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The Tax Specialist

Articles from the current issue:

• Taxation of foreign pensions Add to cart

  01 Oct 2011

  Both Australia and the United States recognise the need for their citizens to be able to self-fund their retirement, and the importance of having a globally mobile workforce. This article assesses the tax impact that Art 18, "Pension, Annuities, Alimony and Child Support", of the US Australia double tax treaty would have on the mobility of human capital between Australia and the US. In the author's view, in its current form, Art 18 has the potential to significantly hinder the free flow of human capital, for reasons which are discussed in the article.

  The article outlines the current position, including the Australian and US tax treatment of retirement benefits. The article then examines the US domestic treatment of Australian superannuation, and the current Australian treatment of US pensions. The author recommends that Art 18 be amended so that Australian and US-sourced benefits are taxed in accordance with the rules of the country in which the benefits were derived.

• Complexities of the loss carry-forward provisions Add to cart

  01 Oct 2011

  Australia has a policy of taxing company profits and losses asymmetrically: profits are taxed immediately, while losses must be carried forward and offset against future income. This policy is achieved via the loss carry-forward provisions. While these provisions have always been complex, recent amendments to the provisions and additions to other areas of tax law, such as consolidations, have resulted in increased criticism. In addition, economic instability has exacerbated pre-existing tensions between the varying stakeholders. Taxpayers' desire for clarity and the tax professional's desire for efficiency has conflicted with increased ATO scrutiny which is driven by government's need for revenue.

  This article analyses the loss carry-forward provisions for evidence of complexity in order to evaluate whether these criticisms are indeed justified.

• The deductibility of interest, Forrest’s case and hybrid trusts Add to cart

  01 Oct 2011

  "Hybrid trusts" are trusts where the interests of beneficiaries include both fixed and discretionary entitlements to income or capital or both. They have become a popular medium for structuring investments. The Commissioner of Taxation has published TD 2009/17, in which he expressed his views on the deductibility of interest on funds borrowed to invest in hybrid trusts. The 2010 decision of the Full Court of the Federal Court in Forrest v FCT, however, arguably casts some doubt on the correctness of the Commissioner's approach. In this article, the author examines issues regarding the deductibility of interest relating to investments in hybrid trusts and the implications of the decision in the Forrest case.

  The author concludes that the Commissioner's view, expressed in TD 2009/17 and his decision impact statement on Forrest, that an apportionment of the interest deduction is required in all cases is unlikely to be accepted by a court.

• Part IVA and international transactions Add to cart

  01 Oct 2011

  There have been several important recent cases which have considered the application of Pt IVA (the general anti-avoidance provision of the Income Tax Assessment Act 1936 (Cth)) to international transactions. In this article, the author examines five such decisions, each of which had a broad international
  dimension and ran into problems in the context of Pt IVA. The article then turns to the so-called "anticipated Myer litigation" which arose out of the float of the Myer Emporium, and examines the critical tax issues that will arise in any tax litigation that may ensue, and the possible relevance of Pt IVA.

  The author then reviews the key messages emerging from the cases, and summarises the features that the Commissioner is likely to look for when considering the application of Pt IVA, having regard to, in particular, the Commissioner's own practice statement and relevant case law.

• Withholding tax on partial assignments of copyright Add to cart

  01 Oct 2011

  The tax treatment of payments made by Australian residents to non-residents in respect of copyright depends on the proper characterisation of the payment, in particular, whether a payment is a "royalty". Australian law imposes a withholding tax on royalties paid to non-resident copyright owners. The Commissioner of Taxation accepts that consideration for an "outright sale" of copyright is not a "royalty", but contends that consideration for partial assignments of copyright constitutes "royalties" which are subject to withholding tax. The Commissioner's view is set out in TR 2008/7.

  This article outlines the relevant provisions of the withholding tax and copyright regimes, identifies the "four pillars" on which the Commissioner's view is founded, and critically analyses those pillars. Based on that analysis, the author makes suggestions in relation to the future administration of the withholding tax regime, and steps that affected taxpayers should consider taking to protect their economic interests.