Tax Update

The Treasurer released the 2023–24 Mid-Year Economic and Fiscal Outlook (MYEFO) on 13 December 2023.

The list below summarises measures in the MYEFO relating to tax and superannuation that were not previously announced.

Income tax

Denying deductions for ATO interest charges

Deductions will be denied for ATO interest charges, specifically the general interest charge and shortfall interest charge, where incurred in income years starting on or after 1 July 2025. The Commissioner will continue to have the ability to consider individual circumstances and remit these charges where appropriate.

Increase to foreign resident capital gains withholding tax rate

The government will increase the foreign resident capital gains withholding tax rate from 12.5% to 15%, and reduce the withholding threshold from $750,000 to $0. These changes will apply to real property disposals under contracts entered into from 1 January 2025.

Commonwealth penalty unit

The government will increase the amount of the Commonwealth penalty unit by 5.4% from $313 to $330, to commence 4 weeks after the passage of legislation. The increase will apply to offences committed after the relevant legislative amendments come into force.

The amount will continue to be indexed every 3 years in line with the consumer price index (CPI) as per the pre-existing schedule. The penalty unit was last indexed on 1 July 2023 (Crimes (Amount of Penalty Unit) Instrument 2023 (F2023N00196)).

Producer tax offset

An alternative minimum spending threshold for the producer offset of $35 million per season in qualifying Australian production expenditure will be introduced for long-form Australian drama series. The new per-season threshold will apply for productions that commence filming or production from 1 July 2024.

The ATO has issued draft guidance on the requirements that need to be satisfied for an individual to claim a deduction for financial advice fees under s 8-1 or 25-5 of ITAA 1997.

An individual may be entitled to a deduction for fees paid to a financial adviser if they satisfy the requirements under the provision for general deductions under s 8-1 or specific deductions for tax-related expenses under s 25-5. Apportionment of the deduction may be necessary in some circumstances under s 8-1 or 25-5 where the full amount of the fees paid are not deductible.

Draft Taxation Determination TD 2023/D4 considers the application of these provisions in the context of financial advice fees incurred by an individual not carrying on a business The draft determination replaces Taxation Determination TD 95/60 (withdrawn on 12 December 2023), which outlined the Commissioner's view on the deductibility of fees paid by a taxpayer to an investment adviser for drawing up an investment plan, and for the ongoing management of the investments. It contains new guidance on the deductibility of financial advice fees as tax-related expenses under s 25-5.

TD 95/60 has been replaced as a result of regulatory reforms to the financial services industry in recent years. Draft TD 2023/D4 does not represent a change in the Commissioner's view on the deductibility of financial advice fees as outlined in TD 95/60.

Draft TD 2023/D4 is proposed to apply to years of income commencing both before and after its date of issue when finalised. Comments are invited on the draft determination until 2 February 2024.

The Victorian government has finalised the design of reforms to progressively abolish stamp duty on commercial and industrial properties, first announced in the 2023–24 State Budget.

Stamp duty on commercial and industrial property will be progressively replaced with an annual tax based on unimproved land value called the "Commercial and Industrial Property Tax". Commercial and industrial properties contracted from 1 July 2024 will transition to the new system. Stamp duty will be paid one last time for these properties, with the Commercial and Industrial Property Tax to be payable 10 years after the last stamp duty payment. When these properties are next sold, stamp duty will not apply as long as the property continues to be used for commercial and industrial purposes. This applies even if the property is sold before the Commercial and Industrial Property Tax becoming payable.

The Commercial and Industrial Property Tax will be set at a single flat rate of 1% of a property's unimproved land value. Administration will be similar to arrangements for land tax and exemptions that apply to land tax will also apply. The new system will not apply to properties whose primary purpose is residential, primary production, community services, sport, heritage or cultural. Existing stamp duty concessions for commercial and industrial properties, including the regional concession, will also continue to apply.

Eligible purchasers will have the option of accessing a government-facilitated transition loan to fund their last stamp duty payment. The loan will be provided by the Treasury Corporation of Victoria on commercial terms with a fixed interest rate. Annual repayments over 10 years will be set upfront. Further details on the transition loan, including eligibility requirements and terms and conditions, will be advised before 1 July 2024. Legislation to facilitate the changes is expected to be introduced into parliament in the first half of 2024, ahead of the 1 July 2024 start date. Further information on the final design of the reform is available on the Victorian Department of Treasury and Finance website.

The State Taxation Acts and Other Acts Amendment Bill 2023 (Vic) has received assent as Act No 38 of 2023.

The Bill introduces changes to vacant residential land tax and prohibitions on land tax and windfall gains tax apportionment as part of contracts and agreements.

Amendments to the Land Tax Act 2005 (Vic) with respect to vacant residential land tax include:

• from 1 January 2025, applying vacant residential land tax to residential land across all of Victoria if the land is vacant for more

than 6 months in the preceding calendar year

• from 1 January 2025, applying a new progressive rate of vacant residential land tax to non-exempt residential land across all of

Victoria-based on the number of consecutive tax years the land has been liable for vacant residential land tax

• from 1 January 2026, applying a vacant residential land tax to all unimproved residential land in metropolitan Melbourne that has

remained undeveloped for at least 5 years and is capable of residential development, subject to certain exemptions

• from 1 January 2025, amending the vacant residential land tax holiday home exemption to enable the usage and occupancy

requirement to be satisfied by a relative of the owner or vested beneficiary, and

• from 1 January 2025, allowing the vacant residential land tax exemption for new residential premises to be extended to a maximum exemption for 3 years in specified circumstances.

Other amendments have been made to the Land Tax Act and Duties Act 2000 (Vic) to:

• ensure the build-to-rent special land tax formula correctly reflects the land tax rates and absentee owner surcharge

• alter the imposition of a single COVID-19 debt temporary surcharge to aggregated land which is otherwise assessed on a single

holding basis

• change the frequency of foreign purchaser additional duty exemption reporting to parliament from every 6 months to every 12

months

• allow the corporate reconstruction and consolidation concession and exemption to apply to certain sub sale arrangements, and

• clarify the operation of the pensioner and concession card duty reduction, the public landholder concession and the corporate reconstruction and consolidation concession.

The Bill also amends the Sale of Land Act 1962 (Vic) and Property Law Act 1958 (Vic) to prohibit land tax apportionment between a vendor and purchaser under a contract of sale of land, except for high-value property transactions ($10 million or greater), and prohibit windfall gains tax from being passed on to a purchaser under a contract or option agreement entered into after the windfall gains tax liability has been assessed. The amendments apply from 1 January 2024 and do not impact contracts of sale of land entered into before 1 January 2024.

Source: State Taxation Acts and Other Acts Amendment Bill 2023, Victorian Legislation website, 12 December 2023 and Changes to state taxes December 2023, State Revenue Office Victoria website, 12 December 2023, accessed 12 December 2023.

NSW Court of Appeal finds the provider of trolley collection services an "employment agent"

The NSW Court of Appeal has held that a taxpayer who contracted with major supermarket operators to provide trolley collection services using independent contractors was an "employment agent" for purposes of the Payroll Tax Act 2007 (NSW). In so finding, the court allowed the Chief Commissioner's appeal against the Supreme Court decision in Integrated Trolley Management Pty Ltd v Chief Commissioner of State Revenue (NSW) 2023 ATC ¶20-862; [2023] NSWSC 557.

Facts

The taxpayer operated a trolley collection contracting business and had contracts with 3 major supermarket operators, namely Woolworths, Aldi and IGA. Under these contracts, the taxpayer undertook to perform specified services, which essentially involved returning trolleys taken by customers to the supermarket store bays. Trolleys were generally collected from where they had been left within the shopping centre or car park, but occasionally also from the neighbouring area. The taxpayer did not employ the people who collected the trolleys. Rather, it engaged subcontractors to perform those services.

The Commissioner issued payroll tax assessments to the taxpayer on the basis that the payments made by the taxpayer to its subcontractors were deemed by s 40 of the Payroll Tax Act 2007 (NSW) (PTA) to be “taxable wages” paid by the taxpayer as a deemed employer, the taxpayer being an “employment agent” and the supermarket operators being the relevant “clients”. In the Commissioner’s view, the subcontractors engaged by the taxpayer to fulfil its obligations under its contracts with the supermarkets performed work and had duties that would otherwise be done by employees of its supermarket clients.

The taxpayer appealed against the assessments and the case was argued around the Woolworths contract. At issue was whether the taxpayer, in procuring the services for the supermarket operators, was an “employment agent” for the purposes of Pt 3, Div 8 (ss 36A to 43) of the PTA. The taxpayer argued that the test to be applied was whether the subcontractors performing the trolley collection services were sufficiently integrated into the supermarket's business to be seen as additional to the supermarket's workforce.

The primary judge (Parker J) rejected the Commissioner’s contention that the taxpayer was an employment agent. In reaching his decision, Parker J said the sole issue in dispute was whether the “in and for” aspect of s 37(1) of the PTA, in the sense outlined by White J in UNSW Global Pty Ltd v Chief Commissioner of State Revenue (NSW) 2016 ATC ¶20-599; [2016] NSWSC 1852, was satisfied. According to White J the definition of an employment agency contract can be read as meaning “a contract under which a person procures the services of another person in and for the conduct of the business of the employment agent’s client”.

The Chief Commissioner appealed from this decision to the NSW Court of Appeal. The main issues on appeal were:

• whether the employment agency contracts were the contracts between the taxpayer and the supermarket operators or between

the taxpayer and the subcontractors who collected the trolleys

• whether the employment agency contract was to be identified solely by its terms, or also by how it operated, and

• the relevance of “indicia” in characterising services provided by the taxpayer as “in and for” the conduct of the business of the supermarkets.

Decision

The NSW Court of Appeal allowed the appeal and reinstated the Commissioner's assessments. It found that the “employment agency contract” was, in relation to each assessment in issue, the contract between the taxpayer and its clients, namely the supermarket operators.

The application of s 37 of the PTA was to be assessed by reference to the terms of the employment agency agreement relied on by the Commissioner. In principle, that would be the agreement between the employment agent and its client. There was no reason to suppose that in most cases a “fact-sensitive analysis”, going beyond an analysis of the contractual arrangements and the nature of the client’s business, would be necessary. The search for “indicia” in prior cases dealing with different circumstances would rarely be of assistance. In particular, the careful analysis of the language used in applying the test by trial judges should not be relied on as establishing a legal principle.

Source: Chief Commissioner of State Revenue (NSW) v Integrated Trolley Management Pty Ltd 2023 ATC ¶20-886; [2023] NSWCA 302, 13 December 2023.

Source: CCH Tax Week