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.

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.

Assistant Treasurer Bill Shorten today released a discussion paper outlining the proposed standard deduction for individual taxpayers, which was announced in the 2010-11 Budget.

“A standard deduction removes the hassle of a shoebox full of receipts for Australian taxpayers. It simplifies income tax returns for individuals and the Australian Taxation Office,” Mr Shorten said.

From 1 July 2012, the $500 deduction, which will rise to $1,000 from 1 July 2013.

“Providing a standard deduction will remove this burden for many taxpayers and increase their tax return. No taxpayers will be disadvantaged. Taxpayers with expenses above the standard deduction will be able to continue to claim those expenses when lodging their tax return under the existing rules.”

The government thinks that the standard deduction is expected to be a chosen by approximately 4.6 million taxpayers in 2012?13,  and by 6.4 million taxpayers in 2013-14.

Of those that benefit, around 66 per cent would have a taxable income of less than $50,000 in 2012?13 and around 60 per cent would have a taxable income of less than $50,000 in 2013-14.

“A standard deduction makes it easier for working families to get the best possible tax return and continues the Gillard Government’s ongoing efforts to simplify the tax system. I encourage interested taxpayers and others to make submissions to the discussion paper,” Mr Shorten said.

The Government values consultation and invites interested parties to view the discussion paper and provide comments. Copies of the discussion paper can be obtained from the Treasury website (www.treasury.gov.au). The closing date for submissions is 8 April 2011.

The original $300 exemption from needing receipts was introduced way back when Paul Keating was treasurer and $300 was  a high level of deductions. These days most union members pay close to $500 in that one expense alone.

On 22 August 2008, the Full Federal Court handed down a decision in Riddell v. Federal Commissioner of Taxation; Spriggs v. Federal Commissioner of Taxation.

The Full Court’s decision held that management fees paid by two professional footballers to management companies for services performed in negotiating their playing contracts were not deductible under subsection 8-1(1) of the Income Tax Assessment Act 1997.

Now the two professional footballers have been granted special leave by the High Court to appeal the Full Federal Court decision.

In the meantime the ATO will continue to apply the view as set out in Taxation Ruling TR 2000/5 Income tax and fringe benefits tax: costs incurred in preparing and administering employment agreements and deny deductions..

On 23 November 2007, the Federal Court handed down decisions in Riddell v. Federal Commissioner of Taxation and Spriggs v. Federal Commissioner of Taxation.

These decisions held that management fees paid by two professional footballers to management companies for services performed in negotiating playing contracts were deductible under subsection 8-1(1) of the Income Tax Assessment Act 1997.

The Commissioner is appealing these cases in the Full Federal Court.