The Full Federal Court has confirmed that a bankrupt taxpayer had no standing to seek a review of the Commissioner’s objection decision (or an extension of time to seek a review) as she could not be a person “dissatisfied” with an assessment as required. The taxpayer had been charged with criminal offences related to the tax debt. She argued that a successful review of the objection decision would have relevance to the conduct of the criminal trial so as to make her a person “dissatisfied” with the objection decision. However, the Court found that there was no error in the AAT decision and that there was no evidence that a successful review of the objection decision would be relevant to the criminal charges. (Pitman v FCT  FCAFC 230, 16 December 2021.)
Non-arm’s length income (NALI) determinations from the ATO must crop up now and then in SMSF trustee nightmares, particularly in regard to LRBAs. While the NALI provisions are an accepted anti-avoidance measure designed to stop income that would otherwise attract the top marginal tax rate being directed to an SMSF, they are coming under more and more scrutiny from the regulator due to the tax revenue potentially skirting legitimate collection.
In this regard, trustees and practitioners should note that there is new legislation that seeks to draw even tighter the operating rules on NALI with a focus on the expenditure side of transactions.
Treasury Laws Amendment (2018 Superannuation Measure No. 1) Bill 2019 has now passed both houses of Parliament. This amends NALI provisions in the income tax law to specifically include non-arm’s length expenses. Note that LCR 2019/D3 and PCG 2019/D6 will aid understanding of the new rules greatly.
Example 1 – non-arm’s length expenditure was incurred to acquire an asset – NALI 19. During the 2019–20 income year, Joe holds commercial property with a market value of $800,000. During the income year, he sells the commercial property to himself acting as trustee of his self-managed superannuation fund (SMSF) for $200,000. The SMSF leases the property to a third party. 20. For the purposes of proposed subsection 295-550(1), the scheme involves the SMSF acquiring the commercial property from Armin for an amount that is less than its market value. There is a sufficient nexus between the non-arm’s length expenditure incurred in acquiring that property and the rental income the SMSF derives from leasing the property for the rental income to be NALI. Further, there will be a sufficient nexus between the non-arm’s length expenditure and any capital gain derived on the disposal of the property for the capital gain to be NALI.
Example 2 – non-arm’s length expenditure incurred has a nexus to all income of the fund – NALI 21. For the 2020–21 income year, Mary as trustee of her SMSF, engages an accounting firm, where she is a partner, to provide accounting services for the fund. The accounting firm does not charge the fund for those services. 22. For the purposes of proposed subsection 295-550(1), the scheme involves the SMSF acquiring the accounting services under a non-arm’s length arrangement. The non-arm’s length expenditure (being the nil amount incurred for the services) has a sufficient nexus with all of the ordinary and statutory income derived by the SMSF for the 2020–21 income year. As such, all of the SMSF’s income for the 2020-21 income year is NALI.
On 21 July 2020, the Government announced that JobKeeper Payment would be extended until 28 March 2021 to provide further support for COVID-19 affected businesses and households, with tightened eligibility rules and lowered payment rates, from 28 September 2020.
There are no changes to the pre-existing JobKeeper regime until 28 September 2020.
There are lower payment rates and conditions from 28 September 2020, based on the following two periods:
• The period from 28 September 2020 to 03 January 2021;
• The period from 04 January 2021 to 28 March 2021.
The turnover test is being tightened and payment rates will change from 28 September 2020; however, other eligibility rules for businesses and not-for-profits and their employees remain unchanged.
What are the changes?
1. Lower JobKeeper Payment rates
The payments rates between 28 September 2020 to 3 January 2021 are:
• $1,200 per fortnight for all eligible employees who, in the four weeks of pay periods before 1 March 2020, were working 20 hours or more a week on average;
• $1,200 per fortnight for eligible business participants who were actively engaged in the business for 20 hours or more per week on average in the month of February 2020;
• $750 per fortnight for other eligible employees and business participants.
The payments rates between 4 January 2021 to 28 March 2021 are:
• $1,000 per fortnight for all eligible employees who, in the four weeks of pay periods before 1 March 2020, were working 20 hours or more a week on average;
• $1,000 per fortnight for eligible business participants who were actively engaged in the
business for 20 hours or more per week on average in the month of February 2020;
• $650 per fortnight for other eligible employees and business participants
The Commissioner of Taxation will have the discretion to set out alternative tests where an eligible employee or business participant’s hours were not usual in February 2020. Further guidance will be provided by the ATO where the employee is paid non-weekly or non-fortnightly and in other circumstance that general rules do not cover.
2. Changes to Turnover Tests
From 28 September 2020, the employers are required to re-assess their eligibility with reference to the actual GST turnover; rather than the projected GST turnover.
To be eligible for the payments between 28 September 2020 to 3 January 2021, businesses and not-for-profits are required to demonstrate that their actual GST turnover has significantly declined in both the June 2020 and September 2020 quarters, compared to the corresponding quarters in FY2019.
To be eligible for the payments between 4 January 2021 to 28 March 2021, businesses and not for-profits are required to demonstrate their actual GST turnover has significantly declined in the June 2020, September 2020 and December 2020 quarters, compared to the corresponding quarters in FY2019.
The definition of a significant decline in turnover has not changed and are as follows:
• 30% fall in turnover for the entity with an aggregated turnover of $1 billion or less;
• 50% fall in turnover for the entity with an aggregated turnover of more than $1 billion; or
• 15% fall in turnover for ACNC-registered charities other than universities and schools.
The Commissioner of Taxation will have the discretion to set out alternative tests that would establish eligibility in the circumstances that it is not appropriate to compare actual turnover in a quarter in 2020 with actual turnover in a quarter in 2019, in line with the Commissioner’s existing discretion.