Changes to the taxation of employee equity arrangements in ... - PwC

Issue 116: November 2009 

Electronic Bulletin of Australian Tax Developments 

Changes to the taxation of employee 

equity arrangements in Australia 

Inside this issue 

Changes to the taxation of employee 

equity arrangements in Australia 1 

PwC Submission on Proposed 

Changes to Enhanced Project 

By-Law Scheme (EPBS) 2 

GST and multi-party – Federal Court 

decision for the taxpayer 3 

Revised business combinations 

accounting standard AASB 3 – 

potential income tax implications 5 

Capital loss of approximately 

$1.5 billion not subject to Part IVA 7 

Corporate tax developments 8 

Goods and Services Tax (GST) 

Developments 9 

International developments 10 

State taxes 12 

Legislation Update 14 

Other news 15 

PricewaterhouseCoopers – 

recognised as a leading 

Tax Adviser in Australia in the 

recent International Tax Review 

Rankings for 2010 » 

On 21 October 2009, the Australian 

Government introduced legislation into 

Parliament that proposes changes to the 

taxation of employee share plans. This 

follows a number of announcements 

made by the Government since May 2009 

that had led to a degree of uncertainty. 

Although the legislation is yet to be 

enacted, at this stage it does not appear 

that the legislation will be opposed by 

other political parties and therefore we 

expect it to be passed. 

This means that companies can now move 

forward by making new awards under 

existing employee share plans and/or 

potentially redesigning their employee 

share plans, as many companies have been 

waiting for certainty before taking action. 

What are the details? 

The proposed legislative amendments 

have a number of significant differences 

from the current rules. Most notably: 

• The conditions for tax deferral are 

now more stringent, with an additional 

requirement that shares or rights/options 

are subject to a ‘genuine risk of forfeiture’. 

• Generally this will mean that for share 

options and restricted stock unit type 

awards, taxation arises on vesting 

(where there is a real risk of forfeiture 

and there are no genuine disposal 

restrictions on the underlying shares). 

However, it should be noted that in 

Australia tax can be payable on an 

earlier date in certain circumstances, 

for example on the cessation of 

employment. Further conditions apply 

in relation to restricted shares (these 

are not covered in this note). 

• There is no longer the ability for 

participants to elect to be taxed at 

grant on their employee share awards. 

• New employer reporting requirements 

have been introduced together with 

limited tax withholding for certain 

employee share awards. 

• A new approach to the taxation 

of employee share awards for 

internationally mobile employees 

has been introduced. 

If enacted, when will the new rules apply? 

Once enacted, the new rules will apply to 

awards acquired on or after 1 July 2009. 

What actions should you take? 

• Review the equity plans you currently 

operate and assess the impact the 

proposed changes will have on your 

plans. The changes will be particularly 

marked where share options are offered 

or there is no real risk of forfeiture. 

• Put in place procedures to ensure that 

the correct data on taxable amounts is 

collected. 

• Revisit employee communications. 

• Ensure the equity and remuneration 

arrangements that you have in place 

are achieving their objectives. 

For more information please contact your usual 

PricewaterhouseCoopers advisor or: 

John Fauvet, Partner 

Phone: +61 2 8266 8120 

john.fauvet@au.pwc.com 

John Sullivan, Partner 

Phone: +61 2 8266 3216 

john.william.sullivan@au.pwc.com 

Andrew Lazar, Partner 

Phone: +61 3 8603 3685 

andrew.lazar@au.pwc.com 

Paul O’Brien, Partner 

Phone: +61 3 8603 4182 

paul.obrien@au.pwc.com

TaxTalk – Electronic Bulletin of Australian Tax Developments 

PwC Submission on Proposed Changes 

to Enhanced Project By-Law Scheme (EPBS) 

Following on from AusIndustry’s release of 

the September 2009 EPBS Consultation 

Paper outlining the proposed changes to 

the scheme, PricewaterhouseCoopers 

(PwC) has prepared a submission on the 

likely impacts these changes will have on 

upcoming business projects. Included 

in our submission are comments and 

recommendations in response to each 

proposed change and other matters for 

consideration upon implementation of 

the changes. In particular, Brownfield and 

Greenfield Projects will need to be aware 

of these changes. 

While PwC addressed a majority of 

the changes and the potential issues 

associated with these changes, the 

key changes, which are most likely 

to impact future applicants are 

summarised below. 

Proposed Changes 

Revision of the list of eligible goods to 

include new classes of eligible goods. Items 

used only during construction of a project do 

not fall under a class of eligible goods and 

will be excluded from EPBS concessions. 

Requirement for prequalification of functional 

units by Industry Capability Network (ICN) or 

an independent technical expert. 

An Australian Industry Participation Plan (AIP 

Plan) must be developed early in the life of a 

project to be eligible for EPBS. 

The number of AIP Plan criteria will reduce 

to focus on the key elements of an AIP 

Plan. Additional emphasis may be placed 

on the applicant ensuring that a full, fair 

and reasonable opportunity to tender was 

identified and afforded to second and third 

tier suppliers for their project. 

Potential Impact on Business Projects 

• The proposed changes could lead to items integral to a functional unit being mistreated as 

‘auxiliary’ and assessed under a new class of eligible goods. This would be administratively 

onerous on project proponents as assessing these components separately from their 

functional unit would be highly inefficient and time consuming for applicants. Is this more 

about changing the accepted ‘notion’ of what comprises a functional unit – a departure from 

current practice introducing a higher level of complexity? 

• The proposed removal of items used solely for construction purposes from eligible goods 

could result in equipment that is integral to the construction of the project potentially being 

unfairly penalised and increase the cost of projects. 

• This proposed change will lead to unnecessary additional compliance burden and cost for 

applicants. Applicants could potentially be required to go through 3 to 4 levels (internally, by 

ICN, by Customs and by AusIndustry) of endorsement of their functional unit strategy. 

• The proposed change will realistically exclude some projects from EPBS. As the change 

does not provide any flexibility for long-lead items with limited numbers of global suppliers, 

many applicants will be unfairly excluded from the scheme due to the nature and timing of 

the procurement for these items. 

• The changes to the AIP Plan criteria may require applicants to oversee additional 

procurement by suppliers or sub suppliers to ensure early identification of opportunities for 

Australian industry through all tiers of supply. To apply these procurement criteria would be 

cost prohibitive and commercially unrealistic for applicants. 

• Project proponents would also be required to educate contractors, subcontractors, 

and technology providers to ensure they are aware of the AIP Plan and comply with its 

requirements. The extent of this is still unknown however the implementation of such a 

requirement would mean additional time and cost on applicants. 

PricewaterhouseCoopers :


Proposed Changes 

Further guidance to be provided with 

the current Australian availability tests. 

Applicants will need to show evidence there 

is no Australian producer currently producing 

or capable of producing, equivalent goods 

for the project through either: 

1. Statements from the ICN; 

2. Tariff Concession Order (TCO); 

3. A detailed report by a suitably qualified 

professional engineer. 

The applicant will need to agree on an 

eligible goods list with AusIndustry before 

the lodgement of the Implementation Report 

(minimum of 60 days). A much earlier 

approach will also need to be considered 

where an applicant intends to apply for a 

TCO to demonstrate non-availability. 

Project Acceptance applications and 

Implementation Reports must be submitted 

within the specified timeframes. 

Concessions are available from the date that 

the Implementation Report is deemed to be 

assessment ready, as opposed to the date of 

lodgment of the Implementation Report. 

Potential Impact on Business Projects 

For more information on the above matters or to discuss the proposed changes 

please contact your local PwC EPBS expert shown below. 

Darryl Daisley, Executive Director 

Phone: +61 8 9238 3341 

darryl.daisley@au.pwc.com 

Russell Wilkinson, Director 

Phone: +61 2 8266 2168 

russell.wilkinson@au.pwc.com 

• Potential ambiguity around the definition of the criterion ‘capable of producing equivalent 

goods’ could result in the ICN considering untested Australian suppliers of capital equipment 

to be qualified suppliers for the project. As a result, it may be difficult for applicants to receive 

duty concessions which could potentially place large amounts of investment at risk. 

• If applicants choose to use a TCO as proof of non-availability of goods for an Implementation 

Report, they may encounter timing issues as the draft guidelines specify that the TCO must 

be in force at the time the Implementation Report is deemed assessment ready. If goods 

are ordered early in the project where a TCO was in force, indicating that the goods are 

not available in Australia, and the TCO is revoked after the order is placed but before the 

Implementation Report is deemed assessment ready, applicants would potentially be unable 

to obtain the concession for the goods covered by the TCO. 

• The use of a detailed report by a professional engineer could also result in additional spend 

and additional dedication of resources by the project proponent. 

• This proposed change may lead to a greater need for multiple Implementation Reports. This 

would be administratively burdensome, time consuming and cost inefficient. 

• Applicants could potentially be precluded from using TCOs as a means of demonstrating 

non-availability of goods from Australian production where information on the composition 

of those goods is not readily available from suppliers at the time TCOs are required to 

be lodged. A TCO is very often the preferred means of demonstrating evidence of nonavailability 

and for applicants to be precluded from their use would be unreasonable. 

• Project proponents could potentially be disadvantaged due to a misalignment of the 

prospectivity of the scheme and the real commercial issues a project faces. This could 

potentially exclude eligible goods from concession due to information becoming available 

at a later stage, which may result in a delay of the date the Implementation Report is lodged 

and/or deemed assessment ready. 

Bill Cole, Director 

Phone: +61 3 8603 6043 

bill.cole@au.pwc.com 

Gary Dutton, Director 

Phone: +61 7 3257 8783 

gary.dutton@au.pwc.com 

GST and 

multi-party – 

Federal Court 

decision for 

the taxpayer 

In what has been a resounding victory for 

the taxpayer, the Federal Court handed 

down its decision, this week, in the multiparty 

case Secretary to the Department 

of Transport (Victoria) v Commissioner 

of Taxation of the Commonwealth of 

Australia. The case concerns subsidies 

paid by the Department of Transport (DoT) 

to taxi operators who provide services 

to Multi Purpose Taxi Program (MPTP) 

members, namely certain Victorian 

residents with disabilities. 

The Court found that there is in fact, a 

supply made to the DoT for which the DoT 

is entitled to claim a GST input tax credit. 

The Commissioner initially argued that 

the DoT cannot claim input tax credits 

for these payments because there is no 

supply between the taxi licence holder 

and the DoT for these payments. 



In an amended submission made after 

the first hearing, the Commissioner 

acknowledged that the DoT made an 

acquisition, however, this acquisition 

was not in respect of the provision of taxi 

services but rather was an acquisition of 

a certain right. 

Counsel for the DoT contended that 

while there is a supply to the passenger 

there is also a supply to the DoT or, 

alternatively, the supply made by the 

taxi licence holder is made to both the 

passenger and DoT. Under statute, 

taxi drivers are compelled to provide 

transport to MPTP members. There are 

a number of obligations the drivers must 

perform such as accepting a discounted 

payment from the member. All of these 

obligations are supplies that the taxi 

drivers make to the DoT and therefore 

are acquisitions made by the DoT. 

In forming the decision, the following 

points were made by the Court: 

• One set of facts may result in two 

or more supplies and two or more 

acquisitions. 

• Division 11 of the GST law, which deals 

with creditable acquisitions, should 

be interpreted from the acquirer’s 

perspective rather than the supplier’s. 

• DoT acquired a supply of a service being 

the carriage of a relevant MPTP member. 

Therefore, the supply by the taxi operator 

is not just a supply to the MPTP member 

but also a supply to the DoT. 

Notably, the other, earlier Federal Court 

case on multi-party arrangements, TT- 

Line Company Pty Ltd v Commissioner 

of Taxation (see July 2009 TaxTalk), was 

distinguished by Justice Gordon on the 

basis that the Court in that case was 

not asked to consider whether there 

was a separate supply made by TT-Line 

Company to the Department of Transport 

and Regional Services in return for 

rebates paid. 

What does this mean 

for businesses? 

This is a significant decision, which 

has potentially broad ramifications. 

It affects entities with any multi-party 

arrangements which involve paying an 

amount to another party and not claiming 

any input tax credits, in circumstances 

where the other party is remitting GST. 

Such arrangements are common across 

the private and public sectors. For 

example, in the government sector, the 

decision is of particular significance 

in relation to rebate, subsidy and 

concession arrangements. In the 

private sector, examples could arise, for 

example, in relation to employee travel, 

loyalty programs and legal fees paid in a 

mergers and acquisitions context. 

In such circumstances, taxpayers should 

consider protecting their entitlement to input 

tax credits by lodging ‘stop the clock’ letters 

with the Australian Taxation Office (ATO). 

In addition, entities which have stopped 

claiming input tax credits, or have repaid 

input tax credits previously claimed, 

based on decisions made by the ATO in 

respect of their circumstances, should 

consider their position in respect of any 

entitlement to interest from the ATO. 



Jonathan Doy, Partner 

Phone: +61 2 8266 7326 

jonathan.doy@au.pwc.com 

Todd Wills, Partner 

Phone: +61 2 6271 3554 

todd.wills@au.pwc.com 

Amanda Hocking, Partner 

Phone: +61 8 8218 7082 

amanda.hocking@au.pwc.com 

Kirsten Schirmer, Director 

Phone: +61 2 8266 8880 

kirsten.schirmer@au.pwc.com 

Michael Flanderka, Director 

Phone: +61 7 3257 8335 

michael.flanderka@au.pwc.com 

Jamie Clarke, Director 

Phone: +61 3 8603 6340 

jamie.clarke@au.pwc.com 

Sophia Varelas, Director 

Phone: +61 3 8603 3247 

sophie.varelas@au.pwc.com 

Christian Rogers, Director 

Phone: +61 8 9238 3405 

christian.rogers@au.pwc.com 



Revised business combinations accounting standard 

AASB 3 – potential income tax implications 

There are a number of areas of the 

income tax law where the tax treatment 

of a particular amount is driven by 

its accounting treatment. The more 

obvious interactions between accounting 

outcomes and tax outcomes include 

the tax consolidation regime, the thin 

capitalisation provisions, and the 

Taxation of Financial Arrangements 

(TOFA) 3 and 4 provisions that are now 

coming into practical effect. 

Additionally, from a compliance 

perspective, income tax filing positions 

are generally derived from an entity’s 

reported net income, with adjustments 

made where tax and accounting 

treatments differ. This means that in 

order for correct filing positions to be 

determined, the underlying accounting 

for a particular transaction or amount 

must be well understood. 

Clearly, it is important for tax practitioners 

to have a sound understanding of the 

way in which particular amounts are 

treated for accounting purposes, and 

to keep abreast of accounting changes 

(both adopted and proposed). This 

is by no means an easy task, and 

requires, at the very least, strong lines 

of communication between accounting 

and tax teams as part of the strategic 

planning process, the budgetary and 

forecasting process, the tax accounting 

process and the compliance process. 

The new Business 

Combinations accounting 

standard, AASB 3 

The revised business combinations 

accounting standard, AASB 3, has 

potentially important income tax 

implications. The revised standard 

applies to business combinations 

occurring on or after 1 July 2009 (but can 

be adopted earlier). 

The revised standard has introduced 

many changes to the way in which 

business combinations are accounted 

for, with a range of balance sheet and 

income statement implications. Entities 

must be able to identify and appropriately 

deal with the tax implications flowing 

from these changes. 

Some of these changes, and the 

potential income tax considerations 

flowing from them, include: 

• Acquisition costs are to be recognised 

separately from a business 

combination and generally expensed 

as incurred. Previously certain 

acquisition costs were treated as part 

of the acquisition cost. The result will 

be a lower amount of profit and the 

recognition of less goodwill. 

For income tax purposes: 

– 

the acquisition costs will often be 

non deductible expenses, so may 

require an ‘add back’ in calculating 

taxable income if accounting profit 

is used as a starting point. Care 

is needed, however, because not 

withstanding the treatment of 

such costs when accounting for 

a business combination in the 

consolidated accounts, they will 

still be capitalised as part of the 

accounting cost of the investment 

in the investor’s separate accounts. 

Therefore, if the taxable income 

is calculated using, as a starting 

point, the profit for the year of the 

individual company then an add 

back may not be required in the 

investor’s individual tax calculation; 



– 

– 

– 

the acquisition costs will often be 

eligible to be included in the capital 

gains tax (CGT) cost base of shares 

acquired; 

consideration will need to be given 

to whether any adjustment to the 

accounting value of goodwill is 

required if it is to be used as an 

equivalent to market value in a tax 

consolidation exercise; 

for thin capitalisation purposes, 

generally the values used in the 

financial statements are used in 

calculating the ‘safe harbour’ debt 

amount, and recognising a lower 

value in the consolidated accounts 

will impact on the safe harbour debt 

amount where the consolidated 

accounts are those used by the tax 

consolidated group 

• In a step acquisition, the preexisting 

interest held in the acquiree 

must be remeasured at fair value, 

with the difference recognised in 

the consolidated profit or loss. 

Acquisition accounting is only applied 

when control is obtained - the fair 

value of the pre-existing interest is 

included in the measurement of the 

purchase consideration. Previously, 

acquisition accounting had to be 

applied to each step. Any pre-existing 

interest continued to be measured 

at cost as part of the acquisition 

accounting process, and any fair value 

adjustments to the assets underlying 

any pre-existing interest were generally 

recognised in equity. 

For income tax purposes any fair value 

gain or loss recognised in profit or 

loss will need to be added back in the 

calculation of taxable income where 

the profit or loss is used as a starting 

point for calculating taxable income 

such as where the consolidated 

accounts are those of the tax 

consolidated group. 

• Any contingent consideration must 

be valued at its acquisition date fair 

value. Subsequent movements in 

fair value are not recognised where 

the consideration is classified as 

equity. Where classified other than as 

equity, changes in the fair value of the 

consideration generally impact the 

consolidated profit or loss. Previously, 

subsequent changes in fair value were 

generally recognised as additional 

purchase price until settled. 

For income tax purposes, the 

treatment of contingent consideration 

in the form of earn out payments has 

been the subject of some uncertainty 

regarding the appropriate amount to 

be included at step 1 of the allocable 

cost amount (ACA) process. The 

changed accounting now adds further 

to the need to take care in identifying 

and dealing with such consideration. 

The changed accounting may also 

impact on asset values to be used in 

the thin capitalisation safe harbour 

debt amount calculations. 

• The criteria for recognition of intangible 

assets have changed. It is now 

presumed that intangibles acquired 

in a business combination meet the 

criteria for recognition; that is, future 

economic benefits are probable and 

the cost can be reliably measured. 

Previously, reliable measurement of 

cost was not presumed, and needed 

to be demonstrated. The relaxed 

criterion will likely result in more 

intangible assets being recognised. 

From a tax consolidation perspective, 

intangible assets can pose particular 

difficulties in determining, for example, 

whether they should be recognised 

as separate assets, what their value 

is and what the income tax treatment 

is of any amounts of ACA allocated 

to them. This is an area which is still 

subject to debate with the Australian 

Taxation Office (ATO). Additionally, 

the recognition of more intangible 

assets could increase the amount of 

deferred tax liabilities recorded on 

the balance sheet, with potential flow 

on tax implications, such as for tax 

consolidation calculations. 

• Deferred tax asset adjustments 

will affect goodwill only if they are 

made within the 12-month period 

for finalising the accounting for 

the business combination and 

provided they arise as a result of 

new information about facts that 

existed at the acquisition date. 

Otherwise they will be recorded in 

the income statement or directly in 

equity. Previously, these adjustments 

were recorded through the income 

statement with a corresponding 

expensing of goodwill. 

For income tax purposes, an entity 

will need to consider whether 

adjustments to reported goodwill 

require adjustments to the way in 

which ACA is spread to all assets, 

including goodwill, as part of the tax 

consolidation cost setting exercise. 

The safe harbour debt amount for 

thin capitalisation purposes could 

also require adjustment. Any impact 

on asset values may have flow on 

effects in calculating safe harbour 

debt amounts for thin capitalisation 

purposes. 

More broadly, the revised standard 

could potentially increase the number 

of transactions which are classified 

as business combinations, which in 

turn could result in more deferred tax 

balances being recognised on the 

balance sheet. This is because under 

accounting standard AASB 112 - Income 

Taxes deferred tax assets and liabilities 

arising from temporary differences on 

initial recognition of assets and liabilities 

acquired are only recognised if those 

assets and liabilities are acquired in a 

business combination. 



Future developments 

It is possible that in the future 

the linkages between income tax 

and accounting will become more 

pronounced. Indeed, a number of 

submissions to Treasury’s current tax 

review project have suggested that 

further alignment be explored, with the 

aim of reducing tax compliance costs. 

As accounting treatments already 

influence income tax outcomes in a 

number of respects, and are likely to do 



Alistair Hutson, Partner 

Phone: +61 8 8218 7467 

alistair.hutson@au.pwc.com 

Tom Seymour, Partner 

Phone: + 61 7 3257 8623 

tom.seymour@au.pwc.com 

Peter Dunn, Partner 

Phone: + 61 7 3257 5670 

peter.dunn@au.pwc.com 

Ronen Vexler, 

Partner / National TAS Leader 

Phone: + 61 3 8603 3337 

ronen.vexler@au.pwc.com 

so to a greater extent in the future, an 

understanding of accounting outcomes is 

vitally important if an entity’s tax function 

is to operate effectively. 

Future editions of TaxTalk will consider 

the impact of other accounting changes 

which are now being implemented, and 

the likely impact of those accounting 

changes which have been finalised or 

proposed, but which are not yet able 

to be adopted. There are a number of 

significant changes which fall into these 

categories. 

David Romans, Partner 

Phone: + 61 3 8603 6862 

david.romans@au.pwc.com 

Belinda Harrison, Director 

Phone: + 61 3 8603 9226 

belinda.j.harrison@au.pwc.com 

Warren Dick, Partner 

Phone: +61 8 9238 3589 

warren.dick@au.pwc.com 

Martin Scully, Partner 

Phone: +61 2 8266 5545 

martin.scully@au.pwc.com 

Capital loss of approximately $1.5 

billion not subject to Part IVA 

News Group recently scored a major 

win against the Commissioner of 

Taxation in the Administrative Appeals 

Tribunal (AAT) when the AAT set aside 

the Commissioner’s determination 

made under Part IVA of the Income Tax 

Assessment Act 1936 to disallow a $1.5 

billion capital loss incurred by News 

Australia Holdings Pty Limited 

(the taxpayer). 

The loss arose from a global corporate 

restructure entered into by the News 

Group. The Commissioner determined 

that there was a scheme entered into with 

the dominant purpose of creating the loss, 

and that it should be treated as not having 

been incurred, meaning the losses would 

not be available to the taxpayer in future 

years to offset future capital gains. 

The global restructure was intricate and 

consisted of two stages: the relocation of 

the Group’s head company to the United 

States, and the subsequent reorganisation 

of a number of subsidiaries to eliminate 

inefficiencies within the corporate group. 

A critical issue for the Group was that 

the restructure would only take place 

on the condition that the transactions 

did not create a risk that a material tax 

liability would arise in any jurisdiction. 

The AAT found that the Group had been 

considering the reorganisation as early as 

the 1980s, but had not proceeded with it 

until changes to Australian capital gains 

tax which were introduced in 1999 made 

it commercially viable to proceed. 

The Group sought and obtained private 

rulings from both the Internal Revenue 

Service in the United States and from 

the Australian Taxation Office (ATO) in 

relation to aspects of the reorganisation. 

This was consistent with the Group’s 

policy of taking a cautious approach 

to tax risks, particularly where large 

numbers were involved. 

The ATO provided a ruling that stated 

that there would be no liability to tax in 

Australia arising from the Australian steps 

in the reorganisation, including by way 

of Part IVA. The ATO however reserved 

its position as to whether Part IVA might 

apply to disallow the anticipated capital 

loss that would arise to the taxpayer, 

and ultimately it did apply Part IVA to set 

aside that loss. 

The Commissioner placed significant 

reliance on what he described as 

the “circular nature of the steps 

constituting the scheme”. This was 

rejected by the AAT on the basis that 



there were real and substantial changes 

in company ownership arising from 

the reorganisation, and that there 

were real and significant commercial 

reasons for the reorganisation. The AAT 

distinguished these real changes in 

corporate ownership from a situation 

where a “round robin” of cheques passes 

between related entities, creating an 

illusion of substantial payments where 

in fact nothing has changed between 

the entities. 

In responding to the Commissioner’s 

assertion that the arrangements were tax 

driven, the taxpayer relied heavily on its 

policy of not taking actions that would 

create significant tax risks (“no risk, no 

tax risk”). While the AAT held that in this 

case the “particular steps undertaken 

were sensible and rational when 

measured against the ‘no tax, no tax 

risk’ requirement”, it also noted that the 

commercial factors behind a transaction 

are not determinative of whether Part 

IVA can apply. The question will always 

be, as a matter of fact and determined 

objectively, what was the dominant 

purpose of entering the arrangement? 

This decision demonstrates that it is 

possible for complicated commercial 

transactions which result in significant 

tax benefits to be implemented without 

falling foul of the ATO’s general antiavoidance 

provisions. The ATO is 

however expected to appeal. 



Michael Bersten, Partner 

Phone: +61 2 8266 0470 

michael.bersten@au.pwc.com 

Paul McNab, Partner 

Phone: +61 7 3257 8894 

paul.mcnab@au.pwc.com 

Chris Sievers, Partner 

Phone: +61 7 3257 8896 

chris.sievers@au.pwc.com 

Corporate tax developments 

Capital gains tax and 

pre sale dividends 

On 14 October 2009 the Commissioner 

of Taxation issued draft Taxation Ruling 

TR 2009/D5. which considers the 

circumstances when a dividend will be 

included in ‘capital proceeds’ (for capital 

gains tax purposes) in respect of the 

disposal of shares that happens under a 

contract or a Scheme of Arrangement. 

Under the capital gains tax (CGT) rules, 

generally where a taxpayer disposes of a 

CGT asset, the taxpayer: 

• makes a capital gain where the ‘capital 

proceeds’ from the disposal exceed 

the CGT cost base of the asset, and 

• 

incurs a capital loss where the CGT 

reduced cost base of the asset exceeds 

the ‘capital proceeds’ from the disposal. 

In disposing of shares in a company, 

it is often the case that the vendor 

shareholders may seek to access 

accumulated profits of the company 

(target) at the date of sale, and agree 

with the purchaser that before settlement 

of the contract, such dividends are to 

be paid. Generally the quantum of the 

dividends paid is deducted from the 

agreed sale price of the subject shares. A 

similar approach may be adopted under 

a formal Scheme of Arrangement entered 

into by the shareholders. 

Under these arrangements, the issue 

that arises for consideration is whether 

the dividend paid by the target should 

be treated for CGT purposes as a 

component of the ‘capital proceeds’ 

for disposal of shares in the target. If it 

is, then notwithstanding that generally 

the dividend would be assessable to 

the vendor shareholder (assuming the 

shareholder is a resident and the dividend 

is not otherwise exempted from tax), the 

amount would also be taken into account 

(as ‘capital proceeds’) in calculating 

whether the vendor shareholder made a 

capital loss on disposal of the shares in 

question. The amount would also be taken 

into account in calculating any capital gain 

on disposal of the shares, although to the 

extent that the dividend is assessable, 

generally the capital gain will be reduced 

under an ‘anti-overlap’ provision in the 

CGT rules which is designed to prevent 

double taxation. 

In draft Taxation Ruling TR 2009/D5, the 

Commissioner expresses the view that 

dividends paid by a target company will 

be included in a vendor shareholder’s 

‘capital proceeds’ for disposal of 



shares to which the dividend relates, 

where the shareholder receives or is 

entitled to receive the dividend under 

the contract for the sale of the shares 

or under a Scheme of Arrangement for 

disposal of the shares. According to the 

Commissioner, this is because ‘capital 

proceeds’ as defined includes not only 

amounts received, but also amounts 

which the taxpayer is entitled to receive 

in respect of the disposal. 

Therefore, according to the 

Commissioner, a dividend will be 

included in the ‘capital proceeds’ of a 

disposal of shares under a contract if: 

• the vendor shareholder is entitled 

under the contract to refuse to 

complete the transfer if the dividend is 

not declared by the target company or 

if the dividend is not paid by the target 

company, or 

• the vendor shareholder is entitled 

to refuse to complete the transfer if 

a purchaser or third party does not 

finance or facilitate payment of the 

dividend, or 

• if the vendor shareholder has 

bargained for any other obligation 

on the part of the purchaser to bring 

about the result that the dividend shall 

be received by the vendor shareholder. 

Draft Taxation Ruling TR 2009/D5 contains 

a number of examples explaining how 

the Commissioner would apply the law in 

different situations. Interestingly, while a 

dividend paid in accordance with the terms 

of the contract of disposal of shares will, 

according to the Comissioner, be treated 

as the ‘capital proceeds’ received by the 

vendor shareholder, the dividends will not be 

included in the CGT cost base of the shares 

acquired by the purchaser, as the dividends 

are not money or property provided by the 

purchaser to acquire the shares. 

It is proposed that the draft Taxation Ruling 

when finalised is to apply both before 

and after the date of finalisation, and any 

submissions with respect to the draft are 

required before 27 November 2009. 

Tax consolidation and liabilities 

to be taken into account 

On 9 October 2009 the Full Federal 

Court delivered its decision in Handbury 

Holdings Pty Ltd v Commissioner of 

Taxation [2009] FCAFC 141. At issue was 

whether certain liabilities of a company 

which ‘exited’ a tax consolidated group 

upon the issue of shares in the company 

to third parties (resulting in the company 

ceasing to be a ‘subsidiary member’ 

of the tax consolidated group) were 

to be taken into account as liabilities 

of the company at the ‘leaving time’. 

The effects of taking the liabilities into 

account were to create a capital gains 

tax (CGT) event (CGT event L5) for the 

company, and to increase the capital 

gain made by the head company of the 

group upon the sale of shares in the 

subsidiary member. The taxpayers had 

argued that the liabilities should not be 

taken into account as the liabilities had 

been discharged at the leaving time. 

At first instance, the Federal Court had 

found against the taxpayers (see Handbury 

Holdings Pty Ltd v Commissioner of 

Taxation [2008] FCA 1787) and this 

decision was upheld on appeal to the Full 

Court. In the Court’s opinion the liabilities 

to be taken into account were the liabilities 

that existed immediately before the leaving 

time, and since the liabilities in question 

were discharged pursuant to completion 

of the transaction that resulted in the 

company leaving the group, the liabilities 

were in existence immediately before the 

leaving time. 



Julian Myers, Partner 

Phone: + 61 (7) 3257 8711 

julian.myers@au.pwc.com 

Frank Cooper, Partner 

Phone: +61 8 9238 3332 

frank.cooper@au.pwc.com 


Phone: + 61 (7) 3257 8623 


Ronen Vexler, Partner 

Phone: + 61 (3) 8603 3337 

ronen.vexler@au.pwc.com 

David Ireland, Partner 

Phone: +61 (2) 8266 2883 

david.ireland@au.pwc.com 

Goods and 

Services Tax 

(GST) 

Developments 

Review of GST administration 

– second Exposure Draft 

legislation released 

As reported in the TaxTalk GST Special 

Edition issued on 12 October 2009, the 

Government has released Exposure Draft 

Legislation containing the first set of 

measures intended to make the GST law 

more transparent and reduce compliance 

costs for businesses. The proposed 

measures address seven of the 42 

recommendations made by the Board of 

Taxation and accepted by Government, 

including: 

• the proposed amendments to limit 

claims for input tax credits and fuel tax 

credits to a four year period 

• amendments to the domestic agency 

rules, and 

• other minor technical amendments 

covering the associate provisions, 

overpaid refunds, gambling supplies, 

supplies to residents of Australia’s 

External Territories, and the adjustment 

note threshold. 



For further details, on the proposed 

provisions, see the TaxTalk GST 

Special Edition. 

GST and partnerships 

On 7 October 2009, the Australian Taxation 

Office (ATO) issued GST Determination 

GSTD 2009/2 on the GST consequences 

when a partner in a partnership takes 

goods held as trading stock for private 

or domestic use. The Determination 

represents a change in the ATO’s view, 

and replaces GSTD 2003/2, which was 

withdrawn with effect from 8 April 2009. 

GSTD 2003/2 stated that when goods 

are removed from trading stock by a 

partnership for private consumption 

by a partner, there was an application 

solely to private or domestic use by the 

partnership and therefore the partnership 

may have an increasing adjustment. The 

Determination stated that this application 

to private use did not involve a supply 

made in the course or furtherance of 

an enterprise being carried on, and the 

associate provisions in Division 72 of the 

GST law had no operation. 

In GSTD 2009/2, the ATO has revised 

its view, to bring it in line with views 

expressed in other rulings about when 

a supply made by a partnership to a 

partner will be made in the course or 

furtherance of the enterprise carried on 

by the partnership. For example, the 

Determination states: 

• As the partnership is a separate 

entity to the partner, when a partner 

in a partnership takes goods held 

as trading stock for private or 

domestic use, there is a supply by the 

partnership to the partner. 

• The supply is in the course or 

furtherance of the enterprise carried on 

by the partnership. The application of 

the goods held as trading stock in the 

enterprise carried on by the partnership 

establishes the necessary connection 

between the supply of the goods and 

the partnership’s enterprise. 

• Provided the other elements of a 

taxable supply are satisfied, the 

supply will be a taxable supply by the 

partnership to the partner. 

• If the partner provides no consideration, 

or inadequate consideration for the 

supply, the associate rules in Division 

72 will apply so that the value of 

the taxable supply will be the GST 

exclusive market value of the supply. 

New Margin Scheme 

Valuation Determination 

The A New Tax System (Goods and 

Services Tax) Margin Scheme Valuation 

Requirements Determination MSV 

2009/1 was registered on the Federal 

Register of Legislative Instruments on 20 

October 2009. The Determination, which 

commences on 1 March 2010, specifies: 

• the requirements for making valuations 

for the purposes of the margin scheme 

under Division 75 of the GST law 

– these apply to valuations for taxable 

supplies of real property made on or 

after 1 March 2010, and 

• the requirements for making valuations 

obtained by the Commissioner for 

the purposes of applying the margin 

scheme in specified circumstances 

– these apply to valuations for taxable 

supplies of real property made before, 

and on or after 1 March 2010. 

For further information please contact your usual 


Patrick Walker, Partner 

Phone: +61 (2) 8266 1596 

patrick.walker@au.pwc.com 

Ken Fehily, Partner 

Phone: +61 (3) 8603 6216 

ken.fehily@au.pwc.com 

Kevin O’Rourke, Partner 

Phone: +61 (2) 8266 3114 

kevin.orourke@au.pwc.com 

Michelle Tremain, Partner 

Phone: +61 (8) 9238 3403 

michelle.tremain@au.pwc.com 


Phone: +61 (8) 8218 7082 


International 

developments 

Exchange of tax information 

agreement with Guernsey 

On 8 October 2009, the Assistant 

Treasurer announced that Australia 

and Guernsey had signed a new tax 

information exchange agreement (TIEA). 

The TIEA with Guernsey provides 

for bilateral exchange of taxpayer 

information, on request, for both civil 

and criminal tax purposes and allows 

the Commissioner of Taxation to seek 

information relevant to an Australian tax 

investigation directly from the authorities 

in Guernsey. 

The Assistant Treasurer also announced 

that Australia and Guernsey had signed 

an agreement on the allocation of 

taxing rights over certain income of 

individuals. This will eliminate double 

taxation of certain income derived by 

government employees and students. 

Additionally, the agreement will establish 

an administrative mechanism to resolve 

transfer pricing disputes between 

taxpayers and the revenue authorities of 

Australia or Guernsey. 

The two agreements will enter into force 

after both countries have completed their 

PricewaterhouseCoopers : 10


relevant domestic requirements. In this 

respect the Assistant Treasurer advised 

that legislation will be introduced into 

the Australian Parliament as soon as 

practicable. 

New Zealand: 

Government commitment 

to align tax rates 

On 25 September 2009, the New 

Zealand Revenue Minister, in an 

address to the Employers and 

Manufacturers Association’s Tax Summit 

2009, confirmed the Government’s 

commitment to the eventual alignment 

of the New Zealand (NZ) top personal 

tax rate, company tax rate and trustee 

tax rate. The Minister also confirmed 

that the Government had made no 

decisions regarding the future of NZ’s 

tax mix. He said that no decisions would 

be made until the Tax Working Group, 

co-ordinated by Victoria University in 

partnership with Treasury and the Inland 

Revenue, had reported to Officials and 

the Henry Tax Review had completed its 

review of Australia’s tax system. 

The Government also released an 

updated tax policy work program for 

2009-10. The program includes the 

following: 

• the release of an issues paper in 

2009 on extending the active income 

exemption to non portfolio ‘foreign 

investment funds’ and branches 

• the introduction of a tax Bill in 

November 2009 

• the release of an issues paper as 

soon as practicable on International 

Financial Reporting Standards and 

financial arrangements, and 

• the release of a discussion document 

in 2009 on goods and services tax 

business to business transactions. 

New rules in China to claim 

treaty benefits and relief 

China’s State Administration of Taxation 

(SAT) has recently released Circular 

124, which sets out the new rules which 

companies and individuals must follow in 

order to claim Double Tax Treaty Benefits. 

Until now, China has adopted a selfassessment 

type model for companies 

and individuals to claim benefits and 

tax relief under the various Double Tax 

Treaties (DTAs) that China has with other 

countries. The SAT has, however, formed 

a view that the local tax bureaus in China 

have not been properly applying DTA 

benefits and that there has not been 

consistent interpretation or application, 

resulting in significant loss of revenue. As 

a result, with effect from 1 October 2009, 

DTA benefits will no longer be granted 

automatically. The entity or individual 

will need to undertake a stringent 

application/record filing process in order 

to claim DTA relief. 

United States: 

Exchange of tax information 

agreement with Switzerland 

On 23 September 2009, the United States 

(US) Department of Treasury issued a 

media statement advising that, as part of 

the Obama Administration’s aggressive 

efforts to enforce US tax laws and 

reduce offshore tax evasion, the Treasury 

Secretary and the Swiss Ambassador to 

the US had signed a protocol updating 

the current income tax treaty between the 

US and Switzerland to allow for greater 

tax information exchange. 

According to the statement, the protocol 

revises the existing income tax treaty 

between the countries to allow for the 

exchange of information for income tax 

purposes to the full extent permitted 

by Article 26 of the Organization for 

Economic Co-operation and Development 

(OECD) Model Income Tax Convention. 

The protocol also provides for mandatory 

arbitration of certain cases and addresses 

issues around the cross-border taxation of 

individual retirement accounts. 

Australian Taxation Office 

releases 2008-09 APA 

program update 

The Australian Taxation Office (ATO) 

has released its annual report on the 

Advance Pricing Arrangement (APA) 

program, which provides an analysis of 

the completed cases for the financial 

year ended June 2009 (2008-09).Overall, 

APAs continue to be an important 

tool that should be considered for risk 

management purposes since taxpayers 

may be able to obtain certainty and 

reduce the risk of audit and penalty. 

Summary 

During 2008-09, the ATO completed 

29 APAs (compared with 48 in 2007- 

08), including 13 renewals, 9 new APAs 

encouraged by compliance activity 

and 7 ‘unprompted’ new APAs. Of 

the 29 completed APAs in 2008-09, 

approximately one half were with large 

business taxpayers (i.e. taxpayers with 

revenues exceeding $A250 million) 

and the remainder were in the small to 

medium enterprise (SME) segment (i.e. 

taxpayers with turnovers between A$2 

million and A$250 million). 



In 2008-09, bilateral and multilateral 

APAs were completed with Denmark, 

Japan, New Zealand, United Kingdom 

and the USA. 

The completed APAs covered a wide 

range of related party inbound and 

outbound dealings, including: 

• 

• 

• 

• 

• 

tangible goods 

IT software and hardware 

business and management services 

metal and mineral exports 

licensing and acquisition of both trade 

and marketing intangibles 

guarantee fees, financial services and 

currency trading. 

• 

As in previous years, the transactional 

net margin method (TNMM) was most 

commonly used in APAs, as many 

businesses have access to independent 

comparable data in Australia and 

elsewhere to show that related party 

dealings achieve an arm’s length 

outcome. However, approximately onequarter 

of the APAs completed in 2008-09 

used the comparable uncontrolled price 

(CUP) method or the profit split method. 

On average, it took 11 months to process 

an APA from lodgement to finalisation in 

2008-09 (compared with 11 months in 

2007-08). Specifically, the average time 

for completing unilateral APAs was 10 

months and 12 months for bilateral APAs. 

In 2008-09, a renewal application took 

20 per cent longer to process compared 

to a new application, although generally 

in previous years a renewal application 

took less time than a new application. In 

2008-09, an application involving an SME 

taxpayer took 66 per cent less time than 

one involving a large business (compared 

to 45 per cent in 2007-08), which the 

ATO credits to its efforts to streamline the 

APA process for SMEs. 

As at 30 June 2009, the ATO had 15 

APA cases at the pre-lodgement stage 

(compared with 20 at 30 June 2008) and 

39 cases were lodged and in progress 

(compared with 23 at 30 June 2008). 

In response to the recent economic 

conditions, taxpayers have negotiated 

various alternatives for APAs with the 

ATO, including shorter APA periods, more 

specific critical assumptions and deferred 

commencement dates for the APA. 

PricewaterhouseCoopers’ review 

of the APA program 

The ATO’s annual report noted that 

PricewaterhouseCoopers conducted 

an independent review of the APA 

program and provided recommendations 

to improve its effectiveness and 

efficiency. The PricewaterhouseCoopers 

report (the Report) identified 14 key 

recommendations intended to reinvigorate 

the program, improve its relevance to 

the needs of industry and make it more 

sustainable in the long term. Whilst 

the ATO’s reaction is positive in terms 

of agreement with the broad thrust 

of the recommendations made by 

PricewaterhouseCoopers, the ATO places 

heavy reliance on the implementation 

of the proposed Transfer Pricing 

Management System (TPMS) to provide 

the appropriate foundation upon which to 

build a new, improved APA program. 

Until this new system is fully 

implemented it is uncertain whether it will 

be the panacea for the majority of the 

issues identified in the Report. 




Phone: + 61 (7) 3257 8623 


Anthony Klein, Partner 

Phone: + 61 (3) 8603 6829 

anthony.klein@au.pwc.com 

David Pallier, Partner 

Phone: + 61 (2) 8266 4700 

david.pallier@au.pwc.com 


Phone: +61 8 9238 3332 



Phone: +61 (8) 8218 7082 


Julian Myers, Partner 

Phone: +61 (7) 3257 8711 

julian.myers@au.pwc.com 

State taxes 

New South Wales: 

Businesses not grouped 

for payroll tax purposes 

In Tasty Chicks Pty Ltd & Ors v Chief 

Commissioner of Taxation of State 

Revenue [2009] NSWSC 1007 the New 

South Wales (NSW) Supreme Court 

considered the ‘grouping provisions’ 

of the payroll tax law of NSW under 

which generally, the Chief Commissioner 

may ‘group’ a number of employers for 

the purposes of assessing payroll tax. 

The effect of ‘grouping’ a number of 

employers is that the general exemption 

from tax claimed by each such employer 

is not available, resulting in a higher level 

of payroll tax being payable. 

In the case under consideration, the Chief 

Commissioner had made a determination 

that three employers did not carry on 

business substantially independent of 

one another, and that the employers 

were substantially connected. Based on 

the facts, two of the employers provided 

services almost exclusively to the other 

employer (a partnership) to allow it to 

service its customers, and as a result of 

this relationship, the Chief Commissioner 

levied payroll tax on the basis that the 

employers were required to be ‘grouped’ 



under the relevant legislation. For the 

period 1 July 2001 to 30 June 2003 this 

was under section 16C of the Payroll Tax 

Act (NSW) and for the period 1 July 2003 

to 30 June 2005 under section 16H of the 

Taxation Administration Act (NSW), which 

replaced section 16C of the first mentioned 

statute upon repeal of that section. 

Justice Gzell considered in detail 

the relationship between the parties 

and found that the partnership had 

no ownership interest in the other 

employers nor exercised control over 

the way in which the other employers 

ran their respective business. Based 

on this finding, Justice Gzell held that 

in respect of the first period, the Chief 

Commissioner was unable to apply 

section 16C to group the businesses of 

each employer as there was no singular 

business being conducted. In reaching 

this conclusion, his Honour said that 

the “purpose of grouping provisions 

is to eliminate the practice of splitting 

business activities among separate 

employers to take advantage of the 

general exemption from tax. It does not 

extend to grouping independent service 

providers with their customers”. 

In respect of the second period, the 

relevant provision authorised the Chief 

Commissioner to ‘group’ two employers 

where there was an agreement between 

them under which an employee of one of 

them works solely or mainly in connection 

with the business carried on by the other 

employer or both of them. However, under 

section 16B of the Payroll Tax Act (NSW), 

the Chief Commissioner was authorised 

to make a determination that a person 

not be included in a ‘group’ but subject 

to section 16C. Section 16C provided 

that the Chief Commissioner was not 

authorised to make such a determination 

unless satisfied that the person who 

is the subject of the determination has 

continuously carried on the business 

concerned, and will continue to carry on 

that business, substantially independently 

of the other members of the group. 

Based on the finding that the businesses 

were carried on independently, Justice 

Gzell held that there was no prohibition 

on the Chief Commissioner making the 

determination that the employers not be 

included in a ‘group’. Having regard to the 

clear words of the statute, Justice Gzell 

also held that it was open for the Court to 

make the determination and his Honour 

thus determined that the employers not 

be ‘grouped’ for payroll tax purposes in 

respect of the second period. 

The decision provides a salient reminder 

to readers of the need to carefully consider 

whether the ‘grouping’ provisions of 

the payroll tax law might apply to their 

particular circumstances. There are 

‘grouping’ provisions in the payroll tax 

laws of each State and Territory. 

Northern Territory: 

High Court holds that option to 

lease was an interest in land 

In our June 2009 edition of TaxTalk, we 

reported that the High Court had granted 

special leave to the litigants to appeal the 

decision of the Northern Territory’s Court 

of Appeal in Commissioner of Territory 

Revenue v Alcan (NT) Alumina Pty Ltd 

[2008] NTCA 14. In that decision, the 

Court had held that an option to renew 

a lease was to be taken into account in 

determining whether the Territory’s land 

rich duty laws applied to the transfer 

of shares in the company which held 

the lease incorporating the option. In 

the event that the option was to be so 

included, the High Court was required 

(and had agreed) to consider whether the 

company had goodwill for the purposes 

of the calculating asset values under the 

relevant land rich duty law. With respect 

to this latter issue, the Commissioner had 

contended that there was no goodwill, in 

view particularly of the remote location 

of the company and the fact that the 

company’s output was sold to mainly 

one customer and thus the company was 

unable to attract custom. 

On 30 September 2009, the High Court 

delivered its decision (see Alcan (NT) 

Alumina Pty Ltd v Commissioner of 

Territory Revenue [2009] HCA 41) on 

the appeal, with the Court unanimously 

finding that, having regard to the statute 

under consideration, the option to renew 

the lease was not to be taken into account 

in valuing the lease for the purposes of 

applying the relevant land rich duty laws. 

At issue in the case was whether the 

definition of ‘lease’ in the relevant statute 

should apply in determining what assets 

were ‘land’ for the purposes of assessing 

land rich duty. The definition of ‘lease’ 

in the statute provided that an ‘option 

to renew a lease’ was not included in 

the definition unless a contrary intention 

appeared. The Territory’s Court of Appeal 

had found a contrary intention, with the 

effect that ‘land’ was interpreted by the 

Court of Appeal to include ‘an option 

to renew a lease’. This issue was at the 

centre of the appeal to the High Court. 

In overturning the decision of the Court 

of Appeal, the High Court said that “the 

task of statutory construction must 

begin with a consideration of the text 

itself. Historical considerations and 

extrinsic materials cannot be relied on to 

displace the clear meaning of the text. 

The language which has actually been 

employed in the text of legislation is 

the surest guide to legislative intention. 

The meaning of the text may require 

consideration of the context, which 

includes the general purpose and policy 

of a provision, in particular the mischief it 

is seeking to remedy”. 

The Court said that “fixing upon the 

general legislative purpose of raising 



revenue [to interpret the definition of 

lease] carried with it the danger that 

the text did not receive the attention 

it deserves”. According to the Court, 

there was nothing express in the text of 

relevant parts of the statute as enacted, 

or in amendments made to the statute 

after enactment, which supported the 

Commissioner’s contention, upheld in 

the Court of Appeal, that the definition of 

‘lease’ in the legislation did not apply. The 

general purpose of the statute to raise 

revenue was insufficient to support the 

view that there was a contrary intention to 

exclude a clearly expressed definition and 

to substitute a quite different meaning. 

Accordingly, the value attributable to 

an option to renew a lease was to be 

excluded in making relevant calculations 

for land rich stamp duty purposes under 

the relevant statute. 

In view of this decision, the Court was not 

required to consider whether the company 

had goodwill and this is an issue that 

company’s will need to carefully consider 

in applying the land rich duty rules of each 

State or Territory of Australia. 



Barry Diamond, Partner 

Phone: +61 3 8603 1118 

barry.diamond@au.pwc.com 

Angela Melick, Partner 

Phone: +61 2 8266 7234 

angela.melick@au.pwc.com 

Legislation Update 

The Tax Laws Amendment (2009 

Budget Measures No 2) Bill 2009 which 

was introduced into the House of 

Representatives on 21 October 2009 

includes measures relating to: 

• reforms to the taxation of employee 

share schemes which will apply 

to employee share scheme (ESS) 

interests acquired on and after 1 July 

2009. However transitional provisions 

provide that if the time of acquisition 

differs between the new and the 

current law, the time of acquisition 

under the current law will be used and 

the time of acquisition under the new 

law will be disregarded 

• amendments to the non-commercial 

loss rules of the Income Tax 

Assessment 1997 in relation to 

individuals with an adjusted taxable 

income of $250,000 or more which are 

to apply to the 2009-10 income year 

and later income years, and 

• amendments to the Superannuation 

(Unclaimed Money and Lost Members) 

Act 1999 to require superannuation 

providers to transfer the balance 

of a lost member’s account to the 

Commissioner of Taxation in certain 

circumstances. These amendments 

will generally apply in relation to the 

last unclaimed money day occurring 

before 1 July 2010 and later unclaimed 

money days. 

With respect to the proposals relating 

to taxation of ESS interests, there are 

also employer reporting obligations 

designed to ensure the integrity of the 

tax system, and also obligations imposed 

on employers to deduct withholding tax 

at the highest personal marginal tax rate 

(see Income Tax (TFN Withholding Tax 

(ESS) Bill 2009 introduced into the House 

on 21 October 2009) if an employer 

provides discounted shares or rights to 

an employee, and that employee has not 

quoted their tax file number (TFN) or their 

Australian Business Number (ABN) to 

the employer by the end of the relevant 

income year. 

The Carbon Pollution reduction Scheme 

Bill 2009 (No 2) (the Bill), introduced into 

the House of Representatives on 22 

October 2009, forms the main Bill to the 

package of Bills to introduce and support 

the Carbon Pollution Reduction Scheme. 

The Bill also provides the regulatory 

framework and scheme rules for the 

Carbon Pollution Reduction Scheme 

scheduled to commence in Australia 

from 1 July 2011. The Carbon Pollution 

Reduction Scheme is designed as the 

primary policy tool to meet Australia’s 

international obligations regarding 

greenhouse gas emissions reductions. 

In broad terms, the Bill establishes in 

Australia a national emissions trading 

scheme (the Scheme), pursuant to which 

the quality of greenhouse gas emissions 

for which liable entities are responsible 

will be monitored, reported and audited. 

The Scheme will operate on a financial 

year basis and will be administered 

by the Australian Climate Change 

Regulatory Authority (the Authority). 



Other news 

Customs to address 

transfer pricing practices 

The impact of the tax bonus 

on tax return lodgements 

On 16 September 2009, the Assistant 

Treasurer released the Inspector-General 

of Taxation’s (IGT) Review into the 

non-lodgement of individual income 

tax returns, and said that according 

to estimates made by the Australian 

Taxation Office (ATO), an extra 800,000 

taxpayers lodged returns before the 30 

June 2009 deadline to be eligible for 

the Government’s tax bonus payments. 

According to the Assistant Treasurer, 

the ATO analysis has found that as at 30 

June 2009, 12.5 million 2007-08 returns 

had been lodged. This compared to 11.7 

million lodgements expected by the ATO 

for that year, before the announcement of 

the tax bonus. 

The IGT’s Review into the non-lodgement 

of individual income tax returns made six 

formal recommendations, three to the 

Government and three to the ATO. The 

recommendations to the Government are 

that the Government: 

• refers the IGT report to the Australia’s 

Future Tax System review for its 

information and use 

• provides the ATO with access to 

more sources of third party data, 

together with Tax File Numbers and 

Australian Business Numbers, for 

compliance purposes and to identify 

non-lodgers, and 

• strengthens the penalties for 

failure-to-lodge. 

The Assistant Treasurer said that the 

Government had already acted on 

the first recommendation, but had 

declined to accept the others. He said 

that the report’s call for more third 

party data has privacy implications and 

could impose additional cost burdens 

on the community, particularly on 

businesses. Additionally, the Assistant 

Treasurer stated that after liaising with 

the community and with stakeholders, 

the Government takes the view that 

increasing penalties for non-lodgement 

would be unlikely to deter those who 

are determined not to lodge tax returns 

and could act as a disincentive for nonlodgers 

to come forward to the ATO to 

rectify their tax affairs. 

The IGT’s recommendations to the ATO 

are that the ATO: 

• supplements its current reporting on 

lodgement compliance by a periodic 

report on the broader outcomes and 

impacts being achieved on the level of 

non-lodgement in the community 

• flags low-risk non-lodged returns in 

its systems and identifies them as a 

separate category in its management 

reports, and 

• progressively increases, where 

appropriate, the use of default 

assessments to further support 

lodgement compliance. 

The ATO has indicated its agreement with 

all three recommendations. 

With trade between multinational 

enterprises becoming an ever increasing 

part of international trade, the Australian 

Customs and Border Protection Service 

(Customs) has responded by releasing a 

Practice Statement (PS) to address the 

impact of transfer pricing arrangements 

on the customs value of imported goods 

– Applying for a Valuation Advice relating 

to Transfer Pricing. 

The PS defines transfer pricing as “an 

agreement between related companies 

of multi-national enterprises to adjust 

original prices of goods sold by one 

related company to another with the 

purpose of maximising profit and 

minimising taxation liabilities”. The 

PS states that in all related-party 

transactions Customs must satisfy itself 

that the relationship between the parties 

has not influenced the price of goods. 

The language used within the PS, 

including the definition of ‘transfer pricing’, 

provides clear evidence that Customs will 

look to target related-party transactions as 

part of its compliance activities. 

It is important to note that the Customs 

Valuation regime is a market price based 

system of determining “arm’s length” 

prices and this methodology can result 

in a different outcome than the transfer 

pricing methodology utilised for the 

Australian Taxation Office. 



As a result, it is prudent for importers 

to obtain a Valuation Advice ruling 

from Customs to confirm the customs 

value arrangements surrounding its 

international related party transactions. 

A valuation advice is a form of private 

binding ruling which is generally valid for 

five years. 

New margin lending 

investor disclosure regime 

On 24 September 2009, the Minister 

for Financial Services, Superannuation 

& Corporate Law and the Minister for 

Finance and Deregulation issued a joint 

media statement announcing the release 

of draft regulations for margin lending 

disclosure, and an example Product 

Disclosure Statement (PDS) for public 

consultation. 

The draft regulations, explanatory 

material and example PDS are available 

at the websites of the Treasury, the 

Department of Finance and Deregulation 

and the Australian Securities and 

Investments Commission. 

Auto vision paper released 

On 28 September 2009, the Minister 

for Innovation, Industry, Science and 

Research and the Victorian Minister 

for Industry and Trade released a 

report outlining a strategic vision for 

the Australian automotive industry. 

The report marks the first phase of a 

comprehensive technology roadmap 

– the Automotive Australia 2020 Project. 

According to the statement, the 

automotive technology roadmap is about 

identifying and mapping the industry’s 

capabilities and needs to 2020 and 

beyond – allowing the industry to play 

to its strengths and support innovative 

technologies with strong commercial 

potential. The Cooperative Research 

Centre for Advanced Automotive 

Technology (AutoCRC) is managing 

the project, which is supported by the 

Australian and Victorian Governments. 

The report identifies the trends, drivers, 

needs and capabilities of the Australian 

automotive industry and outlines the 

following vision: 

“Australia’s automotive industry must 

achieve recognition as a strategic element 

of the global automotive industry to be 

attractive to global companies and their 

investors. Australia must have a sustainable, 

profitable vehicle manufacturing industry 

with global reach that maximises 

opportunities in local and international 

markets. The industry must be bigger, more 

productive, and provide more jobs in the 

manufacturing and supply sectors. This can 

be achieved through leveraging existing 

strengths and building new capabilities.” 

The development of a roadmap has been 

endorsed by the Automotive Industry 

Innovation Council – formed as part of the 

Rudd Government’s $6.2 billion New Car 

Plan for a Greener Future to help drive 

continuous innovation in the auto industry. 

According to the media statement, the 

Australian automotive industry roadmap 

will be developed in six phases: 

• 

• 

Phase 1 – Establishing a vision 

Phase 2 – Defining immediate 

domestic and long-term future global 

market need 

Phase 3 – Understanding national 

capability 

Phase 4 – Identifying key tactical and 

strategic opportunities 

Phase 5 – Strategic opportunity 

roadmap development 

Phase 6 – Prioritisation 

• 

• 

• 

• 

The roadmap is expected to be 

completed by April 2010. 

Draft report on 

executive remuneration 

On 30 September 2009, the Treasurer, 

the Minister for Human Services, 

the Minister for Financial Services, 

Superannuation and Corporate Law and 

the Assistant Treasurer issued a joint 

media statement welcoming the release 

of the Productivity Commission’s 

discussion draft of its report Executive 

Remuneration in Australia. 

The draft report makes recommendations 

on a number of issues. According to the 

statement, these recommendations are 

designed to improve board capacities, 

reduce conflicts of interest, encourage 

stakeholder engagement, improve 

relevant disclosure, and ensure wellconceived 

remuneration policies. 

The Productivity Commission will be 

accepting further submissions and 

conducting additional public hearing 

before finalising its report. Copies of the 

draft report may be obtained from the 

Productivity Commission’s website. 

For further information on this topic, 

head to the PricewaterhouseCoopers 

Legal http://pwc.com.au/legal/publications/ 

employment-industrial-relations-update.htm 

website to download a detailed briefing, 

Executive Remuneration: So what is the 

current state of play? 

Transitional relief for 

superannuation funds: 

deductibility of disability 

benefit premiums 

On 13 October 2009, the Minister for 

Financial Services, Superannuation and 

Corporate Law and Minister for Human 

Services issued a media statement 

announcing an amendment to the tax 

law to provide transitional relief to 

complying superannuation funds for 

the deduction of insurance premiums 

for disability superannuation benefits 

(TPD benefits). The Minister said that the 



amendments will defer the application of 

the provisions in the tax law governing 

deductibility of insurance premiums for 

superannuation disability benefits to 

1 July 2011. This will ensure that the 

current industry practice for deducting 

TPD premiums will apply from 1 July 

2004 until 30 June 2011. 

In issuing the media statement, the 

Minister noted that from 1 July 2011, the 

law will revert to insurance premiums 

only being deductible to the extent 

that the policies have the necessary 

connection to a liability of the fund 

to provide disability superannuation 

benefits to their members and not other 

types of insurance for which premiums 

are collected from their members. 

According to the Minister, this transitional 

relief will minimise the disruption to the 

superannuation industry and provide 

funds with enough lead time to make the 

necessary administrative changes. 

Tax law design panel 

One of the recommendations made by 

the Tax Design Review Panel, chaired 

by PricewaterhouseCoopers Partner 

Neil Wilson, was that the substantive 

tax changes should be developed 

by a tri-partite team lead by Treasury 

which includes officers of the Australian 

Taxation Office (ATO) and private sector 

experts (see September 2008 edition of 

TaxTalk for further details). 

On 19 October 2009 the Assistant 

Treasurer, Senator Nick Sherry, 

announced the composition of the Tax 

Design Advisory Panel, to deliver the 

current Government’s commitment to 

enhanced consultation with the business 

community in the development and 

design of new tax laws. 

The Panel comprises thirteen 

organisations selected by public tender, 

and includes five accounting firms, 

five law firms, two economic research 

and modelling houses, and one legal 

academic and research organisation. 

The Assistant Treasurer said that - “This 

is a major enhancement to the design 

of tax policy, formalising industry 

consultation as a vital early ingredient 

Organisation 

Access Economics 

ATAX - UNSW 

Centre for International Economics 

Clayton Utz 

Corrs Chambers Westgarth 

Deloitte Touche Tohmatsu 

DLA Phillips Fox 

Ernst & Young 

Greenwoods & Freehills 

Hall & Wilcox 

KPMG 

Pitcher Partners 

PricewaterhouseCoopers 

Area of speciality 

in the tax design process. The Panel 

will complement the resources available 

within Treasury and the Tax Office by 

providing ready access to some of the 

best private sector brains in the field.” 

The Panel will be engaged by Treasury 

through a case-by-case process in which 

the whole Panel, or a subset of the Panel, 

is approached for a particular task. Panel 

members will nominate personnel they 

believe are best suited to the task and 

Treasury will select one or more experts. 

Where a known expert on a particular topic 

is available through one Panel member, 

Treasury can approach just that organisation. 

The thirteen organisations successfully 

appointed to the Tax Design Advisory 

Panel are: 

Economic research, modelling and qualitative analysis 

Legal academic and research 

Economic research, modelling and qualitative analysis 

Legal practice 


Accounting practice 








Forestry Managed Investment 

schemes – investors to be 

given tax certainty 

On 21 October 2009 the Assistant 

Treasurer, announced that the 

Government will amend the tax law 

to protect around 19,000 investors in 

forestry managed investment schemes 

(MIS) from an unintended and adverse 

tax outcome. 

The Assistant Treasurer said that “the 

collapse of Timbercorp and Great 

Southern is expected to lead to a 

number of forestry MIS being woundup 

or restructured, which could cause 

investors to fail the requirement of having 

held their interest in the MIS for four 

years as a condition of an up-front tax 

deduction”. As a result, the Assistant 

Treasurer said that the Government will 

amend this four-year holding period rule 

for forestry MIS to ensure that it cannot 

be failed for reasons genuinely outside 

an investor’s control such as through 

insolvency of the MIS manager, the death 

of the investor or where an MIS interest is 

cancelled, for example because of trees 

being destroyed by fire, flood or drought. 

The Assistant Treasurer also said that 

the Government will amend the law 

to ensure that civil penalties can still 

apply to the promoters of forestry MIS 

notwithstanding that the investors’ 

deductions are allowed to stand because 



of the amendment to the four-year 

holding rules. 

The Government will release draft 

legislation for public comment. 

Debt forgiveness: The 

Commissioner wins Full 

Federal Court appeal 

In our March 2008 edition of TaxTalk, 

we reported the Federal Court decision 

at first instance in Tasman Group 

Services Pty Ltd v Commissioner of 

Taxation [2008] FCA 23. In that case, 

the Commissioner was successful 

before the Court in arguing that there 

was a ‘commercial debt forgiveness’ for 

taxation purposes, at the time when the 

non resident parent company sold its 

shares in the taxpayer, and covenanted 

with the purchaser of the shares that 

on completion of the sale, the taxpayer 

would be free of any liability to the parent 

and related entities. 

However, on the question of whether 

the relevant debt owed by the taxpayer 

Editor 

Catherine Pasula 

PricewaterhouseCoopers Tax 

Phone: +61 3 8603 4987 

catherine.pasula@au.pwc.com 

to the parent company was used by the 

parent company in carrying on business in 

Australia through an Australian permanent 

establishment (the PE issue), the Court 

said that the parent company had a 

permanent establishment (PE) in Australia 

because three of the parent company’s 

employees who managed the taxpayer 

resided in Australia, and thus the parent 

carried on business in Australia through its 

wholly owned subsidiary. 

On appeal, the Full Federal Court 

(see Commissioner of Taxation v 

Tasman Group Services Pty Ltd [2009] 

FCAFC 148) confirmed that there was 

a commercial debt forgiveness, but 

disagreed with the decision of Justice 

Heerey at first instance with respect to the 

PE issue, holding that the debt was not 

used by the parent company in Australia 

in conducting business at or through a 

PE. The implications of this were that in 

valuing the forgiven debt for tax purposes, 

the ‘solvency assumption’ contained 

in the relevant provisions needed to be 

made. The general effect of applying 

the solvency assumption in valuing the 

Technical Editor 

Geoff Dunn, Director 

Tax Technical Knowledge Centre 

PricewaterhouseCoopers Tax 

Phone: +61 2 8266 5220 

geoff.dunn@au.pwc.com 

debts in question was that the ‘gross 

forgiven amount’ under the commercial 

debt forgiveness rules would be higher 

than would be the case if the debts were 

simply valued based on the actual credit 

worthiness of the taxpayer. The higher 

the gross forgiven amount, the greater 

the reduction in tax attributes (such as 

tax losses and cost bases) under the 

commercial debt forgiveness rules. 

Media enquiries 

Nina Anderson 

Phone: +61 3 8603 3573 

Mobile: 0400 033 937 

nina.anderson@au.pwc.com 

© 2009 PricewaterhouseCoopers. PricewaterhouseCoopers refers to the individual member firms of the worldwide PricewaterhouseCoopers organisation. All rights reserved. The information in this publication is 

provided for general guidance on matters of interest only. It should not be used as a substitute for consultation with professional accounting, tax, legal or other advisers. 

This document is not intended or written by PricewaterhouseCoopers to be used, and cannot be used, for the purpose of avoiding tax penalties that may be imposed on the tax payer. Before making any decision or 

taking any action, you should consult with your regular PricewaterhouseCoopers’ professional. No warranty is given to the correctness of the information contained in this publication and no liability is accepted by 

the firm for any statement or opinion, or for any error or omission. TaxTalk is a registered trademark. Print Post Approved PP255003/01192. 

Further information 

If you have any queries about 

issues raised in this edition or 

would like to be placed on the 

mailing list for TaxTalk, please 

contact one of the following: 

Adelaide 

Scott Bryant, Partner 

Phone: +61 8 8218 7450 

Fax: +61 8 8218 7812 

scott.a.bryant@au.pwc.com 

Brisbane 


Phone: + 61 7 3257 8623 

Fax: + 61 7 3031 9312 


Melbourne 

Helen Fazzino, Partner 

Phone: +61 3 8603 3673 

Fax: +61 3 8613 2882 

helen.fazzino@au.pwc.com 

Perth 


Phone: +61 8 9238 3332 

Fax: +61 8 9488 8771 


Sydney 

Lyndon James, Partner 

Phone: +61 2 8266 3278 

Fax: +61 2 8286 3278 

lyndon.james@au.pwc.com 

Canberra 

Todd Wills, Partner 

Phone: +61 2 6271 3554 

Fax: +61 2 6271 3854 

todd.wills@au.pwc.com

Changes to the taxation of employee equity arrangements in ... - PwC

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?