Greenwoods & Freehills Weekly Tax Highlights - Week Ended 2.7.10

ATO documents

Released 30.6.10

Taxation Ruling
TR 2010/4: Income tax: capital gains: when a dividend will be included in the capital proceeds from a disposal of shares that happens under a contract or a scheme of arrangement
Draft Taxation Rulings
TR 2010/D4: Petroleum resource rent tax: general pre-conditions common to deductibility of expenditure of a kind referred to in sections 37, 38 and 39 of the Petroleum Resource Rent Tax Assessment Act 1987
TR 2010/D5: Petroleum resource rent tax: excluded expenditure under paragraphs 44(j) and 44(k) of the Petroleum Resource Rent Tax Assessment Act 1987 - administrative, accounting, wages, salary, other work costs, and overhead expenditure; land or buildings for use in accounting or administration not adjacent to the operations site
TR 2010/D6: Petroleum resource rent tax: deductibility of expenditure to procure the carrying on or providing of operations, facilities or other things by another person in relation to a petroleum project, as provided by section 41 of the Petroleum Resource Rent Tax Assessment Act 1987 
Taxation Determinations
TD 2010/18: Income tax: what is the benchmark interest rate applicable for the year of income that commenced on 1 July 2010 for the purposes of Division 7A of Part III of the Income Tax Assessment Act 1936 and how is it used?  
Product Ruling
PR 2010/17: Income tax: deductibility of interest in relation to investment in Macquarie Flexi 100 Trust June 2010 Offer (Class H to P Units) - limited recourse borrowings
Addendum
TR 98/21: Income tax: withholding tax implications of cross border leasing arrangements
Notices of Withdrawal
IT 331: Trustees and beneficiaries: adjustments to estate income as returned to arrive at net income of estate for the purposes of section 95
TR 1995/29: Income tax: Division 16 - applicability of averaging provisions to beneficiaries of trust estates carrying on a business of primary production
GSTR 1999/1: Goods and services tax: the GST rulings system
WETR 2002/1: Wine equalisation tax: the WET rulings system
Taxpayer Alert
TA 2010/3: Non market value acquisition of shares or share options by a self-managed superannuation fund
Decision Impact Statements
2007/2955: Day, Terry Kenneth and Commissioner of Taxation
2008/228-244: Mano, Sara and Commissioner of Taxation 
2009/2865, 4347-4355: Horrocks, Mark and Commissioner of Taxation 

Released 2.7.10

Withdrawn Interpretative Decisions
ATO ID 2001/97: Superannuation: Complying Fund (Refund of Tax Paid)
ATO ID 2003/1147: Restructure/resettlement of superannuation fund (from statute to deed based) - new eligible entity
ATO ID 2003/1151: Restructure/resettlement of superannuation fund (from statute to deed based) - application of section 26BB
ATO ID 2003/1152: Restructure/resettlement of superannuation fund (from statute to deed based) - transfer of security to new trustee 
ATO ID 2003/403: Assessable income: lump sum payment in arrears - penalty payment
ATO ID 2006/177: Restructure/resettlement of superannuation fund

Released 2.7.10

On 2 July 2010, the Government announced major changes to the previously proposed Resource Super Profits Tax (RSPT), including re-badging the tax as the Minerals Resource Rent Tax (MRRT), setting a lowered tax rate with reduced scope and more concessionary transitional rules. Details of the proposed MRRT are set out in the Media Release issued by the Prime Minister on that day. Key points include the following:

-the start date for the re-badged tax will remain 1 July 2012;
-the tax now only applies to iron ore and coal;
-the tax rate will be 30% (down from the proposed 40% rate for the RSPT);
-the tax applies to the value of the resource in its first saleable form (i.e. generally at the mine gate) less costs to that point - a 25% extraction allowance is also allowed that will reduce taxable profits;
-miners can choose either book or market value as the starting base for project assets;
-where book value is used as the starting base (i) accelerated depreciation over 5 years is available, and (ii) the starting base is uplifted with the long-term bond rate plus 7%;
-where market value is used effective life (up to 25 years) applies and the starting base is not uplifted;
-post-1 July 2012 capital expenditure will be able to be written-off immediately; and
-small miners, being those with less than $50m profits p.a., will be exempt from the MRRT.

The reduced revenue expected under the MRRT in comparison with the RSPT means whilst the company tax rate will be cut from 30% to 29% from 2013-14 (2012-13 for small companies), it will not be further reduced to 28% as previously proposed. The Government also proposes that the existing Petroleum Resource Rent Tax regime be extended to all Australian onshore and offshore oil and gas projects.

TOFA: Further Proposed Amendments

Released 29.6.10

The Government has announced the second tranche of proposed amendments to the TOFA rules in Division 230 of the 1997 Act (and related provisions). The first tranche, which was announced in September 2009, is contained in the Tax Laws Amendment (2010 Measures No. 4) Bill 2010 which is currently before Parliament. The Government’s media release on the second tranche says amendments will be made to:
-ensure there can be sufficiently particular gains or losses from a financial arrangement (therefore potentially attracting accruals tax treatment) even if there is no sufficiently certain overall gain or loss;
-allow taxpayers applying the effective interest method to re-estimate a gain or loss when required to do so for accounting purposes, even if there is no material change;
-clarify that a loss resulting from an impairment is not deductible;
-allow foreign bank branches to rely on their audited APRA reports to satisfy the accounting/auditing requirements for the various TOFA elective methods;
-effectively treat repo and securities lending arrangements as loans rather than a disposal and repurchase; and
-ensure that the character-matching provisions in the tax-hedging rules work effectively where a hedging arrangement hedges a risk in relation to a net investment in a foreign operation that comprises shares and some other interest in the foreign operation (for instance, shares and a long term loan).

GST financial supply provisions – discussion paper

Released 30.6.10

Treasury has released a discussion paper on the Government’s proposals to amend the financial supply provisions of the GST law to clarify the operation of the legislation, particularly for many small businesses, with effect from 1 July 2012.

Tax Cases

SNF (Australia ) Pty Ltd v Commissioner of Taxation [2010] FCA 635 (25 June 2010): The Federal Court has held that transfer pricing determinations made by the ATO under Division 13 of the 1936 Act cannot stand. This was on the basis that the taxpayer satisfied the burden of proving that the amounts it paid for products from related overseas suppliers was arm's length consideration. The decision is largely based on evidentiary rather than technical matters – that is, what evidence the taxpayer had that arm’s length amounts were paid and whether that evidence was admissible. However, the following points are of note:
-As in Roche Products Pty Ltd v FCT [2008] AATA 639, the Commissioner submitted that he had two alternative bases to support the assessments: the first being the rules in Division 13 of the 1936 Act, and the second the associated enterprises article of the relevant tax treaties. The Court took a similar approach to that in Roche by bypassing the technical issue and proceeding on the basis that only the rules in Division 13 were relevant (the Commissioner conceding to this approach).
-The Court found that arm’s length consideration for the purposes of s.136AD is a type of objective market value test. The Court rejected the Commissioner’s submission that the test is what an arm’s length party in the position of the relevant taxpayer would have paid.

Commissioner of Taxation v News Australia Holdings Pty Limited [2010] FCAFC 78 (30 June 2010): The Full Federal Court has has dismissed the Commissioner’s appeal against a decision of the AAT that Part IVA did not apply to cancel a $1.5bn capital loss that arose for an Australian company as a result of the restructure of the News Group in 2004 and 2005. The AAT found that the dominant purpose of the scheme was not to obtain a tax benefit but to relocate the News Group’s head company to the United States. In dismissing the Commissioner’s appeal, the Full Court found that the AAT had not incorrectly taken into account the subjective motives of the parties to the scheme. The Full Court noted that objective and subjective intentions can be one and the same. Where subjective intentions are reflected in objective evidence, then no error is made by taking that evidence into account.

The Commissioner has lodged an application for special leave to appeal to the High Court against the Full Federal Court’s decision in FCT v BHP Billiton Finance Ltd [2010] FCAFC 25. The Full Federal Court found that the taxpayer, an internal financier for the BHP Billiton group, was entitled to deductions for loans to other group members that were written-off.