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Regulatory Roundup – October 2019

High Court confirms Full Federal Court’s Harding tax residency ruling

The ATO’s application for special leave in the residency matter of Harding v Commissioner of Taxation has been refused by Australia’s High Court. This means the decision of the Full Federal Court (FFC) holds, which essentially provides a wider interpretation of the meaning of “permanent place of abode” than had previously been the case.

It also means it is going to make it easier for expatriates to prove that they are non-residents for tax purposes. The FFC concluded, and now appears to establish the principle, that a permanent place of abode need not be the same particular dwelling (that is, the same apartment, unit or house) in a foreign country.

To re-cap, in February the FFC overturned a Federal Court decision that had ruled a taxpayer was a resident. The Federal Court decision held that the taxpayer, who had lived and worked in the largely tax-free Arabian Peninsula, was a resident for tax purposes on the basis that the home he had established there (a rented fully-furnished apartment) was not sufficiently permanent.

The FFC disagreed with this prior decision, which held that the taxpayer was a non-resident and should therefore only have to declare his Australian sourced income, not his worldwide income.

Board of Taxation’s residency recommendations
The decision in Harding comes at the same time as the Board of Taxation continues with its review of the income tax residency rules for individuals. Note also that the above reasoning has already been applied in an Administrative Appeals Tribunal matter, Handsley and Commissioner of Taxation [2019] AATA 917 (see more here).

Amendments to FBT definition of “taxi” imminent

Treasury has just released some miscellaneous amendments that include a redefinition of the word “taxi” in regard to certain tax arrangements. An exposure draft addresses the ongoing problem for taxpayers around the definition of taxi for FBT purposes (see the second link on this Treasury webpage, “Miscellaneous Amendments Bill Explanatory Memorandum”, and scroll to page 19).

The bill, under Part 2 “Amendments commencing first day of the next quarter” has been drafted with the stated aim to resolve administrative difficulties with the previous definition “which resulted from ride sharing providers entering into the market”. The “next quarter” is generally taken to be after the amendments become law.

The Explanatory Memorandum (EM) states: “Formerly, the Fringe Benefits Tax Assessment Act 1986 defined a taxi as ‘a motor vehicle licenced to operate as a taxi’. As a result of ride sharing providers entering into the market, this has become difficult to administer as the meaning of ‘licensed to operate as a taxi’ is highly contentious and may differ considerably between the states and territories depending on their licensing laws.”

To avoid these difficulties, the new law replaces references to a “taxi” with “a car used for taxi travel (other than a limousine)”. The EM says the term taxi travel is defined as having the same meaning as in the A New Tax System (Goods and Services Tax) Act 1999, namely, “travel that involves transporting passengers by taxi or limousine, for fares”.

The proposed amendment will have effect after royal assent and commence, depending on when that is, from the next 1 January, 1 April, 1 July or 1 October. The EM says the amendment preserves the existing policy of covering vehicles used for travel involving transporting passengers for a fare by way of a car, but not including luxury cars such as limousines.

Benefits that attract FBT, but not the requirement to report them

Employers may have heard about certain fringe benefits that, while still subject to the tax, do not have the same reporting burden as other benefits. There can be consequential or flow-on affects from this exemption from reporting, such as the influence this can have on adjusted taxable income.

Employers are not required to allocate the following excluded benefits to employees or report them on income statements (payment summaries).

– Entertainment by way of food and drink, and benefits associated with that entertainment, such as travel and accommodation (regardless of which category is used to value the benefit). However if these benefits are provided under a salary packaging arrangement on or after 1 April 2016, they are not excluded from the reporting requirements.

– Car parking fringe benefits (not including car parking expense payment benefits).

– Hiring or leasing entertainment facilities such as corporate boxes. However if these benefits are provided under a salary packaging arrangement on or after 1 April 2016, they are not excluded from the reporting requirements.

– Remote area residential fuel where the value of the benefit is reduced in accordance with the conditions in section 19.2 of Reductions in fringe benefit taxable value.

– Remote area housing assistance where the value of the benefit is reduced in accordance with the conditions in section 19.2 (as above).

– Remote area home ownership schemes where the value of the benefit is reduced in accordance with the conditions as mentioned above.

– Remote area home repurchase schemes (again, as above).

– Costs of occasional travel (being that which occurs from time to time and not at regular intervals) to a major Australian population centre by employees and their families living in a remote area.

– Freight costs for food provided to employees living in a remote area.

– Fringe benefits provided to address certain security concerns relating to the personal safety of an employee, or an associate of the employee, arising from the employee’s employment.

– Emergency or other essential health care provided to an employee or associate who is an Australian citizen or permanent resident, while the employee is working outside Australia and no Medicare benefit is payable.

– Certain Australian government overseas living allowance payments, for example, cost of living adjustment, post adjustment, child supplement, child reunion supplement.

– Certain benefits provided to Defence Force members — for example, particular forms of housing assistance, reunion travel, assistance provided for removing and storing household effects, allowances paid to families with special needs, education assistance for children in critical years of schooling, elements of overseas living allowances, and removal expenses of a spouse due to marriage breakdown.

– Certain benefits provided to police officers, for example, particular forms of housing assistance, assistance provided for removing and storing household effects, certain relocation assistance and certain car benefits arising from travel between home and work by police officers using unmarked police vehicles that are fitted with a police radio and concealed or portable warning lights and sirens.

– Certain car benefits arising from travel between home and work by police officers, ambulance officers and fire fighters using marked emergency vehicles.

– From 1 April 2007, car benefits arising from an employee’s private use of pooled or shared cars.

– Living away from home allowances provided to federal government employees on or after 1 April 2012

– Taxable benefits provided on or after 1 April 2012 relating to accommodation provided to federal government employees whose duties of employment require them to live away from their normal residence.

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