Legal news
The ATO has taken an aggressive approach on non-arm’s length income (NALI) for a number of years now, both in its public documents and via its audit teams. This has culminated in an approach that puts a high expectation on SMSF’s in relation to proving arrangements are on an arm’s length basis – in particular, in relation to benchmarking such arrangements.
The Full Federal Court in the BBlood appeal found for the ATO on section 100A and the taxpayer dividend stripping (albeit on a technical, non-substantive basis).
The 100A analysis was limited to ‘tax avoidance purpose’ with the Full Court holding that, in certain circumstances, the purpose of advisors can be relevant.
This time last year, we published an article querying whether the Federal Court decision in Guardian AIT Pty Ltd ATF Australian Investment Trust v FCT [2021] FCA 1619 (First Instance Decision) would ignite an administrative and judicial quest for clarity on the interpretation of section 100A of the Income Tax Assessment Act 1936 (ITAA 1936).
On 23 November 2022, the Australian Tax Office (ATO) released Taxation Ruling TR 2022/3, finalising its views on personal services income (PSI) and personal services businesses (PSB).
The High Court in Bosanac v Commissioner of Taxation [2022] HCA 34 culminated a protracted debate on whether to apply the presumption of resulting trust or presumption of advancement in the context of a matrimonial home.
On 19 September 2022, Justice Thawley of the Federal Court handed down his decision in BBlood Enterprises Pty Ltd v FCT [2022] FCA 1112 (BBlood), the most recent decision on section 100A of the Income Tax Assessment Act 1936. The Australian Taxation Office (ATO) was successful in arguing that section 100A applied.
The recent Federal Court decision of Minerva Financial Group Pty Ltd v Commissioner of Taxation [2022] FCA 1092 (Minerva) signifies that the Federal Commissioner of Taxation (Commissioner) can successfully scrutinise a trustee’s discretion under the general anti-avoidance provisions (Part IVA).
In the recent decision of Signium Pty Limited and FCT [2022] AATA 2824, the Administrative Appeals Tribunal (Tribunal) upheld super guarantee (SG) assessments issued by the Commissioner of Taxation (Commissioner) and refused to remit Part 7 penalties further.
The taxpayer operates a small pig farming business. The business is run by a general manager, and at relevant times it employed two or three people.
The ATO conducted an audit of the taxpayer’s SG obligations and issued 16 SG charge assessments for quarters ending 30 September 2013 to 31 March 2017. The Commissioner also issued a Part 7 penalty assessment of 200% of the SG charge (Part 7 penalties are automatically incurred under Part 7 of the Superannuation Guarantee (Administration) Act 1992 (SG Act) for failure to lodge SG charge statements within the relevant timeframe).
The taxpayer disagreed with the ATO’s calculation of the shortfall amounts on the SG charge assessments. However, the Tribunal accepted the ATO’s calculations as they were more thorough than those provided by the taxpayer. The taxpayer asked the Tribunal to remit the shortfall interest component of the SG charge, but the Tribunal declined, noting that the Commissioner has no discretion under the SG Act to remit the shortfall interest component.
The Part 7 penalties were remitted to 35% during the review process, and the Commissioner agreed that a further 25% remission was appropriate. The taxpayer argued that the penalties should be reduced further due to various factors including the general manager’s age, his health conditions, the impact of COVID-19, drought in 2018-2019, bushfires in 2019 and flood in 2021, all of which put the business under considerable pressure. However these factors all arose after the relevant quarters which were the subject of the audit, and therefore did not impact on the taxpayer’s ability to comply with its SG obligations at the relevant time. Accordingly, the Tribunal was not persuaded to remit the Part 7 penalties further.
Key takeaways from this decision:
While a taxpayer should confirm the accuracy of the calculations making up an SG charge assessment, and cross-reference these with their own records, a taxpayer cannot argue for remission of the shortfall interest component, as the Commissioner has no discretion in this regard;
Part 7 penalties are incurred automatically under the SG Act at 200% of the SG charge for late or non-lodgement of SG charge statements. The Commissioner has discretion to remit Part 7 penalties with regard to various mitigating factors. Where the taxpayer is arguing that these factors impacted on the taxpayer’s ability to comply with its SG obligations, it is key to show a nexus between these factors and the quarters in question.
Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au
Philippa Briglia
Senior Associate
T +61 3 9611 0173
E pbriglia@sladen.com.au
Jan Oh
Graduate Lawyer
T +61 3 9611 0158
E joh@sladen.com.au
In a joint media statement on 22 August 2022, The Hon Stephen Jones MP, Assistant Treasurer, Minister for Financial Services and The Hon Dr Andrew Leigh MP, Assistant Minister for Competition, Charities and Treasury confirmed that the Government is to commence consultation on a framework for the regulation of crypto assets.
