Notice of Rulings 4 August 2021

Overview

The Commissioner of Taxation, Chris Jordan, has issued notice under the Taxation Administration Act 1953 of several public rulings and an addendum to existing rulings, effective from 1 July 2021 to 30 June 2022. These rulings and the addendum aim to clarify the tax consequences for various corporate transactions, including the return of share capital and special dividends by ICSGlobal Limited, the scrip-for-scrip rollover for the RAM Australia Elsie Street Burwood Trust, and the demerger of Clean TeQ Water Limited by Sunrise Energy Metals Limited. Additionally, the notice includes an addendum to TR 2004/4 to reflect changes related to deductions for interest incurred on vacant land, and an erratum to LCR 2021/2 to correct a reference error. These updates are intended to ensure taxpayers are aware of the tax implications of these specific transactions and to maintain consistency with relevant legislative changes.

Scope and Application

The Notifiable Instrument F2021N00187 issued by the Commissioner of Taxation under subsection 358-5(4) of Schedule 1 to the Taxation Administration Act 1953 provides notice of public rulings and an addendum that specify the tax consequences for various financial activities and arrangements. These rulings apply to individuals and entities engaged in the specified transactions, such as shareholders of ICSGlobal Limited, unit holders in the RAM Australia Elsie Street Burwood Trust, and those involved in the demerger of Clean TeQ Water Limited. The rulings are effective from 1 July 2021 to 30 June 2022, governing the tax implications of these financial events within the Commonwealth of Australia. An addendum to a pre-existing ruling TR 2004/4, which pertains to deductions for interest incurred before or after relevant income-earning activities, was also updated to reflect changes in the Income Tax Assessment Act 1997, effective from 1 July 2019. Additionally, the instrument includes an erratum to correct a reference error in LCR 2021/2 concerning non-arm's length income, applicable from 1 July 2018. The rulings and their updates extend to all taxpayers in Australia who are affected by the specified transactions and legislative changes.

Key Provisions

The Commissioner of Taxation has issued several public rulings and amendments, setting out the tax consequences of specific transactions or clarifying existing tax law. Section 358-5(4) of Schedule 1 to the Taxation Administration Act 1953 enables the Commissioner to issue these rulings to provide clarity and certainty to taxpayers and tax practitioners. The rulings and amendments cover various scenarios, including the return of share capital and special dividends, the acquisition of units by a Trustee, the demerger of a company, and the deductibility of interest incurred in relation to vacant land. The rulings and amendments are effective for specific periods, with some applying from 1 July 2021 to 30 June 2022, and others taking effect from 1 July 2019 or 1 July 2018. These rulings impose obligations on taxpayers and tax practitioners to ensure that they apply the correct tax treatment to the transactions described in the rulings. For example, taxpayers who received a return of share capital or special dividend from ICSGlobal Limited on 20 July 2021 must apply the tax consequences set out in CR 2021/53 when preparing their tax returns. Similarly, unit holders in the RAM Australia Elsie Street Burwood Trust must apply the tax consequences set out in CR 2021/54 when the Trustee acquires their units. Failure to apply the correct tax treatment may result in additional tax liabilities, penalties, or interest charges. The Commissioner of Taxation may take enforcement action against taxpayers who fail to comply with the tax obligations arising from the rulings or amendments. Under the Taxation Administration Act 1953, the Commissioner may issue a notice of assessment or a notice of amended assessment to correct the tax treatment of a transaction. The Commissioner may also initiate legal proceedings to recover outstanding tax liabilities or penalties. In some cases, the Commissioner may refer matters to the Australian Taxation Office's Serious Taxpayer Division or the Australian Federal Police for criminal investigation and prosecution. The maximum penalties for breaches of the tax law depend on the nature and extent of the breach. For example, under the Taxation Administration Act 1953, the Commissioner may impose a penalty of up to 75% of the additional tax or penalty arising from a failure to comply with a ruling or amendment. In addition, the Commissioner may impose a penalty of up to 25% of the additional tax or penalty for each year that a return is not lodged or is lodged late. In more serious cases, the Commissioner may refer matters to the Serious Taxpayer Division or the Australian Federal Police, which may result in criminal charges and penalties of up to $220,000 for individuals or $1,100,000 for corporations.