Birchstone Brief for the week ended 19 May 2023

ATO Updates

Class rulings issued

The ATO has issued:

• CR 2023/25 – Qantas Airways Ltd – 2022/23 Qantas Short Term Incentive Plan;
• CR 2023/26 – 2023-2025 Qantas Long Term Incentive Plan; and
• CR 2023/27 – OZ Minerals Ltd – Scheme of arrangement and special dividend.

TR 2005/5 updated regarding Australia’s taxing rights over Australian interest income derived by foreign resident financial institutions

TR 2005/5A2 finalises TR 2005/5DC2 (covered in the Birchstone Brief for the week ended 23 September 2022) and amends TR 2005/5 to clarify the Commissioner’s view regarding when Australia has the right to tax US and UK resident financial institutions in respect of Australian sourced interest income under Australia’s DTAs with those countries. The updated ruling will also apply to financial institutions from other countries whose DTAs with Australia include a financial institution interest withholding tax rates exemption or reduction on identical terms to the US and UK agreements.

Draft PCG regarding intangibles arrangements updated

PCG 2023/D2 revises and replaces PCG 2021/D4 (covered in the Birchstone Brief for the week ended 21 May 2021) and sets out the ATO’s proposed compliance approach to intangibles arrangements involving international related parties. It contains:

• an overview of the ATO’s compliance approach for intangibles arrangements;
• a risk assessment framework explaining how the ATO will assess the compliance risks of intangibles arrangements; and
• an outline of the types and level of evidence the ATO will have regard to when examining intangibles arrangements.

The draft guideline is proposed to apply both before and after its date of issue when finalised.

Amnesty program for small business lodgments to commence

Following its announcement in the 2023-24 Federal Budget (covered in the Birchstone Brief for the week ended 12 May 2023), the ATO has published website guidance on the small business lodgment penalty amnesty.

Decision Impact Statement – Buddhist Society case

The ATO has released a Decision Impact Statement (DIS) on the Federal Court’s decision in The Buddhist Society of Western Australia Inc v Commissioner of Taxation (No 2) [2021] FCA 1363.

In the DIS, the ATO accepts the Court’s decision that the Commissioner misunderstood the ordinary meaning of the word ‘school’ in making its decision to revoke the taxpayer’s DGR endorsement. Consistently with that decision, the Commissioner:

• accepts that the views currently expressed in TR 2013/2 do not reflect the ordinary meaning of the word ‘school’;
• agrees that the ordinary meaning of school does not require a course of education to be vocational as opposed to recreational;
• will, in determining whether a building is ‘used, or to be used as a school’, give consideration to the overall purpose (or purposes) for which the building was ‘established and maintained’ and the activities which support its purpose.

The ATO will:

• review and update TR 2013/2 and relevant website guidance to reflect the Court’s decision; and
• consider the application of the Court’s decision to future DGR applications and relevant applications that have been refused.

Cases

Tschierschky v FCT [2023] AATA 1201 – AAT upholds administrative penalties for recklesness

The AAT has:

• affirmed the Commissioner’s decision to impose a 50% administrative penalty for recklessness after a taxpayer failed to include a significant net capital gain from the sale of shares in their income tax return; and
• confirmed that the ‘safe harbour’ under section 284-75(6) of Schedule 1 to the TAA 1953 did not apply, due to the taxpayer’s failure to lead any evidence as to what was communicated by them to their tax agent.?

Legislation

Land Tax Assessment Amendment (Build-to-Rent) Bill 2023 (WA) introduced

A Bill has been introduced into the WA Legislative Assembly which will, if enacted into law, amend the Land Tax Assessment Act 2002 (WA) to provide a 50% exemption from WA land tax for 20 consecutive assessment years for eligible build-to-rent developments.

To qualify for the exemption, a development must meet the following requirements:

• the land containing it must be owned by the same owners and managed by one entity;
• it must have been constructed or substantially renovated to provide at least 40 self-contained dwellings for residential tenancies;
• the dwellings in the development must be able to be lawfully occupied between 12 May 2022 and 30 June 2032;
• the dwellings must be available to rent for at least a 3-year term (although tenants can choose a shorter lease); and
• the dwellings’ availability cannot be restricted to certain classes of person unless necessary for public health or safety, if the dwellings are social housing, or in other prescribed circumstances.

A proportional exemption will be available where parts of a development are used for non-qualifying purposes. The exemption will also be retrospectively removed if a development ceases to qualify for the exemption within the first 15 years – with the effect that the owner(s) will be required to repay any previously exempt land tax.

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