This article provides an update on key developments in taxation law for accountants and participants in the tax advice industry up to mid-March. This update in summary covers:
- The ATO’s taxpayer alert in regard to restructuring trusts to access the MIT Withholding Regime
- New Taxation Determination 2025/D2 on section 109R ITAA36
- Tribunal decision on Ordinary Concepts Test and Domicile Test
- ATO shifting non-compliant small businesses to monthly GST
1 – TA 2025/1 – ATO relays concerns with restructuring trusts to access Managed Investment Trust Withholding Regime
On 7 March 2024, the ATO issued a taxpayer alert highlighting its concerns with arrangements that restructure an existing trust or inward investment structure to inappropriately access the MIT withholding regime. It is clearly directed to restructures to achieve an MIT outcome done without any underlying commercial purpose.
Of note, the ATO suggests that the following arrangements and features are of concern:
- An Australian entity holds passive assets, but does not meet the requirements to access the MIT withholding tax regime, for example, because:
- It is not a trust (for example, it is a company that is not c corporate collective investment vehicle (CCIV)
- It is not a unit trust directly owned by a single unitholder (and therefore does not meet the requirements of being a managed investment scheme (MIS))
- The management of the trust does not satisfy the requirements in section 275-35 of the Income Tax Assessment Act 1997.
- Restructure steps are undertaken to seek to satisfy the requirements to access the MIT withholding tax regime, for example, by:
- Unnecessarily restructuring the ownership of the entity or underlying assets so that:
- The inward investment structure includes an Australian unit trust
- That unit trust is wholly directly owned by 2 or more unitholders who are not all MITs, to meet he pooled investment requirements o be a MIS, and
- It is wholly indirectly owned by a single foreign entity covered by subsection 275-20(4) of the ITAA 1997, or
- Changing arrangements such that the management of the trust is provided by an entity which meets the licensing requirements in section 275-35 of the ITAA 1997.
- Unnecessarily restructuring the ownership of the entity or underlying assets so that:
- The restructure steps are done for the purposes for accessing the MIT withholding regime.
Further, the Government has announced that they will amend the income tax laws to ensure that legitimate investors can still access the concessional withholding tax rates in Australia. As such, the amendments will attempt to make it clear that trusts ultimately owned by a single widely-held investor will be able to access the MIT concessions.
2 – TD 2025/D2 – Certain payments under section 109R ITAA36 disregarded
Recently, the ATO released its draft determination disregarding certain payments under section 109R ITAA36. As a reminder, section 109R operates to disregard certain payments made by an entity to a private company in relation to loans provided by that private company. This is important given its is enshrined with Division 7A of the ITAA36 and is intended to prevent shareholders and their associates from avoiding the operation of Div 7A.
In summary, TD 2025/D2 sets out two views:
- Section 109R of the ITAA36 can apply to disregard certain loan repayments to a private company where the repaying entity is taken to have obtained a loan from the company by the interposed entity rules in sections 109T and 109W of the ITAA1936.
- Where a private company is taken to have made a notional loan under sections 109T and 109W of the ITAA 1936, section 109R of the ITAA 1936 can apply to disregard certain repayments when determining how much (if any) of that loan has been notionally repaid.
Once finalised, this determination will apply retrospectively.
3 – Quy and FCT [2025] ARTA 174 – Taxpayer not a resident under Ordinary Concepts Test but confirmed resident under Domicile Test
In this case, a taxpayer who lived and worked in Dubai was a tax resident of Australia under the domicile test.
The taxpayer was transferred from his company in Perth to Dubai in 2015. From then on, he lived in an apartment which was leased by his employer. He continued to own his family home in WA as well as two properties in Sydney where he continually paid the mortgages and other costs. The taxpayer continually visited his family for 29-47 days out of the financial year, however he spent 119 days in Australia during the 2016 income years.
The initial AAT case, Quy and FCT [2024] AATA 245, confirmed that the taxpayer was neither a resident under the domicile test and ordinary concepts test.
However the ART concluded that the taxpayer was a resident under the domicile test. The factors which influenced this included the fact that he did not have a permanent home he stayed at outside of Australia and his continual connection with Australia, through him visiting his family and ownership of the family home and other properties was objectively inconsistent with him abandoning his residence in Australia, thereby making his permanent home in Dubai.
4 – ATO to shift non-compliant small businesses to monthly GST
From 1 April 2025, the ATO will move 3,500 small businesses with a history of non-payment, late or non-lodgement, or incorrect reporting from quarterly to monthly GST reporting to improve their compliance. The purposes of this is to ensure that small businesses will remain vigilant in reporting their obligations.
The ATO will contact small businesses as well as their taxation professionals when their reporting obligations have been changed from quarterly to monthly.
Should you wish to discuss the above, please contact Tony Pointon and Andrew Pointon of our Taxation Team.
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