward cap in 2018-19.

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Taxpayers that triggered the bring forward period in 2015-16 financial year will have the total non-concessional contributions cap for the financial years from 2015-16 to 2017-18 of $460,000.

Taxpayers that triggered the bring forward period in 2016-17 financial year will have the total non-concessional contributions cap for the financial years from 2016-17 to 2018-19 of $380,000.

The transitional provisions reduce the amount of the non-concessional contributions brought forward.

The transitional provisions do not affect an individual’s non-concessional contributions cap for any financial year that ended before 1 July 2017. That is, individuals can still contribute non-concessionally up to $540,000 until 30 June 2017 using the current bring forward rules.

Example (adapted from example 3.11 from the EM) Henry made a non-concessional contribution of $200,000 in 2015-16 (the first year). The current bring forward rules gave him a cap for the first year of $540,000.

In 2016-17 (the second year), Henry’s cap was $340,000 ($540,000 - $200,000). He made a further $100,000 of non-concessional contributions in that financial year.

As Henry’s bring forward period started in 2015-16, the standard rule for calculating his third year cap in 2017-18 will be modified by the transitional bring forward non-concessional contributions cap rules.

As Henry is eligible in 2017-18 for the transitional cap rules to apply, his cap is calculated by taking the amended bring forward cap of $460,000 less his contributions in years 1 and 2 ($200,000 plus $100,000). His cap for the 2017-18 year is therefore $160,000.

Source Superannuation reform package - tranche three

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AMBER

The ‘backpacker tax’ legislation introduced into Parliament Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016

Treasury Laws Amendment (Working Holiday Maker Reform) Bill 2016

Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2016

Passenger Movement Charge Amendment Bill 2016

Overview The House of Representatives has passed a legislative package which has been widely known as the ‘working holiday maker reform package’, incorporating the 19% ‘backpacker tax’.

The working holiday maker reform package The following bills, collectively known as the working holiday maker reform package (the Bills), passed the House of Representatives on 17 October:

the Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016

the Treasury Laws Amendment (Working Holiday Maker Reform) Bill 2016

the Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2016

the Passenger Movement Charge Amendment Bill 2016

The Bills:

apply a 19% income tax rate to a working holiday maker’s taxable income (i.e. assessable income derived from Australian sources by working holiday makers less relevant deductions) on amounts up to $37,000, with ordinary tax rates for taxable income exceeding this amount;

allow the Commissioner to disclose information that is relevant to ensuring an entity's compliance with the Fair Work Act 2009 to the Fair Work Ombudsman;

require employers of working holiday makers to register with the Commissioner, which will allow such employers to withhold tax at income tax rates applying to working holiday makers;

require the Commissioner to give the Treasurer, for presentation to the Parliament, a report on working holiday makers, which includes statistics and information derived from the register;

increase the rate of the departing Australia superannuation payments tax to 95% for working holiday makers;

reduce the visa application charge for Subclass 417 (Working Holiday) visas and Subclass 462 (Work and Holiday) visas from $440 to $390; and

increase the passenger movement charge from $55 to $60.

The measures would generally apply from 1 January 2017.

Note! The legislative package has been referred to the Senate Economics Legislation Committee for inquiry. The report is due 7 November 2016.

What is a ‘working holiday maker’? A ‘working holiday maker’ for the purposes of the proposed law is an individual holding one of the following temporary visas:

subclass 417 (Working Holiday) visa; or

subclass 462 (Work and Holiday) visa.

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A working holiday maker may also be an individual who holds a bridging visa permitting the individual to work in Australia if:

the bridging visa was granted under the Migration Act 1958 in relation to an application for one of the visas referred to above;

the Immigration Minister’s decision on that application is yet to be made; and

the most recent visa, other than a bridging visa, held by the individual was a Subclass 417 (Working Holiday) visa or Subclass 462 (Work and Holiday) visa.

The proposals

Unifying income tax rates for all working holiday makers regardless of tax residency

The Bills propose to unify individual income tax rates applying to all working holiday makers, regardless of their tax residency status.

Currently, working holiday makers who meet the requirements to be classified as Australian tax residents receive the benefit of the $18,200 tax-free threshold for residents. In contrast, working holiday makers that are non-residents for tax purposes are taxed at 32.5% from their first dollar of income.

The different income tax rates that currently apply are:

2016-17: resident working holiday makers 2016-17: non-resident working holiday makers

Thresholds Marginal

rates Tax payable Thresholds

Marginal rates

Tax payable

0 – $18,200 0% Nil 0 – $87,000 32.5% 32.5c for each $1

$18,201 – $37,000

19% $0.19 for each $1 over $18,200

$37,001 – $87,000

32.5% $3,572 + $0.325 for each $1 over $37,000

$87,001 – $180,000

37% $19,822 + $0.37 for each $1 over $87,000

$87,001 – $180,000

37% $28,275 + 37c for each $1 over $87,000

$180,001 and over (not including the TBRL^)

45% $54,232 + $0.45 for each $1 over $180,000

$180,001 and over (not including the TBRL^)

45% $62,685 + 45c for each $1 over $180,000

$180,001 and over (including the 2% TBRL^)

47% $54,232 + $0.47 for each $1 over $180,000

$180,001 and over (including the 2% TBRL^)

47% $62,685 + 47c for each $1 over $180,000

The Bills propose that a 19% income tax rate applies to working holiday maker taxable income up to $37,000, with ordinary tax rates for taxable income exceeding this amount.

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The proposed income tax rates for all working holiday makers:

2016-17: working holiday makers

Thresholds Marginal rates Tax payable

0 – $37,000 19% 19c for each $1

$37,000 – $87,000 32.5% $7,030 + 32.5c for each $1 over $37,000

$87,001 – $180,000 37% $23,280 + 37c for each $1 over $87,000

$180,001 and over (not including the TBRL^)

45% $57,690 + 45c for each $1 over $180,000

$180,001 and over (including the 2% TBRL^)

47% $57,690 + 47c for each $1 over $180,000

^ Temporary Budget Repair Levy (2% on taxable income exceeding $180,000).

The above table does not take into account the Medicare levy (2%).

The proposed tax rates will apply to all taxable income of a working holiday maker, regardless of whether the income is employment income.

A person may be a working holiday maker for part of an income year and, for the balance of that income year, hold a different visa that does not qualify them as a working holiday maker. In these circumstances, the working holiday maker rates of income tax apply only to income derived during the period of the year of income in which the person qualifies as a working holiday maker. For the balance of the year of income in which they are not a working holiday maker, the person must assess their residency status, determined on a whole of year basis (typically as a non-resident) and the relevant rates of tax will apply.

Example 1.2 (from EM): Working holiday maker taxable income and other income Fabio is a non-resident for income tax purposes. Fabio earns $50,000 while a working holiday maker in Australia from 1 July 2017 to 31 March 2018 and has $1,000 of deductions that relate to this income. His working holiday taxable income is therefore $49,000. He also earns a $39,000 salary in Australia while holding a different class of visa from 1 April 2018 to 30 June 2018 which does not result in him being a working holiday maker for this period.

Fabio pays tax at the rate of 19 per cent on the working holiday taxable income from $0 to the tax threshold of $37,000 and 32.5 per cent for the remaining $12,000 of his total of $49,000 of working holiday taxable income.

For Fabio’s taxable income of $39,000 that is not working holiday taxable income, he pays income tax at the 32.5 per cent non-resident rates for the first $38,000. The remaining $1,000 is taxed at 37 per cent, as his overall income for the year is higher than $87,000 so he moves into the next tax bracket.

The four residency tests

The resides test: This is the primary test of tax residency. The person is an Australian resident if they ‘reside’ in Australia under the ordinary meaning of the term.

The domicile test: The person is an Australian resident if their domicile (broadly, the place that is their permanent home) is in Australia, unless we are satisfied that their ‘permanent place of abode’ is outside Australia.

The 183-day test: The person is an Australian resident if they are actually present in Australia for more than half the income year, whether continuously or with breaks, unless it can be established that their usual place of abode is outside Australia and they have no intention of taking up residence in Australia.

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The superannuation test: This test applies to Australian government employees who are members of certain Commonwealth superannuation schemes.

Departing Australia superannuation payments tax

The Bills propose to increase the rate of the departing Australia superannuation payments tax to 95% for working holiday makers.

The departing Australia superannuation payments tax applies to the superannuation balance paid to working holiday makers where they have left Australia and their visa has expired or is cancelled.

The current and proposed rates are:

Component Current rate Proposed rate

the tax free component of the payment 0% 0%

the element taxed in the fund of the taxable component of the payment

38% 95%

the element untaxed in the fund of the taxable component of the payment

47% 95%

the amount of the element that is not an excess untaxed roll-over amount

47% 95%

the amount of the element that is an excess untaxed roll-over amount

0% 0%

The increase in the departing Australia superannuation payment tax only applies to departing Australia superannuation payments made from 1 July 2017 that relate to superannuation contributions that were made when the person was a working holiday maker.

Registration of employers of working holiday makers

The proposed law allows the Commissioner to establish a mandatory registration process for employers of working holiday makers.

Different rates of withholding will apply to payments to working holiday maker employees based on whether their employer is registered at the time of withholding.

Currently, employers of working holiday makers are required to withhold tax from their payments to these employees based on PAYG Withholding schedule rates. The rates that apply depend on whether the working holiday maker is a resident or non-resident for tax purposes.

Under the proposed regime, employers will be required to register with the ATO and make relevant declarations. Otherwise, an administrative penalty may apply.

The Commissioner will be required to have regard to whether an employer is registered when making a PAYG Withholding schedule. The Commissioner will be expected to exercise his power to make withholding schedules to provide that:

If an employer is registered as a working holiday maker employer with the Commissioner, the amount the employer is required to withhold from their withholding payments to working holiday maker employees is worked out using the PAYG Withholding schedule based on the more concessional rates of tax that apply to income derived by working holiday makers; or

If an employer is not registered as a working holiday maker employer with the Commissioner, the amount the employer is required to withhold from their withholding payments to working holiday maker employees is worked out using the PAYG Withholding schedule based on the rates of tax that apply to income derived by non-residents.

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The Commissioner has a power to cancel an employer’s registration where he is satisfied that the employer is not a fit and proper person.

Other changes

In addition to the changes above, the Bills also propose to:

allow the Commissioner to disclose information that is relevant to ensuring an entity's compliance with the Fair Work Act 2009 to the Fair Work Ombudsman;

require the Commissioner to give the Treasurer, for presentation to the Parliament, a report on working holiday makers, which includes statistics and information derived from the register;

reduce the visa application charge for Subclass 417 (Working Holiday) visas and Subclass 462 (Work and Holiday) visas from $440 to $390; and

increase the passenger movement charge from $55 to $60.

Date of effect The measures in the Bills would generally apply from 1 January 2017. The measures to change certain visa application charges and the passenger movement charge and to increase the rate of the departing Australia superannuation payments tax would generally apply from 1 July 2017.

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ATO ANNOUNCEMENTS

GREEN

Review of substantiation exception for travel expense deductions Substantiation exception for reasonable travel allowance expenses

Overview The ATO has released a consultation paper in relation to improving its administration of the substantiation exception for reasonable travel allowance expenses.

Tax and Super Australia is preparing a submission on behalf of its members.

What is the substantiation exception? Accommodation, meal and incidental expenses (collectively known as travel expenses) may be deductible to an employee when they are incurred while travelling away from their home overnight for work.

The law requires a taxpayer to substantiate work-related deductions with written evidence (s900-15 ITAA97). However, an exception to the substantiation rule applies where:

the expenses are covered by an allowance paid by the employer; and

the deduction does not exceed the Commissioner’s ‘reasonable amount’ for that type of expense.

In such cases, the employee may deduct up to the reasonable amount without the need for substantiation. However, the employee must still be able to show that the expense was actually incurred – for example, that they did actually travel for work.

Key ATO guidance:

Taxation Ruling TR 2004/6 – explains the way in which the substantiation exceptions operate for work expenses of employees that are either reasonable travel allowance expenses or reasonable overtime meal allowance expenses.

Taxation Determination TD 2016/13 – sets out the reasonable travel and overtime meal allowance amounts for 2016-17. A TD is issued for each income year setting out the reasonable amounts for that year.

What is the ATO review about? The ATO has been undertaking a lot of compliance activity in relation to work-related travel claims in recent years – and this shows no sign of abating.

The ATO reports:

Increasingly, we have noticed a disparity between travel allowances paid and deductions claimed for accommodation, meals, and incidentals. This has increased the incidence of checking of these claims, which has highlighted deficiencies and difficulties for employees in showing the amount claimed was incurred, or was incurred in gaining or producing their assessable income.

The ATO acknowledges that there is a lot of confusion in the taxpayer community about how to apply the substantiation exception.

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Therefore it has released a consultation paper and seeking feedback on how it can improve its guidance and administrative practices in relation to the substantiation exception. To guide respondents, the paper contains 30 discussion questions.

Tax and Super Australia are preparing a submission on behalf of its members. Please send through any comments, recommendations or ‘war stories’ to info@taxandsuperaustralia.com.au, with ‘travel expense submission’ in the subject line.

The closing date for submissions is Tuesday, 22 November.

Where can the consultation paper be found? Access the ATO consultation paper here, or search for ‘QC 50217’ on www.ato.gov.au.

Source Substantiation exception for reasonable travel allowance expenses

Resources Taxation Ruling TR 2004/6

Taxation Determination TD 2016/13

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TAX PRACTITIONERS BOARD

AMBER

Draft TPB guidance on cloud computing TPB(PN) D37/2016: Cloud computing and the Code of Professional Conduct

Overview The TPB has issued a draft Practice Note, TPB(PN) D37/2016, to provide practice guidance to registered tax agents, BAS agents and tax (financial) advisers (registered practitioners) to understand their obligations under the Code of Professional Conduct (the Code) in s30-10 of the TASA in relation to the use of cloud computing.

Public consultation closes on 28 November 2016.

What is cloud computing? The draft Practice Note (PN) defines cloud computing as follows:

Cloud computing, at a broad level, is the provision of information technology resources as a service through a network (including storing, managing and processing data), typically over the internet, instead of using a local server or a personal computer.

Cloud computing services are usually grouped into the following categories:

Category Details

Software as a service The provision of software over a network rather than the software being loaded directly onto a locally available computer.

Platform as a service The provision of computing platforms that create the environment for other software to run (for example, operating systems) over a network rather than being loaded directly onto a locally available computer.

Infrastructure as a service

The provision of access to computer infrastructure (for example, data storage or processing capability) over a network that is used to complement local platform resources. Outsourced cloud storage services may involve sharing, creating or storing information on remote servers accessed through the internet. The data can be stored either onshore or offshore depending upon what contractual agreement the client reaches with the provider.

Combination Combination of the above.

Registered practitioners may use cloud computing for a range of purposes, such as information storage, lodgment of returns, digital signatures, client information portals and practice management software.

Entering into cloud arrangements – general considerations The draft PN notes that practitioners may consider the following general factors as a starting point:

What are the details of any limitation of liability arrangements (for example, clauses contained in the terms and conditions of the cloud provider agreement(s) or terms of use)?

Whether the provider is allowed to unilaterally change relevant terms of the agreement (that is, without input from the registered practitioner), including in relation to how or where data is stored or managed?

How is the information being transferred between systems and data integrity being maintained?

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How is the information being stored?

Whether information is being held offshore (that is, information that is stored or processed in equipment not located in Australia) and, if so, the consequences (including relevant additional legislative and regulatory requirements that the information may be subject to)?

What processes does the cloud provider have in place in relation to the backup and archiving of information (such as multiple backup servers)?

What security controls are the registered practitioner and provider responsible for (such as issues around passwords, encryption and backups)?

What protections are in place to prevent service access being disrupted?

What processes are in place for managing and resolving disputes in relation to access to client information?

What processes are in place when the arrangement ends (including, for example, the return of or access to data held in the cloud)?

Entering into cloud arrangements – Code obligations Registered practitioners need to be mindful of their obligations under the Code.

In particular, it is important to be mindful of Code Item 6 which provides that a registered practitioner must not disclose any information relating to a client’s affairs to a third party without the client’s permission, unless there is a legal duty to do so.

A third party is any entity other than the client and the registered practitioner. This includes entities that maintain offsite data storage systems (including ‘cloud storage’), recognising that there is a distinction between data storage that a third party cannot effectively access (for instance, through the use of encryption) and disclosure to a third party.

The draft PN provides the following factors to consider in ensuring compliance with Code Item 6:

Registered practitioners must obtain permission from each client prior to divulging client information to a third party (including cloud service providers). When obtaining this permission, it is recommended that the registered practitioner clearly inform the client about the proposed disclosure (including noting to whom and where the disclosure will be made, and where data will be stored).

Client permission may be by way of a signed letter of engagement, signed consent, or other communication such as a relevant ‘fact find’ and consent.

There should be appropriate controls to maintain confidentiality and integrity (such as encryption) to avoid any information leakage, including as a result of:

o inadvertent disclosure o any change in IT assets (such as portable storage devices, software configurations and data

fixes) o data corruption and accidental deletion.

There are a number of controls that could be employed to assist in maintaining and protecting the confidentiality, integrity and availability of data, such as:

an appropriate confidentiality agreement between the registered practitioner and their cloud service provider

other appropriate protocols, such as: o use of a secured website and encrypted network traffic o security credentials o access controls ensuring unauthorised persons do not have access to data o standardised reporting o audit trails o appropriate segregation of duties o approval and review of data changes.

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Privacy Act 1988 considerations In addition to Code obligations, registered practitioners need to be aware that the Privacy Act 1988 sets out a number of Australian Privacy Principles which govern the use of, storage and disclosure of personal information.

Practitioners should seek advice about whether the provisions of the Privacy Act apply to them. Some information is available on the website of the Office of Australian Information Commissioner (www.oaic.gov.au).

Consequences of having inadequate cloud arrangements If a registered practitioner breaches the Code, including in the context of cloud arrangements, the TPB may impose one or more administrative sanctions, including issuing a written caution or order or suspending or termination of a registered practitioner’s registration.

In addition to the above consequences of any breach of the Code, or any other relevant statutory consequences (such as, from the Privacy Act), a registered practitioner should also consider relevant commercial consequences such as legal action for damages.

Further information The draft PN contains a list of reference material that may provide further guidance to practitioners contemplating a cloud computing arrangement. The reference material is sourced from the TPB and other statutory bodies. The table below is a summary only.

Statutory body Information product Topic

Tax Practitioners Board TPB(I) 21/2014 Code item 6 – confidentiality

TPB(I) 01/2011 Engagement letters

TPB(I) 19/2014 Code item 5 – managing conflicts of interest (tax and BAS agents)

TPB(I) 30/2016 Code item 5 – managing conflicts of interest (tax (financial) advisers)

Accounting Professional & Ethical Standards Board Limited

Guidance Note GN 30 Outsourced services

Australian Prudential Regulation Authority

Information Paper: Outsourcing involving shared computing services (including cloud)

General considerations when assessing the use of cloud services

Prudential Practice Guide: PPG 234 – Management of security risk in information and information technology

Managing security risk

Prudential Practice Guide: CPG 235 - Data retention controls

Managing security risk

ATO ATO portal access and Standard Business Reporting

ATO portal access and Standard Business Reporting

Department of Communications

Consumer factsheet Cloud computing and privacy

Privacy

Consumer factsheet Questions to ask your cloud service provider

A list of potential questions to ask a potential cloud service provider in relation to privacy and security

Department of Defence (Cyber Security Operations Centre)

Cloud Computing Security Considerations

Security considerations

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Statutory body Information product Topic

Department of Finance Australian Government Cloud Computing Policy

The Government cloud computing policy

Better Practice Guide: Negotiating the cloud – legal issues in cloud computing agreements

A checklist of some legal issues to consider and address in contemplating a cloud computing arrangement

Better Practice Guide: Privacy and Cloud computing for Australian government agencies

Privacy and cloud computing, including a guiding summary of checkpoints

Department of the Prime Minister and Cabinet

Australia’s Cyber Security Strategy

Notes themes of action for Australia’s cyber security

Office of Australian Information Commissioner

Guide to securing personal information

Guidance on protecting personal information and in relation to destroying or de-identifying personal information once information is no longer needed

Australian Privacy Principle Guidelines

Outlines requirements of the Australian Privacy Principles (APPs), how the OAIC will interpret the APPs, and matters the OAIC may take into account when exercising functions and powers under the Privacy Act 1988

Source TPB(PN) D37/2016: Cloud computing and the Code of Professional Conduct

Resources See the list above.

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Bulletin Board CASES

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Interaction between royalties and business profits Articles Tech Mahindra Limited v Commissioner of Taxation [2016] FCAFC 130

This Full Federal Court decision concerns the Australia-India double tax treaty and the interaction between the business profits rule (Article 7) and the royalties provision (Article 12).

The taxpayer is a resident of India which carries on business in Australia through a permanent establishment. During the relevant year, the taxpayer performed services for its Australian customers both in Australia and in India.

The Full Court held that certain categories of payments referrable to the services performed in India were ‘royalties’ for the purposes of Article 12.

By application of Article 12(4), where the ‘property, right or services’ in respect of which the royalties are paid are ‘effectively connected’ with a permanent establishment in Australia, those royalties will be taxed under the business profits Article. The Full Court concluded that the royalties were not ‘effectively connected’ with the Australian permanent establishment.

Therefore, the taxpayer was subject to Australian tax under Article 12 on the gross value of the royalties, and not under Article 7 on the net amount after related deductions.

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Tax residency due to no enduring association with Oman Landy and Commissioner of Taxation (Taxation) [2016] AATA 754

The AAT has affirmed the Commissioner’s decision that the taxpayer was a tax resident of Australia for the 2008-09 income year.

The AAT found the taxpayer had maintained a continued and significant connection with Australia and there did not have been any enduring association or connection with Oman beyond working there.

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Excess super contributions - special circumstances found on appeal Ward v Commissioner of Taxation [2016] FCAFC 132

The Full Federal Court overturned a AAT decision not to disregard the taxpayer’s excess non-concessional contributions of $450,000 or to allocate them to another financial year. The circumstances were that the taxpayer, through misunderstandings involving his new and old advisers, exceeded the three year bring forward limit.

The Court held that the ATT erred in determining that the excess contributions tax (ECT) was the natural and foreseeable consequence of the decisions of the taxpayer and his advisers. By doing so, the AAT put the imposition of the ECT outside the scope of “special circumstances”.

The Court stated that it was open to the AAT to find that there were “special circumstances” if it found that the provisions operated on the taxpayer, in his individual circumstances, in an unfair or unjust way because he, acting honestly and carefully, accidentally breached the bring forward rule which had consequences disproportionate to the intended operation of the statute.

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Tax agent registrations denied – not a fit and proper person G J Brown & Co Pty Ltd and Tax Practitioners Board [2016] AATA 740

Two applicants, an individual and a company of which the individual is its sole director, have been unsuccessful before the AAT in a matter concerning the TPB’s decision to refuse to grant either of them a tax agent registration.

The AAT affirms the decision of TPB that the individual applicant was not a “fit and proper person” for the purposes of the Tax Agent Services Act 2009 (TASA). As a consequence:

the individual’s registration should be terminated; and

the company, of which the individual is the sole director, is ineligible for registration.

GREEN

Registration terminated – Code applies to personal conduct Kishore and Tax Practitioners Board [2016] AATA 764

The AAT has affirmed the TPB’s decision to terminate the applicant’s tax agent registration.

The applicant, who was a registered agent, left his employer, which provided tax agent services. The TPB was satisfied that the applicant had breached s30-10 of the TASA by not acting honestly and with integrity towards the former employer around the time he left the firm.

The AAT was of the view that the Code of Professional Conduct of the TASA applies to all aspects of a person’s conduct as a registered tax agent, whether that conduct be personal conduct as a registered tax agent, or professional conduct as a registered tax agent. The Code cannot be confined in its application, so as to require honesty and integrity only in relation to the provision of tax agent services.

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Tax debt release application refused: serious hardship Moriarty and Commissioner of Taxation (Taxation) [2016] AATA 796

A taxpayer has been unsuccessful before the AAT in seeking to be released from his tax debts under s340-5 of Sch 1 to the TAA. Amongst other things, the taxpayer had a poor compliance history and the AAT was not satisfied that bankruptcy would prevent him from working.

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LEGISLATION

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New PAYG withholding tax tables – change in threshold Taxation Administration Act Withholding Schedules Correction October 2016 New PAYG withholding tax rates

The ATO has registered the Taxation Administration Act Withholding Schedules Correction October 2016. This legislative instrument replaces the previous instrument registered on 2 September. The previous instrument was registered to incorporate the change in the 32.5% threshold from $80,000 to $87,000. This new instrument retains those changes but corrects several errors. The new instrument applies from 1 October 2016.

Accordingly the ATO has also updated its tax tables. If extra tax was withheld from employees before the rate change, they will be credited when they lodge their 2016-17 income tax returns.

RED

Exposure draft: Improving the debt and equity rules Improvements to the Debt and Equity Tax Rules

On 2 April 2015 the Government announced that it would implement recommendations made by the Board of Taxation to improve the debt and equity rules.

The Government has released exposure draft legislation that gives effect to the recommendations. Specifically, the exposure draft introduces a new rule for determining when schemes should be aggregated for the purpose of the debt-equity rules. This will replace the existing related scheme rules, and the current equity override integrity provision. The new scheme aggregation rule will be supported by examples, declared by the Minister in a legislative instrument.

GREEN

GST: Simplified Accounting Method (SAM) for food industry Goods and Services Tax: Simplified Accounting Method Determination (No. 38) 2016 for Restaurants, Cafes and Caterers – purchases snapshot method

The ATO provides restaurants, cafes and caterers (eligible food retailers) with a choice of using a simplified GST accounting method to calculate their entitlements to input tax credits for trading stock purchases for a tax period. The SAM contained in the Determination allows the input tax credits on trading stock to be estimated in a tax period by calculating a percentage for GST-free trading stock purchases worked out over a continuous 4-week sample period and applying that percentage to total trading stock purchases in the tax period. The Determination applies from 29 September 2016.

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ATO LEGAL DATABASE

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TD 2016/16: Non-arm’s length income from an LRBA entered on terms which are not at arm’s length TD 2016/16

Taxation Determination TD 2016/16 sets out the Commissioner’s view on circumstances when a limited recourse borrowing arrangement (LRBA) entered on non-arm’s length terms gives rise to non-arm’s length income (NALI). Upon release of the TD, the ATO withdrew ATO IDs 2015/27 and 2015/28, which covered similar issues.

The TD states that it is necessary to consider whether the SMSF has derived more ordinary or statutory income under the scheme than it might have been expected to derive if the parties had been dealing with each other at arm's length in relation to the scheme. A scheme here refers to an LRBA.

GREEN

Updated: PCG 2016/5 – arm's length terms for LRBAs PCG 2016/5

Practical Compliance Guidelines PCG 2016/5 was updated to incorporate the release of Taxation Determination TD 2016/16 and withdrawal of the ATO IDs 2015/27 and 2015/28.

Additionally, several references to "30 June 2016" were changed to "31 January 2017" in recognition of the extra time that the Commissioner is allowing for the trustees to bring their LRBAs in-line with the safe harbour terms.

AMBER

Draft GST determination: correcting errors GSTE 2016/D1

The ATO has issued for comment Draft GSTE 2016/D1: Correcting GST Errors Amendment Determination 2016 (No 1). It proposes to amend Goods and Services Tax: Correcting GST Errors Determination 2013 to:

clarify that taxpayers cannot correct an error from an earlier tax period by requesting an amendment of a GST return of a later tax period; and

ensure that credit errors from an earlier tax period can only be corrected in a later tax period if the GST return for the later tax period is lodged within the period of review for the earlier assessment in which the error was made.

Once finalised, the Determination would commence after its registration. The amendments would apply to a tax period in which a taxpayer corrects an error or errors from an earlier tax period that starts on or after the commencement date of the Determination.

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Withdrawal of guidance on refund of deposit ATO ID 2009/119 (Withdrawn)

The ATO has withdrawn ATO ID 2009/119 (Refund of deposit: received by a purchaser as an assessable recoupment). The ID is withdrawn effective from 3 April 2014, following the decision of the Full Federal Court in Batchelor v FCT [2014] FCAFC 41. The withdrawn ID concluded that the refund of a deposit received by the taxpayer upon the termination of a contract to acquire property was an assessable recoupment under s20-20(2) of the ITAA97.

GREEN

Fleet cars: simplified approach for calculating car fringe benefits PCG 2016/10 Fleet Cars: simplified approach for calculating car fringe benefits

PCG 2016/10 provides an optional, simplified approach to working out the business use percentage component of the operating cost method to work out the taxable value of car fringe benefits in relation to fleet cars.

This simplified approach is available for employers with a fleet of 20 or more cars and allows these employers to rely on a representative average business use percentage to calculate car fringe benefits for the fleet under the operating cost method.

The guideline is applicable to an employer if all following criteria are met:

an employer has a fleet of 20 or more cars

the cars are 'tool of trade' cars

employees are mandated to maintain log books in a log book year

valid log books are held for at least 75% of the cars in the log book year

the cars are of a make and model chosen by the employer, rather than the employee

each car in the fleet had a GST-inclusive value less than the luxury car limit applicable at the time the car was acquired, and

the cars are not provided as part of an employee's remuneration package (for example, under a salary packaging arrangement), and employees cannot elect to receive additional remuneration in lieu of the use of the cars.

The average business use percentage is calculated by:

gathering all log books kept for each car in the fleet

determining which of those log books are valid

confirming that valid log books are held for at least 75% of the cars in the fleet, and

calculating the average of the business use percentages determined in accordance with each of the valid log books.

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AMBER

Dividends from foreign companies – participation exemption TR 2016/D2

Draft Taxation Ruling TR 2016/D2 provides preliminary guidance on applying the participation test in Subdivision 768-A of the ITAA97 when working out whether an equity distribution received by an Australian company from a foreign company is not assessable and not exempt (NANE) income. In particular, the draft ruling looks at the meaning of ‘at the time the distribution is made’.

It is the Commissioner's preliminary view that for the purposes of Subdivision 768-A:

to have a participation interest in the foreign company, an entity must be a registered member of the foreign company at the start of the day the distribution is made

where the distribution is a dividend or non-share dividend, the distribution is made on the day that the foreign company pays or credits the distribution, and

where the distribution is a deemed dividend, the distribution is made on the day the tax legislation deems the dividend to have been taken to be paid.

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ATO ANNOUNCEMENTS

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Lodgment due date concessions Lodgment due date concessions

The ATO advises that tax agents who have recently added a client or lodged overdue documents for existing clients to bring them up to date, should expect the lodgement due date concessions to be applied to such clients as required. The update for 2015–16 income tax returns may take up to three weeks to appear on the client list.

The ATO has requested that tax agents do not submit deferral requests for clients which may appear to have missed out on lodgment concessions until after 23 November.

GREEN

Tax debts: building and construction industry Supporting the building and construction industry

The ATO has raised concerns relating to tax debts from the building and construction industry. From September 2016, the ATO will contact tax practitioners regarding clients who continue to have outstanding tax debts. The ATO can offer a range of payment options to help them get back on track sooner and reduce any interest they may be liable for. Tax practitioners can also phone 13 72 86 Fast Key Code 1 2 2 from 8.00am to 6.00pm weekdays, and from 10.00am to 4.00pm Saturday to discuss their client's situation.

GREEN

Tax obligations deferral – natural disasters Natural disasters - September 2016

The ATO will automatically make arrangements to defer certain tax obligations for taxpayers with business and residential addresses in one of the identified postcodes (2671, 2804, 2805, 2806, 2870, 2871, 2875, 2876, 2877) affected by natural disasters.

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GREEN

Contribution reserve strategy: How to complete the SMSF annual return

Contribution reserve strategy: How to complete the SMSF annual return

The ATO has updated the SMSF annual return instructions to provide additional guidance for when individuals use a contribution reserve strategy as outlined in TD 2013/22.

To ensure correct reporting, it is important to review examples 1 and 2 when completing the Request to adjust concessional contributions form (NAT 74851), and follow the SMSF annual return 2016 instructions.

Approved auditors should check the updated instructions and make sure their clients correctly completed their SMSF Annual Return 2016.

GREEN

Streamlining private ruling applications

Streamlining private ruling applications

The ATO has made available a streamlined private ruling application form (NAT 74895) as a simplified option for applying for a private ruling.

The ATO developed the form as a result of its Review of private advice. The streamlined form enables the applicant to provide a draft ruling for the ATO to consider.

The taxpayer, or their representative, can prepare their own draft ruling with the following structure:

Subject

Question

Answer

This ruling applies for the following period(s)

The scheme commences on

Relevant facts and circumstances

Assumptions

Relevant legislative provisions

Reasons for decision

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Early engagement for private advice – extended to small businesses

Early engagement for private advice

The ATO has extended the early engagement for advice service to all business types. This service was previously only available for large businesses.

The service provides taxpayers with the earliest opportunity to engage with the ATO to seek advice on complex tax or superannuation transactions.

Small businesses can request a call back or submit a written request for early engagement.

GREEN

New tools to check individual's super entitlements

New tools to check your client's super entitlements

The ATO has made available new tools for individuals to work out if they are eligible to be paid super contributions from their employer, and how much. There is also a tool to report employers failing to pay super contributions.

The eligibility tool works out if an individual is entitled to super guarantee contributions.

The estimate tool calculates individual’s estimated superannuation guarantee amount, based on quarterly earnings.

The complaint tool can be used to report employers who are not paying super contributions correctly.

GREEN

Foreign exchange rates Foreign exchange rates

The ATO has released the foreign currency exchange rates for the month of September 2016.

GREEN

Record keeping evaluation tool Record keeping evaluation

The ATO has developed a tool to help taxpayers evaluate how well they are keeping their business records. After answering a series of questions, the tool will give the user an evaluation report describing how well they are keeping business records.

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AUSkey check Using the PLS - AUSkey check

The ATO has issued some guidance to tax practitioners about using the new Practitioner Lodgment Service (PLS). It is important that AUSkey credentials are up to date and lodgment permissions have been assigned to relevant staff before they use the PLS. The ATO webpage provides more specific instructions for these steps.

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GOVERNMENT ANNOUNCEMENTS

RED

Report on the R&D Tax Incentive Review: consultation is open

Review of the R&D Tax Incentive

The Minister for Industry, Innovation and Science has released for public consultation the R&D Tax Incentive Review report.

The R&D Tax Incentive Review was conducted to identify opportunities to improve the effectiveness and integrity of the R&D Tax Incentive, including by sharpening its focus on encouraging additional R&D spending.

Tax and Super Australia | Monthly Tax Review – October 2016 edition | Page 46 of 68

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TAX PRACTITIONERS BOARD

GREEN

New webinars TPB webinars

The TPB has released the schedule of its November and December webinars.

GREEN

Guidance for tax (financial) advisers TPB(I) 27/2016 Code of Professional Conduct - Acting lawfully in the best interests of clients for tax (financial) advisers

TPB(I) 28/2016 Code of Professional Conduct – Reasonable care to ascertain a client’s state of affairs for tax (financial) advisers

TPB(I) 29/2016 Code of Professional Conduct - Reasonable care to ensure taxation laws are applied correctly for tax (financial) advisers

TPB(I) 30/2016 Code of Professional Conduct – Having adequate arrangements for managing conflicts of interest for tax (financial) advisers

The TPB has issued several Information Sheets to assist registered tax (financial) advisers to understand their obligations under s30-10 of the TASA in relation to Code items 4, 9, 10 and 5, respectively.

Tax and Super Australia | Monthly Tax Review – October 2016 edition | Page 47 of 68

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INSPECTOR-GENERAL OF TAXATION

AMBER

Inspector-General of Taxation Work Program 2017 – calls for submission

IGT: Our Work Program consultation

The Inspector-General of Taxation (IGT) is calling for submissions to develop a work program of reviews for 2017 and beyond.

Submissions regarding review topics are welcomed. To assist in this regard, the IGT has listed the following examples of a potential topic for each type of review (that has already been brought to the IGT’s attention):

examining the Pay As You Go Instalments system in a targeted review to identify strategies for reducing the compliance burden, improving administrative efficiency and minimising the risk of confusion and misunderstanding

investigating the ATO’s management of GST refunds in a broader review; and

in a more comprehensive review, exploring how the ATO can maintain a flexible approach and naturally engage with the community whilst continuing to promote consultation, consistency, certainty and transparency.

The closing date for submissions is 9 December 2016.

Tax and Super Australia | Monthly Tax Review – October 2016 edition | Page 48 of 68

Rulings & Determinations

State of Play

Rulings & Determinations SUMMARY OF TAX RULINGS

TAX RULINGS ISSUED

RULING (Click heading for link) DESCRIPTION Date of Issue

Taxation Rulings TR 2016/D2 Income tax: distributions from foreign companies - meaning of 'at the time the distribution is made' when

applying the participation test 12 October 2016

Taxation Determinations

TD 2016/16 Income tax: will the ordinary or statutory income of a self-managed superannuation fund be non-arm's length income under subsection 295-550(1) of the Income Tax Assessment Act 1997 (ITAA 1997) when the parties to a scheme have entered into a limited recourse borrowing arrangement on terms which are not at arm's length?

28 September 2016

Class Rulings

CR 2016/66 Income tax: CGT rollover - exchange of shares in Ecosave Holdings Limited for shares in Ecosave Holdings Inc. 28 September 2016

CR 2016/67 Income tax: the 'Griffith University Early Retirement Scheme 2016.' 28 September 2016

CR 2016/68 Income tax: Australia and New Zealand Banking Group Limited - ANZ Capital Notes 4 5 October 2016

CR 2016/69 Income tax: scheme of arrangement - merger of Royal Automobile Club of Queensland Limited and QT Mutual Bank Limited

5 October 2016

CR 2016/70 Income tax: scrip for scrip roll-over: merger of OneVue Holdings Limited and Diversa Limited 12 October 2016

CR 2016/71 Income tax: Royal Dutch Shell plc. combination with BG Group plc. - CGT scrip for scrip roll-over 12 October 2016

CR 2016/72 Income tax: Telstra Corporation Limited - off-market share buy-back 12 October 2016

CR 2016/73 Income tax: scrip for scrip roll-over - Caledonia group reorganisation: Caledonia Australia Trust 19 October 2016

CR 2016/74 Income tax: scrip for scrip roll-over - Caledonia group reorganisation: Caledonia Australia No. 2 Trust 19 October 2016

CR 2016/75 Income tax: scrip for scrip roll-over - Caledonia group reorganisation: Caledonia Small Caps Trust 19 October 2016

CR 2016/76 Income tax: scrip for scrip roll-over - Caledonia group reorganisation: Caledonia Small Caps No. 2 Trust 19 October 2016

CR 2016/77 Income tax: scrip for scrip roll-over - Caledonia group reorganisation: Caledonia (Private) Investment Trust 19 October 2016

CR 2016/78 Income tax: scrip for scrip roll-over - Caledonia group reorganisation: Caledonia (Private) Investment No. 2 Trust

19 October 2016

CR 2016/79 Income tax: Patties Foods Limited Scheme of Arrangement and Payment of Special Dividend 19 October 2016

CR 2016/80 Income tax: 'Queensland University of Technology Early Retirement Scheme 2016' 19 October 2016

Tax and Super Australia | Monthly Tax Review – October 2016 edition | Page 49 of 68

Rulings & Determinations

Miscellaneous

[2016] FCA 1157 Benjamin v. Commissioner of Taxation 26 September 2016

CR 2014/75A1 - Addendum

Fringe benefits tax: employer clients of Emerchants Payment Solutions Limited (Emerchants) who are subject to the provisions of either section 57A or section 65J of the Fringe Benefits Tax Assessment Act 1986 and make use of the Emerchants' Living Expenses Card facility

28 September 2016

ATO ID 2015/27 (Withdrawn)

Income tax: non-arm's length income - related party non-commercial limited recourse borrowing arrangement to acquire listed shares

28 September 2016

ATO ID 2015/28 (Withdrawn)

Income tax: non arm's length income - related party non commercial limited recourse borrowing arrangement to acquire real property

28 September 2016

GSTE 2016/D1 Draft Goods and Services Tax: Correcting GST Errors Amendment Determination 2016 (No. 1) 28 September 2016

RCTI 2016/36 Goods and Services Tax: Recipient Created Tax Invoice Determination (No. 36) 2016 for Recyclers 28 September 2016

RCTI 2016/37 Goods and Services Tax: Recipient Created Tax Invoice Determination (No. 37) 2016 for Research Grants 28 September 2016

RCTI 2016/41 Goods and Services Tax: Recipient Created Tax Invoice Determination (No. 41) 2016 for Australian Financial Services Licensees and their Representatives

28 September 2016

SAM 2016/38 Goods and Services Tax: Simplified Accounting Method Determination (No. 38) 2016 for Restaurants, Cafes and Caterers - purchases snapshot method

28 September 2016

WAN 2016/39 Goods and Services Tax: Waiver of Adjustment Note Determination (No. 3) 2016 - Reverse Charged Supplies 28 September 2016

WTI 2016/40 Goods and Services Tax: Waiver of Tax Invoice Requirement Determination (No. 40) 2016 - Government Undercover Agents

28 September 2016

OPS 2016/6 Taxation Administration Act Withholding Schedules Correction October 2016 28 September 2016

EXC 2016/4 Draft Excise (Volume - recycled waste oil) Determination 2016 (No. 1) 28 September 2016

EXC 2016/5 Fuel Tax (Fuel Blends) Determination 2016 (No. 1) 28 September 2016

EXC 2016/7 Excise (Volume of Liquid Fuels - Temperature Correction) Determination 2016 (No. 2) 28 September 2016

EXC 2016/8 Excise (Volume of LPG - Temperature and Pressure Correction) Determination 2016 (No. 2) 28 September 2016

EXC 2016/9 Excise (Mass of CNG) Determination 2016 (No. 2) 28 September 2016

EXC 2016/10 Excise (Denatured spirits) Determination 2016 (No. 3) 28 September 2016

PCG 2016/5 Income tax - arm's length terms for Limited Recourse Borrowing Arrangements established by self managed superannuation funds

28 September 2016

[2016] AATA 754 Peter Landy and Commissioner of Taxation 28 September 2016

Episode 9 29 September 2016

EXC 2016/6 Excise concessional spirit approvals guidelines 2016 (No. 2) 30 September 2016

Variation 50 Labour Hire reimbursements and allowances 4 October 2016

Tax and Super Australia | Monthly Tax Review – October 2016 edition | Page 50 of 68

Rulings & Determinations

(Withdrawn)

PR 2016/8 Income tax: tax consequences of investing in Wellington Management Funds (Luxembourg) 5 October 2016

[2016] FCAFC 132 Ward v. Commissioner of Taxation 6 October 2016

ATO ID 2008/101 (Withdrawn)

GST and reverse charge on cross border leases 7 October 2016

ATO ID 2008/102 (Withdrawn)

GST and reverse charge on cross border operating lease 7 October 2016

ATO ID 2008/68 (Withdrawn)

GST and supply of services performed on an island which is part of the Commonwealth of Australia 7 October 2016

[2016] AATA 788 ZDCW v. Commissioner of Taxation 7 October 2016

TR 2006/10A5 - Addendum

Public Rulings 12 October 2016

[2016] FCAFC 130 Tech Mahindra Limited v. Commissioner of Taxation 12 October 2016

PS LA 2003/3 Precedential ATO view 13 October 2016

[2016] AATA 781 Edwards and Commissioner of Taxation 13 October 2016

[2016] AATA 810 FKYL v. Commissioner of Taxation 18 October 2016

[2016] AATA 824 NZ Wine Imports v. Commissioner of Taxation 19 October 2016

PCG 2016/10 Fleet Cars: simplified approach for calculating car fringe benefits 19 October 2016

Tax and Super Australia | Monthly Tax Review – October 2016 edition | Page 51 of 68

Bill Status at 19 October 2016

Bill Status at 19 October 2016

Name of Bill Status

Description Introduced: House

Passed: House

Introduced: Senate

Passed: Senate

Royal Assent

Fuel Indexation (Road Funding) Bill 2014

Fuel Indexation (Road Funding) Special Account 2014

19/6/2014 25/6/2014 26/6/2014 Lapsed: 17/04/2016

Part of a package of four bills to biannually index fuel excise and excise-equivalent fuel duties, the bill establishes the Fuel Indexation (Road Funding) Special Account to make grants of financial assistance to the states and territories for expenditure in relation to road infrastructure investment.

Tax and Superannuation Laws Amendment (2015 Measures

No. 3) Bill 2015

27/05/2015 17/06/2015 18/06/2015 Lapsed: 17/04/2016

This Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to:

abolish the seafarer tax offset; and

reduce the rates of the tax offset available under the research and development tax incentive.

Superannuation Legislation Amendment (Trustee Governance) Bill 2015

16/09/2015 20/10/2015 09/11/2015 Lapsed: 17/04/2016

The Bill proposes to make amendments to the Superannuation Industry (Supervision) Act 1993 (SIS Act) to require trustees of registrable superannuation entities (RSEs) (commonly referred to as RSE licensees) to have a minimum of one-third independent directors and an independent Chair on their boards. The Bill also proposes to restructure the trustee board for the Australian Government's main civilian and military superannuation schemes, the Commonwealth Superannuation Corporation (CSC Board), to comply with the new governance requirements.

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Bill Status at 19 October 2016

Superannuation Legislation Amendment (Trustee Governance) Bill 2015

16/09/2015 20/10/2015 09/11/2015 Lapsed: 17/04/2016

This bill amends the: Superannuation Industry (Supervision) Act 1993 to: require trustees of registrable superannuation entity licensees to have a minimum of one-third independent directors and an independent Chair on their boards; and make consequential amendments; and Governance of Australian Government Superannuation Schemes Act 2011 to restructure the board of the Commonwealth Superannuation Corporation by reducing the number of directors from eleven to nine and providing for the majority of the directors to be independent.

Treasury Legislation Amendment (Repeal Day 2015)

Bill 2015

12/11/2015 16/03/2016 16/03/2016 Lapsed: 17/04/2016

This bill proposes the following amendments:

seeks to simplify the superannuation guarantee (SG) charge. DATE OF EFFECT: 1 July 2016.

enables the Commissioner to pay certain superannuation amounts directly to individuals with a terminal medical condition and to remove the requirement for superannuation funds to lodge a separate biannual lost members statement with the Commissioner. DATE OF EFFECT: 1 July 2016.

amends the Corporations Act 2001 to modify the notification and reporting obligations applying to certain corporations that have property in receivership or property in respect of which a controller is acting. DATE OF EFFECT: will commence on the day after the Bill receives Royal Assent.

repeals several inoperative acts in the Treasury portfolio as well as amending the taxation law to remove a number of inoperative or spent provisions. For example, the Bill would repeal Div 16L of the ITAA 1936 (tax-exempt infrastructure borrowing concession), the Development Allowance Authority Act 1992 and the Infrastructure Certificate Cancellation Tax Act 1994. DATE OF EFFECT: will commence on the day after the Bill receives Royal Assent.

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Bill Status at 19 October 2016

Omnibus Repeal Day (Spring 2015) Bill 2015

12/11/2015 02/12/2015 02/02/2016 Lapsed: 17/04/2016

This bill proposes to:

repeal redundant provisions related to various "spent social security payments" eg various one-off payments to the aged, older Australians and carers; economic security strategy payments; training and learning bonus; and farmers hardship bonus;

repeal provisions in relation to various spent family assistance payments eg one-off payment to families; economic security strategy payment to families; back to school bonus and single income family bonus; and schoolkids bonus;

repeal the Termination Payments Tax (Assessment and Collection) Act 1997 and the Termination Payments Tax Imposition Act 1997.

Counter-Terrorism Legislation Amendment Bill (No 1) 2015

12/11/2015 Lapsed: 17/04/2016

The bill proposes a package of amendments to various Acts to strengthen Australia's national security and counter-terrorism legislation. It proposes amendments to the Taxation Administration Act 1953 to allow taxation officers to disclose information to an Australian government agency for the purposes of preventing, detecting, disrupting or investigating conduct related to a matter of security as defined by the Australian Security Intelligence Organisation Act 1979. The amendments would apply in relation to records and disclosures of information made on or after the day the Bill receives Royal Assent, whether the information was obtained before, on or after that commencement.

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Bill Status at 19 October 2016

Corporations Amendment (Crowd-sourced Funding) Bill

2015

03/12/2015 10/02/2016 22/02/2016 Lapsed: 09/05/2016

The bill amends the: Corporations Act 2001 to: establish a framework to facilitate crowd-sourced funding offers by small unlisted public companies; provide new public companies that are eligible to crowd fund with temporary relief from reporting and corporate governance requirements that would usually apply; and enable the minister to provide that certain financial market and clearing and settlement facility operators are exempt from specified parts of the Australian Market Licence and clearing and settlement facility licencing regimes; and Australian Securities and Investments Commission Act 2001 to make consequential amendments.

Social Services Legislation Amendment (Family Payments

Structural Reform and Participation Measures) Bill

(No. 2) 2015

02/12/2015 10/02/2016 22/02/2016 Lapsed: 17/04/2016

The Bill amends the: A New Tax System (Family Assistance) Act 1999 to: increase family tax benefit (FTB) Part A fortnightly rates by $10.08 for each FTB child in the family up to 19 years of age; restructure family tax benefit Part B by: increasing the standard rate by $1000.10 per year for families with a youngest child aged under one; maintaining certain standard rates for families, single parents who are at least 60 years of age, grandparents and great-grandparents; and introducing a reduced rate of $1000.10 per year for individuals with a youngest child aged 13 to 16 years of age who are not single parents aged 60 or more or grandparents or great-grandparents; and phase out the family tax benefit Part A and Part B supplements; Social Security Act 1991 to increase certain youth allowance and disability support pension fortnightly rates by approximately $10.44 for recipients under 18 years of age; and A New Tax System (Family Assistance) (Administration) Act 1999 to make consequential amendments.

Social Services Legislation Amendment (Budget Repair)

Bill 2015

02/12/2015 08/02/2016 22/02/2016 Lapsed: 17/04/2016

The Bill amends: the Social Security Act 1991 to: reduce from 26 to six weeks the period during which age pension and other payments with unlimited portability can be paid outside Australia at the means-tested rate from 1 January

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Bill Status at 19 October 2016

2017; and pause for three years the indexation of various income thresholds that apply to certain social security benefits and allowances and the income test free area for parenting payment single; the Social Security Act 1991 and Social Security (Administration) Act 1999 to abolish the pensioner education supplement from 1 January 2016; the Social Security Act 1991, Social Security (Administration) Act 1999 and Veterans’ Entitlements Act 1986 to abolish the education entry payment from 1 January 2016; and seven Acts to make consequential amendments.

Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015

02/12/2015 Lapsed: 15/04/2016

The bill amends: the A New Tax System (Family Assistance) Act 1999 and A New Tax System (Family Assistance) (Administration) Act 1999 to: cease the child care benefit and child care rebate; introduce a child care subsidy (CCS) which is subject to both an income and activity test; introduce various rates of additional child care subsidy (ACCS) that are available in certain circumstances; and make amendments in relation to CCS and ACCS claims, reviews of decisions, provider approvals, and compliance obligations of approved providers of child care services; five Acts to make consequential amendments; A New Tax System (Goods and Services Tax) Act 1999 in relation to GST treatment of new child care funding programs; and A New Tax System (Family Assistance) (Administration) Act 1999 in relation to: circumstances in which applications for approval of a child care service are taken not to have been made; backdating of CCB service approvals; reassessments of child care service conditions of continued approval; and cessation of enrolment advances.

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Bill Status at 19 October 2016

Tax and Superannuation Laws Amendment (2016 Measures

No. 2) Bill 2016

17/03/2016 Lapsed: 15/04/2016

This bill amends: 1) Commissioner’s remedial power; 2) primary producer income averaging; 3) cars for display by public institutions; and 4) miscellaneous amendments

Superannuation Legislation Amendment (Transparency

Measures) Bill 2016

17/03/2016 Lapsed: 15/04/2016

The bill amends the portfolio holdings disclosure obligations in the Corporations Act 2001 to require registrable superannuation entities (RSEs) to publish, for each of their investment options, information about the nature and value of financial products or other property that they, or an associated entity, have invested in. Information relating to the first investment in non-associated entities will need to be disclosed (but assets held through non-associated entities will not). RSEs will be required to obtain sufficient information from associated entities (but reporting on parties to contracts and arrangements will be repealed). A number of exemptions will apply, eg for legacy products and a 5% exclusion for commercially sensitive investments. Superannuation funds (with 5 or more members) will be required to publish a choice product dashboard for each of their fund's 10 largest "qualifying choice investment options", instead of for all investment options. Regulations will prescribe the technical rules for how a product dashboard must be displayed on a fund's website (for both MySuper products and choice investment options).

Superannuation Legislation Amendment (Choice of Fund)

Bill 2016

17/03/2016 Lapsed: 15/04/2016

This bill proposes to extend superannuation choice of fund to employees covered by enterprise agreements and workplace determinations made from 1 July 2016.

Tax Laws Amendment (Tougher Penalties for Country-by-Country Reporting) Bill 2016

02/05/2016 Lapsed: 09/05/2016

This bill amends the Income Tax Assessment Act 1997 and Taxation Administration Act 1953 to introduce a penalty regime for significant global entities who fail to meet their country-by-country reporting obligations.

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Bill Status at 19 October 2016

Industry Research and Development Amendment (Innovation and Science Australia) Bill 2016

01/09/2016 12/10/2016 13/10/2016 13/10/2016 This bill amends the Industry Research and Development Act 1986 to transition Innovation Australia to become Innovation and Science Australia, an independent body responsible for strategic advice on all industry, innovation, science and research matters; and create a statutory framework to provide legislative authority for Commonwealth spending activities in relation to industry, innovation, science and research programs. Also makes consequential amendments to five Acts.

Budget Savings (Omnibus) Bill 2016

31/08/2016 14/09/2016 14/09/2016 15/09/2016 16/09/2016 This bill amends: the Higher Education Support Act 2003 to establish a minimum repayment threshold for HELP debts of two per cent when a person’s income reaches $51 957 in the 2018-19 financial year; and replace the Higher Education Grants Index with the consumer price index for the purposes of indexing all grants and regulated student contribution amounts; the Higher Education Support Act 2003 and Income Tax Assessment Act 1997 to discontinue the HECS-HELP benefit from 1 July 2017; the Social Security Act 1991, Social Security (Administration) Act 1999, Farm Household Support Act 2014 and Income Tax Assessment Act 1997 to discontinue the job commitment bonus; the Australian Renewable Energy Agency Act 2011 to reduce the agency’s available appropriation; the Private Health Insurance Act 2007 to pause the income thresholds for the Medicare levy surcharge and the government rebate on private health insurance for a further three years from 1 July 2018; the National Health Reform Act 2011 to abolish the National Health Performance Authority; the Aged Care Act 1997 to: increase the secretary’s compliance powers in relation to reviews of care recipient appraisals submitted by aged care providers to receive Commonwealth subsidies; abolish adviser and administrator panel arrangements; and require approved providers to notify the secretary of certain changes to any of its key personnel in certain circumstances; the Age Discrimination Act 2004, Dental

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Bill Status at 19 October 2016

Benefits Act 2008 and Human Services (Medicare) Act 1973 to close the Child Dental Benefits Schedule from 31 December 2016 and establish the Child and Adult Public Dental Scheme from 1 January 2017; the Social Security Act 1991, Social Security Legislation Amendment (Newly Arrived Resident’s Waiting Periods and Other Measures) Act 1997 and Farm Household Support Act 2014 to remove the exemption from the 104 week newly arrived resident’s waiting period for new migrants who are family members of Australian citizens or long-term permanent residents; the Social Security Act 1991, Social Security (Administration) Act 1999 and Student Assistance Act 1973 to cease the student start-up scholarship payment from 1 July 2017; five Acts to apply an interest charge to outstanding debts owed by former recipients of social welfare payments who have failed to enter into, or have not complied with, an acceptable repayment arrangement; five Acts to enable the making of departure prohibition orders to prevent certain social welfare debtors from leaving the country; the A New Tax System (Family Assistance) (Administration) Act 1999, Paid Parental Leave Act 2010, Social Security Act 1991 and Student Assistance Act 1973 to remove the six-year limit on welfare debt recovery; the Social Security Act 1991 and Veterans’ Entitlements Act 1986 to provide that parental leave payments and dad and partner pay payments are included in the income test for income support payments; the A New Tax System (Family Assistance) Act 1999, Income Tax Assessment Act 1936 and Social Security Act 1991 to change the way fringe benefits are treated under the income tests for family assistance and youth income support payments and for related purposes; the Social Security (Administration) Act 1999 to align carer allowance and carer payment start day provisions; the A New Tax System (Family Assistance) Act 1999 and Paid Parental Leave Act 2010 to pause

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Bill Status at 19 October 2016

indexation for family tax benefit (FTB) Part A, the primary earner income limit for FTB Part B and the Paid Parental Leave income limit for a further three years from 1 July 2017; Social Security Act 1991 and Veterans’ Entitlements Act 1986 to remove the pension income and assets test exemptions currently available to pensioners in aged care who rent out their former home and pay their aged care accommodation costs by periodic payments; the A New Tax System (Family Assistance) Act 1999 and Social Security Act 1991 to remove the exemption from the income test for FTB Part A recipients and the exemption from the parental income test for certain dependent young people receiving youth allowance and ABSTUDY living allowance; the Social Security Act 1991 to provide that certain persons cannot be paid social security payments when they are in psychiatric confinement because they have been charged with a serious offence; six Acts to prevent new recipients of welfare payments or concession cards from being paid the energy supplement from 20 March 2017; the Income Tax Assessment Act 1997 to reduce the refundable and non-refundable rates of the tax offset available under the research and development tax incentive for the first $100 million of eligible expenditure; six Acts to require larger entities to provide payroll and superannuation information at the time it is created through the single touch payroll reporting framework; and the Military Rehabilitation and Compensation Act 2004 to create a single appeal path for the review of original determinations made by the Military Rehabilitation and Compensation Commission.

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Bill Status at 19 October 2016

Excise Tariff Amendment (Tobacco) Bill 2016

31/08/2016 13/09/2016 13/09/2016 14/09/2016 23/09/2016 This bill amends the Excise Tariff Act 1921 to increase the rate of excise duty on tobacco and tobacco products through a series of four annual increases of 12.5 per cent, commencing on 1 September 2017.

Customs Tariff Amendment (Tobacco) Bill 2016

31/08/2016 13/09/2016 13/09/2016 14/09/2016 23/09/2016 This bill amends the Customs Tariff Act 1995 to increase the rate of excise-equivalent customs duty on tobacco and tobacco products through a series of four annual increases of 12.5 per cent, commencing on 1 September 2017.

Treasury Laws Amendment (Income Tax Relief) Bill 2016

01/09/2016 10/10/2016 10/10/2016 12/10/2016 This bill amends the Income Tax Rates Act 1986 to increase the third personal income tax threshold so that the rate of tax payable on taxable incomes from $80 001 to $87 000 for individuals is 32.5 per cent.

Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016

01/09/2016 This bill amends the: Income Tax Rates Act 1986 to reduce the corporate tax rate for small businesses with an aggregated turnover of less than $10 million to 27.5 per cent for the 2016-17 financial year and progressively extend that lower rate to all corporate tax entities by the 2023-24 financial year; and further reduce the corporate tax rate in stages so that by the 2026 27 financial year, the corporate tax rate for all entities will be 25 per cent; Income Tax Assessment Act 1997 to increase the small business income tax offset to 16 per cent of an eligible individual’s basic income tax liability that relates to their total net small business income from the 2026-27 financial year; and enable small businesses with an aggregated turnover of less than $10 million to access most small business tax concessions, and small businesses with an aggregated turnover of less than $5 million to access the small business income tax offset; and Income Tax Assessment Act 1936 and Income Tax Assessment Act 1997 to make consequential amendments.

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Bill Status at 19 October 2016

International Tax Agreements Amendment Bill 2016

01/09/2016 12/10/2016 13/10/2016 13/10/2016 This bill amends the International Tax Agreements Act 1953 to give legislative effect to the Agreement between Australia and the Federal Republic of Germany for the Elimination of Double Taxation with respect to Taxes on Income and on Capital and the Prevention of Fiscal Evasion and Avoidance and its Protocol, signed at Berlin on 12 November 2015; and the International Tax Agreements Act 1953 and Taxation (Interest on Overpayments and Early Payments) Act 1983 to make consequential amendments.

Social Services Legislation Amendment (Budget Repair) Bill 2016

01/09/2016 This bill amends: the Social Security Act 1991 to reduce from 26 to six weeks the period during which age pension and other payments with unlimited portability can be paid outside Australia at the means-tested rate; and pause for three years the indexation of various income thresholds that apply to certain social security benefits and allowances and the income test free area for parenting payment single; the Social Security Act 1991 and Social Security (Administration) Act 1999 to abolish the pensioner education supplement; the Social Security Act 1991, Social Security (Administration) Act 1999 and Veterans’ Entitlements Act 1986 to abolish the education entry payment; and seven Acts to make consequential amendments.

Social Services Legislation Amendment (Youth Employment) Bill 2016

01/09/2016 This bill amends the Social Security Act 1991 to: extend and simplify the ordinary waiting period for all working age payments; extend youth allowance (other) to 22 to 24 year olds in lieu of newstart allowance and sickness allowance; and provide for a four-week waiting period for certain persons aged under 25 years applying for youth allowance (other) or special benefit and require these job seekers to complete certain pre-benefit activities; and the Farm Household Support Act 2014 to make consequential amendments.

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Bill Status at 19 October 2016

Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016

01/09/2016 This bill introduced with the Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016, the bill amends the: A New Tax System (Family Assistance) Act 1999 to: increase family tax benefit (FTB) Part A fortnightly rates by $10.08 for each FTB child in the family up to 19 years of age; restructure FTB Part B by: increasing the standard rate by $1000.10 per year for families with a youngest child aged under one; maintaining certain standard rates for families, single parents who are at least 60 years of age, grandparents and great-grandparents; introducing a reduced rate of $1000.10 per year for individuals with a youngest child aged 13 to 16 years of age who are not single parents aged 60 or more or grandparents or great-grandparents; and removing the entitlement for single parent families who are not single parents aged 60 or more or grandparents or great-grandparents from the start of the calendar year their youngest child turns 17 years of age; and phase out the FTB Part A and Part B end-of-year supplements; Social Security Act 1991 to increase certain youth allowance and disability support pension fortnightly rates by approximately $7.48 for recipients under 18 years of age; and A New Tax System (Family Assistance) (Administration) Act 1999 to make consequential amendments.

Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016

14/09/2016 This bill contains the following amendments: 1. REMEDIAL POWER: proposes to establish a Remedial Power for the Commissioner of Taxation to allow for a more timely resolution of certain unforeseen or unintended outcomes in the taxation and superannuation laws. The power allows the Commissioner to make, by disallowable legislative instrument, one or more modifications to the operation of a taxation law to ensure the law can be administered to achieve its intended purpose or object. The power can only be validly exercised where:

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Bill Status at 19 October 2016

the modification is not inconsistent with the intended purpose or object of the provision;

the Commissioner considers the modification to be reasonable, having regard to both the intended purpose or object of the relevant provision and whether the costs of complying with the provision are disproportionate to achieving the intended purpose or object; and

the Department of the Treasury or the Department of Finance advises the Commissioner that any impact on the Commonwealth budget would be negligible.

Date of effect: This measure would commence on the day after Royal Assent. This would allow the Commissioner to make legislative instruments from that date to modify the operation of a taxation law.

2. PRIMARY PRODUCER AVERAGING: the Bill proposes to amend the ITAA 1997 to allow primary producers to access income tax averaging 10 income years after choosing to opt out, instead of that choice being permanent. Date of effect: This change would apply to the 2016-17 income year and later income years. 3. LCT RELIEF: the Bill would amend the A New Tax System (Luxury Car Tax) Act 1999 to provide relief from luxury car tax (LCT) to certain public institutions that import or acquire luxury cars for the sole purpose of public display. The changes would apply to public museums, galleries, and libraries that are registered for goods and services tax and that have been endorsed as deductible gift recipients. Date of effect: These amendments would apply to luxury cars that are imported or acquired from the day after the Bill receives Royal Assent. 4. MISC AMENDMENTS: The Bill proposes to make a number of miscellaneous amendments to the taxation, superannuation and other laws. These amendments include style and formatting changes, the repeal of redundant provisions, the correction of anomalous

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Bill Status at 19 October 2016

outcomes and corrections to previous amending Acts. Date of effect: Various.

Social Services Legislation Amendment (Simplifying Student Payments) Bill 2016

14/09/2016 This bill proposes to simplify means testing for student payments by:

removing the exemption from the assets test for Youth Allowance and AUSTUDY payment recipients who are partnered to certain income support recipients;

extending the social security means test rules used to assess interests in trusts and companies to independent Youth Allowance and AUSTUDY payment recipients;

aligning the social security benefit income test treatment of gift payments from immediate family members with existing pension rules; and

harmonising the family tax benefit income test with the Youth Allowance parental income test by including tax free pensions and benefits as income for the parental income test.

Higher Education Support Legislation Amendment (2016 Measures No. 1) Bill 2016

15/09/2016 This bill proposes to amend the Higher Education Support Act 2003 to allow the Secretary to the Department of Education and Training to be notified of Tax File Numbers (TFNs) for the purpose of administering student assistance under VET FEE-HELP. The Bill also includes provisions providing for the Secretary to require the Tax Commissioner to provide TFNs of students that had previously met the TFN requirements for HELP assistance. The Bill would also authorise the use and disclosure of information related to the administration of HELP debts, including TFNs, to assist in future administration of the HELP program. The Bill would also amend the ITAA 1936 to ensure that Commonwealth officers are able to use and disclose TFNs under the Higher Education Support Act 2003 for the purposes of administering VET FEE-HELP.

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Bill Status at 19 October 2016

Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016

12/10/2016 17/10/2016 The Bills seek to:

apply a 19% income tax rate to working holiday maker taxable income (ie assessable income derived from Australian sources by working holiday makers less relevant deductions) on amounts up to $37,000, with ordinary tax rates for taxable income exceeding this amount;

allow the Commissioner to disclose information that is relevant to ensuring an entity's compliance with the Fair Work Act 2009 to the Fair Work Ombudsman;

require employers of working holiday makers to register with the Commissioner, which will allow such employers to withhold tax at income tax rates applying to working holiday makers;

require the Commissioner to give the Treasurer, for presentation to the Parliament, a report on working holiday makers, which includes statistics and information derived from the register;

increase the rate of the departing Australia superannuation payments tax to 95% for working holiday makers;

reduce the visa application charge for Subclass 417 (Working Holiday) visas and Subclass 462 (Work and Holiday) visas from $440 to $390; and

increase the passenger movement charge from $55 to $60.

Treasury Laws Amendment (Working Holiday Maker Reform) Bill 2016

12/10/2016 17/10/2016

Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2016

12/10/2016 17/10/2016

Passenger Movement Charge Amendment Bill 2016

12/10/2016 17/10/2016

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Cases at 19 October 2016

Cases at 19 October 2016 CASE DATE CATEGORY

HIGH COURT

FULL FEDERAL COURT

Tech Mahindra Limited v Commissioner of Taxation [2016] FCAFC 130

22 September 2016 Taxation – allocation of taxing rights – interaction between Art 7 and Art 12 of the Agreement between the Government of Australia and the Government of the Republic of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income 1991 [1991] ATS 49 –– operation of Art 7 “business profits rule” – operation of Art 12 “the royalties provision”– whether Art 12(4) on its proper construction applied to royalties – whether source State has a right to tax royalties under Art 7 or Art 12

Ward v Commissioner of Taxation [2016] FCAFC 132 5 October 2016 Administrative law – appeal under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) on a question of law – whether Tribunal misconstrued the scope of the expression “special circumstances” in s 292-465 of the Income Tax Assessment Act 1997 (Cth) – whether Tribunal erred in considering that making the determination was consistent with the object of Div 292 of the Income Tax Assessment Act 1997 (Cth) Taxation – non-concessional contributions to superannuation fund – application to Commissioner for a written determination the non-concessional contributions be disregarded or allocated instead for the purposes of another financial year specified in the determination – whether Tribunal erred in considering there were no special circumstances – whether Tribunal erred in considering that making the determination was consistent with the object of Div 292 of the Income Tax Assessment Act 1997 (Cth) Practice and Procedure – whether leave should be granted to the applicant to rely on grounds not advanced before the Tribunal

Tech Mahindra Limited v Commissioner of Taxation (No 2) [2016] FCAFC 136

12 October 2016 Practice and Procedure – suppression or non-publication order – whether evidence established that the order as proposed was necessary to prevent prejudice to the proper administration of justice

FEDERAL COURT DATE CATEGORY

Benjamin v Commissioner of Taxation [2016] FCA 1157 23 September 2016 Taxation – appeal of decision to refuse application for an extension of time in which to lodge an application for review of the Commissioner’s decision to

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Cases at 19 October 2016

disallow taxpayer objections – whether denial of procedural fairness – principles to be applied in an application for an extension of time – whether proper reasons for decision given

ADMINISTRATIVE APPEALS TRIBUNAL DATE CATEGORY

G J Brown & Co Pty Ltd and Tax Practitioners Board [2016] AATA 740

23 September 2016 Tax agents – renewal of registration – termination of registration – eligibility for registration -- whether individual applicant is a fit and proper person – good fame, integrity and character – where individual applicant is sole director of corporate applicant – compliance with taxation laws – where individual applicant lodged own income tax returns late – where individual applicant guilty of offences against taxation laws – where corporate applicant has either lodged late or not lodged income tax returns, FBT returns and BAS – where entities controlled by the individual applicant also lodged returns late or not at all – decisions under review affirmed

Landy and Commissioner of Taxation (Taxation) [2016] AATA 754 28 September 2016 Income tax - whether applicant a resident of Australia – whether applicant had Australian domicile – whether applicant had permanent place of abode outside Australia - whether applicant was taxed overseas in respect of foreign earning - deductions for meals and incidental expenses – whether expenses incurred, whether expenses private in nature, Medicare levy - No basis for reducing Medicare Levy

Kishore and Tax Practitioners Board [2016] AATA 764 30 September 2016 Tax agents - Code of Professional Conduct – tax agent registration terminated – whether conduct complained of by Respondent is a ‘tax agent service’ – whether the identified conduct, even if not a ‘tax agent service’, can amount to a breach of the Code of Professional Conduct – whether Board’s power delegated properly – whether committee of the Board acting with appropriate delegation – threshold questions dealt with by Tribunal

Edwards and Commissioner of Taxation (Taxation) [2016] AATA 781

5 October 2016 Taxation – assessable income – lump sum payment for arrears of workers’ compensation – lump sum payment in arrears (LSPIA) tax offset – whether lump sum payment was assessable income for the income year it was received rather than the years to which it related – whether LSPIA tax offset was correctly calculated – whether the applicant is entitled to interest on the lump sum payment – lump sum payment was ordinary income derived and assessable in the year it was received - LSPIA tax offset was correctly calculated – decision under review is affirmed

Three Wickets Pty Ltd and Tax Practitioners Board [2016] AATA 786

7 October 2016 Tax agents – termination of tax agent registration – renewal of registration – whether applicant is a fit and proper person – good fame, integrity and character

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Cases at 19 October 2016

– decisions under review affirmed.

ZDCW and Commissioner of Taxation (Taxation) [2016] AATA 788 7 October 2016 Taxation – application for release from taxation debts – serious hardship – assets available to meet tax liability – exercise of Commissioner’s discretion – poor compliance – preference to other creditors – decision under review affirmed

Moriarty and Commissioner of Taxation (Taxation) [2016] AATA 796

11 October 2016 Taxation – application for release from taxation debts – serious hardship – exercise of Commissioner’s discretion – disposal of funds or assets without making proper provision to meet tax liabilities – poor compliance – decision under review affirmed

FKYL and Commissioner of Taxation (Taxation) [2016] AATA 810 14 October 2016 Taxation - GST - residential premises - application of ‘margin scheme’ to sale of residential premises - where no agreement between buyer and applicant to apply ‘margin scheme’ - claim for income tax credits - whether expenses incurred for a creditable purpose - where expenses incurred in making income taxed supply - where insufficient evidence to establish expenses incurred for a creditable purpose - assessment not excessive - penalties - failure to take reasonable care in completing business annual statements - no legal or financial advice sought by applicant - no grounds for remission established.

NZWINEIMPORTS Pty Ltd and Commissioner of Taxation (Taxation) [2016] AATA 824

19 October 2016 Taxation – Wine Equalisation Tax – Goods and Services Tax – applicant operated a business of purchasing wine from a related entity based in New Zealand and selling it to Australian customers – identification of correct assessable dealing for the purposes of A New Tax System (Wine Equalisation Tax) Act 1999 – indirect marketing sale – retail sale by an entity that obtained the wine under quote – notional wholesale selling price – ‘half retail price method’ – identification of retail price – objection decisions set aside and remitted to Commissioner for reconsideration.