• the definition of family in the family trust election rules will be changed to limit lineal descendants to children or grandchildren of the test individual or of the test individual's spouse. This will have effect from 1 July 2008;
• amendments will also be made to preclude family trusts making a once-off variation to the test individual specified in a family trust election (other than in relation to a marriage breakdown). This will have effect from the 2007-08 income year.

The ATO has released a Decision Impact Statement on the decision of the NSW Court of Appeal in DCT v Meredith [2007] NSWCA 354. In that case the court upheld a Deputy Commissioner's appeal that the statutory precondition to recovery of unpaid tax from a company director under s 222AOE of the 1936 Act was satisfied by sending the notice by post to the address which appears in the records of ASIC.

The ATO states the Commissioner will calculate the time for compliance with the notice from the date on which the notice was posted, irrespective of whether or when the notice was received or delivered.

Argyle Comment:
Practitioners need to ensure that there clients understand the implications of the Commissioner sending a Directors penalty notice, and generally the exposure of directors in relation to unpaid PAYG. Advisors should ensure that their clients understood the seriousness of ensuring that their ASIC records are up to date, regardless of whether a company is deregistered or no longer trading.

This Draft sets out the Commissioner's views on penalties for taking a position that is not reasonably arguable.

The Draft states that the reasonably arguable position standard is an objective standard involving an analysis of the law and application of the law to the relevant facts and that the question as to the position taken by an entity is determined by reference to the law as it stood at the time the statement was made an entity.

Whilst entities are required to take note of the Commissioner's views on the operation of tax laws as expressed in public rulings, if they adopt alternative interpretations they must demonstrate sound reasons for doing so. The ruling states that the authorities used to support or reach the views expressed by an adviser may support the position taken by a taxpayer.

The draft provides that whilst an entity is not required to document a reasonably arguable position, if an entity provides its cogent reasons in writing for taking a particular position, it will assist the ATO to objectively and expeditiously determine whether a reasonably arguable position was taken.

Argyle Comment:
Advisors should note the importance of properly documenting taxation advice provided to clients with supporting authorities and sound reasoning where a reasonably arguable position is adopted by a client contrary to the Commissioners views on a particular matter.

The ATO says it will be data matching details of individuals and entities that purchased or acquired a motor vehicle valued at $57,009 or more between 1 July 2005 and 30 June 2007. The ATO outlined that the information is to be provided from each of the state motor registry authorities. It is estimating that records relating to approximately 600,000 individuals will be matched.

Following the decision of the High Court in FCT v McNeil (2007) which held that the market value of 'sell-back rights' issued to a taxpayer under a share-buyback arrangement involving St George Bank Ltd where assessable as ordinary income in the taxpayer's hands, the government has now moved to amend the 1997 Act. The TLA (2008 Measures No 3) Bill 2008 introduced will amend 1997 Act to include a new section 59-40 of the 1997 Act aimed at ensuring:

The amendments seek to restore the long-standing taxation treatment of call options issued by companies that existed prior to the decision of the High Court. These amendments will apply to rights issued on or after 1 July 2001.

The Same-Sex Relationships (Equal Treatment in Commonwealth Laws - Superannuation) Bill 2008 was introduced in the House of Reps on 28 May 2008. The Bill is aimed at removing discrimination against same-sex couples and the children of same-sex relationships in various pieces of Commonwealth legislation.

Some of the areas the Bill will cover include:
• Reversionary superannuation benefits on the death of a scheme member and related taxation treatment of superannuation benefits.
• Commonwealth civilian and military (defined benefit) superannuation schemes.
• The parliamentary, judicial and statutory legal officer pension schemes

The Bill will also amend the following Acts to provide equal treatment to same-sex couples and their children:
• Retirement Savings Accounts Act 1997;
• Small Superannuation Accounts Act 1995;
• Superannuation (Government Co-contribution for Low Income Earners) Act 2003;
• Superannuation Industry (Supervision) Act 1993;
• Income Tax (Transitional Provisions) Act 1997.

Argyle Comment:
Advisors need to ensure that clients who may be affected by the changes are made aware of how they might benefit. Advisors also need to ensure that estate planning documents, trust deeds and superfund deeds allow clients to benefit. Finally, advisors should also note that the changes could also cause a number of unintended tax consequences.

The ATO has announced details of the administrative treatment it intends to apply concerning the 2007 (Costello) Budget announcement that the Government will make changes to the loss recoupment rules for companies. The measures to remove the $100m income cap on the SBT are contained in the TLA (2007 Measures No 5) Act 2007 which received Royal assent on 25 September 2007. The ATO has indicated it will not undertake specific compliance activity to enforce the existing law between the announcement date and the enactment of the proposed law.

The amendments:
• remove the $100m income cap on the same business test with effect from 1 July 2005;
• ensure that companies do not fail the continuity of ownership test by having multiple classes of shares issued or because special arrangements to make distributions of dividends and capital returns with effect from 1 July 2002;
• clarify the meaning of "voting power" in the context of the COT, with effect from 1 July 2007; and
• ensure that the entry history rule in the consolidation regime is to be disregarded in applying the SBT, with effect from 1 July 2002.

Argyle Comment:
This announcement would come as a relief to some advisors and clients who would have been dealing with these issues in the intervening period.

This is the first GST case to come before the High Court. In a unanimous decision, the High Court confirmed that the forfeiture of a deposit, as rendered under a standard land contract, is consideration for a supply for the purposes of the GST Act.

Facts
• The taxpayer was the vendor of real property.
• In December 2001, it granted an option for $25,000 to purchase the property for $3m less the option fee.
• The 10% deposit of $297,500 due under the sale contract became payable upon exercise of the option.
• The option was exercised in January 2002.
• The sale contract provided for deferred settlement of up to one year.
• The purchaser failed to settle in time and the taxpayer issued a rescission notice.
• The contract was rescinded and the deposit was forfeited.
• The purchaser's accountant requested a tax invoice for the forfeited deposit.
• The taxpayer's solicitor declined to provide a tax invoice on the basis that the deposit was retained as damages and not consideration for a taxable supply.
• The Commissioner assessed the taxpayer to GST on the forfeited deposit pursuant to section 99-5 of the GST Act which treats forfeited deposits as consideration for a supply.

Decision
The High Court held that:
• the Full Federal Court had erred in finding that no supply upon the rescission of a contract for sale could be identified.
• the Full Federal Court was incorrect in determining that when the taxpayer entered into the contract for sale with the purchaser, it entered into a contract for the supply of real property, but nothing more and nothing less.
• the payment of the deposit by the purchaser was in connection with a supply by the taxpayer, and within the definition of consideration in section 9-15 of the GST Act.
• that this nexus was established with the receipt of the written notice of the exercise of the option, the Option Agreement and the payment of the deposit.
• the payment of a deposit was only treated as consideration for a supply when the deposit was forfeited because of the application of section 99-5
• leading up to forfeiture the deposit was held as security for the obligation of the purchaser to complete the contract.
• upon forfeiture of the deposit, the supply represented by the making of the contract became a taxable supply.
• the taxpayer was making a taxable supply within the meaning of section 9-5.

Argyle Comment:
Now that this issue has finally been settled, Taxpayers and advisors need to ensure that clients understand there GST obligations when it comes to forfeited deposits. In addition, it is important that the terms of the contract dictate who will be liable for the GST in connection with a forfeited deposit.