TaxTalk Monthly – 1 February 2013
Table of Contents
1
Corporate Tax update ............................................................................................................................... 2
2
Indirect Tax update................................................................................................................................... 5
3
International Tax update .......................................................................................................................... 7
4
Legislative updates ................................................................................................................................... 9
5
Personal Tax update ................................................................................................................................ 11
6
State Taxes update .................................................................................................................................. 12
7
Other news updates ............................................................................................................................... 13
Appendix A
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1
Corporate Tax update
1 February 2013
High Court decision on the meaning of ‘share
capital’ account in buy-back transaction
In Commissioner of Taxation v Consolidated Media
Holdings Ltd [2012] HCA 55, the principal issue for
consideration by the High Court concerned whether a
payment in respect of the buy-back of shares held by
the taxpayer in Crown Melbourne Limited (Crown)
was a ‘dividend’ for income tax purposes (and as such
attracted a dividend rebate), or alternatively, was
‘capital proceeds’ under the capital gains tax (CGT)
rules in respect of the buy-back (with the resulting
consequence that the taxpayer made a capital gain on
the buy-back of the shares bought back by Crown).
The case dealt with the provisions relating to share
buy-backs in Division 16K of Part III of the Income Tax
Assessment Act 1936 (ITAA 1936). Generally, under
those provisions, to the extent that the share buy-back
price is not debited to the ‘share capital account’ of the
company buying back the shares, the amount is
required to be treated as a dividend for income tax
purposes. Additionally, under those provisions, any
part of the price so treated as a dividend (dividend
component) is to be excluded from ‘capital proceeds’ of
the CGT event constituted by the buy-back. The effect
of this is that generally, the dividend component is not
required to be taken into account in determining
whether the shareholder makes a capital gain on the
buy-back of the relevant shares.
The material facts of the case are outlined in our April
2012 edition of TaxTalk
http://www.pwc.com.au/tax/assets/taxtalk/Ta
xTalk-Apr12.pdf which discussed the taxpayer’s
successful appeal to the Full Federal Court
(Consolidated Media Holdings Ltd v Commissioner of
Taxation [2012] FCAFC 36). In that decision, the Full
Court held that the amount had not been debited to the
‘share capital account’ of Crown, and was therefore a
dividend for income tax purposes.
On appeal to the High Court, the Commissioner
successfully argued that the buy-back price had in fact
been debited to Crown’s ‘share capital account’ within
the meaning of the income tax law. Whilst the taxpayer
argued that the debit by Crown of the buy-back price to
Crown’s Share Buy-Back Reserve Account was not a
debit to the ‘share capital account’, the High Court said
that the reference, in the ‘share capital account’
definition, in sub-section 6D(1)(a) of the ITAA 1936 to
“an account which the company keeps of its share
capital” could not, in the light of changes in 1998 to the
Corporations Act 2001 (Corporations Law), namely,
“replacement of the previous notions of a company
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having accounts and accounting records with the
broader and more functional notion of a company
having financial statements and financial
records.....be confined, in the manner suggested by the
Full Court, to the account to which the paid up capital
of the company was originally credited or to one in
which a company ordinarily keeps its share capital on
contribution”.
The High Court went on to state that - “In a context in
which the relevant record-keeping obligation of a
company under Pt 2M.2 of Ch 2M of the Corporations
Law was to keep written financial records that
correctly recorded and explained its transactions and
financial position and performance and that would
enable true and fair financial statements to be
prepared and audited, it was sufficient for an account
to answer the description in s 6D(1)(a) of an ‘account
which the company keeps of its share capital’
(emphasis added) that the account, whether debited or
credited with one or more amounts, be either a record
of a transaction into which the company had entered in
relation to its share capital, or a record of the financial
position of the company in relation to its share
capital.”
Since the amount debited by Crown to the Share BuyBack Reserve Account was a record of the transaction
by which Crown had entered into an executory contract
to reduce its share capital by that amount, the High
Court was satisfied that the Share Buy-Back Reserve
Account answered the description of an account which
Crown kept of its share capital within sub-section
6D(1)(a) of the ITAA 1936. The Share Buy-Back
Reserve Account was therefore a ‘share capital
account’.
For further information in relation to this item contact
Wayne Plummer on (02) 8266 7939.
Foreign dividend received by trust as head of
tax consolidated group exempt from tax
In Intoll Management Pty Ltd v Commissioner of
Taxation [2012] FCAFC 179, the Full Federal Court
found for the taxpayer (Intoll) in an appeal against a
decision by the Commissioner (objection decision)
which rejected the taxpayer’s objection against an
amended income tax assessment issued to the
taxpayer.
Briefly:

Intoll was the trustee of the Macquarie
Infrastructure Trust II (the Trust).
2

Prior to the Trust becoming the ‘head company’ of
a ‘tax consolidated group’ (TCG), the Trust was a
‘public trading trust’ (PTT) for the purposes of
Division 6C of Part III of the Income Tax
Assessment Act 1936 (ITAA 1936).

As a PTT, the Trust made a choice under section
713-130 and section 703-50 of the Income Tax
Assessment Act 1997 (ITAA 1997) to consolidate a
‘consolidatable group’ from 1 July 2003.

By letter dated 11 March 2005, the Commissioner
of Taxation notified Intoll that the Commissioner
had recorded Intoll as the ‘head company’ of a TCG
and that the start date for income tax consolidation
was 1 July 2003. An attachment to the letter listed
the then 15 ‘subsidiary members’ of the TCG.





Under section 713-135 and section 713-140 of the
ITAA 1997, where a trust makes a choice under
s713-130 the ‘applied law’ (which included the
ITAA 1936 and ITAA 1997) it applies to the trust or
trustee in a way corresponding to the way in which
such law applies to a company with appropriate
modifications, including those specified in section
713-140.
At the times relevant to the dispute, Intoll as
trustee of the Trust held shares in two companies
that were resident for tax purposes in countries
outside Australia. Neither of those companies was
a ‘Part X Australian resident’ for the purposes of
sub-section 6(1) and section 317 of the ITAA 1936.
During the 2005 income year these two companies
paid distributions to the Trust (totalling $183
million approximately), with the distributions
being dividends for the purposes of the ITAA 1936
and ITAA 1997.
On 3 April 2006, as the ‘head company’ of a TCG,
the Trust lodged a company income tax return
with the Commissioner and recorded the aggregate
of the dividends referred to above on its Schedule
25A as representing "Section 23AJ - non-portfolio
dividend from foreign countries". In this respect,
the Trust held in excess of 10 per of the ordinary
shares on issue in each company. In the return
lodged, the dividends were thus not included in
assessable income of the Trust on the basis that
section 23AJ of the ITAA 1936 applied to treat the
dividends as not assessable and not exempt
(NANE) income.
The lodgment of the income tax return was a
deemed assessment under section 166A of the
ITAA 1936.
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
On 18 February 2011, the Commissioner issued an
amended assessment to treat the dividends as
assessable income on the grounds that section
23AJ did not apply. The Commissioner's
contention was that whilst the Trust should be
treated as a company and the beneficial owner of
its assets for some purposes (including for
determining whether dividend income was
beneficially derived and thus assessable) this
statutory deeming did not apply for the purposes
of section 23AJ, and specifically the requirement
under that provision that the shares be beneficially
owned.

Intoll objected against the amended assessment
and the Commissioner disallowed the objection.

Intoll appealed the Commissioner's objection
decision to the Federal Court, and by a decision of
the Chief Justice made pursuant to sub-section
20(1A) of the Federal Court of Australia Act 1976 ,
the proceeding was referred to a Full Federal
Court.
The questions for determination by the Full Federal
Court were as follows:


Whether, as Intoll had contended in its objection,
the dividends were NANE income under section
23AJ - The section 23AJ question, and
If section 23AJdid not so apply, whether the
Commissioner was nonetheless bound by Tax
Determination TD 2008/25 (see discussion below)
to treat the dividends as NANE income under
section 23AJ - The Tax Determination question.
The Full Federal Court unanimously found these
questions were each answered in favour of the
taxpayer, the result being that the Commissioner's
objection decision was set aside:
With respect to the section 23AJ question, the Court
made the observation that its task was "principally one
of statutory construction", and then cited High Court
authority for the rule that "in matters of statutory
construction, where the words of the statue (the text)
are clear they have 'paramount significance'." Thus,
according to the Court, "historical considerations and
extrinsic material cannot be relied on to displace the
clear meaning of the text".
In relation to the words in sections 713-135 and 713140 of the ITAA 1997 the Court said that they were
clear, and that they applied equally to section 44 of the
ITAA 1936 (which renders dividend income assessable)
as they do to section 23AJ. Under the modifications
made by sections 713-135 and 713-140:
3

a reference in the applied law to a company
included a reference to the Trust or trustee i.e.
Intoll (as appropriate)

the Trust was no longer covered by a reference in
the applied law to a trust, and

the trustee (i.e. Intoll) was no longer covered by a
reference in the applied law to a trustee.
Thus, according to the Court, it was the Trust, as an
assumed company and as head company of the TCG
that derived the dividends for its own benefit, and
subject to section 23AJ, was thus assessable on the
dividends under section 44 of the ITAA 1936.
With respect to section 23AJ, the Court similarly
applied sections 713-135 713-140 and said that for the
purposes of applying section 23AJ, the Trust was the
beneficial owner of the relevant shares in the foreign
companies. The Court went on to state that even if it
were permissible and appropriate to use extrinsic
materials outside the words of the statute as a guide to
legislative intention, that guide supported the
taxpayer's case and not that of the Commissioner.
Accordingly the Court held that the dividends were
NANE income under section 23AJ.Whilst is was not
necessary for the Court to consider the Tax
Determination question, it did so no doubt because of
the possibility of the Commissioner seeking leave to
appeal the Full Court's decision. The question raised in
Tax Determination 2008/25 is:
"Income tax - can section 23AJ of the Income Tax
Assessment Act 1936 apply to a dividend paid by a
company (not being a Part X Australian resident)
to the trustee of a trust, even where the trustee
then pays an amount attributable to the dividend
to an Australian resident company beneficiary?"
In the Determination the Commissioner rules that:
"Ruling
1. No. Section 23AJ of the Income Tax Assessment
Act 1936 (ITAA 1936) does not apply to a dividend
when it is paid by a company (not being a Part X
Australian resident) to the trustee of a trust, even
where the trustee then pays an amount
attributable to the dividend to an Australian
resident company beneficiary. However, section
23AJ will apply to a dividend that is paid to a trust
which is part of a consolidated group or a multiple
entity consolidated (MEC) group.
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Date of effect
2. This Determination applies to years of income
commencing both before and after its date of issue.
However, the Determination does not apply to
taxpayers to the extent that it conflicts with the
terms of settlement of a dispute agreed to before
the date of issue of the Determination (see
paragraphs 75 to 77 of Taxation Ruling TR
2006/10 Income tax, fringe benefits and product
grants and benefits: Public Rulings). "
The remainder of the Determination contains the
Commissioner's 'explanation' and in submissions to
the Court, the Commissioner argued that the
‘explanation’ qualified and clarified the words in
paragraph 1 of the Determination such that it was clear
that the Determination only applied in respect of
shares held by a trustee as a subsidiary member of a
TCG and thus the Determination could not be relied
upon by the taxpayer in this case i.e. since the Trust
was the head company of the TCG.
The Full Court rejected the Commissioner's
submission and held that the Determination consisted
of the question (in the heading), and the answer to the
question (at paragraphs 1 and 2). In other words, the
‘explanation’ material was not part of the
Determination, and the Commissioner was thus bound
to assess the Trust on the basis that TD 2008/25
applied to treat the dividends as NANE income.
For further information in relation to this case contact
Paul McNab (instructing solicitor for the taxpayer) on
(02) 8266 5640.
For further information, please contact
your usual PwC adviser or:
Tom Seymour
Tel: +61 7 3257 8623
Adam Davis
Tel: +61 3 8603 3022
Warren Dick
Tel: + 61 2 8266 2935.
Scott Bryant
Tel: +61 8 8218 7450
Jeffrey May
Tel: +61 8 9238 3330
Hayden Scott
Tel: +61 7 3257 8678
4
Indirect Tax update
GST and residential premises and commercial
residential premises
On 19 December 2012, the Australian Taxation Office
(ATO) issued the following rulings and determination
on the goods and services tax (GST) treatment of
various supplies of residential premises and
commercial residential premises:

GSTR 2012/5 considers how Subdivision 40-B
(Residential rent) and Subdivision 40-C
(Residential premises) of the A New Tax System
Goods and Services Tax) Act 1999 (GST Act) apply
to supplies of residential premises

GSTR 2012/6 considers how section 9-5,
Subdivision 40-B (Residential rent) and
Subdivision 40-C (Residential premises) of the
GST Act apply to supplies of commercial
residential premises, and supplies of
accommodation in commercial residential
premises

GSTR 2012/7 on how Division 87 and section 4035 of the GST Act apply to supplies of long-term
accommodation in commercial residential
premises, and

GSTD 2012/11 on whether new residential
premises have been used for residential
accommodation before 2 December 1998 for the
purposes of section 40-65(2)(b) of the GST Act,
where the premises were only operated as
commercial residential premises before that date.
GST and telecommunication supplies
On 28 November 2012, the ATO issued four
determinations on the GST treatment of the following
telecommunications supplies made by Australian
resident telecommunication suppliers (and in
particular the circumstances in which those supplies
may be GST-free):

interconnection services (being services that
enable telecommunication suppliers to transfer
calls or internet traffic between each other’s
networks) - GSTD 2012/7

supplies made under arrangements for global
roaming outside Australia – GSTD 2012/8

the supply of a right to capacity in an international
telecommunication network – GSTD 2012/9, and

supplies made under arrangements for global
roaming in Australia – GSTD 2012/10.
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Customs and Excise update
Malaysia-Australia Free Trade Agreement
comes into force
The Malaysia-Australia Free Trade Agreement entered
into force for Australia on 1 January 2013. The
Agreement, implemented domestically by the Customs
Amendment (Malaysia-Australia Free Trade
Agreement Implementation and Other Measures) Act
2012 and the Customs Tariff Amendment (MalaysiaAustralia Free Trade Agreement Implementation) Act
2012 enables goods that satisfy certain rules of origin
to be imported into Australia from Malaysia at
preferential rates of customs duty.
Tariff concession orders (TCOs) - certain goods
for use in the underwater gas and oil industry
In Cameron Australasia Pty Ltd and Chief Executive
Officer of Customs[2012] AATA 865 , the
Administrative Appeals Tribunal (AAT) affirmed a
decision by the Chief Executive Officer of Customs to
reject an application for the refund of customs duty in
relation to the importation of certain umbilicals wound
on reelers, for use in the underwater gas and oil
industry. The AAT held that the TCOs relied on by the
taxpayer specified umbilicals, whereas the subject
goods were umbilicals with reelers, and accordingly
did not fit exactly within the description of the TCOs in
question.
Liquid fuels opt-in scheme - final Regulations
registered
The Clean Energy Amendment Regulation 2012 (No
7), registered on 10 December 2012, amends the Clean
Energy Regulations 2011 to (among other things)
establish the liquid fuels Opt-in Scheme. The Scheme,
available from 1 July 2013, will allow large liquid fuel
users to opt-in to the carbon pricing mechanism rather
than paying an equivalent carbon price under the fuel
tax system (via reduced fuel tax credits or, in the case
of aviation fuel, via increased excise or excise
equivalent customs duty). The Regulations were
previously released in draft for public comment.
Fuel tax credits for fuel used in hired out
vehicles
In Gem Plant Hire Pty Ltd ATF The Condello Family
Trust [2012] AATA 852, the AAT held that a taxpayer
who hired out fuelled vehicles to another entity was
entitled to claim fuel tax credits as it acquired the fuel
for use in carrying on its enterprise. The Tribunal
found that the words "to the extent that you do so for
use in carrying on your enterprise" in section 41-5 of
the Fuel Tax Act 2006 do not impose a requirement
5
that the use is to be only or exclusively by the taxpayer
in question in a personal sense. That is, section 41-5 is
not expressed to restrict the credit entitlements it
creates by reference to the identity of the entity
operating the machines which consume the fuel. The
AAT found that the provision is expressed in terms
wide enough to contemplate use by actions of another
entity so long as the use is in carrying on the enterprise
of the taxpayer in question, whether or not the use
might also be in carrying on another taxpayer’s
enterprise.
Low value imports
The Government has announced the release of its
interim response to the Low Value Parcel Processing
Taskforce Report, which considers various reforms
including simplification of customs duty and/or GST
processes for low value imports. While the $1,000 low
value threshold will not immediately be reduced, the
Government will begin planning for reforms to low
value parcel processing, with the aim of ensuring that
any potential reduction of the threshold is cost
effective.
Further anti-dumping changes announced
Following the release of the final report of the Brumby
Anti-Dumping Review, the Government announced
further reforms to Australia's anti-dumping system.
These proposals are in addition to measures which
arose from the Streamlining Australia’s Anti-Dumping
System policy announced in June 2011. The proposed
amendments unveiled by the Government on 4
December 20012 will:
For further information on these developments,
contact Gary Dutton on (07) 3257 8783.
For further information, please
contact your usual PwC adviser or:
Peter Konidaris
Tel: +61 (3) 8603 1168
 establish a new Anti-Dumping Commission to
Adrian Abbott
Tel: +61 (2) 8266 5140
 boost funding to Customs by $24.4 million over
Suzi Russell
Tel: +61 (2) 8266 1057
investigate complaints
four years so it can deal with cases speedily and
fairly – this is expected to almost double the
number of investigators
 make the anti-dumping system easier for small and
medium-sized businesses, and
 introduce stricter remedies against overseas
producers who deliberately circumvent Australia’s
anti-dumping rules.
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Michelle Tremain
Tel: +61 (8) 9238 3403
Amanda Hocking
Tel: +61 (8) 8218 7082
Ross Thorpe
Tel: +61 (8) 9238 3117
6
International Tax update
Papua New Guinea: 2013 Budget
The Papua New Guinea (PNG) 2013 Budget was
handed down on 20 November 2012 with the theme of
the 2013 Budget being "Sharing the Wealth and
Empowering our People".
Key components of the 2013 Budget include:
 The 2013 Budget is projecting a deficit of 2.5billion
Kina and another deficit of 2.3billion Kina in 2014.
 Economic growth is forecast to decline slightly to
7.2 per cent in 2013, while inflation is forecast to be
8 per cent in 2013.
 As with the prior year, the 2013 Budget continues to
recognise the significance of the PNG Liquefied
Natural Gas (LNG) Project as a driver of economic
growth.
 The Government has reiterated its commitment to
the establishment of a sovereign wealth fund to
address the downside macroeconomic risks
associated with large scale projects such as the PNG
LNG Project.
 A focus on raising revenues, particularly in light of
the recently announced increase in costs for the
LNG project.

to disregard some shareholder debt when
calculating the global indebtedness of the foreign
investor. At the moment this debt can be included
and used to justify a high level of indebtedness in
New Zealand which can then be used to offset tax
liability.
Submissions on the issues paper, which can be found
at www.taxpolicy.ird.govt.nz, close on 15
February, 2013.
Final FATCA Regulations
On 17 January 2013 the United States (US)
Department of Treasury issued final Regulations
implementing the information and reporting and
withholding tax provisions commonly known as the
Foreign Account Tax Compliance Act (FATCA).
For further information contact Peter Kennedy on (02)
8266 3100.
India: Deferral of taxation GAAR start date
The Indian Finance Minister has now made a formal
announcement indicating the Indian Government's
intent to make changes to the taxation general anti
avoidance rule (GAAR) and to defer the start date to 1
April 2015 (the proposed start date was originally set
as 1 April 2013).
 Major commitment to sustained planning, design,
For further information see our Asia Pacific Tax
Newsalert at
http://www.publications.pwc.com/DisplayFile.
aspx?Attachmentid=6315&Mailinstanceid=264
81.
For information on PNG taxation matters, contact
David Caradus at david.caradus@pg.pwc.com.
United Kingdom: report on corporate tax and
multinationals
New Zealand: Changes to thin capitalisation
rules
On 28 November 2012 the United Kingdom (UK)
Public Accounts Committee issued its annual report
into the activities of the HM Revenue and Customs
(HMRC) where the principal focus of its enquiry was
on the declining corporate taxes paid by multinational
companies using offshore arrangements. One of the
recommendations made is that the HMRC needs to be
seen to challenge practices to prevent abuse of transfer
pricing, royalty and interest payments and intellectual
property pricing.
costing and implementation of key Nation Building
Productive Infrastructure Investments.
On 14 January 2013, Inland Revenue New Zealand
released an issues paper outlining proposed changes to
New Zealand’s thin capitalisation rules. The main
proposals are:

to extend the current rules to apply also to New
Zealand businesses controlled by a group of nonresidents acting together. The rules currently apply
only if a single non-resident controls the business,
and
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This report is timely given the Australian
Government's recent announcement that it has
requested Treasury to examine multinational tax
minimisation strategies and its risks to the
sustainability of Australia's corporate tax base.
7
For further information, please
contact your usual PwC adviser or:
Peter Collins
Tel: +61 (3) 8603 6247
Christian Holle
Tel: +61 (2) 8266 5697
Graham Sorensen
Tel: +61 (7) 3257 8548
Amanda Hocking
Tel: +61 (8) 8218 7082
Alistair Hutson
Tel: +61 (8) 8218 7467
www.pwc.com.au
8
Legislative updates
Commonwealth revenue measures since our last
update include:
International Tax Agreements Amendment Bill 2012,
introduced into Parliament on 29 November 2012,
proposes to give the force of law to tax treaties with the
Marshall Islands (signed on 12 May 2010) and
Mauritius (signed on 8 December 2010), and to a
protocol to the tax treaty with India (signed on 16
December 2011).
Tax Laws Amendment (2012 Measures No 6) Bill
2012, introduced into Parliament on 29 November
2012 includes amendments to:

treat native title benefits as non-assessable nonexempt income i.e. and not subject to tax;

extend the deductibility of exploration expenditure
to geothermal energy explorers;

extend the exemption from the interim trust
income streaming provisions for managed
investment trusts until the end of the 2013-14
financial year;

apply an income test to the rebate for medical
expenses from 1 July 2012;

change the definition of limited recourse debt in
the ITAA 1997;

remove the concessional Fringe Benefits Tax (FBT)
treatment for in-house fringe benefits provided
under salary packaging arrangements;

add new Deductible Gift Recipients; and

make miscellaneous amendments to other tax
laws.
Income Tax Assessment Amendment Regulation 2012
(No. 2) registered on 11 December 2012 is designed to
remove uncertainty concerning the tax treatment of
certain hybrid capital instruments (that is, capital
instruments that have both debt and equity
characteristics) as a result of Australia’s
implementation of the Basel III capital reforms and
insurance capital reforms.
The purpose of the Regulation is to facilitate debt tax
treatment of certain capital instruments issued by
entities that are regulated, either directly or as part of a
group, for prudential purposes by the Australian
Prudential Regulatory Authority (APRA) and comply
with the new Tier 2 capital requirements, including the
non-viability condition.
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Superannuation Legislation Amendment (Reducing
Illegal Early Release and Other Measures) Bill 2012
and Income Tax Rates Amendment (Unlawful
Payments from Regulated Superannuation Funds)
Bill 2012, introduced into Parliament on 29 November
2012 includes amendments to provide civil and
criminal penalties for the promotion of
superannuation early release schemes and a penalty
income tax rate of 45 per cent for unlawful payments
from regulated superannuation funds.
The Bill also includes provisions which will require
that superannuation benefits that are rolled over into
self-managed superannuation funds (SMSFs) are
captured as a designated service under the AntiMoney Laundering and Counter-Terrorism Financing
Act 2006. The Bill also proposes to amend the
Superannuation Industry (Supervision) Act 1993 and
Taxation Administration Act 1953 to provide for
administrative directions and penalties for
contraventions relating to SMSFs.
Fuel Tax Act 2006 – Correcting Fuel Tax Errors
Determination (No 1) 2012 registered 28 November
2012, allows taxpayers to correct errors made in earlier
tax periods by including the amounts in calculating
their net fuel amount for a later period. The
Determination applies to calculations of net fuel
amounts for tax periods commencing on or after 1 July
2012 and ceases 2 years after it commences.
Customs Amendment (Miscellaneous Measures) Bill
2012, introduced into Parliament on 28 November
2012, amends the Customs Act 1901 (Customs Act) to
introduce an offence for bringing into Australia a new
category of goods known as ‘restricted goods’, and
makes a number of technical amendments including
changes to the definition of ‘production assist costs’ for
Customs valuation purposes.
‘Restricted goods’ are goods that, if imported, would be
prohibited goods, and that are prescribed by the
regulations for the purposes of the definition.
The changes to the definition of ‘production assist
costs’ are intended to ensure consistency with the
World Trade Organization (WTO) Valuation
Agreement, which attributes a reasonable value to the
material supplied by the buyer to the seller for use in
the production of imported goods, and includes that
value in the Customs value despite the fact that the
buyer acquired the material from a third party at zero
cost.
Customs (Malaysian Rules of Origin) Regulation 2012
registered on 12 December 2012 prescribes matters
relating to the rules of origin which are required to
9
fulfil Australia's obligations under the MalaysiaAustralia Free Trade Agreement.
Customs Tariff Amendment (Schedule 4)
Proclamation 2012 registered on 26 November 2012
has fixed 1 March 2013 as the day on which the
provisions of the Customs Tariff Amendment
(Schedule 4) Act 2012 commence. The Act amends
Schedule 4 of the Customs Tariff Act 1995 to simplify
Australia's tariff concession regime.
Customs Amendment Regulation 2012 (No. 10)
registered on 11 December 2012 amends the Customs
Regulations 1926 to prescribe new refund
circumstances in respect of goods imported into
Australia from Malaysia, in order to fulfil Australia's
obligations under the Malaysia-Australia Free Trade
Agreement which was signed on 22 May 2012 and
entered into force for Australia on 1 January 2013.
Excise (Volume - residual oil) Determination 2012
(No. 1) registered on 7 December 2012 specifies the
methods available for determining the volume of
excisable residual oil produced and consumed within
an excise licensed establishment, by a licensed
manufacturer, in the course of refining petroleum
condensate or stabilised crude petroleum oil.
Private Health Insurance Amendment (Lifetime
Health Cover Loading and Other Measures) Bill 2012,
introduced Parliament on 28 November 2012,
proposes to amend the Private Health Insurance Act
2007 to:


The Bill also proposes to make consequential
amendments to the Income Tax Assessment Act 1936
(ITAA 1936), the Income Tax Assessment Act 1997
(ITAA 1997) and the Taxation Administration Act
1953.
Schoolkids Bonus Determination 2012, made by the
Minister for Families, Community Services and
Indigenous Affairs and Minister for Disability Reform
and registered 20 December 2012, prescribes eligible
activities for the purposes of Schoolkids Bonus and the
circumstances in which payments can be made for
individuals who complete secondary education and the
payment amount for this group.
For further information, please contact
your usual PwC adviser or:
Tom Seymour
Tel: +61 7 3257 8623
Adam Davis
Tel: +61 3 8603 3022
Warren Dick
Tel: +61 2 8266 2935
Scott Bryant
Tel: +61 8 8218 7450
Jeffrey May
Tel: +61 8 9238 3330
remove the Private Health Insurance Incentive
Benefit (the rebate) from the Lifetime Health
Cover loading component of affected private health
insurance premiums, and
cease the Incentive Payments Scheme which allows
people to claim the rebate as a direct payment.
www.pwc.com.au
10
Personal Tax update
Ruling on tax treatment of amounts received
for legal fees following a dispute over
termination
On 28 November 2012 the Commissioner of Taxation
published Taxation Ruling TR 2012/8 which sets out
the Commissioner's view regarding the assessability of
amounts received in respect of legal costs in disputes
concerning termination of employment.
The principle matter addressed in the Ruling is
whether the amount received is an eligible termination
payment (ETP) for income tax purposes.
In summary, the Commissioner is of the view that an
amount received in relation to a dispute concerning
termination of employment is not an ETP, nor forms
part of an ETP, where the amount is capable of being
identified as relating specifically to the reimbursement
of legal costs.
However, if the amount of a settlement or Court award
received is a lump sum, where the component of the
receipt that relates to legal costs has not and cannot be
determined, then the whole amount is treated as being
received in consequence of termination of employment
and thus an ETP.
In addition, it is the Commissioner's view that where a
deduction for legal costs is available to the recipient
under section 8-1 of the Income Tax Assessment Act
1997 (ITAA 1997), a settlement or award in respect of
legal costs will be included in the recipient's assessable
income as an assessable recoupment under
Subdivision 20-A of the ITAA 1997.
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With respect to Fringe Benefits Tax (FBT) the
Commissioner is of the view that a reimbursement of
legal costs incurred due to a dispute regarding
termination of employment will not have sufficient or
material connection to the former employment to fall
within the meaning of 'fringe benefit' in sub-section
136(1) of the Fringe Benefits Tax Assessment Act 1986.
For further information, please
contact your usual PwC adviser or:
Bruce Ellis
Tel: +61 (3) 8603 3303
Paul Brassil
Tel: +61 (2) 8266 2964
Alice Kase
Tel: +61 (2) 8266 5506
Cesare Scalise
Tel: +61 (8) 9238 3417
Chris Lowe
Tel: +61 (7) 3257 8561
Michael Browne
Tel: +61 (8) 8218 7858
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State Taxes update
New South Wales: increase in coal royalty
With effect from 1 December 2012, the New South
Wales (NSW) Government has prescribed by
Regulation (Mining Amendment (Coal Royalty)
Regulation 2012), an additional rate of royalty on coal
that will be payable only by those holders of mining
leases who are liable to pay minerals resource rent tax
(MRRT) under the Minerals Resource Rent Tax Act
2012 of the Commonwealth.
According to the Explanatory Note to the Regulation
made by the NSW Minister for Resources and Energy,
the additional rate of royalty is prescribed by reference
to the impact of the pricing of carbon regime (often
described as the ‘carbon tax’) imposed by the
Commonwealth’s Clean Energy Act 2011, and
associated legislation, on the finances of the State of
NSW.
www.pwc.com.au
For further information, please
contact your usual PwC adviser or:
Barry Diamond
Tel: +61 (3) 8603 1118
Costa Koutsis
Tel: +61 (2) 8266 3981
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Other news updates
Board of Taxation: Division 7A review
The Board of Taxation is presently conducting a postimplementation review of Division 7A of Part III of
the Income Tax Assessment Act 1936 (Division
7A).the terms of reference being:

to examine whether Division 7A gives effect to
this policy intent

to examine whether there are any problems with
the current operation of Division 7A, including its
interaction with other areas of the tax law, that
are producing unintended outcomes or
disproportionate compliance and administration
costs, and

to the extent that there are problems, recommend
options for resolving them so that, having regard
to the policy intent of Division 7A and potential
compliance and administration costs, the tax law
operates effectively.
the member protection standards in the
Commonwealth’s Superannuation Industry
(Supervision) Regulations 1994.
Under the existing member protection standards,
superannuation accounts with small balances are
generally protected from unnecessary fees and
charges. However, from 1 July 2013 the MySuper fees
rules will help protect members from unnecessary
fees and charges (the rules will require that all
MySuper members be charged fees on the same basis
with respect to their MySuper interest), and small
inactive superannuation accounts will be protected
from being eroded by fees and charges by being
transferred to the Australian Taxation Office until
reclaimed.
The repeal will have effect from 1 July 2013.
Exposure draft of TOFA amendments
The closing date for submissions is 15 February 2013.
The Government has released for public consultation,
exposure draft legislation which proposes
amendments to the taxation of financial arrangement
(TOFA) rules as announced on 29 June 2010.
For further information in respect of the review or the
operation of Division 7A, contact Kel Fitzalan on (02)
8266 1600.
The amendments are proposed to apply from 26
March 2009 (immediately after the original TOFA
stage 3 and 4 provisions commenced).
Timetable for final stage of IMR legislative
reform
Submissions are due by Wednesday, 13 February
2013.
On 21 December 2012, the Minister for Financial
Services and Superannuation announced the
Government’s intention to introduce the final element
of the Investment Manager Regime (IMR) into
Parliament in the first half of 2013.
The amendments contain measures relating to the
TOFA core rules, transitional rules, elective
requirements for Australian branches of foreign banks
and the accruals and realisation, fair value and
hedging financial arrangements methods.
The Minister said that after consultation with
industry “the Government will make legislative
amendments to allow funds to trace through to
underlying investors for the purposes of applying the
widely held and concentration tests." In his media
release the Minister explained that the changes will
mean that when so-called 'feeder funds' invest in
Australia, the number of underlying investors in the
fund will count towards meeting the requirements to
qualify as widely held.
The proposed amendments include:
For further information contact Ken Woo on (02)
8266 2948.
Draft regulation on repeal of superannuation
member protection standards
The Government has released for public consultation,
an exposure draft of regulation amendments to repeal
www.pwc.com.au

clarification that, when working out whether
there is an overall gain or loss from a financial
arrangement, regard is to be had to financial
benefits that might be received or provided (i.e.
uncertain financial benefits)

measures ensuring that, in appropriate (but
limited) circumstances, a financial benefit can be
attributable to interest or interest-like amounts

clarification that taxpayers should be able to have
a sufficiently certain particular gain or loss even
if there are financial benefits that are not
sufficiently certain or where no sufficiently
certain overall gain or loss exists
13

further to the above point, refining the rules such
that the particular gain or loss approach applies
as the default method (rather than the overall
gain or loss approach), but taxpayers can choose
to apply the accruals method to the overall gain or
loss

rules to clarify when a gain or loss from a
financial arrangement is realised

refinements to the application of the provisions to
prepayments (ensuring closer alignment between
tax and commercial outcomes)

measures ensuring alignment between the tax
treatment of impairment and reversal of an
impairment (given the possibility under current
rules that whilst a re-estimation of the gain or loss
arising from a financial benefit would not give rise
to a deductible loss, a re-estimation on reversal of
that impairment can give rise to an assessable
gain)

changes to the transitional rules to ensure that the
'short cut' transitional method can only be used if
the relevant amount from the taxpayer’s financial
reports has been recognised in profit or loss in
accordance with accounting principles

measures to ensure foreign bank branches in
Australia can use their ‘APRA accounts’ to satisfy
eligibility requirements for making TOFA
elections


changes to ensure the fair value election will apply
to gains or losses arising from fair value
movements of financial arrangements that are
recorded in profit or loss for financial accounting
purposes (even if relevant financial arrangements
are not classified or designated as fair value
through the profit or loss in accordance with the
accounting standards)
changes to the hedge rules to ensure the 'one-in,
all-in' rule operates as intended and also to
extend the rules in relation to net investments in a
foreign operation (NIFO) to include interests
other than shares
For further information contact Gavin Marjoram on
(02) 8266 0576.
Exposure draft of company law amendments
The Government has released for public consultation,
exposure draft legislation which proposes
amendments to the laws applicable to corporations
including:
www.pwc.com.au

amending the Corporations Act 2001 (Cth) to
enhance the disclosure of executive remuneration

amending the test in the above Act for the
payment of dividends (the dividends test) so as:
 to allow companies to either declare or
pay a dividend
 to link the dividends test to company
solvency, and
 to allow non-reporting entities to calculate
assets and liabilities with reference to
financial records when applying the
dividends test; and

removing the requirement for some small
companies limited by guarantee to appoint
auditors if they are not obliged to have their
financial reports audited.
In relation to the dividends test, since the proposed
changes simply modify the circumstances in which a
company is prohibited from declaring or paying a
dividend, it is unlikely that changes, if enacted in their
present form, will alter the position of the
Commissioner of Taxation as set in Taxation Ruling
TR 2012/5. (see our TaxTalk Monthly: July 2012
http://www.pwc.com.au/tax/taxtalk/assets/m
onthly/pdf/Corporate-Tax-Update-Jul12.pdf
Corporate Tax and our Alert from 28 June 2012 :
http://www.pwc.com.au/tax/taxtalk/alerts/co
nsolidations/index.htm).
Submissions on the exposure draft close on 15 March
2013.
For further information on the dividends test and the
proposed amendments to the test, contact Wayne
Plummer on (02) 8266 7939.
Film tax offsets: definition of a ‘documentary’
The Assistant Treasurer has released draft legislation
for inserting a definition of ‘documentary’ into the
taxation law, for purposes of the film tax offsets.
The draft legislation:

defines documentary as a creative treatment of
actuality other than an infotainment program,
lifestyle program or magazine program, and

requires that Screen Australia, the body
administering the Producer Offset, consider the
extent and purpose of any contrived situation
featured in the film, the extent to which the film
explores an idea or theme and the extent to which
the film has an over-arching narrative structure,
14
when determining whether the film is considered
to be a documentary.
The draft legislation also adds ‘game show’ to the list
of light entertainment programs explicitly excluded
from eligibility for the film tax offsets.
For further information contact Eddy Moussa on (02)
8266 9156.
Specialist Reference Group on multinational
corporate taxation.
In Mid December 2012, the Assistant Treasurer
announced the members of the special reference
group which will provide assistance to Treasury in
respect of Treasury's examination of multinational tax
minimisation strategies and the risks to the
sustainability of Australia's corporate tax base.
According to the Assistant Treasurer’s media release,
the members of the group, which includes PwC
Partner, Michael Bersten, have been appointed to the
group in their personal capacity, based on their high
level of expertise in this area, rather than as
representatives of particular organisations.
In his media release the Assistant Treasurer said that
he had asked Treasury, led by Revenue Group head
Rob Heferen, to begin work on a scoping paper that
will set out the risks to the sustainability of Australia's
corporate tax base from multinational tax
minimisation strategies and identify potential
responses. The media release goes on to state that “a
key role of the specialist reference group - and the key
focus of the Treasury paper - will be to build
community understanding of the nature of the
challenges we face.”
The first of several meetings of the reference group
are to be held in February 2013 with the Government
proposing to release the Treasury scoping paper for
public consultation in the middle of 2013.
Penalty unit increase
With the enactment of Crimes Legislation
Amendment (Serious Drugs, Identity Crime and
Other Measures) Act 2012 and Royal Assent on 28
November 2012, the value of a Commonwealth
‘penalty unit’ has increased from $110 to $170. The
Act also introduced a requirement for a triennial
review of the ‘penalty unit’.
This penalty unit will apply to a number of
administrative penalties under the Taxation
Administration Act 1953 (Cth) including the failure to
lodge on time penalty.
www.pwc.com.au
The Australian Taxation Office has advised that the
increase will be effective for breaches that occur on or
after 28 December 2012 being the commencement
date of the change in value of the ‘penalty unit’.
Tax issues on foreign investment in
Australian agriculture
The Senate’s Rural and Regional Affairs and
Transport References Committee has issued an
interim report – ‘Tax Arrangements for Foreign
Investment in Agriculture and the Limitations of the
Foreign Acquisitions and Takeovers Act 1975’
In its interim report, the Committee, whilst
recognising the significant wealth and job creating
benefits that foreign investments can bring to the
Australian economy as well as to the continued
development of the agriculture sector, also notes and
shares the significant concerns of many of Australia's
rural and regional communities that certain recent
trends in foreign investment in Australian agriculture
are not necessarily in Australia's national interest.
In its interim report the Committee made the
following recommendations:
Recommendation 1: that in order to prevent tax
revenue leakage and market distortions, the
Government undertake an extensive review of the tax
arrangements applying to foreign investments and
acquisitions in the agricultural sector.
Recommendation 2: that as part of the broader review
outlined in Recommendation 1, the Government
should review Australia's tax laws that apply to tax
exemptions for not-for-profit activities for foreign
entities. The review should examine ways to prevent
tax revenue leakage when foreign government entities
undertake agricultural production in Australia for
humanitarian purposes or for food security.
Recommendation 3: that the Government require that
any non-commercial production from agricultural
land and businesses by foreign government entities
(including for the purposes of food security) is
undertaken within relevant Australian Government
foreign aid programs.
Recommendation 4: that as part of the broader review
outlined in Recommendation 1, the Government
should investigate ways of developing more rigorous
tax liability arrangements for both governmentowned and private foreign entities, particularly in
relation to capital gains and passive income. In this
regard, further efforts should be considered to limit
the scope for foreign investors to use business
structures, and other possible loopholes, not available
15
to domestic competitors in order to reduce their tax
burden.
SMSF in specie, either for consideration or as a
contribution.
Recommendation 5: that as part of the broader review
outlined in Recommendation 1, the Government
review the tax barriers for Australian organisations
that limit Australian investment in long-term
development projects in Australian agriculture. The
review should explicitly compare tax arrangements
for domestic entities to those faced by potential
foreign investors in Australian agriculture. The review
should also consider possible reforms of tax
regulation to improve incentives for Australian capital
investment in agriculture.
For further information on this measure contact Alice
Kase on (02) 8266 5506
Recommendation 6: that the Government undertake
a review of the Foreign Acquisitions and Takeovers
Act 1975 (the Act) with the aim of developing
proposed amendments that address contemporary
issues of foreign investment, particularly in
agriculture. The review should specifically consider:
New Chair to the Board of Taxation
The Government has appointed Mrs Teresa Dyson as
Chair of the Board of Taxation. The appointment is
part-time and is for a two-year period from January
2013. Mrs Dyson replaces Mr Chris Jordan AO, who
has been appointed as the Commissioner of Taxation.
Streamlined capital raising legislation
The Government has released an exposure draft of
amendments to the Corporations Act 2001 to
streamline the regulatory requirements for issuing
simple corporate bonds to retail investors. The
reforms:

the definition of 'rural land' and 'urban land'


drawing a distinction between the treatment of
rural land and agricultural business, and
introduce a streamlined two-part disclosure
regime for offers of simple corporate bonds

make changes to the civil liability provisions in
respect to corporate bonds issued to retail
investors, and

clarify the application of the defences in respect to
misleading and deceptive statements and
omissions in disclosure documents relating to
corporate bonds issued to retail investors.

any limitations that the Act may place, either
explicitly or implicitly, on the Foreign Investment
Review Board's ability to effectively review the
level and nature of foreign investment activities in
Australia.
Acquisitions and disposals of certain assets
by SMSFs and related parties
The Government has released for public consultation
an exposure draft of legislation relating to
acquisitions and disposals of certain assets between
self managed superannuation funds (SMSFs) and
related parties. Under the proposed changes, the
superannuation law will be amended so that
acquisitions and disposals of assets between related
parties and SMSFs must be supported by a valuation
from a suitably qualified independent valuer. A
specific methodology will also apply in relation to
transactions involving listed securities. Further detail
will be included in regulations to be released
subsequently. The measure is to apply from 1 July
2013.
The Government had previously announced its
intention to ban the off-market transfers of assets
between SMSFs and related parties, where an
underlying market exists. The proposed measure
represents a welcome alternative to this approach.
These new requirements are likely to add to the time
and cost involved in asset transfers, particularly
where a member wishes to transfer an asset to their
www.pwc.com.au
The closing date for submissions is 15 February 2013.
Trans-Tasman economic relations
The Productivity Commissions of Australia and New
Zealand have delivered the final report to their
respective Government containing findings and
recommendations for strengthening trans-Tasman
economic relations.
The report identifies a range of policy initiatives to
strengthen trans-Tasman economic relations in ways
that could yield joint net benefits to each country
With respect to the mutual recognition of dividend
imputation credits, the report states that “mutual
recognition of tax imputation credits (MRIC) on
trans-Tasman investment could expand investment
and bring efficiency gains, but would involve sizeable
fiscal losses and income transfers, which are more
likely to leave Australia worse off.”
The report thus recommends that the two
Governments should either initiate a process for
16
determining whether there is an efficient, equitable
and robust mechanism to ensure a satisfactory
distribution of the gains from MRIC; or announce
that MRIC will not go ahead if such a mechanism is
considered infeasible.
ATO concession for businesses in bushfire
areas
The Australian Taxation Office (ATO) has extended
the deadline for lodgement of activity statements (and
payment of applicable tax) for taxpayers with a
business or residential address in an area specified by
the ATO (the specification is by postcode) as having
been affected by bushfires.
The concession, which applies to monthly December
2012, January 2013 and February 2013 activity
statements and also to the quarterly December 2012
activity statement is not however available for ‘large
withholders’ nor in respect of super guarantee
payments.
Amendments to the PRRT legislation
On 14 December 2012, the Government announced
that it would introduce amendments to the Petroleum
Resource Rent Tax (PRRT) legislation to address
problems arising from the Full Federal Court's
decision in Esso Australia Resources Limited v
Federal Commissioner of Taxation (Esso).
The Esso case considered the deductibility of certain
third party service fees. It was particularly
contentious because of the narrow interpretation the
Federal Court applied in determining the deductibility
of such charges. It had been widely recognised that
application of the Court’s interpretation in Esso could
result in many taxpayers being unable to deduct
legitimate expenditures for PRRT purposes.
The amendments will be subject to an industry
consultation process prior to being introduced into
Parliament.
For further information, please contact
your usual PwC adviser or:
Tom Seymour
Tel: +61 7 3257 8623
Adam Davis
Tel: +61 3 8603 3022
Warren Dick
Tel: +61 2 8266 2935
Scott Bryant
Tel: +61 8 8218 7450
Jeffrey May
Tel: +61 8 9238 3330
© 2012 PricewaterhouseCoopers. All rights reserved. In this
document, “PwC” refers to PricewaterhouseCoopers a partnership
formed in Australia, which is a member firm of
PricewaterhouseCoopers International Limited, each member firm
of which is a separate legal entity. The information in this
publication is provided for general guidance on matters of interest
only. It should not be used as a substitute for consultation with
professional accounting, tax, legal or other advisers. This document
is not intended or written by PricewaterhouseCoopers to be used,
and cannot be used, for the purpose of avoiding tax penalties that
may be imposed on the tax payer. Before making any decision or
taking any action, you should consult with your regular
PricewaterhouseCoopers’ professional. No warranty is given to the
correctness of the information contained in this publication and no
liability is accepted by the firm for any statement or opinion, or for
any error or omission.
As a consequence, the Government will introduce
retrospective amendments that “largely re-affirm the
ATO's historic application of the PRRT law”. In
particular, the amendments are intended to ensure
that:

contract liabilities can be apportioned if only part
of that liability represents “eligible” PRRT
expenditure.

in assessing the deductibility of contractor
expenditure, reference to what the contractor
actually spends the contract payments on (i.e. a
look through approach) will only be required to
the extent the contract is with a related entity
(including a joint venture partner).
www.pwc.com.au
17