27 August 2010
Posted in ATO Pronouncements, GST.
From 1 July 2010 the tax ruling system underwent significant changes to bring GST and other indirect taxes into the same framework currently applying to public and private binding income tax rulings.
Previously indirect tax rulings were not legally binding on the Commissioner, although he administratively treated such rulings as binding. Furthermore, there were no objections rights against private indirect tax rulings.
The ATO have stated that only indirect tax publications labelled as ‘public’ rulings before 1 July 2010 will remain public rulings thereafter. Some existing publications will cease to be public rulings and will become non-binding guidance instead.
Tagged with ATO, GST.
20 August 2010
Posted in Government Announcements.
The rules allowing superannuation funds to borrow money under an instalment warrant arrangement have been rewritten and apply to borrowings entered into on or after 7 July 2010. Whilst the requirements are largely the same, there are some key changes.
Single acquirable asset - funds can now only borrow to acquire a single asset or a collection of identical assets with the same market value. A portfolio of different shares, or real estate spread over more than one title are not single assets.
Refinancing - there are now express provisions allowing funds to refinance a borrowing provided certain conditions are met.
Acquisition and Maintenance costs - a fund may borrow to cover acquisition costs such as legal fees and duty and to pay for repairs or maintenance (not improvements) to an asset.
The new rules also deal with the use of personal guarantees.
Tagged with Superannuation.
6 August 2010
Posted in ATO Pronouncements, Company Tax, Trusts.
The ATO has released TR 2010/3 (finalising TR 2009/D8), dealing with unpaid present entitlements (UPE) owing to a private company beneficiary from a trust and when UPEs constitute a loan under s 109D of Division 7A.
The Commissioner states that a subsisting UPE is not in itself a loan. However, circumstances surrounding the UPE may give rise to one of two types of loans for Div 7A purposes.
- Loans within the ordinary meaning
Where a UPE owing to a company is satisfied and then effectively loaned back to the trustee, it will constitute an ordinary loan. The loan can arise by way of an express or implied agreement and as a cash transaction or an agreed set-off arrangement. The agreement may be implied where the company has knowledge of the trustee crediting the UPE to a loan account and acquiesces to that treatment (i.e. by not calling on it). This view applies to UPEs arising before and after the date of the Ruling.
- Loans within the extended Div 7A meaning
This relates to subsisting UPEs that are not ordinary loans but involve the company providing financial accommodation to the trust, thus attracting the application of Division 7A. Where a company authorises (or acquiesces with knowledge) the trust’s continued use of the funds representing the UPE for general trust purposes, the Commissioner will apply Division 7A because the company does not call on the UPE or require that the funds be invested solely for its benefit. This position only applies to UPEs arising after 16 December 2009.
The new draft practice statement PSLA 3362 provides guidance in determining whether a UPE is a loan. It deals with the factors to be considered such as:
- the accounting treatment adopted by the trust and company for the UPE;
- the trustee’s powers under the trust deed; and
- whether funds held on sub trust are held for the company’s sole benefit rather than for general trust purposes.
Tagged with ATO, Division 7A, Private Company Dividends, TR 2010/3, Unpaid Present Entitlement, UPE.
31 July 2010
Posted in Court & Tribunal Cases, Trusts.
The Commissioner has released his Decision Impact Statement on Bamford (for previous discussions on the Bamford case click here). The High Court unanimously held that the proportionate approach applies where trust income is different to the trust taxable income and the ‘income of the trust estate’ is determined by trust law principles and the terms of the trust deed. Such terms may characterise what is otherwise capital as income.
The Commissioner generally accepts the Court’s decision, with some reservations, and announced the withdrawal of certain rulings including:
- PSLA 2009/7 administrative treatment pending resolution of Bamford (replaced by practice statement PSLA 2010/1);
- PSLA 2005/1(GA) administrative treatment for the taxation of capital gains in trusts;
- TR 92/13 dealing with trust dividends and franking credits.
The possible withdrawal of TR 92/13 is somewhat controversial as the Commissioner appears to be questioning the legitimacy for trusts to “stream” different classes of taxable income to different beneficiaries. There is nothing in Bamford to suggest that streaming of income is not possible. The withdrawal of PSLA 2005/1(GA) means advisers should review trust deeds to ensure that capital gains may be treated as income.
Tagged with Bamford, Court Cases, Decision Impact Statement, Distributable Trust Income, Proportionate, Streaming, Trust Income.
10 June 2010
Posted in Court & Tribunal Cases, SMSF.
The Full Federal Court has upheld the Commissioner’s decision to treat dividends received by a SMSF on private company shares as ’special income’ under former s 273 ITAA 1936.
In Darrelen Pty Ltd, Trustee of Henfam Superannuation Fund v FCT [2010] FCAFC 35, the taxpayer fund held 4% of the shares in a private company, which itself held substantial shares in a listed company. The fund had acquired the private company shares for approximately 10% of their then market value. In the 2000 to 2003 income years, the dividends paid by the private company to the fund (derived from the listed company shares) were far in excess of the purchase price paid by the fund for the private company shares.
At first instance, the AAT upheld the Commissioner’s decision to treat the dividends as special income (click here to read about the AAT decision). The Full Federal Court affirmed the decision of the AAT, despite finding some errors in the Tribunal’s reasoning. Importantly, the Court held that the Commissioner was entitled to have regard to the market value of the shares at the time of their acquisition in determining whether the subsequent dividends received from those shares were special income. The Court also rejected the taxpayer’s argument that if the dividends were received by the shareholders at the same rate to each shareholder, the acquisition price of the shares was irrelevant.
The decision means that any shares acquired by an SMSF for less than market value may potentially taint all subsequent dividends as ‘non-arm’s length income’.
For the 2008 income year and onwards, the ’special income’ rules have been replaced by s 295-550 ITAA 1997 and operate to tax ‘non-arm’s length income’ of superannuation funds at 45%.
Tagged with Full Federal Court, Non Arms-length Income, Private Company Dividends, SMSF, Special Income.
