ItemReducing tax complexity: quick reference cards for tax practitioners(LexisNexis, 2015-02) Kenny, PaulOvercoming complexity in the tax system is one of the major challenges for the profession as well as the community. This article looks at the development of quick reference guides (QRGs) that seek to improve simplicity by synthesising the volume of law and cases. This improves the application of tax law and thus reduces the operating costs for practitioners, government and the community. ItemAllowable deductions, cost base of CGT assets and the GAAR: a minefield for taxpayers and their advisers(LexisNexis, 2014-10) Xynas, Lidia; Blissenden, Michael; Villios, Sylvia; Kenny, PaulTaxpayers and their advisers have, for decades, struggled to reconcile outgoings that can be considered as allowable deductions under s 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 97), with those outgoings which may be included in the cost base of a Capital Gains Tax (CGT) asset.1 In this article we briefly examine Hart’s case2 and the subsequent Taxation Determination TD 2005/33 issued by the Australian Tax Office (ATO). This Tax Determination sets out the Commissioner’s view regarding the inclusion (or non-inclusion) of non-capital costs of ownership of a CGT asset in its cost base where such outgoings had been previously denied deductibility under the general deduction provisions3 of the ITAA 97 by virtue of the general anti-avoidance rule (GAAR) under Pt IVA of the Income Tax Assessment Act 1936 (Cth) (ITAA 36). ItemReducing the company tax rate and abolishing the MRRT: a step forward or back?(LexisNexis, 2014-12) Villios, Sylvia; Xynas, Lidia; Kenny, Paul; Blissenden, MichaelThe Australia’s Future Tax System Review,1 commonly referred to as the Henry Tax Review (the Review) has been “one of the most comprehensive reviews of the tax and transfer system” ever undertaken in Australia.2 The overall aim of the Review was to restructure the way in which the government collects taxes so as to place the nation in a position where it could effectively deal with “its social, economic and environmental challenges and enhance economic, social and environmental well-being”.3 As a product of the review, Recommendations 27 and 45 have gained political and economic attention, suggesting a reduction of the company tax rate coupled with improved arrangements for charging for the use of non-renewable resources via a “uniform resource rent tax”.4 The first part of this paper will evaluate the Review’s Recommendation 27 that “the company income tax rate should be reduced to 25%,”5 by first discussing the proposed reform, then examining what impact it may have on the current tax system and evaluating the purported benefits of implementing the Recommendation. The second part of this paper will consider the second limb of Recommendation 27, which sets out that “[i]mproved arrangements for charging for the use of non-renewable resources should be introduced at the same time”6 together with Recommendation 45 which advocates the introduction of a “uniform resource rent tax”. Particular focus will be given to the Australian experience in relation to its failed attempt to introduce the Mineral Resource Rent Tax (MRRT). ItemAre changes to negative gearing in Australia imminent?(LexisNexis, 2015-12) Villios, Sylvia; Blissenden, Michael; Kenny, PaulNegative gearing on levered investments is one of Australia’s most prevalent tax shelters and has been the focal point of an ongoing and heated debate.1 While negative gearing is most commonly used in property,2 there is no limit on deductions from investments across a range of asset classes, such as bonds,3 managed funds, agriculture, real property or shares.4 This article will consider negative gearing concessions for investment in residential property, the arguments in favour of the abolition of negative gearing centered at the heart of the negative gearing debate, possible reform options and barriers to achieving reform. ItemThe perils of tardy PPSR registration: Pozzebon (Trustee) v Australian Gaming and Entertainment Ltd(LexisNexis, 2014-11) Lovell, Martin Howard; Morrow, LaityThe recent decision of Pozzebon (Trustee) v Australian Gaming and Entertainment Ltd1 serves as a cautionary tale to secured lenders. It illustrates how a failure to register a security interest on the Personal Property Securities Register (PPSR) within 20 business days of execution may have dire consequences, rendering the security worthless if the corporate security provider enters external administration. ItemGoodridge appeal - legal principles governing assignment and novation of contracts(LexisNexis, 2011-03) Lovell, Martin Howard; Vuong, BrianThe recent decision of the full bench of the Federal Court in Leveraged Equities Ltd v Goodridge1 has unanimously overturned the contentious first instance decision of Rares J2 and, in doing so, has restored clarity to the legal principles governing assignment and novation of contracts. Although the decision centred on the enforcement of margin lending arrangements and the proper construction of an ambiguously drafted contract, the case has wider implications for syndicated loans, securitisations and commercial transactions generally. The first instance decision caused much consternation in financial and legal circles, as it appeared to challenge existing legal principles and practice regarding the novation and assignment of contracts. Although several commentators suggested that the statements from the Goodridge decision should be confined to the specific facts, there was concern that if applied more broadly, the Goodridge decision undermined the validity of existing loan transfers, securitisations and other commercial transactions. The appeal decision has put such fears to rest, while providing a cogent and authoritative summation of the Australian law on novation and assignments, in line with both English and US authorities. Nevertheless, there are some aspects of the decision which may require further clarification. ItemYet another round of problematic small business tax concessions(LexisNexis, 2015-06) Kenny, PaulRunning or advising a small business is becoming more complicated given the numerous twists and turns of government policy in respect of the small business entity (SBE)1 concessions. The timing of asset purchases for effective tax planning is particularly tricky given the frequent changes in depreciation rates and immediate deduction limits. The introduction of differential income tax rates for SBEs also raises new tax planning opportunities and challenges. This article examines the 2015 Budget SBE proposals. The Tax Laws Amendment (Small Business Measures No 2) Bill 2015 (Cth) will provide accelerated depreciation for small businesses and primary producers. The Tax Laws Amendment (Small Business Measures No 1) Bill 2015 (Cth) will reduce the company tax rate from 30% to 28.5% for companies that are SBEs. ItemWine tax reform needed to unwrap red tape strangling struggling industry(LexisNexis, 2017-04) Kenny, PaulThe wine tax and its accompanying rebate are outdated and they distort the Australian wine industry. The tax is encouraging the production of cheap wines resulting in oversupply at a time when the industry is struggling to compete internationally. While Australian wine drinkers might not care too much about drinking non-premium wine, this comes at the expense of Australia’s reputation as a premium wine producer to overseas markets.1 The wine tax was originally established in 1930 as a wholesale sales tax, at a rate of 2.5%. Over time, it was repealed and then reintroduced, steadily increasing to 41% by 1997. With the advent of the 10% GST in 2000, the wine tax was reduced to 29% (and renamed as the wine equalisation tax (WET)) so as not to alter the overall tax burden. Australian producers (and New Zealanders) can claim an annual rebate off the wine tax of up to $500,000. ItemTax opportunities for state governments(LexisNexis, 2017-10) Kenny, PaulThe potential tax opportunities for Australian state governments to broaden their tax bases can be illustrated by comparing the revenue raised by the current tax system with that of a sensible tax system (the tax gap). A number of tax enquiries have set out the general outline of a sensible tax structure. For examples, see the Asprey Report1 and the Draft White Paper,2 and more recently, the UK’s Mirrlees Review3 and Australia’s Henry Review.4 Such a sensible tax system allows the government to raise revenue and redistribute in the most efficient, fair and simple way. Under a sensible tax system it is necessary to spread the revenue base over a number of taxes, because the higher the tax rate on a particular tax, the higher the incentive to get around the tax rules. Also, there are limited ways you can redistribute if there is only one tax (eg, only a GST), so income and wealth taxes are needed. However, having 125 different Australian Government taxes produces excessive complexity and costs to the community. It is apparent from the above reviews that a sensible tax structure consists of far fewer and broader taxes that need to work in harmony together (as well as integrate with the social security benefit). A sensible tax structure should be generally aligned with comprehensive tax bases and the following package of seven taxes. ItemSmall business capital allowances(LexisNexis, 2018-11) Kenny, PaulOn 1 July 2001 Australia introduced a new concessional small business entities (SBE) depreciation regime in Subdiv 328-D of the Income Tax Assessment Act 1997 (Cth) (ITAA1997). Many changes have been made to the regime with the recent reforms to Subdiv 328-D providing a very generous $20,000 depreciating asset write-off as well as higher pool depreciation.1 This highlights the increasing politicalisation of Australia’s tax system and appears out of alignment with past Commonwealth governments’ calls for small business simplification2 and the current Liberal Coalition government’s focus on innovation. Turnbull sought for Australia “to be a culture, a national culture of innovation, of risk-taking, because as we do that, we grow the whole ecosystem of innovation right across the economy.”3 However, under the concessions, a relatively small number of larger small businesses obtain the vast majority of the tax benefits. In this context, this article examines the current depreciation regime provisions in Australia. This article first looks at how the current provisions relating to small business depreciation concessions have developed. This is followed by an analysis of Australia’s small business depreciation rules in Subdiv 328-D of the ITAA 1997 and the small restructure rollover relief in Subdiv 328-G. The article also analyses the costs and benefits of special small business depreciation and suggests a better way to encourage innovation for small business formation. ItemShare trader or share investor: drawing the line - Devi and FCT(LexisNexis, 2016-09) Kenny, PaulThe question of whether a business exists for income tax purposes is a perennial issue that ends up at the Administrative Appeals Tribunal (AAT) and occasionally the courts, notwithstanding the longstanding principles of what constitutes a business are well-established.1 This analysis revisits and clarifies the longstanding principles of what constitutes a business and examines the recent AAT case, Devi and Commissioner of Taxation (Taxation)2 (Devi and FCT). Somewhat controversially3 in Devi and FCT, a child care worker and day share trader was denied share trading losses despite a significant scale of activities and profit-making intention. ItemResidency and Australians working overseas: can be an expensive lesson in tax law(LexisNexis, 2015-12) Kenny, Paul; Blissenden, Michael; Villios, SylviaResidence is important in determining the Australian income tax liability for individuals that are residents (all income sources) and foreign residents (Australian income sources) of ordinary and statutory income.1 In recent times the Australian Taxation Office (ATO) appears to be taking a tough stance on the residence of Australian citizens who travel overseas to work for a period of time, especially where that work is undertaken in countries with low income tax rates. This is evident in a number of cases that have recently been decided by the Administrative Appeals Tribunal (AAT) on the issue of residence. These cases highlight significant scrutiny by the ATO and the need for such workers to obtain good tax advice, and provide sufficient documentary evidence for the ATO or the AAT as this may be needed to establish the relevant facts. ItemGeneral Editor’s note(LexisNexis, 2014-06) Kenny, PaulWelcome to the second issue of the Australian Tax Law Bulletin. At the time of writing, some weeks after the 2014 Federal Budget, the uncertainty over the tax reform proposals continues to impose social and economic costs. As I noted in the first issue, this highlights the need for an independent tax law making body (such as an Australian Revenue Law Reform Office). ItemThe $6 million net asset value test for small business(LexisNexis, 2014-07) Kenny, Paul; Blissenden, MichaelTaxpayers who seek to disregard a capital gain under the small business capital gains tax (CGT) concessions regime are likely to be audited and those who are not formally audited may face a phone review. The Australian Taxation Office’s (ATO’s) focus on a single aspect of this concessional regime is reflected in issues examined in some recent cases. Small business operators and their advisers need to be vigilant in planning for and applying the $6 million maximum net asset value test ($6 million test), an alternative requirement, within the second of the four basic conditions. ItemGeneral Editor’s welcome message(LexisNexis, 2014-05) Kenny, PaulWelcome to the first issue of the Australian Tax Law Bulletin (ATLB), which is devoted to articles on current tax issues in practice in order to benefit legal and tax professionals, as well as tax administrators. ATLB will provide opinions and arguments on recent tax legislation (state and Commonwealth), tax administration, judicial issues and policy. Our editorial board members have extensive and high-level practical experience in taxation law in both the private and public sectors. ItemGeneral Editor’s introduction(LexisNexis, 2014-12) Kenny, PaulWhen it comes to tax avoidance, some things never change and solutions are hard to find. On the one hand, the cash economy appears to be alive and well with the Australian Taxation Office (ATO) recently reporting that almost 2500 businesses in Geelong and 700 businesses in Wagga Wagga may be deliberately concealing income to evade tax and obtain an unfair advantage over their competitors. The ATO Senior Assistant Commissioner Michael Hardy said businesses in the building and construction industry, restaurant and cafés, hairdressers and beauticians are more likely to be involved. On the other hand, at the big end of town in an internet world, profit shifting has taken on a new dimension. As Commissioner Jordan noted this month, “multinationals operate seamlessly across borders and take a global, top-down view to structure their operations across countries for maximum economic advantage”.1 The Commissioner has “stepped up our efforts to ensure that multinationals pay tax in Australia on the income they earn here. Working with the G20, OECD and other partner tax administrations, we have been mapping the global operations of some multinationals that operate in the digital economy”. ItemGeneral Editor’s introduction(LexisNexis, 2014-10) Kenny, PaulThe presence of numerous tax concessions in the Australian tax system not only constitutes poor policy in terms of fiscal adequacy, equity, simplicity and efficiency, but it also provides fertile grounds for the unscrupulous to exploit taxpayers. Are the lessons ever learnt, given the experiences of tens of thousands of taxpayers who suffer from tax driven schemes, often supported by administrator and/or policy inaction, and marketed with administrator rulings and/or legal opinions? These schemes include tailored individual arrangements and widely marketed schemes involving round-robin financing, limited or non-recourse loans, participant obligations limited to investment profits, trust structures to split income and interest deductions schemes. Tax driven schemes have included bottom-of-the-harbour, Wickenby, Great Southern, Gunns, and Storm Financial schemes, as well as the bogus financial investment schemes of the 1990s. More recently, popular arrangements focus on deductible investments in agricultural, horticultural or film schemes, as well as selling over-priced apartments to self-managed superannuation funds and investors who seek the favourable superannuation tax concessions or negative gearing. ItemGeneral Editor's introduction(LexisNexis, 2014-07) Kenny, PaulAs winter sets in, tax reform continues to take centre stage with the proposed abolition of the mining tax and carbon tax, of which a number of commentators are expressing their angst about the implementation processes. The concerns extend well beyond fiscal adequacy and enabling a high standard of government goods and services. Should a few people in Senate make decisions on the design of nationally significant tax laws? Should vested interests be able to influence policy? Other issues include the ability of Commonwealth and states to work together on tax design. ItemGeneral Editor's introduction(LexisNexis, 2014-09) Kenny, PaulSignificant Commonwealth tax changes have now passed into law. The Liberal Coalition Government has repealed the carbon tax, effective from 1 July 2014. However, uncertainty remains regarding the abolition of the mining tax, along with the tax loss carry-back measure, instant small-business entity asset write-off and accelerated depreciation for motor vehicles. ItemSelf-education expenses: some thoughts for taxpayers and their advisers(LexisNexis, 2014-09) Blissenden, Michael; Kenny, Paul; Xynas, LidiaWith the advent of another tax year, the nature and form of self-education expenses come to mind. The income tax return for individuals makes a perceived distinction between forms of education for tax purposes but it may not be that clear for taxpayers and their advisers. Item D4 of the individual tax return allows for taxpayers to make a claim for work related self-education expenses that relate to formal qualifications from a school, college or university. The individual tax return implies that there is a distinction between formal self-education and informal self-education. However when one looks at the relevant Australian Tax Office (ATO) material, this distinction could easily be overlooked.