Greenwoods and Freehills Weekly Tax Highlights 7.9.07-14.9.07

The International Tax Agreements Amendment Bill (No 2) 2007 has now passed all stages without amendment and awaits Royal Assent. Please refer to the table at the end of this bulletin for information on the status of tax legislation currently before Parliament.

Decision Impact statement: Cajkusic & Ors v Commissioner of Taxation

Released 12.9.07

The Tax Office has  released a Decision Impact Statement on the Full Federal Court decision in Cajkusic & Ors v Commissioner of Taxation. The Tax Office has released a Decision Impact Statement on the Full Federal Court decision in Cajkusic & Ors v FCT (2006) 64 ATR 676. The Tax Office says it accepts the decision as an application of conventional tax law principles in determining when a beneficiary of a trust is presently entitled to the income of a trust estate. However, the Commissioner says he does not understand the case to be authority for the proposition that the terms of a trust instrument can govern what is income in the hands of the trustee.

Released 11.9.07

The Assistant Treasurer has announced a review of the income tax exemption  for payments made under structured settlements to seriously injured people. The review is a statutory requirement, the purpose of which, is to assess effectiveness of the tax exemption and to identify any changes that need to be made to the current system. The review is primarily concerned with the tax treatment of payments made under structured settlements and the associated limitations on the ability of a person to assign or commute such payments.

Released 12.9.07

The Assistant Treasurer has announced that the Government will amend the thin capitalisation rules to address some of the adverse impacts of the adoption of Australian equivalents to International Financial Reporting Standards (AIFRS). Differences between AIFRS and the previous accounting standards have resulted in the thin capitalisation positions of some entities being substantially affected. In order to rectify this the Government has put in place a transitional period during which entities may elect to use either AIFRS or AGAAP to make thin capitalisation calculations. The Assistant Treasurer said the proposed new amendments will address several critical issues relating to the adoption of AIFRS.  Draft amendments will be prepared as soon as practicable for consultation.

The Assistant Treasurer has announced that the Government will exempt people with a terminal illness who access their superannuation under the age of 60 from the tax on their lump sum benefit. Amendments to the legislation will have effect for payments received after 11 September 2007. Individuals under the age of 55 who access a lump sum superannuation benefit from a taxed superannuation fund are currently subject to a maximum tax rate of 20% (plus the Medicare levy). While the actual tax payable may be lower as it depends on the individual's marginal tax rates, any refund they may be entitled to would not be determined until the end of the financial year. Until the legislation passes into law, Mr Dutton said the Government has asked the Commissioner of Taxation to consider changing the rate at which superannuation funds are required to withhold from payments to people in these situations.