Notice of Rulings

Overview

The Commissioner of Taxation has issued Taxation Determination TD 2018/13 under the Income Tax Assessment Act 1936, aiming to clarify the application of section 109T to payments or loans made by private companies to other entities, specifically when these transactions are considered ordinary commercial dealings. This Determination, issued to provide certainty and guidance to taxpayers, applies retroactively and prospectively to income years starting both before and after its issuance date. Complementing this, Ruling CR 2018/32 addresses the tax treatment of shares disposed of by employees of Mantra Group Limited or its subsidiaries under a specific employee share scheme, effective from 1 July 2015 to 30 June 2018. Both rulings are accessible through the Australian Taxation Office website, facilitating compliance and interpretation of the relevant tax laws for affected entities and individuals.

Scope and Application

The Taxation Determination TD 2018/13 pertains to the application of section 109T of the Income Tax Assessment Act 1936 in relation to payments or loans made by a private company to another entity, referred to as the ‘first interposed entity’, where such transactions are ordinary commercial dealings. The scope of this Determination encompasses entities engaged in these types of transactions, and it applies to years of income commencing both before and after the date of its issuance, thereby ensuring that taxpayers can rely on its guidance prospectively and retrospectively. The Determination provides clarity on the Commissioner's position concerning the tax implications of such transactions, thereby assisting private companies and interposed entities in understanding their obligations under the relevant tax provisions. Meanwhile, the Compliance Ruling CR 2018/32 specifically addresses the tax treatment of shares disposed of under the employee share scheme of Mantra Group Limited or its subsidiaries, for employees who participate in the scheme. This Ruling applies to transactions occurring from 1 July 2015 to 30 June 2018, thereby offering definitive guidance to employees and the entities involved in these particular share disposals. Both the Determination and the Ruling are integral to ensuring compliance with the Income Tax Assessment Act 1936, providing essential clarification and certainty for taxpayers engaged in the specified activities.

Key Provisions

The Taxation Determination (TD 2018/13) provides the Commissioner's position on the application of section 109T of the Income Tax Assessment Act 1936 (ITAA 1936) to payments or loans made by a private company to another entity, referred to as the 'first interposed entity', when these transactions are ordinary commercial transactions. According to the Determination, if a private company makes a payment or loan to another entity and that transaction is genuinely an ordinary commercial transaction, section 109T may not apply to deem the transaction as a dividend. This ruling is significant for taxpayers as it clarifies the conditions under which such transactions are not subject to dividend treatment, potentially affecting their tax liability. The ruling imposes specific obligations on taxpayers involved in such transactions. It requires that the private company and the first interposed entity demonstrate that the payment or loan in question is an ordinary commercial transaction. This involves proving that the terms of the transaction are consistent with what would be expected in an arm's length transaction between unrelated parties. Additionally, taxpayers must maintain proper documentation and records to substantiate their claims that the transaction is commercial in nature, as these may be required for audit purposes. Breach of the obligations outlined in the Taxation Determination could lead to various consequences. If a transaction is wrongly deemed to be a dividend due to a failure to satisfy the conditions set out in the Determination, the private company may incur additional tax liabilities. The Commissioner has the authority to adjust the tax assessments of the involved parties to reflect the correct tax treatment of the transaction. In severe cases, where the Commissioner determines that the breach was due to willful neglect or fraud, criminal penalties may apply, including fines and imprisonment. Additionally, civil penalties may be imposed for non-compliance, which can be substantial depending on the severity of the breach. Another significant ruling, CR 2018/32, addresses the tax implications for employees of Mantra Group Limited, or subsidiaries, who participate in the employee share scheme and dispose of shares under the Scheme of Arrangement. This ruling specifies the tax treatment for such disposals from 1 July 2015 to 30 June 2018, clarifying whether certain disposals are exempt from tax under the relevant legislation. The ruling is designed to ensure that taxpayers correctly apply the tax laws to their specific circumstances, thereby avoiding potential tax liabilities that could arise from incorrect tax treatment. The obligations imposed by this ruling require employees disposing of shares under the Scheme of Arrangement to understand and apply the specific tax rules outlined in CR 2018/32. This involves correctly categorising the disposal as either exempt or taxable income, depending on the terms of the Scheme and the relevant tax laws. Employees must also ensure that they report their disposals accurately on their tax returns and maintain appropriate records to substantiate their claims. Failure to comply with these obligations can result in tax assessments being adjusted, leading to additional tax liabilities or interest charges. In cases of deliberate non-compliance, the Commissioner may pursue legal action, which could include fines or other civil penalties.