The Australian Government has now released draft amendments to disallow deductions against taxable government assistance payments that are eligible for a rebatable benefit following the High Court’s decision in FCT v Anstis [2010] HCA 40.

Government assistance payments that are currently eligible for the beneficiary rebate include, but are not limited to:

• Austudy
• ABSTUDY
• Newstart Allowance
• Youth Allowance (student)
• Youth Allowance (jobseeker)

The amendment is proposed to have effect from 1 July 2011.

• replacing the integrity rules restricting access to losses
• allowing immediate loss refundability
• allowing losses to be carried back and offset against previous years’ profits
• allowing losses carried forward to be uplifted by a determined benchmark rate.

The Interim Report says the bias derives from the way Australia allows for tax deductions of losses, which it says can become “trapped” and unavailable as a tax relief vehicle for entrepreneurs. “In some regards,” the Interim report says, “trapped losses represent a windfall gain for governments.” Current treatment of losses also makes cashflow management cumbersome.

The final report on the tax treatment of losses is expected in March 2012.

Superannuation changes

• The Government will pause the indexation of the superannuation concessional contributions caps for one year in 2013-14.
• In response to industry feedback, the Assistant Treasurer said the Government would undertake further consultation on compliance cost issues raised by industry in relation to the higher concessional contributions cap for those aged 50 and over.
• The Government will streamline the low income superannuation contribution (LISC) so that individuals automatically benefit from it without being burdened with extra paperwork. Rather than requiring eligible workers to fill out a tax return or other type of form, the ATO will verify an individual’s income using available data.
  • Individuals who receive less than 10% of their income through employment or business will not be eligible.
  • Individuals will only receive a payment if their LISC entitlement is at least $20, to reduce administration costs.
• The Government will reduce the matching rate and maximum payment of the voluntary superannuation co-contribution from 1 July 2012, when the new LISC commences. [No details were given of these reductions.]
• The Government will extend to the 2012-13 year the current drawdown relief for minimum payment amounts for account-based, allocated and market linked pensions. [This means the minimum drawdown for these pensions will be 75% of the required amount for the 2011-12 and 2012-13 years ie a 25% reduction in the minimum drawdown amounts.] Regulations giving effect to this change will be made before the new financial year.

Source: Treasurer’s press release Nos 148 and 149; Assistant Treasurer’s press release Nos 160 and 162, 29 November 2011

Yesterday, directors were given a temporary reprieve from the potential of personal liability to meet employees’ superannuation obligations but it is only temporary.

Bill Shorten the assistant treasurer said the measure would be re-introduced in early 2012 following more consultation with stakeholders.

So, for the time being, it remains that Director Penalty Notices relate only to unpaid PAYG – but change is likely in 2012.

About the pharmaceutical arrangement

In the arrangement that the ATO investigated:

• participants entered into contracts in 2009-10 to purchase and transfer pharmaceuticals for use in treatment programs to charities that are registered deductible gift recipients.
• participants made an initial payment of about 7.5% of the purchase price of the pharmaceuticals. The balance of the purchase price is due and payable up to fifty years after the contract was entered into. The participants also made a prepayment of interest, reflecting an interest rate of approximately 0.1% per annum, on the balance of the purchase price.
• the promoter claims:
  • the pharmaceuticals were delivered by the vendor to a bonded warehouse in a country outside Australia.
  • ownership of the pharmaceuticals was transferred to the participant, who then immediately transferred ownership to the nominated charities.
  • entities associated with the promoter of the arrangement arranged and paid for the pharmaceuticals to be shipped to places nominated by the charities.
• participants were told that they could claim a deduction for the full contracted purchase price of the pharmaceuticals in 2009-10, the year that they entered the arrangement.

• increase the small business instant asset write-off threshold from $1000 to $6500, and consolidate the long-life small business pool and the general small business pool into a single pool to be written off at one rate of 30 per cent
• allow small business entities (annual turnover less than $2 million) to claim an accelerated initial deduction for motor vehicles acquired in the 2012–13 and subsequent income years. Purchase of a motor vehicle costing $6500 or more from the 2012–13 year will be able to be immediately written off up to $5000
• amend the Superannuation (Government Co-Contribution for Low Income Earners) Act 2003 to provide for a maximum $500 low-income superannuation contribution
• repeal the 25 per cent entrepreneurs’ tax offset

The taxpayer contended that the air journey was the supply in contemplation, that it did not occur and therefore no supply occurred. The Full Court agreed, stating that it was “plain” that what each customer paid for was carriage by air. The Court said the actual travel was the relevant supply and if it did not occur, there was no taxable supply. (Qantas Airways Ltd & Anor v FCT [2011] FCAFC 113, Full Federal Court, Stone, Edmonds and Perram J, 1 September 2011.)

So Qantas has a win in being able to keep the full amount of fare paid by customers who didn’t fly. It doesn’t have to give the GST portion to the tax office.
The other side of this is that customer, had they been registered for GST and actually flown, would have been able to claim back the GST paid to Qantas. The corollary of this decision looks like it takes away the right to claim back the GST if the customer doesn’t actually fly. A missed flight costs 10% more than one that is caught.

Whether you have an enforceable claim against Qantas to get your GST back from them is a different question.

The Tax Commissioner today [Wed 10.8.2011] warned communities in Western Australia about a scam doing the rounds and encouraged victims of the scam to make contact with the ATO. He said the ATO is seeing the scam appearing mainly in Indigenous Communities, with victims told they will receive a “sorry payment from Kevin Rudd” or “money from Oprah Winfrey” in exchange for providing a payment of up to $800 and their personal details.

The Commissioner said the scam promoters, who sometimes have claimed to work for the ATO, use these details to lodge a fraudulent Education Tax Refund application in the victim’s name. The victim may then be issued with a refund cheque by the ATO. However, the refund is illegal and any money issued will have to be paid back, Mr D’Ascenzo said.

Since 1 July, the agency has finalised 460,000 returns from the
2010-11 financial year, issuing a total of 419,000 refunds worth $1.03
billion as of Wednesday.

It blocked 22,000 returns, worth $85.38 million and including 692
from the 2009-10 financial year, that were identified by risk models as
potentially fraudulent or overstated.

A spokesman for the tax office explained that tax returns were
assessed by its Income Tax Return Integrity program before being
finalised.

The program incorporated data mining, data matching approaches and the “assessment of indicators of known fraudulent behaviour”.

The tax office reported having received 1,286,000 income tax returns
for the new year, of which almost half were lodged electronically.