Greenwoods & Freehills Weekly Tax Highlights - Week Ended 4.12.09

ATO Documents

Released 2.12.09

Class Rulings
CR 2009/70: Income tax: Australia and New Zealand Banking Group Limited - allotment of convertible preference shares (CPS 2)
CR 2009/71: Income tax: payments made under the BHP Billiton Boodarie Iron Plant - Worker Support Program
CR 2009/72: Income tax: payments made under the EG Green & Sons, Harvey - Worker Support Program

Released 20.11.09

New Interpretative Decisions
ATO ID 2009/145: Superannuation benefits: CSS indexed pension partially funded by a roll-over
ATO ID 2009/146: National Rental Affordability Scheme (NRAS)

Sovereign Immunity Consultation Paper

Treasury has released  a consultation paper on proposed changes to existing tax laws to formalise the practice of exempting certain income earned by foreign governments. The consultation paper seeks comments on the broad legislative design principles of the proposed changes, including:

- the appropriate definition of a "foreign government";
- how non-commercial (passive) income should be defined to ensure that it can be easily distinguished from commercial (active) income, thereby securing a level playing field for competing Australian businesses;
- what effect the derivation of active income should have on the tax treatment of an entity's passive income; and
- the range of taxes that should be captured under the sovereign immunity legislation.

Exposure Draft:  Tax Laws Amendment (2010 Measures No. 1) Bill 2010: Minor amendments

Released 30.11.09 

An Exposure Draft of the Tax Laws Amendment (2010 Measures No. 1) Bill 2010: Minor amendments and an accompanying draft explanatory memorandum have been released by Treasury. The Exposure Draft will correct drafting mistakes in the income tax legislation, removing anomalies and addressing unintended outcomes of previously introduced legislation.

Tax Cases

Ashwick (Qld) No 127 Pty Ltd (ACN 010 577 456) v Commissioner of Taxation [2009] FCA 1388 (26 November 2009):  The Federal Court has upheld claims by companies in the Foster's Group for bad debt and interest deductions. The companies in the Foster's Group principally responsible for the Group's treasury activities wrote off as bad debts unpaid intra-group loans. The deductions were claimed under s.25-35 of the ITAA 1997, or alternatively under s.8-1, for the amounts written off.  In addition, in the 1995-1998 income years, deductions were claimed for interest paid on intra-group loans. The Court found that two of the Group's companies had operated businesses of lending money and therefore the entire amount of the write off was deductible. On the other hand, the Court found the other companies involved in the process had not been carrying on businesses of lending money and the bad debts they had written off were deductible only to the extent that they contained a component representing unpaid interest. In coming to this decision the Court dismissed the Commissioner's contention that Part IVA should apply to the loans.


Vidler v Commissioner of Taxation [2009] FCA 1426 (3 December 2009): The Federal Court has dismissed the taxpayer's claim that the sale of blocks of vacant land was an input taxed supply. The Court found that the land did not satisfy the definition of residential premises under s.40-65(1) of the GST Act as the land did not provide any element of shelter or basic living facilities.

AXA Asia Pacific Holdings Ltd v Commissioner of Taxation [2009] FCA 1427 (4 December 2009): The Federal Court has allowed the taxpayer's appeal. The Court held that the taxpayer had not colluded with the purchasing company in order to structure the sale of a subsidiary company in such a manner as to qualify for scrip for scrip rollover relief. The Court found that the structure of the sale was devised by the purchasing company in order to increase the attractiveness of the sale to the taxpayer. This being the case, the sale therefore met the requirements of a transaction at arm's length. The Court also dismissed the Commissioner's argument that Part IVA applied to the transaction.

Legislative Update