 |
|
| How can we help? |
 |
| Contact us |
 |
|
|
|
|
|
|
|
|
Welcome to the September edition of BDO Kendalls' Tax News. This month we highlight a number of recent decisions and take a look at the new Australia/Japan tax treaty, the 2008-09 Compliance Program, and an upcoming review of the Australian taxation system.
| | | |
|
Review of taxation system commences
|
  |
In the 2008-09 Budget, the Government announced a comprehensive review of the Australian Taxation System. Read more |
|
New Australia/Japan tax treaty
|
|
The International Tax Agreements Amendment Bill (No. 1) 2008 was recently introduced into Parliament and contains a modernised tax treaty between Australia and Japan. Read more |
|
Guidance on dividend exemptions
|
|
The ATO has issued two Tax Determinations dealing with the exemption from tax of certain dividends paid by a non resident to a resident company (Taxation Determinations TD 2008/24 and 2008/25).
The tax law provides an income tax exemption for dividends ‘paid’ by a non resident company to a resident company where the resident company has a voting interest of at least 10% in the non resident company. This requires the resident company to be the beneficial owner of shares in the non resident company (that is, the company holds the bundle of rights associated with ownership of the shares for its own benefit and not for the benefit of others).
In addition, the recipient company must not receive the dividend in its capacity as the trustee of a trust. The dividend is treated as non assessable, non exempt income (the main benefit of this treatment is that it does not impact on the losses of the recipient company, unlike ‘exempt income’).
The question considered in TD 2008/24 is whether the recipient company can obtain the exemption if it receives the dividend in its capacity as a partner in a partnership. The Determination concludes that the exemption is not available in this situation unless the partnership is part of a consolidated group.
The reason for this conclusion is that the partner is not the beneficial owner of shares that are assets of the partnership. While a partner may have a beneficial interest in each of the assets of the partnership, this does not equate to the beneficial ownership of the assets because the partners do not have title to any specific assets of the partnership.
If a partner is the registered owner of shares, this is on behalf of the partnership and not for their own benefit. So regardless of whether a single partner is the registered owner of the shares, or whether all of the partners are registered jointly, the shares are not beneficially owned by a company as required by the exemption provisions.
The ATO’s view is that the exemption provision is also not satisfied because the provision requires the dividend to be paid to a company, not a partnership. The scheme of the tax law treats the partnership as a taxpayer and calculates its taxable income accordingly. Therefore, the exemption provision cannot apply.
However, where the partnership is part of a consolidated group, the single entity rule deems the head company of the group to own the assets of the subsidiary members. That is, the head company will be the beneficial owner of the shares that the partnership owns. Therefore, the exemption conditions will be satisfied.
The question considered in TD 2008/25 is whether the recipient company can obtain the exemption if it receives the dividend in its capacity as a trustee of a trust. As noted above, the exemption provision does not apply where the dividend is received by a company in its capacity as a trustee of a trust.
Further, the recipient company must be the beneficial owner of the shares. Where the company owns the shares as trustee of a trust, the shares are held for the benefit of others (being the beneficiaries of the trust). Therefore, the requisite beneficial ownership by the company does not exist.
Where the trustee company on pays the ‘dividend’ to a corporate beneficiary, the ATO’s view is that the exemption will not apply. This is because the dividend is ‘paid’ to the trustee company, not the beneficiary (as the trustee company is the registered owner of the shares). In addition, the amount on paid to the beneficiary is not a ‘dividend’ but is instead a distribution of trust income. This would be the case even where the company is the trustee of a bare trust.
However, where the trustee is a subsidiary of a consolidated group, the single entity rule deems the head company of the group to own the assets of the subsidiary members. That is, the head company will be the beneficial owner of the shares that the trustee owns. Therefore, the exemption conditions will be satisfied.
BDO comment
These Tax Determinations were initially released in draft form and the final versions differ in some respects. In particular, the ATO has confirmed that a dividend paid to a partnership or trustee which is a subsidiary member of a consolidated group will be eligible for the exemption.
Changes to the drafts which are perhaps more contentious is the treatment of bare trusts and the ATO’s view in relation to the character of income as it passes through a trust.
The determinations also deal with entities such as corporate limited partnerships and public trading trusts which are treated as companies under the tax law. Where one of these types of entities receives a dividend from a non resident company, the ATO’s view is that the exemption is also not available.
|
|
Company reinstated for Part IVA
|
|
The Federal Court has ordered that a company should have its registration reinstated so that the Commissioner could make a Part IVA determination against the company Read more |
|
|
|
2008-09 Compliance Program
|
The Commissioner of Taxation recently released the ATO’s 2008-09 Compliance Program. The publication of the Compliance Program is part of the ATO’s policy of a more open and transparent Read more | | | |
|
Tax Design Review Panel
|
|
In February this year, the Government established a Tax Design Review Panel to examine ways to reduce delays in the enactment of tax legislation Read more |
|
Issuing shares for assets/services
|
|
The Commissioner has released Taxation Ruling TR 2008/5, which deals with the tax consequences for companies of issuing shares in return for the acquisition of assets Read more |
|
'Climate Ready Grants' program
|
|
The ‘Climate Ready’ program is a competitive based grants program delivered by AusIndustry. It aims to encourage growth and successful innovation Read more |
|
|
|
|
