A number of the 2020-21 Budget measures – personal tax cuts, loss carry-back, immediate expensing of depreciating assets, and the changes to the R&D tax incentive – have passed Parliament. The JobMaker hiring credit however has not passed Parliament, with the rules at exposure draft stage.
The San Remo Heights Pty Ltd v FC of T case is also an interesting read on whether GST applied to the sale of vacant land. The taxpayer argued that it was not liable for GST because the sales were not made in the course or furtherance of an enterprise.
From Government
2020-21 Federal Budget
The 2020-21 Federal Budget was handed down on 6 October 2020, delayed from the usual time in May. Legislation has already been introduced or passed to give effect to a number of the tax related measures announced on Budget night. Several of these (the loss carry-back rules, immediate expensing of depreciating assets, and the changes to the R&D tax incentive) are discussed in more detail in the legislation section below. Other proposed changes in the tax space include:
- An update to the company residency rules;
- Changes to the CGT treatment of ‘granny flat’ arrangements; and
- Changes to thresholds for accessing some small business tax concessions.
Company residency
The company residency rules are proposed to be modified such that a company that is incorporated offshore will be treated as an Australian tax resident if it has a “significant economic connection to Australia”. This test will be satisfied if both:
- The company’s core commercial activities are undertaken in Australia; and
- Its central management and control is in Australia.
To some extent this is meant to alter the application of the current central management and control test for company residency by creating a higher threshold than simply carrying on a business in Australia. Recent guidance from the ATO on that test has indicated that a company that carries on a business anywhere would be treated as a resident of Australia if its central management and control is in Australia to some extent.
CGT treatment of granny flats
The Government has announced that changes will be made to ensure that a capital gain will not result from the creation, variation or termination of a formal written granny flat arrangement. A granny flat arrangement generally involves the granting of a right to a relative to live with the taxpayer in exchange for payment.
Ordinarily the granting of that right will trigger CGT implications under CGT event D1 and it is not currently possible to apply the main residence exemption or the general CGT discount to capital gains arising under CGT event D1. Also, the market value substitution rules can potentially lead to a significant capital gain under the current rules. At this stage it is not entirely clear how the Government will address the key tax issues that currently arise in relation to these arrangements.