Latest income tax developments - October 2021

ATO Updates

Tax Avoidance Taskforce

• The ATO has released an update on its Tax Avoidance Taskforce which will continue its work into 2021–22.
• The Taskforce’s target in the new year continues to be advisers who promote tax avoidance schemes and do not cooperate with the ATO. The misuse of legal professional privilege during ATO audits and reviews will also be a key focus for the ATO.
• Taxpayers who use complex trust structures and distribution flows for the purposes of tax avoidance have also been flagged as an area of concern by the ATO.
• The ATO will also continue to engage with taxpayers under the Top 500 and Next 5000 programs streamlined assurance programs using data to identify tax avoidance behaviours.

Taxpayer Alert 2021/3 on telematics technology products used for fuel tax credit purposes

• The ATO has released Taxpayer Alert TA 2021/3, which has announced the ATO review of arrangements where Global Positioning System (GPS), telematics or software providers or tax professionals are marketing telematics technology products for taxpayers to use for recording fuel tax credits but the GPS data and the measurement methods used by the product are inaccurate, causing an incorrect assessment of fuel tax credits.
• The review is an example of the ATO's broader approach to use increasingly sophisticated data and analytics technologies to review taxpayer claims and data-match across a variety of sources to determine any inconsistencies.

ATO draft protocol on legal professional privilege

• The ATO has released a draft protocol on the ATO’s recommended and voluntary approach for identifying communications covered by legal professional privilege (LPP).
• The protocol is linked to a string of litigation that the ATO has brought against taxpayers claiming LPP over documents requested by the ATO during a review or audit. 

• The recommended approach contains three key steps whereby taxpayers are to:

  1. Assess the nature of the legal engagment/service they are receiving from their advisers and review and determine the status of individual communications;
  2. Explain the particulars of the LPP claim being made over the documents; and
  3.  Advise the ATO about the methodologies relied on as well as the use of the draft protocol in making the LPP claim.

• The approach as it currently stands seems to place a large evidentiary burden on taxpayers and their advisers who seek to make LPP claims over documents and communications. Concerns have also been raised that the level of detail required to be provided to the ATO under the draft protocol could itself result in a waiver of privilege.

• Public consultation on the draft protocol has commenced.
• The ATO will continue to review and monitor this protocol over the next 3 years to evaluate its effectiveness and impact on the quality of LPP claims, as well as the impact on taxpayers and the ATO.

Legislative Updates

Treasury Laws Amendment (Corporate Collective Investment Vehicle) Bills 2021

• After two years since the previous draft in 2019, the Government has released for public consultation revised legislation that implements the tax and regulatory components of the corporate collective investment vehicle (CCIV) regime.
• Ashurst has been following the development of this legislation closely (see our publication on the Australia Federal Budget 2021-2022 here) and has been involved with submissions through industry bodies as part of the public consultation process.
• In broad terms, the Bill includes proposed legislative changes to:
  • Implement a new Chapter 8B in the Corporations Act 2001 which will contain the key provisions outlining the establishment of CCIVs;
  • Amend the Australian Securities and Investments Commission Act 2001 and the Personal Property Securities Act 2009 to support the implementation of CCIVs; and
  • Ensure that the treatment of CCIVs within tax legislation is consistent with the current treatment of attribution managed investment trusts.
• As it currently stands, the tax treatment of the proposed CCIV regime:
  • Builds on the existing trusts taxation framework and attribution managed investment trusts regime;
  • Deems a trust relationship to exist between the business, assets and liabilities referable to a sub-fund, and the relevant class of members;
  • If a CCIV meets the AMIT eligibility criteria in respect of a sub-fund, then the CCIV will be able to attribute amounts of assessable income, exempt income, non-assessable non-exempt income, and tax offsets derived or received by the CCIV to its members, with the amounts being recognised and taxed effectively in the hands of the members; and
  • If the CCIV does not satisfy the AMIT eligibility criteria in respect of a sub-fund for a particular tax year, then the CCIV tax treatment will be as per the general taxation of trusts.

JobKeeper reporting 

• The Treasury Laws Amendment (2021 Measures No. 2) Act 2021 has introduced a new reporting requirement for listed entities to notify the market if the listed entity, or a subsidiary of the listed entity, received a JobKeeper payment during the financial year.
• The information required to be notified includes the sum of JobKeeper payments received and any amounts that have been voluntarily repaid.
• The market announcement is in addition to any disclosure of JobKeeper arrangements that have been included in the entity's financial reports.

Case Law Updates

CUB Australia Holding Pty Ltd v Federal Commissioner of Taxation [2021] FCAFC 171

• The Full Federal Court has dismissed the applicant’s appeal against the decision of CUB Australia Holding Pty Ltd v Federal Commissioner of Taxation [2021] FCA 43.
• At first instance, Moshinsky J upheld the validity of a notice issued by the Commissioner under section 353-10 of the Taxation Administration Act 1953 (Cth), which the applicant challenged as having the improper purpose of determining the validity of the applicant's legal professional privilege claims. His Honour found that the contention that the Commissioner’s primary or substantial purpose was to determine the validity of the applicant’s LPP claims, was not established by the applicant.
• In dismissing the appeal, the Full Federal Court said that a fair reading of Moshinsky J’s reasons for decision made it apparent that his Honour understood that the task required was to identify the purpose of the notice and, if there was more than one, whether any of those purposes were both substantial and improper. He found that there was only one substantial purpose rather than multiple purposes, and that purpose was proper – essentially, that the Commissioner was seeking information from CUB not to determine the LPP claims, but to determine whether to accept or challenge them. Upon reaching that finding, it was unnecessary to further consider the alternative proposition that there was some other incidental purpose that was improper and substantial.

Hot Topics

Expansion of tax treaty network

• The government has announced its plan to strengthen and grow Australia’s tax treaty network to support economic recovery and provide greater tax certainty for foreign investment and trade purposes in the coming years.
• The plan will ensure that Australia’s tax treaty network covers 80% of foreign investment in Australia and about $6.3 trillion of Australia’s two-way trade and investment. Under the program's first phase, negotiations with India, Luxembourg and Iceland are happening this year.

New Investment Engagement Service (NIES)

•  The New Investment Engagement Service (NIES) has been launched which seeks to assist foreign investment from a tax perspective (a summary of this program was included in our last bulletin). Ashurst also recently hosted an online discussion regarding the NIES led by Chris Ferguson, ATO Assistant Commissioner and Vivian Chang, Ashurst Partner and Head of Tax. If you are interested in viewing a recording of this discussion, please reach out to one of the key contacts below.

Section 100A ruling

• The ATO has indicated that the long awaited ruling on the application of section 100A will not be released until the new year, and will be accompanied by a practical compliance guideline (PCG) about how the ATO will apply their compliance resources.
• Section 100A is an anti-avoidance measure designed to deal with "reimbursement arrangements" involving trusts. In broad terms, these are arrangements that involve the trustee making a beneficiary of a trust entitled to trust income but where the economic benefit of the income is passed to another person. A classic example might involve a beneficiary with large tax losses being made entitled to income on the basis that the substantial part of the income is gifted to another beneficiary.
• The application of section 100A has been a focus of the ATO's tax avoidance taskforce, and the release of the draft ruling foreshadowed for several years.

Watching Brief

• Taxation Ruling 2019/D6, relating to whether certain labour and other costs associated with building and construction of capital assets are capital in nature, is expected to be finalised in October 2021.
• Taxation Ruling 2017/D1, relating to composite items and identifying depreciating assets for capital allowance purposes, is expected to be finalised in October 2021. This may be material to the availability of temporary full expensing.
• The Privatisation and Infrastructure – Australian Federal Tax Framework, which sets out the ATO's views on a range of taxation issues including with respect to Division 6C, cross-staple arrangements, financing, and other issues that are relevant to infrastructure assets, is expected to be finalised in late 2021.
• Draft Taxation Determination on when an employee is considered to be genuinely restricted from disposing of their beneficial interest in a right or share acquired under an employee share scheme is expected to be released in October 2021.