Birchstone Brief for the week ended 2 September 2022

ATO Updates

Tax Determinations Released - Trust Capital Gains of Foreign Residents

The ATO has released two related determinations on the taxation of trust capital gains that flow to foreign resident beneficiaries via a resident trust following the Full Federal Court's decision in?Peter Greensill Family Co Pty Ltd (Trustee) v Commissioner of Taxation [2021] FCAFC 99 .?

Relevance of source rules for trust capital gains - TD 2022/12

TD 2022/12 , which finalises TD 2019/D7 , provides that a non-resident beneficiary of a resident trust is assessable on an amount of trust capital gain irrespective of whether the gain has a source in Australia.

This is because the Commissioner considers?that,?following the 2011 trust streaming amendments, the source concept in the trust provisions (Division 6 of Part III of the ITAA 1936) is?no longer relevant when determining whether an amount of trust capital gain is assessable to a non-resident beneficiary or trustee (as this is to be determined solely under the capital gains tax provisions). The same view applies to a non-resident beneficiary's share of taxable Australian property gains of a non-resident trust and a trustee's share of a capital gain to which section 115-222 of the ITAA 1997 applies.

The Determination applies to all arrangements entered into before and after its date of issue. However, the Commissioner will not devote compliance resources to identify arrangements which would give rise to adjustments solely on the basis of the Determination for the 2018-19 and earlier income years.?

Foreign-resident CGT exemption and non-fixed trusts - TD 2022/13

TD 2022/13 , which finalises TD 2019/D6 , confirms the Commissioner's view that Division 855 of the ITAA 1997 does not enable a foreign-resident beneficiary of a resident non-fixed trust to disregard their share of a non-taxable Australian property trust capital gain.?

As such, the Commissioner considers that a foreign-resident beneficiary may be treated as having extra capital gains under section 115-215(3) if a resident trust's net income includes a net capital gain (even though no CGT event happened directly to them). This is because, while section 855-10(1) allows a foreign resident to disregard a capital gain or loss from a CGT event in relation to an asset that is not taxable Australian property, the section does not apply to disregard capital gains that a foreign-resident beneficiary is deemed to have by operation of section 115-215(3) (as such gains are not from a CGT event that happened to them).?

The Determination also clarifies that:?

• section 855-40 only disregards a capital gain a foreign-resident beneficiary has because of section 115-215(3) if the trust is a fixed trust; and
• section 768-915(1) does not disregard capital gains a temporary-resident beneficiary has because of section 115-215(3).?

Notably, the Determination applies retrospectively.?

August exchange rates released

The ATO has released the average foreign exchange ?rates for August 2022 for converting foreign income into Australian dollars.?

Rulings and Addendum issued

The ATO has issued?the following:?

• CR 2022/78 ?— Vimy Resources Ltd — Scrip for scrip roll-over;?
• CR 2022/79 ?—?New World Resources Ltd — Return of capital by distribution of shares in Koba Resources Ltd;?
• PR 2022/7 ?— Bell Equity Lever — Instalment receipts;
• PR 2022/8 ?—?Bell Geared Equities Investment;?
• PR 2021/12A1 - Addendum to?PR 2021/12 ?— Challenger Lifetime Annuity (Liquid Lifetime).?

State Taxes

Duties (Vic): Draft ruling on acquisition of economic entitlements in relation to land

The Victorian State Revenue Office has issued draft revenue ruling DA-065 , which is intended to provide clarification on the application of the economic entitlement provisions in Part 4B of Chapter 2 of the Duties Act 2000 (Vic) to ordinary fees for service. Relevantly, the economic entitlement provisions?will apply where a person acquires an economic entitlement in relation to relevant land other than by a transaction that is already a dutiable transaction. The draft ruling:?

• provides that the economic entitlement provisions will not apply where a third-party service provider (such as a real estate agent) receives a fee or rate within industry parameters for providing a service that may be tied to proceeds associated with land and/or its development; and
• explains how the economic entitlement provisions can apply to acquisitions of shares in companies and units in unit trust schemes that may be outside the scope of Chapter 3 of the Duties Act (i.e. landholder duty).?

Duties (NSW): Regulation?prescribing?excluded transactions issued?

On 26 August 2022, the Duties Regulation 2022 (NSW) ?was published on the NSW legislation website. The Regulation sets out when a change in beneficial ownership is an excluded transaction for the purposes of section 8(3) of the Duties Act 1997 (NSW) and is therefore not chargeable with duty. Examples of excluded transactions under the Regulation include:?

• where there is a change in default beneficial interests under a discretionary trust; or?
• a change in beneficial ownership of dutiable property that occurs under a testamentary instrument or otherwise by operation of law on the death of a person.?

The Regulation applies retrospectively from 19 May 2022, being the date that the?State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022 (NSW) (which made transactions resulting in a change in beneficial ownership of dutiable property other than an excluded transaction dutiable)?received royal assent.?

Revenue NSW has also updated its Legislation Amendment Act 2022 guide ?following the release of the Regulation.?

Other News

ACNC guidance on 2022 Annual Information Statement?

The ACNC has released guidance to charities regarding the completion of their 2022 Annual Information Statement on its 2022 Annual Information Statement Hub .?

The hub:?

• addresses recent changes to reporting obligations, including the new charity size thresholds and the requirement for large charities to report on related party transactions and the remuneration of key management personnel; and
• contains the 2022 Annual Information Statement Guide , which gives detailed explanations and support for completing each section of the 2022 Annual Information Statement.?

Cases

Vicinity Funds v Commissioner of State Revenue [2022] VSCA 176 ?- Victorian Court of Appeal confirms Commissioner's decision can only be reviewed or appealed?

In this case, the Victorian Court of Appeal held that a taxpayer who is dissatisfied with a decision of the Commissioner of State Revenue in relation to an objection to an assessment can either seek review by the Victorian Civil and Administrative Appeals Tribunal or appeal to the Supreme Court, but cannot proceed in both forums.?

Legislation

Exposure draft legislation: Increased deductions for small business external training expenditure

The government has released?exposure draft legislation providing for a 20% bonus deduction to small and medium businesses on eligible external training expenditure for employees. Businesses with aggregated annual turnover of less than $50 million may be eligible where expenditure is incurred on external training for employees of the business. The additional deduction will not apply for training non-employee business owners (including sole traders and?partners in a partnership) and independent contractors.?

The following criteria must be met for the bonus deduction to be claimable:?

• the external training expenditure must be charged (directly or indirectly) by a registered training provider and be for training within the scope of its registration (if applicable);
• the registered training provider or an associate must not be the entity claiming the bonus deduction; and
• the relevant expenditure must already be tax deductible.?

Furthermore, it is proposed that?the bonus deduction will only apply?to expenditure:

• incurred from 7.30PM AEDT on 29 March 2022 until 30 June 2024; and
• where the enrolment or arrangement relevant to the provision of the training occurs at or after 7.30PM AEDT on 29 March 2022.?

Exposure draft legislation: Increased deductions for small business digital adoption

The government has released?exposure draft legislation providing for?a 20% bonus deduction?to small and medium businesses on eligible expenditure supporting digital adoption. Businesses with aggregated annual turnover of less than $50 million may be eligible where the expenditure has a direct link to an entity's digital business operations. Examples of eligible expenditure may include, but will not be limited to, amounts spent on:?

• digital enabling items (such as hardware, software or systems and services that form and facilitate the use of computer networks);?
• digital media and marketing; and
• e-commerce.?

It is proposed that the bonus deduction will:?

• only apply to expenditure incurred from 7.30PM AEDT on 29 March 2022 until 30 June 2023; and
• be capped at $20k per year.?

Exposure draft materials: Miscellaneous and technical amendments to Treasury portfolio laws

Exposure draft materials providing for miscellaneous and technical amendments to Treasury portfolio laws?have been released. The proposed changes include:

• technical changes to the First Home Super Saver Scheme announced in the previous government's 2021-22 Budget; and
• other tax-related amendments to ensure the law operates as intended by correcting technical or drafting defects, removing anomalies and addressing unintended outcomes.?

Variation of PAYG withholding for low-income minors

The?Taxation Administration: Withholding Variation to Nil for Low Income Minors Legislative Instrument 2022 ?varies to nil?the amount of withholding required by a payer on certain payments made to low income minors who have?not quoted their TFN or ABN.

The?instrument:?

• is designed to give timely effect to the tax-free thresholds for low-income minors;?
• commences on 1 October 2022; and
• remakes legislative instrument No F2012L00884, which is due to sunset on 1 October 2022.?

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