Cases Income Tax

Can I claim a deduction for travel to work?

NO! Well maybe No.

The Full Federal Court in the John Holland Group case has concluded that the costs of certain travel for fly-in-fly-out employees travelling to work can be deductible (so if paid for by the employer there will be no FBT payable under the otherwise deductible rule).

In this case the employees lived in Perth and worked in Geraldton. The employer required to employees to be at Perth airport at a certain time each week, in uniform, and during the time in the airport, on the plane and travelling to the site (including no alcohol and language rules).

The Federal Court concluded that the employment started at the airport. Therefore the travel on the flight is deductible.

What does this mean for my trip to work today?

First, this case will probably be appealed by the Commissioner to the High Court.

Second, if you are at the direction of your employer during the travel (method and timing defined by the employer) like most FIFO arrangements it will be deductible.

Third, I am sure that if I sign an agreement with my employer to leave for work at 7:30, catch the 451 bus, wear a uniform, and not drink and swear on the bus (what will I do now on my bus trip?) the Commissioner will NOT let me claim a deduction. This decision is similar to the situation of an emergency surgeon who is called at home and gives the theatre staff instructions before jumping in the car. The work started on the phone so the travel is deductible. To get a deduction for the travel we need to show we have started working before the travel started.

Fourth, employers with FIFO employees will not have to pay FBT on the travel costs.

I can’t wait for the High Court case.

Cases Planning Idea Planning Stuff

Part IVA and the Small Business CGT Concessions

I have been fearing this day for some time. A day when the Commissioner applies the general anti avoidance provision in Part IVA to a taxpayer who arranges a sale of a business to make the most of the Small Business CGT Concessions.

We all know how this is done. “Just before” the sale we make distributions to the owners that they put into super ($540k non concessional), or they renovate their house, or buy a ferrari – all assets excluded from the $6 million maximum net asset test. We also remember that we have not included liabilities for long service leave, or for the legal advice on the sale or the real estate agents commission for property sold with the business and we add these in… And hopefully we find we have maximum net assets of under $6million.

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In the AAT decision of Track and Ors and Commissioner of Taxation ([2015] AATA 45) the taxpayer took these ideas one step further. They created a series of liabilities by declaring capital distributions. As the funds to pay these distributions were not available in the business (most of the value was in the goodwill) the business had to borrow money to pay these distributions – thereby adding liabilities and reducing the maximum net assets below the threshold.

But the question with any liability that we want to take into account in assessing the maximum net assets is does it relate to the assets of the business. If these liabilities relate to the assets in the business the taxpayer can use the small business CGT concessions. if not, they can’t use the concessions.

And this is where it all gets weird…

“The Track Bros 1 Trust lodged its 2006 income tax return on the footing that it satisfied the maximum net asset value test, thus enabling it to take the benefit of the concessions. It now contends to the contrary. It says that … the Trust’s liabilities … were not “related to” assets … . If these liabilities are excluded the net value of the CGT assets .., so it contends, is [greater than the maximum net asset threshold]. The Commissioner contends that each of those liabilities is related to assets … and that the net value of CGT assets was [less than the maximum net asset threshold]”

The taxpayer says they failed the Maximum Net Asset test and cannot claim the small business CGT concessions. The Commissioner says they pass the Maximum Net Asset test and can claim the small business CGT concessions. I have never seen it argued this way! Isn’t this the wrong way around? This is just weird.

Until you realise that the reason the taxpayer was trying to argue that the small business CGT concessions don’t apply was that the Commissioner was trying to apply Part IVA – the general anti avoidance provision. The Commissioner argued that the creation of the liabilities just before the CGT event of selling the business was a scheme undertaken for the dominant purpose of gaining a tax benefit. The taxpayer tried to argue there was no tax benefit as they had actually failed in structuring themselves to get into the small business CGT concessions – and they failed

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The AAT found that the general anti avoidance provisions did apply as the taxpayer had been successful is structuring themselves just before the sale of the business to take advantage of the small business CGT concessions. And how many times have we done this?

It should be noted that the actions of the taxpayer to make sure they could claim the small business CGT concession were done very close to the sale time so it might be OK to set these things up well before a sale is contemplated – but if you do things just before the CGT event, the Commissioner might consider applying Part IVA… Ouch.

100% sure we will see this decision appealed. At least I hope we do.

Cases FBT

You win some, you lose some… and I am a bad loser…

I have patted myself on the back before for an AAT decision on FBT at my local airport. I may have congratulated myself a bit early as in Commissioner of Taxation v Qantas Airways Limited [2014] FCAFC 168 the Full Federal Court overturned there being no car parking FBT for employers who provide car parking for employees at Canberra Airport.

Now, like any upstart tax advisor I have to prove I am right and the collective wisdom of the Federal Court is wrong (as they have been shown in a few high profile appeals to the High Court – aka MBI Properties)… I quote from their learned justices…

In this case, whilst it is true that the operator of the parking stations imposed the restriction that the car parks were available only to airline passengers and meeters and greeters of airline passengers, the car parks nonetheless are public car parks in the sense that in the ordinary course of the business the car spaces are available to any member of the public on the contractual terms stipulated. The contractual terms do not mean that the car park spaces are not available to members of the public but, rather, that conditions are imposed on the use of the car park by members of the public.

So restricting the use of a car park to a certain part of the public at any time, rather than the whole public all the time, is not limiting its use as at any time any member of the public could be in the part of the public that can use it. Yes I know that is confusing (because it is a stupid argument) but in Australia, anyone can be Prime Minister (other than those with criminal records but lets ignore this…). According to this decision, the Prime Minister’s car park at Parliament House is “available to the public”. To smart by half…

Cases GST

Will the full federal Court ever learn…

Just under a year ago I wrote the following regarding the full Federal Court decision in MBI Properties…

So the supply was defined form a literal rather than a practical perspective and led to a ridiculous outcome.

But remember the Federal Court also found that there was no supply by Qantas when people did not turn up for their flight… A decision laughed off by the High Court who took a practical rather than a literal view of what is a supply.

And remember the Federal Court also found that there was no supply on a forfeited deposit in Reliance Carpets… A decision laughed off by the High Court who took a practical rather than a literal view of what is a supply.

No points for guessing what the High Court will do.

Maybe the Federal Court might one day accept it is the Federal Court and not the High Court, read the Constitution (i can’t talk as I failed Constitutional Law) and start making GST decisions that the High Court does not need to overturn. I can only hope…

Well, this week the High Court has unanimously found for the Commissioner, holding that the conditions for the operation of s 135-5 were met. And just as expected the High Court said the Full Federal Court

…was wrong to reason that the only relevant supply was on the grant of the lease by South Steyne to MML, and the Full Court in South Steyne was wrong to conclude that MBI made no supply to MML.

Is it worth reminding the Full Federal Court that they only exist due to an Act of a Parliament (Federal Court of Australia Act 1976). And the only reason that Act could be created by that Parliament was that in 1900 the Constitution was adopted – a Constitution that forms one court to sit above all other Courts – the High Court.

So if the High Court, generally unanimously, keeps interpreting the GST laws in a practical way rather than a technical way, like in Qantas, like in Reliance Carpets, like in MBI Properties… maybe the Full Federal Court should start doing the same. Maybe the Federal Court should remember who they are.

If a part time tax boffin, part time Thomas the Tank Engine watcher (who I am) knows what the outcome of a Federal Court appeal will be a year in advance, then it should be obvious to much brighter tax minds than me…

Cases Rulings Super

Tax, super and pizza – the perfect combination

Pop quiz: Are pizza delivery drivers, who are required to use their own vehicle and are just paid per delivery, employees for the SGAA?

ATO Interpretative Decision 2014/28 says they are. It concludes they are common law employees as the vehicle is not an “overriding factor when considering the arrangement as a whole.”

This is a bit strange as “the whole” included they had an ABN, could work for other pizza deliverers, could refuse shifts, invoiced for their work and were paid on a per delivery basis (paid for results).

Even stranger is that in the case of Vabu Pty Limited v. Federal Commissioner of Taxation (1996) 96 ATC 4898; (1996) 33 ATR 537 courier drivers who supplied and maintained their own motor vehicles were held not to be employees at common law (incredibly later the High Court in Hollis v. Vabu Pty Ltd (2001) 207 CLR 21 said the same people were employees when looking at a different Act).

But the Commissioner states these pizza deliverers are held out to be part of the pizza business and courier companies just deliver, but the pizza company makes the product to be delivered as well.

But the real reason the Commissioner states pizza deliverers are employees is the decision in the Administrative Appeals Tribunal matter of Erini Hellen Panagis v. Secretary, Department of Social Security [1997] AATA 66.

Remember, AAT decisions are not binding so the Commissioner has to say his position is in accordance with this decision, not that his position is based on this decision.

This AAT decision also concerned pizza delivery drivers who provided their own motor vehicles and were responsible for paying all expenses associated with the delivery of the pizza. The Tribunal Member concluded this was just casual employment, and not and independent contractor.

Lesson: It is really hard to get the employee/ contractor question right. The Commissioner says up to 20% of all payroll audits find at least one mistake of this type.

Tip your pizza deliverer. They are about to get hit with PAYGW and SGC…

Cases Income Tax

35-55 and non commercial losses discretion

Given it happens so infrequently, I thought I should mention a case where the AAT has required the Commissioner to exercise his discretion to not apply the non commercial losses rule in Division 35 of the ITAA97.

In AAT Case [2014] AATA 620, Re Bentivoglio v FCT a medical doctor earning over $250,000 (so could not use the four exemptions) wanted to apply losses from his olive business against his other income.

The non commercial losses rules would not let him do this, so he asked the Commissioner to exercise his discretion to not apply these rules (the discretion is in section 35-55) and, like almost always, the Commissioner refused.

The taxpayer went to the AAT and stated the losses were due to the olive lace bug, drought, fire, an olive glut worldwide and the illness of a key worker. The taxpayer said these were special circumstances so the Commissioner should exercise his discretion. And at AAT agreed.

So tick off these issues and it might be worth asking for the 35-55 discretion next time you get stuck with unusable losses due to the rest of Division 35.

Cases FBT

FBT and Canberra Airport – my vicarious victory

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Many years ago I prepared to take the ATO to the AAT for a large entity on whether the car park at Canberra airport was a commercial car parking station. If it was, FBT was payable when employers provided parking at the airport for employees.

The definition of commercial car parking station states that the car park must be open to the public. The terms of parking at Canberra Airport are you must be a passenger or a “meeter or greeter”. I was ready to argue this was not the public, when the Commissioner conceded the case less than a week before the hearing.

I was happy with the outcome, the large refund for my client, and the lunch that the owner of the airport took me on… But… I wanted to argue my case. I wanted a judgement not a concession letter.

It might be a few years after my little victory but the same argument I ran just won the day again… But this time there is a judgement – See (Qantas v Commissioner of Taxation ).

I am going to claim that Qantas found out my little argument from the private ruling I put together or from the wonderful guys at Canberra Airport Group and claim a little piece of this victory.

By the way, do you think every airport will now change the conditions of its parking stations???

Please appeal the case Commissioner as I want another win!

Cases Funny Stuff

The ATO has to be joking…

The next time the ATO complains about your client’s attention to detail remind of The Study and Prevention of Psychological Diseases Foundation Incorporated.

Back in 2007 a group of guys wanted to live the high life – sports cars, gambling,… But due to the tax rates they did not have enough money. So they duped the ATO into funding their high life… Legally!

They applied for a charity called The Study and Prevention of Psychological Diseases Foundation Incorporated. It was going to investigate certain effects on these guys, including driving sports cars and gambling. The ATO gave charity status to them and DGR status. Now, the donated their discretionary income to the charity, and used it tax free on fun stuff. They actually invested some of the amounts they invested to get returns and even donated assets worth millions of dollars.

It took until a review in 2011 for the Commissioner to take away these registrations… YOU HAVE TO BR KIDDING ME! The owners of the charity challenged the decision in the AAT but fortunately lost.

Tax free fun for four years… All on the ATO

Cases Funny Stuff

What a great use of the Court’s time…

After the AAT and the Federal Court had a go, in November the High Court, the best jurisprudential minds, with combined experience of over a century, had a really useful challenge.

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The Administrative Appeals Tribunal and the Federal Court both (with the exception of Dodds-Streeton J) found that Sea Shepherd did not provide ‘short-term direct care animals without owners’ to whales.

They found this because:

– Short-term direct care requires provision of physical assistance, such as food, shelter or veterinary care to animals which require care of that nature. Sea Shepherd’s principal activity of protecting whales from harm does not constitute care of animals.

– Whales are not animals that would ordinarily be expected to have owners from whom they have subsequently become separated.

More info is at the Commissioner’s Decision Impact Statement at

But how cool is it that the greatest legal minds have had to work out if putting yourself between a harpoon and a whale is short term direct care? Even cooler is whether they have owners… Go Willy… Be free Willy…


Federal Court v High Court… Battle lines drawn

I was going to write a blog on the tax High Court decisions in 2013, but I started to notice a trend, and a worrying trend at that.

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In the Unit Trend case the High Court overturned a Federal Court decision that the GST anti avoidance rules in Division 165 did not apply. The facts were that a taxpayer put in a GST group and had transactions in the group to reduce GST payable by tens of millions of dollars. In my opinion this was certainly a situation that Division 165 applied to but the Federal Court took a very technical view and let the taxpayer off (this was just a choice and not a scheme…). Fortunately the High Court made a sensible decision.

In the Consolidated Media case the High Court overturned a Federal Court decision that no capital gain arose in relation to an off market share buyback. The facts were that the taxpayer wanted to do an off market share buy back and wanted as much as they could be treated as a franked dividend rather than a capital gain. Therefore, they created a new account called a “share buy back account”, funded by share capital, and argued that as the buy back did not come directly from share capital, even though the new account was just a share capital account by another name. The Federal Court accepted this technical argument, but fortunately the High Court made a sensible decision.

In the Qantas case the High Court overturned a Federal Court decision that there was no supply made by Qantas to people who do not turn up for their flights and so there is no GST payable on the amount paid. Of course there is a supply whether or not you turn up by the Federal Court took a very technical review of the carriage contract, but fortunately the High Court made a sensible decision.

In the Bargwanna case the High Court overturned a Federal Court decision that a trust met the rules to be a charity under Division 50 even though the case in the charity was used to offset a private home loan by a high wealth related party. The Federal Court came it its conclusion through a very technical review of the rules of what the funds of a charity can be used for, but fortunately the High Court made a sensible decision.

In the Mills case the High Court overturned a Federal Court decision that the imputation streaming provisions in Part IVA apply… Do I really need to say this but guess who made a decision based on technical arguments and guess who made the sensible decision.

And, apart from whether the Mining Tax was unconstitutional, this is all the tax cases the High Court has considered in the last two year. And in every case the Federal Court (apart from Edmonds J in the Mills case) has had to be put in its place. It appears the Federal Court keeps missing the forest for the trees. Fortunately, the High Court seems to keep an eye