Greenwoods & Freehills Weekly Tax Highlights - Week Ended 5.2.10

ATO Documents

Australia and Austria agree to update tax treaty

Announced 5.2.10

The Assistant Treasurer has announced that the Australia/Austria tax treaty will be updated, with negotiations between the two countries scheduled to start in March 2010. The current treaty has not been amended since it was signed in 1986. Whilst it is not clear what specific changes are likely to be on the table, at the very least the Exchange of Information article will be replaced following Austria’s recent commitment to include the internationally agreed standard for the exchange of information in its tax treaties, including banking information.

Trustees will be required to report amounts withheld, and all amounts distributed (i.e. including amounts not subject to withholding) on an annual basis. The TFNs that have been provided by beneficiaries to a trustee will need to be reported on a quarterly basis.

Appeals Update

Ashwick  (Qld) No 127 Pty Ltd (ACN 010 577 456) v Commissioner of Taxation [2009] FCA 1388 (26 November 2009): The Commissioner has appealed to the Full Federal Court. The Federal Court had upheld claims by Foster’s Group companies for bad debt and interest deductions totalling approximately $2.8bn.  

British American  Tobacco Australia Services Limited v Commissioner of Taxation [2009] FCA 1550 (21 December 2009): The taxpayer has appealed to the Full Federal Court. The Federal Court had dismissed the taxpayer's appeal, upholding the Commissioner’s Part IVA determination with respect to certain aspects of the merger of the Australian operations of British American Tobacco and the Rothmans group in 1999.

Paper to Paper International Pty Ltd and Anor and Commisioner of Taxation [2010] AATA 78 (3 February 2010): The AAT has ruled that, for the purposes of Division 7A, income tax and general interest charge liabilities (but not shortfall liabilities) are “present legal obligations” that must be taken into account in determining the “distributable surplus” of a company and therefore the amount of a deemed dividend that can be assessed to a shareholder pursuant to Division 7A.

Sunchen Pty Ltd v Commissioner of Taxation [2010] FCA 21 (29 January 2010): The Federal Court has found that a taxpayer was not entitled to an input tax credit under s.40-65 of the GST Act with respect to the acquisition of a house, despite the taxpayer’s claim that their intention at the time of acquisition was to redevelop the site into ten units. The Federal Court, on the balance of evidence, found that there was no such intention, and therefore agreed with the Commissioner that it was an input taxed supply, being the supply of residential premises to be used predominantly for residential accommodation.

Tagget v Commissioner of Taxation [2010] FCA 25 (2 February 2010): The Federal Court has affirmed that the amount of ordinary income derived by a taxpayer in respect of the transfer of land to him pursuant to a deed of agreement should be determined on the basis of the market value of the land at the time the transfer actually occurred, and not at the time the deed was entered into (which was several years earlier). The Federal Court reached this conclusion on the basis that the taxpayer did not derive income merely by entering into the deed – the income was only derived when the transfer occurred (it was agreed between the parties that the value of the land would form part of the taxpayer’s assessable income). The Court noted that this was consistent with the fact that the taxpayer accounted for income and expenses on a cash basis for tax purposes.

Progress of Legislation

On 2 February 2010, the Government re-introduced into the House of Representatives its package of Bills with respect to its proposed Carbon Pollution Reduction Scheme, which purportedly include the amendments negotiated with the Coalition in late 2009

As at 5.2.10