Pioneering thought — Sladen Legal

Read The Trust Deed: Pope’s Case - Unpaid Present Entitlement and Bad Debt Deductions

Read The Trust Deed: Pope’s Case - Unpaid Present Entitlement and Bad Debt Deductions

A recent case in the Administrative Appeals Tribunal (Pope v FC, known as Pope’s Case) is of interest to taxpayers and their advisers, with respect to the characterisation of unpaid trust entitlements (UPEs) as loans.

In this case, Deputy President Hack characterised amounts previously distributed to the taxpayer, Pope, from the Pope Family Trust, and remaining unpaid as being debt at the time, that the amounts were written off by the Pope as being bad. Pope had previously included the UPEs in his assessable income in the income years in which the distributions were made and sought to obtain a deduction for those UPEs when they were irrecoverable from the Trust.

Project DO IT Alert

Project DO IT Alert

A reminder that voluntary disclosures pursuant to the Australian Tax Office’s (ATO) “Project DO IT” initiative must be made before 19 December 2014. Having regard to the difficulties often encountered and the general time frames required to obtain necessary information sourced from offshore third parties, the time to prepare for, and draft, voluntary disclosures taxpayers considering making a voluntary disclosure pursuant to the Project DO IT program would be well advised to consider their eligibility for the Project DO IT initiative and begin their disclosure preparation as soon as practicably possible.

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Sladen Snippet - ATO releases guidelines regarding professional firms

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Sladen Snippet - ATO releases guidelines regarding professional firms

New guidelines released by the Australian Taxation Office (ATO) will assess tax compliance risks associated with the allocation of profits from professional services firms operating in the accounting, architectural, engineering, financial services, legal and medical professions.

Division 7A - Commissioner’s Discretion, ADR and ATO Internal Facilitation

Division 7A - Commissioner’s Discretion, ADR and ATO Internal Facilitation

This paper was presented by Rob Jeremiah at the 2nd Annual Trusts and Companies Taxation Symposium Television Education Network, held on 7 August, 2014.

The paper focuses on dealing with situations where non-compliance with of Division 7A of the Income Tax Assessment Act 1936 has been discovered, and understanding the operation of the Commissioner of Taxation’s discretion to disregard Division 7A. The paper considers the interplay of making a voluntary disclosure and requests to apply the Commissioner’s discretion and the application of the Alternative Dispute Resolution and the Australian Tax Office’s Internal Facilitation process.

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Sladen Snippet - Transfers of cash and property from private companies in family law settlements

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Sladen Snippet - Transfers of cash and property from private companies in family law settlements

On 30 July 2014 the Australian Taxation Office issued Taxation Ruling TR 2014/5 (previously released in draft form as TR 2013/D6) to address the tax effect of private companies paying money or transferring property to shareholders or their associates, in order to satisfy Family Court orders made pursuant to section 79 of the Family Law Act 1975.

Options Paper - Australia’s Charities and Not-for-profits

Options Paper - Australia’s Charities and Not-for-profits

The Options Paper, Australia’s Charities and Not-for-profits has been released to seek feedback on proposed arrangements for charities in Australia following the Government’s planned repeal of the Australian Charities and Not-for-profits Commission (ACNC). The Government’s proposed arrangements attempt to balance reducing the administrative burden of reporting obligations with the need for public accountability.

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Sladen Snippet - Changes to the Primary Production Exemption for Land Tax

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Sladen Snippet - Changes to the Primary Production Exemption for Land Tax

The Victorian State Revenue Office has recently released General Information Bulletin GEN 2/14 in relation to recent duty and land tax changes that received Royal Assent on 17 June 2014. Of particular note is the change to the area defined as “Greater Melbourne” for the purposes of the Primary Land Tax Exemption.

GST Groups - Indirect Tax Sharing and Funding Agreements

GST Groups - Indirect Tax Sharing and Funding Agreements

Sladen Legal can now assist GST groups with Indirect Tax Sharing and Funding Agreements.

There are multiple complex taxation laws governing GST Groups. Therefore, it is crucial to have the appropriate documentation in place to clearly define (and be able to determine) each member’s rights and obligations, and thereby avoid any adverse tax consequences.

Div 7A loans and sub-trust investment arrangements – 15 May 2014 deadline

Div 7A loans and sub-trust investment arrangements – 15 May 2014 deadline

A reminder that with 15 May 2014 (being the due date for lodgement of the 2013 FY income tax return for most trusts) fast approaching, it is time to review prior year unpaid present entitlements (UPEs) owing from trusts to private companies and ensure that appropriate documentation is in place prior to that date.

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UPEs And The Maximum Net Asset Value Test

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UPEs And The Maximum Net Asset Value Test

This article discusses the complexity associated with a trust satisfying the maximum net asset value test for the purposes of accessing the capital gains tax (CGT) small business concessions where it is unclear whether an unpaid present entitlement (UPE) would be classified as a liability relating to the CGT assets of the trust.

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Sladen Snippet - ATO has updated its Practice Statement on Testamentary trusts

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Sladen Snippet - ATO has updated its Practice Statement on Testamentary trusts

The Australian Taxation Office (ATO) updated its Practice Statement PS LA 2003/12 on 10 April 2014. The Practice Statement confirms that the Commissioner will not depart from the long-standing administrative practice of treating the trustee of a testamentary trust in the same way as a legal personal representative (LPR). 

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Sladen Snippet - ATO determines a nil interest LRBA loan triggers non-arm’s length income

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Sladen Snippet - ATO determines a nil interest LRBA loan triggers non-arm’s length income

The Australian Taxation Office (ATO) has released a private binding ruling extract in which it found that a nil interest limited recourse borrowing arrangement (LRBA) loan triggered the non-arm’s length income rules. 

Breaking News: Discussion Paper on Division 7A

Breaking News: Discussion Paper on Division 7A

The Board of Taxation released its Second Discussion Paper on Division 7A of the Income Tax Assessment Act 1936, on 25 March 2014.

Division 7A taxes notional distributions (by way of loans, payments or forgiven debts) from, private companies (which are taxed at the rate of 30%) to shareholders and associates (who are taxed at higher marginal tax rates) as unfranked “deemed dividends”. Division 7A also operates where private company assets are used by shareholders and associates, and where a trust has an unpaid present entitlement (UPE) owing to a private company (directly or indirectly through one or more interposed entities), and makes a payment or loan to, or forgives a debt owing by, a shareholder (or an associate of a shareholder) of the private company.

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Sladen Snippet - ATO Decision Impact Statement on the control of a trust

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Sladen Snippet - ATO Decision Impact Statement on the control of a trust

On 19 March 2014, the ATO issued its decision impact statement (DIS) on the AAT decision in Gutteridge & Anor v FC of T 2013 ATC.

In that case, a trust made capital gains from the sale of business assets and the taxpayers, Mr and Mrs Gutteridge, sought to apply the small business capital gains tax concessions when taxed on the capital gain. The Commissioner, in applying the $6 million maximum net asset value ("MNAV") test held that the trust was controlled by the taxpayers’ daughter who was the sole director and shareholder of the corporate trustee, and included the values of the assets held by a company also controlled by her on the basis that it was “connected with” the trust. As a consequence, the trust failed to satisfy the MNAV.

Collection of a Consolidated Group’s Tax Liabilities

Collection of a Consolidated Group’s Tax Liabilities

On 7 November 2013 the ATO released a Practice Statement (Practice Statement Law Administration 2013/5 (PS LA 2013/5)) which details the Commissioner’s policy (previously included in Chapter 35 of the ATO’s Receivables Policy) in relation to:

  1. the collection of group liabilities from the Head Company, member entities and entities that have exited a Consolidated Group;
  2. Tax Sharing Agreements (TSAs); and
  3. the requirements for a member entity to make a “clear exit” from the Group.

 

New Commissioner of taxation – New emphasis on Alternative Dispute Resolution

New Commissioner of taxation – New emphasis on Alternative Dispute Resolution

In his address at the Tax Institute’s 28th Annual Convention in Perth on 14 March this year, the newly appointed Commissioner of Taxation, Chris Jordan (Commissioner) prioritised the increasing use of dispute resolution processes to resolve taxpayer disputes in a timely manner.

FCT v Greenhatch - CGT Streaming Appeal

FCT v Greenhatch - CGT Streaming Appeal

On 10 May 2013, the High Court of Australia refused the taxpayer special leave to appeal FCT v Greenhatch [2012] FCAFC 84; [2011] AATA 479.

Accordingly, prior to 1 July 2010 and the amendments made by TLAM No 5 2011, differential streaming of capital gains between trust beneficiaries was ineffective. The beneficiaries of any trust that has differently streamed capital gains will have an exposure to audit activity, amended assessments and penalties.