Australian master tax guide 2019. [64th edition.] 9781925672947, 1925672948

Citation preview

Product Information

About Wolters Kluwer Wolters Kluwer is a leading provider of accurate, authoritative and timely information services for professionals across the globe. We create value by combining information, deep expertise, and technology to provide our customers with solutions that contribute to the quality and effectiveness of their services. Professionals turn to us when they need actionable information to better serve their clients. With the integrity and accuracy of over 45 years’ experience in Australia and New Zealand, and over 175 years internationally, Wolters Kluwer is lifting the standard in software, knowledge, tools and education. Wolters Kluwer — When you have to be right. Disclaimer No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publication is sold on the terms and understanding that: (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor. © 2019 CCH Australia Limited All rights reserved. No part of this work covered by copyright may be reproduced or copied in any form or by any means (graphic, electronic or mechanical, including photocopying, recording, recording taping or information retrieval systems) without the written permission of the publisher. ISBN 978-1-925672-94-7 ISSN 0810-5596

Foreword We are pleased to bring you the 64th Edition of the Australian Master Tax Guide. The Guide was first published in 1970 as a practical reference guide to assist in the preparation of tax returns, and to provide information relevant to the tax implications of decisions and transactions that taxpayers may face in the current financial year. Over the course of 45+ years, we have seen the Guide become Australia’s best selling and most authoritative tax guide. Used widely by tax agents, accountants, lawyers, financial advisers, lecturers, students and ATO officers alike, it is often the first port of call for those dealing with tax issues because of its clear and concise approach. During this period, we have also seen the Guide grow to many times its original size, reflecting both the increasing complexity of the tax laws and the sheer volume of legislation, explanatory material, case law, rulings and guidelines. The Guide now contains 45 chapters, including a chapter of detailed tax checklists and a chapter on fuel tax credits. It also contains additional features such as an individual tax return preparation guide, tax calculators and a tax calendar. The most commonly used chapters (ie the income, deductions and depreciation effective life chapters) have had the edges of their pages shaded to make them easier to locate. The online Premium Master Tax Guide is available as a subscription product, fully updated several times a year, with all changes integrated into the relevant chapters. The online version of the Guide, in addition

to having a superior search capability via Wolters Kluwer’s Intelliconnect® platform, also provides useful links to the rulings, cases and legislation discussed in the commentary. In keeping with its role as the first point of reference in researching tax issues, the Guide also contains extensive cross-references to more detailed commentary in Wolters Kluwer’s Australian Federal Tax Reporter, Australian Federal Income Tax Reporter, Australian Superannuation Law & Practice, and Australian GST Guide. The Guide is also available as an eBook — providing a more portable and accessible electronic option. The production of this Guide would not be possible without the work of a team of dedicated tax writers, subeditors, production editors and indexers — our grateful thanks go to them all. Wolters Kluwer January 2019

Wolters Kluwer Acknowledgments Wolters Kluwer wishes to thank the following team members who contributed to this publication: Regional Director, Research and Learning — Knowledge and Software Solutions Lauren Ma Head of Content — Tax, Accounting and Superannuation Diana Winfield Content Coordinator Nathan Grice Writers Karen Bang BCom, LLB writes for Wolters Kluwer’s accounting and GST services. Before Wolters Kluwer, she worked as an auditor and GST consultant at a major international accounting firm. Alan Burn BA, LLB contributes to a number of Wolters Kluwer tax publications, including the Australian Federal Tax Reporter and the NSW Land Tax services. His background covers IT, publishing and telecommunications, with technical roles at the ATO and in online tax software services. Edwin Carr BA, LLM, CTA writes mainly for the Australian Federal Tax Reporter. Before Wolters Kluwer, Ed worked for the ATO, and as a tax adviser in large accounting firms and financial institutions. Cindy Chan BCom, LLB, MTax is a senior content specialist at Wolters Kluwer. She also writes for Wolters Kluwer’s Australian Federal Tax Reporter, Australian Capital Gains Tax Planner and Australian Tax Week. Gaibrielle Cleary BEc, LLM is the Director of Taxation at Mazars. Gaibrielle practises in all areas of direct and indirect taxation. Previously, she was the in-house counsel for an ASX listed company and has practised at leading international law and accounting firms. She is one of the authors of Wolters Kluwer’s Small Business Tax Concessions Guide, and has also written for a number of taxation publications, including Wolters Kluwer’s Australian Federal Tax Reporter. Linda Daniele BCom, LLB is a senior tax writer, writing mainly for the Australian Federal Tax Reporter. Before Wolters Kluwer, Linda worked as a legal editor at the Judicial Commission of New South Wales. Enrico Enriquez BA, LLB writes for the Wolters Kluwer Australian Payroll Tax Manual and has previously written for a number of other Wolters Kluwer tax publications. John Gaal is a very experienced and well respected tax specialist who has written for a number of Wolters Kluwer tax publications over many years. John works as a tax consultant and writer on his own account. Ian Ross-Gowan MTax, BCom, CPA, CTA is a senior manager with Michael Johnson Associates (MJA). MJA is a specialist R&D tax agency and consultancy on government industry support programs. Ian is a former group taxation manager of a top 100 company and is undertaking PhD research on taxation and accounting.

Kevin Johnson BEc, LLB, CA, CTA is a software engineer for APS developing programs for taxation and accounting professionals. Previously, he was a tax manager at a major international accounting firm. He is a registered tax agent. Marcus Lai BA, DipLaw is a senior editor and tax writer. He has worked as the managing editor of various Wolters Kluwer tax books and is now the editor of the Australian Master Tax Guide. He is also a contributing writer to the Guide and a number of other Wolters Kluwer tax publications. James Leow LLB (Hons), MTax is a superannuation and taxation consultant. He is co-author of the Australian Master Superannuation Guide and writes for a number of other Wolters Kluwer publications. Amrit MacIntyre BA, LLB, CTA is a partner at Baker McKenzie. Heidi Maguire BA, LLB (Hons), MRes is a senior tax writer at Wolters Kluwer, writing mainly for the Australian Tax Cases service, the Australian Federal Tax Reporter and Tax Navigator for Business Activities. Ben Miller BCom, CA, SSA is a senior tax writer, writing and curating mainly for the online product CCH iQ. Ben previously worked in small and medium accounting firms as a tax, superannuation and business services manager. Denise Mulder MCom, LLB, CA is a senior tax writer, regularly contributing to the Australian Federal Tax Reporter and Australian Tax Navigator for Business Activities. Before joining Wolters Kluwer, Denise worked for an ASX100 listed company, and a major international accounting firm. Mary Zachariah BBus is a senior tax writer, writing mainly for the Australian Federal Tax Reporter. Mary has practised in both direct and indirect taxation areas and was previously a tax manager in a major international accounting firm.

List of Abbreviations The following abbreviations are used extensively in this publication. AAT

Administrative Appeals Tribunal

ABN

Australian Business Number

ADF

Approved deposit fund

AMGST

Australian Master GST Guide (Wolters Kluwer)

AMSG

Australian Master Superannuation Guide (Wolters Kluwer)

APRA

Australian Prudential Regulation Authority

ASIC

Australian Securities and Investments Commission

ATC

Australian Tax Cases (Wolters Kluwer)

ATO

Australian Taxation Office

AWOTE

Average weekly ordinary time earnings

BAS

Business Activity Statement

CFC

Controlled foreign company

CGT

Capital gains tax

DTA

Double taxation agreement

EST

(Australian) Eastern Standard Time

ETP

Employment termination payment

FBT

Fringe benefits tax

FBTAA

Fringe Benefits Tax Assessment Act 1986

FBTAR

Fringe Benefits Tax Assessment Regulations 2018

FC of T

Federal Commissioner of Taxation

FIF

Foreign investment fund

FITR

Australian Federal Income Tax Reporter (Wolters Kluwer)

FSR

Financial Services Reform

FTA

Fuel Tax Act 2006

FTD

Fuel Tax Determination

FTR

Australian Federal Tax Reporter (Wolters Kluwer)

FTR (ch 40)

Fuel Tax Ruling

GIC

General interest charge

GST

Goods and services tax

GSTD

GST Determination

GSTG

Australian GST Guide (Wolters Kluwer)

GSTR

GST Ruling

HECS

Higher Education Contributions Scheme

HELP

Higher Education Loan Programme

IAS

Instalment Activity Statement

ID

ATO Interpretative Decision

IGT

Inspector-General of Taxation

IR&D Act

Industry Research and Development Act 1986

ITA

Australian International Tax Agreements (Wolters Kluwer)

ITA Act

International Tax Agreements Act 1953

ITAA36

Income Tax Assessment Act 1936

ITAA97

Income Tax Assessment Act 1997

ITR15

Income Tax Assessment (1936 Act) Regulation 2015

ITR97

Income Tax Assessment Regulations 1997

ITTPA

Income Tax (Transitional Provisions) Act 1997

LCG

Law Companion Guideline

MLA

Medicare Levy Act 1986

MPR

Monthly payer requirement

MRRT

Mineral Resource Rent Tax

MT

Miscellaneous Tax Ruling

NRAS

National Rental Affordability Scheme

OBU

Offshore banking unit

PAYG

Pay As You Go

PCG

Practical Compliance Guideline

PDF

Pooled development fund

PSI

Personal Services Income

PS LA

Practice Statement Law Administration

PST

Pooled superannuation trust

R&D

Research and development

RBA

Running balance account

RBL

Reasonable benefit limit

RSA

Retirement savings account

SGAA

Superannuation Guarantee (Administration) Act 1992

SGAR

Superannuation Guarantee (Administration) Regulations 2018

SGC

Superannuation Guarantee Charge

SISA

Superannuation Industry (Supervision) Act 1993

SISR

Superannuation Industry (Supervision) Regulations 1994

SLP

Australian Superannuation Law and Practice (Wolters Kluwer)

SME

Small or medium enterprise

SMSF

Self managed superannuation fund

STS

Simplified Tax System

TAA

Taxation Administration Act 1953

TAR

Taxation Administration Regulations 2017

TASA

Tax Agent Services Act 2009

TD

Taxation Determination

TFN

Tax file number

TOFA

Taxation of Financial Arrangements

TR

Taxation Ruling

TSAs

Tax sharing agreements

Highlights of 2018 Tax Changes ¶1 HIGHLIGHTS This edition has been fully updated to reflect developments that occurred (or remain proposed) up to 31 December 2018. The highlights of the main changes included in this edition are set out below (with cross-references to where they are discussed). CHAPTER 1 — INTRODUCTION TO AUSTRALIAN TAX SYSTEM Proposed measures ▪ Whistleblowers who disclose information to the ATO relating to tax avoidance behaviour will be provided with protection from 1 July 2018 ¶1-220, ¶41-300 ▪ Draft legislation has been introduced that will allow the ATO to disclose to Credit Reporting Bureaus the tax debt information of businesses that have not effectively engaged with the ATO ¶1-220, ¶41-900 Rulings and guidelines ▪ The ATO’s transformation program, “Reinventing the ATO” continues to work on improving the client experience as well as changing the ATO’s culture to be more service-oriented ¶1-200 ▪ The ATO has issued TR 2018/2 to explain its view on keeping records in electronic form for the purposes of ITAA36 s 262A ¶1-205 ▪ The ATO has released its annual “Corporate tax transparency report” disclosing certain tax information of large public and private corporate tax entities for the 2016/17 income year ¶1-220 CHAPTER 2 — INDIVIDUALS New laws ▪ A seven-year Personal Income Tax (PIT) Plan implemented to introduce a low and middle income tax offset and to provide relief from bracket creep (by progressively increasing the income tax rate thresholds from 2018/19) ¶2-120 ▪ The maximum voluntary excess levels for hospital cover products providing individuals an exemption from the Medicare levy surcharge will increase from 2018/19 ¶2-335 ▪ Vocational education and training student loan debts (VET debts) separated from other forms of HELP debts and VET student loans established as a separate income-contingent loan from 1 July 2019 ¶2-380 Proposed measures ▪ Replacement of current HELP repayment threshold and repayment rates with new ones, including new minimum repayment threshold and repayment rate plus additional repayment thresholds and rates from the 2018/19 income year ¶2-380 ▪ A proposal to increase the Medicare levy to 2.5% from 1 July 2019 will not proceed ¶2-290, ¶2-320 CHAPTER 3 — COMPANIES New laws ▪ The concessional corporate tax rate of 27.5% applies for qualifying companies that have an aggregated turnover of less than $25m (for 2017/18) and $50m (for 2018/19 and 2019/20) and have no more than 80% of their assessable income consisting of “base rate entity passive income” ¶3-055 Proposed measures ▪ Legislation has been introduced to give effect to a similar business test to supplement the same business test for losses and bad debts made by companies in the 2015/16 and later income years ¶3125, ¶41-150

Rulings and guidelines ▪ The Commissioner has issued a draft Law Companion Ruling which deals with the base rate entity concept and the base rate entity passive income concept (LCR 2018/D7) ¶3-055 CHAPTER 4 — DIVIDENDS • IMPUTATION SYSTEM Proposed measures ▪ A discussion paper on the proposed changes to Div 7A (which are to apply from 1 July 2019) has been released by Treasury ¶4-200 Rulings and guidelines ▪ A final determination has been released which is to the effect that the fact that a payment or loan by a private company to the interposed entity is an ordinary commercial transaction will not preclude the Div 7A tracing rules from applying (TD 2018/13) ¶4-243 CHAPTER 5 — PARTNERS AND PARTNERSHIPS Proposed measures ▪ A new regime for limited partnership collective investment vehicles is proposed from 1 July 2018 ¶5-030 Cases ▪ The limited partners, rather than the limited partnerships, were the correct parties to proceedings on taxation of capital gains made on sale of shares held by the partnerships in Resource Capital Fund IV LP 2018 ATC ¶20-647 (appeal pending) ¶5-030 CHAPTER 6 — TRUSTEES • BENEFICIARIES • DECEASED ESTATES Proposed measures ▪ From 1 July 2019, the concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from the deceased estate or the proceeds of the disposal or investment of those assets ¶6-105 ▪ Exposure draft legislation has been released that would give effect to the 2018/19 Budget proposal to extend (from 1 July 2019) to family trusts the specific anti-avoidance rule that applies to closely held trusts that engage in circular trust distributions ¶6-266, ¶41-900 ▪ A range of managed investment trust (MIT) changes are proposed, including allowing MITs to invest in affordable housing from 1 July 2017 ¶6-405 ▪ Two new categories of collective investment vehicles are proposed, a corporate collective investment vehicle to start from 1 July 2017 (and for which exposure draft legislation dealing with the tax law issues and the Corporations Law issues has been released) and a limited partnership collective investment vehicle to start from 1 July 2018 ¶6-410 Cases ▪ The High Court has reversed a Full Federal Court decision which had held that directions given by the Queensland Supreme Court under the Trusts Act which were to the effect that resolutions by the trustee of a discretionary trust which sought to distribute franking credits separately to the dividends bound the Commissioner (Thomas 2018 ATC ¶20-663) ¶6-107 Rulings and guidelines ▪ The Commissioner has released a final ruling on the tax consequences of a trust vesting (TR 2018/6) ¶6-015 ▪ The Commissioner has released a draft determination on the tax consequences of splitting a trust (Draft TD 2018/D3) ¶6-015 ▪ The Commissioner has released a practical compliance guideline for smaller and less complex deceased estates to enable the trustee to wind up the estate (PCG 2018/4) ¶6-030 CHAPTER 7 — SMALL BUSINESS ENTITIES

New laws ▪ The small business income tax offset will be increased to 13% in 2020/21 and 16% from 2021/22, earlier than originally legislated ¶7-210 ▪ The basic conditions for applying the CGT small business concessions to shares in companies and interests in trusts have been amended for CGT events happening from 8 February 2018 ¶7-124 ▪ The immediate write-off for assets costing less than $20,000 by small business entities is extended to 30 June 2019 ¶7-250 Proposed measures ▪ With effect from 8 May 2018, an additional basic condition will apply in relation to the CGT small business concessions where the CGT event involves a partnership interest to prevent the concessions from being available for Everett assignments ¶7-120, ¶7-126 Cases ▪ Held that land was not an active asset as only a small portion of land was used in carrying on a business (Rus 2018 ATC ¶10-478) ¶7-145 CHAPTER 9 — TAX ACCOUNTING • TRADING STOCK Rulings and guidelines ▪ The Commissioner has released TR 2018/2 replacing TR 2009/5 and TD 2002/16 in relation to record keeping and access in respect of electronic records. It does not represent a change in the ATO view ¶9045 ▪ The Commissioner has released the standard value of goods taken from stock for private use for 2017/18 (TD 2018/10) ¶9-245 CHAPTER 10 — ASSESSABLE INCOME • TAX EXEMPTIONS New laws ▪ The government has enacted measures to create a single JobSeeker Payment that will replace the Newstart allowance and other social security payments, from 20 March 2020 ¶10-195 ▪ The ICC Business Corporation FZ-LLC is exempt from income tax and withholding tax liability in relation to the ICC World Twenty20 in Australia in 2020 ¶10-605 ▪ The venture capital tax concessions are available for investments in financial technology businesses (“fintech”) made on or after 1 July 2018 ¶10-845 Proposed measures ▪ From 1 July 2019, all remuneration provided for the commercial exploitation of a person’s fame or image will be included in the assessable income of that individual (2018/19 Budget) ¶10-076 ▪ The government proposes to enact a legislative framework for the sovereign immunity tax exemption, to commence on 1 July 2019 ¶10-602, ¶41-550 ▪ Tax exempt entities becoming taxable after 8 May 2018 will not be entitled to tax deductions in relation to repayment of the principal of a concessional loan ¶10-630 Cases ▪ A Commonwealth grant received by a taxpayer to establish windfarms was an assessable recoupment (Denmark Community Windfarm 2018 ATC ¶20-646) ¶10-270 ▪ An Australian public servant’s income from an overseas aid project was exempt (Coventry 2018 ATC ¶10-472) ¶10-860 Rulings and guidelines ▪ Payments received under the National Redress Scheme for Institutional Child Sexual Abuse Act 2018 are not assessable income (TD 2018/16) ¶10-005, ¶10-010 ▪ ATO guidance on the income tax implications of employee remuneration trust (ERT) arrangements

operating outside of ITAA97 Div 83A (TR 2018/7) ¶10-050 ▪ The Commissioner’s preliminary views on when a company carries on a business are set out in TR 2017/D7 ¶10-105 ▪ Draft ruling on the meaning of the “in Australia” requirement for the purposes of eligibility for deductible gift recipient (DGR) status and tax exemption under Div 50 (Draft TR 2018/D1) ¶10-604 CHAPTERS 11 & 12 — CAPITAL GAINS TAX Proposed measures ▪ With effect to payments from 1 July 2020, managed investment trusts (MITs) and attribution MITs (AMITs) will be prevented from applying the 50% discount at the trust level ¶11-038, ¶12-660 ▪ The CGT main residence exemption will no longer be available to foreign tax residents from 7.30 pm (AEST) on 9 May 2017, subject to transitional rules to 30 June 2019 ¶11-730 ▪ In calculating the partial main residence exemption, non-main residence days will include days where the property was the main residence of a foreign resident ¶11-770 ▪ A 60% discount is proposed to be available from 1 January 2018 for a resident individual on gains from investments, either directly or indirectly through certain trusts, in qualifying affordable housing ¶11-036, ¶11-037 ▪ The principal asset test will be applied on an associate inclusive basis for foreign tax residents with indirect interests in Australian real property from 7.30 pm (AEST) 9 May 2017 ¶12-725 Cases ▪ The foreign income tax offset for tax paid in the US on a capital gain was reduced by 50% as the 50% CGT discount was applied in Australia (Burton 2018 ATC ¶20-674) ¶12-780 ▪ Relationship roll-over relief was not available on a transfer of an asset from a corporate trustee controlled by a husband to a corporate trustee controlled by the wife as a result of a family court order (Ellison & Anor v Sandini Pty Ltd & Ors; FC of T v Sandini Pty Ltd & Ors 2018 ATC ¶20-651) ¶12-460 ▪ The meaning of taxable Australian real property in relation to mining, quarrying or prospecting rights and the valuation method for applying the principal asset test was addressed in detail (Resource Capital Fund IV LP 2018 ATC ¶20-647, appeal pending) ¶12-725 Rulings and guidelines ▪ The CGT implications arising from grants of easements, profits à prendre and licences has been refreshed (TD 2018/15) ¶11-280, ¶11-730 ▪ The CGT implications arising from a specified trust split (Draft TD 2018/D3) ¶11-290 ▪ The CGT implications arising from a trust vesting and the amendment of a vesting date (TR 2018/6) ¶11-290 ▪ The factors considered in exercising the Commissioner’s discretion together with a safe harbour for extending the two year period for CGT exemption on the sale of a main residence passing from a deceased person (Draft PCG 2018/D6) ¶11-770 ▪ With effect from 1 December 2017 where depreciating assets are transferred under the small business restructure roll-over, balancing adjustment roll-over relief will automatically apply (Taxation Administration (Remedial Power — Small Business Restructure Roll-over) Determination 2017) ¶12-380 CHAPTER 13 — SUPERANNUATION FUNDS • CONTRIBUTIONS New laws ▪ Individuals with account balances of $500,000 or less can make “catch-up” superannuation contributions using their unused concessional contributions caps (for up to five years) from 1 July 2018 ¶13-775 ▪ Division 310 CGT roll-over relief for merging superannuation funds has been extended until 1 July 2020 ¶13-130

▪ Division 311 CGT roll-over relief for transfers of default members’ balances by superannuation funds has been extended to cover transfers to a MySuper product within the fund ¶13-130 ▪ The consolidated regime for releasing superannuation money using an ATO release authority, following the issue of an excess concessional or non-concessional contributions determination, an FHSS determination or an assessment of Division 293 tax, applies from 1 July 2018 ¶13-755 ▪ Individuals can make voluntary contributions under the First Home Super Saver (FHSS) Scheme, and withdraw contributions and associated earnings for the purposes of purchasing their first home ¶13-790 ▪ Individuals aged 65 or more can use the proceeds from the sale of their main residence to make “downsizer contributions” of up to $300,000, applicable to sale contracts exchanged on or after 1 July 2018 ¶13-795 ▪ Superannuation providers can accept downsizer contributions from 1 July 2018 ¶13-825 ▪ Superannuation providers are required to comply with events-based reporting obligations using the Member Account Attribute Service (MAAS) and Member Account Transaction Service (MATS) ¶13-800 ▪ A work test exemption will enable individuals aged 65 to 74 years with low superannuation balances to make voluntary contributions for 12 months from the end of the financial year in which they last met the work test, from 1 July 2019 ¶13-825 Proposed measures ▪ Proposed amendments will enable a reversionary transition to retirement income stream (TRIS) to automatically transfer to eligible dependants upon the death of the primary recipient ¶13-140 ▪ Proposed amendments will provide that non-arm’s length expenditure is taken into account when determining whether the non-arm’s length income taxation rules apply to a transaction ¶13-170 ▪ Proposed amendments will remove the requirement for superannuation providers to lodge a lost members statement, twice yearly, with the Commissioner in its current form ¶13-850 ▪ Treasury is reviewing the current rules governing early release of superannuation on grounds of severe financial hardship and compassionate grounds ¶13-800 Rulings and guidelines ▪ The Commissioner has released guidelines dealing with propagation arrangements for assets of RSEs (PCG 2018/2) ¶13-130 ▪ The Commissioner has clarified the meaning of “reserve” for superannuation and income tax purposes and outlined concerns on the use of reserves by SMSFs (SMSFRB 2018/1) ¶13-775 ▪ Guidelines on the operation of the FHSS and on making downsizer contributions have been released (LCR 2018/5, LCR 2018/9) ¶13-790, ¶13-795 CHAPTER 14 — SUPERANNUATION BENEFITS • TERMINATION PAYMENTS Proposed measures ▪ A member’s share of the outstanding balance of a superannuation fund’s limited recourse borrowing arrangement that commenced on or after 1 July 2018 will be included when calculating the member’s total superannuation balance in certain circumstances ¶14-050 ▪ The government has proposed aligning the concessional taxation age for genuine redundancy and early retirement scheme payments with the age pension qualifying age from 1 July 2019 ¶14-700, ¶14-710 CHAPTER 15 — PERSONAL TAX OFFSETS New laws ▪ Introduction of a low and middle income tax offset in the 2018/19 to 2021/22 income years ¶15-300 CHAPTER 16 — BUSINESS, EMPLOYMENT AND INVESTMENT DEDUCTIONS • GIFTS New laws ▪ Certain payments made or non-cash benefits provided on or after 1 July 2019 that do not comply with

PAYG withholding obligations will not be deductible ¶16-520 Proposed measures ▪ Draft legislation has been introduced proposing that from 1 July 2019, expenses associated with holding vacant land or residential rental property that is not available for rent, will not be deductible for certain taxpayers unless the land is used to carry on a business ¶16-650, ¶41-900 Cases ▪ Expenditure incurred on gaming machine entitlements was not capital expenditure (Sharpcan Pty Ltd 2018 ATC ¶20-670) ¶16-060 Rulings and guidelines ▪ Guidelines on calculating deductions for travel expenses associated with residential rental properties have been finalised (LCR 2018/7) ¶16-650 ▪ Guidelines on deducting contributions to employee remuneration trusts have been finalised (TR 2018/7) ¶16-010, ¶16-060, ¶16-070 CHAPTER 17 — DEPRECIATING ASSETS Proposed measures ▪ The proposed measure to provide businesses with an option to either self-assess the effective life of intangible assets acquired from 1 July 2016, or continue using existing statutory lives will not proceed ¶17-280, ¶41-150 ▪ Legislation has been introduced that will amend the calculation of balancing adjustment amounts for R&D assets from 1 July 2018 ¶17-420, ¶41-500 CHAPTER 18 — PRIMARY PRODUCTION CONCESSIONS New laws ▪ From 19 August 2018, primary producers can claim an immediate deduction for capital expenditure on fodder storage assets ¶18-085 CHAPTER 19 — MINING • INFRASTRUCTURE • ENVIRONMENTAL PROTECTION Rulings and guidelines ▪ TR 2018/1 contains guidance on the deductibility of certain expenditure in abandonment, decommissioning and rehabilitation activities in a PRRT petroleum project ¶19-003 CHAPTER 20 — R&D • FILMS • CAPITAL WORKS • NRAS • INNOVATION INCENTIVES New laws ▪ To claim expenditure towards the film producer offset, an Australian residency requirement applies to individuals that perform services outside Australia for films that require a foreign location to be used for principal photography from 1 July 2018 ¶20-340 Proposed measures ▪ Legislation has been introduced that will reform the R&D tax incentive for income years starting on or after 1 July 2018 ¶20-160, ¶41-500 ▪ A proposed location incentive of $140m will apply to the Australian film industry over four years from 2019/20 ¶20-350 CHAPTERS 21 & 22 — INTERNATIONAL TAXATION New laws ▪ Australia has signed and ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The measures in the MLI will enter into force for Australia on 1 January 2019 ¶22-165 ▪ The government has enacted the OECD hybrid mismatch rules which specifically target aggressive

structures used by banks and financial institutions for tax minimisation ¶22-640 Proposed measures ▪ The ICC Business Corporation for the International Cricket Council World Twenty20 is exempt from withholding tax in relation to payments of interest, dividends and royalties ¶22-010, ¶22-020, ¶22-030 ▪ The Board of Taxation has recommended a simplified two-step residency test for individuals ¶21-010 ▪ The government has announced that it will amend the existing OBU regime to strengthen its integrity ¶21-080 ▪ The government has introduced a Bill to amend the thin cap rules to prevent double gearing structures, for income years starting on or after 1 July 2018 ¶22-700, ¶41-550 ▪ The government introduced legislation to rewrite the offshore income notice provisions and expand them to apply to all taxes administered by the Commissioner ¶21-220, ¶41-400 ▪ The foreign investment framework will be clarified and simplified with effect from 1 July 2017 to make foreign investor obligations clearer ¶22-002 ▪ A Bill to amend the thin cap rules will require an entity to comply with accounting standards in determining and calculating the value of its assets, liabilities and equity capital ¶22-700, ¶41-500 Cases ▪ A taxpayer was held to be a resident of Australia because he had not established a permanent place of abode in Bahrain (Harding 2018 ATC ¶20-660, appeal pending) ¶21-020 ▪ The controlled foreign corporation rules did not apply to a dual-listed company arrangement (Case 2/2018 2018 ATC ¶1-094) ¶21-140 ▪ A taxpayer was entitled to an offset for only 50% of US tax paid on a US sourced capital gain because only half of the gain was included in his Australian assessable income (Burton 2018 ATC ¶20-674) ¶21680 ▪ Royalty payments received by an Indian resident company from Australian clients had an Australian source under the Australia-India DTA and were assessable in Australia (Satyam 2018 ATC ¶20-671) ¶22030 ▪ The sale of shares in an Australian company by non-residents investing through a Cayman Islands limited liability partnership was not taxable (Resource Capital Fund IV 2018 ATC ¶20-647, appeal pending) ¶22-150 Rulings and guidelines ▪ The ATO has released guidance to assist with determining the tax residency of foreign-incorporated companies (PCG 2018/9) ¶21-040 ▪ The ATO has released the 2018 International Dealings Schedule ¶22-630 ▪ The ATO has released online guidance on the implementation of Country-by-Country (CbC) reporting in Australia ¶22-630 ▪ An entity's debt capital for thin capitalisation purposes must be valued in its entirety in the manner required by the accounting standards (Draft TD 2018/D4) ¶22-700 CHAPTER 23 — FINANCIAL ARRANGEMENTS • TOFA Proposed measures ▪ The TOFA regime will be reformed to reduce its scope, decrease compliance costs, and increase certainty ¶23-020 ▪ The tax hedging regime will be amended to make it easier to access, encompass more types of risk management arrangements, and remove the direct link to financial accounting ¶23-040 ▪ The functional currency rules will be changed to extend the range of entities that can use a functional currency ¶23-070

▪ Integrity provisions in the debt/equity rules will be changed to ensure multiple schemes are treated as a single scheme for the purposes of determining whether there is a debt or equity interest, where this accurately reflects the economic substance of the schemes ¶23-105, ¶23-115 ▪ It is proposed to remove, from 1 July 2018, key barriers to the use of asset-backed financing arrangements, which are supported by assets, such as deferred payment arrangements, and hire purchase arrangements ¶23-200 CHAPTER 25 — ASSESSMENT • AUDIT • COLLECTION Proposed measures ▪ The government proposes to introduce a range of measures to combat phoenix activity ¶25-580, ¶41900 ▪ A Bill containing amendments to strengthen the rules on directors penalties and security deposits has been introduced ¶25-420, ¶25-560, ¶41-400 ▪ Treasury has issued a consultation paper to consider whether the ATO should be allowed to access third party information to investigate tax-related criminal offences and/or historical telecommunications data ¶25-220 CHAPTER 26 — PAYG WITHHOLDING New laws ▪ From 1 July 2018, purchasers of certain new residential real property must withhold an amount equivalent to the GST from the contract price ¶26-330 ▪ Single touch payroll started on 1 July 2018 for substantial employers ¶26-630 ▪ From 1 July 2019 deductions are denied where PAYG withholding obligations are not met ¶26-450, ¶26620 Proposed measures ▪ Several changes to the withholding rules for AMITs have been proposed ¶26-268 CHAPTER 28 — OBJECTIONS • APPEALS Cases ▪ In order to object to valid nil assessments, a taxpayer needs to seek an increase in their liability (ITAA36 s 175A), not the mere possibility of an increase (Case 1/2018 2018 ATC ¶1-093) ¶28-010 ▪ The AAT found that a taxpayer was bound by a settlement that it had reached with the Commissioner and could not recontest settled issues (EE&C Pty Ltd as Trustee for the Tarcisio Cremasco Family Trust [2018] AATA 4093) ¶28-010 ▪ The AAT ordered the Commissioner to produce relevant internal legal advice (ACN 154 520 199 [2018] AATA 33) ¶28-090 CHAPTER 29 — PENALTIES • OFFENCES New laws ▪ New offences and administrative penalties for the production, use and distribution of electronic sales suppression tools to facilitate tax evasion ¶29-310, ¶29-700 Proposed measures ▪ Treasury has issued a consultation paper on proposed measures relating to penalties to combat the black economy ¶29-000 Cases ▪ Failure to respond to a notice to produce documents did not justify an increase in penalty (Bosanac 2018 ATC ¶10-474, appeal pending) ¶29-190 ▪ An ATO letter accepting a lump sum payment to discharge tax liabilities did not evidence the Commissioner's decision to remit all GIC (Pintarich 2018 ATC ¶20-657, Full Fed Ct) ¶29-400

Rulings and guidelines ▪ The ATO will apply penalty relief to inadvertent errors in tax returns and activity statements made by eligible taxpayers that are due to failing to take reasonable care or taking a position on income tax that is not reasonably arguable from 1 July 2018 ¶29-140 CHAPTER 30 — TAX AVOIDANCE • ALIENATION OF INCOME • PSI New laws ▪ Measures to address the black economy have been enacted including banning sales suppression technology, extending the taxable payment reporting system to the road freight, security and information technology sectors, and denying deductions for payments to employees or certain payments to contractors where they have not met PAYG obligations ¶30-005, ¶33-200 Proposed measures ▪ The government proposed a number of measures in the 2018/19 Budget to combat the black economy, including amendments to strengthen the regulatory framework for the Australian Business Number system and a cash payment limit of $10,000 applying to payments made to businesses from 1 July 2020 ¶30-005 ▪ The ATO has requested submissions from the public to help it understand practical tax compliance and record-keeping issues of using cryptocurrencies to conduct financial transactions ¶30-005 ▪ The government has introduced a Bill to widen the definition of a “significant global entity” (SGE), commencing on or after 1 July 2018 ¶30-200, ¶41-500 Cases ▪ The Full Federal Court held that Pt IVA struck down a scheme by a solicitor to avoid tax on legal practice income (Hart 2018 ATC ¶20-653) ¶30-170 ▪ The personal services income (PSI) provisions applied to a partnership between the taxpayer and his spouse which conducted an engineering consulting business (Douglass 2018 ATC ¶10-481, appeal pending) ¶30-665 Rulings and guidelines ▪ The ATO's views on how Pt IVA might apply to restructures to preserve Australian tax benefits in response to the proposed hybrid mismatch rules (PCG 2018/7) ¶30-170 ▪ ATO determination on when activities are “directly in connection with” a supply for the purposes of s 177DA(1)(a) (TD 2018/12) ¶30-200 ▪ LCR 2018/6 provides guidance on some diverted profits tax (DPT) concepts, including exceptions to the DPT ¶30-205 ▪ PS LA 2017/2 explains to ATO staff the administrative process for making a DPT assessment ¶30-205 ▪ PCG 2018/5 provides guidance on the ATO’s approach to risk assessment and compliance activity when a DPT risk is identified ¶30-205 CHAPTER 33 — TAX FILE NUMBERS • AUSTRALIAN BUSINESS NUMBERS • THIRD PARTY REPORTING New laws ▪ From 1 July 2018, the taxable payments reporting system (TPRS) applies to contractors in the courier and cleaning industries ¶33-200 ▪ The TPRS will extend from 1 July 2019 to: security providers and investigation services; road freight tra