Velocity Legal (00:03.17)
So this is Tax Talks, Australia's tax news podcast for accountants and tax practitioners. The podcast designed to help you grow your practice. Welcome to Tax Talks. This is the August 2026 edition. I'm Andrew Henshaw, your host. Today I'm joined by Annie Tooner, Special Counsel of Velocity Legal, as a guest co-host. Thank you. It's nice to be here. Welcome. Exciting times. And we're joined by Vincent Licciardi.
I got that right? Spot on. Excellent. Okay. From HWLE. Yeah. Wonderful. Thank you for having me. Vincent, we're gonna talk about where we're recording in early September. One of the things we're not gonna talk about today is the draft legislation dropping for the 30% trusts tax. suspect if we did, then we'd probably be spending the whole time on it. Whole time on that. but it's t tell us about sort of the things you do day to day, because I mean
Annie and I are sort of run off our feet at the moment with just the amount of change, discussion, just just tipping on top of everything. Absolutely. I I think at the moment most of my work is ATO and tax practitioner board work and the regulators are just similar to you, completely running us off our feet. I think are more certainly much more assertive and aggressive.
series of regulators. I don't do as much state tax work or any state tax work like I mentioned to you earlier, but at the federal level it's quite unbelievable, really. and just the you mentioned change as well, just layer upon layer upon layer of new laws and new regulation, AML recently and so on. So it's just not stopping. And do you think it's you know, do you see it as more sort of onus evidentiary points or taking different interpretations or
Perhaps a combination of those two things? It's probably a combination at the ATO level. a number of evidentiary points that the ATO is running right to ground. And we'll probably touch on a couple of those at some points, even in respect to valuations and things like that. But just the very technical points of old rules, family trust distribution tax, FTEs, and then in more recent times, still a lot of default assessments and just more.
Velocity Legal (02:23.606)
aggressive approaches to the way the regulator runs its cases. Ostrack cases, unexplained deposits, the whole gamut of work, and even at the tax practitioner board level, and we'll talk about free a bit later, but relying on some of these tax rules to then effectively conclude accountants have done the wrong thing, which is really, really harsh, even in circumstances where they might dispute what's occurred. And sometimes the ATO gets it wrong or the board gets it wrong.
In the same way a a client or a practitioner might. So the really difficult cases and and from time to time we sort of have a bit of a chuckle internally. There's no more little cases. Yeah. So little files just don't really exist anymore. They're all big and heavy duty. so it's it's certainly and I don't think that's gonna stop any time soon. I I think the the way the government's going and so on, it's probably two to five years, I would have thought, before it starts slowing down.
Or maybe the pendulum might swing a little bit. Well, that's exactly right. It's you know, even this whole and perhaps won't talk about the rules too much, but even the the valuation process and there's the ministerial guideline and so on about spreading your gain that accrues, that's just ripe for challenge in the future. and the ATO comes up with a figure and the client's got a figure and you have a fight about the difference. And some of those fights might be really
significant dollar wise. so I don't think it's leading up anytime soon. Really? Yeah. Never been a more exciting time. absolutely for an advisor. Yeah. Well let's let's get stuck into the TPB. So perhaps let's start with the TPB stuff. and while not s I guess specific to August, understand there's been a number of changes around the edges with with the TPB and particularly with with the sanction regime. yeah talk talk us through
What's happened? Yeah. Probably over the last six months, and this comes out of some of the issues with within the accounting firm, and almost you could say it's we're up to maybe tranch three or four of changes and increasing the power of the board. Things like moving from five to ten years, being able to deregister people in line with ASIC deregistration requirements. there are new notification requirements that have come in as well, criminal sanctions for unregistered preparers. I think the unregistered
Velocity Legal (04:51.192)
preparer sort of area was a real gap for the board in how they would be able to target unregistered preparers, which essentially was civil type penalties in the in the federal court. but certainly being very busy AI as well. There's been some publication, almost you could say a ruling by the board on on AI as well. And then the more recent decision in free, which at some point we'll touch on, but
I have seen that in a number of cases come up and this sort of line of cases where even if you and just for the listeners, even if you dispute, for example, you you've been i under audit, you might have a practice or a practitioner or their family trust under audit. It's investigated by the ATO as a start, amended assessments are raised, those go to objection, for instance, and the dis there's a dispute about the ATO's decision, but even then
The board then comes in and says, well, under the ordinary tax rules, that is a decision that stands unless you overturn it. And so the board's then saying, well, you're therefore not fit and proper. there's a basis for us to deregister you, even though the matters remain in dispute. and they are also, they also apply at the sort of character level, not just in respect of tax. So fit and fitness and propriety under other areas, fair work rules, employment rules.
I've seen cases like that and the board pushes those quite quite hard. Is there a lot of is there a lot published in the way of supporting tax agents to work out whether they fit within the fit and proper person or is the tax practitioner's board done enough there? Do you feel like? Is there enough resources there for the tax agents to get it right? That is a fantastic question. my view is probably no. and I think there's there's a misunderstanding about when you're required to disclose matters to the board.
and so there's a there's a list in the act of the sorts of things you should disclose like solvency and things like that. but when it comes to fitness and propriety, there's there's so much gray. And I think pe as lawyers we get it. Yeah. You know, it's it's fundamental to how you get registered. But as accountants and tax agents, I don't think many practitioners realize. And so even if you, for example, even if you dispute a decision of a regulator, that may still mean you're not fit and proper. Or that may put you on the spectrum of
Velocity Legal (07:15.544)
fitness and propriety and you should disclose that. I I'm doing one of these cases at the moment, but I usually say to advisors or accountants when it involves the board that your disclosure to the board disarms the board. So if you go in cap in hand and it's sort of against your natural human inclination because you're nervous that effectively conceding you've done something wrong.
But once you do that, you take the power away from the board. Yes, they can still say, we think you did the wrong thing. But if you don't disclose that, then they say you were dishonest or you tried to hide it. The candor takes away, it's a really great word. the candor takes away the board's power. And yes, it might mean you still did something wrong, but you're in a much stronger position to be able to respond to the allegations that have come up. And as you said, you know, as lawyers, we're we're quite used to this because
On our requirements every year, we are required to make those disclosures. It's a positive disclosure to say you are still fit and proper. Yes. Is this a relatively new process for tax agents? And that's why it's sort of never really come to light. And so they're part of that sort of learning journey. Is that I think that's probably right, because in the past, renewals were three years, every three years. And in the last as part of sort of various reforms, those renewals have become yearly now. and I know even as when I do my renewal for legal service commissioner.
I think I must read those questions a dozen times and stew over them overnight before I go back. But I think at times there are a lot of practitioners that just go tick tick tick and submit. and that's a really dangerous process. but even like just practically to give you a sense, if for example, you've had any adverse findings against you, or even if you've been under audit by the ATO, or it might be your practice or your super fund and so on, you're in a far better position.
To just disclose it, you might have had a PI claim, or there might have been circumstances where you had client complaints in the practice and so on. You even though again it's against your natural sort of human inclination, it's often better to just disclose it. I must tell you, in the ones that I've disclosed even significant breach reports, I don't think I've had anywhere the boards come back. And we're talking even once more than a year ago and so on. So most of the time they don't come back.
Velocity Legal (09:38.644)
it's the ones where you end up saying, for instance, all my tax affairs are okay and you've got outstanding lodgements that tend to come back to bite or outstanding tax as well. One question I wanted to ask Vincent, in terms of sort of that point you made around the ATO assessments and essentially the on referral. Yes. What do you sort of see as the percentage of of investigations that's that that are that are through that channel? probably most. Yeah. Frankly. Yeah. and then they
Most come from the tax office or client complaints. Yeah. and and bear in mind that the board, the officers from the board are really just ATO people. and so they're able to really easily check everything that normally the ATO can check. And so they I have cases where you might have disclosed that everything is okay and you end up with stacks of lodgement outstanding or even returns not necessary indicators where you have
someone got a TFN for a corporate trustee a decade ago and it looks like that corporate trustee has 10 years of tax returns outstanding. And they say, well, what's happened here? but normally the the simple way to sort of fix that is if they come along is to get it up to scratch super quick. and most of the time you can overcome the problem. it's the ones where if the board comes along and then it drags and drags and drags and drags and they've given you an opportunity and you don't
Get it in order, the problem just exacerbates and is so much worse. And as you say, if it's now 12 months rather than every three years, you don't have that leadway you might have had previously to sort of know that it's coming up, I'm at my three years, I need to get my affairs in order, I've got six months, I should just focus on that. Whereas if it's happening annually, you really don't, you you actually need to be on track every single year. Completely agree. And there's not a lot of leadway there. So I can certainly see how you can find yourself in
in water. And y you you make a great point because there's not a lot of scope for plumbers with leaky toilets. Mm-hmm. Right. Which is how and you don't get you don't get a lot of leeway in the tribunal either, for accountants or tax agents that have outstanding obligations to the tax office. I think that access to information is also a really good point. The question you often get is h how will they know or what can they data match with? And so knowing that the that the T P B when they
Velocity Legal (12:00.886)
assessing those applications, that they've got access to information like tax returns and audits and things like that. And as you say, potentially even fair work claims, it's it's important to know that they do have access to that information quite easily. And other regulators I've also seen anywhere, IBAC, for instance, Construction Commission, banks reporting or the misreporting of financial information that have been sort of
Drafts of tax returns and assessments lodged with the tax offers to get loans over the line and so on. All of that information is just readily and openly shared. and then you obviously have as the regulators, they can just go and get really whatever they like apart from privileged material. So there's a lot of scope for just the the kernel of a problem to start and then off it goes. Yeah. It can really just take off. Well, it's probably a good segue into
Tax practitioner board and free as this is a federal court case concerning the fit and proper person issue. I'll I'll perhaps just run through the couple of facts and then then then throw to you. so we understand that Mr. Freed's a tax agent. he he answered no to whether entities in control had overdue tax obligations, although they they did at that time.
And there was an issue around he was summar summarily dismissed from a from an accounting firm employer for alleged failure to follow directions and dishonest conduct. And there was some fair work proceedings that followed. and there was some particularly we'll say adverse findings essentially against against Mr. Free. and again on a on a renewal, he said, Are there any matters that affect your good fame, integrity, or character? Again, the answer was no. so
CPB terminated registration and imposed a two year a two-year non-application period, which I mean that's I mean it's not quite the end of the end of the world, but it's pretty close to it for a tax agent. Yes. Yeah. Yeah. there's probably a couple things to come out of this case, I think, but I I don't think we've seen the end of it. so the really the probably two main things are
Velocity Legal (14:27.146)
Ordinarily, what will happen is you know, in a normal tax dispute, you'll end up with an assessment or amended assessment at the end of an audit, and you go off and you object to it. there might be an objection decision or maybe not that goes off to the tribunal. but once the audit is done, the board takes the view that that's enough to breach the code. And that goes to your fitness and propriety. and it's a breach of the code because you haven't kept your tax affairs in order and you've got outstanding tax.
Essentially, even though you dispute it. Now I think that's a harsh position. and there's been a line of authorities in the tribunal that have dealt with this and effectively said or until free, have effectively said that it it should be downplayed if it's in dispute. As in the serious not seriousness of it outstanding in a legal conclusive evidence sense, should be downplayed. but then the
The federal court looks like it's overturned that view. And now it's gone back to the tribunal. I'm not sure it's as simple as saying you've got a disputed assessment, you've breached the code. I think there's still some spectrum to that as to whether you've actually breached the code or you haven't. in for example, if the amended assessment you know, you're done.
So it's a default assessment, for instance, going be really hard to overturn. There's no real evidence and so on. that's probably gonna be harder to demonstrate in a TASA sense that you haven't breached the code or that the sanction should be lower, for instance. But if there's a genuine dispute, and this is the point made in the tribunal, that not every decision of the ATO is correct. but I've seen this come up a number of times in TASA cases. In most occasions in
My view, if you disclose it, you tend to neutralize it. And you should do that up front. there's been some back and forth, I think, and sort of different cases in the tribunal on this point. the other thing that free looked at was under the code, you have a a personal obligation to teach keep your tax affairs up to date. there's some different lines of cases as to what personal means.
Velocity Legal (16:46.936)
So is that me personally as an individual tax agent or my company or trust? Or does it sort of go a bit broader than that? That's the other thing. Free hasn't really decided that, but that's still up for grabs, in in my view. I had this once where the board took issue with an accountant who is the executor of his mother's deceased estate that hadn't lodged on time. Yeah, right.
and they said that that contributed to that accountant's breaches under the code. Is that because it refers to entities that you control? Is it that second part Well it's it they see it as a personal obligation upon that person to keep the tax affairs of that entity up to date? And that's probably where there's some scope for some argument. It's never really been decided as to whether personal means you only as an individual, or does it go beyond that, for instance, you wearing a hat as a director of account?
Yeah. To your point about candor, I think, I mean, this probably it's impossible to know in a in a parallel universe. But I imagine with your with your points around candor, if they were if we were just up front about these things, you know, you wouldn't have had an ART case or a fed fet federal court case. Probably not. Probably not. That would be my suspicion, is that once you're upfront, well, in the even in significant breach cases that I've done where you go cap in hand to the board.
And you say almost like a voluntary disclosure with the tax office and you say, you know, ten things have happened in the business. Hopefully it's not ten, but a few things have happened in the business and we want to tell you about them. And here we are and there's some material about it and we've done one, two, and three to correct that going forward. I've never had the board come back. which is a good thing. Hopefully they're not necessarily listening, but to then work that out. But I think they do take very seriously when someone essentially goes and says, Look, I've
I don't really agree with the outcome here, but I want to tell you about it. Most of the time it it goes away. Yeah. If you you did suggest that perhaps we haven't heard the rest or the end of this case, but assuming this is the the last step in the in the proceedings, what would the impact of these findings on this particular tax agent actually mean for them? So there's a sanction I understand that, you know, they can't reapply for two years. Yes, correct. But then assuming that they
Velocity Legal (19:10.424)
Do reapply in two years and they're able to then become a tax agent. Again, is there any ongoing obligations to then report that going forward? Is this a permanent stain on the record, so to speak? In a sense, possibly, yes. So there are disclosure obligations under the TARSA determination where you have to tell your clients proactively things that have happened in the business. that was watered down under the rules that were originally passed. but practically there's a whole series of things you have to tell your client.
I usually put those in the letter of engagement or on the website. And and then that way for most 99% of agents, you satisfy the rules. but then there'll be somewhere maybe you don't want to put on the website that you know you'd been deregistered in the past or something, but they can be things you have to disclose. And now on the register, being the the board register, there's a whole heap of further categories as well. I when I looked earlier, just to give you a sense, I wrote a couple of these down.
The and this goes to maybe the commercial point if you're buying a practice or you're selling a practice and so on. But the the categories even go down to the level of you've applied and were rejected and now it's on appeal. So there's a what was maybe three or four categories in the past is now about fifteen. Just on the board's register. even I looked this morning, they have a dozen unregistered preparers.
That they've actually listed as well. Okay. and they give it's reasonably brutal, but they actually give a quite a detailed explanation as to what findings there were, what they've uncovered. Yeah. and there's almost like no privacy to it. Yeah. So if you type in the name of one of these unregistered preparers, it's all it will be there. and usually by the time you're getting into the federal court and so on, it the it will be the case that the board's probably given them a chance to stop.
Yeah. So they might have sent a a cease and desist letter. The person's continued. You know, they still lodge by my gov or something like that. and then all of a sudden they've got civil penalty application in the federal court. but it's quite it's quite brutal, yeah, really. that's interesting. Well, maybe let's turn to sort of legislation and bills, from a from a federal sense.
Velocity Legal (21:32.6)
Feel like this is going to be topic that every single month they're gonna have a new bill, basically. but but in August we had a couple of things. So I'll start with the it's called tax reform number three, confusingly. but it's also called the CGT and negative gearing tranche number two. so these to recap, this is following tranche one. Essentially, tranche one was the the the the very large building blocks to
take away the 50% discount, put indexation in, put the thirty percent minimum t tax on trusts, or sorry, on capital gains, non trusts, take away pre CGT status and and put the negative gearing. so that's where we started. Annie, perhaps I'll throw to you to sort of explain what I mean, the lit the the bill itself is so dense. So I'm not gonna go line by line through it, but what's tranche two really trying to do? Yeah, so Tranch two is still in exposure draft form and there's quite a little bit.
In it. So it covers a little bit more of the detail. So as we saw, once the bill came through and was enacted, we then, as practitioners, started to think about client circumstances and realize that there was a lot there that was missing. So the bill, sorry, the exposure draft, Tranch 2, does deal with some of those things that have been identified. So it deals with some of the issues around marriage breakdown.
It deals with main residence exemption. it deals with negative gearing. So the exposure draft, for example, finally has given us some understanding as to what that definition of new residential dwelling is going to include. there's a heap in it. And we can talk to this in a second, but even after reading all of that, there's a very last bit in, I think, one of the explanatory memorandums that says, and there's all of this other stuff, and there's a long list, and it says,
We're aware of all of these other things and we'll get back to you on them. I when I've presented this in discussion groups, I'll often say, unfortunately, they don't say that's tranche three. So it could be tranche 48 by the time we get to the end of the list. Hopefully not. But then I I think the other point is that as we start going through that, we're as prac as practitioners and and tax enthusiasts, we're also discovering even more. So there's probably another list of, you know, the the known unknowns.
Velocity Legal (23:54.17)
or the the known uncertainty and then the unknowns that are still unclear. So there's a a lot to unpack there and we can probably do a little bit of that as we discuss. I know Vincent you were talking about the valuation method a little bit earlier. So that was included in there. So in the budget. Yep. In the budget they mentioned that there would be a simplified method for valuing your CGT assets as as at one July twenty twenty seven, which is necessary for assets that are
currently held and for pre C GT assets, for example. And I guess when you hear the word simplified, the idea is that it is supposed to be simple, but I guess to some extent there's been a little bit of I guess debate about the fact as to whether you can actually determine that value today or whether it requires some some looking down the path as to what it will look like. So I don't know, Vincent, what are thoughts about the the second tranche? I I think if if I ever stop being a lawyer, I'm gonna become a valuer.
If by chance I'm not a tax lawyer in a few years, I'll be a I'll be a value. Or an expert in the court about valuation. Yeah, or an expert valuer, I reckon, at some point. I the the real difficulty, I think, on the valuation point is you've got this simplified method, but then I would have thought most clients will want to know, well, what's the alternative? Is that alternative substantially better than the simplified method?
And then the only way you're going to work that out is to go and get a vowel. so certainly I'm gonna come back as a value are. but I also was thinking that there's a real question for the accountants and the tax agents, because the there's probably a lot of accountants and tax agents that sort of dabble in balance sheet vows and director vows and so on. and you'll have the cli you'll have the client pressure of I don't really want to go and get a proper vowel.
I don't want to go and spend 10 grand, which is probably fair enough. And 10 grand might just be the starting point. So you have people dabbling in this, and then trying to work out, well, I'll lodge a tax return based on what I've dabbled in. and the ATO might then come along in due course and say, well, don't agree with that. And what's the your basis for the vowel? Number one, the account's not a valuation expert. So that already makes things a bit harder. yeah. So the Val thing I I
Velocity Legal (26:12.568)
T P B then comes the Then the T V but I I reckon it's like five to ten years of disputes in in due course. And like we often might just be thinking about, you know, the smaller assets, but some of these assets have no market. If you've got a private business in a specialized industry or something, you just you got Buckley's chance without spending a lot of money of working out your vowel. I think it's becomes very hard for for private businesses. I mean, property, okay. Yeah, it's not too hard for a lot.
yeah, I take that some that are a bit more specialized, but I mean you you basically you're right, Vincent, you'd be comparing okay, what's the a sort of like a straight line days sort of approach? Yep. What result am I gonna get with that versus what potential result am I gonna get under a market valuation approach? Which with the simplified method, you can't really know for certainty today because the way the method works is it requires you to know.
What is the proceeds or what's it sold for at some particular date, way, way in the future? So you might be able to do some modeling just to see how it might play out. But the problem then becomes okay, so the question for the valuers is: does it become more difficult to value something in the future when you go to decide whether you're going to do your simplified method or get a valuation? Or is there really going to be this issue where you're actually going to need to get evaluation done today and then
When you go to sell, do your comparison and your modeling. And then back to my my point earlier, it might be simplified in the sense that you don't need to go out and get specifically go out and get the valuation, but it's not actually proactive. And so I don't know that it really solves the bigger problem, which is I need to know what my potential tax outcomes are. And and on that, I I think you're right, because hindsight is a terrible thing with vowels. Like really it's a a bit art, a bit science. And
You're striking a line, say today or thirty June next year, whenever it is, and then in three or four years time, someone comes along and says, well, the conditions you took account of at that time were wrong, or you had the wrong multiple, or the business boomed afterwards, or whatever it is. And then you're running a risk for facts you didn't know.
Velocity Legal (28:25.666)
Like, you may not have an electricity. Correct. Well, if you think about with GST, right? So margin scheme, you had land pre 2000 that then becomes registered sometime after 2000. You've got to take the value as at one July, tw 2000. And we're having val we're having disputes about that still now. And that's a niche scenario. Yes. This applies to every every single CGT asset. Yep. So yeah, you're you're quite right.
I guess on those some of those other points you know, it's just some examples of the stuff that's sort of covered by Tranch too is you know, small business concessions, let's say it's okay, fifteen year exemption. One of the problems with the sort of the deemed disposal on one July and reacquisition, one July twenty seventh, that is, is that you would you would then you you might sort of prejudice your fifteen year exemption. So they've got to sort of stitch around that, look, you got a C G T event here, but you don't really have one. And
You know, you could still sort of look back. That's the kind of fiction, I guess, is the nice way of putting it. that that that they're having sort of to gr to grapple with in the legislation. Yeah. I never really got to the bottom of that. I'm not sure how I I haven't worked it out yet what they're trying to do. Like which I think in principle you should take your end actual disposal date as being, you know, the trigger for the fifteen years and whether you meet it or not. But I I'm not sure the rules
Get you there? I don't know if it really worked. Yeah, and I mean, as I said, the main residence exemption, that was one of the issues that were raised in tranch too, was where you've had a deemed acquisition for where you've had property that was your main residence, and then you first use it to produce accessible income. So for example, you rent it out. There is broadly the way it works is, you know, we all know it as you take your market value cost base at that
point. Yes. But it is in fact a deemed acquisition. And so what Tranch two does is it it looks at that and says, well, for these purposes for the purposes of the CGT discount, it's not actually a reacquisition. So that doesn't sully your CGT discount issue. But I I imagine for everyone that they've thought of, there's potentially others that have been Another example is like your main residence exemption. What if you were a non resident as of thirty June twenty twenty seven? Yes. And therefore if you did have a CGT event, it would be
Velocity Legal (30:43.234)
you know, outside the system. Like that's clearly not the intent of the rules. But yeah, I think to your point, Annie, looked at some, I suspect there's more. I think one of the really interesting points that I've I've heard discussions about about the the sort of further things is what if you roll over a business from a trust to a company, and there's an unrealized capital gain there.
Then later on there's a there's a taxing point. Who gets taxed on it? Is it the is it let's say it's done under a rollover? Is it the trust or is it the company? Because there's a very different tax result depending on which one it is. Has has that been worked out? I think you mentioning earlier they were talking about that at the summit. Yeah. So it hasn't really or to think it's gonna be but but there's I don't think it's been I don't think it's been worked out. I think there's
There's some problems with pre CGT assets as well that if you have a CGT event K six, but then you actually just never sort of dispose of the thing later on because you actually just sell the underlying assets. If you had the the gain sitting there from a K six, it would also like have a double like that would which wouldn't make sense because it's like, well, K six is only supposed to be if you if you sort of avoided paying tax because you're selling the pre CGT shares other than rather than the un
The the actual underlying assets. So there's probably more as well that just still need to be worked out. But I think they're finding it that I guess dog's breakfast is probably a pretty good term for it. that just it it's actually not simple at all. Like it's it's so complicated. I think the one that hasn't, just to move on to to the negative gearing, the one that I think hasn't received or has kind of gone under the radar a little bit just in light of all the CGT discount issues.
Is that when the budget was announced, and then I think also in s maybe even the exposure draft, I I I can't recall now it's been so many processes, but they it was really clear that we we knew that the granny flats were probably not going to be included, in the sense that if you were to rely, if you were to build a granny flat and it was you're going to rely on that being a new residential dwelling and therefore available for negative gearing, that that was probably never intended.
Velocity Legal (32:59.19)
And that's been carried through. The expo the explanatory memorandum makes that really clear. The bit that I think that's gone under the radar, though, is that in the budget papers and then thereafter, it was it was it was foreshadowed by distinction where they said, well, look, a granny flat is not is not okay, but a townhouse is okay. So if you had an existing house and then you build another townhouse out the back, or just another house out the back, that would be fine. And there was a comment in the budget.
Papers or or thereabouts that said something like, it doesn't even matter that it's subdivided, just having the two, having the new build at the back was fine. And that was in distinction to the granny flat. interestingly, if you read the Tranch two papers, it seems to have because one of the requirements of this definition now says that it needs to be capable of being sold. Whatever you're building for it to be a new residential dwelling, it needs to be capable of being sold. it almost I think it does.
infer or you can infer from that that a townhouse that you build or another house you build on the same block of land, if you don't subdivide it, because that can no longer be sold separately, it it would suggest that that in those circumstances, it's not just the granny flat, it's also the other house, which then makes me think that it's not I if I think practically, it's not uncommon for somebody to build another property at the back, rent that out for quite some time wanting the negative gearing, but they don't subdivide because they're not going to sell until sometime in the future.
But this is going to then if it's if if I've read it the way it's going to be legislated and intended, it would mean that you almost need to go to that cost of subdividing in order to get your negative gearing on that property at the back. And I just don't know that anyone's we've been sort of caught up in the other bit. I don't know that that's actually been because I think it was intentionally written the way I've read it. but yeah, so I don't know, we'll wait and see how that happ what happens when that gets legislated and if it does get legislated in that form. I wonder whether
That's part of the reason why pretty much the whole series of rules has all these ministerial discretions that they can just sort of throw in there. Yeah. and they don't have to go through the parliament. We can just sort of write up some new rules as we sort of deem appropriate on the fly a bit as you identify things like that. Yeah, it's amazing. Yeah. It's an interesting balance that between sort of the the law versus ministerial dis I mean, it's a whole topic of itself, but it's just it's interesting because if you if you remember back to COVID with the job keeper.
Velocity Legal (35:23.532)
It was done on the fly. Like, you know, there was one instrument, then there was the the ministerial determinations. And it was very much done on the fly. So it's just, you know, there's there's pros and cons to both. J just briefly on the negative gearing point. one thing I noticed in this tranch, they they carve out the negative gearing through the unit trust. but they don't seem to carve out the total holdings negative gearing that you can achieve if you structure in the company using total holdings. Yeah. I don't know if that's
Intended or not intended, but it seems to me total holdings is still means that negative gearing is achievable. just provided you don't own the the asset through a trust. shares in the company. Shares in the company, you shares a of of nominal value or just the initial, you know, two dollar paid up share capital amount. You go and borrow some money and lend into the company interest free. The shareholder does, yeah. The shareholder does, to be clear. That's right. and in that scenario you get the
tax deduction for the interest at the individual level, or say at the shareholder level. and you then just declare a dividend out of the company, I would have thought. That doesn't seem to be covered. but if it's structured by through a unit trust, then that does seem or a partnership, I recall the rules to be drafted as. That seems to be covered. It's interesting. In that scenario? 'Cause you'd expect a lot more property to be in company or just anything to be more in companies just with all the gamut of the whole changes. Yes. Yeah, that's probably right.
Yeah, so I'm not sure whether that was intended to be there or not. but there seems to be this look through for unit trusts or I don't even know if it's a called a unit trust anymore. Is it a fixed trust or what is it? But anyway, it's a trust. Who knows? It could be a unit trust that's not fixed. Yeah, well, that's actually a good point. gosh. Crazy. we'll move on to two other ones. one we've talked about on previous episodes about the foreign residence CGT reform. That bill
Is now before Parliament. Now, just to recap, that bill is around expanding the definition of real property, essentially to include things that are so fixed to to land that they're essentially sort of as good as land. So think about your your you know, your really big kind of infrastructure projects. so that's one point. on larger transactions, there's a fifty over fifty million, there's a notification requirement that you have to actually go and
Velocity Legal (37:50.292)
notify the commissioner of of whether or not there's sort of land underlying. and and the the final part or the main part of this is the is that 365 day principal asset test. So you sort of can't, you know, game the ratios too much the last minute you've got to look back a a year. any any you know anything to add, Vincent on that? I mean it's it's pretty niche that look lot of the time this is
quite large land, you know, wind farms and things, you know, not you're not your average sort of private client. That that's true. I the thing that sort of struck me with this is just that 365 day testing. and y I don't know whether you call it like an anti sort of what's a a de stuffing rule in a sense where you try it was d designed to overcome sort of getting under the tarp test late in the in the cycle. But then
If you're the accountant or you're the advisor signing this off, you have to be comfortable that earlier in the twelve month period, you know, it didn't fail, the TARP test and so on. you probably need you'd need some whether whether it's records, file notes, that you've at least tested that period or checked it with the client that the client's comfortable with it. because it i it is this sort of continuous testing requirement. So at least technically it sort of could be
At a minimum like a monthly thing in a way, although it doesn't really apply like that. I would just ensure that you're comfortable if you have the CGT asset particular time of year, that for the prior twelve month period you feel you're safe as well. Yeah. And you've at least asked the question to ensure whether you're in or out of or the clients in or out of the system. Probably how if there hasn't been a big transaction within that. You're probably safe. Well, yeah, because it's sort of your status quo status quo during that time. Y you're probably fine.
Final one, SMSF's LRBAs. so effective as of the 10th of August. an SMSF can now only use a limited recourse borrowing arrangement to acquire real property that is business real property. Anything else, it's not business real property, you're out. I've already had some, you know, discussions with clients about what is business real property.
Velocity Legal (40:11.72)
what if there's, you know, this little bit that's, you know, what what about mixed use? so I I think that's that's something that practitioners will have to grapple with. Although that is a pretty niche issue. you know, it's come up multiple times for myself already, about hey, is this still allowed or not? And or maybe what do we need to do to make sure that it meets the definition of business real property. The other one is that the timing. So I think it's we did there wasn't a lot of
Leadway between so this was one that was use the term jammed into the enactment. So it was pretty much at the 11th hour as part of the negotiations, it was put into the bill. And you actually had until so basically, if you had entered into a binding contract by 10th of August. So I think for those those relying on that date that those ones are safe, you can still continue in residential premises. Now I understand that you know.
This has been a moving feast in the sense that there's not a lot of this or as much of it as there used to be. but the question might be: was the contract actually binding on 10th of August? Was everything done that needed to be done? Now I know that it refers to the contract, not necessarily having entered into the the borrowing arrangement or anything like that. But the question is, was the actual contract at that point fully binding on the parties, or were there any conditions that hadn't, there were conditions precedent?
in the sense that they needed to be done and had those been done. So again, a very niche thing, but because it was so quickly, there wasn't a lot of leadway, I I wonder if there's going to be a couple there that might get caught out. And the other one is the the refinancing. So if you're okay, so if you're caught, if you're not caught by these rules because you already had an arrangement in place, you are allowed to refinance. Going again to file notes and you know making sure agents are really being very clear.
The refinance has to be for the same property, for the same amount. So you can't be a dollar over or anything like that. So again, as you said, Vincent, it's it's very much about the agents making sure they ask the right questions and they document all these things before they proceed on on any further basis, because it could be quite problematic for these clients. The original LRBA might have been over an asset that by the time you refinancing
Velocity Legal (42:35.616)
actually changed as in like the nature of the asset. So you've started to construct or, you know, and there are quite specific rules about refinancing to do that in the first place. But you might have bought a parcel of land previously and that was acceptable. But that particular asset's now a different asset post 10 August. And what does that look like? And is that still allowed if you refinance on what is the same like parcel and title of land, or maybe you subdivider?
it is but and you could have LRBAs over shares and things too. So what if post the company's been taken over or something and the share is different and so there's these little quirks I think that are not necessarily the other thing I have heard about was even the nomination process. So if you might have entered the contract pre ten August but nominate a different entity post. Yeah, that's right. which is permitted in Victoria is fine. But is that
The same or is it different or is that allowed? You know, so there's all these little quirky things that are coming up. We'll move on to talk about a few state tax cases. interestingly enough, they some of these disputes actually turn on some of those issues in terms of dates and nominations and things like that. Now Vincent
I'll I'll put a disclosure that you're not a state tax credit. So but you can say whatever you want and we won't hold it against you. Big disclaimer's device. I'll slowly lead you astray. It's fine. Yeah, yeah. No, but as you say, Andrew, I think as we go through the cases, there are some sort of ways in which you can see a correlation between other income tax concepts. Yeah, yeah, absolutely. Well, the first one is is a is a windfall gains tax. Now, the windfall gains tax is unique to Victoria, and this is the first case in the tribunal about the windfall gains tax.
very broadly, it's it's an uplift, it's a value add, it's an uplift tax. So that if there's value that's created through a rezoning, there's a tax that applies to that. when these rules were introduced, there was essentially sort of a bit of a grandfathering regime that for things that were in in motion as at the 15th of May 2021, they would be excluded. and it it
Velocity Legal (44:52.108)
the the whole dispute centered on w was it sufficiently progressed as at fifteen May twenty twenty one. So it's it's a date issue. you know, it's about what happened before that date and where was it at at that stage. And it was about whether the planning minister had already agreed to prepare an amendment or not as at that date. and it came down to a matter of days. so so the the the evidence, the the the critical thing was
some some some ministerial brief and signed letters on the ninth of May. So you know, when you get dates changing, you can get you get disputes about what happened, and particularly where you've got a very clear line where, okay, you're before this date, you're fine, you're you're after this date, you're in the regime, and it's a massive difference between the two. You know, you're gonna get disputes over those things. Yeah. And it's it's the words that come before the date. So we we often have the date lodged in our minds. So
know, as we were talking about the L R BA, the tenth of August, and you know, C D T discount, one July, negative gearing, you have the date etched in your mind, but perhaps lesser clarity on what has to have happened on that date. And I found in this particular with this legislation, the wording I I think it was actually quite quite broad and they probably could have been better either intended for it to be broad
Or they sh needed to be more specific because I think the wording, as you pretty much paraphrased, Andrew, is something like the planning minister agreed before fifteenth May 2021 to prepare the amendment. What does at what's at what stage is What is agreement? Yeah, what is agreement? To who? With who? Yeah, it's that. And I just think that, you know, some of the I guess I mean, yeah, I guess the drafters of the legislation, and that's why we have explanatory memorandum. So when a client comes to us, we'll sort of
There are other things we look at to work out what that means. But for the for the person who's not getting advice or has just kind of gone, look, I'll do this because I think that that's the answer. And then they come to us to solve the problem a year later and you think, we kind of can't do like it's hard from that perspective. But yeah, this case really just turned on what did what does agreed mean? Yeah. At what stage do you get agreement? Next one is a a nomination case. You mentioned nominations, Vincent. so
Velocity Legal (47:08.236)
Again in Victoria, Ramahi, Ramahi. now this case, that there's so many issues in state taxes and and landholder duty particular, sorry, and and and and transfer duty particularly. So in this case, we had an individual, they entered contracts to purchase properties in their name and or nominee. between that time and the time that they did nominate new entities, they lodged planning permit applications.
And then they did the nominations with, you know, corporate trustees for unit trust, essentially. And it's pretty uncontroversial that in those situations, it's the subsale rules in Victoria are enlivened because at the time you do the nomination, there was land development as defined. So really they tried to make some arguments around look, I signed the contract as an agent for those entities.
Problem being that those entities weren't incorporated at that day. So it's a bit difficult to argue, you know, I signed it as agent for, you know, XYZ proprietary limited when that company didn't exist at the time of the contract. Yeah. So again, what one to be wary of. again, another Victor Victorian one, it's a big month for state taxes, ISPT. this was around the landholder duty rules. Now it
Doesn't come up a lot in our practice, but there is a distinction between a private landholder and a public landholder. And a very different acquisition, basically it's like a 90% acquisition threshold for a public landholder. And private will be 50 or 20, 20%. So what happened here was essentially there's two transactions. One was, it was a big transaction, but not quite at 90%. It was at 75%, while the entity was public.
And then they did another transaction a little while later, basically to get a bit more. And at that time it was essentially private. And well, what the decision stands for is essentially the commissioner aggregated the two transactions together and said that I don't care that it was only seventy-five percent when it was public. I'm gonna aggregate those transactions together and I will I will stitch them together in a way that gets duty on all of it at the the highest rate.
Velocity Legal (49:30.838)
Again, it's the aggregation rules that are they're very broad in how they can apply. so again, another one to be to be really careful of. The only thing if I can just add this is perhaps my only contribution to state taxes. is just I've found that there's a a separation, perhaps misunderstanding as well amongst tax agents about how far can you stray into state taxes. Yes.
The TASA only protects and usually your PI only extends to what I'd loosely say is Commonwealth taxes, of which the state taxes aren't. but you end up seeing accountants that in it even inadvertently strain to that, payroll tax and so on. And there's been methods or styles that have been used to I wouldn't say work around that, but effectively put it back on the client to say, look, go and work out if you've got a payroll tax liability, come and tell me.
Ta bring me the SRO website and I'll then just plonk that in the online forms and so on. but I think it's a it's a real area that is ripe for problem because then if you do make an error, and sometimes those areas can be even via lodging ASIC forms and things like that, which you might still do as the accountant, then you're not covered from a PI perspective. I had a client come to me yeah earlier this week and it was to do with absentee owner surcharge, which is
I won't go into the details of what that means, but the point of that was that she said, my accountant didn't tell me. Why didn't my accountant tell me? And the problem with the absentee owner surcharge is that it's a positive obligation. The the owner needs to go to the ATO, sorry, to the SRO or whichever whichever state revenue office it is and say, I am an absentee owner. and I I sort of reflected, and to be fair, the the accountant one
Is not providing advice, but I don't think there's enough knowledge then or expectations from the client's perspective to realize that. And so maybe that's where you know some of the education needs to come in at the start when you do those engagements and say, just so you're aware, this is exactly what the engagement includes, and this is what the engagement doesn't include. We might identify an issue, and if we happen to, in the course of doing this work, we can refer you to somewhere or we can let you know what the issue is and you can get some further advice.
Velocity Legal (51:54.478)
But I think that's the bigger that's also the problem is from the client's expectation. If you don't tell them, they probably they just think of I mean, accountants are general generally your one, you know, your key advisor. So I think there's also that that misunderstanding from the client. I think particularly with payroll tax, which I mean is an excellent point, Vincent, but particularly with payroll tax, because one, it's got the nerd tax in it. Yes. But also I mean with the other ones.
Like, you know, your landholder duty and your y your transfer duty. You could say, All right, it's property. I'm gonna need a lawyer involved generally. It's the property lawyer, but payroll taxes no there's there's very few people that say, I'm a payroll tax, you know, expert. Like it's it it it's so r rare. And it's like, why are you gonna seek them out in the first place? Yeah, and you're engaged too. Yeah, and you're engaged. Often the the tax agent will be engaged for something really r broad, like managing the tax affairs of
the company and the or or the business. And that includes payroll tax. So yeah, it is a it's a really it's a tough line to draw, but yeah. Fine final quick hit on on state taxes. Another another unfortunate one. this is a case called Ivo Holdings. Ivo Holdings and the ch chief commissioner of t state revenue.
This case is again sort of showing just how unfortunate and nasty these rules can be if you don't get everything aligned. Now, essentially what we had here is we had a unit trust that was set up. And the they said the client said, All right, well, we're gonna, we're gonna we're we're gonna buy a property for our professional services business, and and and the property the the the business is gonna use the property. fine, all good.
What happened was they needed to change the unit holdings, but they did it on the same day as the contract of sale was entered into. This is New South Wales. So the duty of it the duty bill transaction is the entering of the contract of sale. But on the same day they did both of those transactions. And now the clients said, no, no, no, but but I did one in the morning and one in the afternoon.
Velocity Legal (54:13.0)
Even if that was accepted as correct, the problem is that there's a sort of a deeming provision which essentially says that it does it essentially doesn't matter what time it happened during the day. You're such like if you sign the contract at 1159 at night, you're deemed to be to own that land for the full day. So it it's very harsh because you pay stamp duty on the on the unit trust purchasing the property, that's you know normal stamp duty, but you also pay stamp duty on the units. So it's it's a true.
double duty without well, any maybe you get a bit of cost base in something, but but really no benefit of of paying it. and then, you know, and then generally the next question is whose fault is it? from there. but the the the one point maybe Vincent I might get your thoughts on is just as a lawyer, I'm always reluctant to do things on the same day. Like when you got multiple steps, always just I for whatever reason, I don't know like
Maybe it doesn't matter, but I always think I always think it's got a day between to give you a brief anecdote on this, we have a dispute at present with the ATO where the accountant did various steps and put the time of the transaction on the various steps. Yes. and the the time that was put on one of the steps I think was the wrong way around.
Or they timed it in the wrong sequence. And that now that is in it's a 122A rollover that's now in dispute. Because the specific issue that's in dispute is there was one share that wasn't wholly owned by the transfer or and that was cancelled a minute after all the timing of the of the documents were done. Yeah. but this this the timing of that often happens if you know you if you're rolling up
a group and it's a one twenty four rollover or something and you're sort of tipping in entities into a group and you want to make sure you get your right proportions at the shareholder level and so you're timing things. Sequencing. That's what immediately jumped to my mind, Audrey, when you mentioned that case. I'm like, gosh. but normally yes, you try and have, you know, nice perfect daylight in between maybe the weekend if you can get away with it. Interestingly, all of those cases really are about se like they're all about sequencing. Yep. It's it's it's it's funny and
Velocity Legal (56:39.594)
as you say, I think in the income tax concept, in the income tax context, sequencing when it comes to rollovers, that is just where the rubber hits the road. You get that sequencing wrong and it could be quite, quite detrimental as you you're you're potentially seeing at the moment. It was awful. It was awful. All right, we might take a a bit of a change of pace from duties and and state taxes. So Vincent, we're we're back on the
The disclaimer is taken off in terms of back in ATO. So yeah, we're in income tax world, although the case I am about to talk about is is GST related. it's the premier aviation case. I won't go into too much detail around sort of the the facts of the case because they are quite specific. But the case is about litigation costs and legal fees and GST credits, so claiming GST credits. And the broadly
Premier Av Aviation, they were trying to claim these legal fees and the GST credits, but the findings were that they weren't allowed to do so for two reasons, actually. and I will go to context as to why I think why I think this might be a little bit important. But effectively, in order for any credits to be claimed for GST, it needs to be related to the the actual enterprise. And that was probably the first, the first problem found to be in this particular case, is that.
These legal fees weren't sufficiently connected to the enterprise. So Premier Aviation tried to, you know, there was a couple of different arguments they made as to what enterprise it was related to. And effectively part of the problem was it was evidentiary. They said there was no written agreements to support that they were in, they were carrying on an enterprise of aviation consulting. interestingly, they then also in the alternative attempted to say, well, maybe they were into the enterprise of.
litigation or entering into some sort of litigation, which I never would have interested. Sort of like I mean, they it it was just like their last attempt because if you can't satisfy that enterprise part, then you're not even going to get any further than that. Now, they didn't they weren't able to get up on either of those two things. But then hopefully there was this discussion around okay, well, had they been able to, would they be allowed to actually claim those credits? Now
Velocity Legal (58:56.098)
The problem is that if the legal fees are cons or the litigation costs are considered to be financial supplies, then there's certain rules that would s would deny those credits. Now, I see this often, this question come up in MA transactions, and it's to do with, you know, can we claim a credit for these legal costs or litigation fees or whatever it might be? And in this particular case, premier in premier aviation, even if they had gotten up on that enterprise point.
they wouldn't have been able to get up on the f financial supplies point because it was found that these particular costs were actually related to the share sale or the buyback. They weren't actually related to that. They were actually, yeah, that's right. They were financial supplies in in by way of definition. So it really got me thinking about that question that often gets presented as to, you know, can we claim these legal fees when, you know, the actual transaction has to do with the sale of the shares?
in the company. And we see that I know in income tax, we'll think about, you know, what's the black hole deductibles, a black hole cost base. Yep, that's right. So I don't know, Vincent, have you had some have you looked at these sort of circumstances before? Have any any thoughts on this? Just on the reduced acquisition sort of thresholds on the MA side, I actually think that's not well known generally. And so if you have you might have an advisor
client says, look, I've had legal fees of might be I I can't remember the exact threshold now, but you might have spent an absolute packet for the year on a few roll-ups or whatever. And and so you have some legal fees and you spend a half a million dollars or a quarter of a million dollars and you you have a a chunk of GST there, the likelihood is that whole credit is going in the Bass. Yeah. The there's probably not the level of detail that's required to say, mm, was that for various MAs along the way during the Bass period or whatever it might be.
I actually think it's a probably ripe for target, frankly. 'cause it just doesn't seem like it's really a f been a focus area. I've had I have had one. I've had one. It was part of a a recurring review of one of our larger private groups and one of the questions was around the financial supplies threshold. It was about the threshold and they the HL wanted to see all the the work papers and and the like. Yeah. So I d I do think once they get into that territory.
Velocity Legal (01:01:18.132)
it's a very quick and easy question for the ATO to ask. And and you have two options with those thresholds, don't you? It's either a reduction of the seventy-five percent or it's reduc reduction to nil, depending precisely what cost it is. So it can it can have a very significant cash flow effect for otherwise what is just a normal GST refund all them out to most businesses. Yeah, and particularly because it's it's particularly an issue, I think, for businesses that don't have these sort of costs that come up very often. But as you say, in one particular year there's been quite a lot that's happened that is
Otherwise a financial acquisition or financial supplies and financial acquisitions. So yeah, it's it's it's interesting they asked the question. Yeah, okay. It's it's really difficult sometimes to unpack these litigation costs ones, whether it's GST credits or the income tax side of things, because you you'll have a lot of s expenditure over, you know, it could be over years and you know, hundreds of thousands. and there could be sort of these ten different claims, you know, the other side made these claims and we made these claims, and then this thing happened and
And then ultimately it all sort of settled on a on a no admissions basis. And it's like, well, what what's this even for? Like, you know, like the like if there's money paid or received or or the legal costs themselves, like the characterization can be really difficult because it could there could be multiple things. There could be like a shareholder issue or a like a business reputation, which are different. so it it's often just like a like a
Like a mixed up soup basically. And in yeah, interestingly, when you're probably getting those invoices from your from the law firm or whoever whatever those invoices relate to, you're probably not looking at it at that point. Or go an autopilot at that point. Yeah. And so and then when you get reviewed, you probably have that opportunity. And interestingly, in this particular case, they they initially looked they actually looked first at the pleadings and the actual case to say what was it that you were actually what was the objective here? But then I guess you've got then your
your invoices. Now it's probably going to be really hard and too late to go back to the law firm years down the track and say, hey, can you I know that you've you've put it, you know, it might it might not even be an item itemized invoice. So I guess it's that process of the the the agent and sometimes again, not the agent, it it could just be the the business doing their own Basses or a BASS agent. So I just yeah, I think if you've got one off, if you're not in the business of doing these sort of
Velocity Legal (01:03:41.73)
having a lot of these fees run expenses run through your business, you probably do need specialist advice in those years rather than waiting is the probably the message, I think. I agree. just on that, just lastly on that point, I always find the GST rules in this area, that GST on settlements ruling, can b is sort of similarly on those points. Like a is what you're settling on a supply of the underlying supply? Yes. Or is it a settlement of effectively like a damages claim or something like that? And the the consequ or I and there's
This sort of residual supply, I think. I can't remember precisely what it's called, but you have this sort of final supply that if nothing else applies, it's that one. We don't really know what it's for. and so you try and fumble around as to what is it actually you've either spent the money on in a very technical sense. And that can be almost impossible to determine. And the the the the the lawyer or the tax agent or the advisor, they weren't part of the litigation. Well you don't remember what happened to them and they've got to try to unpack it and un basically understand it as well. Correct. Yeah. Yeah, it's very difficult.
we've got two others. one is sort of a little bit of a Bitcoin topic. Now, none I'll I'll preface it that none of us are crypto experts by any stretch of the imagination. but we had we had a high court hearing. it's a non-attax case, it's called Poulton and and Conrad. so that was heard by the High Court in August. And essentially the issue was around was around criminal hopefully I don't butcher it. And please please feel free jump in if you guys know more than I do.
But essentially it was a it was a criminal case around issues with I'll call it theft of Bitcoin, but the issue is whether or not Bitcoin can be possessed in the first place and therefore whether certain criminal charges applied. So basically my my dumbed down version of it is essentially is crypto actually property that like the criminal those criminal charges can attach to, or is it or is it not? And in which case it's probably other charges, but
whether those charges can apply or not. Now that the commissioner did intervene in this case. High court haven't made a judgment yet. again, it's not a tax case, but the ATO has has said for many years that you know, CGT assets broad, it's property or a legal right or equ or equitable right. Basically anything I I sort of explain sometimes is it's everything other than the air you breathe is a CGT asset.
Velocity Legal (01:06:07.37)
And and and you know, the commission has had views on on whether or not, you know, and basically says yes, it is, it is a CGT asset. Of course it's a CGT asset because sister doesn't really work otherwise. So there needs to be a CGT asset. and and related to that, we had just interesting in terms of timing, we had a draft tax ruling on airdrops and a draft tax determination on on wrapping and unwrapping, which is not, you know, Christmas time. It's it's far more technical than that.
But it's just interesting that the commissioner would release views on CGT consequences in the same month that there's a high court hearing on whether or not it's property at all. It's just I find it interesting in terms of timing. I I would say that I mean, at least they're probably they won't get finalized until after that. But they they're they're there in draft. Yeah. My I it's been a little while. I know that.
I'd say probably maybe eight, ten years ago was probably when the ATO started releasing their view on on digital assets. And interestingly, I think at the time the digital assets were going really well. So people were making a heap of money. And at that time, the I'm gonna get this in the reverse, so you might need to help me, but it was in the ATO's best interest at that point to say that the assets were on revenue account because it would
Would be better from a from a tax perspective. But then I clearly remember, I I distinctly remember it was around about COVID and that was when the assets started the crypto the digital assets went back down again. And I remember going back to those ATO general website. if you went to it, the language just sort of changed a little bit. And it was like, no, no, no. We think most people are probably holding holding digital assets on you know, as a hobby like not as a business, but probably just
You know, as a CGT assets. and then obviously that's because if you're making losses out of it, it's better for the ATO for those to be on on capital account and only offset against gains. So I guess I I I wonder though, then if I look at this, I mean, this is all about CGT assets and the CGT implications, but if I think to that, you know, that order of magnitude, if you've got a lot of Bitcoin or digital assets, it's more likely.
Velocity Legal (01:08:30.446)
potentially that it's going to be on revenue accounts. So I do wonder, you know, yeah, I mean, this is quite a specialized area, but yeah, that distinction between revenue and capital. And maybe it's not so much of a thing anymore because we don't get the 50% C do tax discount. So yeah, you get indexation. But yeah, so anyway, that was just my interesting anecdote because I know that the ATOs sort of flip flopped on their the way they describe things to the to the average
ATO website user. It it doesn't surprise me actually. Can I just add something slightly different that's not entirely a crypto thing? But I I just wonder whoever names these types of transactions, because they must like lollies or chocolates or something. and I'm not a crypto guy, but you've got airdrops and then all I can think of when I think airdrops and wrapping and unwrapping is like the little chocolates that you sort of you know, and you sort of pop them in. But yeah, the just on I I think
Just adding to your point as well on the side that you take as the commissioner, depending which side might be more revenue beneficial. I think I'm not gonna say the ATO did this, but there there is a, I think like a CFD ruling as well. And it's sort of like this synthetic financial ruling that effectively says, we don't think it's anything. and almost to the point where you might say it's quasi gambling. So because the
CFDs tend to have much more downside than upside. but yeah, just to your point on that, I think that does happen from time to time. It does play into things. It just does play into things. I have a residency, tax residency case at the moment where we uncovered this tribunal or federal court decision from 2002 where the ATO was actually arguing. traditionally you'd expect the ATO to argue the person was a resident. but the ATO was actually arguing that case. No, no, you were a non-resident.
Because they wanted to deny the person access to the the threshold. Yes. Yeah. So and now in that we're using that particular case to advance the client's interest. But yeah, it just depends. Sometimes you have these quirks of cases that come out because the revenue's taking particular approach. Yeah, no, it definitely is interesting. Definitely is interesting. final case we've got here is case of Munro.
Velocity Legal (01:10:52.778)
Now, now this case isn't isn't particularly complicated. there was essentially an amount of a lump sum, a rears amount was paid to a a person, so sort of employment income. so it was received in a particular year and it was a you know it was a lumpy amount, caused the taxpayer to go over the the div 293 threshold, 250,000. so there above that you got the you know the extra tax on super contributions.
Essentially it was about whether or not there was any way, shape or form to to avoid that outcome. you know, some type of discretion or really, because that that that payment did relate to, you know, previous work over many years. And, you know, the the case said there's not, which I would have said too, and sure you guys would have said the same. but I guess it just shows, I guess, sort of just the unfairness sometimes of the system where you've got
and I could tighten this back to CGT in a second, but but where you've got big lumpy amounts, system doesn't often work well for them because you you know, you okay, it's over it's a big amount, it's it's it's relates to previous years, but it's derived now. And then, you know, you're over the div two nine three threshold. And it's just interesting because, you know, how I sort of tie it back is that the old indexation for CGT had averaged it had averaging.
And other things have averaging like you've got essentially like your farm management deposit scheme for primary production, which is a kind of like a form of averaging because you can sort take it out and so forth. So it's it's just interesting that y you know, the tax system can sometimes r throw up those results where, you know, because it's threshold based that you know it doesn't feel quite fair, but you know, it's it's the law is the law and and if there's no discretion, then it is what it is. And we see that a lot in super because it is very much a you miss the date.
You didn't make your your payment for your personal super contribution on the day and it wasn't received or all the like. So super in particular is quite very, very clearly just black and white and there's not a lot of room to move. Yeah. Yeah. Can can I come up as well with sort of non residents receiving so people who are non residents who are now becoming residents again, receiving money that, you know, related perhaps to past things, but you know.
Velocity Legal (01:13:12.61)
You y you derive it when you receive it generally, unless you're on a cruel system and it's but you generally will d will derive it when you receive it and you know, the fact that it relates to previous periods is neither here nor there. E even that point on the residency, having to sort of strike a line as to part ye resident, that is so hard. So hard. So hard. Like as i you you'll traditionally try and align it to maybe when you left or something like that, or when you came back, it might be some other event, but
How do you really like the test is great to begin with, but the law then requires you to strike a line. Yeah. And then what might be before is accessible or non-accessible, depending which way it falls. Yeah. That can be super hard. And and the penalties that come with that where you've tried to do the right thing, it can be an awful outcome for a client. Yeah. I I couldn't agree more. I do have one of those at the moment. you do. Good luck. Well it's not a dispute. It's more an advisory point saying, look, you know, clients ask you sometimes, well, what's the data becoming non resident? Yep. Yep.
Don't know. I can give you different answers to that. Yeah, correct. Correct. That can be really different. It's also tested every year. And I think that's the bit that people that sort of when the agent goes to do just to, you know, it might might be sort of, you know, a a developing junior in the firm that just thinks, yeah, they went overseas, so I just put one July or or whatever the date is. But you could you can very easily be outside of the country for the first two years, let's say, and not a non-resident, and then become a
re non resident afterwards. So this simplicity of, yeah, they'll have left the country. They're probably, you know, it's it's not quite as simple as that. I completely agree with that. I'm gonna I'm gonna sum it up. I'm gonna try and do a recurring theme of today's episode. And it's gonna be dates. Yeah. Dates states matter. Get in before the T P. you know, we've got all these different changes with different dates and legislation and start dates and so forth. State taxes, it's all all these disputes are about dates.
Just I I didn't plan this when it came into it, but it all relates to dates in some way, shape, or form. We had even times within dates. Yes. When a date is not a date. When it's not a date. A date is not a date sometimes. That's right. Yeah, well that that's a that's a wrap on this episode. I mean, we we're recording sort of early in September, so we've already got
Velocity Legal (01:15:34.826)
Sneak peek of September was going to be the the the the exposure draft for for trusts. and yeah, that's gonna be the main item. So Vincent, I wanna thank you so much for being here. Thank you for having me. It's been wonderful. it's been great to hear your insights. you know, state taxes is specialty, I've taken that away. but no, it's been it's been really good to share some anecdotes and, you know, see some things on the on the on the ground as well. So
Thanks once again for being here. It's been wonderful. And I did see your socks actually. Can we pan down to the socks at some point? But just to just to show the audience. I well there we go. They look amazing. Thank you. I mean for the pizza socks. I've got the pizza socks as well. for someone special out there who's may might be listening. Sorry, I don't have any fancy socks on, just in case you're panning down to my feet.
well that's a good way to end it. yep. Thanks once again. Thank you so much. Thanks Vincent. Thank you.
