In this piece of article, we are going to discuss how income tax developments have impacted businesses across Australia in the last two months.
Let us look at some key factors in the recent updates by the Australian Taxation Office in July 2021.
Income Tax Developments by ATO in July 2021 and forth
CGT improvement threshold for 2021-22
The capital gains tax (CGT) improvement threshold for the 2021–22 year is $156,784 (up from $155,849 for the previous year).
Draft of Excluded Transactions
The draft of excluded transactions and entities from Third-Party Reports on Shares and Units determination along with its explanatory statement was released by the ATO on May 3rd, 2021.
The determination comprehends that certain transactions will be exempted from being reported to the Commissioner and other entities from having to prepare and lodge reports under the third party reporting regime.
The determination has been brought forth as a replacement to an earlier determination registered in 2018, which gave fewer exemptions of transactions and lodgings.
These reduced reporting requirements should be noted by taxpayers who will be covered by the new entity exemptions or are likely to engage in excluded transactions.
This draft determination is also beneficial for entities with a reporting obligation to the Tax administration office under Division 392 of Scheme 1, which deals with employee share schemes.
Practice Statement PS LA 2020/1
Allowing an entity additional time to register for an ABN or notify the Commissioner of assessable income or supplies is at the Commissioner’s discretion.
The ATO has amended its Practice Statement, which outlines when the Commissioner will use his discretion to grant a business additional time to hold an ABN or report business income in order to meet the cash flow boost or JobKeeper payment eligibility conditions.
The updates generally concern the relevant factors for assessing whether or not the Commissioner’s exercise of his discretion is appropriate.
Draft Law Companion Ruling LCR 2021 2021/D1 Temporary full expensing
This draft Ruling deals with temporary full expensing that is the immediate write-off of costs of depreciating assets as introduced by the JobMaker tax plan legislation.
Temporary full expensing, the assets that are eligible, consolidate group rulings of operations as well as full expensing rules, the interaction of the newly introduced temporary full expensing with previously introduced instant asset write-off and backing business investment, and the operation of temporary full expensing for small business entities is covered by this draft determination by the ATO.
Taxpayers who want to take advantage of the temporary full expensing measures should ponder whether their relevant companies are qualified and whether their assets are fully expensive.
Practice Statement PS LA 2001/13 Franking credits and part payment of liabilities notified on activity statements
With effect from June 17, 2021, this practice statement on the impact of partial payment of activity statement liabilities on an entity’s claim to franking credits has been removed
Taxation Ruling TR 2021/2 “Car parking benefits”
The Commissioner’s position on when the provision of vehicle parking is a car parking benefit for the purposes of the Fringe Benefits Tax Assessment Act 1986 is set forth in this Taxation Ruling.
The Ruling overturns the earlier position that automobile parking facilities having the main purpose other than offering all-day parking were not commercial parking stations for benefits granted on or after April 1, 2022
The decision does not define “principal place of employment,” but it does say that it will be revised in the future to give more information on the subject.
Taxpayers should consider all about the instructions in this judgment and how it could affect their liability for fringe benefits tax on vehicle parking facilities they supply or that are close.
Draft Taxation Ruling TR 2021/D3 Income tax: research and development tax offsets – the at risk rule
The ATO has issued provisional guidance on the “at-risk rule” for expenditure on R&D.
The at-risk rule prevents or decreases a notional deduction for the R&D tax credit if the R&D firm or one of its associates had received a tax credit at the time the expenditure was made (or could reasonably be expected to receive) regardless of the outcomes of the activities on which the entity incurs the expense, attention is given as a direct or indirect result of the expenditure.
The value of both monetary and non-monetary benefits is included in the amount of consideration when deciding whether the “at-risk rule” is satisfied. The Commissioner stated that Div 355 is subject to a broad interpretation of the term “consideration.”
ATO stated in Draft Taxation Determination 2020/D1 that research and development activities subsidized by JobKeeper payments do not satisfy the “at-risk” rule.
Taxpayers are more likely to be subject to the “at-risk rule” now that “consideration” has a broader interpretation that includes both monetary and non-monetary benefits.
When entering into arrangements where R&D expenditure is incurred and direct or indirect consideration is obtained as a result of the spending, taxpayers wanting to rely on the R&D tax offset should be aware of this draught judgment and any further developments.
Draft Taxation Ruling 2021/D4 Income tax: royalties – character of receipts in respect of software
This Draft Taxation Ruling has replaced the Taxation Ruling TR 93/12, which has been withdrawn.
The Australian Taxation Office (ATO) has released interim guidance on when royalties are earned from software licensing and distribution.
According to draught TR 2021/D4, an amount is a royalty if it is paid or credited as payment or credit for service.
When this judgment takes effect, taxpayers who license or distribute computer software should examine whether the receipts from their transactions would be considered royalties.
Payments for the right to sub-license software will be deemed royalties even if the payment is for the right to give licenses for the basic use of the software, according to software distributors who sub-license software.
Draft Practical Compliance Guideline PCG 2021/D4 Intangibles Arrangements
The Commissioner has issued preliminary guidelines on the ATO’s compliance approach to international agreements relating to intangible asset development, enhancement, maintenance, protection, and exploitation (DEMPE). Comments on the preliminary guidance will be accepted until July 16, 2021.
The ATO’s involvement in examining the aforementioned types of arrangements, particularly any that do not fairly depict the nature and scope of Australian activities related to the DEMPE of intellectual assets, is emphasized in the recommendation. The ATO believes that these structures could be set up to avoid paying taxes.
The guideline also discusses the potential for transfer pricing provisions, withholding tax provisions, capital gains tax, capital allowances, the general anti-avoidance rule, and the diverted profits tax to be applied.
Taxpayers who have entered into international agreements related to DEMPE functions involving intangible assets may consider doing a PCG risk assessment.
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