blue journal december 2012

Volume 47(6) December 2012/January 2013

Taxationin Australia

The Journal for members of The Tax InsTITuTe

Trust distributions in practice Graeme White, CTA

The taxpayer’s heavy burdenDaniel Groch and Angela Wood, CTA

Death and taxes: taxation issues and consequences that arise on the final frontier Nicole Wilson-Rogers, CTA, Annette Morgan, CTA, and Dale Pinto, CTA

the Commissioner’s powers to obtain foreign bank aCCount details under s 264 Angela Lee, ATI

Publishers Australia

Excellence Awards 2012

finalist

Publishers Australia

Excellence Awards 2012

finalist

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by TaxCounsel Pty Ltd

Taxing issues

Taxation in Australia® ISSN 0494-8343

Publishing House The Tax Institute ABN 45 008 392 372

Level 10, 175 Pitt Street Sydney, NSW 2000, Australia

Publisher Renée McDonald

General Manager, Information Products Alex Munroe

Managing Editor Deborah Powell

Advertising Peter Whittington 02 8223 0064

Production Manager Louella Brown

Graphic Designers Barry Crump Mei Lam

Typesetter Mei Lam

Tax Consultant Robert Allerdice

© 2012 The Tax Institute This journal is copyright. Apart from any fair dealing for the purpose of private study, research, criticism or review, as permitted under the Copyright Act, no part may be reproduced by any process without written permission.

Disclaimer Unless otherwise stated, the opinions published in this journal do not express the official opinion of The Tax Institute. The Tax Institute accepts no responsibility for accuracy of information contained herein. Readers should rely on their own inquiries before making decisions that touch on their own interests.

Invitation to write We welcome original contributions that are of interest to tax professionals, lawyers, academics and students. For details about submitting articles, please see Guidelines for Publication on our website taxinstitute.com.au, or contact [email protected].

Part IVA amendmentsOn 16 November 2012, the Assistant Treasurer released for public comment exposure draft legislation and explanatory materials of the proposed Pt IVA amendments. See item 1.

Trust reform: policy options The government has also released a policy options paper that further progresses the government’s modernisation of the taxation of trust income. See item 2.

Not-for-profit working group The Not-for-profit Sector Tax Concession Working Group has released a discussion paper, “Fairer, simpler and more effective tax concessions for the not-for-profit sector”. See item 3.

A change of CommissionerOn 24 October 2012, the Treasurer and the Assistant Treasurer announced that the present Commissioner would be completing his seven-year term at the end of this year and that his replacement will be Mr Chris Jordan. See item 4.

Compensation and trust amountsThe Commissioner’s appeal to the Full Federal Court on the assessability of

certain compensation has been allowed and the taxpayer’s appeal in relation to a trust distribution has been dismissed (Howard v FCT [2012] FCAFC 149). See item 5.

Profit-making scheme losses deductibleA judge of the Federal Court has upheld claims by the Visy Packaging Group of companies for deductions for losses and loss transfers incurred in the course of a profit-making scheme, which involved the acquisition of the Southcorp packaging business with the intention of selling some of the acquired assets at a profit but which, as events turned out, were sold at a loss on the divestments (Visy Packaging Holdings Pty Ltd v FCT [2012] FCA 1195). See item 6.

GST going concern: was there an agreement?The sale of a commercial property which was subject to a monthly tenancy at will following the expiry of the term of a lease was found to be a supply of a going concern for GST purposes and was, therefore, GST-free (Re SDI Group Pty Ltd and FCT [2012] AATA 763). See item 7.

Foreign resident insurerThe Full Federal Court has by majority dismissed the Commissioner’s appeal

from the decision of the AAT in Re Crown Insurance Services Ltd on the basis that there was no question of law involved (FCT v Crown Insurance Services Ltd [2012] FCAFC 153). See item 8.

Commissioner’s “garnishee” notice validA decision by the Commissioner to withdraw a notice under s 260-5 of Sch 1 to the TAA and to replace it with a new notice has been upheld (Queensland Maintenance Services Pty Ltd v FCT [2012] FCAFC 152). See item 9.

Qantas: decision impact statementThe Commissioner has issued a decision impact statement in response to the High Court’s decision in the Qantas case ([2012] HCA 41). See item 10.

Wind farming incomeA draft determination has been issued to the effect that ordinary income derived by an individual from allowing wind farming infrastructure to be constructed and operated does not constitute “assessable primary production income” (TD 2012/D9). See item 11.

The following points highlight important federal tax developments that have occurred during November 2012. A selection of the developments is considered in more detail on page 320 of this Taxing Issues column at the item number indicated.

november – what happened in tax?

TAXATION IN AUSTRALIA | DecembeR 2012/JANUARy 2013314

Contents

feature articles335 Trust distributions in practice

Graeme White, CTA, Director, White & Grosso Pty Ltd

358 The taxpayer’s heavy burdenDaniel Groch, Associate, and Angela Wood, CTA, Partner, Maddocks

362 Death and taxes: taxation issues and consequences that arise on the final frontier Nicole Wilson-Rogers, CTA, Annette Morgan, CTA, and Dale Pinto, CTA, Curtin University

Cover article331 The Commissioner’s powers to obtain foreign bank

account details under s 264 Angela Lee, ATI, Barrister, Douglas Menzies Chambers

regulars314 Taxing issues

316 President’s report

317 CEO’s report

319 Senior Tax Counsel’s report

324 Mid market focus

326 Tax education

328 Library links

329 Member profile

371 Superannuation

373 Tax cases

376 Calendar

377 Cumulative Index

Publishers Australia Excellence AwardsWe are extremely proud to announce that Taxation in Australia was a finalist in the category of Association or Member Organisation Magazine of the Year in the Publishers Australia Excellence Awards. The only journal to win a place, the judging panel commented that “Taxation in Australia is clean and readable for such text-heavy, but relevant, copy”.

by Ken Schurgott, CTA

president’s report

This month, Ken Schurgott reflects on significant changes to both the tax system and its administration.

end-of-year excitement for tax tragics

November has proved to be a very exciting month from a tax tragic’s perspective. We have experienced a generational change at the very top of the Australian Taxation Office administration. Michael D’Ascenzo’s retirement as Commissioner will cap off the renewal of the tax hierarchy, with only Second Commissioner Bruce Quigley remaining to pass on the decades of experience that have otherwise flown out the door. Michael can look back proudly at the changes he has wrought during his term as Commissioner, the chief among them being his sincere engagement in collaboration and consultation. On behalf of everyone at The Tax Institute, including staff, volunteers and members, I wish Michael well in his new role.

If that is not enough, the appointment of a new Commissioner from the private sector, a first ever, raises intriguing possibilities. The Tax Institute also looks forward to working with the Commissioner-designate, Chris Jordan, in facing the challenges of imposing and maintaining tax laws and their administration. I am sure that the next seven years will be quite a journey for us all.

The Div 6 rewrite policy options paper was released (admittedly in late October) and its contortions began to filter into our psyche during November. Try as I might, I cannot find in it a beneficial simplification of the present mangled state of trust taxation. It can only be hoped that further consultation brings about a sensible outcome for us all — trustees, beneficiaries, tax advisers and, by no means least, tax administrators.

And then along came the exposure draft of the amendments to the general anti-avoidance provision, Pt IVA of the Income Tax Assessment Act 1936 (Cth). The proposed amendments have a certain metaphysical content in the sense that they perplex the mind with nice speculations of philosophy (with apologies to Samuel Johnson). Watching the courts struggle

with new concepts like “non-tax effect” will be sport for years to come for us, the tax tragics. For the purpose of illustrating the metaphysical point, it is useful to set out the definition of that term here:

“non-tax effect means an effect other than:

(a) an effect relating to the taxpayer’s liability to tax (or withholding tax) in any year of income; or

(b) an effect that is incidental to achieving an effect, for the taxpayer, covered by paragraph (a).”

It should be noted for posterity that both of these measures (the Div 6 rewrite and Pt IVA) have and will continue to consume a huge number of precious volunteer man-hours in simply coming to grips with their potential impact.

As I write, the Assistant Treasurer, the Hon. David Bradbury, MP, has raised the tempo of debate on the taxation of the digital economy. While the technical matters are grounded in the traditional tax issues of source, residency and permanent establishments, the revenue at stake is so vast that no government can afford to ignore the matter. We can expect that the debate will become more intense as governments and revenue authorities collaborate internationally to secure their “fair share”.

A word or two about the final events for 2012. The Tax Specialists’ Workshop lived up to its reputation as a testing but satisfying engagement with the tough technical tax issues experienced by top tax advisers in the SME and big-end sectors. The groups were very ably led by extremely experienced practitioners who freely imparted knowledge to the delegates. There was also a seriously good dinner held at La Pétanque.

The Noosa Tax Intensive finished off the year’s event program. It has an enviable

reputation for delivering tax education in the best way, learning by doing, and of course, Noosa is almost always delightful in November. The Institute’s National Convention organisers must be vying for a Michelin star of their own because the selection of Berardo’s for the convention dinner was a quality decision.

And finally, it is quite sobering to realise that this is my last effort for the President’s Report. A year has almost gone by and so much has happened, all of it good (but with petty frustrations). It has been a great privilege to serve as president of The Tax Institute and to work closely with the staff and volunteers. The Institute is its people and they have performed magnificently in 2012.

Looking back over the past 11 months, there have been many high points. The most prominent has been sealing the arrangements with the Chartered Institute of Taxation and the introduction of the CTA qualification, and then the synchronising of the Institute’s structured education courses with these new arrangements. I am confident that the CTA qualification will live up to its potential as the gold standard for tax advisers throughout the Asia-Pacific region over the next decade, as is our ambition.

Consultation with, in particular, the ATO and Treasury proved to be both fulfilling and demanding (and with the odd frustration). Every one of our members can have an impact on the law and its administration — the president just gets a little more recognition from the authorities and that has been most satisfying.

It has been a wonderful experience — in some ways drawn too quickly to a close. But, on the other hand, there may now be some time for a holiday.

I know that the incoming president, Steve Westaway, will do an excellent job and I wish him well for what will undoubtedly prove to be a very exciting 2013 tax year.


CEO’S rEpOrt

by Noel Rowland

As the year draws to a close, we celebrate our achievements and look forward to bringing members more great benefits and opportunities in 2013.

season’s greetings and best wishes for the festive season

As 2012 quickly comes to an end, I’d like to take this opportunity to acknowledge the hard work of those involved in making the Institute the success it is. Many thanks to our committees and volunteers, our National Council, and particularly Ken Schurgott, our 2012 president, for their commitment and contributions throughout the year.

Chartered Tax Adviser Program now open for enrolmentsLast month, we were proud to introduce the Chartered Tax Adviser Program at our well-received Chartered Tax Adviser information sessions which were held around Australia. The education program is dedicated to developing tax advisers with the professional skills, quality advice and acute commercial skills to join the growing international network of Chartered Tax Advisers.

By helping you progress through the program, from CTA1 Foundations to the pinnacle CTA3 Advisory Exam, the Institute is committed to propelling tax professionals like you into the future and onto the global stage.

You and your staff can enrol now in these practical and relevant courses for the 2013 study period 1.

For more information, visit taxinstitute.com.au/education or call us on 02 8223 0038.

Summer saleSummer is here, and with it our summer sale. There’s great savings across our range of practical guides and handbooks, journals, CPD on DVD, and more. Take a look at the insert in this month’s journal to view the range of products on sale at up to 30% off. We’re also offering a special “box

set” of nine 2012 DVDs, including 23 CPD

hours, at a saving of over $500.

2012 Annual Business and Professions StudyMany thanks to those of you who

completed the 2012 Annual Business and

Professions Study conducted by Beaton

Consulting — your responses to the survey

will help us improve member services and

add value to your membership. Results will

be available in 2013.

National ConventionIncluded with your copy of the journal this

month is a copy of the program for the

Institute’s flagship National Convention,

which in 2013 moves to Perth. Covering

the latest technical content, the

convention is your chance to hear from

experts with real practical insights, and

to catch up with your colleagues and

peers. Register before 25 January 2013

and receive early-bird pricing — visit

taxinstitute.com.au/nationalconvention

for more information.

Tax Knowledge eXchangeCongratulations to the final two winners

in our Tax Knowledge eXchange 10th

anniversary celebrations. Celia Tang, CTA,

Tax Consultant in Camberwell, Victoria,

and Maria Day of Springfield in Queensland

have both won a free subscription to

Australia’s leading tax knowledge base.

Congratulations to all of our winners during

our celebration of 10 years of the Tax

Knowledge eXchange. If you haven’t taken

a trial this year, make sure you do soon and

see the benefits that our easy-to-use tax

knowledge and research tool will deliver

for your business. Visit our website to find

out more.

iPad App: Taxation in Australia EXTRAWe’ve enhanced our Taxation in Australia iPad App, with new content and expanded commentary. If you haven’t downloaded our App, do so now and you’ll find ongoing coverage of compliance in each issue of Taxation in Australia EXTRA.

Celebrating 70 yearsIn 2013, The Tax Institute will be celebrating its 70th anniversary. Keep an eye out in the year for some exciting news and events around this significant milestone.

On behalf of all staff at the Institute, I would like to wish you a fantastic festive season and hope that you enjoy some well-earned time off with family and friends. The next issue of Taxation in Australia is due in February 2013, and I look forward to updating all members on our plans for 2013 in the New Year.

Publishers Australia Excellence AwardsI am proud to announce that Taxation in Australia was a finalist in the category of Association or Member Organisation Magazine of the Year in the Publishers Australia Excellence Awards. The only journal to win a place, the judging panel commented that “Taxation in Australia is clean and readable for such text-heavy, but relevant, copy”. I hope you’ll join me in offering congratulations to the team that work so hard in bringing you this journal every month.

TaxaTion in ausTralia | Vol 47(6) 317

28th NatioNal CoNveNtioNAustralia’s premier taxation convention Highlights include:

� Justice Michelle Gordon, Federal Court of australia

� Sam Walsh, ao, executive Director, Rio tinto

� assistant treasurer the Hon. David Bradbury MP

� valuable insights into current taxation issues

� Plenty of opportunities to network with fellow tax professionals, presenters and speakers.

13–15 March 2013 Perth Convention and Exhibition Centre

0145

NAT

_11/

12

DON’T MISS OUT

For more information or to register online visit taxinstitute.com.au/nationalconventionAdvanced pricing ends Friday 14 December

Scan QR code with your mobile device for more

info or to register

Senior Tax CounSel’S reporT

by Robert Jeremenko, CTA

As the calls for reform intensify, the government should not waste the opportunity presented by Australia’s relatively healthy economy. The United States economy is a useful contrast.

australia’s opportunity for reform

The United States presidential election contest is done and dusted for another four years and President Obama has been given an extra term in the world’s most powerful job. However, with a dire economic situation in the US, the Congress is still left to consider the possibility of emergency tax measures to prevent the country from falling off the so-called “fiscal cliff”.

In Australia, the economic position that we find ourselves in is in stark contrast to the US. With this is mind, are Australian policymakers wasting the opportunities for tax reform presented by our relatively healthy economy?

In the US, lawmakers will need to raise a mountain of revenue to start paying down its $US5 trillion deficit. This significant budgetary challenge has led to the serious contemplation of tax policies that would in better times have been considered against the grain. The President’s advocacy of the Warren Buffett rule designed to ensure a minimum tax rate for taxpayers earning over $US1m is one striking example — even more so in a country founded on rewarding individual efforts.

Australia’s opportunityIn Australia, we have the opportunity to debate serious and long-term tax reform options in the context of relatively healthy financial circumstances. We can still create a sustainable tax system that supports growth while meeting current and future spending needs.

But recent history doesn’t bode well for such reforms. The Business Tax Working Group was hamstrung by narrow terms of reference and, perhaps predictably, failed to come to a consensus on how to fund a much-needed company tax cut. Instead of narrowly defined and severely limited reform projects such as this, what

the government should be embracing is an intelligent debate about company tax reform, in addition to the need to consider a flatter individual marginal tax rate scale, as well as creating a more efficient state tax regime. And, of course, GST must be on the negotiating table in terms of both the rate and the base.

Real tax reform requires not mere tinkering, but a true commitment to achieving that vision. The best time for Australia to make this commitment is now, while we still can afford responsible tax savings and avoid the sorts of rash, ill-advised cash grabs to which governments in more dire situations are resorting.

Politics as usualInstead, the debate rages in Australia on both sides of politics about Budget black holes, and who is the more competent economic manager — important debates, but minor theatre compared to the main event of real reforms. All the while, the federal government’s singular focus on the need to deliver a Budget surplus has led it to lose sight of the very reason for the Henry Tax Review in the first place — to set a blueprint for tax reform to prepare our economy for massive demographic changes and associated increase in expenses in the decades ahead.

Our political leaders should be grasping the opportunity to focus on genuine tax reform to best support the Australian economy and society in the long-term national interest.

Tax Reform CommissionThe Tax Institute’s proposal for a Tax Reform Commission to further develop the multiple reform options briefly outlined in the Henry Review would be a very positive step towards trying to remove discussion

of tax reform from the unforgiving and wasteful political and media cycle. The Commission would be an independent body that is solely tasked with examining implementation blueprints for various tax reform options. The Henry Review vision needs to be developed into detailed, workable and affordable reform strategies that can then be implemented over an appropriate time frame. The work of such a body would feed directly into government decision-making processes, so that tax reform remains a serious consideration with a clear roadmap for reaching a realistic reform destination.

The Commission would have a broad membership base, including representatives from the community, individuals, businesses and federal, state and local governments. It would consult widely and have a clear remit to conduct modelling and provide advice to government on implementation options across a range of reform priorities.

With an election year ahead of us, such visionary work is vital to set Australia up for the coming decades.

28th NatioNal CoNveNtioNAustralia’s premier taxation convention Highlights include:

� Justice Michelle Gordon, Federal Court of australia

� Sam Walsh, ao, executive Director, Rio tinto

� assistant treasurer the Hon. David Bradbury MP

� valuable insights into current taxation issues

� Plenty of opportunities to network with fellow tax professionals, presenters and speakers.

13–15 March 2013 Perth Convention and Exhibition Centre

0145

NAT

_11/

12

DON’T MISS OUT

For more information or to register online visit taxinstitute.com.au/nationalconventionAdvanced pricing ends Friday 14 December

Scan QR code with your mobile device for more

info or to register


Tby TaxCounsel Pty Ltd

taxing issues

november – what happened in tax?

The following points highlight important federal tax developments that have occurred during November 2012.

Government initiatives

1. Part IVA amendmentsOn 16 November 2012, the Assistant Treasurer released for public comment exposure draft legislation and explanatory materials to protect the integrity of Australia’s tax system by amending the general anti-avoidance provisions of Pt IVA.

The Assistant Treasurer explained that the exposure draft legislation and explanatory materials were prepared following consultation with a roundtable of independent experts — including representatives from tax and accounting bodies, legal academics and experts — and with the benefit of formal advice from senior barristers.

The Assistant Treasurer confirmed that the draft amendments do not change the core operation of the “purpose” test in Pt IVA. The amendments focus on the definition of “tax benefit”. They will not affect taxpayers unless they have obtained a tax advantage from an arrangement entered into with a relevant tax avoidance purpose.

The amendments will apply to arrangements that are entered into or commenced from 16 November 2012, rather than from the original date of announcement, in recognition of the unique role that Pt IVA plays in the income tax laws and the additional time spent consulting with the roundtable and senior barristers.

2. Trust reform: policy options paperOn 24 October 2012, the government released a policy options paper that further progresses the government’s modernisation of the taxation of trust income.

The Assistant Treasurer said that the release of the paper was a significant step towards creating a simpler and more

streamlined system for the taxation of trusts. The government received valuable feedback from stakeholders following the release of an initial consultation paper in November 2011. The government also released a discussion paper on options for a more workable approach for fixed trusts in July 2012.

Treasury is to hold meetings with stakeholders before the close of written submissions (5 December 2012) which will provide a collaborative forum for stakeholders to work through the possible new models for taxing trust income and highlight any outstanding issues with their operation.

3. Not-for-profit working group: discussion paperOn 2 November 2012, the Not-for-profit (NFP) Sector Tax Concession Working Group released a discussion paper, “Fairer, simpler and more effective tax concessions for the not-for-profit sector”.

When announcing the release of the paper, the Assistant Treasurer said that public input was sought on how tax concessions can be improved to assist the NFP sector to do what they do best — support Australian communities.

The NFP Sector Tax Concession Working Group was established in February 2012 to examine the current range of tax concessions and whether there are fairer, simpler and more effective ways of delivering the current envelope of support.

The Assistant Treasurer also said that, consistent with the government’s commitment to fiscal discipline, the working group has been asked to identify offsetting savings from benefits provided to the NFP sector for any proposals they recommend that have a budget cost.

The closing date for submissions is

17 December 2012 and the working group’s

final report is due to be delivered to the

government by March 2013.

The Commissioner’s perspective

4. A change of CommissionerOn 24 October 2012, the Treasurer and the

Assistant Treasurer in a joint media release

announced that the present Commissioner

would be completing his seven-year term

at the end of this year and will then

become a member of the Foreign

Investment Review Board.

In the media release, the ministers stated

that the government would like to recognise

Mr D’Ascenzo for his 35 years of public

service and for his leadership in the ATO.

Under Mr D’Ascenzo’s guidance, the ATO

has increased its standing as a leading tax

administration and modern public service

organisation. He has made a significant

contribution to the administration of

Australia’s tax and superannuation

systems, regulation and law enforcement

and governance internationally.

Subsequently, on 12 November 2012, the

same ministers in a joint media release

announced the appointment of Mr Chris

Jordan, AO, as the new Commissioner

of Taxation. He will be appointed for a

seven-year period and will start in the

position in January 2013.

Mr Jordan is currently Chair of the Board

of Taxation and has been a member of the

board since its inception in September

2000. Mr Jordan brings a broad range of

experience, including industry and public

policy experience under both Labor and

Coalition Governments.


taxing issues

Recent case decisions

5. Assessability of compensation and trust amountsThe Commissioner’s appeal to the Full Federal Court (Middleton, Perram and Dodds-Streeton JJ) on the assessability of certain compensation has been allowed and the taxpayer’s appeal in relation to a trust distribution has been dismissed (Howard v FCT [2012] FCAFC 149).

Compensation amountIn relation to the compensation amount, the court held that an amount received by the taxpayer as compensation was beneficially derived by him, notwithstanding that he accounted for the amount to a company of which he was a director. The court held that the amount had not been received by the taxpayer as trustee.

Trust distributionIn relation to the trust distribution, the taxpayer had received a distribution of $6,339,733 from a Jersey resident trust (the Esparto Trust). The Commissioner assessed the taxpayer on the amount under s 99B of the Income Tax Assessment Act 1936 (Cth) (ITAA36). The taxpayer’s argument was that the distribution was not assessable because it was a distribution of corpus of the trust estate (and so excluded by s 99B(2)(a) ITAA36).

The Esparto Trust had received the amount from another Jersey resident trust (the Juris Trust) which, in turn, had received the amount from a company (Esparto Ltd), another Jersey resident. The amount was paid by Esparto Ltd pursuant to a buy-back of its shares.

The Full Court held that, if both the Esparto Trust and the Juris Trust were residents of Australia, as required by the excepting words in s 99B(2)(a) ITAA36, the combined operation of s 159GZZZP ITAA36 and s 44(1) ITAA36 was that the amount received first by the Juris Trust and then by the Esparto Trust would have represented assessable dividend income in their respective hands. On this basis, s 99B ITAA36 applied to bring the amount to tax in the taxpayer’s hands.

PenaltiesIn relation to the compensation amount, the Full Court held that the taxpayer had not acted with intentional disregard of the law in relation to this amount and, on the basis that the Commissioner had not argued for

any alternative penalty, no penalty should be imposed.

In relation to the trust distribution, the court held that a penalty based on a lack of reasonable care, as found by Jessup J at first instance, was appropriate, and dismissed the Commissioner’s appeal that the original penalty of 75% of the shortfall should be upheld.

6. Profit-making scheme losses deductibleA single judge of the Federal Court (Middleton J) has upheld claims by the Visy Packaging Group of companies for deductions for losses and loss transfers incurred in the course of a profit-making scheme, which involved the acquisition of the Southcorp packaging business with the intention of selling some of the acquired assets at a profit but which, as events turned out, were sold at a loss on the divestments (Visy Packaging Holdings Pty Ltd v FCT [2012] FCA 1195).

The context in which the deductions and loss transfers arose involved a common plan, scheme or strategy on the part of the participants, which were various members of the Visy corporate group. That common scheme involved the acquisition and on-sale by Visy of various packaging businesses and assets of Southcorp Limited, specifically as a result of which Southcorp businesses and assets were acquired by various special-purpose Visy subsidiaries. The special-purpose Visy subsidiaries were, in turn, on-sold by their shares.

Middleton J was prepared to accept, on the evidence, that at all relevant times the Visy group, by its controlling minds (the executives who were involved in planning and implementing the scheme), intended to acquire all of the diversified components of the Southcorp packaging business, to retain those components that were a synergistic fit with the Visy group’s business operations, and to sell at a profit those Southcorp assets which it did not intend to retain. The divestment of those assets was to be carried out by selling the shares in the Visy special purpose subsidiaries which had acquired the assets. In the event, as noted above, losses were incurred on the sales of the shares.

Middleton J held that Visy had entered into a profit-making undertaking or scheme. Accordingly, when the anticipated profits did not accrue, and losses were incurred instead, those losses were deductible under s 8-1 of the Income Tax Assessment

Act 1997 (Cth) (ITAA97). His Honour stated the following principles (with citations omitted):

“The principle of law which is at the centre of this

case is clear: if the intention or purpose of the

relevant entity in entering into a transaction or

upon acquiring an asset was to make a profit or

gain, that profit or gain will be income, even if the

transaction was extraordinary by reference to the

ordinary course of that entity’s business. Similarly,

if the intention or purpose was to make a profit or

gain but a loss was ultimately in fact sustained,

then a deduction in the amount of that loss would

be permitted.

It is not necessary that the sole or dominant

purpose of entering into the relevant transaction

is to make a gain or profit. It is enough if a ‘not

insignificant purpose’ of the relevant transaction

was to obtain a profit or gain.”

7. GST going concern concession: was there an agreement?The sale of a commercial property which was subject to a monthly tenancy at will following the expiry of the term of a lease was found to be a supply of a going concern for GST purposes and was, therefore, GST-free (Re SDI Group Pty Ltd and FCT [2012] AATA 763).

The principal issue was whether the parties to the sale of the property had “agreed in writing” that the sale was a supply of a going concern (as required by s 38-325(1)(c) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GSTA)).

The contract of sale itself contained no stipulation as to a supply of a going concern. The AAT found, however, that references to sale as a going concern in collateral documents, including a letter from the purchaser’s solicitor to the vendor’s solicitor, a tax invoice provided in anticipation of settlement, and a goods statutory declaration exchanged at the time of settlement, constituted sufficient evidence that the vendor and the purchaser had agreed in writing that the supply was of a going concern.

Clearly, the ideal situation would be to have an express provision in the sale contract as to the GST status of a supply. However, there is no reason in principle why a relevant agreement could not be expressed by provisions in a combination of documents. Whether there is a relevant agreement in any such case will be a question of fact.


taxing issues

8. Premiums paid to foreign resident insurerThe Full Federal Court has, by majority (Lander and Foster JJ, Jessup J dissenting), dismissed the Commissioner’s appeal from the decision of the AAT in Re Crown Insurance Services Ltd on the basis that the appeal was incompetent as there was no question of law involved (FCT v Crown Insurance Services Ltd [2012] FCAFC 153).

The majority decision was not concerned with the merits of the case. Rather, the majority held that the appeal was incompetent, in that the sole question to be determined on the appeal was a question of fact, which meant that, under s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (which provides that a party to a proceeding before the AAT may appeal to the Federal Court only “on a question of law”), the court had no jurisdiction to hear the appeal.

The question decided by the AAT was whether premium income that was paid to the taxpayer, Crown Insurance Services Ltd (admittedly a non-resident), was assessable income (within the meaning of s 6-5(2) or (3) ITAA97)

The AAT found, as a matter of fact, that the premium income was not sourced either directly or indirectly from Australia. Instead, the AAT found that the source of the taxpayer’s income was the insurance contracts with member companies, which were made in Vanuatu and were wholly performed in Vanuatu. The sole question on appeal, therefore, was whether the taxpayer, being a foreign resident, received premium income directly or indirectly from an Australian source during the relevant year, which would be assessable income.

The majority in the Federal Court (Lander and Foster JJ) held that this was a question of fact, not law. Accordingly, the appeal to the Full Federal Court was incompetent and the court had no jurisdiction to hear the appeal. The result was that the AAT decision in the taxpayer’s favour stands.

Jessup J, who dissented, decided that the question raised on appeal was a question of law, being, in substance, whether the facts found by the AAT in the present case necessarily fell within the terms of s 6-5(3)(a) ITAA36. Jessup J went on to find, on the facts, that the premium income derived by the taxpayer was indirectly derived from an Australian source (and was therefore within s 6-5(3)(a) ITAA36).

This decision produces a rather unsatisfactory result as one judge of the Federal Court disagreed on the question of source, and the other two judges who comprised the Full Federal Court expressed no opinion on the question. This means that the correctness of the decision of the AAT on the question must be regarded as somewhat doubtful.

9. Commissioner’s “garnishee” notice validA decision by the Commissioner to withdraw a notice under s 260-5 of Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA), which required the recipient of the notice to pay to the Commissioner 100% of moneys due to the taxpayer, and to replace it with a new notice requiring the recipient to pay to the Commissioner only 20% of the moneys due, has been upheld by the Full Federal Court, on administrative law grounds, as not demonstrating Wednesbury unreasonableness (Queensland Maintenance Services Pty Ltd v FCT [2012] FCAFC 152). The Full Court’s decision upheld a decision of Collier J.

Goodstart Childcare Ltd operated childcare centres. Under contract to Goodstart, the taxpayer provided maintenance, cleaning and renovation services for those centres. Following audits of the taxpayer’s affairs, the Commissioner issued amended assessments to the taxpayer. Together, these assessments involved more than $28.6m. The assessments led to notices under s 260-5 of Sch 1 of the TAA being issued to Goodstart.

The initial notice required Goodstart to pay to the Commissioner the sum of $10,093,860.20 out of moneys which it owed or might later owe to the taxpayer or, if those moneys were less than that sum, the whole of those moneys. The moneys were to be paid in monthly instalments. Following representations by the taxpayer, the Commissioner withdrew that notice, and issued a new notice requiring Goodstart to pay only 20% of each monthly payment which fell due to the taxpayer. It appeared that those payments would be enough to pay the interest that was accruing on the taxation debt, and to partially reduce that debt.

The taxpayer challenged the decision to issue the second notice, on the ground that the decision was so unreasonable “that no reasonable person could have justified it”. The Full Court agreed with Collier J that the Commissioner was required to have regard

to the impact of his decision to issue the notice on the business of the taxpayer, and that it was clear that the primary issue influencing the Commissioner in respect of the percentage payable by Goodstart was the financial impact of the notice on the taxpayer, arising from the fact that approximately 90% of its income was derived from Goodstart. The withdrawal of the original notice, and the substantial reduction in the amount payable by Goodstart, came about because of the Commissioner’s consideration of the financial hardship which might otherwise have been experienced by the taxpayer, and the belief that the reduction in the amount covered by the notice would permit the taxpayer to continue to operate its business.

The decision to fix the required payment at 20% fell comfortably within the range of reasonable outcomes under s 260-5 of Sch 1 TAA.

10. Qantas: decision impact statementThe Commissioner has issued a decision impact statement in response to the High Court’s decision in the Qantas case ([2012] HCA 41).

The issue in dispute in the case was whether Qantas (and its subsidiaries, including Jetstar) had made a taxable supply when it received fares for flights booked but not undertaken by prospective passengers. The critical element of this was whether Qantas made a “supply for consideration” under the definition of “taxable supply” in s 9-5(a) GSTA. The High Court held (by majority) that Qantas did make a taxable supply and was liable to pay GST on the fares paid.

The decision impact statement makes these points:

� the key issue of principle was whether there could only be a “supply for consideration” in circumstances where the “essence or purpose” of the transaction was fulfilled. The majority implicitly rejected this proposition and, instead, accepted that consideration could be in connection with more than one supply but emphasised that the GST would only be payable once. It was apparent that, in establishing that there is a “supply for consideration”, it was sufficient for just one of the supplies, to which the consideration was connected, to occur. In the case, it was the promise by Qantas to use “best endeavours”


taxing issues

to carry the passengers and their baggage. There is no need for the “essence or purpose” of the transaction to be fulfilled;

� in cases where a payment is made on entry into a contract which secures rights (whether conditional or not) to a further supply, the Commissioner considers that the payment will be consideration for a supply consisting at least of the provision of those rights (and entry into corresponding obligations), even if the further contemplated supply is not ultimately made;

� there is nothing in the Qantas decision that would suggest that supplies need to be “dissected” into their component parts, or that the focus of GST should be on contractual rights and obligations instead of performance;

� the Commissioner maintains the view that, in many cases, the entry into contractual obligations and corresponding creation of rights should be construed, where relevant, as part of a composite supply that includes the performance of those obligations; and

� the Commissioner’s view (as set out in GSTR 2009/3) is that, if there is a supply of a right for the customer to receive a further supply and that further supply would have been GST-free or input-taxed, then the supply of rights would be GST-free or input-taxed as appropriate (pursuant to s 9-30(1)(b) or 9-30(2)(b) GSTA).

11. Primary production income: wind farming incomeA draft determination has been issued to the effect that ordinary income derived by an individual from allowing wind farming infrastructure to be constructed, operated and accessed on freehold land that they own and use in carrying on a primary production business does not constitute “assessable primary production income” of that individual for the purposes of the primary producer averaging provisions in Div 392 ITAA97 (TD 2012/D9).

The draft ruling points out that s 392-80(2) ITAA97 provides that, in determining “assessable primary production income”, regard is to be had to “assessable income ... that was derived from, or resulted from, ... carrying on a primary production business”.

In Watson v DCT ([2010] FCAFC 17), the Full Federal Court considered the phrase “assessable income from the business

activity” for the purposes of s 35-10(2) ITAA97. The court noted that the primary question was the meaning of the word “from” in the expression. In that regard, the court referred to the statement of Beaumont J in BHP Petroleum (Timor Sea) Pty Ltd v Minister for Resources ([1994] FCA 1002) that:

“In my opinion, ... ‘from’ is intended to have its dictionary meaning, that is to say, to indicate the starting point, source or origin ...”

On this basis of what was said in Watson’s case, it is only ordinary income derived from or resulting from the particular primary production business being carried on that can constitute “assessable primary production income” for the purposes of s 392-80(2) ITAA97.

Having regard to the various entities that would be approached by and enter into contracts with the entity seeking to construct, operate and access wind farming infrastructure in a region, not all would be individuals and not all would be carrying on a primary production business. The activities of those individuals who do carry on a primary production business would vary depending on the particular business, for example, whether the business is raising cattle or cultivating plants. Given the differences in the extent and nature of the primary production business activities of the individuals who derive the ordinary income, it can be seen that the source of the income dealt with in the draft determination is not their particular primary production activities. Rather, the income is sourced in the individual’s ownership of the land on which the wind farming infrastructure is constructed, operated and accessed. There is no causative connection between the income derived and the particular primary production business being carried on.

Tax Counsel Pty LtdACN 117 651 420


Mid Market focus

IntroductionParticipation in the superannuation system is compulsory for most working Australians through the operation of the superannuation guarantee (SG) system. Many participants, however, do not understand the superannuation system and have little or no interest in being actively involved in the management of their superannuation savings.

Prior to 1 July 2005, employers generally chose the superannuation fund to which they made contributions on behalf of their employees. Most employees/members had access to a range of investment and insurance options and choices within the superannuation funds chosen by their employers. Unfortunately, the vast majority of Australians did not take advantage of the opportunity to personalise the management of their superannuation savings.

The federal government decided that, if an employee was able to choose the superannuation fund to which their contributions were directed, this active involvement would result in Australians having more engagement with their superannuation savings. This, in turn, was expected to result in lower demands being placed on the social security system in the longer term and increased competition in the superannuation market.

Superannuation fund choice was introduced with effect from 1 July 2005. This required employers to offer eligible employees a choice as to which superannuation fund will receive SG contributions made by an employer on behalf of the employee. The change to the way in which the superannuation system operated was introduced through amendments to the Superannuation Guarantee (Administration) Act 1992 (Cth) and Regulations.

Unfortunately, superannuation fund choice has not had the impact that the federal government expected. The vast majority of Australians are still not actively involved in the management of their superannuation savings.

MySuperThe federal government has been concerned that many Australians are in superannuation funds and products that are not entirely appropriate to their circumstances. In particular, many have inappropriate investment options, some have benefits that are not suitable, and most have reasonably high levels of fees and charges.

The federal government decided, therefore, to introduce a new kind of superannuation product called MySuper. MySuper products will be simple, low-cost default superannuation products that are intended to be more appropriate for the needs of individuals who are not engaged with their superannuation savings.

Legislation is progressively being introduced and passed to implement these reforms.

The following discussion outlines some of the features that MySuper products will include.

FeesGeneral fee rules will apply to all APRA-regulated superannuation funds, in addition to the specific fee rules for MySuper products.

Entry fees will be prohibited. Administration fees (in respect of the ongoing operation of the fund) and investment fees (in respect of the investment management of the fund’s assets) can be charged at levels determined by the fund trustees.

Other fees, such as buy/sell spreads (transaction costs), switching fees (between options), exit fees (on withdrawal), and

activity fees (member specific) will also be allowed. However, these fees may only be charged on a cost-recovery basis. A cost-recovery basis is not intended to apply to each instance of the fee being charged, but to apply on the average costs in undertaking those actions. Fund trustees will need to be able to justify these fees.

Any fees will only be able to be charged as a flat fee to all members, a percentage fee to all members, or a flat fee plus a percentage fee for all members.

InvestmentsA single diversified investment strategy must be adopted by each MySuper product.

A lifecycle investment strategy is one where the investment mix changes according to the individual member’s age. A lifecycle strategy may be adopted as the single diversified investment strategy of a MySuper product. However, this must be the same for all members.

InsurancesMySuper products will be required to provide death and total and permanent disablement insurance for all members on an opt-out basis.

The existing requirement for a default fund under superannuation fund choice to offer a minimum level of life insurance cover will be retained.

Intra-fund adviceTrustees of superannuation funds are permitted to provide certain types of financial product advice to their members.

Only personal advice that is of a one-off or transactional nature will be allowed to be spread across the membership of a MySuper product as a whole. The types of advice that are likely to be more complex in nature and, therefore, more costly to provide

This month’s Mid Market Focus provides an overview of the introduction of MySuper products.

by neil howard, fti, hlb mann Judd

mysuper


Mid Market focus

will be provided and charged on an activity fee basis to the member concerned.

PensionsNo form of retirement pension product will be allowed to be branded as a MySuper product. A pension, including a transition to retirement pension, will not be able to be paid from a MySuper product to a member on meeting a condition of release. Trustees will still be able to pay pensions to retirees within their superannuation funds, but these retirees will need to be moved into separate choice products before the pensions can commence.

Default superannuation fundsThe Productivity Commission has now produced its final report into default superannuation funds in modern awards. The Productivity Commission recommended that an expert superannuation panel be established within Fair Work Australia (FWA) to decide on suitable default superannuation funds to be included in modern awards.

The FWA expert panel’s primary objective will be centred on the best interests of the employees under the award. The panel should consider the following factors in reaching a decision:

� the appropriateness of a MySuper product’s long-term investment return target and risk profile;

� the expected ability to deliver on the MySuper product’s return target, given its risk profile;

� the fees and costs of the MySuper product, given the risk/return profile and services provided;

� governance practices;

� insurance covers;

� intra-fund advice; and

� administration efficiency.

Superannuation funds that are authorised to offer a MySuper product will be able to apply to the FWA expert panel to have their products assessed for listing in modern awards. Only those deemed suitable will be eligible for inclusion in modern awards. However, no specific limit will be placed on the number of products that may be listed in those awards.

The Fair Work Act 2009 (Cth) will also be amended to provide that enterprise agreements will only be able to nominate a fund that offers a MySuper product.

Default funds and MySuperFrom 1 January 2014, employers must make superannuation guarantee contributions for employees who do not have a chosen fund to a superannuation fund that offers a MySuper product. Also from that date, trustees of superannuation funds will have to pay member contributions received by them to a MySuper product, unless the member has elected, in writing, to have the contributions made on their behalf to a specified choice product.

By 1 July 2017, all accrued default superannuation amounts in a superannuation fund must be transferred by the trustees to an authorised MySuper product offered by the fund.

Implications for employersFor most employers, it is expected that their existing default superannuation fund will offer a MySuper product. If this is the case, these employers will not have to change their arrangements for making superannuation guarantee contributions. However, new employers, and those employers making contributions to superannuation funds that do not offer a MySuper product, will have to select a new default superannuation fund that does offer a MySuper product.

It is important to remember that, where an employee does not make a superannuation fund choice, employers still need to comply with the requirements of any award that applies to the employee, including the default superannuation funds listed in the relevant award.

SummaryA significant amount of legislation about the introduction of MySuper products is already in place or has already been drafted. However, there are still many issues left to be resolved. The proposed time frame for the introduction of MySuper products is causing great concern to many in the superannuation industry.

The rationale behind the introduction of MySuper products appears to be sound, in that it forces individuals who are disengaged from their superannuation savings into a simple low-cost product. However, the implementation needs to be very carefully managed. The federal government’s constant tinkering with the superannuation rules over time has eroded Australians’ confidence in the superannuation system. Let’s hope that

the implementation of the introduction of MySuper products does not cause any further damage to that confidence.

Neil HowardSenior Manager Superannuation HLB Mann Judd


by Ruth Ferraro

tax education

On 20 November 2012, a number of candidates undertook the first CTA3 Advisory exam on which will confer the Chartered Tax Adviser designation. This exam has also been offered to candidates of the Diploma of Advanced Tax to enable them to complete their course and receive this award, as well as access the designation of Chartered Tax Adviser.

BackgroundRecent information sessions entitled “The future of the tax profession and you” were offered in each mainland state and as an online session (the latter being available for viewing at taxinstitute.com.au/CTA).

In these early days, it is important to share some of the insights from these sessions with regard to the Chartered Tax Adviser exams that are set in the United Kingdom. It is also important to inform you of the benefits offered by undertaking this course and exam in Australia and the outcome for your careers in acquiring the Chartered Tax Adviser designation.

First, it was with a remarkable sense of pride that the UK CTAs spoke about their achievements. In the case of one person (at least) who spoke at the information session, this achievement was not easily won, but the effort expended only added to the prestige of the designation and their sense of accomplishment after successfully completing the exam papers. The experience of offering exams at this level in Australia shows that the graduates also gain the respect of their professional peers.

Table 1 compares how the UK Chartered Institute of Tax (CIOT) and Australian variations of the CTA Program align.In Australia, we have somewhat more flexibility in the program in that the entry point to the program can be established through other programs (Master qualifications or other professional education, for example, the CA Tax Module

or the CPA Advanced Tax Segment), as well as the CTA1 Foundations and CTA2 Advanced courses.

Translating into benefitsHow does this aforementioned pride in achievement translate into benefits for graduates? Again, looking to the UK experience, a number of statistics in relation to employment outcomes and the desirability of the CTA designation give us a view into the future of the Australian context. This shows that tax is seen more and more as a profession in its own right.1

A scan of taxation job vacancies in the UK shows how prominent and sought after the CTA designation is.1

A conclusion that we can draw from this is that, for both the mature UK market and the more recent introduction of the CTA Education Program in Australia, study with The Tax Institute continues to support a program that is:

� promoted by employers for their staff members,

� providing education as a prerequisite for tax roles to demonstrate a commitment to a career in tax;

� an “all taxes approach” to tax education;

� a demonstrable commitment to one’s professional development and career; and

� teaching knowledge and skills that are directly relevant to one’s work.2

If you would like to find out more about The Tax Institute’s courses and the CTA3 Advisory exam which leads to the Chartered Tax Adviser designation, please visit taxinstitute.com.au/education.

References

1 Source: www.taxation-jobs.co.uk, 18 October 2012.

2 Adapted from a presentation on 13 November 2012

by Iain Cooper, CTA, at The Tax Institute information

session entitled “The future of the tax profession and

you”.

Recent information sessions and the conduct of the first CTA3 Advisory exam in November 2012 give us a perspective on “generational” changes to the tax profession.

the future of the tax profession and you

Table 1: Comparison of CIOT and TTI assessment structure

CIOT Chartered Tax Adviser exams The Tax Institute Chartered Tax Adviser exams

CTA exam paper 1: 60 short-form questions (3 hours).

CTA1 Foundations: eight online tests and a two-hour short-answer questions exam

(equivalent to 8 hours).

CTA exam paper 2: approximately six short essay-style questions

(3 hours).

CTA2 Advanced: an assignment (25 hours’ preparation) and one exam

on interaction of all taxes (3 hours).

CTA exam paper 3: interaction of all taxes (2 questions; 3 hours).

CTA3 Advisory: one exam on a specialist topic at an advisory level (3 hours).

CTA exam paper 4: ethics and laws (2 x 1 hour online exams).

Ethics and TASA 2009 Code of Conduct are integrated through each exam

at each level.

0147

NAT

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MONTHLY ONLINE TAX UPDATESThe 2013 Monthly Tax update Series will ensure you are kept up to date with our ever changing tax legislation.

Each online session will cover all the key tax developments arising from the previous month and delve in-depth into the most pertinent issues incorporating a Q & A opportunity.

Begins February 2013

REGISTER FOR THE SERIES OR BY INDIVIDUAL SESSION Member Non-member

Individual session $80 $110 Series (x 10 sessions) $640 $880

YTP: LIFECYCLE OF A CLIENT SERIESThe 2013 YTP series will work through the various scenarios young tax professionals face when dealing with clients

Each session covers important technical information and offers practical tips to guide participants through a number of key tax and legal issues when dealing and working with clients.

Begins March 2013

REGISTER FOR THE SERIES OR BY INDIVIDUAL SESSION$40 per session or $160 for all 5 sessions

CPD ON DVD BOXSET A convenient way to bring your CPD up to dateOur popular DVDs of key seminar presentations and panel discussions enable you to bring the event direct to your offi ce or boardroom while earning CPD hours.

Each DVD comes complete with accompanying technical papers. For the fi rst time, we’re offering a special set of DVDs from 2012. A practical, convenient way to bring you or your team right up to date with recent developments.

Visit taxinstitute.com.au/boxset to find out more.

Visit taxinstitute.com.au/icpd and register now.

2013 ICPDTraining and development without leaving your desk

9 DVDS. 23 CPD HOURS. SAVE OVER $500.


0147

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_11/

12

MONTHLY ONLINE TAX UPDATESThe 2013 Monthly Tax update Series will ensure you are kept up to date with our ever changing tax legislation.

Each online session will cover all the key tax developments arising from the previous month and delve in-depth into the most pertinent issues incorporating a Q & A opportunity.

Begins February 2013

REGISTER FOR THE SERIES OR BY INDIVIDUAL SESSION Member Non-member

Individual session $80 $110 Series (x 10 sessions) $640 $880

YTP: LIFECYCLE OF A CLIENT SERIESThe 2013 YTP series will work through the various scenarios young tax professionals face when dealing with clients

Each session covers important technical information and offers practical tips to guide participants through a number of key tax and legal issues when dealing and working with clients.

Begins March 2013

REGISTER FOR THE SERIES OR BY INDIVIDUAL SESSION$40 per session or $160 for all 5 sessions

CPD ON DVD BOXSET A convenient way to bring your CPD up to dateOur popular DVDs of key seminar presentations and panel discussions enable you to bring the event direct to your offi ce or boardroom while earning CPD hours.

Each DVD comes complete with accompanying technical papers. For the fi rst time, we’re offering a special set of DVDs from 2012. A practical, convenient way to bring you or your team right up to date with recent developments.

Visit taxinstitute.com.au/boxset to find out more.

Visit taxinstitute.com.au/icpd and register now.

2013 ICPDTraining and development without leaving your desk

9 DVDS. 23 CPD HOURS. SAVE OVER $500.

by Emma Atherton

Library Links

LSeasons greetings to our members, from the Tax Institute Library.

taxline – get your questions in early!

Please note, the TaxLine service will be

closed over the Christmas and New Year

period. Please submit your requests by

18 December to ensure a response. Any

requests received after that date will be

attended to when we reopen the service

on 3 January 2013. Send your requests to

[email protected].

We hope you have a lovely break, and look

forward to getting your new questions in

the New Year!

This month’s taxing quote comes from

Dave Coverly: “Woo-Hoo! I put a dollar

under my pillow, and the tax fairy left me

two quarters!”

New articles available from the libraryEmail [email protected] for copies

of these and any other non-Tax Institute

articles you would like to get hold of. Please

note, cost to supply is $22 per article.

I still call Australia home: the ever-expanding ordinary residence testSource: inTAX Issue: October 2012 Pages: 10–11

Abstract: This article highlights recent decisions of the Administrative Appeals Tribunal applying the ordinary residence test. The decisions indicate that the ordinary residence test is being applied expansively by the Commissioner and that the AAT is further muddying the waters of residency for taxpayers and their advisers.

Singapore: taxing the borderless cloud within the Singapore borderSource: Asia-Pacific Tax Bulletin Issue: Vol 18, No. 5, September/October 2012 Pages: 395–399 Abstract: Cloud computing is emerging as the next big thing in information technology

involving the delivery of hosted services over the internet. It will challenge the traditional provision of IT needs via the usual channels of purchase or licence, ownership and administration, this bringing along new opportunities and challenges for tax planners as well as tax regulators. The authors examine the Singapore tax issues, as well as opportunities, in the context of cloud computing users and providers.

“Reasonable” food costs for new LAFHA rules: ATO guidanceSource: CCH Tax Week Issue: Issue 42, 19 October 2012 Pages: 1–3 Abstract: This article looks at new tax rules for living-away-from-home benefits and allowances, apply from 1 October 2012 (as contained in the Tax Laws Amendment (2012 Measures No. 4) Act 2012). The Australian Taxation Office has also released TD 2012/D8.

Checking the checklist checkersSource: inTAX Issue: October 2012 Pages: 14–15 Abstract: This article considers some primary issues in relation to the relevance of checklists in tax practice, including: designing a checklist; checklists in tax compliance work; reviewing the checklist; a checklist in the context of apportioning interest expense; and computer software checklists.

emma’s eCleCtiCsEvery day, I come across websites that inform and entertain. This month, I link you to a site that I have visited and found interesting.

Senate Occasional Lecture Series

www.aph.gov.au/About_Parliament/Senate/ Public_Information_and_Events/occalect/transcripts/transcripts

Public lunchtime lectures on topics relating to parliament and governance. Admission is free and bookings are not required. If you can’t get to Canberra in your lunch hour, lecture transcripts and audio and television recordings of the lectures are also available at this web address.


member profile

“Obtaining a detailed understanding of your client’s business and the industry they operate in is vital to being a valued adviser.”

deloitte

damien hollingsworth

Name Damien Hollingsworth

Company Deloitte

StateAustralian Capital Territory

Member since 2012

Areas of specialtyGST and employment taxes

Why are you a member of The Tax Institute? As a tax practitioner, it is not enough to simply know the law as it currently stands. You need to know what developments are proposed to assist your clients to deal with these adequately and on a timely basis. The Tax Institute’s publications and seminars ensure that members are fully aware of what is occurring within the industry and also often shape the national tax debate.

How did you end up in tax? I studied an “Introduction to Income Tax” course at university. I was taken by the fact that tax cuts across so many aspects of society and politics.

After taking a few more university courses in tax, it became clear that tax was the perfect blend of legal and accounting work (as I was studying both at the time), so I applied for a graduate position at Deloitte. A decision I haven’t regretted since!

What are the challenges for tax practitioners this year?Our clients continue to become better educated and more aware of tax-relevant changes as they occur. Technology also means that clients are in a position to take a lot of work in-house. Therefore, while there will always be a need for compliance work, the traditional services offered by tax advisers are becoming less valued (and therefore less profitable) by our clients. Accordingly, tax practitioners need to create innovative services and billing models to stay relevant. Embracing this change over the next few years will be a significant challenge for our industry.

Another challenge is that the compliance environment is more aggressive than it has ever been before. While there is increased

pressure on government revenue, taxpayers are going to have to deal with increased scrutiny and a “penalty happy” Australian Taxation Office.

Most memorable career moment to dateIt is hard to single out a specific moment. It is always satisfying to obtain a result for a client that they thought was close to impossible, whether that is managing the objection process to successfully receive a significant refund or assisting to ensure that an ATO review is not too painful!

Most of my career highlights involve being part of a team that is providing innovative ideas to our clients in areas of tax law that have not been considered by the ATO or the courts.

How do you relax?As the Canberra weather warms up, I’ve been rowing on the lake in the mornings. It is incredibly relaxing to be out on the water, by yourself, as the sun comes up.

Advice to those entering the professionObtaining a detailed understanding of your client’s business and the industry they operate in is vital to being a valued adviser.

Understandably, given the highly technical nature of the work we do, our advice is often too esoteric to be as useful for our clients as it could be. It’s important to remember that working in tax primarily means dealing with people, not just solving technical problems, and to ensure that your work reflects this.

Finally, stay up to date with tax developments and enjoy yourself.


Visit www.taxinstitute.com.au/QRC to make a purchase.

© 2012 Reed International Books Australia Pty Ltd trading as LexisNexis. LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc. License ABN 70 001 002 357.

LexisNexis and The Tax Institute present the Tax Fundamentals and Tax Specialisations Quick Reference Cards.A handy, colourful laminated card you can keep on your desk or pin to your noticeboard, the Quick Reference Cards represent the first co-publishing effort of LexisNexis and The Tax Institute to offer our members and customers a concise summary of Tax Law in one easy-to-handle reference for accounting and legal practitioners.

Think outside the bookLexisNexis Quick Reference Cards offer a concise summary of Tax Law in one easy-to-handle reference.

Tax Fundamentals Kenny, P

ISBN 9780409333701 eBook 9780409333718

$30 for TTI members $45 non-members

Tax SpecialisationsKenny, P.

ISBN 9780409333725 eBook 9780409333732


COVER

Abstract: The recent decision of the Full Court of the Federal Court in Australia and New Zealand Banking Group Ltd v Konza confirms the breadth of the Commissioner’s power to obtain foreign bank account details under s 264(1)(a) of the Income Tax Assessment Act 1936 (Cth). The decision makes it clear that an addressee may be in breach of its statutory obligation under s 264 even though, if prosecuted under s 8C of the Taxation Administration Act 1993 (Cth), it may be able to establish as a complete defence that it was not capable of complying. In this article, the author examines the decision and its implications in detail. The author notes that this case concerned information held in Australia by an addressee in Australia. Whether the position is the same if the information is not in Australia, but is accessible to the addressee in Australia, is moot.

the Commissioner’s powers to obtain foreign bank

account details under s 264 by angela lee, ati, barrister, douglas menzies Chambers

OverviewIn Australia and New Zealand Banking Group Ltd v Konza (the ANZ case),1 the Full Court of the Federal Court upheld the Commissioner’s power to obtain foreign bank account details under s 264(1)(a) of the Income Tax Assessment Act 1936 (Cth) (ITAA36).2 The case concerned information relating to bank accounts opened with Australia and New Zealand Banking Group Limited’s (ANZ’s) subsidiary in Vanuatu, which had been transmitted to Australia. The Commissioner has reportedly sent similar s 264 notices to another 56 banks in relation to accounts also opened outside Australia.3

In the ANZ case, ANZ’s wholly owned subsidiary in Vanuatu (ANZ Vanuatu) was licensed to carry on a banking business in Vanuatu. ANZ Vanuatu recorded details of the accounts in electronic form on its server in Vanuatu, but also transmitted them to ANZ in Australia, where the information was kept by ANZ in its digital database (called the Global Information Warehouse (GIW)).

The Commissioner issued two notices under s 264(1)(a) (the notices), seeking certain information stored in the GIW. The first notice sought information generally relating to accounts opened by Australian residents in Australian dollars. The second notice sought information regarding accounts containing certain addresses. These addresses were believed to be those of accountants and trust companies involved in tax-minimisation arrangements in which they (rather than an Australian resident) were the account holder. ANZ’s

principal arguments were that the notices were not authorised by s 264, as they compelled ANZ to breach the law of Vanuatu, and that ANZ was not capable of complying with the notices within the meaning of s 8C(1B) of the Taxation Administration Act 1953 (Cth) (TAA).

In a joint decision, Kenny, Edmonds and Robertson JJ dismissed the appeal in relation to the first notice and allowed it in relation to the second notice (on the ground of uncertainty). In doing so, they held that:

� the validity of the notices would not be affected by the incapability of the addressee to comply with them. Rather, the addressee would only be able to raise its incapability as a defence to a prosecution under the TAA for a failure to comply4 or, if convicted, in relation to whether it ought to be ordered to comply under s 8G;5

� there was no breach of Vanuatu law, but if there had been, s 264(1)(a) abrogates any right not to be compelled to contravene a foreign law;6 and

� the notices were not issued for an improper purpose.

The case confirms the breadth of the Commissioner’s power, and makes it clear that an addressee may be in breach of a statutory obligation even though, if prosecuted, it may be able to establish a complete defence. The breach itself may, however, adversely impact the addressee’s business. Against this, it should be remembered that this case concerned information held by an

addressee in Australia. The position may

well be different if the information was

not in Australia, but was accessible to the

addressee in Australia.

Issues on appeal ANZ appealed the decision of Lander J

on the grounds that his Honour erred in

deciding that:

� each of the notices was authorised

by s 264(1)(a) ITAA36 and was valid,

irrespective of whether disclosure of

the information would “infringe foreign

sovereignty” by requiring ANZ or ANZ

Vanuatu to contravene the law of

Vanuatu;

� in any event, disclosure by ANZ of the

information would not contravene the

law of Vanuatu;

� each of the notices was issued for a

valid purpose of ascertaining whether

persons or entities are or might be liable

to pay income tax in Australia, and that

ANZ had not discharged its onus of

establishing that each of the notices

was issued for an improper purpose;

� each of the notices was sufficiently

clear to enable a reasonable addressee

in the position of ANZ to identify the

information from the GIW that was

required to be furnished; and

� it was unnecessary to consider ANZ’s

claim for a declaration that it “is not

capable of complying” with the notices

within the meaning of s 8C(1B) TAA.

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cover

Legislative frameworkThe ANZ case concerned s 264(1), which provides that:

“(1) The Commissioner may by notice in writing require any person, whether a taxpayer or not, including any officer employed in or in connexion with any department of a Government or by any public authority:

(a) to furnish the Commissioner with such information as the Commissioner may require; and

(b) to attend and give evidence before the Commissioner or before any officer authorized by the Commissioner in that behalf concerning the person’s or any other person’s income or assessment, and may require the person to produce all books, documents and other papers whatever in the person’s custody or under the person’s control relating thereto.”

The Full Court agreed with Lander J that s 264 does not provide for any sanctions or processes for non-compliance with a notice issued under that section. The consequences of non-compliance are instead set out in Subdiv A of Div 2 of Pt III (ss 8B to 8HA) TAA. In this regard, the Full Court observed:7

“Section 264 of the ITAA 1936 and ss 8B-8H of the TAA together constitute a statutory scheme for obtaining information, which balances Australia’s national interest in obtaining the information with any particular difficulty that the recipient of the notice may have in providing the information by separating the requirement to furnish information (by the giving of a notice under s 264(1)(a) of the ITAA 1936) from:

(1) the consequences of a failure to comply, namely, prosecution for an offence against s 8C of the TAA, to which the recipient may raise as a defence that it is not capable of complying with the requirement within s 8C(1B); and

(2) the compulsion to comply, which may be ordered by the court under s 8G of the TAA (in addition to imposing a penalty under s 8C), only if the recipient is convicted of an offence against s 8C.”

Decision on appeal

The effect of the law of VanuatuThe effect of the law of Vanuatu in ANZ’s case was premised on two propositions:

� that the provision of the information would in fact breach a law of Vanuatu. The relevant law was said to be the obligation of confidentiality and the statutory obligations arising under s 125

of the International Companies Act of Vanuatu or s 9 of the Trust Companies Act of Vanuatu (insofar as the customers of ANZ Vanuatu were international companies or trust companies);8 and

� that s 264 could not require ANZ to breach a foreign law.

Would compliance with the notices contravene Vanuatu law? The Full Court upheld Lander J’s conclusion that ANZ had failed to establish that compliance with the notices would breach any statutory or non-statutory obligations owed by ANZ to ANZ Vanuatu or its customers.9 In this regard, it is important to note that the notices required ANZ to furnish information from the GIW (a database that ANZ maintains in Australia); the notices were neither directed to ANZ Vanuatu, nor to any information held in Vanuatu.

Would the notices be authorised by s 264(1)(a) even if disclosure by ANZ of the information contravenes the law of Vanuatu? The Full Court went on to consider whether the notices were authorised by s 264(1)(a), even if disclosure of the information by ANZ would contravene foreign law. Their Honours confirmed that s 264(1) abrogates contractual and equitable obligations of confidentiality that the recipient of the notice might owe to third parties under Australian law, and that there would be no reason to reach a different result where duties of confidence might arise under the law of Vanuatu.10

The Full Court held:11

“The disclosure of information by ANZ in Australia is governed by the law of Australia and not by foreign law (irrespective of whether ANZ might contravene a foreign law which purports to have extra-territorial operation).

In authorising the Notices, s 264(1)(a) does not have effect in the territory of another country, nor does it impose obligations on a foreigner (or any person) to take steps in another country that would involve contravention of the law of that country. The application of s 264(1)(a) to require a company in Australia to furnish information held in Australia does not involve any breach of international law or international comity.”

Importantly, the Full Court held that it would be an unwarranted limitation on the power conferred by s 264(1)(a) if that power could be “ousted” by any foreign law that purported to prohibit the disclosure of information in Australia to

the Commissioner. To give such primacy to foreign law would be “an unacceptable encroachment on the domestic country’s legitimate interest in the conduct of its own judicial (and presumably, inquisitorial) proceedings”.12

In any event, the Full Court went on to hold that the question of whether the provision of the information by ANZ would contravene any statutory obligations under the law of Vanuatu is not relevant to the validity of the notices. Their Honours observed that cases dealing with the exercise of coercive powers to compel the production of documents or the provision of information in breach of foreign laws “contemplate a balancing process rather than any absolute restriction on power”.13 Consistently, “the legislative framework enables any potential contravention of a foreign law to be taken into account in the context of the balancing exercise to be performed by a court when considering whether or not to make an order under s 8G of the TAA if the recipient has been prosecuted and convicted of an offence under s 8C of the TAA”.14

Were the notices issued for a proper purpose?The Full Court considered it “trite law”15 that a notice issued in reliance on s 264(1)(a) would be a valid notice, provided it was issued for the purpose or purposes of enabling the Commissioner to perform his functions under the ITAA36 Act or the Income Tax Assessment Act 1997 (Cth).

Their Honours observed:16

“A notice under s 264(1)(a) is not required to identify the person or persons in connection with whose income or assessment the request for information is made; and it does not need to be evident in advance that the information sought in fact relates to the assessment of a particular person or persons. There is no requirement that an issue or dispute of fact must first arise between a taxpayer and the Commissioner before the Commissioner can invoke s 264. A notice may be issued under s 264(1)(a) for the purposes of a “preliminary inquiry” — that is, in order to obtain information necessary for further investigations directed to the ascertainment of the taxable income of Australian taxpayers and the assessment and recovery of income tax.”

Accordingly, and contrary to ANZ’s submissions, the Full Court held that there was no requirement for the notices to be limited (expressly or otherwise) to information directly relating to the assessable income of Australian taxpayers.


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Their Honours considered that such a restriction would effectively preclude an exercise of the investigatory power, required to ascertain whether persons may have assessable income. Rather, they confirmed that the Commissioner may “fish” in a “pool” that contains (or might contain) persons who would be subject to an Australian tax liability, and that would be sufficient to attract the purpose necessary to exercise the power.17 The fact that some information furnished may not in the end relate to Australian taxpayers would not invalidate a notice.18

Were the notices certain?A notice under s 264(1)(a) “should be so framed as to be sufficiently clear to convey to the addressee what information is sought”, and the relevant question is “whether a reasonable man in the position of the addressee of the notice can fairly comply with it and not be thereby exposed to the possibility of penalty for non-compliance having regard to the manner in which the notice is formulated”.19 The requirement of clarity “is not to be applied in a precious or hypercritical fashion”,20 nor “by engaging in a narrow analysis of each word in an attempt to find some latent ambiguity in it”.21 The Full Court held that the validity of a notice on the ground of the certainty of the information it requires to be furnished must stand or fall on the terms of the notice.22

Their Honours upheld Lander J’s decision that the first notice was not invalid on the ground of uncertainty, “in short, the terms of the First Notice are sufficiently certain to enable ANZ to identify the information sought by the First Notice”.23

The second notice sought identifiers (eg name, date of birth, address and telephone number) of the “officers” of certain account holders, where the account holders were not natural persons. The term “officers” is defined in the second notice with reference to the definition of “officer” under various legislation in Vanuatu “or any equivalent provisions under the relevant legislation where the entity has been incorporated, established, licensed and/or registered”,24 and is defined to include a director, secretary and/or servant of the account holder.

The Full Court held that the second notice would require the addressee to work out what positions in a corporate account holder would, under the various systems of law that are applicable, fall within the concept of “officer”, and then to work out

which persons within the GIW occupied those various positions. Their Honours held:25

“The Second Notice is not therefore framed in terms consistent with the clarity which the parties accepted was required of it. It leaves too much of its meaning and application to be worked out by the appellant. The issue is not one of the mere difficulty of the task or the mere burden of compliance but is the number and nature of the judgments or appraisals which the appellant is required by the Second Notice to make.”

Further, their Honours held that the uncertain parts of the notice infected the whole of the second notice and could not be severed:26

“To sever would be to give the Second Notice a new operation for the purpose of saving it … [W]e are of the view that ANZ should not be put to the task of disentangling the valid and invalid components ‘by delicate papyrian exercises with scissors and paste’ or undertaking ‘abstruse questions of construction demanding the extraction (and performance) of some valid obligation from a matrix of invalidity’.”

Accordingly, the Full Court held that the second notice was invalid for uncertainty, and that the uncertainty could not be cured by severing the offending parts.27 Interestingly, their Honours noted that if the term “officer” had been defined in the second notice “as being any person designated in the GIW as a director, secretary and/or servant of the customer, there may well have been sufficient certainty and no difficulty”.28

Was it necessary to consider ANZ’s claim for a declaration that it is “not capable of complying” with the notices within the meaning of s 8C(1B) TAA?On the issue of a declaration that ANZ was not capable of complying with the notices within the meaning of s 8C(1B) of the TAA, the Full Court agreed with Lander J in that “the question whether ANZ is capable of complying with the notices only arises if, and when, ANZ is prosecuted under s 8C. It does not affect the validity of the notices”.29

In this regard, the Full Court essentially endorsed Lander J’s analysis of the statutory regime dealing with compliance with s 264 notices.30 In particular, if ANZ did not comply with a valid notice, it would be open for the Commissioner to prosecute under s 8C. Furthermore, in raising the defence of “not capable of complying”, ANZ would need to provide reasons why it could not furnish the information. Lander J

observed that none of the reasons advanced by ANZ to contend that the notices were invalid would be relevant as reasons in a defence that the bank was “not capable of complying”, because the assumption would be that the notices were valid. An addressee could only be prosecuted for not complying with a valid notice — there should be no prosecution for non-compliance with an invalid notice.31 In any event, his Honour refrained from speculating about ANZ’s reasons for not being “capable of complying” in advance of any prosecution, and stressed that the matter would be heard in a court with jurisdiction to hear the prosecution, which would not be the Federal Court.32

IssuesThe decision of the Full Court represents a significant win for the Commissioner, and confirms s 264 as an important tool in his efforts to tackle offshore tax evasion. ANZ has not sought special leave to appeal the decision to the High Court, and so it is now set to hand over details relating to more than 1,300 Vanuatu accounts.33

As noted above, the Commissioner has sent similar s 264 notices to 56 other banks. Clearly, this decision dispenses with arguments that might otherwise be raised against disclosure, but whether and to what extent s 264(1)(a) enables him to require production of the information sought will still depend on numerous factors. These include the terms of the notice, the location of the information, and the ability of the recipient to access the information.

Information held outside Australia It is unclear whether the Commissioner could require the production of information held outside Australia. In this regard, the Full Court held relevantly that:

� s 264(1)(a) abrogates any right not to be compelled to contravene the law, including a foreign law; and

� given that the requirement to furnish information sought by a notice under s 264(1) abrogates the privilege against self-incrimination, it would be anomalous to qualify that power by reference to potential criminal liability under a foreign law.34

The above indicates that an Australian entity could be compelled to provide information under s 264, even if doing so would contravene foreign law. This would clearly be the case if the information was


cover

accessible by the addressee in Australia. However, it may not be the case if the addressee was a non-resident and could only access the information outside Australia but, in doing so, would breach a foreign law. This would be further complicated if the addressee did not have direct access to the information.

In this regard, s 264(1)(a) is to be distinguished from s 264(1)(b), which expressly includes books, documents and other papers “in the person’s custody or under the person’s control”. In FCT & Ors v The ANZ Banking Group Ltd; Smorgon & Ors v FCT & Ors,35 the High Court held that a bank had custody or control of the contents of safe-deposit boxes kept on its premises because it retained the two keys needed to open the box (one of the keys being the duplicate of the depositor’s keys). This was notwithstanding the fact that the bank was contractually bound to the depositor not to use the duplicate key. The fact that the bank had the actual ability to produce the contents of the box was held to be sufficient to satisfy the requirements of s 264(1)(b). Gibbs AC J remarked:36

“The section is not concerned with the legal relationship of the person to whom the notice is given to the documents which he is required to produce: it is concerned with the ability of the person to whom the notice is addressed to produce the documents when required to do so. Therefore, in my opinion, a notice can be given under the section to any person who has physical control of the documents in question, whether he has or has not the legal possession … ‘[C]ontrol’ in sec 264(1) is not limited to physical control … Indeed I can see no reason why a notice cannot be given to a person who wrongfully has physical control of the documents, or to a person who has parted with possession but retains a right to legal possession: the question is, has the person to whom the notice is given such custody or control as renders him able to produce the documents?”

Applying a similar principle, it could be argued that an addressee could be compelled to provide information under s 264(1)(a), provided the addressee had access to it, notwithstanding that the addressee may not be legally entitled to provide (or access) the information. For example, a subsidiary may routinely share information with its parent even though it is not required to do so.

The implications may be different again if the information sought was stored and only accessible by a non-resident from outside Australia. In this event, presumably the Commissioner would not issue a s 264

notice to an entity outside Australia on the basis that the provision does not have extra-territorial effect. If, however, that information is in a jurisdiction with which Australia has a double taxation agreement, taxation information exchange agreements, or which is party to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (which Australia ratified on 5 October 2012), he may be able to obtain that information from the competent authority of that jurisdiction.

Where a s 264 notice is valid, the Commissioner may prosecute an addressee who fails to comply. The inability of an addressee to compel an offshore entity (eg its subsidiary) to provide the information may give rise to a defence of not capable of complying under s 8C(1B). However, this defence can only be raised in a s 8C prosecution. By this point, the addressee may already be facing breach of covenant issues with respect to its statutory licences for failing to comply with its obligations (see below).

Prosecution under the TAAWhether or not the Commissioner would prosecute an addressee for not having complied by the date set out in a s 264 notice (in ANZ’s case, before its proceedings commenced)37 would no doubt depend on numerous factors, for example, the severity of the breach, subsequent compliance and the reasons for non-compliance.

Unfortunately, if prosecuted, an addressee could suffer reputational and other damage, such as a breach of licence conditions or financial covenant for not complying with a valid notice, even if it were ultimately successful in raising a defence of “not capable of complying” within the meaning of s 8C(1B) to a prosecution.

As noted above, it does not automatically follow that, if the addressee was successfully prosecuted under s 8C, it would then be required to provide the information. The statutory scheme requires an application to be made for an order requiring the addressee to do so under s 8G. When determining whether to make an order under s 8G, it is expected that the court would take into account the Full Court’s comments on balancing “Australia’s national interest in obtaining the information with any particular difficulty that the recipient of the notice may have in providing the information”.

Angela Lee, ATIBarrister Douglas Menzies Chambers

Acknowledgment

The author gratefully acknowledges the assistance from Mr Terry Murphy, SC. However, any errors or omissions in the article are the author’s alone.

References

1 [2012] FCAFC 127.

2 There were two notices, of which one was held to be invalid because it was uncertain. However, the Full Court indicated how the uncertainty could be resolved in a new notice (see below).

3 K Walsh, “ANZ’s Vanuatu client data free to ATO”, Australian Financial Review, 13 September 2012.

4 ANZ at [15].

5 ANZ at [31].

6 ANZ at [32].

7 ANZ at [14].

8 ANZ at [20].

9 ANZ at [19] and [26].

10 ANZ at [30].

11 ANZ at [28] to [29].

12 ANZ at [34].

13 ANZ at [35].

14 ANZ at [35].

15 ANZ at [36].

16 ANZ at [39], references omitted.

17 See FCT & Ors v Australia and New Zealand Banking Group Ltd; Smorgon & Ors v FCT & Ors (1979) 143 CLR 499 at 536 per Mason J and at 546 per Murphy J.

18 ANZ at [40].

19 ANZ at [44], referring to Fieldhouse v FCT [1989] FCA 397 at 208.

20 ANZ at [45], referring to Pyneboard Pty Ltd v Trade Practices Commission [1982] FCA 17 at 375, and McCormack v DCT [2001] FCA 1700 at [54], [56].

21 ANZ at [45], referring to Fieldhouse at 208.

22 ANZ at [57].

23 ANZ at [50].

24 ANZ at [11].

25 ANZ at [63].

26 ANZ at [64]-[65], referring to Fieldhouse at 195 and 204.

27 ANZ at [66].

28 ANZ at [58].

29 ANZ at [15].

30 Australia and New Zealand Banking Group Ltd v Konza & Anor [2012] FCA 196 at [27] to [39].

31 ANZ [2012] FCA 196 at [45].

32 ANZ [2012] FCA 196 at [45] to [46].

33 J Kehoe, “ANZ won’t appeal”, Australian Financial Review, 10 October 2012.

34 ANZ at [32].

35 (1979) 143 CLR 499.

36 FCT & Ors v The ANZ Banking Group Ltd; Smorgon & Ors v FCT & Ors (1979) 143 CLR 499 at 520.

37 In this regard, in Binetter v DCT ([2012] FCAFC 126), a differently constituted Full Court made an order to allow the appellant, whose appeal was dismissed, additional time to comply with a s 264 notice. A similar order was not made in the ANZ case.


FEATURE

Abstract: Practitioners have become aware of what the law and the ATO require in order to comply with the trust streaming legislation, which was introduced in June 2011. Nevertheless, practitioners may well feel daunted by the magnitude of the task of completing trustee distribution resolutions for all of their clients by 30 June. In this article, the author argues that it is essential to have a planned, methodical approach to this task. To that end, the author proposes a method whereby practitioners will be able to plan to realistically achieve this outcome for their trustee clients by 30 June 2013. The article describes the method in detail, with appropriate spreadsheets and trust deed summaries, the determination of distributable income, the classification of trust deeds and other trust deed issues, the information required to draft a trustee distribution resolution, the calculations required by the streaming legislation, and the trust deed amendments. A checklist for, and examples of, trustee distribution resolutions are provided.

trust distributions in practice by graeme white, Cta, director, white & grosso pty ltd

BackgroundWhen the trust streaming legislation was

introduced in June 2011, practitioners

initially reacted badly to the requirement to

have trustee income distribution resolutions

in place by 30 June.

Since the introduction of the legislation,

the Australian Taxation Office (ATO) has

withdrawn IT 328 and IT 329, and has

announced its expectation of the law being

complied with. There is now definitely

a general awareness of what both the

law and the ATO require. Ironically, both

Div 6 of the Income Tax Assessment

Act 1936 (Cth) (ITAA36) and trust deeds

required this to occur before the streaming

legislation was introduced. However, both

practitioners and the ATO had adopted a

casual approach to this. As stated in the

ATO’s notice of withdrawal for IT 328:

“7. However, the legislative requirement is that

the test of present entitlement for the purposes

of Division 6 must be satisfied by the end of the

income year. See, for example, Trustees of Estate

Mortgage Fighting Fund v. Federal Commissioner

of Taxation 102 FCR at 32 where Hill J said that

present entitlement to the income of the trust

estate ‘must arise, if at all, at the latest by the end

of the year of income’. More recently in Colonial

First State Investments Ltd v. Federal Commissioner

of Taxation [2011] FCA 16 Stone J held that the

test of present entitlement prescribed in Harmer

will be satisfied if an entitlement arises ‘within the

relevant tax year’.”

Now that we all appreciate what is

required, it is essential to have a planned,

methodical approach to how we handle

this task. Our role is to keep our clients and

ourselves out of trouble by ensuring that

our trustee clients comply with the law and

are able to pass ATO scrutiny.

It is very common to hear practitioners

complain about the impossibility of

completing trustee distribution resolutions

for all of their clients by 30 June. This

appears to be due to being daunted by the

volume of the trusts within their practice,

and the complexity of achieving the desired

trustee distribution resolution before final

accounts are completed.

Since Treasury’s timetable for “Modernising

the taxation of trust income — options for

reform” has been deferred to an operative

date of 1 July 2014, we know that we have

at least a further two years of the current

rules. We must feel comfortable in working

within these rules to achieve our 30 June

goal of completed trustee distribution

resolutions, which are in line with our

clients’ wishes and which produce the

desired taxation result for our clients.

Both before and after I agreed to present

this paper, there have been some excellent

articles written for The Tax Institute on

trustee distribution resolutions and the

streaming legislation, and I will refer to

some examples and ideas from these

works throughout my paper. It is very

important that full credit be given to those

authors. The articles to which I refer are:

� Chris Wallis, “Trust distributions — the questions accountants are asking”, (2011) 46(1) Taxation in Australia 711;

� Peter Slegers, “Effective trust deeds and trust resolutions”, (2012) 46(10) Taxation in Australia 443;

� Michael Butler, “Future of trusts — the Division 6 facelift and other new developments”, 45th South Australian Convention, 3 May 2012;

� Ken Schurgott and Andrew Noolan, “Trusts”, (2012) 47(1) Taxation in Australia 20; and

� Chris Wookey, “2012 trust distributions — an accountant’s perspective”, Victorian Breakfast Club, 24 May 2012.

I recommend that all practitioners refer to the above articles for more detailed and technical analysis of some of the points raised in this paper.

This paper’s focus is all about how practitioners practically achieve meeting the year-end deadline for drafting trustee distribution resolutions for every trustee client. Typically, this deadline is 30 June. However, some trust deeds require the resolution to be made by a date earlier than the end of the accounting period. For the purposes of this paper, any reference to 30 June for trustee distribution resolutions should be taken to be a reference to the date specified in each trust deed by when trustee distribution resolutions are required.

This paper suggests a way where all practitioners are able to plan to realistically achieve this outcome for all their trustee clients by 30 June 2013.


feature

What is our starting point?

Master control listThe starting point in planning to meet the

30 June 2013 deadline is to determine

your population of trusts. From your client

database or tax lodgment list, list all of the

trusts in your practice on a master control

list spreadsheet, with the 12 columns

headed as follows:

� Client code: this is the client code for

the particular trust. If a client has four

trusts, then the four trusts are listed

under each other. To just refer to a client

group runs the risk of a trust being

missed from the population.

� Name of trust: use the correct name as

in the trust deed.

� Partner/staff: the partner responsible

for the client, and staff member

responsible for:

� reviewing the trust deed;

� preparing or reviewing the trust deed

summary sheet (see below);

� contacting the client to obtain the

current year information required;

� drafting the trustee distribution

resolution; and

� updating the master control list for

this trust up to column 10, ie when

the trustee distribution resolution

is drafted.

� Distributable income code (DI code):

this is the code used to classify the

income definition set out in the trust

deed (see below).

� Beneficiaries checked: this check is

to ensure that the persons or entities

being considered for this year’s trustee

distribution resolution are actual

beneficiaries under the trust deed.

� Date of trust deed summary sheet

review: this is when the trust deed is

reviewed and the trust deed summary

sheet (see below) is initially prepared or

reviewed in subsequent years.

� Date by which resolution is to be made.

� Date information requested from the

client.

� Date information received from the

client.

� Date resolution drafted.

� Date sent to client.

� Date returned from client.

This master control list being continually

updated throughout May and June

is the key to managing workflow and

progressively keeping on top of what has

to be done by 30 June 2013.

The master control list should be used to

reallocate work to other staff if it shows

that a staff member is falling behind the

timetable required to meet the practice’s

30 June 2013 deadline.

When a trustee distribution resolution

is signed and returned by the client,

administration staff are to record the date

returned on the master control list, then

give the trustee distribution resolution to

the staff accountant to check that it has

been correctly signed.

Once the trustee distribution resolution

has been sent to the client, administration

staff insert the date and then shade that

line, say, yellow. When the client returns the

signed trustee distribution resolution, and

it is checked and filed, then the shading is

changed to blue.

By 30 June 2013, all trusts should show

as being completed, and shaded yellow

or blue and your early July procedure is

for staff to still follow up with clients to

ensure that they return the signed trustee

distribution resolutions, if they have not

done so earlier.This ensures that all is in

order before the 30 June 2013 accounts

and income tax work is commenced,

instead of having to follow up a missing

resolution at that time.

Individual trust deed summaries

While we recognise that all trust deeds

have some similarities, we also recognise

how different they can be. We need to

review each deed and, as a minimum,

determine:

� what its definition of income is in order

to determine the trust’s distributable

income;

� who its beneficiaries are;

� whether the trust deed permits

streaming;

� whether outgoings can be allocated as

the trustee wishes;

� whether capital loses can be allocated

as the trustee wishes;

� the wording for the effective

appointment of distributable income to

the beneficiaries; and

� who the current trustee is.

This is best summarised on a separate

sheet for each trust with the relevant

trust deed clause numbers listed, and

with copies of those clauses (or the

complete trust deed, depending on a

practitioner’s preference) attached to the

summary. This allows easy reference and

can be maintained in a paper format or

electronically, depending on your practice’s

method of maintaining records.

There will be a trust deed summary sheet

(with the relevant clauses or trust deed)

attached for each trust listed on the master

control list.

The trust deed summary sheet should

contain the following information:

“Our role is to keep our clients and ourselves out of trouble … and … pass ATO scrutiny.”


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The essentialsThe master control list and the trust deed summary sheets are the two essential tools for a practitioner to implement a planned structured approach to achieving the outcome of client trustee distribution resolutions being in place by 30 June 2013.

The terminologyTo avoid confusion, the terms which I have used in this paper are:

� trustee distribution resolution: this covers what various practitioners may refer to as a trust distribution minute or a trust nomination. I use this term and assume that, in most cases, the trustee distribution resolution will be a circulating resolution signed by all

directors if the trustee is a company,

or by all trustees, if the trustees are

individuals;

� distributable income: this is explained

in detail below. It is trust law income

being income according to accounting

principles and the trust instrument;

� s 95(1) income: this is the trust’s taxable

income;

� income equalisation clause: this is

a provision in the trust deed which

equates the trust income (distributable

income) with the trust’s taxable income

(s 95(1) income); and

� income re-characterisation clause: this

is a provision in the trust deed enabling

the trustee to treat trust income as

capital or capital as trust income for the purposes of determining the trusts’ trust law income (distributable income).

Distributable income

MeaningTo be able to draft any trustee distribution resolution, the first matter to determine is: what is the definition of distributable income under the trust deed? The term distributable income is used to refer to the undefined expression “the income of the trust estate” in s 97(1) ITAA36. The High Court in Bamford1 clarified that the phrase “income of the trust estate” means trust law income. This was explained by Sundberg J in Zeta Force Pty Ltd v FCT2 when he stated:

“The words ‘income of the trust estate’ in the opening part of section 97(1) refer to distributable income, that is to say income ascertained by the trustee according to appropriate accounting principles and the trust instrument.”

Distributable income describes what is available for the trustee to distribute to the beneficiaries. It is something that is real, not fictitious. The trustee has to know how income is defined or determined under the deed and then appoint the distributable income of an accounting period among the beneficiaries.

Types of distributable income definitionsOur practices will have clients with a variety of trust deeds which have been produced over the years by a number of solicitors. It is trite to say that there is not one standard trustee distribution resolution that can be used for all of these deeds within our practices.

Chris Wallis stated that:3

“In how many ways can ‘income of the trust estate’ be defined? The question is like asking how long is a piece of string? An accountant dealing with the usual range of trusts settled over the last twenty years could be dealing with deeds in which the ‘income of the trust estate’ is defined by reference to any of the following (summary form only):

� income;

� net income;

� profits and gains;

� all receipts;

� ordinary concepts;

� ordinary concepts together with capital gains;

� ordinary concepts together with assessable capital gains;

Trust Deed Summary Sheet Date prepared: __/__/__

Latest review: __/__/__

Name of trust

Date established

Trustee – original – current

Beneficiaries – Breadth – Clause no.*

Deeds of variation – Date

Appointor

Termination date

Distributable income definition – Clause no.*

DI code

Power to stream – Clause no.*

Outgoings can be allocated – Clause no.*

Distribution of capital – Clause no.*

Can capital losses be allocated? Clause no.*

FTE/IEE status

� Year

� Test individual

TFN reporting

� Beneficiary name and date reported





Peculiarities

� Appointment of distributable income, any date other than 30 June – Clause no.*

� Does this require the consent of anyone? – Clause no.*

� Other – Clause no.*

* Copy of clause attached.


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� profits and gains in the ordinary course of business;

� trading profits;

� generally accepted accounting principles (GAAP);

� accounting standards;

� net income determined in accordance with s 95;

� net income determine in accordance with s 95 together with any disregarded capital gains;

� net income determined in accordance with s 95 together with any disregarding capital gains and any investment allowances;

� net income determined in accordance with s 95 excluding franking credits;

� net income excluding statutory income or net income exclusive of exempt income;

� all amounts taken into account in calculating net income for the purposes of s 95;

� all amounts included in net income calculated for the purposes of s 95; and

� net income determined in accordance with s 95 but excluding any amounts of statutory income.”

Classification of trust deedsWhile recognising the multitude of possible distributable income definitions within trust deeds, it is helpful to recognise the major approaches to distributable income definitions in our deeds and classify each of our trust deeds accordingly.

The four major categories which I have encountered in practice are:

A. distributable income is not defined at all, or is defined by reference to accounting principles. The trustee has no discretion;

B. distributable income is equated with the net income of the trust as being equal to the trust s 95(1) income. This is what is referred to as an income equalisation clause where there is provision in the trust deed which equates trust income with tax net Income. The trustee has no discretion;

C. distributable income is determined by the deed providing the trustee with a discretion to determine the distributable income to be whatever the trustee decides it is and, in the absence of the trustee doing this, the distributable amount will be determined as s 95(1) income. This is the use of an income recharacterisation clause, where there is the power within the trust deed for the trustee to treat what would otherwise be trust income as capital, and what would otherwise be capital as trust income for

the purposes of the trust. Occasionally,

this default may be to ordinary income,

but I have found in practice that most

deeds that allow this discretion for

the trustee to determine distributable

income are later deeds that will default

to s 95(1); and

D. distributable income is equated with

the net income of the trust as being

equal to the trust s 95(1) income, unless

the trustee determines otherwise.

This results in the operation of an

income equalisation clause (as

explained above), and an income

recharacterisation clause (as explained

above).

An example of such a trustee’s distribution

resolution is as follows:

“IT IS RESOLVED pursuant to clause # of the trust instrument that the income of the Trust for the income year ending 30 June 2013 (income year) available for appointment will be an amount equal to the ‘net income’ of the trust estate as defined by section 95(1) ITAA 1936 plus an amount equal to the difference between the capital gain and the net capital gain as defined in section 995-1 ITAA 1997 made by the Trust (non-assessable capital gain) less any franking credits under section 207-35 ITAA1997 (distributable income).”

As can be seen, the above provides the

flexibility for trustees and practitioners to

decide what is included in distributable

income and manage dealing with it

accordingly.

When using the master control list, the

distributable income definition can be

coded DI A, DI B, DI C or DI D (based on

the above). Obviously, any variation from

this can be referred to as category DI E,

and detailed in a separate file note to the

trust deed summary sheet.

TR 2012/D1TR 2012/D1 was issued on 28 March 2012.

This draft ruling is about the meaning

of “income of the trust estate” in Div 6.

Paragraph 13 of the draft ruling states that,

notwithstanding how a particular trust

deed may define income, the meaning of

the “income of the trust estate” for Div 6

purposes (distributable income) for an

income year cannot exceed:

� the accretions of the trust estate (whether accretions of property, including cash or value) for that year;

� less any accretions to the trust estate for that year which have not been allocated to income;

� less any depletions to the trust estate (whether depletions of property, including cash or value) which have been allocated as being chargeable against income.

This draft ruling is all about excluding legal fictions from distributable income. The most common of these which we encounter are franking credits and the Div 43 capital allowance. Other items mentioned in the draft ruling include:

� distributions from other trusts where the proportionate share of the net income of the distributing trust may be greater than the beneficiary trust’s actual distribution from the distributing trust;

� capital gains and market value substitution;

� Div 7A dividends from loans; and

� attributable income (non-resident transferor trust or controlled foreign company).

The draft ruling disagrees with the statements of the courts that income is to be determined by trust law and what the deed says.

As stated in the joint submission of the professional bodies:4

“Relevance of trust deed. In our view, the ruling does not represent an appropriate interpretation of the High Court’s comments in Commissioner of Taxation v. Bamford [2010] HCA 10 (the ‘Bamford case’ ), specifically that ’the undefined expression “the income of the trust estate” ... has content found in the general law of trusts, upon which Div 6 then operates’.

Instead, the draft ruling seeks to advance the notion of a meaning of ‘income of the trust estate’ that is not dependent on the trust deed.

…

In our view, this paragraph misstates the law as it stands after the Bamford case. The concepts of how to go about determining the income for Division 6 purposes by reference to ‘net accretion to the trust estate for the relevant period’ has no basis in the jurisprudence. What the courts have consistently held is that the result under the general law must be taken by the tax law; it is not the tax law which determines the general law interpretation.”


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In his paper, Chris Wookey5 refers to example 2 from the draft ruling which deals with an income equalisation clause whereby income is defined to be s 95(1) income, which includes franking credits. Chris states:

“In other words, the sharing of the trust’s taxable net income is done in proportion to the beneficiaries’ entitlements to what would be the book profit excluding franking credits. This is despite the distribution resolution, presumably, seeking to distribute the trust’s taxable net income as that is what the deed empowers the trustee to deal with!

If the draft ruling is finalised in its current form, accountants will need to calculate the following things for each trust client:

� net profit

� net income

� adjusted net income, including those amounts to which beneficiaries are ‘specifically entitled’ and beneficiaries’ adjusted Div 6 percentages

� income of the trust estate

That’s four versions of what might be presented in a P&L.”

This mess is even worse when the income of the trust estate according to the trust deed differs from the income of the trust estate or the distributable income per TR 2012/D1.

The ATO has announced that this draft ruling will not be finalised while the review of trust taxation is being undertaken.

Other trust deed issues

Trust deed reviewIn order to complete the information on your master control list and trust deed summaries, you need to review each trust deed to ascertain and list the relevant information.

Trust deed variationsEnsure that you have all deeds of variation to the original trust deed. If the trust is a new client, you should ask the client, the client’s previous accountant, and the client’s lawyer whether there have been variations. You should also check the corporate trustee’s minute book to see if there is any reference to a variation.

BeneficiariesIt is very important to check the beneficiaries under the trust deed before finalising any trustee distribution resolution. Every beneficiary who is to be appointed distributable income must be checked to

ensure that they are a beneficiary under the trust deed. While this may not be a problem in most cases, the issue can arise in certain instances, especially when a new eligible company or trust may be used, and may have to be separately nominated as a beneficiary before it can have income appointed to it, or where a family member has been excluded as a beneficiary in the past for whatever reason.

An example of such a clause which can cause a problem is set out below. While a potential beneficiary is an “eligible person”, they only become a “general beneficiary” when the trustee nominates them in writing under cl (c) of that definition:

“’Beneficiary’ means each General Beneficiary, and each Additional Income Beneficiary;

‘Eligible Person’ means at any time a person who at that time is not an Ineligible Person or an Excluded Person and who is:

(a) The trustee of any trust or settlement under which any General Beneficiary is a beneficiary whether present or contingent;

(b) Any corporation at least one share in which is held or beneficially owned by any General Beneficiary or by any trustee referred to in paragraph (a);

(c) Any other legal entity at least one share or other interest (whether present or contingent) in which is held or beneficially owned by a General Beneficiary or by any trustee or corporation referred to in paragraph (a) or (b);

‘Excluded Person’ means at any time any person in respect of whom or any person who is a member of a class in respect of whom the Trustee has exercised the power of exclusion contained in clause 1.4 (c);

‘General Beneficiary’ means:

(a) Each Specified Beneficiary;

(b) Each parent, brother, sister, spouse, child and grandchild of each Specified Beneficiary and each spouse, child, and grandchild of such brother, sister, spouse, child and grandchild;

(c) Each Eligible Person whom the Trustee may at any time and from time to time nominate in writing as a General Beneficiary; and

(d) Each person whose name appears under the heading ‘Additions to the Class of General Beneficiaries’ in the Schedule or who is a person who is a person who falls within any class of persons described under such heading,

but does not include any person which is for the time being:

(e) An Ineligible Person; or

(f) An Excluded Person.”

Power to streamDoes the trust deed give the trustee the power to stream capital gains and franked distributions? This can be worded in many ways. However, the wording used in TD 2012/21 expresses it very well as the power “authorising the trustee to separately identify and label various sources of income or receipts that form part of the income of the trust estate and to deal with those amounts by reference to their labelling (that is, to ‘stream’ particular sources of income to particular beneficiaries)”.

Allocation of outgoingsIn order to obtain the preferred tax reflex when appointing the distributable income to beneficiaries, the allocation of outgoings against the components of that distributable income is important. This has become even more so now that directly referrable expenses in relation to a franked distribution have to be allocated against that franked distribution. It is imperative that the deed allows the trustee to do this.

Allocation of capital lossesIt is important to be able to allocate capital losses against the component of capital gain that will provide the trustee with the best result.

Non-recoupment of revenue lossesIt should be determined whether the trust deed provides that any prior year revenue losses do not have to be recouped under the principle in Upton v Brown.6 This is discussed further in the decision impact statement on Raftland issued on 24 October 2008.

Information requiredIn order to draft a trustee distribution resolution before 30 June 2013, the following information is required:

� with a trading trust, ideally you would like to see interim management accounts to, say, 31 March 2013, and a projection to 30 June 2013 to estimate what the distributable income pool will be for 2012/13; and

� with an investment trust, you would like brokers’ interim portfolio reports to, say, 31 March 2013 to see the extent of income, franking credits and capital gains, and an estimate of what is still to come by 30 June 2013.


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You also need details of the family members’ estimated personal income for 2012-13. This enables you to determine how much distributable income you want the trustee to appoint to the family members so as to bring each beneficiary to the desired income level.

Ensure that you also check any entities within the client group which have carried-forward tax losses.

Once you have this information, you should compare it to last year’s accounts to ensure that you are not missing a major part of the information or whether you need to request further information.

It is important to remember that, even without interim accounts for the trust, having an accurate estimate of personal income of the family members still enables a tax-effective trustee distribution resolution to be produced. This can occur by the trustee appointing sufficient income to bring the family members to the desired tax level.

If, when appointing distributable income to beneficiaries, absolute amounts are not known, then the trustee resolution can refer to “proportions”, “percentages” and then to a balance to achieve the desired outcome. This will be elaborated on later in this paper to take account of the Commissioner’s attitude to the proportionate approach in TD 2012/22.

It is important to realise that, in obtaining this information from clients, it gives you a chance to touch base with your clients and to use this opportunity for your clients to see that you are doing your best for them before the end of the financial year, rather than later pretending something has happened when it has not. You should see this as a significant opportunity for you to further develop your relationship with your clients.

Where possible, when preparing the trustee distribution resolution, you could estimate eventual 2013 tax payable across the client group, and advise the client in June of what they can expect when accounts and income tax returns are completed. Clients appreciate receiving such advance notice, which allows them to plan accordingly.

Information obtained

ExtrapolationOnce you have obtained the current year information for a client, you then need to extrapolate this to 30 June so that you have an estimate of the 2012-13 distributable

income pool within the trust and estimated other income for each family member and any other entity of the client.

Desired outcomeTake into account the 2012-13 tax rates for Australian residents, which are:

Taxable income thresholds

Marginal rate

$0 – $18,200 0%

$18,201 – $37,000 19%

$37,001 – $80,000 32.5%

$80,001 – $180,000 37.0%

$180,001 and over 45%

Also take into account the level of other income of family members and other family entities.

Calculate how much of the trust’s distributable income you wish the trustee to appoint to each beneficiary.

Trustee distribution basics

WorkloadThis part of the paper concentrates on the simple rules to be followed. More detail on the streaming rules will be provided later in the paper.

To help overcome being daunted by the sheer volume of trustee distribution resolutions, which concern practitioners, you can commence your 2013 trust deed summary sheets and the distributable income definition identification now, as you are preparing each trust’s 2012 accounts and income tax return. You can draft a partial trustee distribution resolution for 2013 based on your knowledge of the deed and the client at this stage. This would mean that the final parts of the distribution resolution would be entered during the year end tax planning work conducted in May and June 2013, when the 2012-13 specific information is obtained from the client. This can help ease the load from year end by bringing part of it forward.

Percentages, proportions and balancesUnless it is specified otherwise in the trust deed, it is permissible for trustee distribution resolutions to appoint income to beneficiaries by way of a percentage or proportion of distributable income, or by referring to a specific amount, then the balance being appointed to another beneficiary. This is necessary when the

extent of the distributable income is not

known, or cannot be estimated before 30

June 2013.

ExampleDad and Mum have gross salaries of

$60,000 and $30,000, respectively. Their

family trust has rental income thought to

be in the range of $80,000 to $95,000. The

trustee would resolve along the following

lines:

IT IS RESOLVED that pursuant to Clause # of the trust instrument that for the income year ended 30 June 2013 to appoint the distributable income to the beneficiaries in the amounts/proportions as follows:

The first $20,000 to Dad.

The next $50,000 to Mum.

The balance 50% to Dad and 50% to Mum.

This ensures that both Mum and Dad have

the same marginal income tax rates.

Alternatively if Mum, Dad and an adult son

(who is a full-time student) have no other

income, a trustee would resolve along the

following lines:

IT IS RESOLVED that pursuant to Clause # of the trust instrument that for the income year ended 30 June 2013 to appoint the distributable income to the beneficiaries in the amounts/proportions as follows:

The first 1/3rd to Dad.

The second 1/3rd to Mum.

The third 1/3rd to [the son].

As can be seen from the trustee

distribution resolutions set out in the

appendices to this paper, this approach

can be used for distributable income as

a whole or components thereof, providing

that the trust deed permits this.

Reverse engineeringWith minors where an exact taxable

income, no matter how small, is required,

the only way to achieve this is with a

trust deed that does not have an income

equalisation clause, to reverse engineer

the trustee distribution resolution so

that present entitlement is given to an

amount of distributable income which is

proportionate to a taxable income of $416.

The resolution to achieve this can be as

follows:


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IT IS RESOLVED that pursuant to the trust instrument, that the balance of distributable income to arise from the Trust fund in the year ending 30 June 2013 is to be appointed to beneficiaries and is to be done so proportionately to the corresponding portions of the balance of net income as defined in section 95(1) ITAA 1936. The said corresponding portions are as follows:

The first $416 To Junior 1The next $416 To Junior 2The next $80,000 To MumThe next $80,000 To DadAnd the balance to XYZ Pty Ltd.

The calculation to achieve it is as follows: distributable income = $416 x distributable income (excluding capital gains and franked distributions) ÷ s 95(1) income.

For example, if the distributable income is $100,000 and the s 95 Income is $200,000, Junior 1’s present entitlement would be calculated as follows:

$416 × ($100,000 ÷ $200,000)

= $208.

This means that the actual calculation is only performed after the accounts are finalised but the present entitlement has been conveyed at 30 June 2013.

“Balance beneficiary” and TD 2012/22The High Court in Bamford held that the amended taxable net income of the trust did not flow to the “balance” beneficiary, being the Church of Scientology. Instead, the income in the s 95(1) income of the trust was taxed to the other beneficiaries in proportion to the distributable income actually appointed to them.

Some commentators feel that any attempt to direct additional s 95(1) income, as a result of a tax audit, will not be successful.

Bamford was a test case and, despite what the trust deed stated, the parties agreed that the income of the trust was the same as the accounting profit. This meant that the non-deductible superannuation contribution was expensed in the accounts and an amended assessment did not alter the trust’s distributable income.

TD 2012/22, dealing with the proportionate approach, provides examples where, after lodgment, the ATO increases the trust’s s 95(1) income (its distributable income), and this increase flows through to a “balance beneficiary” (example 3), which provides a more manageable outcome.

Resolutions v minutesWhere there is a corporate trustee, the directors of the trustee company can attend a meeting, including by telephone as contemplated by s 248D of the Corporations Act 2001 (Cth). Alternatively, all Directors can sign a circulating resolution under s 248A of the Corporations Act 2001. The resolution is passed when the last director signs. The advantage of a circulating resolution is that an actual meeting does not have to be held.

Under s 251A(1) of the Corporations Act 2001, a minute or resolution can be inserted into the minute book up to one month after the resolution is passed. If a resolution is passed on 30 June 2013, the minute can be prepared and signed by 31 July. This could explain why the Commissioner held on until 1 August 2012 before sending “Round 2” letters to some trustees requesting copies of resolutions/minutes.

Section 248B in relation to sole director companies states that a sole director may pass a resolution by recording it and signing the record.

While the ATO has stated that, unless the trust deed requires otherwise, it will accept records created after 30 June as evidence of the making of a resolution by that date to create present entitlement, the best practice is to have the signed resolutions completed before 30 June 2013 so there is no doubt if queried by the ATO.

Your master control list spreadsheet will add support for this when the trustee distribution resolution is recorded as having been returned to your practice by 30 June 2013, or soon thereafter.

Streaming legislation

Convoluted wording and complicated calculationsHaving set up your practice’s plan to achieve a methodical approach to ensuring that all trustee clients will have received and signed their trustee distribution resolutions by 30 June 2013, the next hurdle to overcome is the streaming legislation.

While the master control list and the trust deed summary sheets assist you in dealing with the volume of trusts within your practice by 30 June 2013, they do not help with the seemingly unnecessarily convoluted rules and complicated calculations of the streaming legislation.

Legislative effectThe Tax Laws Amendment (2011 Measures No. 5) Act 2011 received royal assent on 29 June 2011 and gave effect to the “band aid” changes to the taxation of trust income. This Act provided trustees with the ability to stream capital gains and franked distributions. The effect of the legislation is to remove capital gains and franked distributions from being assessed to a beneficiary under Div 6 ITAA36 and having them now assessed under Subdiv 115-C of the Income Tax Assessment Act 1997 (Cth) (ITAA97) (capital gains) and Subdiv 207- B ITAA97 (franked distributions).

Interim measuresThe explanatory memorandum to this legislation described the changes as “interim” and they are intended to operate until the rewrite of the taxation of trusts occurs. As mentioned at the start of this paper, these “interim” measures have been with us for 30 June 2011 and 2012, and will be with us for at least 30 June 2013 and 2014.

Power to streamIt is important to note that, if a trustee wishes to stream a capital gain or franked distribution, there must be the power to stream within the deed. The streaming legislation makes it quite clear that, for a beneficiary to be in receipt of an effectively streamed capital gain or franked distribution for tax purposes, the trustee must have the power to stream under the trust deed. The streaming legislation does not give the trustee the power to stream where the trustee does not have the power to do so.

The ATO stated in its interim changes to the taxation of trusts fact sheet that:

“What has not changed. These amendments do not give trustees a power to stream if they do not already have this power, express or implied, under the trust deed. A streaming power may be implied if the deed confers on the trustee a power to distribute income or capital at the trustee’s absolute discretion and there is nothing further in the deed or trust law in the relevant jurisdiction that fetters that power.”

Rather than relying on an implied power, it is definitely preferable to have an express power to stream in the trust deed, and then there is no room for dispute.

Simple concepts � All capital gains and franked

distributions are assessed to a beneficiary


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of a trust under Subdiv 115-C and Subdiv 207-B, respectively, regardless of whether the trustee streams them or not.

� The balance of distributable income (after deducting all capital gains and franked distributions), appointed to beneficiaries is assessed to be beneficiaries under Div 6.

� Double taxation is avoided by Div 6E eliminating capital gains and franked distributions from Div 6.

� For a trustee to effectively stream capital gains and franked distributions to a beneficiary, the trustee must make the beneficiary specifically entitled to those amounts.

� The legislative concept of specific entitlement is set out below, and is summarised in the ATO fact sheet referred to above, and it states:

“For a beneficiary to be specifically entitled to a capital gain made by a trust, or a franked distribution received by a trust, the following two conditions must be satisfied by the appropriate time.

1. Entitlement condition: the beneficiary must have received, or reasonably expected to receive, financial benefits that are referable to the capital gain (reduced by any losses consistent with the application of capital losses for tax purposes) or franked distribution (reduced by directly relevant expenses).

2. Recording condition: the beneficiary’s entitlement to the amount must be recorded in its character as an amount referable to the capital gain or franked distribution in the accounts or records of the trust.

If these conditions are satisfied and accord with the terms of the trust, the amount of the capital gain or franked distribution to which the beneficiary is specifically entitled is then calculated.”

� It is important to mention that para 2.63 of the explanatory memorandum states that the “accounts or records of the Trust” would include “statements of resolution or distribution statements”. This means that your signed trustee distribution resolutions will meet this criterion and achieve specific entitlement by 30 June 2013.

� In summary, provided there is the power to stream, the trustee distribution resolution will make beneficiaries specifically entitled to capital gains and franked distributions to the extent that it wants, and will then make beneficiaries presently entitled to the balance of capital gains and franked distributions and other

distributable income. Amounts appointed to a beneficiary will be assessed as follows:

� under s 115-227(a) for capital gains to which the beneficiary is specifically entitled;

� under s 115-227(b) for capital gains to which the beneficiary is not specifically entitled;

� under s 207-55(4)(a) for franked distributions to which the beneficiary is specifically entitled;

� under s 207-55(4)(b) for franked distributions to which the beneficiary is not specifically entitled; and

� under Div 6 for all other distributable income.

Simple rulesIn addition, the complicated calculations with the streaming legislation can be ignored in certain simple situations, which can account for many instances in practice. This occurs, for example:

� if capital gains and franked distributions are not streamed, the streaming legislation assesses under Subdiv 115-C, Subdiv 207-B and Div 6. However, this does not result in any different amount being assessed to the beneficiaries than was the case before the streaming legislation was introduced;

� if all of a capital gain or all of a franked distribution is effectively streamed to beneficiaries, then those beneficiaries are assessed on what each is specifically entitled to and the other beneficiaries share the other amounts as appointed by the trustee; and

� if only part of the capital gains and franked distributions are streamed and you ensure that the beneficiaries to whom these amounts are streamed do not share in the balance of the distributable income, the complicated calculations are not required to determine how the beneficiaries are assessed.

The explanatory memorandum to the Tax Laws Amendment (2011 Measure No. 5) Act 2011 at para 2.165 describes the combined operation of the streaming provisions, ie where both the franked distributions and capital gains are streamed by a trust.

At example 2.26, an example is given that runs to example 2.30 and comprises 16 pages where the same set of facts is covered in four different circumstances of

what comprises distributable income. This example has been referred to by many commentators in their presentations and papers, and while the examples including Ash, Bradshaw, Claire and Dawson are comprehensive, they can also be very daunting.

I would like to try to simplify this by making a few general statements about the streaming legislation for everyday use when drafting trustee distribution resolutions.

(1) While capital gains and franked distributions are now taxed under Subdiv 115-B and Subdiv 207-C, rather than Div 6, in situations where these are not streamed, the end result of beneficiaries being taxed has not altered from the pre-streaming legislation. While the new legislation applies, you can easily work out what the taxation result is without having to work through the complicated arithmetic.

(2) If a capital gain or franked distribution is streamed to a beneficiary by making the beneficiary specifically entitled to it, once again you can intuitively work out what the taxation result is without working through the complicated arithmetic. In such a situation, the beneficiaries with a specific entitlement will be taxed on those amounts and the beneficiaries receive the other amounts in their relevant proportions.

It is important to remember with capital gains that a beneficiary is assessed on his share of the total gain comprising his specific entitlement under s 115-227(a) and for his proportion of the non-specifically distributed capital gains under s 115-227(b), which is calculated in accordance with his adjusted Division 6 percentage. The adjusted Division 6 percentage is the beneficiary’s percentage share of the trust’s Div 6 income, ignoring capital gains and franked distributions to which a beneficiary is specifically entitled.

With franked distributions and franking credits, a beneficiary is taxed on his share of the total franked distribution for his specific entitlement under s 207-55(4)(a) and for the non-specifically distributed franked distribution under s 207-55(4)(b), calculated in accordance with his adjusted Division 6 percentage.

In the above comments, the adjusted Division 6 percentage is calculated after (1) excluding specifically entitled capital


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gains, and (2) specifically entitled franked distributions, and nothing else.

While not in accordance with the legislation, arithmetically the correct answer will always be obtained by applying the adjusted Division 6 percentage to the Div 6E income, whereas under the legislation, the Div 6 income is a residual concept.

Where the distribution of capital gains and franked distributions is to be made in the same proportions and to the same beneficiaries who are presently entitled to all other income of the trust estate, the definition of adjusted Division 6 percentage has the practical consequences that the streaming legislation does not have any practical impact on the trustee distribution resolution.

Examples with very clear and understandable explanations on the taxing of beneficiaries on their trust income are set out in the Schurgott and Noolan paper referred to above.7

Allocation of expensesThe deed needs to empower the trustee to be able to allocate expenses that, apart from anything else, enables directly relevant expenses in relation to franked distributions to be properly allocated. To do otherwise would mean that the franked distributions cannot be streamed.

Streaming capital gainsFor a beneficiary to be in receipt of an effectively streamed capital gain, the beneficiary must be made specifically entitled to it under the legislation, which states:

“115-228(1) A beneficiary of a trust estate is

specifically entitled to an amount of a *capital

gain made by the trust estate in an income year

equal to the amount calculated under the following

formula:

*Capital gain × Share of net financial benefitNet financial benefit

where:

‘net financial benefit’ means an amount equal

to the *financial benefit that is referable to the

*capital gain (after any application by the trustee

of losses, to the extent that the application is

consistent with the application of capital losses

against the capital gain in accordance with the

method statement in subsection 102-5(1)).

‘share of net financial benefit’ means an

amount equal to the *financial benefit that, in

accordance with the terms of the trust:

(a) the beneficiary has received, or can be reasonably expected to receive; and

(b) is referable to the *capital gain (after application by the trustee of any losses, to the extent that the application is consistent with the application of capital losses against the capital gain in accordance with the method statement in subsection 102-5(1)); and

(c) is recorded, in its character as referable to the capital gain, in the accounts or records of the trust no later than 2 months after the end of the income year.

Note: A trustee of a trust estate that makes a choice under section 115-230 is taken to be specifically entitled to a capital gain.

115-228(2) To avoid doubt, for the purposes of subsection (1), something is done in accordance with the terms of the trust if it is done in accordance with:

(a) the exercise of a power conferred by the terms of the trust; or

(b) the terms of the trust deed (if any), and the terms applicable to the trust because of the operation of legislation, the common law or the rules of equity.

115-228(3) For the purposes of this section, in calculating the amount of the *capital gain, disregard sections 112-20 and 116-30 (Market value substitution rule) to the extent that those sections have the effect of increasing the amount of the capital gain.”

Regardless of having until 31 August to effectively stream a capital gain, you should ensure that this occurs by 30 June 2013. This will avoid the possibility of a conflict between present entitlement under the trust deed at 30 June 2013 and attempted specific entitlement at 31 August 2013 if part or all of a capital gain is included in the trust’s definition of distributable income.

For a beneficiary to be specifically entitled to a capital gain, the gross capital gain has to be streamed to the beneficiary.

TD 2012/11TD 2012/11 gives authority for a beneficiary of a trust estate to be reasonably expected to receive an amount of the financial benefit referable to the capital gain made by the trust estate in an income year, when the fact that the capital gain was made is not established until after the end of the income year.

The fundamental message behind this determination is that it is possible for a beneficiary of the trust estate to be

reasonably expected to receive an amount of financial benefit referable to such a gain for the purposes of s 115-228(1) ITAA97, despite the making of the capital gain not being established until after the income year. The reasonable expectation requirement is directed to the future receipt by the beneficiary of an amount referable to the gain should it arise, not to the likelihood of the gain itself being made.

Once again, this provides certainty when making a beneficiary entitled to any capital gain by a properly worded trustee distribution resolution, whether the trustee and the practitioner are aware of the existence of the capital gain or not. It is included in the trustee distribution resolution and, if it applies, well and good, and if there is no capital gain, then there is no harm done.

Streaming franked distributionsFor a beneficiary to be in receipt of an effectively streamed franked distribution, the beneficiary must be made specifically entitled to it under the legislation, which states:

“207-58(1) A beneficiary of a trust estate is specifically entitled to an amount of a *franked distribution made to the trust estate in an income year equal to the amount calculated under the following formula:

*Franked distribution x

Share of net financial benefitNet financial benefit

where:

‘net financial benefit’ means an amount equal to the *financial benefit that is referable to the *franked distribution (after any application by the trustee of expenses that are directly relevant to the franked distribution).

‘share of net financial benefit’ means an amount equal to the *financial benefit that, in accordance with the terms of the trust:

(a) the beneficiary has received, or can be reasonably expected to receive; and

(b) is referable to the *franked distribution (after application by the trustee of any expenses that are directly relevant to the franked distribution); and

(c) is recorded, in its character as referable to the franked distribution, in the accounts or records of the trust no later than the end of the income year.

207-58(2) To avoid doubt, for the purposes of subsection (1), something is done in accordance with the terms of the trust if it is done in accordance with:


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(a) the exercise of a power conferred by the terms of the trust; or

(b) the terms of the trust deed (if any), and the terms applicable to the trust because of the operation of legislation, the common law or the rules of equity.”

Peter Slegers in his paper points to an important issue regarding a beneficiary being specifically entitled to a franked distribution. He states:

“The concept of specific entitlement is slightly different for franked distributions compared to capital gains. One major difference is that the net financial benefit is defined as the amount of the franked distribution less directly relevant expenses. This is significant in that expenses that are not directly relevant to the derivation of the franked distribution cannot be deducted against the amount of the distribution in determining the net financial benefit. Hence, if expenses are incorrectly deducted, there remains the risk that a designated beneficiary will not be specifically entitled and assessed on the correct amount of the dividend”.

The legislation permits franked distributions to be pooled, which can overcome the problem where directly relevant expenses exceed the amount of a franked distribution from a particular source. Pooling franked distributions as a single class could result in positive net franked distributions, enabling the attached franking credits to flow to the beneficiaries who are specifically entitled.

Multiple entities

Distributor trustWhen a client group consists of a number of trusts and companies, it is important to get the flow of trustee distribution resolutions correct to arrive at the proper outcome for the client. This can involve all profitable trusts distributing to one trust (a distributor trust) which in turn will distribute to loss trusts, progressively, until the eventual distribution from the final trust is to the beneficiaries including a corporate beneficiary.

If there are capital gains and franked distributions which are required to be streamed, these can be streamed from the distributor trust. By following this route, all losses will be used progressively before the distribution occurs to the corporate beneficiary.

If there are loss companies also within the group, then the trustee distribution resolution from the final loss trust in the chain should be to each of the loss companies, after which the final loss trust

would distribute to the corporate beneficiary. It is important that the distributions to the loss companies are sufficient to recover the losses, and any excess will then be taxed at the corporate rate which is the same as if such a distribution was made to the corporate beneficiary.

Alternatively, the distributor trust could distribute to every loss entity to the extent of their losses (if quantified) and the balance distributed to the corporate beneficiary.

Streaming through the chainIf profitable trusts contain capital gains or franked distributions, it is important that these are able to be streamed to the distributor trust. If this is not done, the distributor trust is not in a position to stream the capital gain or the franked distribution to its beneficiaries. This is because it has not been able to dissect the distribution received to enable the amounts to be recorded in their character as referable to a capital gain or a franked distribution in the accounts or records of the trust.

It is important that, if streaming is to be used, all trust deeds within the group are reviewed to see whether changes are needed to permit streaming through the chain of trusts.

Paragraph 2.70 of the explanatory memorandum to the streaming legislation states that:

“Where a capital gain or franked distribution flows proportionately from one trust to another, it may still be possible for the second trust to create a specific entitlement to its share of the capital gain provided that the second trust received a reportable financial benefit from the first trust that can be specifically allocated to a beneficiary of the second trust.”

Trust deed amendments

TD 2012/21Providing the trust deed contains the appropriate power to amend, practitioners should consider changing the definition of distributable income, inserting an income recharacterisation clause, and introducing a power to stream if the existing deed does not otherwise provide the desired flexibility. Providing this is done before the end of the year, the 30 June 2013 trustee distribution resolution can be framed using the introduced amendments. Concerns regarding possible resettlement issues should not be an issue provided the interests of beneficiaries are not disrupted.

As a result of Clark’s8 case and the issue of TD 2012/21, together with the withdrawal of the ATO’s statement of principles, this should not be a problem.

The trustee distribution resolutionWhile continuing to stress that every trustee distribution resolution has to be tailored to ensure that it is in accordance with the trust deed, examples of trustee distribution resolutions are set out below. I have used the format of resolutions contained in Ron Jorgensen’s paper, “Trusts – Bob’s distribution tool box revisited”, delivered on 4 June 2012 in Tasmania. Any changes which I have made in using this format are all my own doing, and Ron is not to blame.

The trustee distribution resolutions set out in Appendices 1 to 3 use the common formats referred to above and used in the master control list and trust deed summary sheet:

(1) DI A – ordinary income;

(2) DI B – s 95(1) income (income equalisation clause); and

(3) DI C – trustee’s determination (income recharacterisation clause).

Trustee distribution resolution checklistWhile repeating the messages contained earlier in the paper, the following checklist can act as a memory jogger when drafting a trustee distribution resolution.

1. Review of trust deedPrepare or review the trust deed summary sheet.

2. Definition of incomeEnsure that the definition of income used in the resolution is permitted under the trust deed.

3. Distributable incomeIf the s 95(1) income is estimated to be positive while the distributable income is negative, is there any other amount that could be determined as income for the purposes of the deed (be aware of TR 2012/D1)? If there is not, could the deed be amended to do so? Resettlement should be a non-issue under TD 2012/21.

If the trust deed permits the trustee to determine distributable income as in DI C, such income recharacterisation ability has to be considered when determining the revenue or capital nature of an amount.


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Ensure that this is considered. This can be important in relation to having a significant individual for CGT small business concession purposes. It can also be significant in limiting the size of an unpaid present entitlement to a corporate, and thus limiting subsequent payment or loan repayment amounts, compared to the tax equivalent.

4. BeneficiariesList the beneficiaries being considered for distribution and:

(1) determine that they are beneficiaries under the deed; and

(2) obtain their tax profiles and estimated other income for 2012-13.

5. Optimal tax positionBased on the information on hand, ensure that the trust nomination arrives at the most optimal tax result for the client. This includes considering whether it is appropriate to stream amounts to specific beneficiaries as opposed to adopting the proportionate approach.

6. StreamingDoes the trust deed contain a power to enable the trustee to stream any capital gain or franked distribution in the year? If the trustee desires to stream to a beneficiary, ensure that the necessary steps are taken to make the beneficiary specifically entitled.

Refer to the streaming clause number in the trustee distribution resolution.

If a streaming power is required and it is not present, consider having the deed changed to allow this. Resettlement should be a non-issue under TD 2012/21.

7. Small business CGT concessionsBe aware of other factors when considering the trustee distribution resolution, such as the CGT small business concessions and the pattern of distribution test under the trust loss provisions.

Ensure that outgoings are allocated against a category of income which provides the best tax answer. Obviously, if franked distributions are being streamed, these have to be reduced by directly relevant expenses. Flexibility in relation to all other outgoings should be used to advantage.

8. Family trust electionsCheck whether the trust has made a family trust election or interposed entity election before finalising the trustee distribution

resolution. If so, ensure the resolution is not inconsistent with the election. If there is not an FTE, consider the availability of franking credits and any implications of making a FTE.

9. Resolution draftingEnsure that you draft the resolutions to refer to the precise provisions of the trust deed that empower the trustee to perform the specific action that the resolution purports to achieve.

Ensure that the machinery clauses of the trust deed are referred to when the trustee distribution resolution follows them.

10. Date of resolutionCheck whether the trust deed requires the distribution of the distributable income for the year to be effected by a particular time (ie other than 30 June).

11. Identification of beneficiaryEnsure that a trust beneficiary is properly identified. A beneficiary must be a legal entity, so do not refer to a distribution to a trust; it must be made to the trustee in its capacity as trustee of the trust.

12. Nomination of beneficiaries/consent of guardian or appointorCheck whether the trust deed requires the consent of some person to the distribution or that the nomination of a specific beneficiary to be part of a class of general beneficiaries. A distribution to an eligible corporation will not be effective if the deed first requires a separate nomination of the eligible corporation to be a member of a class.

13. Interim distributionsIf there has been an interim distribution during the year, ensure that the trustee distribution resolution takes that into account when drafting the final trustee distribution resolution.

14. TerminologyThe term used in the trust deed, ie “appointed, “pay”, “apply”, “set aside” or “allocated” with a particular reference to the distribution clause itself should be used in the trustee distribution resolution.

15. Distributions to tax-advantaged entitiesIf a distribution is made to a beneficiary which is a tax-exempt or tax-advantaged entity, ensure that by 31 August it has been notified of its present entitlement or has been paid its present entitlement.

16. Ensure that the beneficiaries have quoted their TFN to trusteeEnsure that information is ready to comply with the tax file number (TFN) withholding and reporting rules if a beneficiary is in receipt of a distribution for the first time. This means that the beneficiary must quote their TFN to the trustee by the time of the distribution, say, 30 June 2013, to prevent withholding. The trustee must lodge the TFN report by 31 July 2013, otherwise there will be an offence under ss 8C and 8E of the Taxation Administration Act 1953 (Cth), being $2,200 for the 1st offence, $4,400 for the 2nd offence, and $5,500/12 months jail for the 3rd offence.

17. Add new beneficiaries to tax lodgment listEnsure that a person or an entity being a beneficiary for the first time, and required to lodge an income tax return for the first time, is added to your tax agent lodgment list immediately in order to obtain the lodgment extension post-31 October.

18. Confirm minor’s date of birthConfirm the minor’s date of birth and check to see if they have turned 18 during the year for the purposes of TFN reporting and distributing to them as an adult beneficiary who will now be taxed at adult marginal tax rates.

19. Indefeasible interestEnsure that the trust deed gives the trustee power to set aside an amount distributed to a beneficiary on sub-trust for them absolutely and that the beneficiary has a vested and indefeasible interest in any amounts held for them on sub-trust.

General ledgers and accountsThe example in Appendix 4 aligns distributable income according to the trust deed with the trust’s general ledger and accounts. This is done by having the detailed income statement in a format to which the client can relate, and then have either a one line or detailed adjustments called “Trust income adjustments” to arrive at distributable income which is then appointed to the beneficiaries in accordance with the trust deed. This treatment aligns the trust deed definition of distributable income with the trustee distribution resolution and with the accounts.

This trust deed allows the trustee to determine the distributable income to be s 95(1), plus the non-assessable capital


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gain component, ie DI C, as per the classification code earlier in this paper.

The trust deed permits the trustee to stream capital gains and franked distributions.

To effectively make a beneficiary specifically entitled to a capital gain or franked distribution, there is a requirement in ss 115-228(1)(c) and 207-58(1)(c) that the amount receivable by the beneficiary attributable to this amount be recorded in the accounts in its character.

The requirement that income be recorded in its character is not limited to the trustee distribution resolution. The general ledger and financial statements must also be consistent with the trustee distribution resolution, and this is best done by recording it in sub-accounts in the general ledger.

As illustrated in Appendix 5, the sub-accounts in the general ledger are used to record the components of income in their respective character on receipt by the trustee. In this example, a trust distribution of $125,000 has been received, which comprises the following:

Trust distribution received

Discount capital gain (streamed pursuant to s 115)

$100,000

Streamed non-discount capital gain (streamed pursuant to s115)

15,000

Share of Div 6E income (consisting entirely foreign income)

10,000

Total amount received $125,000

The non-discount capital gain is reduced by the prior year capital loss, and the franked distributions are reduced by the directly relevant interest expense.

The trustee prepares its trustee distribution resolution to appoint discount capital gains to Alice Stanley, franked distributions to Alice Stanley, to Tyler Stanley and to Stanley Investments Pty Ltd, non-discount capital gains to Stanley Investments Pty Ltd, and other income to the two minors, with the balance to the corporate beneficiary, Stanley Investments Pty Ltd.

In addition to recording the income in its character on receipt, it is advisable to also record the income in its character on distribution to the beneficiaries. Continuing

with the example of The Stanley Family Trust, an extract from the trial balance is illustrated in Appendix 6.

SummaryTo achieve your goal and to be able to sleep peacefully on 30 June 2013, remember:

� prepare your master control list as soon as possible;

� prepare your individual trust deed summaries;

� review your trust deeds and determine whether amendments are required;

� obtain interim 2012-13 information and extrapolate to determine the distributable income pool for 2012-13;

� obtain estimated income of all family members available to receive a 2012-13 trust distribution;

� check whether there are other entities with tax losses within the client group;

� update your master control list each day, share it with staff so that they are fully aware of the position, and review it weekly to ensure that the practice is on target;

� start the whole process as soon as possible to ensure that everything is not left until the last part of June, when it then becomes impossible to achieve; and

� with proper planning and a methodical approach, it can and will happen!

Graeme White, CTADirector White & Grosso Pty Ltd

This article was originally presented at The Tax Institute’s 51st Victorian State Convention, held in Lorne on 11 October 2012.

References

1 FCT v Bamford [2010] HCA 10.

2 (1998) 84 FCR 70 at 74-75.

3 C Wallis, “What is the income of the trust estate? It is a three step process”, (2009) 44(3) Taxation in Australia 155.

4 Joint submission, 24 May 2012.

5 C Wookey, “2012 trust distributions – an accountant’s perspective, Victoria Breakfast Club, 24 May 2012.

6 (1884) 26 Ch D 588.

7 K Schurgott and A Noolan, “Trusts”, NSW Annual Tax Forum, 17 May 2012, at pp 11-16.

8 FCT v David Clark; FCT v Helen Clark [2011] FCAFC 5.


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Appendix 1

Blank Trust Nomination 2013 - DI A(SAMPLE OF TRUST NOMINATION FOR TRUST WITH ORDINARY INCOME)

CORPORATE TRUSTEERESOLUTION OF DIRECTORS

PTY LTD

We the undersigned being all the directors of Company entitled to vote on the below resolutions pass the below resolutions pursuant to section 248A of the Corporations Act 2001.

(I being the sole director of the Company make the following resolutions pursuant to section 248B of the Corporations Act 2001)

CAPACITY: IT IS NOTED that the company is acting in its capacity as trustee for (the Trust).

LEGISLATIVE REFERENCES: IT IS NOTED that legislative references are to the Income tax Assessment Act 1936 (ITAA 1936) and the Income Tax Assessment Act 1997 (ITAA 1997).

DETERMINATION OF DISTRIBUTABLE INCOME:

IT IS NOTED that pursuant to clause # of the trust instrument that income of the trust estate for the income year ending 30 June 2013 (income year) available for appointment is an amount equal to net ordinary income of the trust estate and excludes all statutory income as defined by section 995-1 ITAA 1997 (distributable income).

ALLOCATION OF OUTGOINGS: IT IS RESOLVED that pursuant to clause # of the trust instrument when determining distributable income:

� outgoings incurred and directly relevant to a franked distribution are to be allocated against that franked distribution; then

� the remaining outgoings are to be allocated against the following classes of distributable income in the following order:

� ordinary business income; then

� unfranked distributions; then

� ordinary income not listed above other than franked distributions; then

� franked distributions; then

� dividend, interest and royalty income subject to withholding; then

� foreign source income; then

� exempt foreign income; then

� exempt income; then

� non-assessable income.

ALLOCATION OF CAPITAL LOSSES:

If the trust has capital losses in the income year, it is resolved, pursuant to clause # of the trust instrument for the income year that the capital losses be allocated against the following classes of capital gains in the following order:

� the non-discount capital gains successively in order from the date when the relevant capital gains tax event occurred; then

� indexed capital gains successively in order from the date when the relevant capital gains tax event occurred; then

� the discounted capital gains successively in order from the date when the relevant capital gains tax event occurred; then

� the disregarded capital gains successively in order from the date when the relevant capital gains tax event occurs.


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APPOINTMENT OF CAPITAL: (a) IT IS RESOLVED that, if a net capital gain under section 102-5(1) ITAA 1997 has arisen from the trust fund in the year ending 30 June 2013, pursuant to the trust instrument an amount of capital shall be appointed to the following beneficiaries as follows:

The first $/% to

The next $/% to

And the balance to

For the purposes of the above distribution, the amount of capital appointed is the sum calculated after step 5 of the method statement in section 102-5(1) ITAA 1997.

(b) IT IS RESOLVED that pursuant to the trust instrument to appoint from the trust fund an amount equal to the difference between the capital gain and the net capital gain as defined in section 995-1 ITAA 1997 made by the Trust in the income year (non assessable capital gains) to the beneficiaries as follows:

Amount/Proportion of capital distribution (non-assessable capital gain)

Name or Beneficiary

The first $/% to

The next $/% to

And the balance to

(c) IT IS ACKNOWLEDGED that in respect of the above appointed capital gains, each beneficiary has a specific entitlement in the capital gain as defined in section 115-228 ITAA 1997.

APPOINTMENT OF DISTRIBUTABLE INCOME:

(a) IT IS RESOLVED that, if the net income to arise from the trust fund in the year ending 30 June 2013 contains franked distributions, being distributions the whole or part of which have been franked in accordance with section 202-5 ITAA 1997, pursuant to the trust instrument an amount of income equal to the amount of the franked distributions, but limited to the extent of net income, shall be paid or appointed to the following beneficiaries as follows:

The first $/% to

The next $/% to

The next $/% to

The next $/% to

And the balance to

(b) IT IS ACKNOWLEDGED that in respect of the above appointed amounts or proportions which are franked distributions, each beneficiary has a specific entitlement in the franked distributions as defined in section 207-58 ITAA 1997.

(c) IT IS RESOLVED pursuant to the trust instrument, that the balance of net income to arise from the Trust fund in the year ending 30 June 2013 is to be appointed to beneficiaries and is to be done so proportionately to the corresponding portions of the balance of net income as defined in section 95(1) ITAA 1936. The said corresponding portions are as follows:

The first $/% to

The next $/% to

The next $/% to

The next $/% to

And the balance to

Appendix 1 (cont)


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ACCUMULATION OF INCOME IT IS RESOLVED to accumulate the distributable income not distributed to the beneficiaries by the above resolutions with the same proportionate share of that income of the Trust within the definition of “net income” in section 95 ITAA 1936 being deemed to have been accumulated.

SUB-TRUST: IT IS RESOLVED that the above appointed amounts less any amounts which have previously been paid to or applied for the benefit of the beneficiary, be credited to the beneficiary in the books of account of the Trust and that those amounts be held on a separate sub trust pursuant to the provisions of the trust instrument.

PRIORITY OF RESOLUTIONS: IT IS RESOLVED that to the extent of any inconsistency between these resolutions and the treatment of receipts and outgoings in the books of account of the Trust, these resolutions will prevail and the books of account do not constitute an inconsistent implied exercise or non-exercise of the trustee’s discretion.

OPERATION OF RESOLUTIONS: IT IS RESOLVED that the resolutions are intended to operate with effect immediately before the end of the income year on the basis of the actual amount of distributable income and not the amount recorded in the books of account and any consequential adjustment to the distributable income will be distributed as determined by these resolutions and for clarity the adjustment increasing distributable income is intended to be distributed to the balance appointment.

Dated this day of June 2013

DIRECTOR DIRECTOR

Appendix 2

Blank Trust Nomination 2013 - DI B

(SAMPLE OF TRUST NOMINATION FOR A SECTION 95(1) DEFINITION DISCRETIONARY TRUST)

CORPORATE TRUSTEE

RESOLUTION OF DIRECTORS

PTY LTD

We the undersigned being all the directors of the Company entitled to vote on the below resolutions pass the below resolutions pursuant to section 248A of the Corporations Act 2001.


CAPACITY: IT IS NOTED that the company is acting in its capacity as trustee for (the Trust).



IT IS NOTED pursuant to clause # of the trust instrument that the income of the Trust for the income year ending 30 June 2013 (income year) available for appointment is an amount equal to the ‘net income’ of the trust estate as defined by section 95(1) ITAA 1936 (distributable income).



Appendix 1 (cont)


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IT IS RESOLVED pursuant to clause # of the trust instrument for the income year to appoint the distributable income to the beneficiaries in the amounts/proportions and with the tax attributes as follows:

Franked distribution

Name

The first $#/#% of or referable to franked distributions to

The next $#/#% of or referable to franked distributions to

The balance $#/#% of or referable to franked distributions to

Non-discounted capital gains distribution

Name

The first $#/#% of or referable to non-discounted capital gains to

The next $#/#% of or referable to non-discounted capital gains to

The balance $#/#% of or referable to non-discounted capital gains to

Discounted capital gains (50% of discount capital gains) distribution

Name

The first $#/#% of or referable to discounted capital gains to

The next $#/#% of or referable to discounted capital gains to

The balance $#/#% of or referable to discounted capital gains to

Appendix 2 (cont)


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Indexed capital gains distribution

Name

The first $#/#% of or referable to indexed capital gains to

The next $#/#% of or referable to indexed capital gains to

The balance $#/#% of or referable to indexed capital gains to

Other income distribution

Name

The first $#/#% of other income to

The next $#/#% of other income to

The balance $#/#% of other income to

SPECIFIC ALLOCATION OF NON-ASSESSABLE CAPITAL GAINS:

IT IS RESOLVED pursuant to clause # of the trust instrument to appoint from the trust fund an amount equal to the difference between the capital gains and the net capital gains within the meaning of section 995-1 ITAA 1997 made by the Trust in the income year (non-assessable capital gains) to the beneficiaries in the amounts/proportions to which the discounted capital gains have been appointed:

SPECIFIC ENTITLEMENT TO CLASSES OF INCOME AND CAPITAL:

IT IS ACKNOWLEDGED that in respect of the above appointed capital gains, each beneficiary has a specific entitlement in the capital gain as defined in section 115-228 ITAA 1997.

IT IS ACKNOWLEDGED that in respect of the above appointed franked distributions, each beneficiary has a specific entitlement in the franked distributions as defined in section 207-58 ITAA 1997.


GROSSED UP AMOUNTS: IT IS RESOLVED that in respect of the above appointed amounts which have been grossed up under the ITAA 1936 or the ITAA 1997 in respect of any attached tax attribute, the amount less any amounts of that gross up is to be paid or applied for the benefit of the beneficiary.


OPERATION OF RESOLUTIONS: IT IS RESOLVED that the resolutions are intended to operate with effect immediately before the end of the income year on the basis of the actual amount of distributable income and not the amount recorded in the books of account and any consequential adjustment to the distributable income will be distributed as determined by these resolutions and for clarity the adjustment increasing distributable income is intended to be distributed to the balance appointment.


DIRECTOR DIRECTOR

Appendix 2 (cont)


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Appendix 3

Blank Trust Nomination 2013- DI C

(SAMPLE OF TRUST NOMINATION FOR A DISCRETIONARY TRUST)

CORPORATE TRUSTEE

RESOLUTION OF DIRECTORS

PTY LTD

We the undersigned being all the directors of Company entitled to vote on the below resolutions pass the below resolutions pursuant

to section 248A of the Corporations Act 2001.


CAPACITY: IT IS NOTED that the company is acting in its capacity as trustee for the (the Trust).



IT IS RESOLVED pursuant to clause # of the trust instrument that the income of the Trust for the income year ending 30 June 2013 (income year) available for appointment will be an amount equal to the ‘net income’ of the trust estate as defined by section 95(1) ITAA 1936 plus an amount equal to the difference between the capital gain and the net capital gain as defined in section 995-1 ITAA 1997 made by the Trust (non-assessable capital gain) less any franking credits under section 207-35 ITAA 1997 (distributable income).




















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Franked distribution

Name

The first $#/#% of or referable to franked distributions to

The next $#/#% of or referable to franked distributions to

The balance $#/#% of or referable to franked distributions to

Non-discounted capital gains distribution

Name

The first $#/#% of or referable to non-discounted capital gains to

The next $#/#% of or referable to non-discounted capital gains to

The balance $#/#% of or referable to non-discounted capital gains to

Discounted capital gains (gross capital gains) distribution

Name

The first $#/#% of or referable to discounted capital gains to

The next $#/#% of or referable to discounted capital gains to

The balance $#/#% of or referable to discounted capital gains to

Indexed capital gains distribution

Name

The balance $#/#% of or referable to indexed capital gains

Other income distribution

Name

The first $#/#% of other income to

The next $#/#% of other income to

The balance $#/#% of other income to

SPECIFIC ENTITLEMENT TO CLASSES OF INCOME:

IT IS ACKNOWLEDGED that in respect of the above appointed capital gains, each beneficiary has a specific entitlement in the capital gain as defined in section 115-228 ITAA 1997.

IT IS ACKNOWLEDGED that in respect of the above appointed franked distributions, each beneficiary has a specific entitlement in the franked distributions as defined in section 207-58 ITAA 1997.


GROSSED UP AMOUNTS: IT IS RESOLVED that in respect of the above appointed amounts which have been grossed up under the ITAA 1936 or the ITAA 1997 in respect of any attached tax attribute, the amount less any amounts of that gross up is to be paid or applied for the benefit of the beneficiary.


Appendix 3 (cont)


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Appendix 4

The Stanley Family Trust

Detailed Income Statement For The Year Ended 30 June 2012

INCOME $

Distributions Received 125,000

Dividends Received 120,000

Gross Profit from Trading 57,500

302,500

EXPENSES

Accountancy Fees 2,200

Entertainment 3,500

Interest Paid 40,000

Superannuation 4,000

Wages 25,000

74,700

Profit 227,800

Trust Income Adjustments

Capital Losses Prior Year (10,000)

Entertainment 3,500

Accrued Superannuation 90

(6,410)

DISTRIBUTABLE INCOME 221,390

OPERATION OF RESOLUTIONS: IT IS RESOLVED that these resolutions are intended to operate with effect immediately before the end of the income year on the basis of the actual amount of distributable income and not the amount recorded in the books of account and any consequential adjustment to the distributable income will be distributed as determined by these resolutions and for clarity the adjustment increasing distributable income is intended to be distributed to the balance appointment.


DIRECTOR DIRECTOR

Appendix 3 (cont)


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Appendix 5


Annual Trial Balance [Extract] From 01/07/2011 To 30/06/2012

197 Distributions Received $ $

19701 Discount Capital Gain

(Gross) 100,000.00

19702 Non-Discount Capital Gain 15,000.00

19705 Foreign Income 10,000.00

198 Dividends Received

19802 Franked 120,000.00

230 Sales 146,500.00

250 Opening Stock 9,000.00

260 Closing Stock 15,000.00

270 Cost of Goods Sold 95,000.00

300 Accountancy Fees 2,200.00

350 Entertainment 3,500.00

383 Interest Paid

38301 Macquarie Margin Lending 40,000.00

457 Superannuation 4,000.00

470 Wages 25,000.00

486 Trust Income Adjustments

48601 Capital Losses Prior Year 10,000.00

48602 Entertainment 3,500.00

48603 Accrued Superannuation 90.00


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Appendix 6


Annual Trial Balance [Extract] From 01/07/2011 To 30/06/2012

Account Description Debit $ Credit $

500 TRUST FUNDS

50000 Settlement Sum 50.00

50003 Distribution to Beneficiaries 221,390.00

501 Alice Stanley

50103 Drawings 120,000.00

50104 Franked Distribution 20,000.00

50105 Discount Capital Gains 100,000.00

502 Madison Stanley

50203 Drawings 416.00

50207 Other Income 416.00

503 Tyler Stanley

50303 Drawings 40,000.00


504 Ava Stanley

50403 Drawings 416.00

50407 Other Income 416.00

505 Stanley Investments Pty Ltd

50503 Drawings 35,558.00


50506 Non-Discount Capital Gain 5,000.00

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FEATURE

Abstract: Recent court and tribunal decisions have refocused attention on the question of taxpayers’ onus in tax appeal proceedings, and are a timely reminder of the significant burden shouldered by taxpayers who seek to challenge an assessment. If a taxpayer’s case does not establish all of the factual elements essential to the correct operation of the law, then the taxpayer will almost inevitably fail. This article reiterates that a taxpayer who seeks to challenge an assessment in Pt IVC proceedings must do so with clear and unambiguius proof. Taxpayers therefore need to be strategic in gathering the necessary evidence required to make out their positive evidential case and discharge the burden. While this is often a time-consuming and expensive process, it is imperative as compelling legal arguments alone will not guarantee success.

IntroductionSeveral recent decisions, including FCT v Rawson Finances Pty Ltd1 and Baini v FCT,2 have redrawn the attention of taxpayers and practitioners to the question of the taxpayer’s onus in tax appeal proceedings. These cases are a timely reminder of the significant burden shouldered by taxpayers who seek to challenge an assessment. If a taxpayer’s case does not establish all of the factual elements essential to the correct operation of the law, then the taxpayer will almost inevitably fail.

Part IVC of the Taxation Administration Act 1953 (Cth) (TAA) governs the burden of proof in tax appeal proceedings.3 This burden is sometimes also referred to as the taxpayer’s onus. The relevant provisions are s 14ZZK (appeals to the Administrative Appeals Tribunal) and s 14ZZO (appeals to the Federal Court). Each of these provisions dictates that a taxpayer’s grounds of appeal against an objection decision by the Commissioner are limited to the grounds in the objection, and the taxpayer has the burden of proving that the relevant assessment is excessive. What is considered to be excessive for the purposes of Pt IVC is not necessarily straightforward.

To critically assess the prospects of success in Pt IVC proceedings, taxpayers need to fully understand what the onus is and how the evidential burden placed on them can be discharged. In short, the burden can be discharged by either demonstrating that the Commissioner had no power to make the assessment or by

leading evidence to show, on the balance

of probabilities, that the assessment is

excessive. It is the latter that is discussed

in more detail below.

The key messages for taxpayers are:

� taxpayers have a right to know the basis

of the Commissioner’s assessment,4

but the Commissioner is not required

to prove in Pt IVC proceedings that his

assessments are correct;

� demonstration of error by the

Commissioner will not satisfy the

onus. A taxpayer must satisfy the onus

by affirmative proof, weighed on the

balance of probabilities, to establish the

correct amount of taxable income;

� the court or tribunal may draw

inferences from the evidence, but

cannot draw inferences favourable to

the taxpayer in the absence of evidence;

� rejection by the court or tribunal of the

Commissioner’s submissions will not

necessarily mean that a taxpayer’s

appeal will be successful. If a taxpayer

does not affirmatively prove the correct

assessment, the Commissioner may

succeed despite his submissions or

evidence having been rejected;

� in the case of a default assessment, a

taxpayer’s evidence must explain away

all other possible sources of income and

leave no uncertainty as to their affairs;

and finally

� taxpayers should critically assess the

breadth and strength of their evidence.

Power to make assessmentsSection 166 of the Income Tax Assessment Act 1936 (Cth) (ITAA36) provides the Commissioner with the general power to make an assessment, which is his ascertainment of a taxpayer’s taxable income and the amount of tax payable thereon. When making an assessment, the Commissioner may rely on any returns filed by the taxpayer and on any other information in his possession.

The power in s 166 is usually relied on by the Commissioner where the taxpayer has filed income tax returns; however, failure by a taxpayer to lodge an income tax return does not preclude assessment. If a taxpayer fails to lodge a return, or if the Commissioner is not satisfied with the return that has been lodged, the Commissioner can make what is known as a default assessment of the amount which, in his or her judgment, income tax ought to be levied on. The power to make default assessments is found in s 167 ITAA36 and it is adjunct to the general assessment power in s 166.

Disputing the Commissioner’s calculations or power to make an assessmentTaxpayers can dispute the Commissioner’s exercise of his assessment power, including the underlying calculations of taxable income and tax payable. However, when disputing the Commissioner’s calculations, taxpayers should bear in mind that mere demonstration of error is

the taxpayer’s heavy burdenby daniel groch, associate, and angela wood, Cta, partner, maddocks


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not enough. As Brennan J stated in Dalco v FCT:5

“... A taxpayer who shows on the facts that are known a mere error by the Commissioner in assessing the amount of the taxpayer’s taxable income does not show that his objection should have been allowed or that the appeal against the assessment must be allowed.”

In practical terms, demonstration of error is not enough. It is insufficient for a taxpayer to simply “knock a few apples off the tree” to demonstrate weakness in the Commissioner’s assessment. Taxpayers must go further. Particularly, in the case of a default assessment, it is necessary for the taxpayer to exclude by their proof all sources of income except those which they admit (see George v FCT6).

The Commissioner has no obligation to show that his assessment was correctly madeAs Mason J explained in Gauci v FCT,7 in relation to then s 190(b) ITAA36:

“The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such requirement would be inconsistent with s.190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail.”

In Gauci, Mason J took the view that, despite the obvious stringency of the onus, there was nothing inherently unfair about the substantial burden it places on taxpayers. His Honour underscored the fact that, in many cases, the correct application of the tax law hinges on the taxpayer’s intentions. In these circumstances, the onus reflects that such matters are likely to be within the comprehensive knowledge of the taxpayer, not the Commissioner.

As the case of Bailey v FCT8 makes clear, taxpayers have a right to know the basis of the Commissioner’s assessment, but this right should not be confused with an obligation on the part of the Commissioner to prove the correctness of his assessment. There is no such obligation. The onus of proving the true taxable income rests entirely with the taxpayer.

Taxpayers need to be aware that there is always a possibility that the Commissioner may succeed at litigation even where he

does not himself bring any evidence, or where the evidence that he does bring is rejected by the court or tribunal. Provided that any technical prerequisites to making the assessment have been satisfied,9 and there is no evidence of bad faith or defective administration, the Commissioner does not need to do anything to defend his assessment.10 In practice, however, the Commissioner would ordinarily defend his assessment by attacking and seeking to undermine the positive case put by the taxpayer and, relatively rarely, leading evidence. Importantly, this means that taxpayers should not frame their approach to litigation on the basis that rejection of the Commissioner’s submissions would lead to a taxpayer victory. It is possible that the court or tribunal may both reject the Commissioner’s submissions and dismiss the taxpayer’s appeal.

Section 167 assessments and the Commissioner’s use of benchmarksUnlike a s 166 assessment, the making of a default assessment under s 167 involves an inherent degree of estimation and approximation. When allied with the taxpayer’s onus, one consequence is that default assessments can be very difficult to disprove because of the entrenched assumption in favour of the Commissioner. That difficulty arises in part because the inherent estimation does not overshadow or undermine the assessment. Unless proven otherwise, a default assessment remains as valid and effective as an ordinary assessment made on the basis of taxpayer returns and other information. As Latham CJ said in Trautwein v FCT:11

“In the absence of some record in the minds or books of the taxpayer, it would often be quite impossible to make a correct assessment. The assessment would necessarily be a guess to some extent, and almost certainly inaccurate in fact. There is every reason to assume that the legislature did not intend to confer upon a potential taxpayer the valuable privilege of disqualifying himself in that capacity by the simple and relatively unskilled method of losing either his memory or his books.”

As most practitioners would be aware, the Commissioner makes extensive use of industry benchmarks to identify businesses that may be avoiding their tax obligations by not reporting some or all of their taxable income. By comparing information reported by taxpayers with key benchmarks, the Commissioner is

able to focus his compliance activities on taxpayers which have fallen conspicuously outside a relevant benchmark. Where the Commissioner subsequently makes an assessment on the basis of the benchmark, the risk of being unable to discharge the onus will be high if the taxpayer has kept inadequate records and cannot provide acceptable contemporaneous evidence of the relevant transaction(s).

Disputes about the appropriateness of the Commissioner’s benchmarking methods arise regularly, but Baini is a good example of the intrinsic difficulties of fighting the benchmark rather than establishing a positive case. In Baini, the Commissioner’s assessment was premised on industry average incomes expected to be derived by Mr Baini’s taxi business. Much can be said about the flaw of averages and the possibility that the assessment was inaccurate with respect to Mr Baini’s specific business. But, in the absence of positive contrary evidence, such as complete records for taxi fares, cash takings and business outgoings, it was not possible for Mr Baini to satisfy the onus.

The evidence given in the course of Mr Baini’s case was predominantly directed to establishing that his vehicles were aged and badly tuned, and that his drivers were inexperienced. Assuming that this evidence was accepted, Mr Baini had hoped that the tribunal would infer that the fuel efficiency of his cars was low and thus his business expenses would be comparatively higher than the industry benchmark. Unfortunately for Mr Baini, the tribunal determined that, without records of servicing and odometer readings, the evidence was no more than anecdotal and could not be preferred over evidence given by the Commissioner’s expert witness, a mechanical engineer. Mr Baini’s appeal was dismissed.

When making a default assessment, the Commissioner may even include in the taxpayer’s assessable income amounts derived by persons or entities associated with the taxpayer.12 Indeed, between associated taxpayers, the Commissioner can identify an aggregate total level of income and divide it equally between them.13 In a dispute context, the extensive nature of the Commissioner’s assessment power, and the embedded assumptions in his favour, create real and significant obstacles which taxpayers must overcome.

The nature of the taxpayer’s onus demands that Pt IVC proceedings be approached in a methodical and forensic


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manner. Although the same can be said of commercial litigation generally, the critical point of distinction in the taxation context is provided by the burden imposed by ss 14ZZK and 14ZZO TAA.

Taxpayer obligation to show the true and correct level of taxable incomeThe nature of the taxpayer’s onus is articulately expressed in the following, often-cited, passage from McCormack v FCT:14

“… The taxpayer bears the burden of proving that the assessment was excessive. To discharge that burden in a case such as the present he must prove affirmatively, on the balance of probabilities, that the property was not acquired for the purpose of profit-making by sale. The burden may be discharged by drawing inferences from the evidence. In some cases in which all the relevant facts are known, and there is no material upon which it might properly be concluded that the property was acquired for the relevant purpose, the inference may properly be drawn that the property was not acquired for the relevant purpose. But it is not enough, even when all the facts are known, that there is no material upon which it may be concluded that the property was acquired for the purpose mentioned in s. 26(a). If a taxpayer can succeed, simply because there is no evidence from which it can be concluded that the relevant purpose existed, that must mean that the burden of proving the existence of that purpose lies on the Commissioner. That in my respectful opinion would be to invert the onus of proof. The taxpayer will succeed if the proper inference from the evidence is that the property was not acquired for the relevant purpose, but if there is no evidence as to the purpose for which the taxpayer acquired the property the appeal must fail.”

From this passage, a number of key principles can be extracted:

� affirmative proof is critical to satisfy the onus;

� inferences from the evidence may assist a taxpayer to discharge the burden. However, favourable inferences are unavailable in the absence of evidence; and

� it remains incumbent on the taxpayer to satisfy the onus. The onus is never inverted or transferred to the Commissioner.

As the tribunal decision in Baini confirms, the onus is not mitigated by the Commissioner’s use of benchmark analysis, even though these statistical methods are at risk of being generally

correct but specifically inaccurate. The key message for taxpayers is that any appeal which solely concentrates on attacking the Commissioner’s assessment is almost certainly doomed to fail. To succeed, a taxpayer must take up the task of proving, via relevant and focused primary evidence, what the correct assessment is.

The need for comprehensive evidenceWhere a taxpayer’s evidence is inadequate, courts and tribunals are unable to draw inferences in favour of the taxpayer (see above with respect to McCormack v FCT ). Where the taxpayer’s evidence is rejected, the appeal must be dismissed,15 however, even where the Commissioner’s evidence or submissions are rejected, the taxpayer may not necessarily win.

It is also worth noting that, even if a taxpayer can prove that an item included in their assessable income ought not to have been included, they will nonetheless fail in their appeal if there is otherwise uncertainty as to their taxable income.16 For example, if the dispute concerns amounts deposited into the taxpayer’s bank account which the Commissioner has identified as income, the taxpayer will need to provide positive proof of the origin of the moneys in the account.17

The recent decision in Rawson is a reminder to taxpayers of the importance of leading positive evidence. In this case, Edmonds J of the Federal Court overturned a decision by the tribunal in favour of the taxpayer. His Honour found that the tribunal’s error was a product of the way in which it had approached the issue. The tribunal had erred in accepting the taxpayer’s contention that funds transferred to it in 1997 should be characterised as loans unless the unusual features and circumstances of the transactions contradicted or cast doubt on the loan characterisation. The tribunal had concluded that the unusual features and circumstances of the transactions did not contradict or cast doubt on the loan characterisation, and it did not consider whether there were any other alternative explanations compatible with a non-loan characterisation.

Any suggestion that the transaction could be presumed to be a loan (unless proven otherwise) was rejected by Edmonds J. His Honour stated that the source of the funds alleged to have been loaned was a matter for the taxpayer to establish, and unless it could show that the funds did not

have the character of income, by reference to evidence of source or otherwise, then it failed to discharge the onus of proving that the assessments were excessive. Edmonds J endorsed the view of Hill J in Richard Walter Pty Ltd v FCT,18 where his Honour stated:

“If they were not loans it will be for the taxpayer then to show that they are something else which does not have the character of income. If the taxpayer does not do this it will not have satisfied the onus of showing that the assessment is excessive.”

The taxpayer determines how to prove their taxable incomeGiven that they bear the onus, it is perhaps only reasonable that taxpayers retain complete discretion as to how they go about satisfying that burden. In Gashi v FCT,19 Jessup J stated:

“It is for them [taxpayers] to determine how they will go about answering that question. The approach taken, and the assumptions employed, by the Commissioner will not be binding in that arena.”

In Ma v FCT,20 Burchett J offered one possibly acceptable approach to discharging the burden in an asset betterment case:

“… if a taxpayer denies any undisclosed source of income, provides acceptable evidence of how he spends his time, and demonstrates a reasonable explanation for any appearance of the possession of assets, he will generally discharge his burden of proof unless some positive reason is shown why he is to be disbelieved. Any other view would introduce a degree of arbitrariness into liability for tax.”

On the flipside, taxpayers are unlikely to succeed in discharging the onus where their evidence is:

� deliberately false or misleading;

� unreliable, although not dishonest; and/or

� unassisted by direct evidence from persons who might have thrown light on relevant matters.21

ConclusionA consistent theme arises from the above decisions: a taxpayer who seeks to challenge an assessment in Pt IVC proceedings must lead clear, unambiguous and comprehensive evidence. The assessment against which an appeal is brought is assumed to be valid, binding and effective, unless it can be shown not only that it is wrong, but also that it is excessive and, further, what the true taxable income is. Taxpayers need to be strategic in gathering the necessary


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evidence required to make out their positive evidential case and discharge the burden. This process is easier when orderly and comprehensive records have been kept and contemporaneous diary notes and internal communications have been preserved. While gathering, reviewing and considering relevant material in a dispute is often a time-consuming and expensive process, it is imperative as compelling legal arguments alone will not guarantee success.

Daniel GrochAssociate Maddocks

Angela Wood, CTAPartner Maddocks

References

1 [2012] FCA 753.

2 [2012] AATA 440.

3 Part IVC applies to objections and appeals by persons who are dissatisfied with an assessment, determination, notice or decision, or with a failure to make a private ruling.

4 Australian Taxation Office position papers, appeal statements, and statements of facts and contentions all serve the purpose of providing taxpayers with details of the ATO’s position.

5 (1990) 168 CLR 614 at 625.

6 (1952) 86 CLR 183.

7 (1975) 135 CLR 81.

8 (1977) 136 CLR 214.

9 Section 177 ITAA36 provides that production of a copy of a notice of assessment is conclusive evidence of the due making of the assessment and, subject to review under Pt IVC, is evidence that the amount and all the particulars of the assessment are correct.

10 George v FCT (1952) 86 CLR 183 at 189–190.

11 (1936) 56 CLR 63 at 87.

12 See, for example, Dalco at 626-627, and Eldridge v FTC 90 ATC 4907.

13 Eldridge at 4911.

14 (1979) 143 CLR 284 at 303.

15 Gauci v FCT (1975) 135 CLR 81.

16 Favaro v FCT (1997) 97 ATC 4442.

17 Vu v FCT (2006) 63 ATR 341.

18 (1996) 67 FCR 243 at 259.

19 [2012] FCA 638.

20 (1992) 37 FCR 225.

21 Identifying and calling the right witnesses is critical. Where a litigant does not call a relevant witness, and no persuasive reason is given for such failure, the court may draw the inference that the evidence of the witness would have been adverse to the taxpayer. Refer to Jones v Dunkel (1959) 101 CLR 298.

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FEATURE

Abstract: Complex taxation issues can arise on and following the death of a taxpayer, in relation to diverse areas of revenue law, and because of inconsistency between the treatment at general law and taxation law of some of the key relationships that arise on the death of a taxpayer. Another factor is the proposed reform of Div 128 of the Income Tax Assessment Act 1997 (Cth). This article discusses some of the income tax, CGT and superannuation issues, by reference to a case study. The article considers the issues that arise in relation to three distinct phases after a taxpayer’s death, namely, the period between death and administration of the deceased estate, the period during which the executor distributes assets to the beneficiaries, and the period following the asset being distributed to the beneficiary, including an analysis of the issues that arise on the establishment and maintenance of a testamentary trust.

IntroductionThe taxation issues that arise on and following the death of a taxpayer can be considerably complex. This complexity arises for three main reasons:

� the multiplicity of taxation issues that arise in relation to diverse areas of revenue law, for example, taxation administration, capital gains tax (CGT), superannuation, goods and services tax (GST), land tax and duties;

� the inconsistency between the treatment at general law and taxation law of some of the key relationships that arise on the death of a taxpayer; and

� the proposed reform of Div 128 of the Income Tax Assessment Act 1997 (Cth) (ITAA97) as enunciated in two proposal papers (both titled “Minor amendments to the capital gains tax law”) released in May 2011 and June 2012 and, more broadly, the proposed reform of the taxation of trusts.1

The importance of estate planning to clients, coupled with the fact that there will be a large transfer of wealth between generations in the next decade, means that tax professionals need to give careful consideration to the practical tax issues that arise on the death of a taxpayer, despite the inherent complexity of some of those issues.2 The Henry Tax Review final report predicted that the amount of bequests passed on in Australia would rise

from $22b in 2010 to $85b in 2013.

This article will discuss some of the income tax, CGT and superannuation issues that

will arise on and after the death of an individual, by reference to a case study as presented below. Specifically, the article considers the taxation issues that arise in relation to three distinct phases after the death of an individual, namely, the time period:

� between the death of an individual and administration of the deceased estate;

� during which the executor distributes assets to the beneficiaries; and

� following the asset being distributed to the beneficiary, including an analysis of the issues that arise on the establishment and maintenance of a testamentary trust.

Throughout the article, reference will be made to the proposed amendments to Div 128 in the two proposal papers noted above.

Notably, this article does not discuss the implications of death in relation to GST and state taxes.

To comprehensively explore and illustrate the types of practical issues that arise on the death of an individual, the following case study will be referred to throughout this article. The case study focuses substantially on the CGT issues associated

with the death of an individual.

Case study – Phillip BrownPhillip Brown died on 1 March 2012. He left a detailed valid will appointing his wife Hazel as executor and making the following specific bequests:

� his red collectable Ferrari to be left to his “car fanatic” cousin Burt;

� two blocks of land in Eagle Bay held solely in his name to be left to his wife Hazel. The first block of land (Eagle Bay Block One) was purchased by Philip on 1 August 1977, while the other block of land (Eagle Bay Block Two) was purchased by Philip on 30 September 1990;

� a large portfolio of shares to be left to a charitable institution (ABC Limited) that provides for sick and homeless cats;

� an investment property in Paris to be left to his sister Kathy who is a resident of Canada;

� an interest Phillip has in a partnership with his best friend John Smith running the local delicatessen to be left to his wife Hazel. The partnership agreement does not deal with the death of a partner and there is no valid buy/sell agreement;

� Philip and Hazel are the members and trustees of the Brown Self-Managed Superannuation Fund (SMSF). Philip made a binding death nomination to leave his interest in the superannuation fund to his wife Hazel. At the time of his death, Philip was receiving a pension from the SMSF; and

� an investment portfolio to go into a testamentary trust for his son Jack, daughter in law Ruby, and grandson Toby. Jack has a history of substance abuse. He recently married recovering addict Ruby who he met in rehabilitation.

death and taxes: taxation issues and consequences that

arise on the final frontier by nicole wilson-rogers, Cta, annette morgan, Cta, and dale pinto, Cta, Curtin university


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Philip was concerned about a relapse and did not want to leave the investment portfolio to Jack outright and he also wanted to ensure that his grandson Toby was provided for. Toby is to be a capital beneficiary. He nominates Jack, Ruby and Toby as beneficiaries of the trust. The trustee of the testamentary trust will be his wife Hazel, who is also the executor of his estate.

Philip’s main residence in Nedlands (a suburb in Perth) was held as a joint tenant with his wife Hazel and, on the specific advice of his lawyer, he did not include this in his will.

Phillip also has some outstanding taxation obligations, including a failure to lodge his tax

returns for the previous two financial years.

Phase one: taxation issues arising between the death of the individual and the administration of the estate The first stage in administering a deceased estate, where there is a valid will, is obtaining probate.3 When a taxpayer dies, legal title of their property will devolve to their legal personal representative (LPR).4 Therefore, in the case of Philip, legal title of his property will vest in his wife Hazel, as executor of the estate.

As executor, Hazel must carry out the instructions of Philip as listed in his will, and she will become responsible for the proper administration of his estate or winding up of his affairs. Some of the key tasks for Hazel include collecting Philip’s assets, paying off his debts or liabilities, and distributing assets.5 Significantly, in the taxation context, Hazel will also be responsible for finalising Philip’s tax affairs.

Finalising Philip’s tax affairsThe LPR (in this case Hazel as executor) must finalise the deceased’s tax affairs. This includes preparing and lodging the deceased’s final or death tax return and any outstanding prior year returns, and ensuring the payment of tax assessed in respect of the final year and any tax debts in relation to the prior year.6 In relation to undertaking these obligations, the LPR stands in the shoes of the deceased and can deal with the Australian Taxation Office (ATO) in relation to these matters.7

The ATO is informed of the executor’s (or administrator’s) details when they apply for the tax file number (TFN) of the estate. It is a requirement that the executor’s personal TFN or a certified copy of the death

certificate is supplied before the ATO can liaise with them regarding the deceased’s taxation affairs.8 Thus, in relation to finalising Philip’s tax affairs, Hazel must take three distinct actions:

� lodge Philip’s two outstanding tax returns;

� lodge a tax return from 1 July immediately preceding the date of Philip’s death until the date of his death (1 March 2012); and

� lodge a tax return for the estate from the date of death until the date that administration of the estate is finalised. This is discussed in further detail below. However, notably, a deceased estate tax return is required to be lodged each year until the estate is wound up.

Income derived while the estate is being administeredDepending on the complexity of the estate, administration could take some time and, during this period, the executor (or LPR) must pay tax on the income of the deceased estate. In relation to Philip’s estate, this could include, for example, income from the partnership or investment portfolio that accrues during the period that the estate is being administrated. After the date of death, Hazel will need to obtain a separate TFN for the deceased estate.9 The first estate return will be for the period from the date of the deceased’s death (1 March 2012) until the end of the financial year (30 June 2012).

For taxation purposes, the definition of a trustee in s 6(1) of the Income Tax Assessment Act 1936 (Cth) (ITAA36) includes an “executor or administrator” and, hence, for tax law purposes, a trust relationship comes into existence immediately on death. Interestingly, there is a disconnect between the general law position and the taxation position in this regard. The general law position is that the LPR does not hold the assets on trust for beneficiaries and a trust relationship does not form until administration of the estate is completed.10

This was well-illustrated in Commissioner of Stamp Duties (Qld) v Livingston.11 In that case, Mr Livingston died in Australia in 1948 leaving a will in which he appointed executors to administer his estate. He directed them to transfer the residue of his estate, after paying all of his debts and other liabilities, to trustees to hold on trust for his widow and their children. However, prior to his executors completing the task,

Mr Livingston’s widow had remarried and then died herself. In Australian law, as is the case with English law, the property of someone who dies having left a will automatically vests in the deceased’s executors until they complete the administration of the estate and transfer the assets to those entitled under the deceased’s will.

Accordingly, at the time when Mr Livingston’s widow died, the title to all of Mr Livingston’s property was therefore still held by his executors because they had not yet had time to complete the administration and transfer everything to the trustees to hold on trust for his widow. The question before the court in this case was whether at that time, when the executors still held Mr Livingston’s Queensland property, his widow had any beneficial interest in it. The question arose because, under Queensland’s tax law, succession duty would have been payable on all of Mr Livingston’s Queensland property on his widow’s death if she had a “beneficial interest” in it when she died. The Privy Council held that she did not have a beneficial interest and therefore no succession duty was payable on her death.

Given that a deceased estate is treated as a trust, the provisions of Div 6 ITAA36 must be consulted. Pursuant to Div 6, when looking at the estate tax return, the following must be ascertained:

� the “net income” of the trust estate. This is defined in s 95 ITAA36 as the “total assessable income of the trust estate calculated … as if the trustee were a taxpayer in respect of that income and were a resident less all allowable deductions …”; and then

� who is presently entitled to that income of the trust under s 97 or 98 ITAA36. Where no beneficiary is entitled to the net income of the trust, the trustee will be liable for tax on the income of the trust estate either under s 99A or s 99 ITAA36. Relevantly, a beneficiary of an incompletely administered estate cannot be presently entitled to income of the trust estate and only has a right to see the estate administered properly.12 Administration is generally held to occur once all debts and liabilities have been satisfied.

Undistributed income of a trust estate is normally taxable under s 99A (at the highest marginal tax rate). However, the estate will generally only be taxed at normal rates under s 99 where, at the


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discretion of the Commissioner, it is considered that the application of s 99A would be unreasonable and the trust estate resulted from:

� a will, a codicil or an order of a court that varies or modifies provisions of a will or a codicil; or

� an intestacy or an order of a court varying of modifying the application in relation to the estate of a deceased person or the provision of the law relating to the distribution of the estate of persons who die without a will.

The rates that apply under s 99 depend on whether the deceased person died less than three years before the end of the year of income being considered.13 If the deceased died less than three years before the end of the income year, ordinary marginal tax rates apply. For a deceased estate, where the deceased died more than three years before the end of the income year, ordinary marginal tax rates apply, but the tax free threshold is not available. When the beneficiary eventually obtains the trust income on which the trustee has paid tax, no further tax liability crystallises on distribution.14

Notably, pursuant to IT 2622, the ATO will accept an apportionment of the income of the deceased’s estate in the income year when the estate is fully administered in circumstances where the LPR and beneficiaries can show the quantum of income derived in the periods before and after the day on which administration was completed.

It is important to note that there is a review into modernising the provisions of Div 6 and, therefore, this is an area which must be monitored carefully by professionals.15

Phase two: passing assets from the executor to the beneficiaryAn estate is generally held to be fully administered where all of the liabilities are ascertained. Once the estate is fully administered, the beneficiaries are normally assessed on all of that year’s income

Overview of the CGT implications of deathDepending on the terms of the will, LPRs can dispose of specific assets to beneficiaries (for example, a block of land), or they can dispose of assets to third parties to raise money to pay the debts of the deceased estate or to distribute the funds to beneficiaries.

While the death of a taxpayer is a CGT event in respect of CGT assets held by the deceased, the general rule for income tax purposes is that any capital gain or loss is disregarded.16 Notably, a bequest of cash has no CGT consequences because cash is not a CGT asset.17 Likewise, the general position is that when property passes18 under a will to a beneficiary or an LPR or directly from the deceased to a beneficiary (for example, in a joint tenancy), any capital gain or loss will also be disregarded.19

Rather, an automatic roll-over applies under Div 128 ITAA97 on the value of the assets transferred on death and, therefore, any capital gain or loss is deferred until there is a disposal by the ultimate beneficiary of the asset or by the LPR (to a third party other than the nominated beneficiary). Given that the roll-over is automatic, the LPR cannot choose to crystallise a capital loss at the date of death.20 Therefore, for CGT assets that are likely to prove a capital loss on sale, the taxpayer should consider selling or gifting the assets with attached capital losses during their lifetime to utilise the losses, as otherwise they will lapse on the death of the taxpayer.

Significantly, the 2011 proposal paper recommends a principles-based rewrite of Div 128. There are also a number of issues with the application of Div 128 to certain scenarios identified in the proposal paper.

It is noted in the 2011 proposal paper that, on a strict interpretation of the law, Div 128 would not apply where two (or more) beneficiaries acquire the deceased’s asset. This would be the position because each beneficiary would only obtain an “interest” in the CGT asset rather than the whole asset. While the ATO applies the law in a manner that allows roll-over relief in this scenario,21 the 2011 proposal paper suggests amending the legislation to unequivocally extend the roll-over in Div 128 to a situation where two or more beneficiaries each acquire an interest in an asset of the deceased.22

It is further noted in the 2011 proposal paper that when an intended beneficiary of an estate dies before the administration of the estate is complete and an asset owned by the deceased passes to that intended beneficiary’s LPR (or trustee of a testamentary trust) or to a beneficiary of the intended beneficiary, Div 128 will not apply. However, it is proposed to amend the law to reflect the fact that the asset will be treated as though it had passed to the intended beneficiary before they died and

therefore the roll-over will apply.23 The 2012 proposal paper notes that this change will apply retrospectively to the 2006-07 and later income years to ensure that existing practices are covered.

Where a beneficiary inherits a CGT asset under a will, they are treated as acquiring the asset for CGT purposes from the date of death.24 The tax cost base inherited on the death of an individual then depends on whether the asset is a pre- or post-CGT asset. Where an asset was acquired before 20 September 1985 and therefore is a pre-CGT asset, the beneficiary is deemed to have acquired the asset at the date of the testator’s death. This means that the “pre-CGT” status of the asset will expire and they will be deemed to have acquired a post-CGT asset, with the cost of acquisition being the market value of the asset at the date of the testator’s death. Accordingly, on disposal, the beneficiary will be sheltered from any gain on the asset that was accumulated before the death of the original owner of the asset.

Where a post-CGT asset is acquired, the cost base of the asset is the cost base of the asset on the date of the deceased’s death.25 Section 128-15(5) ITAA97 provides that the cost base will include any expenditure that the LPR would have been able to include at the time the asset passes to the beneficiary. This could include rates paid by the LPR, and legal costs incurred by the deceased estate.26

Philip and Hazel’s main residence held as joint tenantsPhilip’s main residence in Nedlands is held as a joint tenant with his wife Hazel. Notably, this property will never become part of the deceased estate, as a joint tenancy means that, on the death of Philip, the right of survivorship operates and the whole of the property will remain with the surviving joint tenant Hazel, who then becomes the sole owner of the asset. 27

Again, there is a disconnect between this general law position and the taxation position of the treatment of the interests of joint tenants.

For taxation purposes, the CGT regime treats joint tenants as if they are tenants in common, each holding a fractional interest in the joint asset.28 Each joint tenant’s fractional interest in the cost of the entire asset will be their cost base. Where a joint tenant dies and the surviving joint tenant becomes the sole owner, no CGT event will occur, as they are covered by the


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roll-over in Div 128.29 However, the survivor will be deemed to have acquired the asset at the date of the deceased’s death. Where (such as in the case of Philip) the asset was acquired after 20 September 1985, the cost base of the survivor will be the cost base of the deceased taxpayer.30

Passing of Eagle Bay Block One and Block Two to HazelAn in specie distribution of Eagle Bay Block One and Block Two to Hazel will not crystallise any CGT liability.31 However, the cost base of each block of land inherited by Hazel must be considered. The first thing to note is that there will be a difference in the rules regarding the cost base of Eagle Bay Block One and Block Two.

Given that Philip purchased Eagle Bay Block One in 1977, it is a pre-CGT asset. However, as Eagle Bay Block Two was purchased by Philip in 1990, it is a post-CGT asset.

As discussed above, where a beneficiary inherits an asset, they are treated as acquiring the asset for CGT purposes from the date of death.32 Thus, in relation to Eagle Bay Block One and Block Two, Hazel will be deemed to have acquired the assets at the date of Philip’s death. This means that the “pre-CGT” status of Eagle Bay Block One will expire and Hazel will be deemed to have acquired a post-CGT asset and the cost base will be the market value of the asset at the date of Philip’s death.33 In this respect, on disposal, Hazel will be sheltered from any gain in the asset accumulated before the death of Phillip.

In relation to Eagle Bay Block Two, Hazel will inherit Philip’s cost base at the time of his death.34

This scenario presents a timely reminder to tax professionals that they should ensure during their client’s lifetime that they assist them in maintaining a CGT register for the purchase and disposal of assets. This will ease the burden on the executor when they are required to pass asset cost bases to beneficiaries who have inherited the property, as a record certified by the tax professional can be provided, with all the relevant information required.

Furthermore, in relation to pre-CGT assets such as Eagle Bay Block One, executors should ensure that a market valuation of pre-CGT assets is undertaken as soon as possible, so that the market cost base of those assets can be ascertained. Those authorised to provide valuations would include a registered valuer, a member

of a recognised professional valuation body, or a person without formal valuation qualifications whose assessment is based on reasonably objective and supportable data.35

Bequests to foreign residents and tax-advantaged entitiesAs noted above, Philip left a large portfolio of shares to ABC Limited (an institution that provides for sick and homeless cats), and an investment property in Paris to his sister Kathy (who is a foreign resident). These bequests are considered together because both of them require consideration of any tax implications that arise in relation to CGT event K3.

The Div 128 roll-over discussed above will not apply where a CGT asset passes to a beneficiary who is a tax-advantaged entity (that is, exempt from tax or subject to concessional rates of tax) or where an asset that is not taxable Australian property36 passes to a non-resident.37 In these circumstances, CGT event K3 arises. The capital gain or loss is the difference between the market value of the asset at the date of death and the cost base of the asset.38 Notably, CGT event K3 applies immediately prior to the death of the taxpayer and, therefore, happens to the deceased and must be incorporated into the taxpayer’s death return.39 The 2012 proposal paper states regarding the purpose of CGT event K3:40

“The rationale for having this exception is to prevent assets with an embedded capital gain escaping taxation (or being taxed at a reduced rate) when they are later disposed of by the concessionally taxed entity.”

Tax-advantaged entities: An important exception to CGT event K3 is that a capital gain or loss will be disregarded if the gift would have been deductible under s 30-15 ITAA97 if it was not a testamentary gift.41 If the gift does not meet this criterion, CGT event K3 will be triggered. Thus, it must be ascertained if the charity for sick and homeless cats is a deductible gift recipient (DGR).42 A DGR is an organisation that is entitled to receive income tax deductible gifts and contributions. The majority of DGRs need to be endorsed by the ATO.

It should be noted that there are a number of suggestions in the 2011 and 2012 proposal papers to amend the application of CGT event K3. The first situation outlined in the 2011 proposal paper is where an entity would be entitled to tax-exempt status but has not been endorsed by the ATO until

after an asset has passed to it. For example, this could happen where an entity delays seeking such status until after the asset passes to it.

The 2011 proposal paper suggests that the legislation should be amended so that CGT event K3 will happen if, at the time the asset passes to an entity, the entity satisfies all of the conditions required for exempt entities, despite not having been officially endorsed.43

The second situation is where an asset does not pass to an entity listed in the event until after the deceased’s amendment period has expired. In these circumstances, if the deceased’s return cannot be amended, no capital gain or loss can be recognised.

Initially, the 2011 proposal paper proposed to ensure that a capital gain or loss will be subject to tax when an asset is transferred to an entity that is impacted outside the deceased’s standard amendment period. It was proposed that that could be achieved by excluding CGT event K3 from the standard amendment period.44 However, in the 2012 proposal paper, it was noted that this may require the deceased’s return (in some circumstances) to be amended decades after the amendment period and would add to already significant compliance costs. Therefore, it was suggested that CGT event K3 should occur to the entity, for example, the LPR, that passes the asset to the concessionally taxed entity, thereby ensuring that the tax liability is crystallised but the compliance costs are minimised. It is suggested that such an amendment will occur prospectively.

It was further suggested in the 2012 proposal paper that CGT event K3 would not occur where a concessionally taxed entity received the asset via survivorship. It is proposed to amend the legislation so that CGT event K3 will apply in such circumstances.

Foreign residents: In relation to the disposal of the apartment in Paris to Kathy, CGT event K3 will occur. This is because it is a gift of non-taxable Australian property to a non-resident. CGT event K3 is limited to the disposal of non-taxable Australian property45 because, if taxable Australian property is disposed of, this type of property will remain in the CGT net even after its disposal to a non-resident.

The government is proposing to amend CGT event K3 which will mean that liability


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will fall on the LPR or the testamentary trustee rather than the event being included in the deceased’s final tax assessment.46 Furthermore, if an asset passes to an entity that has satisfied all of the conditions of exempt entities but has not been endorsed by the Commissioner, the gift will be taxable. It will also apply if it is transferred to a tax-exempt entity after the standard amendment period has expired.

In this regard, Flynn remarks on the issues that CGT event K3 poses for testators and advisers.47 Evidently, as a gift of a non-taxable Australian property to a foreign resident will cause a CGT liability (ultimately borne by the estate), thought should be given by advisers to gifting that same asset to an Australian beneficiary who will not crystallise a CGT liability in respect of that particular asset.48

Passing of the interest in the partnership to HazelIn relation to Philip’s interest in the partnership, Hazel will need to review the partnership agreement that will set out the rights and obligations of each of the partners. A partner can provide in the will for succession of their interest, but it must also be reflected in the partnership agreement.

Generally, the assets and liabilities of the partnership are shared between the partners in accordance with the terms of the partnership agreement. Under partnership law, when a partner dies, the partnership will dissolve unless there is an agreement in place that provides otherwise (for example, that the executor can continue as a partner). If there is no partnership agreement, the executor will have a number of options:

� to call on the value of the deceased’s partners’ interest in the partnership and the other partner will effectively need to “buy out” the partnership interest of the deceased;

� alternatively, to enter into a new partnership with the existing partner;

� if the existing partner does not have sufficient funds to buy out the existing partner, the partnership assets would need to be sold and the funds distributed to each of the partners.

Therefore, in this fact scenario, there are three options: John will be required to pay Phillip’s share of the partnership to his estate. Hazel could choose to continue a new partnership with John. Alternatively, if John does not have sufficient funds to buy

out Hazel, the partnership assets will need to be sold and the funds divided between Hazel and John (in proportion to their interests in the partnership assets).

This scenario could have been made significantly easier by the use of a buy/sell agreement. Consideration should be given to employing a buy/sell agreement to ensure that the partnership can continue operating and to give existing partners the opportunity to purchase the interest. A buy/sell agreement is an agreement under which the proprietors of a business contract to buy the interest or equity of another proprietor if a trigger event such as death occurs. This will generally be associated with the purchase of an insurance policy that is linked to the “trigger” events enumerated in the buy/sell agreement. This enables funds to be provided to the surviving proprietors to purchase the business from the deceased’s estate. There are several ways this can be done, for example, cross-insurance (where the partners insure one other) and self-insurance (where partners insure their own lives). Whatever option is considered, it is important to consider any CGT issues that can arise due to the disposal of equity and the receipt of insurance proceeds.

Tax professionals should advise clients to consider buy/sell agreements and to consult the appropriate professionals, as it can significantly assist in succession planning should a sudden death by a partner occur.

In the case of this partnership, as there is no buy/sell agreement, the death of Phillip will result in the disposal of the partner’s share of the underlying assets of the business to the executor. Notably, if there was a buy/sell agreement, the sale of the deceased’s share of the business assets by the LPR doesn’t give rise to a Div 128 roll-over because the assets don’t pass to a beneficiary of the estate.49 Therefore, CGT would be payable on this transaction and consideration should be given to the general CGT discount in Div 115 and the small business concessions in Div 152. This is discussed below.

If Hazel decides to sell the partnership to John, there will need to be a valuation of the partnership assets. This will entail working out the stock value at the date of death and considering whether the business has any goodwill value.

The issue that can arise in this regard is that each partner may have a competing agenda. For example, the partner buying

out the other partner may prefer a lower valuation than the partner receiving that payment. This could lead to disputes over the valuation of the assets.

John can be disadvantaged here in two ways. First, he may not have the funds available to pay the estate, and second, Hazel may prefer to be in partnership with John, despite the fact that this may not be what John wants. If John does not have the funds, the business (the delicatessen) would need to be sold and each partner would receive their share based on their partnership interest.

As noted above, a buy/sell arrangement (referred to above) would have assisted John, as it would have provided the funds to pay out Philip’s estate and allow him to continue to run the business in his own right.

If the assets are sold, any capital gain or loss in the partnership will be made by the partners individually, with each partner having a separate cost base and reduced cost base for their interest in each of the CGT assets in the partnership.50 In respect of the partners remaining, they will acquire a separate CGT asset to the extent that they acquire a share of the departing partners’ interest in a partnership asset.51

The consequences of Hazel disposing of her interest in the partnership assets are discussed further below.

Passing of the Ferrari to cousin BurtThe passing of the Ferrari to cousin Burt will not have any ramifications for CGT purposes. Section 118-5(a) ITAA97 provides an exemption for capital gains or losses that arise from cars, motor cycles or similar vehicles.52 Similarly, if Burt chooses to sell the Ferrari at some point in the future, no CGT implications will arise.

Superannuation issues in relation to the Brown SMSFPhilip and Hazel are members and trustees of the Brown Self-Managed Superannuation Fund (SMSF). On the death of a member, the LPR (or executor, who in this case is Hazel) steps into the shoes of the trustee until a death benefit is payable.53

A binding death nomination will be binding on a trustee if the person falls within the definition of a dependent under the superannuation legislation. Section 302-195 ITAA97 states that a dependent includes a spouse, a child, a dependent of the member, or another person with whom


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that member has an interdependency relationship. Hazel clearly falls within the definition of a dependent.

The trust deed is the most important document in an SMSF. Accordingly, it must be carefully drafted to ensure that it encapsulates the express wishes of the members and to allow trustees to accept an instruction under a valid binding death nomination. The trust deed can list the beneficiaries to whom the deceased wants their death benefit paid to; this ensures that the trustee cannot override the wishes of the deceased.

A problem for trustees is the funding of the death payment benefit. Self-managed superannuation fund assets are often tied up in investments such as real property, shares, geared installment warrants and other forms of non-cash assets. A trustee can use temporary borrowings to fund the payment of a death benefit, but the borrowing period cannot exceed 90 days and the amount borrowed should not exceed 10% of the value of assets of the fund.54 This restriction usually requires that assets within the fund be sold, and there is a concern that CGT may apply to those assets.

If a member is in receipt of an income stream, the trustees are not required to pay income tax on the earnings from assets being used to support the payment of this income stream.55 However, an issue could arise when the member dies, as the earnings and sale of those assets could result in income tax and CGT issues while the trustee finalises the payout of the death benefit to the beneficiary.

The government recently announced in the 2012-13 Mid-year Economic and Fiscal Outlook that it would move to provide tax certainty for superannuation funds on the death of a member in receipt of a superannuation income stream. The government has indicated that the tax-free status mentioned above will continue after the member’s death to allow the trustee to sell the assets to fund the payment of the death benefit to the nominated beneficiary.56

Hazel will be able to take the death benefit either as a lump sum or via an income stream as she is a tax dependent. Hazel will also need to address who she wants to nominate as the beneficiaries of her superannuation entitlements on her death. In this regard, the role of a tax professional will be to advise her on the most tax-effective mechanism for doing this, since her adult children will not be

classified as tax dependents and unwanted tax consequences may arise.

Phase three: after the asset has been distributed to the beneficiaryThe next phase concerns the beneficiary’s dealings with the asset after distribution and the management of a testamentary trust.

Overview of the CGT issues While the passing of an asset from the LPR to a beneficiary will not trigger a CGT event, a subsequent disposal by the beneficiary of a deceased estate will trigger CGT and this is discussed below.

Disposal of Eagle Bay Block One and Block Two by HazelDespite the fact that Phillip purchased Eagle Bay Block One pre-CGT, once it passes to Hazel, it is brought into the CGT net. Therefore, on the disposal of Eagle Bay Block One and Block Two, Hazel would need to pay CGT on any capital gain.

Hazel should consider the CGT 50% discount in Div 115. In this regard, she must consider the requirement of a 12-month holding period to access this discount. If the deceased acquired the asset pre-CGT (which is the case with Eagle Bay Block One), the beneficiary’s holding period will commence at the date of the death of the deceased.57 However, if the beneficiary acquired the asset post-CGT, the holding period will start from the date the deceased acquired the asset.58 Therefore, Hazel will need to be aware of the different calculations for when the 12-month holding period will begin. In relation to Eagle Bay Block One, she will need to hold the property for at least a year after the death of Phillip to access the 50% discount.

Disposal of the main residence in NedlandsWhere a dwelling was the deceased’s main residence at the date of the death and was not used to produce income or it was acquired pre-CGT, a taxable capital gain or loss is not recognised on a disposal by the beneficiary where the disposal occurs less than 24 months after the death of the deceased. To ensure that a beneficiary who acquires a dwelling through survivorship is able to apply the main residence concessions, s 118-97 ITAA97 provides that the ownership interest was acquired from the deceased joint tenant as if they were a beneficiary of the deceased estate.

Furthermore, a disposal is also exempt where the dwelling is not sold within 24 months but the beneficiary of the sale is the deceased’s spouse and it is also their main residence. Note that, under ID 2002/52, even if Hazel moves out, she can continue to treat the home as her main residence for up to six years. Therefore, in the case of her home in Nedlands that Hazel has acquired via the right of survivorship, she will be able to sell the dwelling free of CGT if she continues to use this as her main residence. If the house was purchased on or after 20 September 1985, it must be the case that the house was not used for the purpose of producing assessable income just before the deceased’s death.

Notably, the 2011 proposal paper points out an anomaly in relation to the cost base of land adjacent to the main residence of a taxpayer. The market value cost base rule will not extend to land adjacent to the dwelling even if it would be eligible for the main residence concession because it is not specifically noted in Div 128. The 2011 proposal paper states that the law will be amended to ensure that the cost base modification will take into account adjacent land to the extent that the land would be eligible for the main residence exemption.59

Disposal of Philip’s share in the partnership assetsThe disposal of the partnership assets could necessitate considering the availability of the 50% CGT discount in Div 115 and the CGT small business concessions in Div 152.

The CGT small business concessions can apply if the deceased would have been eligible for the concession prior to their death and the event happens within two years of the death of the deceased (or such further time as the ATO may allow).60 Notably, the small business concessions cannot apply to capital gains that arise on the disposal of an asset that was a pre-CGT asset in the hands of the deceased.61

In order to be eligible for the small business concessions, the deceased taxpayer must have met the basic conditions contained in s 152-10(1) ITAA97. These conditions include that a CGT event happens in relation to a CGT asset of the taxpayer. The CGT asset in question must be an active asset and the taxpayer must satisfy either the $6m maximum net asset value test or be a small business entity. Additional requirements also apply


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to the majority of the small business concessions.62 A comprehensive analysis of these requirements is beyond the scope of this article.

The small business concessions are contained in Subdiv 152-B to Subdiv 152-E ITAA97 and there are special conditions that apply for deceased individuals, including:

(1) the 15-year exemption in Subdiv 152-B. This concession disregards any capital gains on the disposal of an active asset if the asset has been continuously held for 15 years by the taxpayer, who is aged at least 55 years at the time of the event, and the CGT event occurred in relation to the taxpayer’s retirement. In relation to a deceased estate, the need for retirement is removed and the concession can be applied by the LPR;

(2) the active asset reduction in Subdiv 152-C. There are no special conditions that exist in relation to this test for deceased estates;

(3) the retirement exemption in Subdiv 152-D. This concession allows a taxpayer to disregard all or part of a capital gain relating to the sale of an active asset, up to a lifetime limit of $500,000. If the taxpayer is under the age of 55 years, the capital gain must be paid to a superannuation fund. In relation to a deceased estate, the need to contribute to a superannuation fund is removed; and

(4) the small business roll-over relief in Subdiv 152-E. This concession allows a taxpayer to defer some or all of a capital gain towards the cost base of another active asset. Special conditions will exist under CGT event J5 or J6 if the LPR does not deal with the replacement assets.

Where the deceased acquired the assets in question post-CGT, the time period for determining the holding period is the date that the assets were acquired by the deceased.63 As per the operation of Div 128, the deceased’s cost base will be inherited by the LPR, resulting in CGT applying at a later stage. In this regard, the use of the small business concessions (if applicable) is paramount. Capital gains on the sale of pre-CGT assets are not subject to the small business concessions and the inherited cost base is the market value at date of death.

As long as Philip met the basic conditions under Div 152, Hazel will be able to utilise

the CGT small business concessions on any capital gains that may arise on the sale of his interest in the partnership assets.

Establishment of the testamentary trust for Jack, Ruby and TobyOn Philip’s death, the testamentary trust will be established and Hazel (as executor) will need to arrange the transfer of the investment portfolio into the testamentary trust.

There will be no CGT consequences for the estate on the transfer of the assets to the testamentary trust and the testamentary trust will inherit the cost bases of each of the individual shares held within the investment portfolio. It will be within the testamentary trust environment that CGT will arise when these investments are ultimately sold.

A testamentary trust is a trust that is established by will and commences after the death of the taxpayer. Testamentary trusts are also subject to the provisions of Div 6 ITAA36.

One of the most significant advantages of establishing a testamentary trust is that Philip is protecting the capital assets from being used by his son Jack and daughter-in-law Ruby for purposes that he may not approve of. It also gives Philip a way of providing for his grandson. While he is allowing the trustee (Hazel) to provide his son and daughter-in-law with income during their lifetime, he has restricted their ability to obtain the capital of the trust.

Another advantage of utilising a testamentary trust is that minor beneficiaries are taxed at normal adult rates on “excepted trust income” that is distributed to them and are not taxed at the penalty rates applying to minors.64 Division 6AA applies the highest marginal tax rates to the income of a minor However, there is an exception to the application of Div 6AA for income derived through testamentary trust estates.65 Trust income from a testamentary trust would fall within the definition of “excepted trust income”.66

A further advantage is that, where there is income that no beneficiary is presently entitled to, the trustee will be taxed under s 99 (unless the Commissioner exercises his discretion to apply s 99A). The rates pursuant to s 99 are ordinary marginal tax rates. Where the deceased estate is more than three years after death, for testamentary trusts, the rates are set out in a schedule which taxes the trustees at ordinary marginal rates.67

The ATO accepts that, for the purposes of applying Div 128, the LPR includes the trustee of a testamentary trust and, therefore, s 128-15(3) applies on the transfer of an asset of the deceased from the trustee of the testamentary trust to a beneficiary.68 It should be noted that the 2011 proposal paper states that a specific CGT roll-over will be provided where the deceased asset passes from a trustee of a testamentary trust to a beneficiary of the trust, and this will essentially codify the ATO’s existing position in relation to Div 128.69

Another advantage of utilising a testamentary trust is that it can be used to stream different income types like franked dividends and capital gains. However, if Hazel wanted to stream capital gains, she would also need to consider the specific requirements of the streaming provisions in Div 6E and the need to make a beneficiary specifically entitled to the amount of a franked dividend or capital gain.

A further issue to be considered in this situation is Hazel’s age, and that she has been appointed the trustee and may also be the appointer of the testamentary trust. In this regard, Hazel will need to be counseled about a possible replacement trustee at some point in the future, and it is imperative that she choose someone who will carry out the wishes of Philip once she is deceased. This can be discussed at a point in time when Hazel is required to update her own affairs and may be timely now that she has sole ownership of the other properties discussed above.

Summary of Philip’s positionThe above discussion looked at some of the relevant CGT consequences in relation to specific bequests; these are summarised in Table 1.

ConclusionAdministration of a deceased estate can be an onerous task that continues for a substantial amount of time. From a practical perspective, it is vital that the executor be chosen wisely as they need to be aware of the broad range of responsibilities that they must undertake. For example, executors must be aware of their fiduciary duty to the beneficiaries and they must also be cognisant of the taxation implications of any decisions that they make in respect of the estate. For most executors, it will be pivotal that they consult extensively with experts in the area to ensure that all legal (including


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Table 1: Identifying tax-effective approach

Bequest Taxation implications Cost base in the hand’s of the beneficiary

Available discounts

Ferrari to cousin Burt Nil – not a CGT asset. N/A N/A

Eagle Bay Block One to Hazel No taxation implications on the passing of the asset to Hazel pursuant to Div 128. However, on vesting in Hazel, the asset loses its pre-CGT status and CGT will be payable on the ultimate disposal by Hazel.

Market value at the date of Philip’s death (1 March 2012).

Division 115 (50% discount).

Eagle Bay Block Two to Hazel No taxation implications on the passing of the asset to Hazel pursuant to Div 128. CGT will be payable on the ultimate disposal by Hazel.

Inherits Philip’s cost base at the date of his death.


Shares to the cat home This depends on whether the cat home is registered as a DGR. If it is, CGT event K3 will not occur. If it is not, CGT event K3 will occur in the deceased’s tax return.

N/A as exempt entity. If the cat home is a DGR, CGT event K3 will not apply and this is not taxable. If the cat home is not a DGR, CGT event K3 will apply and the discount in Div 115 must be considered.

Apartment in Paris to sister Kathy who is a foreign resident.

CGT event K3 will occur in the deceased’s tax return.

N/A because it will be outside Australia’s taxing jurisdiction once it vests in Kathy and, on her subsequent disposal, there will be no CGT consequences.


Main residence of Hazel and Philip

Joint tenancy – the right of survivorship will pass to Hazel.

Inherits Philip’s cost base in his part of the asset.

Main residence exemption.

Disposal of partnership assets by Hazel

CGT event A1 for the assets of the partnership.

Inherits Philip’s cost base in his share of the partnership assets.

Division 115. Division 152.

tax) consequences are anticipated and

satisfied.

Tax professionals also play a pivotal role

assisting their clients both before and after

their death. Many tax professionals will

be called on to provide tax advice to the

executor or administrators of the deceased

client’s estate. The advice can range

from simply completing the deceased’s

tax affairs, in the form of lodging income

tax returns, to establishing and running

testamentary trusts and unwinding

complex business transactions. It is

therefore necessary for tax professionals

to be acutely aware of the multiplicity of

tax issues that they will face. As discussed

above, advice on areas such income tax,

CGT and superannuation will be necessary.

There will also be consequences for

GST and state tax (that have not been

discussed above) and, where multiple

states or jurisdictions are involved, there

may be different stamp duty or estate duties that must be considered.

It is also necessary for advisers to consider providing additional succession planning advice to beneficiaries who, after the death of an individual, now hold additional assets and responsibilities such as trusteeships. They will then need to review their own will and consider whom they want to pass key responsibilities on to.

As Benjamin Franklin opined, “In this world nothing is certain but death and taxes”. With the assistance of appropriate planning for the final frontier, the process can be made significantly less burdensome.

Nicole Wilson-Rogers, CTA Annette Morgan, CTA Dale Pinto, CTATaxation Team School of Business Law and Taxation Curtin University

References

1 The taxation of trusts has been an area of significant change in recent times. For example, Treasury is proposing to rewrite the taxation of trusts rules as a result of the recommendations of the Henry Report; see the November 2011 consultation paper, “Modernising the taxation of trusts”; the October 2012 discussion paper, “Taxing trust income — options for reform”; the interim reforms to Div 6 and new Div 6E of the Income Tax Assessment Act 1936 (Cth) (ITAA36). In relation to specific amendments to Div 128, see the May 2011 and June 2012 proposals papers, “Minor amendments to the capital gains tax law”.

2 B O’Sullivan, Estate & business succession planning 2011-12, ¶1-100, p 2 states: “Over the next 29 years there will be the biggest intergenerational transfer of wealth ever. It is estimated that the number of Australians aged over 65 will increase by 40% in the next 10 years and almost 90% over the next 20 years.”

3 In circumstances where the individual is intestate, a person that wishes to be an administrator must apply to the court for the letters of administration.

4 The legal personal representative is defined in s 995-1 ITAA97 to include the executor in the case of a taxpayer who dies with a will, and the administrator in the case of a person who dies intestate.

5 This will be in accordance with the will where there is one or, where the individual dies intestate, it will be in accordance with the relevant legislation.


feature

6 This includes the payment of any penalties and interest.

7 S 260-140(2) of Sch 1 of the Taxation Administration Act 1953 (Cth) provides that the Commissioner may deal with the LPR as though they were the deceased taxpayer. For the ATO practice regarding forms etc that are completed to notify the ATO of LPRs, go to www.ato.gov.au/individuals/keywordlist.aspx?sid=42&k=Legal%20personal%20representative.

8 NAT 3236: Tax file number – application for a deceased estate.

9 For information on the process of obtaining a TFN for a deceased estate, go to www.ato.gov.au/individuals/content.aspx?doc=/content/22579.htm under the general TFN provisions of Pt VA ITAA36. Also see NAT 3236 (ibid n 8).

10 Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694.

11 [1965] AC 694.

12 FCT v Whiting(1943) 68 CLR 199.

13 Pt I of Sch 10 to the Income Tax Rates Act 1986 (Cth). Also see IT 2622.

14 Union Fidelity Trustee Co of Australia v FCT (1969) 119 CLR 177.

15 See the October 2012 discussion paper, “Taxing trust income — options for reform” (see also references above in n 1).

16 S 128-10 ITAA97.

17 See TD 2002/25.

18 The term “passes to a beneficiary” is defined in s 128-20 and includes where the beneficiary becomes the owner of the asset under a will, by operation of intestacy, because it is appropriated to the beneficiary by the LPR in satisfaction of an interest in the estate or under a deed of arrangement or in circumstances where the will is challenged and is subsequently varied by a court order.

19 The general rule is stated in s 128-15. Note that it will result in a CGT event where the gift is made to an exempt entity, a complying superannuation entity, or a foreign resident. In that case, it will be a disposal for CGT purposes (see s 128-10 ITAA97); this is discussed further below. Also see PS LA 2003/12.

20 S 128-10 ITAA97. Also see TD 95/47.

21 See TR 2004/25 and PS LA 2003/12.

22 See the May 2011 proposal paper (above n 1), p 11.

23 Ibid p 12.

24 S 128-15(2) ITAA97.

25 S 128-158(4) ITAA97.

26 See ID 2004/425 and ID 2001/729.

27 This is to be contrasted with a tenancy in common, where each person is treated as holding a separate fractional interest in the property. Each person’s interest in the property can be dealt with in the will.

28 S 108-7 ITAA97.

29 S 128-50 ITAA97.

30 S 128-50 ITAA97.

31 S 128-15(3) ITAA97.

32 S 128-15(2) ITAA97.

33 S 128-15(4), Item 4 ITAA97.

34 S 128-15, Item 1 ITAA97

35 Australian Taxation Office, Market valuation for tax purposes. Website at www.ato.gov.au/corporate/content.aspx?doc=/content/00161737.htm.

36 Taxable Australian property is defined in s 855-15 ITAA97. It includes, for example, taxable Australian real property (for example, land or mining rights), indirect real property interest or a CGT asset that is used in carrying on a permanent establishment in Australia).

37 S 104-215 ITAA97.

38 S 104-215(4) ITAA97.

39 S 104-215(3) ITAA97.

40 See the 2012 proposal paper (above n 1).

41 Note that it will also be exempt if it is made under the cultural bequests program.

42 S 118-60 ITAA97.

43 See the 2011 proposal paper (above n 1), p 13.

44 Ibid.

45 S 104-215(1)(c) ITAA97; s 855-15 ITAA97 lists assets that are taxable Australian property.

46 One of the proposed changes will ensure that, where an asset passes via survivorship (in a joint tenancy situation) to a concessionally taxed entity, CGT event K3 will still occur. This will ensure consistency of CGT treatment.

47 M Flynn, “Death and taxes”, The Tax Institute Breakfast Club (Victorian Division), 20 September 2012.

48 Ibid.

49 S 128-20(1) ITAA97.

50 S 106-5 ITAA97.

51 S 106-5(3) ITAA97.

52 Panel vans or utilities designed to carry one tonne or more are excluded from exemption (Case 13 (1977) 22 CTBR (NS)).

53 S 17A(3) of the Superannuation Industry (Supervision) Act 1993 (Cth).

54 S 67(2) and (2A) of the Superannuation Industry (Supervision) Act 1993.

55 S 295-385 ITAA97.

56 Media release 030/2012, “Government reforms boost super savings and lower industry costs”, by the Minister for Financial Services and Superannuation, the Hon. Bill Shorten.

57 S 115-30(1) ITAA97.

58 S 115-30(1) ITAA97.

59 See the May 2011 proposal paper (above n 1), p 11.

60 S 152-80 ITAA97.

61 S 152-80(1)(c) ITAA97.

62 For example, see whether the CGT asset is a share in a company or an interest in a trust (s 152-10(2) ITAA97).

63 S 115-30(1) ITAA97 (when the deceased acquired the asset).

64 Div 6AA of Pt III ITAA36.

65 S 102AG(2)(a) ITAA36.

66 S 102AG(2) ITAA36.

67 Note that the tax-free threshold is only $416. Note also that the CGT discount of 50% will not apply.

68 PS LA 2003/12.

69 See the 2011 proposal paper (above n 1), p 10.


suPerannuation

by daniel butler, Cta, and bryce figot, ati, dba lawyers

auto-reversionary pensions after the mYefo

IntroductionThe federal government’s October 2012 Mid-year Economic and Fiscal Outlook (MYEFO) included an important announcement that provided a great boost of confidence to the self-managed superannuation fund (SMSF) industry. Namely, with effect from 1 July 2012, a tax exemption will apply following the death of an SMSF member in receipt of a pension until that pension has been paid out of the fund.

In light of this announcement, the following article considers whether it is still important that pensions be made “auto-reversionary”.

BackgroundIn TR 2011/D3, the ATO stated:

“A [pension] ceases as soon as the member in receipt of the [pension] dies, unless a dependent beneficiary of the deceased is automatically entitled under the superannuation fund’s deed, or the rules of the [pension], to receive [a pension] on the death of the member.”

This caused considerable concern. To illustrate, consider an SMSF with one member where that member has been receiving a pension for many years. Due to the pension (income tax) exemption in Subdiv 295-F of the Income Tax Assessment Act 1997 (Cth) (ITAA97), the SMSF probably has not paid any income tax, including capital gains tax (CGT), for a number of years. Now assume that the member dies. The SMSF assets might be carrying a large, unrealised capital gain. The Superannuation Industry (Supervision) Regulations 1994 (Cth) require the deceased member’s benefits to be cashed as soon as practicable after death. Accordingly, the assets might either be transferred out of the SMSF in specie or, alternatively, the assets might be sold and the proceeds used to

pay out the death benefit. Either way, the SMSF will have a CGT event. According to the view in TR 2011/D3, there is no longer any pension and thus there is no longer any pension exemption. Accordingly, the CGT event could result in a significant tax bill to the fund.

TR 2011/D3 acknowledged that, with the correct documentation in place, it is possible for the member’s pension, upon death, to automatically continue. In this instance, the pension exemption continues and no tax bill would arise to the fund. A pension structured like this is often referred to as a pension that automatically reverts, or an auto-reversionary pension (ARP).

Change announced by the MYEFOThe MYEFO announced that:

“The Government will amend the law to allow the tax exemption for earnings on assets supporting superannuation pensions to continue following the death of a fund member in the pension phase until the deceased member’s benefits have been paid out of the fund. This change will have effect from 1 July 2012. This measure is estimated to have a small but unquantifiable cost to revenue over the forward estimates period.

The superannuation law requires the benefits of a deceased member to be paid out of the fund as soon as practicable following the member’s death. The continuation of the earnings tax exemption beyond the death of a member will be subject to this existing requirement.

This change will benefit the beneficiaries of deceased estates by allowing superannuation fund trustees to dispose of pension assets on a tax-free basis to fund the payment of death benefits.”

As noted above, the extension of the pension exemption following death will apply from 1 July 2012. However, TR 2011/D3 applies from 1 July 2007. This

means that, for pensioners who died on or prior to 30 June 2012, unless they had an ARP, the Australian Taxation Office considers that the pension exemption ceased on the person’s death. It should be noted that the ATO view is reflected only in a draft ruling which is not law, nor is it a binding ruling. Nevertheless, it is consistent with the ATO’s view reflected in ID 2004/688 where the pension exemption ceased upon the member’s death. Thus, if taxpayers do not follow the ATO’s view, they may be at risk and should seek expert advice on how to manage such risk.

How to set up an ARPMost reversionary nominations are mere wishes and are not binding. Thus, to effect an ARP, a “locked-in” reversionary nomination must exist. Typically, in an SMSF, this requires a special deed that facilitates a nomination that binds a trustee’s discretion (ie an effective fetter binds a trustee’s discretion based on a specific power in the deed).

The authors’ experience over many years has shown that, under most SMSF deeds that they have reviewed, the binding death benefit nomination (BDBN) would prevail over a reversionary nomination. Binding death benefit nominations are more specific as to death and are binding. A reversionary nomination, on the other hand, is typically discretionary and is effected at the time of commencement of a pension.

Alternatively, the ARP can also be facilitated by a BDBN that directs not just to whom the death benefit is to be paid (eg to a spouse), but also how (eg as a pension). Naturally, the SMSF deed should also authorise this.

Thus, an ARP typically needs to be “locked into” the SMSF governing rules to be effective, and often this is via a specially

The announcement to extend the pension exemption on the death of a pensioner in the October 2012 MYEFO is great news for the SMSF industry. However, there are still sound reasons to ensure that a pension is an auto-reversionary pension to protect against adverse tax consequences.


suPerannuation

drafted SMSF deed with a reversionary nomination and/or by a suitably drafted BDBN.

Are ARPs still required?The next question is: once the MYEFO extended pension exemption announcement becomes law, will an ARP locked-in reversion still be required?

Interestingly, an ARP will, following the proposed change, not be required for the pension exemption to continue beyond a pensioner’s death. However, the ATO considers that an ARP was required for pensioners who died on or before 30 June 2012 to ensure that the pension exemption continues beyond death.

Therefore, strictly speaking, there appears to be no need for ARPs after 30 June 2012. However, considering the proportioning rule in s 307-125 ITAA97, there can be significant advantages in ensuring that each pension has a locked in ARP, as it provides better protection against adverse tax and succession risks.

Broadly, the proportioning rule results in each benefit reflecting the applicable proportion of tax-free and taxable components. In other words, one cannot “cherry pick” the tax-free money; a benefit paid must reflect a proportion of each (tax-free and taxable) component.

In an SMSF environment, a member is generally required to have one or more separate pensions to have more than one superannuation interest. This is because an SMSF member only has one interest unless they have one or more pensions (reg 307-200.05 of the Income Tax Assessment Regulations 1997 (Cth)). Indeed, a lot of planning has been directed at ensuring that the tax-free component of each pension has been maximised in recent years, and this has generally resulted in members having numerous pensions (aka superannuation interests) in the same SMSF.

In some cases, taxpayers may have certain pensions that are 100% or predominantly tax-free and others that are predominantly taxable. In this situation, the death of the pensioner may, given the ATO’s views in TR 2011/D3, result in a member ceasing his or her pensions unless an ARP is in place for each pension. If a pension ceases, it reverts back to accumulation mode and, if there are several pensions involved, the different pension interests are merged together. This results in mixed taxable and tax-free components, which cannot be separated or untangled again. Thus,

ensuring that ARPs exist in respect of each pension will overcome this risk. Naturally, to achieve an effective ARP requires an appropriate SMSF deed, pension documents or BDBN. These documents are generally available from SMSF lawyers.

ConclusionThe announcement in the MYEFO is great news for the SMSF industry and the government should be commended for its foresight and practical approach. However, there are still reasons to ensure that a pension is an ARP to protect against adverse tax consequences. Quality SMSF documentation here is a key factor in achieving an effective strategy.

Daniel Butler, CTADirector DBA Lawyers

Bryce Figot, ATIDirector DBA Lawyers


tax cases

Young v FCT considers the operation of the income tax withholding provisions associated with the payment of salary and wages. It is also an example of proceedings against the Commissioner under the Judiciary Act.

by michael norbury, Cta, madgwicks lawyers

Young v fCt: an employee’s ability to claim credits for tax withheld from salary

Young v FCT1 considers a problem simply stated: was Young entitled, under s 18-15(1) of Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA), to credits for amounts he claimed had been withheld from payments contended to have been made to Young as an employee or a director of Prospectus & Project Management Services Pty Ltd (PPM)?

Young also considers the appropriate mechanism for reconsideration of the Commissioner’s decision.

FactsWarwick Raymond Young, the applicant, was a director of PPM and held 50% of the issued shares in that company. The balance of the issued shares was held by a John Michael Whitfield, who was also a director. Sheldon Warwick Young, the son of Warwick Young, was a third director.2

PPM went into administration of 15 February 2005 and liquidation on 15 March 2005.3

Sometime after 29 August 2006, Warwick Young lodged his income tax return of the relevant year of income, returning as assessable income salary or wages paid by PPM of $363,999 and claiming a credit of $159,859 in respect of tax withheld from those salary or wages.4

On 11 December 2006, the Commissioner issued a notice of assessment of income tax to Warwick Young which allowed no credit under s 18-15(1) of Sch 1 TAA.

On 3 October 2007, Warwick Young (through accountants) purported to object to the Commissioner’s failure to accept his claimed entitlement to the withholding credits. The Commissioner treated the objection as if it were a valid objection and, on 20 August, disallowed the purported objection, notwithstanding that the allowance or disallowance of these types

of credits is not part of the assessment process.5

There was no objection on the alternative basis that Warwick Young only ever received from PPM $204,140 ($369,999 less the amount of $159,859 alleged to have been withheld) and his income was no greater than the amount actually paid to him.

In the course of his reasons for decision, disallowing Warwick Young’s purported objection, the Commissioner wrote:6

“[T]he company has not remitted any PAYG

withholding credits to the Tax Office and there is

no documentary evidence to substantiate that the

company did in fact “withhold” an amount from

a payment of remuneration to an employee or

director under section 12-25 or 12-40 40 [sic] of

Schedule 1 to the TAA 1953. As a result of this,

it means you would not be entitled to any PAYG

withholding credits for the 2004 year unless other

documentary evidence such as copies of payslips

confirm the company did withhold PAYG credits for

this year. Therefore, your PAYG withholding credits

for the 2004 year are disallowed.”

On 23 January 2009, Warwick Young’s accountants purported to lodge a further objection to the notice of decision on objection.On 4 March 2009, the Commissioner responded in the following terms:7

“As the director of Prospectus & Project

Management Pty Limited, it was your responsibility

to ensure withholding tax payments were deducted

from payments made to the company’s employees/

directors and then forwarded to the Tax Office.

This did not happen. You held a non-arm’s length

position within the company to that of other

employees. The onus of proof to show that the tax

was withheld from the payments you received is

looked upon more stringently than that of other

employees because of the position you held.

... you never received any on going [sic] pay slips

during the relevant year and it appears there was

also no employment contract prepared in which

to provide added support in relation your salary

entitlement from your employer. You are advised

that we cannot use as supportive evidence your

unsubstantiated spread sheet and the other

documentation is not conclusive evidence in

supporting a claim that your income payments

were net of tax.”

There was no response to this letter.The Commissioner did not appear to take the point that the objections were misconceived under Pt IVC TAA.

Relief soughtOn 26 July 2011, Warwick Young filed an application in the Federal Court under s 39B(1A) of the Judiciary Act 1903 (Cth) commencing a proceeding seeking relief in the form of a writ of mandamus ordering the Commissioner to allow a credit of $159,859 to which Warwick Young claimed to be entitled under s 18-15 of Sch 1 TAA for amounts withheld from his salary under ss 12-35 and 12-40 of Sch 1 TAA in the relevant year of income.8

The legislationSection 12-35 of Sch 1 TAA provides:

“An entity must withhold an amount from salary,

wages, commissions, bonuses or allowances it

pays to an individual as an employee (whether of

that or another entity).”

The court found that, from s 12-35, the obligation to withhold is one that falls on the payer of salary and wages, although that entity may not necessarily be the employer. Further, if during the financial year, an entity made one or more withholding payments, such as in this case, a payment covered by s 12-35, within 14 days after the end of the financial year, the


tax cases

payer must provide a payment summary to the recipient (s 16-155(1)(a)).

In the relevant years of income, s 18-15 of Sch 1 TAA provided:

“(1) A person is entitled to a credit equal to

the total of the amounts withheld from

withholding payments made to the person

during an income year if:

(a) an assessment has been made of the

income tax payable by the person for

the income year; or

(b) the Commissioner is satisfied that no

income tax is payable by the person for

the income year.”

The court noted that entitlement to a credit in a particular income year depends in the first instance on the satisfaction of either of the two pre-conditions in s 18-15(1): first, that an assessment has been made for the income year, or second, that no income tax is payable for that income year. The court considered that the policy reason for these conditions was to ensure that there was quantification by assessment of any impending tax payable in a particular income year before an entitlement to a credit arose.

The court held that, if either of the two conditions referred to in s 18-15(1) were met, then a taxpayer would be entitled to a credit “equal to the total of the amounts withheld”. It followed that, if no amount was withheld, there will be no entitlement to a credit amount.9

The court then considered what was meant by the expression “withhold”. It considered the Oxford English Dictionary meaning:

“To keep back; to keep in one’s possession

(what belongs to, is due to, or is desired by another);

to refrain from giving, granting, or allowing.”

Thus, the court held that the prevailing sense is one of deprivation, the holding back of something due to the employee, resulting in the reduction of a gross amount to a net amount which is paid to the employee. Accordingly, no credit will be available to the payee if he had received a gross amount. There must be a process by which this withholding takes place. It may be reflected in actual funds held by the payer on behalf of the employee pending payment to the Commissioner; on the other hand, and more usually, it may only be reflected in the wage records and books of account of the payer as an accounting entry.

The court found that, where an amount has been set aside by the payer and is quarantined in a bank account pending its remission to the Commissioner, clearly, the presence of the funds so designated will demonstrate that a withholding has been made. Indeed, the remission of the amounts withheld will invariably lead to the same conclusion.

And finally, the court held that where, in the usual case, the withholding process is represented only by accounting entries, the question of whether a legitimate process of withholding has ensued depended on a close examination of those books and records and the surrounding circumstances to see whether it may be inferred from those records and circumstances that a withholding has occurred. At one end of the spectrum, a mere journal entry in the absence of other evidence may not be sufficient evidence, having regard to the surrounding circumstances, that there has been a payment of salary and wages and a withholding from that payment. The court found that the authorities make it plain that entries of this kind, standing alone, are not conclusive evidence of the transaction.10

EvidenceWarwick Young produced very little evidence to support his claim. There was no evidence as to the terms of the contract of employment or the contract itself between Warwick Young and PPM.11

There were no books of account or other records of PPM, such as wage records, for the relevant year of income or, for that matter, any other year of income put into evidence or produced by the liquidator of PPM. The evidence suggested that such records as existed were destroyed in late 2011 by the accountant who prepared the objection. The court noted that this dispute with the Commissioner first arose in December 2006.

Warwick Young was unable to put in evidence any pay slips or other records given to him at the time of payment of salary or wages showing his gross entitlement, the tax withheld from that gross entitlement, and the net amount paid.12

Warwick Young claimed that he was paid his regular monthly salary from December 2003 to March 2004, but there was no evidence that this was actually paid.

Spreadsheets put into evidence were found not to be contemporaneous records of amounts withheld from payments, if

any, made by PPM during each of the four months from December 2003 to March 2004.13

Finally, the court concluded that there was nothing on the face of anything put into evidence which recorded the amounts withheld by PPM from the payees at the time of making any such payments. If, for example, as Warwick Young contended, an amount of $124,279.14 was paid to him by PPM on or about 25 November 2003, there was nothing on the face of documents in evidence to indicate the amount withheld by PPM from Warwick Young at the time of making that payment. According to PPM’s accountant, there was no other document that recorded any such withholding.

It followed that there was no evidence that any such withholding was made at the time the applicant contended that the amount of $124,279.14 was paid to him in November 2003.14

ConclusionWarwick Young failed because of lack of evidence.

Apart from setting parameters around what is needed in order to prove a withholding, the case is interesting because it proceeded as an objection which the court found was misconceived, but nonetheless the Commissioner was prepared to consider the objection and overlook the misconception.

Finally, proceedings were taken against the Commissioner under s 39B(1A) of the Judiciary Act 1903 rather than the more usual route to either the Administrative Appeals Tribunal or the Federal Court via Pt IVC TAA.

Michael Norbury, CTAPartner Madgwicks Lawyers

References

1 [2012] FCA 1098.

2 Young at [7].

3 Young at [8].

4 Young at [10].

5 Young at [12].

6 Young at [14].

7 Young at [16].

8 Young at [17].

9 Young at [20].

10 Temples Wholesale Flower Supplies Pty Ltd v FCT (1991) 29 FCR 93 at 100-103.

11 Young at [26].

12 Toung at [27].

13 Young at [29].

14 Young at [31].


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calendar

december 2012 to february 2013

State Date Event Start time Venue CPD

Northern Territory

General 22/02/13 Darwin Property Seminar 8.30am Crown Plaza Darwin 4.0

Queensland

General 04/12/12 Toowoomba Tax Club 5.00pm University of Southern Queensland 1.5

South Australia

General 03/12/12Mt Gambier – Estate and Business Succession Planning 2012

11.00am Quality Inn Presidential 3.0

Introduction 06/12/12 2012 Annual Tax Institute Networking Event 5.30pm Treasury on King William

General 07/12/12Darwin – Estate and Business Succession Planning 2012

1.00pm Crown Plaza Darwin 3.0

General 13/12/12 Revolutionising State Taxes 9.00am InterContinental Adelaide 3.0

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Western Australia

Introduction 05/12/12 YTP 5: In Death We Trust 12.00pm Ashurst 1.5

General 13/12/12 Twilight Tax Update 4 4.30pm City West Receptions 1.5

For information on upcoming events, visit taxinstitute.com.au.


A

ABSTUDYcategory E expenses ...............................153

Accountantsproviding financial advice ....................... 208

Accountant’s exemptionreplacement ............................................. 209

Accounting Professional and Ethical Standards BoardCode of ethics for professional accountants

– APES 110 .......................................... 206Taskforce ................................................. 206

Active income testCFC regime .................................................71

Administrative Appeals Tribunal ...............................49, 153, 164, 167

Administrative penalty ....................... 79, 261

Agentsliability and obligation to pay ..........250, 257as receiver

– CGT liability ..............................250, 258

Alternative dispute resolution .........114, 120

Amalgamated loannew loan made

– Div 7A ...................................................67

Amending legislation ................................2, 7

Anti-overlap provisioncapital gains ................................................26

Appointor ......................................................94

Approved formlist on ATO website ...................................125what is .......................................................124

Assessable incomegaining or producing ....................... 153, 154

Asset protectionfor benefit of beneficiaries..........................92

Assetscollectables and personal-use ................207hire purchase

– holder ........................................250, 257in-house ............................................101, 102maximum net value test ...........................259related to ...................................................259replacement ..............................................101single acquirable

– SMSF .................................................101thoroughbred horses .............................. 264valuation

– net market value .............................. 206

At call loans ................................................279

Attributable incomeCFC regime ...........................................70, 71

Attributable taxpayerCFC regime .................................................70

Australia/New Zealand Closer Economic Relations Trade AgreementDecember 2011 ........................................157

Australian Charities and Not-for-profits Commission ........................................74, 225revised draft of legislation ...................58, 63

Australian National Audit Office .............189

Australian Parliament House of Representative Standing Committee on EconomicsAdvisory Report on the Tax Laws Amendment (2012 Measures No. 8) Bill and the Pay As You Go Withholding Non-compliance Tax Bill 2011 ...............137

Australian Productivity Commissioncontribution of the not-for-profit sector

– research report 2010 ..........................75Australian Taxation Office

2012-13 compliance program ....................................114, 121, 164

benchmarking – IGOT report (October 2012) ....250, 256

claiming self-education expenses – specific expenses ....................... 152, 153

consolidated list of approved forms by tax topic ..................................................125

creation of a new trust – statement of principles

– August 2001 (withdrawn 20 April 2012) ....................................................63

decision impact statement – FCT v Anstis, 16 December 2010....154

– FCT v Qantas Airways Ltd, 2 October 2012 .....................................322

external scrutiny reports ................. 182, 189imposition of penalties on SMSFs ..........163inter-agency phoenix forum

– 8 July 2012 ........................................137review by IGOT into ATO’s use of early and alternative dispute resolution

– 8 July 2012 ................................114, 120SMSFs: a statistical overview 2009-10

– April 2012 ..........................................163targeting GST compliance

– 10 April 2012 .....................................137Australian Treasury

better targeting of not-for-profit concessions

– 27 May 2011 ........................................75modernising the taxation of trust income – options for reform

– November 2011 ..................................29native title, indigenous economic development and tax, 2010 ...................120

Australia’s Future Tax System ReviewHenry Review .............................................75

Austudycategory E expenses ...............................153

BBare trust.....................................................102Base penalty amount ..................................82Behavioural assessment

conducted– after determination of shortfall

amount .................................................82recklessness ...............................................82

BenchmarkingIGOT review of ATO

– 4 October 2012 .................................256use by Commissioner ............................. 359

Beneficial ownershipdeclaratory proceedings dismissed ....................................... 182, 189

Beneficiaries ....................................92, 94, 95

Beneficiarymeaning

– discretionary trust .....................114, 121Board of Taxation

post-implementation review – Div 7A .............................................2, 7, 8

post-implementation review of the Tax Design Review Panel’s recommendations

– 7 September 2012 ................... 182, 188Report on the taxation of discretionary trusts

– November 2002 ..................................29Review of the tax issues entry system

– 7 September 2012 ................... 182, 188Borrowing

off-the-plan – SMSF .................................................101

Budget 2011charities .................................................74, 75

Budget 2012charities .......................................................75

Building and construction industry ........169phoenix activity ................................ 136, 137

Business structure ....................................128Business Tax Working Group ..................231

CCapital components ..................................281Capital gains

anti-overlap provision .................................26become revenue gains ..............................27foreign .........................................................25trusts

– streaming...............2, 8, 12, 20, 58, 343Capital gains tax

business restructure ................................130cost base ..................................................2, 8estate planning ................................362–369event A1 ................................................... 369event J5.................................................... 368event J6.................................................... 368event K3 ...........................................365, 369events E1 and E2

– trust deeds ...................................58, 63improvement threshold ................................2maximum net asset value test ................259

Carbon price .................................................14Australia ....................................................157

Carbon tax ....................................................14Charities

Budget 2012 ...............................................75definition ....................................................227fundraising reform ................................... 229GST-free supply ...............................250, 256investments ...............................................223reforms ......................................................219tax concessions .............................. 218, 222taxing...................................................74, 217

Chartered Tax Adviser ...............16, 117, 198, 253, 316, 317Clean Energy Future Plan ..........................14Climate change ..........................................157Code of Professional Conduct

online course ............................................253Commercial residential premises ................................... 114, 122, 236

Commissioner of Taxationdiscretion to remit .......................................86garnishee power ...................................... 269may negate transfer pricing benefit ...98, 99Chris Jordan appointed .................. 314, 320powers

– obtaining foreign bank account details ..................................331

ranking in company liquidation .............. 300s 260-5 notice ................................. 191, 269

Commissioner’s powers.................. 331, 358Company loss carry-back..........................58Consolidation

amending legislation ....................................7Contributions

special circumstances .............................167when are they made ................................167

Control of trustsuccession ..................................................93

Controlled foreign companyactive income test ......................................71listed country ..............................................71regime

– changes ...............................................70Convention on Mutual Administrative Assistance in Tax Mattersratified 5 October 2012 ...................250, 256

Cooper Review ...........................................201Corporate tax regime

Business Tax Working Group – review.................................................231

Cost baseCGT ...........................................................2, 8

Council of EuropeConvention on Mutual Administrative Assistance on Tax Matters

– ratified 5 October 2012............250, 256Culpability factor

reasonable care ..........................................84

DDeath and taxes ........................................ 362Debit loans ..................................................272Declaratory proceedings

dismissed ......................................... 182, 189Declaring a trust ........................................169Deductible gift recipient ..........217, 219, 222, 224, 228Deeds

trust – CGT events E1 and E2 ................58, 63 – discretionary ........................................90 – updating ..............................................91

Default superannuation funds.................325Demergers

SMEs .........................................................283Director penalties

regime expansion .......................................35remission ...................................................139

Director penalty provisions .............. 36, 136Directors’ superannuation

no deduction – corporate trustee not entitled .....58, 65

Directors’ tax liabilities ...............................36

The following cumulative index is for volume 47, issues (1) to (6). Listed below are the pages for each issue:

Vol 47(1): pages 1 to 56Vol 47(2): pages 57 to 112



Cumulative index


CUMULATIVE IndEx

Discretion to remitCommissioner of Taxation .........................86

Discretionary trustsbeneficiary

– meaning .....................................114, 121deeds ..........................................................90distributions .......................................... 11–13

– TAD model...........................................32Dispute resolution .............................114, 120Distributable income

trusts ........................................................ 335Distributable surplus .................................2, 8

calculation – income tax...........................................68

Distributionsdiscretionary trusts ............................... 11–13franked ................................................24, 144

– streaming.......................................... 343timing ...........................................................30trusts

– assessability of compensation amount ...................................... 314, 321

Dividend access share arrangements ......................................58, 64

Dividends ....................................................279getting money out by liquidation .............279paid to trusts .............................................283payment

– authorised or unauthorised reduction of capital .............................................148

– current year profits ............................147 – TR 2012/5 ..........................................144 – unrealised capital profits ..........147, 148

Division 6 percentage .................................23Division 7A

benchmark interest rate ......................58, 63Board of Taxation

– post-implementation review .............2, 7client education ........................................274deemed dividends ...................................272evolution ....................................................273getting money out ....................................274loan agreement

– amounting to new loan .......................67Double taxation agreements .....................98

application of ............................................214

EEmissions trading scheme

Australia and New Zealand .....................157Employee share scheme

income ......................................................214Estate

administration of ...................................... 363 – income derived ................................ 363

assets – after distribution to beneficiary ........367

– passed from executor to beneficiary ........................................ 364

planning ................................................... 362Ethics

principles ...................................................255Excess contributions tax

Bornstein ...................................................167Exculpatory factors

reasonable care ..........................................85

FFacebook

getting started ......................................... 303Fair Work Australia

default superannuation funds..................325False or misleading statement ..................80Family trusts

deeds ..........................................................90 – non-tax issues.....................................94

Federal Court of Australia ........................104Financial advice

best interest duty ..................................... 208conflicted remuneration .......................... 208fees ........................................................... 209provided by accountants ........................ 208

Financial dependencygrandchild on grandparent ........................47

Fixed trustuse of term ..................................................28

Fixed trustsreforms ..............................................114, 120

Fleet rebatesGST ......................................................58, 65

Foreign capital gains ..................................25Foreign income exemption

removal......................................................214Foreign resident insurer

premiums paid to ............................ 314, 322Forfeited fares

GST ..................................................250, 258Forms

approved ...................................................124virtual .........................................................124

Forward exchange contractindemnity fee ................................... 182, 190

Foundation Tax Dux AwardsCatriona Nicol ...........................................132

Franked distributions ..........................24, 144Fringe benefits tax

car parking threshold ...............................2, 8

GGarnishee notice

s 260-5 ............................................. 191, 269valid .................................................. 314, 322

General anti-avoidance rule ..............41, 190General interest charge ..............................87Goods and services tax

fleet rebates .........................................58, 65forfeited fares ...................................250, 258free charity supply ...........................250, 256general anti-avoidance provisions...190, 194going concern concession ............. 314, 321incentive payments

– motor dealers ...............................58, 65inflated consideration .......................114, 120input tax credits ........................................194lease consideration ......................... 104, 105redemption of shares .......................114, 121rent ............................................................104shuttle mares ........................................... 265vendor finance ..................................114, 120

Grandchildfinancially dependent on grandparent ......47

HHenry Tax Review ..................................... 362High Court of Australia

new alert service ......................................133High wealth individuals.............................121Hire purchase

holder of the asset...........................250, 257Holding trust ...............................................102Horse racing .............................................. 263

IInbound assignees

current issues ...........................................213Incentive payments

motor dealers ......................................58, 65Income of the trust estate ..........................29Indemnity fee ..................................... 182, 190Individual trust deed summaries ........... 336Input tax credits .................................114, 120Inspector-General of Taxation ................189

Review into the ATO’s use of benchmarking to target the cash economy

– 4 October 2012 ........................250, 256Review into the ATO’s use of early and alternative dispute resolution

– 31 July 2012 ..............................114, 120Interest charges

general and shortfall ........................... 86, 87

JJoint venture ...............................................169

LLaw design practice ..................................188Lease consideration

GST ...........................................................105Legal validity of trust in NSW ....................92Limited recourse borrowing arrangement ............................101, 102, 204

LinkedIngetting started ......................................... 239

Liquidationranking of Commissioner in creditors .... 300SMEs .........................................................285

Living-away-from-home-allowancerecent changes.........................................213

Loan agreementamounting to new loan

– Div 7A ...................................................67dangers when drawing up.......................274

Loans ...................................................114, 122at call .........................................................279debit ..........................................................272

Long-term investmentschanges to rules .........................................41

MManaged funds

input tax credits ........................................194Managed investment trusts

new tax system – start date 1 July 2012 .......................120

Maximum net asset value test ................259Mercantile Discount Bank

loans ..........................................................122Minerals resources rent tax .......................41Motor dealers

incentive payments – GST ...............................................58, 65

MySuper products.....................................324

NNational Tax Liaison Group

Superannuation Consultative Committee – meeting 6 March 2012 .................... 202

Superannuation Technical Sub-group – meeting 5 June 2012 ....................... 234 – minutes March 2010 ........................ 298

Native title benefits............................114, 120Net financial benefit ....................................21New Zealand emissions trading scheme ......................................................157

Not-for-profit sector ..................................217conducting unrelated commercial activities

– taxing ................................................ 222reforms ......................................................219tax concessions .......................................218

Not-for-profit Sector Tax Concession Working Groupdiscussion paper ............................. 314, 320

OOECD

authorised approach– attribution of profits to permanent

establishments ......................................7Convention on Mutual Administrative Assistance in Tax Matters

– ratified 5 October 2012............ 150, 256Transfer pricing guidelines for multinational enterprises and tax administrations ........98

Offset loan...................................................261Onus of proof

by taxpayer .............................................. 358

PPart IVA amendments ..............314, 316, 320Part IVC proceedings .........................49, 358Partnerships .......................................169, 170PAYG non-compliance ...............37, 136, 137Pensions

auto-reversionary .....................................371reversionary ..............................................297

Perfecting a security interest ....................43Permanent establishments ..................... 265

attribution of profits – OECD authorised approach ................7

Perpetuity ............................................... 94, 96Personal Property Securities Act 2009

introduction of .............................................43Personal property security

New Zealand ..............................................43Personal services income ................... 2, 8, 9Phoenix operators

amending legislation .............7, 35, 136, 138

Present entitlementto income ....................................................27

– creation ................................................27Present legal obligation............................2, 8Primary production income

wind farming income ...............................323Private ancillary funds ..............................219

trust deeds ....................................... 219–221Private Ancillary Funds Guidelines 2009 .......................................219

Profit-making scheme lossesdeductible ........................................ 314, 321

“Profits first” rule ...................................... 280Proof

onus by taxpayer ..................................... 358Public Ancillary Funds Guidelines 2011 ........................................220

“Purpose” testobjective ................................................... 280

RReasonable care

culpability factors........................................84exculpatory factors .....................................85tax penalties .............................................2, 9

Reasonably arguable position ....................................... 81, 287–290tax penalties .............................................2, 9

Recklessnessbehavioural assessment ............................82

Reduced input tax credits .......................194Refusal to supply a document ..................81Reimbursement agreement .......................28Related party lending

SMSFs ...................................................... 234Remission of interest charges ..................87Replacement asset ...................................101Residence

outbound assignee ..................................214for tax purposes .......................................211temporary

– inbound assignee .....................211, 212Residency tests

Australian superannuation funds ............291 – strategies ..................................292–295

Residential premisescommercial .............................. 114, 122, 236

Restructuring a business .........................129Retrospective legislation .................... 40, 99Revenue gains

from capital gains .......................................27Reversionary pensions .............................297

SSafe harbour debt ......................................232Safe harbour provisions .............................81Salary and wages

payment of – withholding arrangements ...............373

Scheme penalties ........................................84Section 260-5 notice ........................ 191, 269Section 264 notice ........... 182, 189, 331–334Security

over personal property ..............................43Security interest ...........................................43Self-education

deduction against assessable income ...152expenses...................................................152

Self-incrimination.............................. 182, 189Self-managed superannuation funds

borrowing ..................................................101non-compliance warnings and notices

– responding to ....................................163penalties imposed by ATO .......................163related party lending ............................... 234residency tests .........................................291

Shareconcept of

– s 97(1) ITAA36 ..............................58, 64Share buy-backs........................................281Share capital account

definition ....................................................144Shares

redemption – GST ............................................114, 121


CUMULATIVE IndEx

Shortfall interest charge.............................87Single acquirable asset

SMSF ........................................................101Small Business Commissioner appointed

Mark Brennan ...........................................252Small business concessions

streaming ....................................................27Small to medium enterprises

carbon tax .............................................14, 15CGT concessions .....................................283getting money out ....................................272limitations on using demergers ...............283liquidation ..................................................285winding-up ............................................... 284

Social mediagetting started ..........................................107getting started with Facebook ............... 303getting started with LinkedIn .................. 239getting started with Twitter ......................174

Sovereign risk ...............................................40Streaming

small business concessions......................27trusts

– capital gains ............................... 2, 8, 20Superannuation

15% contribution charge .........................201allocation of contributions ....................... 203asset valuation

– net market value .............................. 206collectibles and personal-use assets .....207concessional contributions cap

– over 50s ............................................ 202concessional contributions tax

– refunded for low-income earners ....201directors

– company not entitled to deduction ......................................58, 65

excess concessional contributions over $10,000

– refund ............................................... 202insurance and investment strategy .........207limited recourse borrowings ................... 204off-market transfers ban

– deferred .............................................207pensions .................................................. 203roll-overs .................................................. 206SuperStream reforms ............................. 205TR 2010/1 contributions ......................... 202

Superannuation guarantee chargeunpaid .......................................................138

Syndicate agreement ................................169

TTax appeal proceedings .......................... 358

comprehensive evidence – need for ............................................ 360

Tax consultationsThe Tax Institute

– ethical framework .............................255Tax cooperation

convention ratified – 5 October 2012 ........................250, 256

Tax instalmentslarge companies

– timing .................................................250Tax issues entry system ...........................188Tax minimisation arrangements .............331Tax penalties

reasonable care ........................................2, 9Tax reform ...................................................319Tax shortfall ..................................................82

penalties ....................................................2, 9Taxation of financial arrangements

amending legislation ....................................7Taxpayer conduct ........................................80The Tax Institute

Applied Tax Dux Award – Ryan Curry ........................................267

CTA Program ...........198, 253, 316, 317, 326ethical framework for tax consultations ..........................................255

Foundation Tax Dux Award – Catriona Nicol ...................................132

social media – getting started ...................................107 – getting started with Facebook ........ 303 – getting started with LinkedIn .......... 239

– getting started with Twitter...............174Tax Education Program

– members contributing to ....................16Thin capitalisation

new rules ............................................98, 231valuation requirements .............................232

Thoroughbred racing ............................... 263assets or trading stock ........................... 264

Timing of distributionstrusts ...........................................................30

Transfer pricingproposed amendments .............................98

Transfer pricing benefit .......................98, 99Traveling expenses

medical certificates ......................... 182, 188Trust estates

income of ....................................................29Trustee assessment and deduction model

discretionary trusts – distributions .........................................32

Trustee distribution resolutions ............. 335checklist ...........................................344–345

Trusteesobligation and liability to pay ..........250, 257

Trustsappointor .....................................................94bare ...........................................................102beneficiaries ................................................94declaring ...................................................167deeds

– amendments ................................58, 63 – CGT events E1 and E2 ................58, 63 – classification of ................................. 338 – definition of income ............................26

discretionary – deeds ...................................................90 – distributions ................................... 11–13 – meaning of beneficiary .............114, 121

distributable income ........................335, 337distributions

– assessability of compensation amount ...................................... 314, 321

– basics ............................................... 340 – master control list ............................ 336 – simple rules .......................................342 – timing ...................................................30

dividends paid to ......................................283family deeds

– non-tax issues..............................90, 94fixed .............................................................28

– reforms ......................................114, 120franked distributions..................24, 144, 343holding ......................................................102individual deed summaries ..................... 336managed investment

– new tax system start date 1 July 2014 ........................................120

reform .......................................314, 316, 320streaming ..................2, 8, 20, 335, 339, 341succession ..................................................93taxation .......................................................20

Twittergetting started .................................. 107, 174

UUniform administrative penalty regime ...75Unpaid present entitlements

as debit loans ...........................................276new regime (PS LA 2010/4) .....................277treatment change (16 December 2009) .......................................................275

unit trusts ....................................................68Unrelated business income tax ................74

VVanuatu

breach of law ........................................... 332Virtual form .................................................124Voluntary disclosure ...................................79

WWind farming

income ............................................. 314, 323Winding-up

SMEs ........................................................ 284Winding-up application

adjourned ....................................................49

YYouth Allowance

category E expenses ...............................153

Accounting StandardsAustralian Accounting Standards Board

AASB 127 ...................................................71AASB 131 ...................................................71

LegislationA New Tax System (Goods and Services Tax) Act 1999 ............................................237Div 19 ........................................................258Div 40 ........................................................257Div 75 ........................................................190Div 165 ...............................84, 121, 190, 225s 9-5(a) ......................................................322s 9-30(1)(b) ................................................323s 9-30(2)(b) ................................................323s 23-5 ........................................................224s 29-70(1) ..................................................125s 38-190 ................................................... 265s 38-250 ...........................................250, 256s 38-250(2)(b)(ii) ........................................257s 38-325(1)(c) ............................................321s 40-35(1)(a) ..................................... 237, 238s 84-1 ........................................................170s 105-65 ......................................................65s 165-5(1)(b) ..............................................190s 195-1 .....................................123, 170, 237

A New Tax System (Goods and Services Tax Transition) Act 1999s 13 ................................................... 104–106s 13(1) ........................................................105s 13(1)(a) ....................................................105s 13(5) ............................................... 105, 106s 13(5)(b) ....................................................105

A New Tax System (Goods and Services Tax) Amendment Regulation 2012 (No. 1)Select Legislative Instrument 2012 No. 87 ......................................................194

A New Tax System (Goods and Services Tax) Regulations 1999reg 23-15.01..............................................224reg 23-15.02 .............................................224reg 40-5.06 ...............................................121reg 40-5.09(1) ...........................................121reg 40-5.09(3) ...........................................121reg 70-5.02(2) .................................. 194, 195

Acts Interpretation Act 1901s 18A .........................................................124

Administrative Appeals Tribunal Act 1975 .....................................................164s 29 ............................................................164s 35(2) ........................................................164s 41 ............................................................164s 44............................................................164s 44(1) ........................................................322

Administrative Decisions (Judicial Review) Act 1977 ............................... 49, 275

Anti-Money Laundering and Counter-Terrorism Financing Act 2006s 53............................................................125s 53(1) ................................................125, 126s 53(1)(c) ....................................................126

Australian Charities and Not-for-profit Commission (Consequential and Transitional) Bill 2012 ..............................225

Australian National Registry of Emissions Units Act 2011 ...........................................160

Australian Securities and Investments Commission Act 2001 .............................227

Bankruptcy Act 1966.................................191s 50 ........................................................... 269

Charities Bill 2003 ......................................227Clean Energy Act 2011 .............................161Climate Change Response Act 2002 (NZ) .......................................... 160, 161

Commonwealth of Australia Constitution Acts 55 ............................................................140

Companies Clauses Consolidation Act of 1845 (8 & 9 Vic c18) (UK)s 121 ..........................................................145

Corporations Act 2001 ............. 38, 137, 140, 145–147, 207, 220, 222, 226–227, 282, 295

Ch 2J .........................................................146Pt 2J.1 ......................................145, 148, 281Pt 5.4 .................................................... 49, 50s 9 ....................................................... 36, 194s 189 ..........................................................165s 190(1) ..................................................... 293s 190(2) ..................................................... 293s 198D ...................................................... 293s 201A .........................................................36s 248A .......................................................341s 248D .......................................................341s 251A(1) ....................................................341s 254T ...................................... 144–150, 279s 254T(1) ....................................................145s 254T(2) ....................................................145s 256B .......................................................282s 256B(1) ...................................................282s 256B(2) ...................................................282s 256C .......................................................282s 257A .......................................................281s 257D .......................................................281s 257H .......................................................286s 258F .......................................................146s 305 ...........................................................71s 459A .........................................................49s 459C(2)(a) .................................................49s 459E(1) .....................................................49s 459F .........................................................49s 459G ........................................................49s 459G(1) .....................................................49s 459P .........................................................49s 459P(1) .....................................................49s 459R .........................................................50s 459R(2) .....................................................50s 459R(4) .....................................................50s 494 .........................................................140s 496 .........................................................140s 556(1)(db)................................................301s 588FA ............................................300, 301s 588FA(1) ........................................300, 301s 588FA(1)(b) .............................................301s 596AJ .............................................140, 141s 601AA.................................................... 284s 601AH(1) .................................................140s 601GC(1)(a)...............................................29s 962H ...................................................... 209s 962K ...................................................... 209s 963A ...................................................... 208

Corporations (Aboriginal and Torres Strait Islander) Act 2006 .........................226

Corporations Amendment (Corporate Reporting Reform) Act 2010 ..................145

Corporations Amendment (Phoenixing and Other Measures) Act 2012 ..... 140, 149

Corporations Amendment (Corporate Reporting Reform) Bill 2010 ...................145EM .............................................................145

Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012..................................................... 208

Corporations Amendment (Future of Financial Advice) Bill 2012..................... 208

Corporations Amendment (Phoenixing and Other Measures) Bill 2012 ........37, 140EM ...............................................................38

Corporations Amendment (Similar Names) Bill 2012 ...............................140, 141

Crimes Act 1914 .................................... 35, 81s 6 ................................................................36s 21B ...........................................................36

Crimes (Taxation Offences) Act 1980s 5 ................................................................36

Criminal Code Act 1951s 4.1 ...........................................................126s 11.1 ...........................................................36s 11.4 ...........................................................36s 11.5 ...........................................................36

Fair Work Act 2009 ....................................325Financial Sector (Collection of Data) Act 2001 .....................................................163

Financial Sector Legislation Amendment (Review of Prudential Decisions) Act 2008 ............................................................164


CUMULATIVE IndEx

Fringe Benefits Tax Assessment Act 1986 ........................................................... 280s 39A .............................................................8s 123E(1) ................................................... 229s 136(1) ......................................................124

Guardianship and Administration Act 1990 (WA)Pt 9 ........................................................... 292

Income Tax (Former Complying Superannuation Funds) Act 1994s 3 ..............................................................291

Income Tax Act 2007 (NZ)Pt EW ........................................................161

Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012EM .............................................................136

Income Tax Assessment Regulations 1997 ............................................................228reg 70-55.01 ............................................ 265

Income Tax Rates Act 1986s 12(1) ........................................................291Sch 10

– Pt 1 ................................................... 364Instruments Act 1958 (Vic)

Pt XIA ....................................................... 292International Companies Act (Vanuatu)

s 125 ......................................................... 332International Tax Agreements Act 1953 .................................................... 265

ITAA36.........................................220, 221, 297Div 6 ...........................20, 23, 24, 28, 30, 64, 102, 285, 335, 338, 341, 342, 362–364, 368Div 6AA .................................................... 368Div 6E ............. 20, 23–25, 31, 342, 362, 368Div 7A ...................2, 7, 8, 21, 28, 30, 58, 63, 64, 67–69, 71, 90, 102, 121, 234, 272–278, 338

– Subdiv EA .................273, 275, 276, 278 – Subdiv EB.........................275, 276, 278

Div 11A ......................................................279Div 13 ...................................................98, 99Div 16K ......................................................281Pt III..............................................................20Pt IV .............................................................36Pt IVA .................................28, 29, 41, 64, 84, 94, 225, 261, 280, 314, 320Pt VII ..........................................................287Pt X ........................................................70, 71s 6(1) ....... 124, 144–146, 279, 280, 284, 363s 6(4) ..........................................................144s 8 ..............................................................278s 23AG ..............................................214, 216s 27H ................................................ 297, 298s 44....................26, 144, 145, 150, 274, 285s 44(1) ............................................... 144, 321s 44(1)(a) ....................................................147s 44(1)(a)(i)..................................................285s 44(1A) ............145–147, 149, 150, 279, 284s 44(3) ........................................................283s 44(4) ........................................................283s 45A ................................................280, 281s 45B ...............149, 150, 278, 280, 281, 283s 45B(2) ............................................280, 283s 45B(3) .................................................... 280s 45B(5) .....................................................283s 45BA ..................................................... 280s 45C ........................................................ 280s 45C(3) .................................................... 280s 47 ............................................................285s 47(1) ........................................................285s 47(1A) ......................................................285s 47(1A)(b) ..................................................285s 82A(1) .....................................................152s 82AAA ....................................................287s 82AAE ........................................... 287–289s 95...............................................31, 65, 363s 95(1) .............................. 337–339, 341, 345s 97 ........................................................... 363s 97(1) ...20, 23, 25, 26, 29, 58, 64, 337, 344s 98........................................................7, 363s 99...................................... 12, 13, 363, 368s 99A ....................................11, 12, 363, 368s 99B .........................................................321s 99B(2)(a) .................................................321s 100AA ................................................12, 13s 100AA(2)...................................................12s 100AA(3) ..................................................12

s 100AA(6) ..................................................12s 100AB(4) ...................................................29s 100A .........................................................28s 102AAZD .................................................71s 102AG(2) ............................................... 368s 102AG(2)(a)............................................ 368s 108..........................................................273s 109..........................................................279s 109(1) ......................................................279s 109(2)(a) ..................................................279s 109C .......................................................272s 109C(1) ...................................................274s 109CA ........................................... 272, 273s 109D .......................................................272s 109D(1) ..............................63, 67, 275, 277s 109D(3) ..................................275, 276, 278s 109D(3)(b) ...............................................275s 109D(3)(c) ...............................................272s 109D(3)(d) ...............................................275s 109D(4) ...............................................67, 68s 109D(4A) ........................................272–274s 109D(5) ...................................................274s 109E .............................................. 272, 273s 109E(1)....................................................274s 109E(5) .....................................................63s 109F .......................................................272s 109N ...........28, 67, 68, 273, 274, 276, 277s 109N(1) .................................... 68, 272, 274s 109N(1)(b) .................................................63s 109R .........................................................67s 109RB ........................................... 273–275s 109UB ........................................... 273, 275s 109XB .......................................................63s 109Y ........................................68, 273, 274s 109Z .......................................................274s 109ZC .....................................................273s 109ZC(1A)...............................................273s 109ZC(2) .................................................273s 159GZZZP .................................... 281, 321s 160AAA ..................................................154s 161A .......................................................124s 162 ..........................................................125s 166.................................................358, 359s 166A ...........................................................8s 167 .................................................358, 359s 170 ................................................. 122, 166s 175 ..........................................................164s 177 .................................................164, 359s 177EA ..............................................64, 282s 190(b) .................................................... 359s 201............................................................49s 221F(5)(a) ..................................................36s 222C .................................................. 9, 285s 222G.......................................................289s 222K .............................................. 287–289s 226 .........................................................287s 226G...........................................................9s 226H ...........................................................9s 226J ...........................................................9s 226K .................................................. 9, 287s 252 ............................................................36s 254 ................................................250, 257s 254(1)(d) ..........................................257, 258s 254(1)(e) ..................................................257s 254T ...................................................... 280s 260 .....................................................28, 41s 264 ........................................189, 331–334s 264(1) .............................................332, 333s 264(1)(a) .........................................331–334s 264(1)(b) ................................................. 334s 273(7)......................................................289s 318 ....................................................37, 276s 340 ...........................................................70s 361 ...........................................................70s 384 ...........................................................71s 385 ...........................................................71s 432 ...........................................................71s 447............................................................71s 448 ...........................................................71Sch 2F ...................................................... 284

ITAA97 .........................................221, 234, 297Div 40 ...............................................264, 265Div 43 ................................................. 31, 338Div 70 ....................................................... 264Div 115 ............................. 2, 8, 366, 367, 369Div 122 ......................................................129Div 125 ......................................................283Div 128 ....................................362, 364–369Div 149 ......................................................285

Div 152 ...........129, 281, 284, 285, 366–369Div 190 ......................................................281Div 197 ......................................................282Div 202 ......................................................146Div 203 ..................................................... 280Div 204 ..................................................... 280Div 207 ........................................................26Div 230 ......................................................161Div 292 ......................................................165Div 385 ..................................................... 264Div 392 .............................................264, 323Div 725 ...............................................64, 282Div 727 ......................................................282Div 820 .................................................98, 99Div 855 ........................................................25Div 974 .......................................64, 278, 279Pt 3-1 .........................................................148Pt 3-6 ..........................................................64Pt 3-30 ......................................................165s 6-5 ......................................................... 264s 6-5(2) ......................................................322s 6-5(3) ......................................................322s 6-5(3)(a) ..................................................322s 8-1 ........................188, 190, 264, 288, 321s 8-1(1)(a) ...................................................154s 8-1(2)(b) ...................................................154s 20-20 ......................................................189s 26-19 ......................................................154s 30-15 .....................................219, 220, 365s 30-125 ...........................................220, 222s 30-125(6) ................................................221s 35-10(4) ................................................. 264s 40-40 ......................................................257s 40-340 ...................................................129s 50-60........................................................76s 70-55 ..................................................... 264s 70-65 ..................................................... 264s 87-20 ..........................................................9s 87-20(1)(b) ...................................................9s 87-30 ..........................................................9s 102-5 ................................................. 20, 23s 102-25(1) ..................................................26s 103-25 ....................................................129s 104-135(3) ..............................................282s 104-215 ................................................. 365s 104-215(1)(c) .......................................... 365s 104-215(3) ............................................. 365s 104-215(4) ............................................. 365s 104-230 ..................................................285s 106-5 ..................................................... 366s 106-5(3) ................................................. 366s 108-5 ..................................................... 264s 108-7 ..................................................... 364s 108-20(1) ............................................... 265s 108-60 ........................................................8s 108-70 ........................................................2s 108-70(1) ....................................................8s 108-75 ........................................................2s 110-25(5) ....................................................8s 112-20(3) ..................................................26s 115-10 .....................................................128s 115-25 ....................................................285s 115-30(1) ....................................... 367, 368s 115-55(4)(a) .............................................342s 115-215(3).......................................... 23, 24s 115-215(4) .......................................... 20, 24s 115-215(4)(a) ...................................... 23, 24s 115-225(1) .......................................... 23, 24s 115-225(3) ................................................25s 115-227 ............................................. 23, 24s 115-227(a) ...............................................342s 115-227(b) ..............................................342s 115-228 ..............................................12, 21s 115-228(1)...................................................8s 115-228(1)(c) .......................................... 346s 118-5(a).................................................. 366s 118-20 ............................................... 25, 26s 118-24(1) ................................................ 266s 118-60 ................................................... 365s 118-97 ....................................................367s 122-25(6) ................................................129s 122-25(7) ................................................129s 122-55(1) ................................................129s 122-55(2) ................................................129s 122-185 ..................................................129s 122-185(2) ..............................................130s 124-10(4) .................................................129s 124-365(4) ..............................................129s 124-385(1) ..............................................129

s 124-385(2) ..............................................129s 124-385(3) ..............................................129s 124-450(4) ..............................................129s 124-470(1) ..............................................129s 124-470(2) ..............................................129s 124-470(3) ..............................................129s 124-780(3)(a) ..........................................129s 124-795(1)...............................................129s 124-795(3) ..............................................129s 125-70 ....................................................283s 125-135(6) ..............................................129s 128-10 ................................................... 364s 128-15 ...........................................364, 365s 128-15(2) ........................................364, 365s 128-15(3) .......................................365, 368s 128-15(4) ................................................ 365s 128-15(5) ............................................... 364s 128-20 ................................................... 364s 128-20(1) ............................................... 366s 128-50 ................................................... 365s 128-158(4) ............................................. 364s 152-10(1) .................................................367s 152-10(2) ................................................ 368s 152-15 .....................................................259s 152-20 ...........................................259–261s 152-20(1) ................................................259s 152-20(2) ................................................259s 152-20(3) ................................................259s 152-35 ....................................................285s 152-70 ......................................................27s 152-80 ....................................................367s 152-80(1)(c).............................................367s 152-110(2) .............................................. 284s 152-125.................................................. 284s 152-325 ................................................. 284s 152-325(10) ........................................... 284s 164-20 ....................................................278s 190-5(1) ..................................................281s 190-5(2) ..................................................281s 190-5(4) ..................................................281s 190-15 ....................................................281s 190-15(2) ................................................281s 190-70 ....................................................281s 190-75 ....................................................282s 190-80 ....................................................281s 190-140 ..................................................281s 190-145 ......................................... 281, 282s 197-5 ......................................................282s 197-50 ....................................................282s 200-5 ......................................................144s 200-10 ....................................................145s 202-35 ....................................................145s 202-40 ...................................145, 149, 285s 202-45 ...................................145, 146, 285s 202-45(e) .............. 145, 146, 148–150, 280s 202-80 ....................................................124s 204-30....................................................282s 207-35 .....................................25, 284, 338s 207-35(4) ........................................... 23, 25s 207-35(4)(b) ............................................285s 207-37 ............................................... 23, 25s 207-45 ................................................... 284s 207-55 ....................................................285s 207-55(3) ........................................... 23, 24s 207-55(4) ........................................... 23, 24s 207-55(4)(a) ............................................342s 207-55(4)(b) ..................................... 25, 342s 207-58 ......................................................22s 207-58(1)(c) ............................................ 346s 207-145...................................................283s 207-150 ..................................................283s 252-20(4) ................................................259s 291-320(3) ..............................................291s 292-465..................................................167s 295(2)(c) ................................................. 293s 295(3) .................................................... 293s 295-10(1) ................................................291s 295-20 ....................................................164s 295-25 ....................................................164s 295-95 ...................................................291s 295-95(2) ....................................... 291, 293s 295-95(3)............................................... 293s 295-95(4) .......................................292, 293s 295-320 .................................................291s 295-325 ........................................ 165, 291s 295-330 .................................................291s 295-385 .................................................367s 295-550 .................................................102s 302-195 ................................................. 366


CUMULATIVE IndEx

s 307-125..........................................298, 372s 307-125(3)(a) .......................................... 298s 328-125 ....................................................27s 355-35 ...................................................128s 392-80(2) ................................................323s 703-15(2) ................................................128s 801-30 ......................................................71s 801-40 ......................................................71s 804-10 ......................................................71s 815-25 ......................................................99s 855-10(1) ..................................................26s 855-15 ...........................................129, 365s 855-40 .....................................................26s 960-120(1) ..............................................145s 974-20 ....................................................278s 974-20(1).................................................279s 974-35(1)(a) .............................................279s 974-35(1)(b) ............................................279s 974-35(4) ................................................279s 974-50 ....................................................279s 974-70(1)(b) .............................................279s 974-75 ........................................... 278, 279s 974-75(1) .................................................279s 974-75(4) .................................................279s 974-75(6).................................................279s 974-110(1A) .............................................279s 974-110(1A)(h) .........................................279s 974-110(1B).............................................279s 974-115 ...................................................278s 974-125 ...................................................278s 975-300(1) ..................................... 144, 145s 975-300(2) ..............................................144s 975-300(3)..............................................282s 995 ...........................................................36s 995-1 ..............36, 124, 211, 212, 338, 369s 995-1(1) ........................... 80, 212, 264, 291Subdiv 30-B..................................... 219, 220Subdiv 40-C ............................................ 265Subdiv 40-D ............................................ 265Subdiv 115-A ............................................129Subdiv 115-B ............................................342Subdiv 115-C ..........20, 23, 25, 26, 341, 342Subdiv 122-A ................................... 129, 130Subdiv 122-B ................................... 129, 130Subdiv 124-G................................... 129, 130Subdiv 124-H ....................................128–130Subdiv 124-M ...................................128–130Subdiv 124-N ................................... 129, 130Subdiv 152-B ...................................284, 368Subdiv 152-C ...................................285, 368Subdiv 152-D .......................... 284, 285, 368Subdiv 152-E ........................................... 368Subdiv 190-A ............................................281Subdiv 190-B............................................281Subdiv 190-C ...........................................281Subdiv 190-D ...........................................281Subdiv 202-C ...........................................145Subdiv 207-B ........20, 23, 26, 285, 341, 342Subdiv 207-C ............................................342Subdiv 207-F ............................................283Subdiv 284-B ......................................80, 84Subdiv 284-C ......................................80, 84Subdiv 295-F ............................................371Subdiv 295-H ...........................................289Subdiv 298-A ..............................................80Subdiv 815-A ..................................... 98–100

Income Tax Assessment Regulations 1997reg 307-200.05 .........................................372

Judiciary Act 1903 .......................................87s 39B(1A) ...........................................373, 374

Legal Profession Act 2004 (Vic)Pt 2.2 .........................................................274

Migration Act 1958 ............................211, 212Native Title Act 1993 .................................120New Business Tax System (Untainting Tax) Bill 2006.............................................237

Not-for-profit Sector Reforms (Better Targeting of Tax Concessions) Bill 2012 ........................................................... 222

Pay As You Go Withholding Non-compliance Tax Act 2012 ..............138

Pay As You Go Withholding Non-compliance Tax Bill 2012 ............................................... 35, 37, 136

Perpetuities Act 1984 (NSW) .....................95s 4(1) ............................................................92s 7 ................................................................92s 8 ................................................................92

Personal Property Securities Act 2009 ...43s 12 ..............................................................43s 12(2) ..........................................................43s 12(3) ..........................................................43s 62 ..............................................................44s 63..............................................................44

Powers of Attorney Act (NT)s 13 ........................................................... 292

Powers of Attorney Act 1998 (Qld)Ch 3 .......................................................... 292

Powers of Attorney Act 2000 (Tas)Pt 4 ........................................................... 292

Powers of Attorney Act 2003 (NSW)Div 2

– Pt 4 ................................................... 293Powers of Attorney Act 2006 (ACT)

Ch 5 .......................................................... 292Powers of Attorney and Agency Act 1984 (SA)s 6 ............................................................. 292

Property Law Act 1974 (Qld)s 88............................................................193

Social Security Act 1991 ... 153, 155, 211, 212Pt 2.11 .......................................................153

Superannuation Guarantee (Administration) Act 1992 ......139, 300, 324s 12 ..............................................................65s 12(2) ..........................................................65

Superannuation Guarantee Charge Bill 2012..................................................... 203

Superannuation Industry (Supervision) Act 1993 ................... 102, 124, 163, 194, 203Pt 21 ..........................................................164s 10 ........................................................... 206s 17(1)(a) .................................................... 292s 17(3)(b)(ii) ................................................ 292s 17A ..........................................................207s 17A(1) ..................................................... 292s 17A(1)(f) .................................................. 293s 17A(1)(g) ................................................. 293s 17A(2) ..................................................... 292s 17A(2)(c) ................................................. 293s 17A(2)(d) ................................................. 293s 17A(3) ..................................................... 366s 17B .........................................................207s 17B(1) ......................................................207s 17B(2) .....................................................207s 38............................................................163s 38A .........................................................163s 39............................................................163s 40............................................................164s 40(1) ........................................................164s 41 ............................................................291s 42A .........................................................163s 42A(5) ............................................ 163, 165s 45............................................................163s 45(3) ........................................................165s 45(4) ........................................................165s 52 ............................................................207s 62 ............................................................163s 65............................................................163s 66............................................................163s 67 ............................................................163s 67(2) ........................................................367s 67(2A) .....................................................367s 67B ........................................................ 205s 71(8) ........................................................102s 109.................................................163, 234s 120 ......................................................... 293s 126A .......................................................164s 126K ...................................................... 293s 133 ..........................................................164s 262A .......................................................164s 285 .........................................................163s 322 .........................................................164s 344 .........................................................164s 344(1) ......................................................164s 344(2) .....................................................164s 344(3) .....................................................164s 344(4)......................................................164s 344(5) .....................................................164s 344(6) .....................................................164s 344(8) .....................................................164s 344(9) .....................................................164s 344(10) ...................................................164

Superannuation Industry (Supervision) Regulations 1994 .................... 162, 297, 371Div 9.2B .................................................... 298

reg 1.06(2)(b) ............................................ 298reg 1.06(4) .................................................297reg 1.06(9A)...............................................297reg 1.06(9A)(c) ...........................................297reg 4.09(2) .................................................207reg 6.01(2) .................................................297reg 7.04(3) ................................................ 203reg 7.08(2) ................................................ 203reg 8.02B ................................................. 206

Superannuation Legislation Amendment (Stronger Super) Bill 2012 ..................... 206

Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012 ................................207

Tax Administration Act 1994 (NZ) ...........161Tax Agent Services Act 2009 ....................80

s 30.10(9) .....................................................81s 90.5 ........................................................274Subdiv 30-B................................................82

Tax and Superannuation Laws Amendment (2012 Measures No. 1) Bill 2012..................................................... 202

Tax Laws Amendment (2008 Measures No. 5) Act 2008 .........................................232

Tax Laws Amendment (2009 Budget Measures No. 1) Act 2009 ......................214

Tax Laws Amendment (Transfer of Provisions) Act 2010EM ...............................................................36

Tax Laws Amendment (2011 Measures No. 5) Act 2011 ................... 20, 29, 285, 341EM ................................................21, 22, 342

Tax Laws Amendment (2012 Measures No. 1) Act 2012 ..........................................154

Tax Laws Amendment (2012 Measures No. 2) Act 2012 .........................................138

Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005EM ...............................................................84

Tax Laws Amendment (2006 Measures No. 3) Bill 2006..........................................237

Tax Laws Amendment (2010 Measures No. 1) Bill 2010EM ...............................................................82

Tax Laws Amendment (2011 Measures No. 8) Bill 2011 ............................. 37, 38, 137

Tax Laws Amendment (2012 Measures No. 1) Bill 2012EM .............................................................155

Tax Laws Amendment (2012 Measures No. 2) Bill 2012 ...................2, 7, 35, 136, 152

Tax Laws Amendment (2012 Measures No. 3) Bill 2012 ..........................................2, 7

Tax Laws Amendment (2012 Measures No. 4) Bill 2012 ..........................................227

Tax Laws Amendment (Special Conditions for Not-for-profit Concessions) Bill 2012 ....................................................217, 227

Taxation (Interest On Overpayments And Early Payments) Act 1983s 3(1)(cab) ..................................................139s 9 ..............................................................139

Taxation Administration Act 1953 ....11, 287Div 16 ..........................................................79Div 268 ............................................... 36, 138Div 269 ...............................36, 136, 137, 139Div 280 ........................................................86Div 284 .........................................79, 80, 287Div 390 ......................................................163Pt IIA ............................................................86Pt III

– Div 2, Subdiv 2 ....................................36 – Div 2, Subdiv A................................. 332

Pt IVC ................. 49, 50, 165, 358–360, 374s 8AAG(3) ....................................................87s 8AAG(4) ....................................................87s 8AAG(5) ....................................................87s 8AAZC ................................................... 300s 8AAZD....................................................301s 8B .......................................................... 332s 8C .........................124, 125, 332–334, 345s 8C(1A) .....................................................125s 8C(1B) ....................................125, 331–334s 8E .......................................................... 345s 8G ..........................................331, 332, 334s 8HA ....................................................... 332

s 8K ...........................................................124s 8N .................................................... 80, 124s 8Y ..............................................35, 36, 137s 8Y(1) ..........................................................35s 8Y(2) ..........................................................36s 8Y(3) ..........................................................36s 8Y(4) ..........................................................35s 14ZU .......................................................124s 14ZZK ............................................358, 360s 14ZZM ............................................... 49, 50s 14ZZO............................................358, 359Sch 1 .............................................. 9, 79, 136

– Pt 2-10 ............................................ 8, 68 – s 12-25 ...............................................373 – s 12-35...............................................373 – s 12-40...............................................373 – s 16-155(1)(a) .....................................374 – s 18-15 .......................................373, 374 – s 18-15(1) ...........................................373 – s 18-120 .............................................139 – s 18-130 .............................................140 – s 18-165 .............................................139 – s 18-170 .............................................140 – s 18-175 .............................................140 – s 18-185 .............................................140 – s 18-185(a)(i) ......................................140 – s 18-185(a)(iii) .....................................140 – s 260-5 .............191–193, 269–271, 322 – s 260-15............................................ 269 – s 260-20 ........................................... 269 – s 260-140(2) ..................................... 363 – s 264-10 ...............................................80 – s 268-40 ............................................138 – s 268-90(2A) .....................................138 – s 269-5 ..............................................137 – s 269-10...............................................36 – s 269-15...............................................36 – s 269-20 ............................... 36, 37, 136 – s 269-20(1) ..........................................37 – s 269-20(3) ..........................................37 – s 269-25 ............................................137 – s 269-30 ....................................137, 139 – s 269-35 ..............................................36 – s 280-160(1) .........................................87 – s 280-160(2) ........................................87 – s 280-165 ............................................87 – s 280-170 .............................................88 – s 284-10 ...............................................80 – s 284-15(1) ...........................................81 – s 284-15(2) ...........................................81 – s 284-20 ..............................................80 – s 284-25 ..............................................80 – s 284-30 ............................................261 – s 284-35 ..............................................83 – s 284-45 ..............................................82 – s 284-75 ..............................................80 – s 284-75(1) ............................80, 83, 163 – s 284-75(2) .................................. 80, 287 – s 284-75(2)(b).......................................81 – s 284-75(3)..............................80, 81, 83 – s 284-75(4) .................................. 80, 163 – s 284-75(5) ..........................................80 – s 284-75(6) ..........................................81 – s 284-75(7) ..........................................82 – s 284-80(1) ..........................................82 – s 284-80(2) ..........................................82 – s 284-85 ..............................................82 – s 284-90(1) ..........................................82 – s 284-90(2) ..........................................83 – s 284-95 ..............................................82 – s 284-145 ............................................84 – s 284-145(1)(b)(i) ..................................84 – s 284-145(1)(b)(ii) .................................84 – s 284-145(2) .........................................84 – s 284-145(3).........................................84 – s 284-150 ............................................84 – s 284-150(2).........................................84 – s 284-155 ............................................84 – s 284-220(1)(a) .....................................85 – s 284-220(1)(b) ....................................85 – s 284-220(1)(c) .....................................85 – s 284-220(1)(ca)...................................85 – s 284-220(1)(d) ....................................85 – s 284-224 ............................................83 – s 284-225 .....................................80, 84 – s 284-225(1) ........................................85 – s 284-225(2)(a) ....................................85 – s 284-225(2)(b) ....................................85 – s 284-225(3) ........................................85


CUMULATIVE IndEx

– s 298-20 ..............................................86 – s 298-20(1) ..........................................86 – s 298-20(2) ..........................................86 – s 298-20(3) ..........................................86 – s 338-60 ..................................... 80, 124 – s 388-50 ..................................... 86, 124 – s 388-50(1) ........................................125 – s 388-65 ..............................................80 – s 388-70 ..............................................80 – s 388-75 ............................................124 – s 444-15.............................................137 – s 444-30 ............................................170

Taxation Administration Amendment Regulation 2012 (No. 1) ...........................137

Taxation Laws Amendment (Company Law Review) Act 1998 ............................ 280

Taxation Laws Amendment (Self Assessment) Bill 1992 .............................287EM ...............................................................85

Taxation Laws Amendment (Cross-Border Transfer Pricing) Bill 2012 .........................98

Trust Companies Act (Vanuatu)s 9 ............................................................. 332

Trustee Act (NT)s 54........................................................... 293Sch 3(1) .................................................... 293Sch 3(3) .................................................... 293

Trustee Act 1898 (Tas)s 25AA(1) .................................................. 293s 25AA(3) .................................................. 293s 25AA(7) ................................................. 293

Trustee Act 1925 (ACT)s 64(8) ....................................................... 293

Trustee Act 1925 (NSW) ...................220, 221Pt 2

– Div 1 .....................................................93s 59 ..............................................................92s 64(7) ...................................................... 293s 81 ..............................................................92

Trustee Act 1936 (SA)s 17(1) ....................................................... 293

Trustee Act 1958 (Vic)s 1 ............................................................. 293s 30(2) ....................................................... 293

Trustee Act 1962 (WA)s 54(1)-(3) ................................................. 293

Trusts Act 1973 (Qld)s 56(1) ....................................................... 293s 56(2) ....................................................... 293s 56(3) ....................................................... 293

Rulings, determinations etcAustralian Taxation Office

CR 2007/46 ...............................................282GSTD 2006/6 .......................................... 263GSTR 2008/3 ...........................................102GSTR 2009/3 ...........................................323GSTR 2012/D3 .........................................125ID 2001/729 ............................................. 364ID 2002/52 ................................................367ID 2003/486 ..............................................283ID 2003/752 ..............................................279ID 2004/66 ........................................114, 121ID 2004/425 ............................................. 364ID 2005/159 ............................................. 298ID 2010/162 ............................................. 234ID 2011/53 .................................................215ID 2012/16................................................ 203ID 2012/23 ............................................... 265ID 2012/46 ................................................2, 8ID 2012/60 ..................................................67ID 2012/61 ..................................................67ID 2012/62 ..................................................68ID 2012/73 ....................................... 182, 188ID 2012/78 ................................................250ID 2012/80 .......................................250, 257ID 2012/D6 ................................................250IT 328 ....................................................... 335IT 329 ....................................................... 335IT 2622 ..................................................... 364MT 2006/1 ............................................... 263MT 2008/1 ........................................... 80, 82MT 2008/2 ...................................81, 82, 288MT 2011/D3 ......................................... 85, 86PBR 18688 .................................................47PBR 40376 .................................................47PBR 52530 .................................................47

PBR 57857 .................................................47PBR 64085 .................................................47PS LA 2003/8 .............................................84PS LA 2003/12 ................................368, 370PS LA 2005/1 .............................................32PS LA 2005/19 .........................................124PS LA 2005/21 .........................................283PS LA 2006/2 ...................................... 84, 86PS LA 2006/8 .............................................87PS LA 2006/19 .........................................164PS LA 2007/9 ...........................................281PS LA 2007/23 ...........................................88PS LA 2008/10 ................................278, 280PS LA 2010/4 .............28, 90, 128, 276–278PS LA 2011/29..........................................275SD 2004/1 ............................................... 298SMSFR 2010/2 ................................ 291–293SMSFR 2012/1 ................101, 102, 204, 205TA 2012/4 .............................................58, 64TA 2012/5 ..........................................114, 120TD 94/89 .....................................................85TD 95/47 .................................................. 364TD 2001/18 .................................................63TD 2002/25.............................................. 364TD 2006/34 ..................................... 297, 298TD 2006/72 ..............................................297TD 2007/11 ...............................................282TD 2008/8 .................................................274TD 2010/10 .................................................68TD 2011/19 ...........................................83, 84TD 2011/26 ...............................................282TD 2012/9 .................................................2, 8TD 2012/10 ...............................................2, 8TD 2012/11 ...............................................2, 8TD 2012/15 .......................................... 58, 59TD 2012/18 ...............................................212TD 2012/21 ............................. 339, 344, 345TD 2012/22 ......................................340, 341TD 2012/D1 ............................................. 344TD 2012/D4 .........................................58, 63TD 2012/D5 .........................................58, 64TD 2012/D6 ..............................................257TD 2012/D7 .............................250, 256, 257TD 2012/D9 ..................................... 314, 323TR 92/13 .....................................................20TR 93/26 .................................................. 264TR 95/27 ...................................................221TR 97/11 ................................................... 263TR 98/9 .............................................152–154TR 98/17 ...................................................211TR 2004/25 .............................................. 364TR 2008/2 ........................................263, 264TR 2008/9 ........................................ 291–294TR 2010/1 ................................102, 168, 202TR 2010/3 ..........................68, 128, 275, 276TR 2010/7 .................................................100TR 2010/8 .................................................275TR 2011/D3 .............203, 204, 299, 371, 372TR 2012/5 ........................144, 145, 279, 280TR 2012/D1 ........................ 21, 30, 338, 339

New South Wales State Revenue OfficeRuling DUT 34 ..........................................220Ruling DUT 43 ..........................................151

Youth Allowance (Satisfactory Study Progress Guidelines) Determination 1998 (SSA) .................................................153

Cases

AACP Publishing Pty Ltd v FCT [2005] FCAFC 57 ...................................................105

Aircon Heating and Airconditioning Pty Ltd (in liq) v Crane Distribution Ltd [2006] VSC 36 ........................................................271

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) [2009] HCA 41 ........................................... 290

Allen v FCT (2011) 195 FCR 416 ..................287Amadio Pty Ltd v Henderson (1998) 81 FCR 149 ......................................................170

Andrews v ANZ Banking Group Ltd [2011] FCA 1376 ........................................ 300

Annacott Pty Ltd v Konann Pty Ltd [2012] VSC 389 ................................. 182, 189

AP Group Ltd and FCT [2012] AATA 409 ...............................................58, 65

Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund and FCT [2008] AATA 825 ..................................84

Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v FCT [2008] FCAFC 54..........................................84

Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143 ......................................................144

ASIC v Healey & Ors [2011] FCA 717 ............35Attorney-General v Higgins (1857) 2 H & N 339 ...................................................291

Australand Holdings Ltd; Australand Property Ltd and Ors [2005] NSWSC 835 ...............................................278

Australasian Oil Exploration Ltd v Lachberg & Ors (1958) 101 CLR 119 ........148

Australia and New Zealand Banking Group Ltd v Konza [2012] FCAFC 127 .....331

Australia and New Zealand Banking Group Ltd v Konza & Anor [2012] FCA 196 ........ 333

Australian Prudential Regulation Authority v Derstepanian [2005] FCA 1121 ..............165

AVCO Financial Services Ltd v Commonwealth Bank of Australia (1989) 17 NSWLR 679 ...............................271

BBailey v FCT (1977) 136 CLR 214 .............. 359Baini and FCT [2012] AATA 440 ................. 358Ballard v Attorney-General of Australia [2010] VSC 525 .......................................... 293

Bamford v FCT [2009] FCAFC 66 .................30Bamford v FCT [2010] HCA 10 .....20, 337, 338Bargwanna v FCT (2010) 191 FCR 164 ........76Bell and Commissioner of Taxation [2012] AATA 45 ...........................................259

Bell v FCT [2012] FCA 1042 .........................259BHP Petroleum (Timor Sea) Pty Ltd v Minister for Resources [1994] FCA 1002 .........................................323

Binetter v DCT [2012] FCAFC 126 .............................................182, 189, 334

Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384 .......170

Blackburn v Industrial Equity Ltd (1977) ACLC ¶40-324 ...........................................148

Bornstein and FCT [2012] AATA 424 ..........167Bovaird v Frost [2009] NSWSC 337 .............48Brassard v Smith [1922] 1 AC 215 ..............291Brewing Investments Ltd v FCT [2000] FCA 34 ........................................................285

Buhr v Barclays Bank Plc [2001] EWCA Civ 1223 ................................. 270, 271

CCadell v Palmer (1833) 22 ER 956 ................92Cameron Brae Pty Ltd v FCT [2007] 195 FCR 416 ...................................... 287–289

Cameron v FCT [2011] FCA 1378................2, 8Canty v DCT 2005 ATC 4470 ........................37Case 13 (1977) 22 CTBR (NS) .................... 366Chantrell and FCT [2012] AATA 179 ............167Christian v Sawka [2011] WASC 147 ..........125Christian v Sawka [2012] WASCA 147 .......................................................124, 125

Clayton’s case [1815] EngR 77 ...................301Coles Myer Ltd v Commissioner of State Revenue (Vic) [1998] 4 VR 728 ........282

Colonial First State Investments Pty Ltd v FCT [2011] FCA 16 ........11, 27, 29, 122, 335

Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 ......................... 363

Commissioner of State Revenue (Vic) v Lam & Kim Pty Ltd [2004] VSCA 204 .........64

Commissioners for the Special Purposes of the Income Tax Appellants v Pemsel [1891] AC 531 ...............................................75

Consolidated Media Holdings Ltd v FCT (2011) 82 ACSR 637 ...................................149

Consolidated Media Holdings Ltd v FCT [2012] FCAFC 36 ........................................279

Corporate Initiatives Pty Ltd and Ors v FCT [2005] 142 FCR 300 ...................................277

DDalco v FCT (1990) 168 CLR 614 .............. 359Darlaston v Parker [2010] FCA 771 ...............85DB Rreef Funds Management Ltd v FCT [2005] FCA 509 ......................... 104, 105

DCT (WA) v Australian Machinery and Investment Co Pty Ltd (1945) 3 AITR 236 .......................................................49

DCT v Boyconnection Property Developments Pty Ltd [2012] FCA 363 ......49

DCT v Saunig 2002 ATC 5135 ......................37DCT v Tilley Property Management Services Pty Ltd [2011] FCA 678 ................................49

Dimbula Valley (Ceylon) Tea Co Ltd v Laurie [1961] Ch 353 .............................................148

DPP v Buckett [2004] QCA 206 ..................125Duke of Norfolk’s case (1682) 22 ER 931 ....92

EECC Southbank Pty Ltd as Trustee for the Nest Southbank Unit Trust v FCT [2012] FCA 795 .......................... 114, 122, 236

Eldersmede Pty Ltd and Ors and FCT [2004] AATA 710 .........................................277

Eldridge v FCT 90 ATC 4907 ...................... 359Expile Pty Ltd v Jabb’s Excavations Pty Ltd [2002] NSWSC 851 ......................................50

FFavaro v FCT (1997) 97 ATC 4442 ............. 360FCT & Ors v The ANZ Banking Group Ltd; Smorgon & Ors (1979) 143 CLR 499 .....................................................333, 334

FCT v Anstis [2010] HCA 40 .......152, 153, 188FCT v Bamford [2010] HCA 10 ...............30, 90FCT v Bargwanna (2009) 72 ATR 963 ..........76FCT v Bargwanna (2012) 286 ALR 206 ......................................... 74, 76, 228

FCT v Burness (as Trustee for the Property of Botazzi, a Bankrupt) [2009] FCA 1021 ...86

FCT v Century Yuasa Batteries Pty Ltd [1998] FCA 269 .............................................86

FCT v Clark [2012] FCAFC 5 ..................63, 93FCT v Commercial Nominees of Australia Ltd [1999] FCA 1455 ....................................63

FCT v Crown Insurance Services Ltd [2012] FCAFC 153 ............................. 314, 322

FCT v David Clark; FCT v Helen Clark [2011] FCAFC 5.......................................... 344

FCT v DB Rreef Funds Management Ltd [2006] FCAFC 89 .......................................104

FCT v De Vonk [1995] FCA 1715 .................189FCT v Dixon (As Trustee for the Dixon Holdsworth Superannuation Fund) [2007] FCA 1079 ......................................................86

FCT v Finn [1961] HCA 61 ...........................152FCT v French [1957] HCA 73.......................213FCT v Greenhatch [2012] FCAFC 84 ............58FCT v H [2010] FCAFC 128 ...........................68FCT v Kassem and Secatore [2012] FCAFC 124 ................................................ 300

FCT v Malouf [2009] FCAFC 44 ................9, 81FCT v Montgomery [1999] HCA 34 ............190FCT v Park [2012] FCAFC 122 ........... 191, 269FCT v Qantas Airways Ltd [2012] HCA 41 .............................. 250, 258, 314, 322

FCT v Rawson Finances Pty Ltd [2012] FCA 753 .......................... 114, 122, 358

FCT v R&D Holdings Pty Ltd [2007] FCAFC 107 .................................................288

FCT v Rozman [2010] FCA 324 .....................67FCT v Slater Holdings Ltd [1984] HCA 78 ............................................279

FCT v SNF (Australia) Pty Ltd [2011] FCAFC 74............................................... 40, 98

FCT v Traviati [2012] FCA 546 ............2, 9, 289FCT v Visy Industries USA Pty Ltd [2012] FCAFC 106 ........................................ 182, 189

FCT v White [2010] FCA 730 .......................279FCT v Whiting (1943) 68 CLR 199 ............. 363FCT v Word Investments Ltd (2008) 236 CLR 204 ...............................75, 222, 227

Fenston v Johnston (1940) 23 TC 29..........170Fitzgerald v DCT 95 ATC 4587......................36Fletcher v FCT (1988) 19 FCR 442 ..............105Foran v Wight (1989) 168 CLR 385 ............270

GGartside v IRC [1968] AC 553 .......................93Gashi v FCT [2012] FCA 638 ...................... 360Gauci v FCT (1975) 135 CLR 81 .........359, 360General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69 .............49

George v FCT (1952) 86 CLR 87 ................ 359


CUMULATIVE IndEx

Graham and Gibson v Portacom New Zealand Ltd [2004] 2 NZLR 528 ..................43

HHaque v Haque (No 2) (1965) 114 CLR 98 ........................................................291

Hardoon v Belilios [1901] AC 118 ..................93Harmer v FCT [1991] HCA 51 ........................27Hart v FCT (2003) 131 FCR 203 ...................82Hobart Central Child Care Pty Ltd and FCT [2005] AATA 1027 ........................................86

Hookham v R [1994] HCA 52 ........................36Hope v Hope [1977] 1 NZLR 582 ...............271Hopkins and FCT [2012] AATA 324 ..............11Howard v FCT [2012] FCAFC 149 ...... 314, 321Hutchinson & Anor v Bank of Scotland Plc [2012] QSC 28 ..................................... 203

IING Funds Management v ANZ Nominees Ltd [2005] NSWSC 404 ...............................29

JJones v Dunkel (1959) 101 CLR 298 ......... 360JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd [1985] VR 891 .............93

KKelly v FCT (No. 2) [2012] FCA 689 ........58, 65Kennon v Spry; Spry v Kennon [2008] HCA 56 .........................................................93

Knaggs v Director of Public Prosecutions [2003] NSWSC 3 ........................................125

Knight v Knight (1840) 3 Beav 148 ...............92

LLee v Neuchatel Asphalte Co (1889) 41 Ch D 1 .........................................................145

Legal Practice Board v Computer Accounting and Tax Pty Ltd [2007] WASC 184 .............91

MMalek and FCT [1999] AATA 678 ..................48Malouf v FCT [2008] FCA 497 ................ 9, 289Malouf v FCT [2009] FCAFC 44 ........... 81, 289Marra Developments Ltd v BW Rofe Pty Ltd [1977] 2 NSWLR 616 ....................148

Ma v FCT (1992) 37 FCR 225 ..................... 360McCormack v DCT [2001] FCA 1700 ........ 333McCormack v FCT (1979) 143 CLR 284 ... 360Momentum Productions Pty Ltd v Lewarne [2009] FCAFC 30 ........................170

Montgomery Wools Pty Ltd and FCT [2012] AATA 61 .................................. 163–165

MTAA Superannuation Fund (RG Casey) Building Property Pty Ltd v FCT [2012] FCAFC 89 ...................................................104

PPabian Park Pty Ltd Superannuation Benefits Fund and FCT [2012] AATA 375 ....... 163–165

Parke Davis & Co v FCT [1959] HCA 15 .....285Peaker and FCT [2012] AATA 140 ...............167Pearson v IRC [1981] AC 753 ........................93Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 ...................................301

Perdikaris v DCT (No. 2) [2007] FCA 2087 ...137Prebble v FCT [2002] FCA 1434 .................287Pridecraft Pty Ltd v FCT [2004] FCAFC 339 ..............................................................288

Pyneboard Pty Ltd v Trade Practices Commission [1982] FCA 375 .................... 333

QQBE Insurance Group Ltd & Ors v ASC & Anor, NRMA Insurance Ltd v ASC (1992) 38 FCR 270 ................................................148

Queensland Maintenance Services Pty Ltd v FCT [2012] FCAFC 152 ............ 314, 322

Queensland Trustees v Commissioner of Stamp Duties (Qld) (1952) 88 CLR 54 ........93

RRawson and FCT [2012] AATA 322 ............167Re Bayconnection Property Developments Pty Ltd [2011] NSWSC 1048 .......................49

Re JNVQ and FCT [2009] AATA 522 ..................................................... 164, 165

Re Murrell; Ex parte Official Trustee in Bankruptcy (1984) 57 ALR 85 ...................271

Re SDI Group Pty Ltd and FCT [2012] AATA 763 ........................................... 314, 321

Re the Taxpayer and FCT [2006] AATA 84 ................................................................164

Re VCD and Australian Prudential Regulation Authority [2008] AATA 580 ........................164

Reynolds v DCT (1984) 15 ATR 1073..........137Richard Walter Pty Ltd v FCT (1996) 67 FCR 243 ..................................................... 360

Richstar Enterprises Pty Ltd (ACN 099 071 968) v Carey (No. 6) [2006] FCA 814 ..........93

Roche Products Pty Ltd and FCT [2008] AATA 639 ......................................................99

SSargents Charitable Foundation v Chief Commissioner of State Revenue [2005] NSWSC 659 ...............................................220

Saunders v Vautier [1841] EngR 629 ...93, 260Saxby v R [2011] TASCCA 1 ..........................80Sent v FCT [2012] FCA 382 .........................289Sharp and FCT [2010] AATA 1023 ................87Sinclair and FCT [2010] AATA 902 ................81SNF (Australia) Pty Ltd v FCT [2010] FCA 635 ........................................................99

Snow v DCT (WA) (1987) 14 FCR 119...........49

TTemples Wholesale Flower Supplies Pty Ltd v FCT (1991) 29 FCR 93 ......................374

The Applicant Charitable Trust and FCT [2008] AATA 275...........................................76

Tran and FCT [2012] AATA 123 ...................167Trautwein v FCT (1936) 56 CLR 63 ............ 359Traviati and FCT [2011] AATA 478 .................81Tricontinental Corporation Ltd v FCT [1988] 1 QdR 474 .............................. 192, 270

Trustees, Executors and Agency Co Ltd v Acting FCT (1917) 23 CLR 576 .................76

Trustees for the R Ali Superannuation Fund and FCT [2012] AATA 44 ......... 163, 165

Trustees of the Estate Mortgage Fighting Fund Trust v FCT 2000 ATC 4525 ......27, 335

UUndershaft (No. 1) v FCT [2009] FCA 41 ......99Union Fidelity Trustee Co of Australia v FCT (1969) 119 CLR 177 ........................... 364

United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 ................170

Unit Trend Services Pty Ltd v FCT [2012] FCAFC 112 ......................................... 182, 189

Upton v Brown (1884) 26 Ch D 588 .......... 339

VVisy Packaging Holdings Pty Ltd v FCT [2012] FCA 1195 ................................ 314, 321

Vlahov v FCT (1993) 26 ATR 49 ....................36Vu v FCT (2006) 63 ATR 341 ...................... 360

WWalstern v FCT [2003] FCA 1428 ..........81, 287Walters v FCT [2007] FCA 1270 ..................288Watson v DCT [2010] FCAFC 17 .................323Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115 ......................................... 104–106

Whywait Pty Ltd v Davison [1997] 1 Qd R 225 .................................................170

YYazbeck and FCT [2012] AATA 477 ....114, 122Young v FCT [2012] FCA 1098 ....................373

ZZDDD and FCT [2011] AATA 3 ....................165Zeta Force Pty Ltd v FCT (1998) 84 FCR 70 ........................................................337

Authors

AAllerdice, R

A frank assessment – TR 2012/5 and s 254T of the Corporations Act 2001 ...144

Athanasiou, AAshes to ashes – the Phoenix no longer rises .............................................136

Voluntary disclosure: reasonably arguable position ......................................79

Atherton, ELibrary Links

– TaxLine – get your questions in early! ...................................................328

– TaxLine – your free member service .................................................17

BBelfield, D

Mid Market Focus – Impact of carbon tax on SMEs ..........14

Bennett, MATO 1 – Banks & lenders 0 .................... 269

Bishop, MTax Controversies

– SMSFs – responding to non-compliance warnings and notices ................................................163

Brandon, GMid Market Focus

– Is your client’s business still operating out of the correct structure? .............128

Branson, CReasonably arguable position: what is standard? ................................................287

Butler, DSuperannuation

– Auto-revisionary pensions after the MYEFO ........................................371

– Latest SMSF borrowing developments ....................................101

– Making pensions reversionary “mid-stream” ......................................297

– Related party lending and SMSFs – has the ATO really given a “carte blanche”? ............................... 234

– When is a grandchild financially dependent on a grandparent? ...........47

CCampbell, R

Member Profile ...........................................73Cormick, R

Strategies for satisfying the Australian “residency” tests for SMSFs ..................291

DDickens, A

Mid Market Focus– GST: input tax credits for managed

funds lowered to 55% .......................194 – Racing, breeding and training: a thoroughbred taxing business! ....... 263

Dunne, JEmissions trading and tax: a trans-Tasman perspective .............................................157

EEversgerd, J-H

The good and bad news for in-bound and out-bound investors ........................231

FFerraro, R

Tax Education – Applied Dux Award ...........................267 – Chartered Tax Adviser Program ......198 – Foundation Tax Dux Awards ............132

– The future of the tax profession and you ..............................................326

– Those who teach, learn... ...................16Figot, B

Superannuation– Related party lending and SMSFs

– has the ATO really given a “carte blanche”? .......................................... 234

– Sheltering in Bornstein’s “perfect storm”: excess contributions tax crisis averted ......................................167

– When is a child financially dependent on a grandparent? ..............................47

GGioskos, M

Ashes to ashes – the Phoenix no longer rises .............................................136

Groch, DThe taxpayer’s heavy burden ................. 358

HHodgson, D

What to look for when your client has an international workforce ...........................211

Hollingsworth DMember Profile .........................................329

Hor, BReviewing family trust deeds – it’s not just about tax! ..................................................90

Howard, NMid Market Focus

– MySuper ............................................324

JJeremenko, R

Senior Tax Counsel’s Report– A lower company tax rate – let’s not

miss the opportunity .........................119– Australia’s opportunity for reform .....319– Ethical framework for tax

consultations .....................................255 – The ACT: tax reform trailblazer? ........46

Jeremiah, RTax Controversies

– SMSFs – responding to non-compliance warnings and notices ...163

Johnson, DMember Profile .........................................135

KKing, A

Directors beware – the expansion of the director penalty regime ............................35

Mid Market Focus– Racing, breeding and training: a

thoroughbred taxing business! ....... 263

LLee, A

The Commissioner’s powers to obtain foreign bank account details under s 264........................................................331

Lee, Y TCharities and NFPs: tax concessions and reform ..............................................217

Lickess, TDirectors beware – the expansion of the director penalty regime ............................35

Long, SSuperannuation: consulting the compass .................................................201

MMcCormack, J

New transfer pricing rules: Subdiv 815-A .........................................................98

McGregor-Lowndes, MTaxing charities: reform without reason? ........................................74

Member ProfileDamien Hollingsworth ..............................329Dayne Johnson ........................................135George Psarrakos ................................... 268Kerri Parker .............................................. 200Robert Campbell ........................................73Todd Want ..................................................19

Morgan, ADeath and taxes: taxation issues and consequences that arise on the final frontier .................................................... 362

Student windfall evaporates as a result of new legislation ........................................152

NNoolan, A

Trusts ...........................................................20Norbury, M

Tax Cases – A partnership or a joint venture? .....169

– Court allows winding-up application to allow objection to be heard ................49

– Is student accommodation commercial residential premises? ....................... 236

– The Commissioner’s scramble for priority in an insolvency .................... 300

– The curious case of MTAA Superannuation Fund .......................104

– Young v FCT: an employee’s ability to claim credits for tax withheld from salary .........................................373

Tax practice and the Personal Property Securities Act ............................................43


CUMULATIVE IndEx

OOon, D

Superannuation– Sheltering in Bornstein’s “perfect

storm”: excess contributions tax crisis averted ......................................167

– When is a grandchild financially dependent on a grandparent? ...........47

PPapson, N

Superannuation– Making pensions reversionary

“mid-stream” ......................................297Parker, K

Member Profile ........................................ 200Pinto, D

Death and taxes: taxation issues and consequences that arise on the final frontier .................................................... 362

Student windfall evaporates as a result of new legislation ....................................152

Psarrakos, GMember Profile ........................................ 268

RRiordan, T

Getting money out of SME companies ..272Rowland, N

CEO’s Report– Chartered Tax Adviser – an

overwhelming response .......................5– How to receive advanced standing

for the CTA exam ...............................117– Keeping you up to date with the

latest in tax ...........................................62– Learn from the best and the

brightest in tax ...................................185– Season’s greetings and best

wishes for the festive season ...........317 – 28th National Convention – Perth ...253

Russell, DA return to sovereign risk ...........................40

SSchneller, L

Library Links– New alert service from the High

Court of Australia...............................133Schurgott, K

President’s Report– Evasion: who should bear the

“burden of proof”? ...............................61– Simplification: has the trust been

broken ....................................................4– Small business and its new

Commissioner ...................................252– End-of-year excitement for

tax tragics ..........................................316Trusts ...........................................................20

Smith, TMid Market Focus

– CFCs: a polite reminder that they do exist .................................................70

TTaxCounsel Pty Ltd

Tax Tips – Approved forms ................................124

– Discretionary trust distributions: post-30 June issues ............................11

– Division 7A developments ..................67 – Maximum net asset value test .........259 – Mortgage v ATO ................................191

Taxing Issues– August – what happened

in tax? .........................................114, 120 – July – what happened in tax? .....58, 63 – June – what happened in tax? ........2, 7

– November – what happened in tax? ........................................ 314, 320

– October – what happened in tax? ........................................250, 256

– September – what happened in tax? ........................................ 182, 188

The Tax InstituteSocial Media

– Getting started with Facebook ....... 303 – Getting started with LinkedIn .......... 239

– Getting started with Twitter ..............174 – Starting out .......................................107

Travers, BWhat to look for when your client has an international workforce .....................211

Turnour, MTaxing charities: reform without reason? ........................................74

WWant, T

Member Profile ...........................................19White, G

Trust distributions in practice ................. 335Wilson-Rogers, N

Death and taxes: taxation issues and consequences that arise on the final frontier .................................................... 362

Student windfall evaporates as a result of new legislation ....................................152

Wood, AThe taxpayer’s heavy burden ................. 358


ContaCtsNational CouncilPresident Ken Schurgott, CTA

Vice President Stephen Westaway, CTA

Treasurer Tracey Rens, CTA

National Councillors Arthur Athanasiou, CTA Graeme S Cooper, CTAMichael Flynn, CTAStephen Healey, CTAWayne Healy, CTAStephen Heath, CTAMatthew Pawson, CTA

National OfficeCEO: Noel RowlandLevel 10, 175 Pitt Street Sydney, NSW 2000

Tel: 02 8223 0000 Fax: 02 8223 0099 Email: [email protected]

State DivisionsNew South Wales and ACTChairman: Marcus Leonard, CTA Manager: Claire Kasses

Level 10, 175 Pitt Street Sydney, NSW 2000


Victoria Chairman: Arthur Athanasiou, CTAManager: Ruth White

Level 15, 350 Collins Street Melbourne, VIC 3000


QueenslandChairman: Peter Godber, CTA Manager: Paula Quirk Russo

Level 11, Emirates Building 167 Eagle Street Brisbane, QLD 4000


Western Australia Chairman: Mathew Chamberlain, CTA Manager: Nicky Nickolakis

Level 7, 16 St Georges Terrace Perth, WA 6000


South Australia and Northern TerritoryChairman: Grantley Stevens, CTA Manager: Angelika Hislop

Ground Floor 5-7 King William Road Unley, SA 5061


TasmaniaChairman: Matthew Pawson, CTA Manager: Ruth White

Level 15, 350 Collins Street Melbourne, VIC 3000


the tax institute would like to thank the following presenters from our november Cpd sessions. all of our presenters are volunteers, and we recognise the time that they have taken to prepare for the paper and/or presentation, and greatly appreciate their contribution to educating tax professionals around australia.

Matthew Andruchowycz, CTA

Sharon Arasu-Koh, CTA

Craig Barry, CTA

Joanne Baseley, CTA

David Bell

Susan Bell, CTA

Greg Bentley, CTA

David Blake

Danielle Blewette

Matthew Broderick

Peter Burgess

Kurt Burrows

Michael Butler, CTA

Domenic Carbone, CTA

Mathew Chamberlain, CTA

Ash Chotai, CTA

Michael Chrisohoou, CTA

Thomas Cusmano, CTA

Craig Darley, CTA

Fiona Dillon

Ron Doig, FTI

Brad Eppingstall, CTA

Michael Flynn

Michael Garrone, CTA

Mick Giddings

Gary Glover, CTA

Elena Gosse

Con Gotsis, CTA

Stephen Graham

David Hall, CTA

Tim Hall, CTA

Colleen Handy, CTA

Michelle Hartman, CTA

Stephen Healey, CTA

Steve Heath, CTA

Angie Hicks, ATI

Sarah Hirst

Damien Hollingsworth

Jo-Anne Hotston, CTA

John Ioannou, ATI

Elizabeth Jameson

Mark Jeffreson

Robert Jeremiah, CTA

Dale Judd

Muhunthan Kanagaratnam, CTA

Peter Kane, CTA

Sheena Kay

Chrystal Kimber, CTA

Steve Kirkman

Stuart Le Cornu, CTA

Trudy Leivesley

Gil Levy, CTA (Life)

Julian Lian

Natalie Lloyd, CTA

Suzanne Mackenzie, CTA

David Marschke, CTA

Lachie McColl

Cindy McDonald, CTA

Scott McGill, CTA

Moira Merrick, CTA

John Middleton, CTA

Stuart Miller, CTA

David Morrison, CTA

Kevin Munro, CTA

Dario Nazzari

Damian O’Connor, CTA

Meagan O’Connor, ATI

Michael Park

Daniel Pegdon, CTA

Dale Pinto, CTA

Kerrie Sadiq, CTA

Jemma Sanderson, CTA

Ken Schurgott, CTA

Darren Sheen, CTA

Chelsea Si

Ian Snook, CTA

Jack Stuk, CTA

Allan Swan, CTA

Gary Thomas, CTA

James Tng, CTA

Brad Tonks

Dean Trewhella, CTA

Matthew Tripodi, CTA

Tony Underhill, CTA

Julie Van der Velde, CTA

Peter Vilaysack, CTA

Todd Want, CTA

Tristan Webb, CTA

Sri Widyaningsih

Chris Wookey, CTA

Emma Woolley, CTA

Maree Yong

giving back to the profession …

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TO DISCUSS YOUR NEEDS FURTHER CONTACT

Magnus Yoshikawa Tel: (02) 9318 0940Fax: (02) 9318 0946

Email: [email protected]: www.jadeja.com.au

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