Talking Tax – Issue 46

ATO updates

GSTR 2000/31A5 - Addendum - GST: Supplies connected with Australia

On 10 August 2016 the Commissioner of Taxation amended the Goods and Services Tax Ruling GSTR 2000/31. This amendment seeks to address arrangements entered into in response to the Multinational Anti-Avoidance Law (MAAL). The application of MAAL was previously discussed in Talking Tax Issue 17 when the ATO’s Law Companion Guidelines were released.

Under these arrangements, organisations have purported to circumvent the application of the MAAL by treating certain supplies as not ‘connected with Australia’ (and therefore not subject to GST), as they have been made through the agency of a foreign entity.

The amendment seeks to clarify the issue by explaining the relative GST position in the following specific examples:

• supply made by an Australian resident through an offshore agent
• supply made through permanent establishments in and outside Australia
• supply made through a permanent establishment outside Australia.

The ATO’s position is that if a supplier carries on an enterprise through a permanent establishment in Australia, then any supply made in the course or furtherance of this enterprise will be a supply made through the permanent establishment for the purposes of paragraph 9-25(5)(b) of the GST Act 1999. This will be the case even if the supply can also be said to be connected with a place of business in another country. In essence the ATO has tried to capture all supplies made by permanent establishments of Australian taxpayers as ‘connected with Australia’ and therefore subject to GST.

ATO releases Consultation Paper on general purpose financial statements by significant global entities

For all income years commencing after 1 July 2016, a corporate tax entity that is a ‘Significant Global Entity’ (SGE) must give the Commissioner a general purpose financial statement if they do not lodge one with ASIC. An entity is a SGE if it is:

• a global parent entity with an annual global income of A$1 billion or more; or
• a member of a group of entities consolidated for accounting purposes and one of the other group members is a global parent entity with an annual global income of A$1 billion or more.

While some stakeholders have submitted that the proposed threshold of A$1 billion was too high and could be set at a lower level, our opinion is that a threshold of A$1 billion is an appropriate threshold for the purposes of defining a SGE. We note that there are over 1,000 multinational entities operating in Australia with global revenues greater than A$1 billion and think that this threshold amount provides an appropriate balance between burdensome reporting obligations and increased efficiency.

The ATO has released a consultation paper on the implementation of this measure and is seeking input in order to highlight any areas of confusion and ensure that the measures are as simple as possible.

The government anticipates this new obligation will contribute significantly to the overall level of public transparency of multinational companies. It hopes that this will provide an insight not only in relation to the company’s taxation practices, but also their broader financial performance.

We note that the Government has proposed that the new maximum penalty will be $450,000 (up 100 times from the current maximum penalty of $4,500) for SGE’s that fail to meet their disclosure requirements. If enacted, this should act as a significant deterrent for any SGE who may otherwise consider not meeting their disclosure.

Issues to be consulted on include:

• the interpretation of key concepts
• how an affected entity can give their general purpose financial statements to the ATO
• practical guidance to assist affected entities to comply.

The consultation paper is available until 30 September 2016.

ATO providing assurances to low risk clients to provide certainty about tax obligations

The ATO has recently announced that it will assure 10,000 low risk clients on their GST obligations for the June 2016 quarter in August. Clients may receive a notification if they fall under any of the following categories:

• lodge their BAS on time
• pay on time
• are not subject to current compliance activity
• have a low risk rating.

The ATO previously issued 7,500 assurance notifications to low risk clients in May as part of a pilot program. This occurred in response to comments made by privately owned and wealthy group taxpayers, who sought more certainty about their tax obligations as early as possible.

Tax agents will receive a list via email of their clients who receive a notification from the ATO (if any). These notifications provide assurance for their compliance and do not require any action to be taken.

ATO cracking down on “dodgy deductions” with real-time checks

With more than eight million Australians claiming over $21 billion in work-related expenses each year, the ATO is cracking down on dodgy deductions. Assistant Commissioner Graham Whyte has recently warned of the ATO’s increasing ability to expose those who are claiming work-related expenses to which they are not entitled. This year, the ATO has introduced real-time checks of deductions for tax returns completed online for the very first time.

The real time-checks work like this: If your claims are substantially higher than others in similar occupations, earning similar amounts of income, in a similar location, a message will appear, asking you to double check them before proceeding. If a red flag is raised, the ATO will often investigate the claims further. Mr Whyte has warned that taxpayers who don’t make a reasonable or genuine attempt to get it right or are intentionally doing the wrong thing, may be subject to a penalty.

ATO release Draft Tax Determination - TD 2016/D3 (employee share schemes)

The ATO has published TD 2016/D3. It provides the Commissioner’s preliminary view on the following question:

‘in what circumstances does a contractual right, which is subject to the satisfaction of a condition, become a right to acquire a beneficial interest in a share for the purposes of subsection 83A-340(1) of the Income Tax Assessment Act 1997?’

Subsection 83A-340(1) of the Income Tax Assessment Act 1997 (ITAA 1997) applies, where:

• you acquire a right under a contract
• at the time you acquire it, the right is not a right to acquire a beneficial interest in a share
• at a later time, and because a condition in the contract is satisfied, the right 'becomes' another right
• at this later time, the right is a right to acquire a beneficial interest in a share.

In the Determination, the Commissioner emphasises that a right that becomes a right to acquire a share when a condition of the contract is satisfied, must be enforceable against the other party under the terms of the contract. The relevant condition can be one to be fulfilled by either the employee or the employer. However, the condition must be an essential or required precondition for the right to acquire a share being provided. That is, its satisfaction must directly cause the employee to have a right to acquire a share (ie a condition precedent).

A right that does not directly become a right to acquire a share when the condition precedent is satisfied is not an indeterminate right under subsection 83A-340(1). This is the case even where that right may eventually lead to the eventual acquisition of a right to acquire a share, as at this stage it cannot be said to have 'become' a right to acquire a share.

The Draft Tax Determination also provides four examples applying the above ruling. These cover situations where:

• no contractual right is created
• when a right becomes an indeterminate right
• rights are given in an employment contract before the employment commences
• conditions precedent are required to be met before rights can be granted or exercised.

Legislation and government policy

Tasmania introduces Landholder and Corporate Reconstruction and Consolidation Bill

Tasmanian Parliament has introduced The Duties Amendment (Landholder and Corporate Reconstruction and Consolidation) Bill 2016.

The Bill proposes to amend Chapter 3 of the Duties Act 2001 (Tas). Chapter 3 deals with the duty liability for indirect transfers of land. The proposed amendments seek to change the assessment of liability from one that relies on an outdated land-rich model to one that relies on a more contemporary landholder model.

These amendments would bring Tasmania into line with similar provisions applied by all other State jurisdictions.