At our last meeting. Inside this issue

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1 This newsletter is published by The Young Lawyers of NSW Tax Committee The Tax Committee meets every second Friday of each month to discuss a wide range of topics and issues that have come up in the area of taxation. It is a great opportunity to discuss the latest developments in income tax, GST and stamp duty. At our last meeting Our last meeting was held on Friday 8 April Key issues discussed in the areas of income tax, GST and stamp duty include: Income Tax Update In the income tax update, we discussed the Exposure Draft setting out the re-written CFC rules. By way of background, the CFC rules were designed to prevent deferral of taxation through the use of controlled entities principally in low tax jurisdictions. The new rules apply the same concept and have been revised in accordance with a consultation process. Broadly speaking, certain income of a controlled entity will be attributed to an Australian taxpayer where that entity is controlled by Australian residents and the taxpayer is an attributable taxpayer as defined. The Australian taxpayer will be taxed on the income attributed to it. The most interesting features discussed by the committee in relation to the rules set out in the Exposure Draft are as follows: the drafting of the rules has moved from being extremely prescriptive and objective, to principles based; the operative provisions are at the start of the section, which will be a relief to people seeking to understand the new rules and who are lucky enough to not have to read the old rules; Inside this issue Discussion at previous meeting Exposure Draft of the re-written CFC rules and other developments in the world of tax Recent Submission Submission to Treasury on Exposure Draft to GST Grouping Amendments Tax Resourcing Positions available Other Announcements CLE Update Upcoming social events! Next Meeting: Friday 13 th May 2011

2 Income Tax Update Cont.. the notion of control for the purposes of assessing whether an entity is in fact controlled by an Australian resident for the purposes of applying the CFC rules is to be based on the accounting standards (specifically, the definition of control in AASB 127). The above points raise a number of issues. The committee discussed in particular the concept of control being defined by the accounting standards. Accounting standards are interpreted based on commercial substance rather than legal form which means that they tend to be opaque. It was noted that initially Treasury had intended to use the Corporations Act definition of control which has the benefit of having been applied over a number of years and a reasonable body of case law. It was also noted that the existing rules for determining control are very prescriptive and have not given rise to any litigation since the introduction of the CFC rules almost two decades ago. The committee discussed the accounting standards in relation to TOFA. In particular, whether anyone had any experience regarding any difficulties when applying the accounting standards for the purposes of the taxation law. Committee members noted that there has been some difficulty to date and that although the intention was to harmonise, broadly, the accounting result with respect to Financial Arrangements with the taxation law, this had in fact not necessarily occurred. It was also noted that TOFA applies to the calculation of gains and losses and so it makes more sense to apply or try to apply the accounting rules than it does for the CFC rules. Perhaps the idea is to harmonise the entities listed in the financial reports of the taxpayer as controlled entities with the entities that are CFCs of the tax payer? It was generally agreed that the control test appeared to be extremely weak and difficult to interpret. This only compounds the difficulties that might arise from the CFC rules moving to principles based drafting. Perhaps this will result in the tax office issuing a number of lengthy rulings as proved necessary when GST was introduced (GST is also drafted in accordance with principles based drafting) although the obvious problem remains that it is only the Commissioner, and not the taxpayer, that is bound by these public rulings. Contact Us! If you would like to become a member of the Tax Committee or you would like to find out more about how to get involved, please drop an to Adam at taxlaw.chair@younglawyer s.com.au and one of us will be in contact with you! Tax Committee Details & Editorial Team Adam Ahmed - Chair taxlaw.chair@younglawyers. com.au Grace Ho - Vice Chair taxlaw.vicechair@younglawye rs.com.au Other office bearers of the Tax Committee Adriana Bedon Secretary Priya Gangatharan - CLE Simone Bridges - Communications Officer Pamela Mete - Sponsorship Director Patty Zhang - Student Neil Guo - Bushweb 2

3 GST Update The GST update was on Aurora Developments Pty Ltd v Commissioner of Taxation [2011] FCA 232. This case concerned the going concern provisions in the GST Act. Specifically, the issue was whether Aurora was supplying an enterprise to Australand in the manner required for it to be a going concern and therefore GST-free under the GST law. By way of background, the supply of an enterprise will be a going concern and therefore GST-free if the supplier supplies to the recipient all of the things necessary that are necessary for the continued operation of an enterprise and the supplier carries on or will carry on the enterprise until the day of the supply. In this case, Aurora was supplying certain land that it had originally intended to develop into certain residential premises. Aurora argued that it was supplying an enterprise being the enterprise of the development of land. The Commissioner disagreed and argued that the relevant enterprise had actually been concluded prior to settlement and therefore Aurora was not carrying on the relevant enterprise at the date of supply. The Commissioner took the view that the relevant enterprise under the contract was one of undertaking bulk earthworks. The Court held that Aurora had actually abandoned its enterprise [and notably the Court did not agree with the Commissioner s view on what the relevant enterprise was] and that therefore there was no supply of an enterprise for the purposes of the going concern provisions. The Committees discussion centered around the following issues: the difficulties associated with characterising an enterprise; whether carrying on an enterprise can include actively terminating an enterprise [MT 2006/1]; the clear need to carrying on an enterprise until settlement to ensure that the supply can be the supply of going concern. In relation to the first point, the Committee discussed whether you can characterise an enterprise simply as one of property development and in which case, whether this was simply the continuation of a property development business as a general concept rather than the specific property development that had been planned by Aurora. In relation to the third point, the Committee discussed that it is clearly desirable to ensure that an enterprise is carried on until settlement. One of the issues here was that the Australand had its own plans for the land and did not intend to use any of the plans that Aurora had made. This made it look like Aurora s enterprise had ceased and that it was simply supplying land to Australand which Australand would then use for its own, separate, enterprise. The committee discussed whether there was any other case law dealing with this issue or a similar issue. It was raised that there was an overseas case (either UK or NZ) dealing with a hotel operator that had supplied everything except bookings on the supply of their enterprise. The moral of this case was also that it is imperative to continue to operate the enterprise until the date of the supply. 3

4 Stamp Duty Update Land rich changes SA and QLD The committee discussed the recent announcement in Queensland and South Australia to move from a 'land rich' model, to a landholder model. The committee discussed that this move will align these jurisdictions with the other landholder states being, NSW, WA, ACT and NT. Draft legislation is yet to be released. Case involving refund application The committee discussed the recent NSW Court of Appeal case of Chief Commissioner of State Revenue v ALH Group Property Holdings Pty Limited[2011] NSWCA 32. This case concerned a refund application under section 50(1) of the Duties Act 1997 (on the basis that there was a cancellation of an agreement to transfer dutiable property). Submission to Treasury The court characterised the agreement as an 'assignment of the benefit of a contract to a new purchaser' and not a novation. As such, a refund was not allowed under section 50(1) of the Duties Act Submission to Treasury On 16 February 2011, we lodged a submission with Treasury concerning the Exposure Draft - Tax Laws Amendment (2011 GST Administration Measures No. 1) Bill 2011: GST Groups. Thank you to all those subcommittee members that contributed to this submission. We are always looking for people interested in being part of such submissions. If you are interested, please join the mailing list and keep a look out for announcements! Upcoming Events! We are planning a Tax Careers Seminar for Thursday 7 July 2011 (watch this space for developments!). Please taxlaw.vicechair@younglawyers.com.au if you would like to volunteer at this event. Upcoming CLEs! We are hosting two CLEs over the next few months. 26 May 2010 Important Points of Superannuation Presenters: Denis Barlin (Partner, SBN Lawyers) and Michael Bennett (Lawyer, SBN Lawyers) September 2010 Property Acquisition and Development Presenters: Denis Barlin (Partner, SBN Lawyers) and Michael Bennett (Lawyer, SBN Lawyers) Next Meeting Our next meeting will be on Friday 13 May 2011 at 6.00PM [venue to be announced] We are planning our annual End of Financial Year Party sometime in June. Further details will be circulated once a date and venue has been confirmed. Committee Appointments At the last meeting, Simone Bridges was appointed our new Communications Officer. Simone replaces Andrew Lam who did a good job while he was the Communications Officer. Congratulations Simone! 4

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