1. Electronic Bulletin of Australian Tax Developments
Inside this issue
PricewaterhouseCoopers: 1
Investment allowance: are you getting
your share? 1
GST cash flow planning to reduce costs
and find cash 3
GST and property development –
the South Steyne decision 5
High Court clarifies when Legal
Professional Privilege may be lost 7
ATO takes harder line to recover
disputed corporate debts 8
Corporate tax developments 8
International tax developments 9
Goods and services tax update 12
State taxes 13
Personal and expatriate taxation 14
Other news 14
Legislation update 16
Issue 108: March 2009
Investment allowance: are you getting your share?
The long awaited exposure draft
legislation (EDL) on the proposed
investment allowance was released by
Treasury on 25 February 2009 for public
comment. As noted in our February
2009 edition of TaxTalk, the investment
allowance is aimed at boosting the
capital expenditure of businesses in the
short term, by providing a generous tax
deduction for Australian businesses who
invest in new depreciating assets or in
improvements to existing depreciating
assets.
In simple mathematical terms, and
assuming a corporate tax rate of 30 per
cent, the investment allowance incentive
may produce a one-off reduction in the
income tax otherwise payable amounting
to 9 per cent of the cost of qualifying
expenditure. Since generally, this
concession is not ‘clawed back’ under the
tax system, if the incentive is obtained,
it will reduce the income tax expense
otherwise recorded in the profit result.
Submissions on the EDL are to
be submitted by 10 March 2009
and you should contact your
PricewaterhouseCoopers adviser if
you require further details.
In view of the short time frame in which
taxpayers must make investment
decisions to obtain the investment
allowance, we thought it important to
focus in this month’s TaxTalk on a few
aspects of the investment allowance that
taxpayers should keep in mind.
Improvement or
replacement?
The investment allowance is proposed
to apply not only to the purchase
or construction of new depreciating
assets (subject to eligibility criteria
being satisfied), but also to new
expenditure which is incurred on
improving an existing depreciating
asset held by the taxpayer. Thus,
unlike previous investment allowance
regimes, this proposed concession can
be accessed by simply upgrading an
existing depreciating asset rather than
by replacing it with a new item. In the
current economic climate, it may be
easier to justify upgrading an asset so
that it performs in much the same way as
a new replacement, rather than replacing
the item with a new asset. Since the
investment allowance is proposed to
extend to this ‘improvement alternative’,
there will be many cases where
improvement rather than replacement of
an asset will make good business sense.
Improvement or repair?
With the investment allowance proposed
to apply to improvements to existing
depreciating assets (but not to repairs),
it will become even more important
to distinguish between a repair and
an improvement. Under the existing
law, repairs to depreciating assets are
generally deductible when incurred,
whereas the cost of an improvement is
deductible over the remaining effective
life of the asset. It may be beneficial to
consider existing maintenance programs
in order to determine the benefit that
might be obtained by improving an
asset rather than simply repairing it.
For example, say an electric motor in a
larger piece of equipment needs to be
repaired. If the taxpayer upgraded the
motor to a more powerful unit instead of
simply repairing the motor, generally the
cost of the improvement would be tax-
deductible not when incurred, but over
the remaining effective life of the asset.
2. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers:
However, the 30 per cent investment
allowance based on the cost of the
improvement may well compensate
in cash flow terms for the extended
period of time over which the cost of
the improvement would be claimed as a
deduction, relative to claiming the cost
as a repair. The added benefit is that
there would be an enhanced asset for
use in the business going forward.
Deadline for use or
installation ready for use
In addition to the requirement that the
taxpayer enters into arrangements for
purchase before 30 June 2009 for the 30
per cent investment allowance incentive
(or 31 December 2009 for the 10 per
cent investment allowance incentive)1
,
the taxpayer must use the asset or have
it installed ready for use by 30 June
2010 (or 31 December 2010 for the 10
per cent investment allowance)1
. It is
therefore important that taxpayers plan
not only for the timing of the contract
for purchase, but also for the timing of
delivery, installation and use of the asset.
Accordingly, entering into discussions
with suppliers in the early stage of
planning is an important issue to keep in
mind. In particular, make sure that your
supplier will be in a position to deliver the
items purchased in sufficient time for the
assets to be used or installed ready for
use by the requisite time.
Tax accounting
Tax implications of impairment
Continuing deterioration in economic
conditions may result in significant
impairment of corporate assets.
Apart from the financial impact of the
impairment charge itself, the following
tax risks and potential consequences
should be considered:
Thin capitalisation: Debt-funded
companies need to maintain
sufficient net assets to meet the
thin capitalisation requirements.
Asset impairment, other asset
write-downs and increases in
provisions may reduce net assets
and therefore reduce the debt
deductions (such as interest) allowed
for tax purposes. Downgraded profit
forecasts may also impact the value
of unrecognised intangibles which
some entities include in their thin
capitalisation calculations.
Possible change to tax base: Asset
impairment can lead to a change
of the asset’s tax base. This might
be the case if a company adopts a
‘recovery through sale’ CGT cost
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base, but the ‘recovery through
use’ tax base is nil (common
for intangibles such as brands).
Asset impairment can indicate the
company now holds the asset for
use and then the tax base should
be reduced to nil. The company’s
profit would therefore be decreased
by both the impairment charge
and the deferred tax expense from
recognising the deferred tax liability
(DTL). Deferred tax can significantly
increase the financial impact of an
impairment.
Recognition of deferred tax asset
(DTA): DTAs are recognised only
when it is probable future taxable
profits will be available. As a
result of the current economic
conditions, trading outlooks may
change significantly and impact an
entity’s ability to recognise a DTA.
Impairment is not one of the criteria
for recognition of DTAs, however the
analyses used to assess impairment
are likely to influence the probability
analysis for DTA recognition.
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Your regular update on insights into effective tax accounting
For further information please contact your usual
PricewaterhouseCoopers adviser, or:
Ross Thorpe, Partner
Phone: +61 3 8603 3822
ross.thorpe@au.pwc.com
Greg Diamond, Partner
Phone: +61 3 8603 3040
greg.diamond@au.pwc.com
Jo Woodcock, Partner
Phone: +61 3 8603 3078
joanne.woodcock@au.pwc.com
Tom Seymour, Partner
Phone: +61 7 3257 8623
tom.seymour@au.pwc.com
Jason Habak, Partner
Phone: +61 2 8266 2960
jason.habak@au.pwc.com
Alistair Hutson, Director
Phone: +61 8 8218 7467
alistair.hutson@au.pwc.com
Garth Drinkwater, Director
Phone: +61 8 9238 3312
garth.drinkwater@au.pwc.com
Damien Kobal, Director
Phone: +61 2 8266 5134
damien.kobal@au.pwc.com
1 The EDL as presently drafted does not deal with
these timeframes as specified by the Treasurer
in his original media release. In the case for
example of early balancing entities, to obtain
the 30 per cent allowance the use or installation
for use must occur before the start of 2010–11
tax year. PricewaterhouseCoopers is seeking
clarification on this from Treasury
3. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers:
For further information please contact your
usual PricewaterhouseCoopers adviser, or:
Ronen Vexler, Partner
Phone: +61 (3) 8603 3337
ronen.vexler@au.pwc.com
Warren Dick, Partner
Phone: +61 8 9238 3589
warren.dick@au.pwc.com
Steve Williams, Partner
Phone: +61 2 8266 7247
steve.williams@au.pwc.com
Tom Seymour, Partner
Phone: +61 7 3257 8623
tom.seymour@au.pwc.com
Alistair Hutson, Director
Phone: +61 8 8218 7467
alistair.hutson@au.pwc.com
Belinda Harrison, Senior Manager
Phone: +61 3 8603 9226
belinda.j.harrison@au.pwc.com
Repatriation of foreign profits:
Additional funds or repayment
of debt may be required
to support the Australian
parent’s operations. This could
necessitate repatriation of
foreign subsidiary earnings and
recognition of a DTL in respect
of the investment in the foreign
subsidiary if, on distribution,
the profits are subject to foreign
withholding or corporate taxes.
This might be the case even
though the foreign investment
is eliminated on consolidation.
DTLs may not have been
recognised in the past on the
assumption it was unlikely the
profits would be distributed in the
foreseeable future.
• GST cash flow planning to reduce
costs and find cash
As many businesses look for
opportunities to manage their cash
flow, there are a number of benefits
which can be derived from effective
goods and services tax (GST) cash flow
planning. Uncertainty in the economy
can act as a powerful incentive to review
arrangements, particularly for GST, and
there may be many opportunities to
reduce costs and find refunds. Following
are just some of the opportunities that
you may be able to leverage in managing
your cash flow.
Division 129
Of particular relevance to the building
industry, Division 129 of the GST law
impacts small builders through to large
institutional builders involved in the
creation of ‘residential premises’- from
individual stand-alone town houses
right through to large-scale apartments,
resorts and retirement villages.
Very simply, if you are building
‘residential premises’ for the purpose of
sale, GST is claimable as an input tax
credit on all construction costs where
GST applies, but you will be required to
pay GST when the premises are sold.
For example, you might be holding land
worth $100,000, and you pay $550,000
for building services. Generally you
would be able to claim as an input tax
credit, the GST included in those costs
($50,000 in our example). This claim
is made as and when you pay for the
construction costs. When you sell the
premises, GST will be payable on either
the full selling price, or on an amount
calculated under what is known as the
GST ‘margin scheme’.
However, if the premises you are building
for sale cannot be sold, or will take a
long time to sell, you may decide to rent
out the premises in the meantime. If you
rent out the premises, or even just try to
rent out the premises, there will no longer
be a full input tax credit entitlement in
respect of the construction costs, and
some or most of the GST already claimed
as a credit may have to be repaid to the
Australian Taxation Office (ATO).
Hence, the attempt to improve cash
flow by renting out a property could be
economically disastrous, because the
GST that must be paid back to the ATO,
or which can no longer be claimed as a
credit, might actually be more than the
rental income received.
4. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers:
Conversely, if you are building a property
for ‘residential rent’ purposes, the GST
paid on construction costs cannot be
claimed from the ATO, but no GST
is payable on the rental income. If
for whatever reason you need to sell
the property to raise cash, then the
GST that was included in the costs of
construction, which has not yet been
claimed as an input tax credit from the
ATO, can possibly be claimed in the
next June Business Activity Statement
(BAS). This is because the intended use
of the building has changed i.e. because
the intention is to sell the building and
not to derive rental income. Importantly,
the timing of the decision to sell may
have a significant impact on the ability
to claim credits and the timing of those
credits. This is because adjustments
under Division 129 for change of use or
intended use are made annually.
Cash flow for small business
GST registrants with annual turnover
of less than $20 million can normally
choose to lodge a BAS either quarterly
or monthly. For very small businesses,
there are even annual elections and other
special rules to ease administration. A
very simple idea for small businesses
that generally receive GST refunds on
lodging the BAS is to elect to lodge
the BAS monthly so as to get monthly
refunds.
Where there is a GST refund entitlement
on lodging the BAS, the ATO is required
to pay interest if it does not provide the
refund within 14 days of lodging the
relevant BAS. Hence, although the BAS
is not due until either, as relevant, the
21st or the 28th of the month following
the end of the BAS period, if the BAS is
lodged on the 1st day of that month, any
refund made after the 15th of the month
will attract interest.
Lodging the BAS monthly and as soon as
possible after the end of the BAS period
would likely provide cash flow savings to:
businesses which have seasonal
variations – there are long periods of
purchasing and short periods of selling
‘not-for-profits’, because much of
what they do does not involve making
‘taxable supplies’, and
suppliers of mainly GST-free supplies
including medical services and
appliances, fresh food, education and
exported goods,
although it would be necessary to
consider each case based on the specific
circumstances applying.
Conversely, where GST is almost always
payable on lodging the BAS, which
is the case with many general trading
operations, generally it would be better
to lodge a quarterly BAS. That way,
the GST on taxable supplies made to
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customers would only be payable to the
ATO after the end of the relevant quarter,
even though the customer may have paid
for the supplies much earlier.
General cash flow planning
If you have a process where you close
the books of account on a specific day
other than at the end of the month, then
you may be able to change the day on
which the tax period for GST ends to
coincide with that day. If, for example,
you close the books on the 26th of the
month and the ATO accepts that the tax
period can be changed to coincide with
that date, generally any taxable supplies
attributed to the period between the 27th
and the end of the calendar month will
be included in the BAS of the following
month. Importantly the fact that your
BAS period may end earlier than the end
of the month will have no impact on the
ability of your customers to claim the
GST on taxable supplies that you provide
to them. In other words, the fact that
5. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers:
For more information on generating cash
flow opportunities, speak to your usual
PricewaterhouseCoopers adviser, or:
Patrick Walker, Partner
Phone: +61 2 8266 1596
patrick.walker@au.pwc.com
Kevin O’Rourke, Partner
Phone: +61 2 8266 3114
kevin.orourke@au.pwc.com
Ken Fehily, Partner
Phone: +61 3 8603 6216
ken.fehily@au.pwc.com
Michelle Tremain, Partner
Phone: +61 8 9238 3403
michelle.tremain@au.pwc.com
effectively, your obligation to remit the
GST may have been deferred, will not
impact on your customers’ entitlement to
GST refunds.
Because of the very specific and
sometimes peculiar GST rules, it is
sometimes possible that an amount
of money was paid during a particular
month, but the tax invoice was not
received until after the end of the month.
That can often happen when payments
are made over the phone, or through
direct debits or other processes, or even
where an amount was paid prior to the
receipt of a valid tax invoice. In these
cases, even though the tax invoice may
not be held as at the end of the month
(or at the end of a particular tax period),
you can claim the GST in the BAS for
the month (or other tax period) when the
payment was made, if, when lodging the
particular BAS, you hold the tax invoice
issued by the supplier.
Cash flow planning for
retailers
Retailers are utilising many mechanisms
to encourage sales in the current
economic climate. One is the issue of
gift vouchers.
Many businesses do not realise that the
issue of a gift voucher (that meets certain
specific requirements) is not subject to
GST and property development
– the South Steyne decision
On 16 January 2009, Justice Stone
in the Federal Court handed down a
decision in South Steyne Hotel Pty Ltd v
Commissioner of Taxation [2009] FCA 13.
The case concerned the characterisation
for goods and services tax (GST) of
certain supplies made in relation to strata-
titled apartments in a hotel complex.
The background facts, which were not in
dispute, were:
Subsequent to the apartments being
individually strata titled, South Steyne
sold the ‘management lot’ (ie reception
area, offices and parking) to Mirvac
Hotels Pty Ltd (MHL), and leased
each of the apartments to Mirvac
Management Ltd (MML) under lease
agreements which obliged MML
to operate all the apartments as a
serviced apartment business.
Pursuant to an agreement with MML,
MMH had exclusive control of the
operation of the business.
South Steyne subsequently sold 15 of
the apartments to various investors,
including MBI Properties Pty Ltd (MBI).
Pursuant to the sale contracts, all
purchasers elected to participate in a
scheme which mirrored that provided
for under the lease agreements.
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The case concerned the GST treatment
of the following supplies:
1. the supply by way of lease of each
hotel room by South Steyne to MML
2. the sale of hotel rooms to investors,
including the sale of three rooms by
South Steyne to MBI
3. the continuation of the leases by MBI
which took title subject to the ongoing
lease of those apartments to MML, and
4. the supply of accommodation in a
Hotel room to a guest, by MHL.
The Commissioner submitted that the
first and third of the above supplies were
input-taxed as they were residential
premises used predominantly for
residential accommodation, the second
supply was neither GST-free nor input
taxed, and the fourth supply was taxable
on the basis that the accommodation
was supplied by MHL which controlled
the Hotel.
The taxpayer’s primary position was that
none of the supplies were supplies of
residential premises and that the second
supply was a GST-free supply of a going
concern. However, the taxpayer also put
forward two alternative propositions,
GST until the customer brings it back
and redeems it for goods. For example, if
a refrigerator retails for $1,000 in normal
circumstances, but to encourage sales,
the retailer provides a $100 discount,
the retailer would only receive $900 and
GST would be payable on that $900.
However, if the retailer instead charged
the customer $1,000 for the refrigerator
plus a redeemable gift voucher worth
$100, the retailer would actually receive
$1,000 from the customer, but would
only be required to pay GST on the $900
(i.e. relating to the sale of the refrigerator)
at that time, with the GST on the $100
amount attributable to the voucher
being payable only when the voucher is
redeemed by the customer.
6. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers:
namely that if the third supply was to
be characterised as input-taxed then
the second supply would also be input-
taxed. Further, the taxpayer submitted
that if Justice Stone was to characterise
the first and third supplies as input-
taxed, then the fourth supply should also
be input-taxed.
First supply – leases to MML
In making the decision on the first
supply, Justice Stone considered the
Full Federal Court decision in Marana
Holdings Pty Ltd v Commissioner
of Taxation [2004] FCAFC 307, and
subsequent amendments to the GST
law which require the term of occupation
of the premises to be disregarded in
determining whether premises are
‘residential premises’ as defined. On
this basis, and taking into account
the ordinary meaning of the terms
‘reside’ and ‘residence’, Justice Stone
concluded that this leaves as necessary
only the element of shelter and basic
living facilities, such as a bedroom
and bathroom. The Court held that
the supplies by way of lease to MML
were supplies of residential premises to
be used predominantly for residential
accommodation, and were therefore
input-taxed.
Second supply – sales to investors
The sale contracts indicated that South
Steyne and MBI had prima facie agreed
to treat the transactions as ‘sales of
going concerns’ (i.e. sales of leasing
enterprises). However, a special condition
in the contract indicated that if the first
supply (i.e. the relevant lease to MML)
was an input-taxed supply of residential
premises, then the sale would be treated
as taxable and the margin scheme would
be applied. On the basis of its finding
in relation to the first supply, the Court
therefore found that the sales could
not be supplies of going concerns. The
Court also held that the sales were not
input-taxed, as they were sales of ‘new
residential premises’.
Third supply – continuation of leases
With regards to the third supply, Justice
Stone considered the Full Federal Court’s
decision in Westley Nominees Pty Ltd v
Coles Supermarkets Pty Ltd FCAFC 115
(Westley Nominees), particularly because
the case considered the GST treatment
of an assignment of a reversionary
interest subject to an existing lease.
Considering the conclusions drawn from
the Westley Nominees case, Justice
Stone agreed with the Commissioner’s
submission that:
“there is no policy justification for
treating an original landlord differently
from a successor landlord with respect
to a continuing lease on the same terms
and in respect of the same property.”
On this basis, Justice Stone held that the
third supply was a “supply by way of a
lease” and therefore input-taxed.
Fourth supply – guest accommodation
In relation to the fourth supply, the Court
held that MHL had sufficient practical
control of the Hotel for it to be said that
the accommodation provided to the
guest was a supply of accommodation
in commercial residential premises
provided by “the entity that ... controls
the commercial residential premises”. As
such, the Court held the fourth supply
fell within the exclusions from input-
taxed treatment, and was therefore a
taxable supply of commercial residential
premises.
Overall, the Federal Court found in favour
of the Commissioner in relation to all four
supplies and dismissed the application.
Implications
The Federal Court’s decision in this case
has highlighted some risks that may
potentially adversely impact serviced
apartment developers and operators,
including investors involved in these
arrangements. Conversely, opportunities
to claim full or partial input tax credits
in relation to such arrangements may
exist, depending on the particular
circumstances.
The case strikes at the issue of when
residential premises coupled with
the supply of a management lot (i.e.
reception, car park, restaurants) will
cross over from being single supplies of
input-taxed residential accommodation
to commercial residential premises (i.e.
be considered something similar to a
hotel).
The case also brings to light the nature
of the legal arrangements between hotel
operators and investors, and the differing
GST outcomes that can arise, depending
on the business model that is adopted.
The case is subject to an appeal by the
taxpayer.
For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Patrick Walker, Partner
Phone: +61 2 8266 1596
patrick.walker@au.pwc.com
Ross Thorpe, Partner
Phone: +61 3 8603 3822
ross.thorpe@au.pwc.com
Michelle Tremain, Partner
Phone: +61 8 9238 3403
michelle.tremain@au.pwc.com
Jonathan Doy, Partner
Phone: +61 2 8266 7326
jonathan.doy@au.pwc.com
Tony Windle, Director
Phone: +61 7 3257 8854
tony.windle@au.pwc.com
7. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers:
High Court clarifies when Legal Professional Privilege may be lost
practitioner and the practitioner’s client.
LPP is not absolute, and can be lost
by clients depending upon whether
such privileged communications are
kept confidential or are subsequently
disclosed.
Since the decision in Mann, there
has been much debate as to the
circumstances in which privilege in
confidential legal communications
can be waived, and whether it can be
lost in circumstances where the gist
of privileged advice is disclosed in
subsequent communications.
What does this mean for
clients?
Clients and their advisors must be cautious
in the use of privileged legal advice to
ensure that taxpayers can continue to
assert privilege over that advice in the
future.
The critical test in determining whether
privilege has been waived when
disclosing the existence or substance
of legal advice is the purpose of such
disclosure. Generally, the High Court
has indicated that where the purpose
of disclosure of privileged advice is not
to seek a strategic legal advantage, but
merely to provide information, privilege
over that advice will continue.
The importance of privilege in the tax
context was highlighted in the recent
decision of Rio Tinto Ltd v Commissioner
of Taxation3
, which involved a taxpayer
seeking access to legal advice provided
to the ATO. The Court held that, because
the ATO disclosed the conclusion of that
advice in communication with the taxpayer
in an attempt to persuade the taxpayer to
accept its view, privilege was waived.
There is often a fine line between
disclosing legal information for the
purpose of explaining or justifying a
decision and for the purpose of gaining
a strategic advantage, and clarifying
such a purpose may be difficult to
prove. Accordingly clients must continue
to be vigilant and seek advice before
disclosing any aspect of confidential
legal communications, particularly
in public documents such as market
announcements, financial statements or
for audit purposes.
Taxpayers should be aware that the
ATO has issued guidelines in relation
to the permitted use of privileged
documents for specific and limited
The High Court has recently attempted
to clarify the circumstances in which
Legal Professional Privilege (LPP), which
attaches to confidential communications,
can be lost by clients through waiver.
The waiver issue is critical in common
business communications, including
public statements and statements to
third parties including regulators, the
Australian Tax Office (ATO), other tax
authorities and commercial counterparts.
Affirmation of the test
espoused in Mann v Carnell
The decision of Osland v Department
of Justice1
(Osland) has affirmed the
previous High Court decision of Mann v
Carnell2
(Mann) and has sought to dispel
uncertainty in the Courts concerning
the application of LPP which has arisen
since the decision of Mann. At issue in
the Osland proceedings was whether, by
disclosing the gist of the legal advice in a
press release, the Attorney General had
waived any rights to privilege over the
legal advice.
LPP relates to the rule of law that
protects the confidentiality of
communications made between a legal
purposes. One example is where an
entity is being audited for the purposes
of the Corporations Act 2001 and is
required to provide the auditors with all
communications, including legal advice,
in order for the auditor to provide the
audit report in respect of the statutory
accounts. In such circumstances, the
ATO indicates that it will not challenge
the continued privilege of such
documents.
For further information on LPP and
waiver, please refer to the LPP
compendium prepared by our Tax
Controversy team.
Click here to access an electronic copy
http://www.pwc.com/au/legalcompendium
1 [2008] HCA 27 (7 August 2008)
2 [1999] HCA 66 (21 December 1999)
3 [2005] 224 ALR 299
For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Michael Bersten, Partner
Phone: +61 2 8266 6858
michael.bersten@au.pwc.com
Chris Sievers, Partner
Phone: +61 3 8603 4208
chris.sievers@au.pwc.com
8. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers:
ATO takes harder line to recover disputed corporate debts
The Australian Taxation Office (ATO) has
recently updated its Receivables Policy
(the Policy) in relation to recovering
disputed tax debts. These are tax-related
liabilities in respect of which a taxpayer
has lodged an objection or which are the
subject of challenge in legal proceedings.
The revisions to Chapter 28 of the Policy,
while not extensive, suggest that the
ATO may be taking a stricter approach to
recovering disputed debts.
In relation to what the ATO defines as
“high risk cases” (a separate section
of the Policy deals with assessing risk
profiles), the Policy now allows the ATO
to move directly to issuing a statutory
demand under section 459E of the
Corporations Act 2001, which is the
first step in winding up a company.
Previously, the ATO would not issue
a statutory demand unless it had first
obtained an unfettered judgment in
a civil proceeding. By removing this
requirement, the ATO now can act much
more quickly to wind up a corporate
taxpayer.
The revised Policy also now makes
clear that taxation debts arising
under the Superannuation Guarantee
(Administration) Act 1992 will be
excluded from the ATO’s ‘50/50’ policy.
The 50/50 policy essentially allows a
taxpayer to pay to the ATO 50 per cent of
any disputed debt, and in return the ATO
agrees not to pursue recovery action
while the substantive liability is being
determined, either through the objection
process or legal action. Previously
there was no express exclusion of
Superannuation Guarantee amounts
from the 50/50 policy. The exclusion
now is justified on the basis that the
50/50 policy would normally result in a
remission of General Interest Charge
(GIC) that would amount to a reduction in
employee entitlements.
One revision to the Policy that is more
favourable to taxpayers is the ATO’s
decision to offer a GIC concession to
taxpayers who agree to participate in
the ATO’s Test Case Litigation Program
(TCLP). The TCLP provides financial
assistance to taxpayers in cases where
the ATO seeks to clarify certain aspects
of the tax laws. Under the revised
Policy, where a taxpayer participates
in the TCLP and has entered a ‘50/50
arrangement’, the ATO will increase
the GIC remission from 50 per cent to
75 per cent. GIC can form a significant
portion of a tax debt, so this increased
concession could be significant.
The Policy maintains the ATO’s general
position that debts are recoverable as
and when they fall due, irrespective
of whether they are being challenged,
and in the current economic climate it
is likely the ATO will actively manage
debt recovery. Careful management of
the ATO relationship will be even more
important to guard against legal recovery
action while a taxpayer tests its position
throughout the dispute process.
For further information please contact your usual
PricewaterhouseCoopers adviser, or:
Michael Bersten, Partner
Phone: +61 2 8266 6858
michael.bersten@au.pwc.com
Chris Sievers, Partner
Phone: +61 3 8603 4208
chris.sievers@au.pwc.com
Corporate tax
developments
Debt and equity rules and
determining whether there is
an ENCO
On 14 January 2009, the Commissioner
of Taxation issued Taxation
Determination TD 2009/1 which explains
what is meant by the phrase effectively
non contingent obligation (ENCO) as it is
used in the debt and equity provisions of
the income tax law. The meaning of this
phrase is important, since in determining
whether a financing arrangement is a
‘debt interest’ for tax purposes, only
those obligations which fall within the
meaning of ENCO can be taken into
account.
Generally a financing arrangement will
be a ‘debt interest’ where, under the
debt interest test, the value of an entity’s
effectively non-contingent obligations
to provide financial benefits to an entity
in respect of the arrangement are at
least equal to the financial benefits
received under the arrangement. In
Taxation Determination TD 2009/1, the
Commissioner explains that there is
an ENCO where “there is in substance
or effect an obligation that is, in
substance or effect non-contingent”.
9. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers:
International tax developments
Thus according to the Commissioner, an
obligation for the purposes of applying
the debt interest test does not have to be
a legally enforceable obligation. This is
because the test is designed to operate
with regard to the economic substance
of the rights and obligations under the
particular arrangement, rather than the
mere legal form of the arrangement.
In the case of companies, an interest
which is otherwise an ‘equity interest’
(such as a shareholding) will be a
‘debt interest’ if the debt interest test
is satisfied. In other words, the ‘debt
interest’ classification takes precedence.
The importance for companies of
correctly classifying arrangements as
debt or equity cannot be understated.
Problems arising from incorrect
classification include denial of tax
deductions for interest paid on loans
which are ‘equity interests’ and incorrect
franking of returns paid to investors. This
latter problem arises since dividends paid
to a shareholder on a shareholding which
Foreign hybrids
On 21 January 2009, the Commissioner
of Taxation issued Taxation Determination
TD 2009/2 which outlines the
Commissioner’s position with respect
to classification of a limited partnership
formed in a foreign country as a
‘foreign hybrid’ for Australian income
tax purposes. Generally, the effect of
a limited partnership being a foreign
hybrid is that the limited partnership
will be treated for Australian tax law in
the same way as a general partnership
(with the partners being assessable on
their share of the partnership profits),
instead of being treated as a company.
The Taxation Determination includes
a number of examples explaining how
limited partnerships formed in particular
foreign countries will be treated under the
foreign hybrid provisions of the tax law.
Double tax treaty protects
taxpayer from capital gains tax
In our November 2008 edition of TaxTalk
we reported that the Federal Court at
first instance (in Virgin Holdings SA v
Commissioner of Taxation [2008] FCA
1503) held that the double tax treaty
(DTT) entered into between Switzerland
and Australia operated to the effect that
the Swiss resident in that case was not
subject to Australia’s capital gains tax
(CGT) on the disposal of shares in an
Australian incorporated company.
The interaction of the CGT rules in the
income tax law with international tax
treaties has again been considered
by the Federal Court in the recent
decisions in Undershaft (No 1)
Limited v Commissioner of Taxation;
and Undershaft (No 2) Limited v
Commissioner of Taxation [2009] FCA 41.
In those decisions, the Court held that
with respect to the disposal of shares
held by each taxpayer in Australian
incorporated companies which occurred
in December 2000, there was no amount
assessable under the CGT provisions
because of the operation, respectively, of
the DTT between Australia and the United
Kingdon (UK) and the DTT between
Australia and the Netherlands. In the case
of the DTT with the UK, the Court noted
that the DTT under consideration was
not the current DTT with the UK but the
DTT which was in place in the tax year in
question.
In deciding in favour of the taxpayer in
each case, Justice Lindgren expressed the
view that CGT was a tax that was within
the scope of each relevant DTT, since CGT
is simply income tax assessed under the
income tax law. Having thus concluded
that CGT was a tax that was within the
For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Michael Frazer, Partner
Phone: +61 2 8266 8448
michael.a.frazer@au.pwc.com
Peter Collins, Partner
Phone: +61 3 8603 6247
peter.collins@au.pwc.com
Scott Bryant, Partner
Phone: +61 8 8218 7450
scott.a.bryant@au.pwc.com
Julian Myers, Partner
Phone: +61 7 3257 8711
julian.myers@au.pwc.com
Frank Cooper, Partner
Phone: +61 8 9238 3332
frank.cooper@au.pwc.com
is a ‘debt interest’ are not frankable,
whereas returns paid to the holder of an
‘equity interest’ (including a loan which
is classified as equity) are generally
frankable (but subject to specific rules
which may apply to prohibit franking).
10. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers: 10
Agreement with the Isle of
Man for sharing information
On 30 January 2009, the Assistant
Treasurer and Minister for Competition
Policy and Consumer Affairs announced
the signing by Australia and the Isle
of Man of a Tax Information Exchange
Agreement (TIEA) and an agreement for
the allocation of taxing rights over certain
income of individuals. In making the
announcement, The Assistant Treasurer
said that concluding TIEAs with offshore
financial centres is an important element
in Australia’s efforts to combat tax
avoidance and evasion. In the case of the
TIEA with the Isle of Man, the Assistant
Treasurer confirmed that “it will provide
for exchange of information (EOI), on
request, for both civil and criminal tax
matters, and demonstrates Australia’s
ongoing commitment to implementing
Organisation for Economic Cooperation
and Development (OECD) standards of
transparency and effective EOI for tax
purposes”.
The agreements will enter into force
after both countries have advised that
they have completed their domestic
requirements.
In addition to these agreements, the
Assistant Treasurer advised that Australia
will remove any governmental references
to the Isle of Man as a tax haven, and,
following the entry into force of the TIEA,
will list the Isle of Man as an ‘information
exchange country’. The intended effect
of this is to provide residents of the
Isle of Man with access to reduced
withholding tax rates on distributions of
certain income they may receive from
Australian managed investment trusts.
New Zealand: stimulus
package for business
On 4 February 2009, the New Zealand
(NZ) Government announced a stimulus
package that includes tax changes
expected to cost NZ$480 million over the
next four years. The changes include:
reducing the provisional tax uplift rates
for the 2008-09 and 2009-10 income
years. The 105 per cent rate goes
down to 100 per cent and the 110 per
cent rate to 105 per cent.
reducing the use of money interest
rate for underpayment of tax from
14.24 per cent to 9.73 per cent and
•
•
scope of each DTT, Justice Lindgren held
that the capital gain derived in each case
was not subject to CGT because the
gains were exempted from Australian tax
through application of the ‘business profits
article’ in each relevant DTT. Specifically,
the relevant article of the DTT with the UK
covered ‘industrial or commercial profits’
and the DTT with the Netherlands covered
‘profits’. In each case, such profits of a
resident of the UK and the Netherlands,
respectively, were not to be taxed in
Australia unless the entity carried on
business in Australia through a permanent
establishment.
It is not presently known whether the
Commissioner will appeal the Undershaft
decisions however the appeal in the
Virgin Holdings case was withdrawn on
18 February 2009.
For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Christian Holle, Partner
Phone: +61 2 8266 5697
christian.holle@au.pwc.com
Peter Collins, Partner
Phone: +61 3 8603 6247
peter.collins@au.pwc.com
Norah Seddon, Partner
Phone: +61 2 8266 5864
norah.seddon@au.pwc.com
Vanessa Crosland, Partner
Phone: +61 3 8603 3374
vanessa.l.crosland@au.pwc.com
for overpayment from 6.66 per cent to
4.23 per cent from 1 March 2009
raising the goods and services tax
(GST) registration threshold from
NZ$40,000 to NZ$60,000 and the GST
payments basis threshold from NZ$1.3
million to NZ$2 million
allowing businesses with NZ$10,000
or less of business-related legal
expenditure a full deduction of the
expense in the year it was incurred,
regardless of whether it is capital or
revenue in nature
raising the pay as you earn (PAYE)
once-a-month filing and payment
threshold from NZ$100,000 to
NZ$500,000
raising the fringe benefits tax
(FBT) annual filing threshold from
NZ$100,000 to NZ$500,000
raising the value of minor fringe
benefits that can be provided to
employees without attracting FBT to
NZ$300 per quarter per employee and
NZ$22,500 per year per employer
reducing the FBT prescribed interest
rate for low-interest, employment-
related loans from 10.90 per cent to
8.05 per cent from 1 January 2009,
and
raising some of the thresholds relating
to accrual expenditure adjustments.
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For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Neil Fuller, Partner
Phone: +61 61 2 8266 2025
neil.fuller@au.pwc.com
Michael Bersten, Partner
Phone: +61 2 8266 6858
michael.bersten@au.pwc.com
11. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers: 11
Although the package is aimed at small
and medium-sized businesses, some
of the changes will also benefit large
businesses. The changes will be included
in a taxation bill to be introduced into the
NZ Parliament for application generally
from 1 April 2009.
Renewed focus on tax
avoidance through transfer
pricing
On 27 January 2009, the United
Kingdom’s HM Revenue Customs
issued a media release outlining the
theme of discussions held in Kyoto,
Japan between leaders of the Joint
International Tax Shelter Information
Centre (JITSIC). At the Kyoto meeting,
JITSIC leaders from Australia, Canada,
Belgium: tax-free regime for
cross border reorganisations
On 12 January 2009, the Act
implementing the European Union
Merger Directive was published in
the Belgian Official Gazette. The Act
introduces a tax-free regime for cross-
border reorganisations and brings the
existing tax provisions applicable to
internal reorganisations in line with the
Directive. Most provisions are applicable
from the date of publication.
Generally, the Directive provides for
a tax-neutral regime for cross-border
reorganisations such as mergers,
demergers, partial demergers, share-
for-share transactions, contributions
of assets and transfers of registered
offices. Tax neutrality is provided both
at the level of the companies involved
in the reorganisation as well as their
shareholders.
The Netherlands: new tax
relief measures
In response to adverse economic
conditions, the Government has
introduced measures designed to
assist businesses over the next two
years. Specifically, the Government has
introduced accelerated depreciation
for investments made during the 2009
calendar year. These investments can
For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Christian Holle, Partner
Phone: +61 (2) 8266 5697
christian.holle@au.pwc.com
Peter Collins, Partner
Phone: +61 (3) 8603 6247
peter.collins@au.pwc.com
Norah Seddon, Partner
Phone: +61 (2) 8266 5864
norah.seddon@au.pwc.com
Vanessa Crosland, Partner
Phone: +61 (3) 8603 3374
vanessa.l.crosland@au.pwc.com
For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Peter Collins, Partner
Phone: +61 (3) 8603 6247
peter.collins@au.pwc.com
Norah Seddon, Partner
Phone: +61 (2) 8266 5864
norah.seddon@au.pwc.com
For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Michael Bersten, Partner
Phone: +61 2 8266 6858
michael.bersten@au.pwc.com
be depreciated in two years, 50 per cent
in 2009 and 50 per cent in 2010. It is
envisaged that the measure will include
investments in assets such as trucks,
computers, machinery and installations.
The measure does not include
investments in real property, intangible
assets (including software) and some
other specific assets.
In addition, the average corporate
income tax rate will be temporarily
reduced for the years 2009 and 2010.
This will be effected by reducing the
corporate income tax rate of the second
tax bracket from 23 per cent to 20 per
cent. This would mean that the first
EUR 200,000 of taxable income would
be taxed at 20 per cent with the excess
remaining taxed at a 25.5 per cent rate.
China, Japan, United Kingdom and the
United States reviewed successes and
decided on JITSIC’s future direction.
According to the media release, the
JITSIC countries agreed to continue
their joint efforts to curb abusive tax
avoidance transactions, arrangements,
and schemes, and to broaden JITSIC’s
activities against cross-border
transactions involving tax compliance
risk. In particular, the media release
stated that there will also be a fresh focus
on the ways in which some high-wealth
income taxpayers artificially minimise
their tax liabilities. Additionally, the JITSIC
leaders agreed to focus on collaborating
with respect to tax administration
issues arising from the global economic
environment and financial crisis, and tax
administration approaches and activities
aimed at improving transfer pricing
compliance.
12. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers: 12
Goods and services tax update
to the value of the land as at the date
the landowner becomes registered or
required to be registered (not the value
at 1 July 2000, as would otherwise be
the case if the landowner was registered
from that date).
The arrangement involves using a
GST-registered associate to undertake
construction and marketing of residential
premises. The associate claims input tax
credits on the development expenditure
from the commencement of the project.
The associate and the landowner reach
an agreement whereby the associate
will not on-charge its services until the
landowner is registered and therefore
able to claim input tax credits. Typically,
the on-charge does not occur until the
construction is nearing completion.
The Taxpayer Alert highlights a
number of ATO concerns about such
arrangements. Of particular interest is
whether the Commissioner considers
that the landowner is entitled to a full
input tax credit on the acquisitions of
the associate’s services given that in the
arrangement described, the majority of
these services are acquired while the
landowner is not registered for GST.
Taxpayer Alerts – GST
property arrangements
On 17 February 2009, the Commissioner
of Taxation issued two Taxpayer Alerts
in relation to goods and services tax
(GST) property arrangements involving
manipulation of the margin scheme as
well as the deferral of GST liabilities.
These are the first Alerts issued by
the Australian Taxation Office (ATO) in
respect of broader GST and property
issues since 2004. They are also the first
GST Alerts issued by the Commissioner
that feature arrangements where the
timing benefit contained in the GST
general anti-avoidance rules is central to
the tax mischief.
TA 2009/4 - Land owner’s use of a
registered associate to maximise input
tax credit entitlements and reduce Goods
and Services Tax (GST) payable under
the margin scheme
This Alert features an arrangement where
the use of an associate entity enables a
landowner to stay out of the GST system
as long as possible to take advantage of
concessions in the margin scheme for
land acquired prior to the introduction
of GST. Such concessions enable the
‘margin’ to be calculated by reference
TA 2009/5 - Use of an associate to obtain
Goods and Services Tax (GST) benefits
on construction of residential premises
for lease
This Alert features an arrangement similar
to that described in TA 2009/4 except that:
the residential premises are initially
leased by the landowner to third
parties (an input-taxed supply), and
the associate does not invoice or seek
payment from the landowner until the
premises are ultimately sold.
The effect of the arrangement is that
the associate claims input tax credits
on the development costs, but defers
the corresponding GST liability on its
services until the landowner can claim
an input tax credit (i.e. if the landowner
makes a taxable supply when it ultimately
sells the premises), or in some cases
indefinitely.
A deferral of charging construction
services is a common feature of some
‘turnkey’ arrangements. While the
deferral is a feature of the arrangement
outlined in the Alert, such a deferral
extends beyond the construction
period of the development. As a result,
‘turnkey’ arrangements which defer the
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charging of construction services until
completion can be differentiated from the
arrangement described in the Alert.
In practical terms, both Alerts highlight
the need for taxpayers to ensure
agreements between associated entities
which defer the on-charging of expenses
or construction services are:
commercial in nature, and
not designed to manipulate the
registration status of one of the entities
or ensure the recipient is in a position
to claim a corresponding input tax
credit.
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For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Patrick Walker, Partner
Phone: +61 2 8266 1596
patrick.walker@au.pwc.com
Ross Thorpe, Partner
Phone: +61 3 8603 3822
ross.thorpe@au.pwc.com
Michelle Tremain, Partner
Phone: +61 8 9238 3403
michelle.tremain@au.pwc.com
Jonathan Doy, Partner
Phone: +61 2 8266 7326
jonathan.doy@au.pwc.com
Tony Windle, Director
Phone: +61 7 3257 8854
tony.windle@au.pwc.com
13. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers: 13
State taxes
Intergovernmental Agreement
on Federal Financial Relations
The Council of Australian Governments
(COAG) has released the details of its
new Intergovernmental Agreement on
Federal Financial Relations (IGA) which is
effective from 1 January 2009.
The new IGA provides for an extension
for the elimination of specified ‘inefficient
taxes’ which impede economic activity
until 1 July 2013. Under the original
IGA, some taxes and duties were to be
abolished by 2005, subject to review,
and there would be a review by 2005 of
the need to retain certain other stamp
duties. In 2005, six States and Territories
committed to the abolition of further
taxes over a period to 2010-11 (New
South Wales and Western Australia
rejected the plan). In 2006, the Federal
Treasurer announced a schedule for the
abolition of certain inefficient state taxes
to 30 June 2009.
The taxes to be abolished under the new
IGA include:
stamp duty on non-quoted marketable
securities (this has been abolished in
all States, except New South Wales,
South Australia and the Australian
Capital Territory)
•
stamp duty on non-real non-residential
conveyances
stamp duty on leases (some stamp
duty still remains on certain lease
arrangements. Victoria currently has
a Bill before Parliament which, if
enacted unamended, would effectively
reintroduce stamp duty on leases)
stamp duty on credit arrangements,
instalment purchase arrangements and
rental arrangements (South Australia
still levies stamp duty on certain rental
arrangements, such as equipment and
vehicles)
stamp duty on mortgages, bonds,
debentures and other loan securities
(this has been abolished in all States,
except South Australia and New South
Wale, which still imposes duty on
mortgages only).
The agreement also includes a
commitment from the States not to levy
stamp duties on the transfer of emission
trading permits at the completion of the
abolition of all taxes listed in the new IGA.
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Queensland: amendment to
previously announced payroll
tax amnesty
As reported in our November 2008
edition of TaxTalk, the Queensland
Commissioner of State Revenue
approved a pay-roll tax penalty amnesty
in respect of payments made to certain
‘contractors’ during the three year
period to 1 July 2008 that have been
incorrectly classified as payments to
genuine independent contractors and not
as payments to employees. Generally,
pay-roll tax is imposed in respect of
taxable wages paid by an employer
to an employee. From 1 July 2008,
Queensland adopted ‘relevant contract’
provisions which deem all contractors
to constitute employees for pay-roll tax
purposes (unless they fall within one of
the limited number of exceptions) As a
result, the pay-roll tax liability of many
employers substantially increased.
On 12 February 2009, the Premier
of Queensland announced that the
Commissioner of State Revenue had
approved changes to the pay-roll tax
penalty amnesty available to employers.
In summary, the following changes will
now apply:
the amnesty period will be extended
to 30 April 2009 (rather than 31 March
2009)
•
only the previous financial year will be
reviewed (rather than three financial
years as previously offered)
no penalty tax will be imposed on
voluntary disclosures made within the
amnesty period
the rate of interest on unpaid tax will
be halved in relation to incorrectly
classified ‘contractor’ payments.
We expect that a compliance program
will be launched on 1 May 2009 and
will consist of an audit of ‘contractor’
payments made within the preceding five
financial years. Substantial penalties and
interest may be imposed in respect of
any underpayments discovered.
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For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Philip Magoffin, Director
Phone +61 7 3257 8722
philip.magoffin@au.pwc.com
For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Barry Diamond, Partner
Phone: +61 (3) 8603 1118
barry.diamond@au.pwc.com
Angela Melick, Partner
Phone: +61 (2) 8266 7234
angela.melick@au.pwc.com
14. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers: 14
Personal and expatriate taxation
Draft guidelines outlining new
visa sponsorship obligations
On 12 February 2009, the Minister for
Immigration and Citizenship released
draft guidelines detailing obligations
for employers of temporary skilled
overseas workers on Subclass 457
visas. The Minister said that a panel of
industry, union and state government
representatives will now begin assessing
the proposed new regulations to provide
feedback to government. The panel’s
advice will assist the Government to
finalise the sponsorship obligations that
will apply to all employers of Subclass
457 visa holders.
Proposed employer obligations to be
considered by the panel include:
payment of a minimum salary to
Subclass 457 visa holders
payment of return travel costs for visa
holders and their spouses, and
cooperating with inspectors exercising
powers under the Worker Protection Act.
The Minister said the Government is
considering basing the minimum wage
for Subclass 457 visa holders on the
market rate paid to Australian workers
•
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employed in similar positions. He further
said that the principle of the Subclass
457 visa scheme is to supplement – not
replace – the local workforce when there
are serious skills shortages. Thus, the
scheme is not to be used to employ
overseas workers at the expense of local
labour.
In the statement confirming the release
of draft guidelines, the Minister also
noted that the draft regulations propose
removing the requirement for employers
to cover health care costs for temporary
overseas workers. Instead, Subclass
457 visa holders will be required to take
out private health insurance at their own
expense and cover any school expenses
for their children.
The statement reminded employers
of the implications for failing to satisfy
sponsorship obligations, noting that
under the Worker Protection Act passed
late last year, employers who fail to
satisfy a sponsorship obligation may
face administrative sanctions and/or
pecuniary penalties of up to $33,000
from September 2009.
Other news
Petroleum resource rent tax
In Woodside Energy Ltd v Commissioner
of Taxation [2009] FCAFC 12, the
Full Federal Court has held that in
determining the liability of Woodside
Energy to the petroleum resource rent
tax, losses on hedging contracts entered
into to hedge the sales revenue from
the sale of oil were not ‘deductible
expenses’. In rejecting the appeal
brought by the taxpayer, the Court
noted that the definition of ‘deductible
expenditure’ required, relevantly, that
the expenditure be incurred ‘in relation
to the sale’ of product. In considering
the legislative intent with respect to the
inclusion of those words in the definition,
the Court held that losses incurred
under a hedging contract that was a
collateral agreement entered into for the
purposes relating to the sale of product
produced was not expenditure incurred
‘in relation to the sale’. In reaching this
conclusion, the Court also noted that any
gains made by the taxpayer under such
hedging contracts would not be included
in ‘assessable petroleum receipts’ as
that term is defined in the Petroleum
Resource Rent Tax Assessment Act
1987. The fact that, as the Court noted,
the profits and losses sustained from
hedging could nonetheless be brought to
account for income tax, they were not to
be brought to account in calculating the
liability for petroleum resource rent tax.
For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
David Lewis
Phone: +61 8 9238 3336
david.r.lewis@au.pwc.com
For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Kevin Lung, Director
Phone: +61 2 8266 7318
kevin.lung@au.pwc.com
Maria A Ravese, Director
Phone: +61 8 8218 7494
maria.a.ravese@au.pwc.com
15. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers: 15
Amendments to foreign
takeover and acquisition
legislation
On 12 February 2009 the Treasurer
announced that the Government
will seek to amend the Foreign
Acquisitions and Takeovers Act 1975
(the Act) to clarify the operation of the
foreign investment screening regime.
Specifically, the Treasurer announced
that the Government will amend the
Act to ensure that it applies equally
to all foreign investments irrespective
of the way they are structured. In
particular, the amendments will ensure
that any investment, including through
instruments such as convertible notes,
will be treated as equity for the purposes
of the Act.
The Treasurer added that it was the
Government’s intention to introduce the
amendment into Parliament as soon
as practical and will be effective from
12 February 2009. However he made
the point that whilst the amendments
will clarify the operation of the Act, the
amendments will not pre-empt any
final decision on any current or future
investment proposal, with all applications
before the Foreign Investment Review
Board being examined on a case by case
basis against the national interest.
Fast tracking of consumer
protection laws
On 17 February 2009, the Assistant
Treasurer and Minister for Competition
Policy and Consumer Affairs announced
a ‘fast tracking’ of new laws to protect
Australian consumers. The Assistant
Treasurer said that during the year,
Parliament will consider legislation to
protect consumers from unfair contract
terms, and provide new enforcement
powers for the Australian Competition
and Consumer Commission (ACCC).
These were key planks in the Australian
Consumer Law agreed by the Council
of Australian Governments (COAG)
in October 2008. The Assistant
Treasurer further stated that - “Today’s
announcement will extend consumer
protection for unfair contract terms
like that which is currently available to
consumers in Victoria and the United
Kingdom and the rest of the European
Union.”
According to the Assistant Treasurer, the
proposed unfair contract terms regulation
will cover standard-form contracts like
those entered into by consumers for
their utilities, mobile phones and bank
accounts.
In addition to new powers being provided
to the ACCC including:
civil pecuniary penalties
disqualification orders
infringement notices
substantiation notices
public warning notices, and
Court orders to seek redress for
consumers who are not party to a
particular action.
the legislative package will also include
a change in the name of the Trade
Practices Act to the ‘Competition and
Consumer Act’ to better reflect the
protections the law gives to Australian
consumers.
Submissions on the Australian Consumer
Law are due by the 17th March 2009
and those parties interested in providing
their views, are requested to obtain a
copy of the consultation paper from the
Treasury website, or from the Ministerial
Council on Consumer Affairs website.
The consultation paper was released by
Treasury on the same day as the Assistant
Treasurer’s announcement, the purpose of
the consultation paper being to:
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explain how the national consumer law
will be developed;
explain the nature and scope of
COAG’s agreed reforms to create the
national consumer law and, in some
limited circumstances, seek views on
specific aspects of those reforms, and
seek views and explore options for
augmentations and modifications to
existing generic consumer protections
which are based on best practice in
existing state and territory laws.
In a separate address delivered on the
same day, the Assistant Treasurer in
commenting that the new consumer law
legislation package will be introduced into
Parliament in the next five months stated
that “The new Australian Consumer Law
will mean that Australians will be able to
expect the same protections wherever
they shop, and for whatever they buy.
They will be entitled to the same standards
of business conduct in the marketplace.
And they’ll have the same access to
redress when they are wronged.”
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For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Michael Daniel, Partner
Phone: +61 2 8266 6618
michael.daniel@au.pwc.com
For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Michael Daniel, Partner
Phone: +61 2 8266 6618
michael.daniel@au.pwc.com
16. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers: 16
Climate change and the
emissions-intensive trade-
exposed (EITE) industries
On 18 February 2009 the Minister for
Climate Change and Water issued
a media release advising that the
Department of Climate Change had
released a guidance paper for the
assessment of activities for the purposes
of the EITE assistance program under the
proposed Carbon Pollution Reduction
Scheme.
The guidance paper outlines the
assessment process designed to assist
the Government in deciding which
activities in the economy are eligible
to receive EITE assistance, the rates
of assistance that will apply to eligible
activities, and the basis for allocations
to these eligible activities. The paper
provides guidance to industry on the
requirements for this assessment.
As noted by the Minister, the Government
will make final decisions taking into
consideration the policy framework
outlined in the Government’s White Paper
and the information provided in this
assessment process. The Government’s
final decisions will be reflected in the
Scheme regulations. Eligible business
considering making a claim for assistance
need to make their submission to
Government by 1 May 2009.
The Minster encouraged all relevant
stakeholders to engage fully with the
assessment process and confirmed that
the guidance paper can be obtained from
the Department’s website.
announcement, the Assistant Treasurer
noted that to facilitate the collection
of donations to those affected by the
2009 Victorian bushfires, a number
of employers had entered into ‘salary
sacrifice’ arrangements with their
employees, and that under existing FBT
law, these arrangements may result in a
potential FBT liability for the employer.
This is in contrast to donations collected
through an employer’s ‘Workplace
Giving’ arrangement where donations
are made from an employee’s after
tax earnings and do not result a FBT
liability. The announcement is welcome
news for those employers which have
not implemented a ‘Workplace Giving’
arrangement.
For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Andrew Petersen, Partner
Phone: +61 2 8266 6681
andrew.petersen@au.pwc.com
For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
John Sullivan, Partner
Phone: +61 (2) 8266 3216
john.william.sullivan@au.pwc.com
Revenue measures introduced into
Federal Parliament during February 2009
include the following Bills dealing with
income tax.
Tax Laws Amendment (2009 measures
No 1) Bill 2009, introduced on
12 February 2009, makes amendments
to give effect to a number of tax-related
measures including:
PAYG instalment reduction for small
businesses
The Bill proposes:
a 20 per cent reduction in the amount
of the ‘pay-as-you-go’ (PAYG)
instalment worked out under Section
45-400 of Schedule 1 of the Taxation
Administration Act 1953 for the quarter
that includes 31 December 2008 for
certain small business taxpayers
who are quarterly payers paying four
instalments annually on the basis of
the GDP-adjustment method, and
a regulation-making power to allow
the amount of the PAYG instalment
worked out under Section 45-400 to
be reduced in the future in certain
circumstances as prescribed by
regulations.
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Legislation
update
FBT changes for bushfire
donations
On 24 February 2009, the Assistant
Treasurer and Minister for Competition
Policy and Consumer Affairs announced
that the Government will amend the
Fringe Benefits Tax (FBT) law from the
beginning of the 2008-2009 FBT year to
ensure that ‘bushfire donations’ made
under ‘salary sacrificing’ arrangements
do not result in an employer incurring
a FBT liability. In making the
17. TaxTalk – Electronic Bulletin of Australian Tax Developments
PricewaterhouseCoopers: 17
Small business taxpayers who will be
eligible for the reduction are:
‘small business entities’ as defined in
the tax law (broadly, entities carrying
on business who have an aggregated
turnover of less than $2 million for
the previous income year, or whose
aggregated turnover is likely to be less
than $2 million for the current income
year)
a partner of a partnership that is a
small business entity, or
a beneficiary of a trust that is a small
business entity
where they qualify as a small business
entity, a partner of a partnership that is
a small business entity, or a beneficiary
of a trust that is a small business entity,
for either the 2007-08 or 2008-09 income
years.
These amendments commence from the
date this Bill receives Royal Assent and
apply in relation to instalment quarters
in the 2007-08 income year and later
income years.
Temporary residents’ superannuation
and unclaimed money
The Bill proposes to amend various Acts
as a result of the payment of temporary
residents’ unclaimed superannuation to
the Australian Government, following the
enactment of the Temporary Residents’
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Superannuation Legislation Amendment
Act 2008. It also introduces amendments
to improve the administration of the
broader unclaimed money regime.
These amendments commence from the
date this Bill receives Royal Assent and
apply in relation to income years starting
on or after 1 July 2009.
Reforms to income tests
The Bill proposes to amend various Acts
to expand income definitions used for
‘means-tested’ tax and transfer system
programs as announced in the 2008-09
Budget.
Reportable superannuation contributions
The Bill proposes a number of
amendments to various Acts relating
to ‘reportable superannuation
contributions’.
These amendments commence from the
date this Bill receives Royal Assent and
will apply for the 2009-10 income year
and later income years.
Tax Bonus for Working Australians Act
(No 2) 2009, which was granted Royal
Assent on 18 February 2009, provides a
one off payment to ‘eligible taxpayers’
based on their taxable income for the
2007-08 income year. Eligible taxpayers
will receive:
$900 where their taxable income is up
to and including $80,000
$600 where their taxable income
exceeds $80,000 and does not exceed
$90,000, or
$250 where their taxable income
exceeds $90,000 and does not exceed
$100,000.
To be an eligible taxpayer, taxpayers
must:
be an individual
be an Australian tax resident in the
2007-08 income year
have an ‘adjusted tax liability’ of
greater than zero
have taxable income for the 2007-08
income year of $100,000 or less, and
lodge his or her income tax return for
the 2007-08 income year no later than
30 June 2009 or later under certain
circumstances.
The Commissioner of Taxation
must make the payment as soon as
practicable after he is satisfied that the
taxpayer is entitled to the payment, and
may make the payment by electronic
funds transfer or by cheque. Special
rules will apply to limit the entitlement of
minors (i.e. persons who are less than 18
years of age) to the Bonus.
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Household Stimulus Package Act (No
2) 2009, which was granted Royal
assent on 18 February 2009, gives
effect to certain aspects of the Federal
Government economic stimulus package
which was announced on 3 February
2009.
In particular, this Act amends various
laws to give effect to four $950 one-off
payments for low and middle income
households and individuals. In addition to
the four $950 one-off payments, another
payment of $900 will be paid to single
income families.
Back to school bonus
A ‘back to school’ bonus of $950 will
be available for each Family Tax Benefit
(FTB) child aged 4 to 18 in a family who
attracts FTB Part A for 3 February 2009.
Recipients of disability support pension
or carer payment, aged less than 19 on
3 February 2009, will also be entitled to
this bonus.
The amendments commence from
Royal Assent.
Single income family bonus
A single income family bonus in the
amount of $900 will be available for a
family that is entitled to FTB Part B for 3
February 2009, regardless of the age of
the children.
The amendments commence from
Royal Assent.
