Legal news
Is the payment of a death benefit to a spouse’s estate tax free? The Australian Taxation Office (ATO) has released a Private Binding Ruling 1052273158502 (PBR) in which it determined that it was not under section 302-10(2) of the Income Tax Assessment Act 1997 (ITAA 97).
In the decision of In the matter of Gainer Associates Pty Limited [2024] NSWSC 1138, the Court amongst other things gave advice to uphold the decision of the self managed superannuation fund (SMSF) trustee to distribute 1/3rd of the death benefits in the SMSF to a partner of the sole surviving SMSF member and 2/3rd to her estate.
This Decision of the Administrative Appeals Tribunal (AAT) is a series of decisions against five jockey racing clubs brought by the Australian Taxation Office (ATO) regarding whether the racing clubs must pay super contributions on behalf of jockeys under the Superannuation Guarantee (Administration) Act 1992 (SG Act).
The ATO has taken an aggressive approach on non-arm’s length income (NALI) for a number of years now, both in its public documents and via its audit teams. This has culminated in an approach that puts a high expectation on SMSF’s in relation to proving arrangements are on an arm’s length basis – in particular, in relation to benchmarking such arrangements.
The ATO’s attacks on SMSFs conducting property development continues! The ATO has released Taxpayer Alert TA 2023/2 (the Alert) confirming that the ATO will review arrangements where related entities of a SMSF are conducting a property development (or including where property development is undertaken on SMSF owned assets) and where a special purpose vehicle (SPV) is used. The SPV being a company or trust which will be a related party to the SMSF through which generally a member of the SMSF may provide property development services to the SMSF for a commercial arm’s length fee and acquire and manage building materials used for the development.
In an interesting development, the ATO has released a warning in relation to SMSFs entering into gift and loan back arrangements.
On 23 November 2022, the Australian Tax Office (ATO) released Taxation Ruling TR 2022/3, finalising its views on personal services income (PSI) and personal services businesses (PSB).
On 19 September 2022, Justice Thawley of the Federal Court handed down his decision in BBlood Enterprises Pty Ltd v FCT [2022] FCA 1112 (BBlood), the most recent decision on section 100A of the Income Tax Assessment Act 1936. The Australian Taxation Office (ATO) was successful in arguing that section 100A applied.
In the recent decision of Signium Pty Limited and FCT [2022] AATA 2824, the Administrative Appeals Tribunal (Tribunal) upheld super guarantee (SG) assessments issued by the Commissioner of Taxation (Commissioner) and refused to remit Part 7 penalties further.
The taxpayer operates a small pig farming business. The business is run by a general manager, and at relevant times it employed two or three people.
The ATO conducted an audit of the taxpayer’s SG obligations and issued 16 SG charge assessments for quarters ending 30 September 2013 to 31 March 2017. The Commissioner also issued a Part 7 penalty assessment of 200% of the SG charge (Part 7 penalties are automatically incurred under Part 7 of the Superannuation Guarantee (Administration) Act 1992 (SG Act) for failure to lodge SG charge statements within the relevant timeframe).
The taxpayer disagreed with the ATO’s calculation of the shortfall amounts on the SG charge assessments. However, the Tribunal accepted the ATO’s calculations as they were more thorough than those provided by the taxpayer. The taxpayer asked the Tribunal to remit the shortfall interest component of the SG charge, but the Tribunal declined, noting that the Commissioner has no discretion under the SG Act to remit the shortfall interest component.
The Part 7 penalties were remitted to 35% during the review process, and the Commissioner agreed that a further 25% remission was appropriate. The taxpayer argued that the penalties should be reduced further due to various factors including the general manager’s age, his health conditions, the impact of COVID-19, drought in 2018-2019, bushfires in 2019 and flood in 2021, all of which put the business under considerable pressure. However these factors all arose after the relevant quarters which were the subject of the audit, and therefore did not impact on the taxpayer’s ability to comply with its SG obligations at the relevant time. Accordingly, the Tribunal was not persuaded to remit the Part 7 penalties further.
Key takeaways from this decision:
While a taxpayer should confirm the accuracy of the calculations making up an SG charge assessment, and cross-reference these with their own records, a taxpayer cannot argue for remission of the shortfall interest component, as the Commissioner has no discretion in this regard;
Part 7 penalties are incurred automatically under the SG Act at 200% of the SG charge for late or non-lodgement of SG charge statements. The Commissioner has discretion to remit Part 7 penalties with regard to various mitigating factors. Where the taxpayer is arguing that these factors impacted on the taxpayer’s ability to comply with its SG obligations, it is key to show a nexus between these factors and the quarters in question.
Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au
Philippa Briglia
Senior Associate
T +61 3 9611 0173
E pbriglia@sladen.com.au
Jan Oh
Graduate Lawyer
T +61 3 9611 0158
E joh@sladen.com.au
We wrote about Draft Taxation Determination TD 2022/D1 (Draft TD) on Division 7A and unpaid present entitlements (UPEs) here. On 12 July 2022, the Australian Taxation Office (ATO) finalised the Draft TD as Taxation Determination TD 2022/11 (Final TD).
In the recent decision of JMC Pty Limited v Commissioner of Taxation [2022] FCA 750, the Federal Court found that an ‘independent contractor’ was an employee for super guarantee purposes.
Draft Taxation Determination TD 2022/D1 sets out the Australian Taxation Office’s (ATO) views on when an unpaid present entitlement (UPE) with a corporate beneficiary is a loan for the purposes of Division 7A of the Income Tax Assessment Act 1936. We wrote about TD 2022/D1 here.
The ATO has confirmed that its current administrative approach to the non-arm’s length expenditure (NALE), as set out in Practical Compliance Guide PCG 2020/5, will be extended to 30 June 2023.
As discussed here, one of the key superannuation announcements in the May 2021 budget was the removal of the minimum $450 threshold for super guarantee purposes.
