Jurisdiction - Australia
Reports and Analysis
Australia – February 2013 To May 2013 Human Resources Tax Developments.

24 June, 2013

 

Legal News & Analysis – Asia Pacific – Australia – Tax

 

WHAT YOU NEED TO KNOW


This bulletin outlines significant Australian developments in human resources taxes (FBT, PAYG, SGC, termination payments and payroll tax) during February to May 2013, which might impact your business.


Fringe benefits tax

 

  • ATO Interpretive Decision ID 2013/8—the ATO has published an interpretive decision which considers that an employee who changes their usual place of residence to be closer to where they perform the duties of their employment, even though it is not required by their employer, is "required" to change their usual place of residence in order to perform the duties of their employment for the purposes of section 58B(1)(b)(iii) of the Fringe Benefits Tax Assessment Act 1986 (Cth).

 

  • Proposed legislation to bring airline transport fringe benefits in line with in-house property and residual fringe benefitsthe Tax and Super Laws Amendment (2013 Measures No 1) Bill 2013 (Cth) seeks to amend the Fringe Benefits Tax Assessment Act 1986 (Cth) to align the rules for calculating airline transport fringe benefits with the general provisions dealings with in-house property fringe benefits and in-house residual fringe benefits.

 

  • Advisory report on the Tax Laws Amendment (2012 Measures No 6) Bill 2012 (Cth)—the House Standing Committee on Economics has tabled its report on the Tax Laws Amendment (2012 Measures No 6) Bill 2012 (Cth). Schedule 7 of the Bill proposes the removal of the concessional tax treatment of inhouse fringe benefits accessed through salary packaging.

 

International issues

 

  • ATO Tax Ruling TR 2013/1: The ATO has published TR 2013/1, which explains the meaning of the term 'employer' in the general exclusion provision provided under the Income from Employment Article, or its equivalent, of Australia's tax treaties. The ruling describes the approach to be taken in determining who the employer is for the purpose of the exception.


Payroll tax

 

  • Nowlan Enterprises Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADT 21—the NSW Administration Decisions Tribunal has upheld the decision of the Chief Commissioner of State Revenue not to de-group two companies for payroll tax purposes.

 

  • Pastel Pines International v Chief Commissioner of State Revenue [2013] NSWADT 49—the NSW Administrative Decisions Tribunal has upheld the decision of the Chief Commissioner of State Revenue to treat two companies as a group.


Queensland payroll tax rulings—the Queensland Office of State Revenue has issued four payroll tax rulings dealing with contractors, employment agency contracts and golf professionals.

 

Administration

 

  • Chief Commissioner of State Revenue v Print National Pty Ltd [2013] NSWCA 96—the NSW Court of Appeal has held that a taxpayer was "dissatisfied" for the purposes of the Taxation Administration Act 1996 (NSW), and could thus object to the Chief Commissioner's decision to issue notices requiring information, instruments and records, and attendance.


Superannuation

 

  • Administrative Appeals Tribunal cases—the Tribunal has made a number of decisions relating to appeals against the Commissioner's decisions to refuse to exercise his discretion to disregard nonconcessional superannuation contributions or allocate them to another year under section 292-465 of the Income Tax Assessment Act 1997 (Cth). In each of the cases, the taxpayer has made contributions in excess of their non-concessional contributions cap, and has been assessed for excess contributions tax liability.


Budget


2013-14 Federal Budget—the 2013-14 Federal Budget contains a number of changes relating to superannuation and Pay As You Go tax.

 

Relevant area At a glance
Fringe benefits tax

ATO Interpretive Decision ID 2013/8 — Fringe Benefits Tax: Employee required to change usual place of residence in order to perform duties of employment


On 8 February 2013, the ATO published ATO ID 2013/8, which considers that an employee who changes their usual place of residence to be closer to where they perform the duties of their employment, even though it is not required by their employer, is "required" to change their usual place of residence in order to perform the duties of their employment for the purposes of section 58B(1)(b)(iii) of the Fringe Benefits Tax Assessment Act 1986 (Cth) (the Act).


The interpretive decision notes that the term "required" in section 58B(1)(b)(iii) of the Act does not mean that the change of usual place of residence must be compulsory. Rather, the change may be one that is necessary in the circumstances in order for the employee to perform the duties of their employment. Accordingly, where the duties of the employee's employment are such that it is necessary for them to change their usual place of residence to effectively perform those duties (taking into account factors such as the distance from their usual place of residence to their new place of employment and whether the employee is required to be on call), it will be considered that they are 'required' to do so for the purposes of section 58B(1)(b)(iii) of the Act.

 

Proposed legislation to bring airline transport fringe benefits in line with inhouse property and residual fringe benefits


The Tax and Super Laws Amendment (2013 Measures No 1) Bill 2013 (Cth) seeks to amend the Fringe Benefits Tax Assessment Act 1986 (Cth) to align the rules for calculating airline transport fringe benefits with the general provisions dealings with inhouse property fringe benefits and in-house residual fringe benefits.


Under the proposed changes, the taxable value will be calculated at 75% of the stand-by airline value of the benefit, less employee contributions. On domestic routes, the stand-by airline travel value is 50% of the carrier’s lowest standard single economy airfare for that route as publicly advertised during the year of tax. On international routes, the stand-by airline travel value is 50% of any carrier’s lowest standard single economy airfare for that route as publicly advertised during the year of tax.


The Bill also seeks to update the method for determining the taxable value of airline transport fringe benefits to simplify how the law operates in practice, and better reflect the economic value of the benefit.

 

If passed, the changes will apply to airline transport fringe benefits provided on or after 7.30pm (AEST) 8 May 2012.

 

Advisory report on the Tax Laws Amendment (2012 Measures No 6) Bill 2012 (Cth)

 

The House Standing Committee on Economics has tabled its report on the Tax Laws Amendment (2012 Measures No 6) Bill 2012 (Cth), which is currently before the Senate. Schedule 7 of the Bill proposes the removal of the concessional tax treatment of in-house fringe benefits accessed through salary packaging.

 

On Schedule 7, the Committee concluded that there are good policy reasons for the amendments.

International issues

ATO Tax Ruling TR 2013/1 — Income tax: the identification of 'employer' for the purposes of the short-term visit exception under the Income from Employment Article, or its equivalent, of Australia's Tax Treaties


The ATO has published TR 2013/1, which explains the meaning of the term 'employer' in the general exclusion provision provided under the Income from Employment Article, or its equivalent, of Australia's tax treaties. The ruling describes the approach to be taken in determining who the employer is for the purpose of the exception.


The ruling states that an 'employer' for the purposes of the exception is the enterprise to which a non-resident individual renders their services in an 'employment relationship'. The Commissioner will have regard to the following for the purposes of determining who the employer is:


a) the existence of a contractual relationship;


b) the nature of the contractual relationship (focusing on the substance, rather than form, of the relationship); and


c) common law factors indicating an employment relationship, such as control over the worker, the terms of the engagement, and the provision of equipment to the worker.

Payroll tax

Nowlan Enterprises Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADT 21


In Nowlan Enterprises Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADT 21, the NSW Administration Decisions Tribunal has upheld the decision of the Chief Commissioner of State Revenue not to de-group two companies for payroll tax purposes.


Facts
Nowlan Enterprises and Danny Nowlan Transport were road freight transport companies. The directors of Nowlan Enterprises were Danny and Ruth Nowlan, and the director of Danny Nowlan Transport was Danny Nowlan. Danny Nowlan Transport was a subcontractor to Nowlan Enterprises, and derived all of its income from Nowlan Enterprises. The two companies shared business premises, and Nowlan Enterprises made unsecured loans to Danny Nowlan Transport. Danny Nowlan effectively managed the businesses of both companies.


The Chief Commissioner determined that Danny Nowlan Transport should be grouped with Nowlan Enterprises for payroll tax purposes pursuant to section 71(3) of the Payroll Tax Act 2007 (NSW) (the Act). Nowlan Enterprises objected to this, and the objection was disallowed.


Section 71(3) of the Act deems companies to be grouped where employees of an employer perform duties for or in connection with businesses carried on by other persons, being duties performed in connection with, or in fulfilment of the employer's obligations under, an agreement, arrangement or undertaking for the provision of services to those other persons in connection with that business.

 

Section 79 of the Act gives the Chief Commissioner discretion to exclude a member from a group. The Chief Commissioner can only exercise this discretion if satisfied that the business carried on by the person is carried on independently of, and is not connected with, the carrying on of a business by the other member of the group.


Held
The Tribunal considered that the evidence showed the two companies to be extremely close on the facts, and that it was clear that the employees of Danny Nowlan Transportperformed duties in connection with Nowlan Enterprises' business. The employees performed transport so as to enable Nowlan Enterprises to discharge its contractual obligations, which was integral to its business. Given this connection, the Chief Commissioner should not have, and could not have, exercised his discretion to de-group the companies under section 79 of the Act.

 

Pastel Pines International v Chief Commissioner of State Revenue [2013] NSWADT 49


In Pastel Pines International v Chief Commissioner of State Revenue [2013] NSWADT 49, the NSW Administrative Decisions Tribunal has upheld the decision of the Chief Commissioner of State Revenue to treat two companies as a group.


Facts
The taxpayer, Pastel Pines International, was a manufacturer of giftware products. From 2002, Mr and Mrs Sterelny owned 60% of the shares in the taxpayer, and 40% were owned by another company owned by Mr Edwards. Mr and Mrs Sterelny also owned 100% of another company, JPS Nominees.


A shareholder's agreement (the Agreement) between the Sterelnys and Mr Edwards provided that the taxpayer would be operated as if both the Sterelnys and Mr Edwards' company respectively owned 50% each. The Agreement was never signed or lodged with ASIC. However, it was accepted that the Agreement was in its final form and had never been signed because the business had always operated on a handshake agreement and signing it did not present itself as a priority.

The Commissioner treated the taxpayer and JPS Nominees as a group for payroll tax purposes. The Commissioner argued that the Sterelnys were a set of persons who had a controlling interest in both JPS Nominees and the taxpayer within the meaning of section 106I(2)(d) of the Taxation Administration Act 1997 (NSW) (Taxation Administration Act) for the year ending 30 June 2007 and section 72(2)(e) of the Payroll Tax Act 2007 (NSW) (Payroll Tax Act) for the year ending 30 June 2008.


Section 72 of the Payroll Tax Act provided that if a person or set of persons has a controlling interest in each of two businesses, the persons who carry on those businesses constitute a group. The section states that a set of persons has a "controlling interest" if, in the case of a business carried on by a corporation that has share capital, the set of persons has more than 50% of the voting power attached to the voting shares issued by the corporation. The Taxation Administration Act provisions were substantively similar.


The appellant argued that because of the Agreement, the Sterelnys did not have the power to exercise more than 50% of the voting power.


Held
The Tribunal considered that the share capital and voting rights of the company should be determined with reference to the constitution of the corporation. The constitution provided that as the Sterelnys held 60% of the ordinary shares, they had the power to exercise more than 50% of the voting power.


The Tribunal noted that provisions in the Agreement provided that it prevailed over the constitution. However, the provisions which dealt with shared control of the taxpayer only applied at the directors', not shareholders', level. Therefore, the voting power attached to the shareholdings remained to be determined by the ownership of the shares. It followed that the Sterelnys did have a controlling interest in both thetaxpayer and JPS Nominees, so they were deemed to constitute a group.

 

Queensland payroll tax rulings


The Queensland Office of State Revenue has issued four payroll tax rulings dealing with contractors, employment agency contracts and golf professional.


PTA021.1—Exemption for contractors ordinarily rendering services to the public


PTA021.1 provides a non-exhaustive list of factors that the Commissioner takes into account in exercising his discretion under section 13B(2)(b)(iv) of the Payroll Tax Act 1971 (Qld) (the Act). This section relates to exemptions to liability for payroll tax for contractors where the Commissioner is satisfied that the person who performed the services under the contract ordinarily performs services of that kind to the general public in that financial year.


PTA022.1—Contractors—services not ordinarily required


PTA022.1 explains the criteria that must be met for a contract to be excluded under section 13B(2)(b)(i) of the Act. This section relates to exemptions to liability for payroll tax for contractors where the services are of a kind not ordinarily required by the person to whom the services are supplied, and are performed by a person who ordinarily performs or renders services of that kind to the public generally.


PTA028.1—Employment agency contracts—workers on-hired to government


PTA028.1 aims to clarify the correct payroll tax treatment of payments made by an employment agent to a worker on-hired to a government department.


An employment agent will generally (with some exceptions) be liable for payroll tax on wages paid to workers on-hired to Commonwealth government departments under an employment agency contract.


PTA013.1—Fees paid to golf professionals by golf clubs


PTA013.1 clarifies a golf club's payroll tax liability on payments made to golf professionals.


The ruling states that while golf professionals are unlikely to be common law
employees of a golf club, they may be deemed employees and payments made to them may be deemed wages under the Act. The ruling also outlines some exemptions, but notes that even if the exceptions apply, the business of the golf club and the golf professional may still be grouped under Part 4 of the Act.


The NSW Office of State Revenue has also released a very similar ruling, with the same finding (see PTA013v2).

Superannuation

Administrative Appeals Tribunal cases: Refusal by the Commissioner to exercise his discretion to disregard or reallocate non-concessional superannuation contributions


The Administrative Appeals Tribunal has made a number of decisions relating to appeals against the Commissioner's decisions to refuse to exercise his discretion to disregard non-concessional superannuation contributions or allocate them to another year under section 292-465 of the Income Tax Assessment Act 1997 (Cth) (the Act). Ineach of the cases, the taxpayer has made contributions in excess of their nonconcessional contributions cap, and has been assessed for excess contributions tax liability.


Under section 292-465, the Commissioner can only make such a determination if they consider that there are 'special circumstances' and making such a determination is consistent with the object of Division 292 of the Act. The Commissioner can have regard to any matters, including whether a contribution made in the relevant financial year would be more appropriately allocated to another financial year, and whether it was reasonably foreseeable, when a relevant contribution was made, that the taxpayer would have excess contributions.


The object of the Division, stated in section 292-5, is to ensure that the amount of concessionally taxed superannuation benefits that a person receives results from superannuation contributions that have been made gradually over the course of the person's life.


Confidential v Commissioner of Taxation [2013] AATA 110


In Confidential v Commissioner of Taxation [2013] AATA 110, the taxpayer made nonconcessional contributions in excess of her cap in 2007-08. She argued that she had intended for the contribution to be concessional contributions by claiming a deduction for the amount by issuing a notice to her fund, pursuant to section 290-170 of the Act, in September 2011. It was accepted that this notice was not received by the fund.


The Tribunal refused to exercise the discretion. The Tribunal noted that even if the notice had been given to the fund, the attempt was in any case outside of the required time period and the taxpayer would not have been able to deduct the amount in full. Accordingly, relief under section 292-465 of the Act would not be available on the basis that she had intended, but failed, to claim the deduction.


The Tribunal also considered that relief would not be consistent with the objects of the Division. The purpose of the regime was to encourage contributions over the course of participants’ working lives and to impose a limit on the rate of contributions to concessionally taxed superannuation funds. Those limits should not be ignored.


Confidential v Commissioner of Taxation [2013] AATA 111


As in the case above, in Confidential v Commissioner of Taxation [2013] AATA 111 the taxpayer made excess non-concessional contributions and argued that she had intended to claim a deduction, but failed to give effective notice to her fund under section 290-170 of the Act to indicate this.


The Tribunal rejected the taxpayer's contention that she would have been eligible for a deduction under section 290-150 the Act for her contributions had she put in the notice validly. Section 290-150 of the Act limits deductions to where less than 10% of the taxpayer's income is attributable to activities as an employee, and the Tribunal did not share the taxpayer's view that she was a contractor, rather than an employee. Accordingly, relief under section 292-465 of the Act would not be available on the basis that she had intended, but failed, to claim the deduction.


The Tribunal also refused discretionary relief on other grounds, again noting that limits placed on contributions are consistent with the purposes of Division 292 of the Act.


Dowling v Commissioner of Taxation [2013] AATA 49

 

In Dowling v Commissioner of Taxation [2013] AATA 49, the taxpayer and her husband had held separate superannuation accounts prior to 2008. In 2008-09, her husband transferred his superannuation into a new account in the taxpayer's name (Transaction 1), in order to ensure his entitlement to the age pension when he turned 65. In 2010-11, the taxpayer made another transaction with her existing superannuation account, withdrawing $240,000 and re-contributing $200,000 (Transaction 2).


After noting the strictness with which 'special circumstances' will be found, and that the facts of a case must be 'truly special or unusual' and the imposition of excess contributions tax needs to be 'unjust, unreasonable or inappropriate', the Tribunal found that special circumstances existed with respect to Transaction 1 only.

 

In coming to this conclusion, the Tribunal took into account factors in relation to Transaction 1 including that while ignorance of the law is not a defence, both the taxpayer and her husband exercised the due diligence of reasonable persons in their position and attempted to get advice in good faith, but inadvertently did not receive advice in a professional manner, and did not have any knowledge of excess contributions and were not in a position to ask appropriate questions about it. Further, no new contributions were actually made, only a rearrangement of existing funds, and the penalty of over $20,000 would be particularly harsh for the taxpayer's own superannuation of about $200,000.


Considering the same factors, the Tribunal rejected that there were special
circumstances surrounding Transaction 2. There was no evidence that they were advised to carry out Transaction 2, nor the other redeeming features present in relation to Transaction 1.


Having found that special circumstances existed in relation to Transaction 1, the Tribunal then considered whether exercising the Commissioner's discretion in favour of the taxpayer would be consistent with the objects of Division 292 of the Act. The Tribunal did not consider there was any reason to allocate the excess contribution to another financial year. However, a reasonable person in the taxpayer's position, having made attempts to ensure they were in compliance with the law, would not have foreseen the outcome of the transaction.


Accordingly, the exercise of discretion in relation to Transaction 1 would have been consistent with the objects of the legislation.


McLennan v Commissioner of Taxation [2013] AATA 311


In McLennan v Commissioner of Taxation [2013] AATA 311, the taxpayer withdrew a lump sum amount from his superannuation and invested it in bank term deposits in 2009. Later that year and in 2010, he redeposited this money back into his superannuation account.


The taxpayer submitted that there were "special circumstances", including because there was no tax advantage to him in depositing the money into his superannuation, he was unaware that he would be subject to excess contributions tax and he was not actually depositing new funds.


The Tribunal affirmed the Commissioner's decision not to exercise his discretion. It noted that there was nothing unique or special about the circumstances, and that the taxpayer simply made an error. The taxpayer did not seek any professional advice or avail himself of the information on the ATO's website which would have assisted him, but rather the error was his alone. Further, it was reasonably foreseeable that he wouldbe subject to the excess contributions tax.

Administration

Chief Commissioner of State Revenue v Print National Pty Ltd [2013] NSWCA 96


In Chief Commissioner of State Revenue v Print National Pty Ltd [2013 NSWSCA 96,
the NSW Court of Appeal has held that a taxpayer was "dissatisfied" for the purposes of the Taxation Administration Act 1996 (NSW) (Taxation Administration Act), and could thus object to the Chief Commissioner's decision to issue notices requiring information, instruments and records, and attendance.


Facts
From late-2007, the Chief Commissioner commenced an investigation into Mr James and his relationship to a number of companies, including the taxpayer. The investigation was undertaken to ascertain whether, for payroll tax purposes, there had been a failure to declare wages paid by entities that might constitute members of a group of entities. The taxpayer was one of those entities.


The Chief Commissioner issued a number of notices under section 72 of the Taxation Administration Act. The section provides the power to the Chief Commissioner to require information, instruments and records, and attendance.

 

Section 86 of the Taxation Administration Act provided that a taxpayer who is
"dissatisfied" with a decision of the Chief Commissioner can lodge a written objection. Section 96 provided that a taxpayer can apply to the Administrative Appeals Tribunal for a review of a decision that has been subject of an objection.


The taxpayer did not receive a notice under section 72, but lodged an objection under section 86 to the Chief Commissioner's decision to issue the notices. The taxpayer then sought a review of the decision in the Administrative Appeals Tribunal, after the Chief Commissioner disallowed its objection.


The Chief Commissioner argued that the taxpayer was not entitled to lodge the objections and, accordingly, could not apply for a review of the decision. The Chief Commissioner submitted that to be "dissatisfied" with a decision for the purposes of section 86 of the Taxation Administration Act, there must be a connection between the taxpayer and the decision which they are objecting to, and that the "dissatisfaction" must be with a decision that affects the taxpayer's actual or potential tax liability. The Chief Commissioner argued that the section 72 notices had no immediate and direct effect on the taxpayer's liability, but only sought to determine the taxable facts for any
payroll liability.


The taxpayer argued that "dissatisfaction" should take its ordinary meaning and needs no such connection, and it was thus entitled to object and seek the review.


The Tribunal referred the matter to the NSW Supreme Court to determine whether the taxpayer could make the objection and apply to the Tribunal for a review of the decision.


Held
The Court found that "dissatisfied" should be given its ordinary meaning of
"displeased". The taxpayer was displeased with the decision to issue the section 72 notices because it threatened the findings of facts that would render it liable to payrolltax. It did not matter that the decision did not have duty consequences. In coming to this conclusion, the Court noted that the type of "decisions" that can be reviewed under the Administrative Decisions Tribunal Act 1997 (NSW) are broad, suggesting an intention that wide-ranging decisions would be open to review. Further, the Taxation Administration Act deals with administrative matters. Accordingly, it would be unlikely that parliament intended for "dissatisfied" to be given a narrow meaning to limit the breadth of the decisions of the Chief Commissioner normally open to review or require only substantive decisions to be reviewable.


The Court also took into account that there was a privative provision in the Taxation Administration Act which limited the power of courts to review the Chief Commissioner's decisions, but specifically did not apply to the decisions in question. If the Chief Commissioner's arguments were correct, then these exceptions would have been meaningless.

Budget

2013-14 Federal Budget


The 2013-14 Federal Budget contains a number of changes relating to superannuation. These include:

 

  • reducing the tax concessions for contributions of very high income earners effective from 1 July 2012;
     

 

  • reforming the excess contributions tax system so that excess contributions will be taxed at individuals' marginal tax rate (plus an interest charge);
     
  • encouraging the take-up of deferred lifetime annuities by providing these products with the same concessional tax treatment that applies to investment earnings on superannuation assets supporting retirement income streams;
     
  • increasing the concessional contributions cap by providing a $35,000 concessional cap to those aged over 60 from 1 July 2013, and those aged over 50 from 1 July 2014;
     
  • changing tax exemptions for earnings on superannuation assets supporting retirement income streams so that from 1 July 2013 earnings up to $100,000 (to be indexed) will be tax free, and earnings above this threshold will be taxed at 15%.


The Government will also extend the requirement to make monthly Pay As You Go (PAYG) income tax to include all large entities in the PAYG instalment system, including trusts, superannuation funds, sole traders and large investors.

 

Ashurst Logo 

 

For further information, please contact:

 

Geoffrey Mann, Partner, Ashurst
geoffrey.mann@ashurst.com


Jadie Teoh, Ashurst
jadie.teoh@ashurst.com

 

 

Ashurst Tax Practice Profile in Australia

 

Homegrown Tax Law Firms in Australia

 

International Tax Law Firms in Australia

Comments are closed.