31 August, 2012

 

 

This article outlines significant Australian developments in human resources taxes (FBT, PAYG, SGC, termination payments and payroll tax) during May, June and July 2012 which might impact your business.

 

Relevant area At a glance

State 2012-13 budgets – payroll tax changes

 

2012-13 State budgets – changes to payroll thresholds

 

New South Wales, Queensland and the Australian Capital Territory announced changes to the payroll thresholds in their 2012-13 budgets. The changes are as follows:


  • NSW threshold increased from $678,000 to $689,000
  • ACT threshold increased from $1,500,000 to $1,750,000
  • QLD threshold increased from $1,000,000 to $1,100,000

 

The current payroll tax rate and thresholds for each state and territory from 1 July 2012 are outlined below:

 

State                   Payroll tax rate               Annual wages threshold (total Australian wages must exceed)


ACT                    6.85%                               $1,750,000

NSW                   5.45%                               $689,000

NT                      5.5%                                 $1,500,000

QLD                   4.75%                               $1,100,000

SA                      4.95%                               $600,000

TAS                    6.1%                                 $1,010,000

VIC                     4.9%                                 $550,000

WA                     5.5%                                 $750,000

 

 

Superannuation

 

Legislation update – Tax and Superannuation Laws Amendment (2012 Measures No 1) Act 2012 (Cth)

 

The Tax and Superannuation Laws Amendment (2012 Measures No 1) Bill 2012 (Cth) received Royal Assent on 27 June 2012. The Act provides for the refund of excess concessional contributions of $10,000 or less, a temporary pause in the indexation of the superannuation concessional contributions cap and additional reporting on payslips regarding superannuation contributions.

 

Treasury has also released an exposure draft of the Superannuation Industry (Supervision) Amendment Regulation 2012. These regulations seek to amend the Superannuation Industry (Supervision) Regulations 1994 (Cth) to allow for the refunding of excess concessional contributions.

 

Paget and Commissioner of Taxation [2012] AATA 334 – no special circumstances warranting allocation of a concessional superannuation contribution to a previous income year

 

In Paget and Commissioner of Taxation [2012] AATA 334 the Administrative Appeals Tribunal (the “AAT”) has held that delay resulting from making a concessional contribution by electronic funds transfer was not a special circumstance. Facts The taxpayer’s employer would ordinarily pay salary sacrifice contributions in relation to a particular month in the month immediately following.

 

The taxpayer realised they were not going to reach their concessional contributions cap for the year ending 30 June 2009 and asked his employer if the contribution for the month of June could be paid before 30 June 2009. The payroll officer of the employer advised that the payment could be made on 30 June 2009, but not any earlier.

 

In accordance with the taxpayer’s instructions the employer’s bank debited the employer’s account on 30 June 2009. However, the contribution was not received by the taxpayer’s superfund until 1 July 2009.

 

As a result, the taxpayer exceeded the concessional superannuation cap for the financial year ending 30 June 2010.

 

Decision

 

Under the Income Tax Assessment Act 1997 (Cth) (“ITAA 1997”), a contribution is considered a concessional contribution for a financial year if it is made in the financial year and is included in the assessable income of the superannuation provider.

 

The taxpayer argued that the contribution was made as soon as the funds left the employer’s account and the contribution was therefore made in the 2009 financial year. According to the taxpayer, once the funds had left the employer’s account ownership of the funds had passed to the superannuation fund, albeit they were held in trust by the bank.

 

The AAT did not accept this argument. The AAT cited the cases of Peaker and Chantrell and held that “superannuation contributions are ‘made’ when they are actually received by the superannuation fund and credited to the superannuation fund’s account”. The AAT noted that this approach was consistent with the legislative scheme of Part 3-30 of the ITAA 1997, the law on when a dividend is paid for income tax purposes, and Australian banking and finance law and practices. The taxpayer’s contribution was therefore made in the financial year ending 30 June 2010.

 

Further, the AAT held that the facts did not give rise to “special circumstances” warranting that the concessional contribution be either disregarded for the purposes of the 2010 financial year or reallocated from the 2010 financial year to the 2009 financial year. Specifically, the AAT noted that only exceeding the cap by a small amount and the mistaken belief that the contribution would count towards the 2009 financial year, were not special circumstances.

 

Rawson and Commissioner of Taxation [2012] AATA 322 – no special circumstances warranting allocation of a concessional superannuation contribution to a previous income year

 

In Rawson and Commissioner of Taxation [2012] AATA 322 the Administrative Appeals Tribunal (the “AAT”) has held that delay resulting from making a concessional contribution by BPay was not a special circumstance. 

 

Facts

 

The taxpayer’s employer paid the taxpayer’s concessional contribution by initiating a BPay transaction at 7.21pm on 29 June 2009. The contribution was not received by the taxpayer’s superannuation fund until 1 July 2009. The contribution was allocated to the concessional contributions cap for the financial year ending 30 June 2010 and, as a result, the taxpayer exceeded the concessional contributions cap for that year.

 

Decision 

 

The AAT held that the fact that a transfer of funds was effectively initiated on the last business day of the financial year and not credited by the superannuation fund until the following business day is not in any way out of the ordinary or unusual. The AAT also took note of the fact that the employer was also the taxpayer’s husband and found that the taxpayer was in a position to influence, if not control, when the contributions were made. This was a factor that weighed against allocating the concessional contribution to another income year.

 

Accordingly, the AAT held that the concessional contribution should not be reallocated from the 2010 financial year to the 2009 financial year.

 

Kuyper and Commissioner of Taxation [2012] AATA 282 – no special circumstances warranting allocation of a concessional superannuation contribution to a previous income year

 

In Kuyper and Commissioner of Taxation [2012] AATA 282 the Administrative Appeals Tribunal (the “AAT”) has held that no special circumstance arose from a late payment of a concessional contribution.

 

Facts

 

The taxpayer exceeded the concessional contribution cap for the financial year ending 30 June 2010 as a result of a contribution made on 8 July 2009. The taxpayer regularly monitored his employer contributions to ensure that he remained under the $50,000 concessional contributions cap. However, the taxpayer had mistakenly assumed that the 8 July 2009 contribution would be counted towards his concessional contributions cap for the financial year ending 30 June 2009.

 

Decision

 

The taxpayer argued that based on past contribution practices by his employer he was entitled to assume that the final contribution to the financial year ending 30 June 2009 would in fact be made on or before 30 June 2009. The AAT acknowledged that the taxpayer had “clearly intended to comply with the legislation and was conscientious in his attempt to do so.” However, the AAT held that the taxpayer’s reliance on previous practices did not constitute a special circumstance. The AAT noted that a late contribution by an employer is not, of itself, something out of the ordinary.

 

Accordingly, the AAT affirmed the decision of the Commissioner of Taxation that no special circumstances existed to warrant the reallocation of the taxpayer’s concessional contributions to the previous financial year.

 

Colless and Commissioner of Taxation [2012] AATA 441 – superannuation contribution properly allocated to a financial year

 

In Colless and Commissioner of Taxation [2012] AATA 441 the Administrative Appeals Tribunal (the “AAT”) has held that a contribution was properly allocated to the financial year in which it was received by a superannuation fund.

 

Facts

 

The taxpayer’s employer utilised a service offered by Colonial First State called “SuperSplit”. SuperSplit allows an employer to pay a single amount in respect of all of its employees into the SuperSplit account which acts as a clearing or holding account until the contributions are allocated to the specific superannuation funds. After receipt of a contribution file (a notation made through a webportal) the monies are then paid into the accounts of the various superannuation funds on the following business day.

 

The SuperSplit PDS stated that any “funds paid into the account will not be counted as being contributed to the relevant superannuation fund until those funds are actually received by the fund itself”. It also provided that once a contribution has been received into the SuperSplit account and the file has been confirmed on FirstNet, the contributions will be allocated to the relevant superannuation account on the following business day.

 

The employer transferred an amount into the SuperSplit account by electronic funds transfer. According to the employer’s bank the transfer was complete on 29 June 2007. The contribution file was also submitted on 29 June 2007. The monies were allocated to the employee’s superfund on 2 July 2007, the next business day after 29 June 2007.

 

Decision

 

The taxpayer argued that the contribution was complete when the payment was made and received into the SuperSplit account. The AAT noted that this argument was inconsistent with the wording of the PDS and the operation of section 292-25(2)(b) of the Income Tax Assessment Act 1997 (Cth). The AAT held that the contribution was properly allocated to the financial year ending 30 June 2008.

 

Bornstein and Commissioner of Taxation [2012] AATA 424 – Commissioner of Taxation should have exercised discretion to treat contribution as made in previous financial year

 

In Bornstein and Commissioner of Taxation [2012] AATA 424 the Administrative Appeals Tribunal (the “AAT”) has found that the Commissioner of Taxation (the “Commissioner”) should have exercised his discretion to allocate a concessional contribution to another income year.

 

Facts

 

The taxpayer was employed by a company of which he was the sole director and shareholder. The taxpayer managed the affairs of the company.

 

At the end of each financial year the company would make a contribution into the taxpayer’s superannuation fund.

 

The taxpayer was travelling between 21 June 2006 and 8 July 2007. He contacted his accountant to see if he needed to make a superannuation payment before the end of the financial year and was given the impression that there was a grace period in which the payment could be made and backdated to the previous financial year.

The taxpayer also referred to the “Superannuation guarantee – a guide for employers” webpage on the Australian Tax Office (“ATO“) website. The webpage stated that an employer could make super contributions up until 28 July and still have those amounts credited to the previous quarter. The webpage did not refer to the consequences for an employee if a contribution was made after the end of the financial year.

 

he taxpayer made a contribution to his superannuation fund on 10 July 2007 on the basis that the payment could be backdated to the previous financial year. The taxpayer made a further contribution on 26 June 2008 and if both contributions were treated as being paid within the same financial year, the taxpayer would be liable to pay excess contributions tax for the 2008 financial year. The AAT considered whether the Commissioner should have exercised his discretion under section 292-465 of the Income Tax Assessment Act 1997 (Cth) (“ITAA 1997”) to disregard the contribution made on 10 July 2007 and to treat that contribution as if it were made in the previous financial year.

 

Decision

 

Section 292-465 of the ITAA 1997 provides the Commissioner with a discretion to allocate a concessional superannuation contribution to another income year if:

 

(a) there are special circumstances; and

(b) making the determination is consistent with the object of the Division.

 

The AAT considered the facts identified above and also recognised that the taxpayer’s superannuation fund had not given him any reason to doubt that the contributions would be allocated to the previous financial year. It considered these facts created special circumstances within the meaning of the 1997 Act. The Senior Member differentiated the taxpayer’s circumstances from a straightforward instance of a taxpayer misunderstanding his or her legal obligations.

 

The Senior Member described the taxpayer’s circumstances as a “perfect storm” of events with reference to the potentially confusing comments on the ATO website and the fact that the taxpayer’s agent was seemingly unaware of the obligations imposed on employees with respect to concessional contributions.

 

The AAT also noted that the taxpayer had made regular contributions to his superannuation of a period of years and accepted that he intended to make a contribution at the end of the financial year ending 30 June 2007. Accordingly, the AAT held that making the determination to allocate the contribution to the financial year ending 30 June 2007 was consistent with the object of Division 292 of the ITAA 1997 to make gradual superannuation contributions over the course of the taxpayer’s life. 

 

The AAT acknowledged that the resulting excess contributions tax was foreseeable, if the taxpayer had properly understood his obligations, but was nonetheless satisfied that the discretion should still be exercised.

 

Kelly v Commissioner of Taxation (No 2) [2012] FCA 689 – trust denied deduction for superannuation payments

 

In Kelly v Commissioner of Taxation (No 2) [2012] FCA 689 the Federal Court held that payment of a superannuation benefit by a trust to a director of the trustee company was not an allowable deduction under section 290-60 of the Income Tax Assessment Act 1997 Act (Cth) (“ITAA 1997”).

 

Facts

 

The applicant was the director of a company which was trustee of a family trust. The trust claimed a deduction for superannuation contributions made for the benefit of the applicant.

The applicant claimed he was an employee of the trust and therefore the deductions were properly made in accordance with section 290-60 of the ITAA 1997.

 

Decision

 

An expanded definition of an “employee” in section 12(2) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (“SGA Act”) is imported into the ITAA 1997 by section 290-65 of the ITAA 1997. Section 12(2) of the SGA Act provides:

 

A person who is entitled to payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate is, in relation to those duties, an employee of the body corporate.

 

The applicant contend that he was a “entitled to payment” and as evidenced by the payment or alternatively based on a quasi-contractual right or claim for quantum meruit.

 

The Court found that the payment of the superannuation was not, of itself, sufficient to demonstrate that the applicant had an entitlement to payment. The Court also noted that it is a well-established principle at common law that directors of a company are not entitled to claim remuneration from the company for services performed unless specifically provided for in the company’s constitution or approved by shareholders.

 

The Court noted that although the company’s constitution provided that remuneration may be paid to directors in accordance with a resolution of the company in a general meeting, there was no evidence before the Court that such a resolution had been made.

 

The Court also held that on the facts of the case the applicant’s submission that he was entitled to a payment based on a claim in quasi-contract or for quantum meruit must fail.

 

Fringe benefits tax

 

Lake Fox Limited v Commissioner of Taxation [2012] AATA 265 – health insurance premiums are not an exempt benefit

 

In Lake Fox Limited v Commissioner of Taxation [2012] AATA 265 the Administrative Appeals Tribunal (the “AAT”) held that payment of an employee’s health insurance premiums is not an “exempt benefit” under the Fringe Benefits Tax Assessment Act 1986 (Cth) (“FBTAA”).

 

Facts

 

The taxpayer operated a major road transport business employing over 230 people. In order to comply with legislative requirements regarding fatigue of long distance truck drivers, the taxpayer paid or subsidised the cost of private health insurance for over 100 employees.

 

Employees were free to choose whether to take out the health insurance. The taxpayer’s contribution towards the cost of the health insurance depended on the years of service of the respective employee. Where the taxpayer’s contribution was less than 100%, the taxpayer would pay the entire premium and recover an amount from the employee by a weekly deduction, in arrears, from the employee’s pay.

 

Decision

 

Section 136(1) of the FBTAA provides that a fringe benefit does not include “a benefit that is an exempt benefit in relation to the year of tax”. Section 58M of the FBTAA lists a range of exempt benefits. These benefits must be provided “in respect of the employment of an employee”. The key issue for the AAT was whether the health insurance premium was “in respect of” work-related medical examination, work-related medical screening, work-related preventative health care or work-related counselling.

 

The taxpayer led a substantial amount of evidence regarding fatigue management and the regulatory requirements in relation to fatigue of truck drivers. However, the AAT found that the FBTAA does not require an enquiry into the motivation of the employer in providing the relevant benefit. According to the AAT, the sole question is whether the expenditure satisfies the statutory criteria.

 

The AAT considered the question to be one of characterisation and the answer was that the expenditure was to acquire health insurance. The AAT held that there was not a sufficient connection between the payment of the health insurance premiums and work-related medical screening, work-related preventative health care or wok-related counselling. The fact that the health insurance might, in turn, cover the costs of expenditure that would be exempt benefits was insufficient.

 

Decision Impact Statement

 

The Australian Tax Office has released a Decision Impact Statement stating that the AAT’s decision was consistent with its submissions.

 

Taxation Determination TD 2012/9 – Car parking threshold for fringe benefits tax year commencing on 1 April 2012

 

On 23 May 2012, the Australian Taxation Office issued Taxation Determination TD 2012/9 which provides that the car parking threshold for the fringe benefits tax year commencing on 1 April 2012 is $7.83. This replaces the amount of $7.71 that applied in the previous year.

 

ATO ID 2012/58 – Exempt benefits: priority of access to a child care service

 

On 22 June 2012, the Australian Taxation Office issued ATO ID 2012/58 which states that a benefit which arises out of priority of access for an employee’s child in an approved day care service is a residual benefit that is exempt under section 47(8) of the Fringe Benefits Tax Assessment Act 1986 (Cth).

 

Taxation Determination TD 2012/17 – what are the reasonable travel and overtime meal allowance expenses amounts for the 2012-13 income year?

 

On 27 June 2012, the Australian Taxation Office issued Taxation Determination TD 2012/17 which outlines the reasonable amounts for the substantiation exception in Division 900-B of the Income Tax Assessment Act 1997 (Cth). The determination covers:

 

  • overtime meal allowance expenses;
  • domestic travel allowance expenses;
  • travel allowance expenses for employee truck drivers; and 
  • overseas travel allowance expenses.

 

Employee share schemes

 

Sent v Commissioner of Taxation [2012] FCA 382 – Appeal to Full Federal Court

The taxpayer has appealed, to the Full Federal Court, the decision of Murphy J in Sent v Commissioner of Taxation [2012] FCA 382. In Sent Murphy J held that the payment to an executive share trust by the taxpayer’s employer was assessable to the taxpayer as ordinary income.

 

Income tax

 

ATO ID 2012/45 – “Employee Share Scheme: value of right where exercise price of right can not be determined”

 

On 25 May 2012, the Australian Taxation Office issued ATO ID 2012/45 which states that a reference in former section 139FE of the Income Tax Assessment Act 1936 (Cth) to an exercise price which “can not be determined” is a reference to an exercise price which can not be determined on the particular day on which a right is being valued.

 

Legislation update – Paid Parental Leave and Other Legislation Amendment (Dad and Partner Pay and Other Measures) Act 2012 (Cth)

 

On 22 July 2012, the Paid Parental Leave and Other Legislation Amendment (Dad and Partner Pay and Other Measures) Bill 2012 (Cth) received Royal Assent. The Act amends the Paid Parental Leave Act 2010 (Cth) to extend the paid parental leave scheme to eligible fathers and partners, enabling them to receive two weeks pay at the rate of the national minimum wage. These payments will commence on 1 January 2013.

 

Legislation update – Tax Laws Amendment (2012 Measures No 4) Bill 2012 (Cth)

 

The Tax Laws Amendment (2012 Measures No 4) Bill 2012 (Cth) (the “Bill”) has been introduced to Parliament.

 

The Bill contains the changes to the living away from home allowance (“LAFHA”) announced in the 2012-13 Federal Budget. There are differences between the Bill and the exposure draft legislation released on 15 May 2012 and referred to in our previous HRT Bulletin, including the following:

 

  • The postponement of the start date to 1 October 2012 (was 1 July 2012 under the exposure draft).
  • A reduction in the amount of food and drink expenses that when exceeded, any reasonable excess can be deducted:
    • Under the exposure draft, a family that is living away from home could only deduct reasonable amounts over $110 for each adult (including children over 12) and $44 for children under 12.
    • Under the Bill, a family that is living away from home can deduct reasonable amounts over $42 for each adult (including children over 12) and $21 for each child under 12. This is consistent with the existing LAFHA rules. 
  • Clarification that if an employee temporarily moves back to their usual residence and the LAFHA 12 month period is paused, they can continue to deduct accommodation expenses (but not food and drink expenses) while they are back at their usual residence. 
  • Clarification that fringe benefits tax will continue to apply to employers who provide an allowance to employees for their ordinary weekly food and drink expenses (i.e. the amount up to $42 per adult and $21 per child) if the employee meets the living away from home requirements and the employee has provided them with a declaration. 
  • Clarification on transitional provisions:
    • Transitional arrangements will generally be the same as proposed in the exposure draft for employees who were in eligible LAFHA arrangements prior to 8 May 2012. The transitional rules apply where, during the entire period starting at Budget time (7.30pm on 8 May 2012) and ending on 30 September 2012, the employee was covered by an eligible LAFHA arrangement. 
    • The transitional period now begins on 1 October 2012 and ends at the earliest of:
    • 30 June 2014; 
    • the time the eligible LAFHA arrangement ends; and
    • the first time that eligible LAFHA arrangement is varied or renewed.
  • Different transitional arrangements will apply to employees who are living away from home prior to the commencement date (1 October 2012) but whose arrangements were entered into after 8 May 2012. These employees are to treat the 12 month time limit as beginning on 1 October 2012.

 

Legislation update – Tax Laws Amendment (2012 Measures No 3) Act 2012 (Cth)

 

The Tax Laws Amendment (2012 Measures No 3) Bill 2012 (Cth) received Royal Assent. The Act implements the amendments to the employment termination payment tax offset announced in the 2012-13 Federal Budget.

 

The amendments restrict the concessional tax treatment for employment termination payments (“ETPs”) where the payment is a “golden handshake” or otherwise not related to genuine hardship, from 1 July 2012.

 

There are now two “caps” that could apply to ETPs, depending on the underlying nature of the ETP. Amounts paid in excess of these “caps” are taxed at the top marginal tax rate (plus Medicare levy). The caps that might apply are:

 

a) the previously existing “ETP cap” ($175,000 indexed annually); and

b) the “whole of income cap” ($180,000 not indexed). This cap is reduced by the other taxable payments the employee receives during the year.

 

The concessional tax treatment differs depending on the type of ETP, as outlined in the table below. ETPs contained in the first column of the table below are eligible for concessional tax treatment up to the ETP Cap. ETPs contained in the second column of the table below only receive concessional tax treatment to the extent that they are below the smaller of the ETP cap and whole of income cap.

 

Existing ETP cap applies to: Whole of income cap:
a payment made under an early retirement scheme that exceeds the tax-free limit (only the amount in excess of the limit is an ETP) a “golden handshake” whether paid under contract, industrial award obligation or recognition of prior service
a genuine redundancy payment that exceeds the tax-free limit (only the amount in excess of the limit is an ETP) a gratuity
a payment made because of the employee’s permanent disability a payment in lieu of notice
compensation payment for personal injury a payment for unused sick leave
compensation for unfair dismissal a payment for unused rostered days off
compensation for harassment  
compensation for discrimination  
lump sum payments paid on the death of an employee  

 

Cameron v Commissioner of Taxation [2012] FCAFC 76 – company found not to be a personal services business

 

In Cameron v Commissioner of Taxation [2012] FCAFC 76 the Full Federal Court has dismissed the taxpayer’s appeal and allowed the cross-appeal of the Commissioner of Taxation (the “Commissioner“) in relation to personal services income.

 

Facts

 

The taxpayer was a draftsman who supplied drafting services through a company. The taxpayer and his wife were shareholders and directors of the company. The company derived income from the taxpayer’s personal services. The company was a personal services entity and the income of the company was the taxpayer’s income unless the company conducted a personal services business. An entity conducts a personal services business if the entity meets at least one of the four personal services business tests in the relevant income year. Of the four tests, only the unrelated clients test and the business premises test were relevant. The company leased business premises during the financial year ending 30 June 2004.

 

The taxpayer was assessed as deriving personal services income for the financial years ending 30 June 2004, 30 June 2005 and 30 June 2006. These services were provided as a result of making direct contact with six or seven individuals.

 

Decision

 

It was accepted by the parties that the income was personal services income. However, the taxpayer claimed that the company was conducting a personal service business and therefore the income should be treated as income of the company. The taxpayer contended that the unrelated clients test was met for each of the relevant income years and the business premises test was met for the 2004 income year.

 

Unrelated clients test

 

The Administrative Appeals Tribunal (the “AAT”) had held that the unrelated clients test was not met as the services were not provided as a result of “offers or invitation to the public at large or a section of the public” as required by section 87-20 of the Income Tax Assessment Act 1997 (Cth) (“ITAA 1997“). The Federal Court considered that the AAT had erred in failing to consider and make findings of fact on the nature or character of the offers. However, it also found that even if the AAT had done so its decision would have been the same. The Federal Court therefore did not order the matter to be remitted to the AAT for further determination.

 

The Full Federal Court disagreed with the Federal Court that the AAT had failed to consider the nature of the offers. According to the Full Federal Court, the nature or character of those offers was self-evident. On the basis that the Full Federal Court considered that the AAT did not err in law, it was unnecessary for the Court to consider whether or not the primary judge was correct not to remit the matter to the AAT.

 

Business premises test

 

To satisfy the business premises test, under section 87-30(1)(a) of the ITAA 1997, the taxpayer of the company was required to show that the premises leased by the company were mainly used for activities from which personal services income was gained or produced.

 

The AAT found that the drafting services were usually undertaken at the premises of the clients. The AAT also determined that, another business, being stevedoring and sales, was conducted from the premises in the 2004 income year. The AAT found that 48% of the floor space of the premises was utilised in respect of providing drafting services and the remainder in respect of “other activities”. The AAT compared the income produced from drafting services versus stevedoring services and sales in the 2004 income year to determine the extent to which the premises were used for drafting purposes.

 

The Federal Court considered that the AAT had failed to consider the temporal aspect of the issue, being the time the taxpayer used the premises for providing drafting services as against the time he had used the premises for “other activities”, including the stevedoring and sales.

 

The Full Federal Court however determined that the AAT had considered the temporal aspect of the issue and had not limited itself to a comparison of the income produced. Accordingly, it found that the AAT had not made an error of law and it was open to the AAT to reach the conclusions to which it came.

 

PAYG withholding

 

Regulations update – Withholding schedules

 

The Deputy Commissioner of Taxation has released the withholding schedules specifying the amount, formulas and procedures to be used for payments covered by Divisions 12-B, 12-C and 12-D of Schedule 1 to the Taxation Administration Act 1953 (Cth).

 

These have effect from 1 July 2012 and are outlined in Legislative Instrument F2012L01068 and F2012L01071.

 

Legislation update – Tax Laws Amendment (2012 Measures No 2) Act 2012

 

The Tax Laws Amendment (2012 Measures No 2) Bill 2012 (Cth) has received Royal Assent.

 

The Act:

 

  • extends the director penalty regime to unpaid superannuation guarantee amounts; and
  • makes directors and their associates liable, in some instances, to PAYG withholding non-compliance tax (effectively reducing credit entitlements) where the company has failed to pay amounts withheld to the Commissioner of Taxation.

 

The Act will also ensure that directors cannot discharge their director penalties by placing their company into administration or liquidation when unpaid PAYG withholding or superannuation guarantee remains unpaid three months after its due date.

 

Payroll tax

 

Revenue Office Rulings – 90-day exemption for contractors

 

The New South Wales, South Australian and Victorian state revenue offices have released rulings regarding the 90-day exemption for contractors.

 

The relevant harmonised rulings are:

 

  • NSW Office of State Revenue – Revenue Ruling No. PTA035 Version 2;
  • RevenueSA – Revenue Ruling PTA035; and
  • Victorian State Revenue Office – Ruling PTA035 (version 2)

 

These rulings outline the operation of the 90-day exemption rule that excludes payments to contractors under “relevant contracts” from the definition of wages. The rulings provide a “replacement method” for determining the application of the exemption where it is difficult for the principal to determine the exact number of days that a contractor has rendered services in a financial year.

 

Once the 90-day limit is exceeded, the total payments made to that contractor during the financial year, including payments made for the work performed in the first 90 days, is subject to payroll tax.

 

Replacement method

 

Under the replacement method, a formula is used to estimate the remuneration a contractor would receive for 90 days service. This is then compared to the actual amount earned by the contractor. If the amount earned by the contractor is less than an employee would have earned the 90-day exemption may be applied.

 

The formula is Y = A x B x C x D, where: Y = the estimated remuneration for 90 days of service A = the highest hourly rate for the classification in that industry according to the respective pay salary summary that is available on the Fair Work Ombudsman website

 

B = average number of hours worked per working day

 

C = 120% (to account for an additional 20% for the types of payment not typically received by contractors, such as sick pay, holiday pay and overtime)

 

D = 90 days

 

Commissioner’s Practice PTA 031.1 – Pay-roll Tax – Commissioner’s Discretion to Exclude from a Group

 

Amendments to the Pay-roll Tax Assessment Act 2002 (WA) relating to the grouping of employers took effect from 1 July 2012. Accordingly the Western Australian Commissioner of State Revenue (the “Commissioner”) has issued Commissioner’s Practice PTA 031.1 (“PTA 031.1”) which outlines the matters the Commissioner will take into consideration when exercising the discretion to exclude members from a group.

 

The effect of grouping is that only one payroll threshold amount can be claimed for a single group. Corporations that are related to each other by virtue of section 50 of the Corporations Act 2001 (Cth) are not eligible to apply for an exclusion order.

 

PTA 031.1 provides that in order to be granted an exclusion from the group the applicant employer must satisfy the Commissioner that:

 

(a) the business is carried on independently of businesses carried on by any other member of the group;

(b) the business is not connected with the carrying on of businesses carried on by any other member of the group;

(c) there is not a continuous course of active and significant relationship, in a business or commercial sense, between the carrying on of the applicant’s business and the carrying on of businesses conducted by any other member of the group; and

(d) the connections which do exist are no more than casual, irregular or occasional occurrences.

 

The matters that the Commissioner must have regard to are:

 

  • the nature and degree of the ownership and control of the business;
  • the nature of the businesses; and
  • any other matters the Commissioner considers relevant.

 

PTA 031.1 applies to periods after 30 June 2012.

 

Payroll Tax Bulletin PTX 2/12 – Exemption for wages paid by non-profit organisations and religious and public benevolent institutions

 

The amendments to section 48 of the Payroll Tax Act 2007 (Vic) (the “Act”) to amend the scope of the exemption available to certain non-profit organisations took effect on 1 July 2012. The Victorian State Revenue Office also issued Payroll Tax Bulletin PTX 2/12 which explains the amendments and provides examples of how the amendments will apply to wages.

 

Section 48 of the Act has been amended, with effect from 1 July 2012, to provide that wages paid to persons engaged in commercial activities that are unrelated to a charitable organisation’s charitable purposes, are not exempt wages.

 

Payroll Tax Bulletin PTX 1/12 – Changes to the maternity and adoption leave exemption

 

The amendments to section 53 of the Payroll Tax Act 2007 (Vic) to provide an exemption for wages paid in respect of maternity or adoption leave took effect on 1 July 2012. The Victorian State Revenue Office also issued Payroll Tax Bulletin PTX 1/2 which provides further detail and examples on the operation of the exemption and the interaction with the Commonwealth Paid Parental Leave Scheme.

 

Review of the Payroll Tax Act 2007 (NSW) – Call for submissions

 

The Minister for Finance and Services has called for submissions on a review of the Payroll Tax Act 2007 (NSW). The aim of the review is consider whether the policy objectives of the Act and determine whether the Act is appropriately securing those objectives.

 

The review does not include a review of the payroll tax rate or threshold.

 

Submissions close on 14 September 2012.

 

Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd & Ors [2012] NSWCA 181 – Court of Appeal determines companies should be grouped for payroll tax purposes

 

In Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd & Ors [2012] NSWCA 181, the New South Wales Court of Appeal (the “NSWCA”) has partly upheld the appeal and partly struck it out.

 

Case history

 

In Tasty Chicks Pty Ltd & Ors v Chief Commissioner of State Revenue [2011] HCA 41, the High Court unanimously confirmed that the New South Wales Supreme Court had the jurisdiction to re-exercise the Chief Commissioner’s discretion under the de-grouping provisions of the, now repealed, Pay-roll Tax Act 1971 (NSW) (the “Act”) and substitute its decision in the place of the Chief Commissioner’s. The High Court determined this on the basis that the Supreme Court’s right to “review” the decision confers on it original jurisdiction, as opposed to appellate jurisdiction. 

 

Accordingly, the High Court set aside the decision of the New South Wales Court of Appeal (“NSWCA”), affirmed the judgment at first instance and remitted the matter to the NSWCA for further hearing.

 

The case of Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd & Ors [2012] NSWCA 181 considered afresh the Chief Commissioner’s appeal on the grounds that the primary judge misconstrued and misapplied the grouping and de-grouping provisions of the relevant legislation, in the light of the decision of the High Court.

 

Facts

 

The Chief Commissioner had decided to group three associated entities for the purposes of assessing pay-roll tax under section 16C of the Act. This meant that each entity had a lower pay-roll tax threshold, as it was assessed collectively as opposed to individually.

 

Under the Act, the Chief Commissioner had broad discretion to decide whether to de-group entities within a group where it would be unreasonable to apply the grouping provisions.

 

The taxpayer argued that the Chief Commissioner should have exercised his discretion to de-group the three associated entities. The Chief Commissioner refused to do so, concluding that the entities’ businesses were closely connected.

 

Decision

 

The NSWCA reconsidered the assessments of the Chief Commissioner over three periods. The relevant legislative provisions were distinct for each period, although, in relation to the second and third periods, the differences were immaterial for the purposes of the current case.

 

First Period (1 July 2001 to 30 June 2003)

 

The first period concerned grouping of the companies under section 16C of the Act.

 

n relation to the first period the Chief Commissioner had conceded that the grouping argument under section 16C(a) of the Act must fail if the relevant companies carried on different businesses. The NSWCA noted that the primary judge had found that the companies were engaged in different businesses and determined that this finding did not involve any error.

 

Under section 16C(b) of the Act, the companies could be grouped if there was an agreement “in respect of the employment of, or the performance of duties by” the employees and the agreement is with another person relating to a business carried on by that other person. There was an agreement between the companies, however the primary judge had found that the agreement did not satisfy the specific criteria in section 16C(b) of the Act.

 

The NSWCA reviewed the activities of the companies and the employees and held that they should be grouped under section 16C(b) of the Act. It considered that the primary judge had too narrowly construed the agreements. The NSWCA remitted the matter back to the Supreme Court for determination on whether the de-grouping discretion in section 16H(1) of the Act should have been exercised.

 

Second and Third Period

(1 July 2003 to 30 June 2005 — 1 July 2005 to 30 June 2007)

 

The second and third period concerned the application of the de-grouping provisions in section 16C of the Act.

 

For this period, under section 16C(3) of the Act, the Chief Commissioner could only exercise his discretion to remove entities from a group if satisfied that the businesses of the entities within the group had been and would continue to be “substantially independent” of one another. In determining whether the businesses were “substantially independent”, section 16C(4) of the Act required the Chief Commissioner to:

 

…have regard to the nature and degree of ownership or control of the business of each member of the group, the nature of each of those businesses and any other matter that the Chief Commissioner considers relevant.

 

After closely examining the nature of each of the associated entities’ businesses and the contracts between the entities, the NSWCA determined that although the businesses were separately owned and controlled, the businesses were not carried on substantially independently of each other.

 

Administration

 

Fayle and Commissioner of Taxation [2012] AATA 439 – AAT dismisses proceedings as frivolous and vexatious In Fayle and Commissioner of Taxation [2012] AATA 439 the Administrative Appeals Tribunal (the “AAT”) dismissed the taxpayer’s appeal regarding a personal services income determination on the grounds it was frivolous and vexatious.

 

Facts

 

The taxpayer was a director of two companies. One of the companies contracted to provide consultancy services to the other. The taxpayer was the consultant.

 

The Commissioner of Taxation (the “Commissioner”) made amended assessments to include the income received from the consultancy services in the taxpayer’s assessable income as personal services income.

 

The taxpayer objected to the amended assessments and the objections were disallowed. The taxpayer sought review in the AAT however the AAT, in a decision by Senior Member McCabe, found that the taxpayer ought to have included the income in his assessable income.

 

Prior to the hearing the taxpayer sought a personal services income determination. The Commissioner refused to make a determination because proceedings w ere then on foot. After the decision by Senior Member McCabe was handed down the taxpayer again applied for a personal services income determination. The Commissioner again refused to make a determination. The matter returned to the AAT in May 2011 before Senior Member McCabe in relation to the deductibility of certain expenses. In the subsequent proceedings before Deputy President Hack, the taxpayer sought a review of the Commissioner’s decision to refuse to make a personal services income determination.

 

Decision

 

The AAT noted that it was open to the taxpayer to seek a review of the Commissioner’s first refusal to make a determination in the hearing before Senior Member McCabe.

 

Accordingly, the AAT found that the proceedings were frivolous and vexatious and dismissed them under section 42B of the Administrative Appeal Tribunal Act 1975 (Cth).

 

 

For further information, please contact:

 

Geoffrey Picton-Turbervill, Partner, Ashurst

geoffrey.picton-turbervill@ashurst.com

 

Rosalie Cattermole, Ashurst

rosalie.cattermole@ashurst.com

 

Ashurst Tax Profile in Australia

 

Homegrown Tax Law Firms in Australia

 

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