Let’s talk tax – Issue 204


In this edition of talk about taxwe discuss the Clough decision impact statement, recent guidance from the OECD on its proposal to reform international tax rules, the Treasury’s release of consultation papers regarding rules for the distribution of ancillary funds, and the federal government’s recommendation to the Board of Taxation to review non-arm’s length charge provisions for pension funds.

We also provide a summary of some recent cases, including Hyder v Commissioner of Taxes.

ATO Updates

‘Decision impact statement: Clough Limited v FCT [2021] FCAFC 197′

In Talking Tax Issue 202, we discussed the appeal to the Federal Court Clough Limited v Commissioner of Taxes [2021] CFAF 197.

In the facts of this case, the majority shareholder owned 61.6% of Clough Limited (Clough). The majority shareholder has entered into a Scheme Implementation Arrangement (AIS) to acquire the remaining 38.4% of shares. As part of the SIA, Clough offered to purchase the employees’ unvested options and performance rights. After the implementation of the SIA, the taxpayer sought to deduct these payments under section 8-1 of the Income Tax Assessment Act 1997 (Cth) (1997 Act).

The Full Federal Court ruled that the payments were deductible over five years under Section 40-880 of the 1997 Act.

The ATO has issued a Decision Impact Statement on Clough on March 10, 2022 in accordance with the reasoning of the judges and with reference to the principles in Tax Ruling 2656 Income tax: deductibility of takeover defense costs. The ATO noted the principle that determining whether a payment for the cancellation of employee entitlements in mergers or acquisitions is deductible is ultimately “face and circumstance specific.”

Legislative and policy updates

Consultation Paper: ‘Distribution Guidelines for Ancillary Funds’

The Treasury has released a consultation paper seeking comments on potential policy changes that would increase the flexibility offered to ancillary funds.

Ancillary funds are required to make a minimum distribution each fiscal year to recipients of Type 1 deductible donations (RDG). There are also restrictions on the transfer of assets between ancillary funds.

The consultation document raises three questions and 15 questions for discussion. The alternative options raised by the document are as follows:

  • allow ancillary funds to request the commissioner to reduce the minimum distribution rate for one or more years to allow funds to accumulate to support large projects;
  • increase the flexibility of asset transfers between ancillary funds by:
    • allow the transfer of assets between ancillary funds when the ancillary fund has already made its minimum distribution during the financial year; or
    • allowing the transfer of assets to another OTC fund that would count towards the fund’s minimum distribution, then a distribution of an equivalent amount must be made to a Type 1 DGR within 12 months.

The document also asks contributors if there are any other improvements that could be made.

Responses to the consultation document can be submitted until May 6, 2022.

The publication of OECD guidance on the second phase of the reform of international tax rules: the “second pillar”

In December 2021, the OECD published the Global Anti-Base Erosion Rules (GLoBE Rules). The OECD has just published guidelines on the GLoBE rules.

Since 2017, the OECD has been developing a two-pillar approach to managing the digitalisation of the economy and establishing rules around the erosion of the base of large multinational companies (MNE). This approach will require multinational companies to pay a minimum rate of income tax in the countries in which they operate.

Member countries are not currently required to implement the GLoBE rules.

First pillar

The first pillar concerns the allocation of taxing rights of MNEs. The first pillar reallocates the taxing rights of the largest multinational enterprises to the jurisdictions where the multinational enterprise conducts business and earns profits.

Second pillar

The second pillar implements an overall minimum corporate tax rate of 15% which will apply to all multinationals with a turnover of more than €750 million. This will create a “top-up tax” to be applied on profits in any jurisdiction where the effective tax rate (to be determined on a jurisdictional basis) is lower than the 15% rate.

OCED has just published the “GloBE Rules Commentary”. These guidelines aim to improve the understanding of the two pillars, as well as to help with the implementation of the rules at national level.

For more information, you can access the relevant information on their website.

Cryptocurrency Policy Framework Review

The Federal Government has asked the Board of Taxation to consider an appropriate policy framework for the taxation of digital assets and transactions in Australia.

The terms of reference under which the review will be conducted are available on the Commission’s website. Broadly, this includes analyzing the tax treatment of digital assets and transactions in comparable jurisdictions and determining whether any changes need to be implemented in Australian tax laws.

The Board will complete its review by December 31, 2022.

Case law

“Disbarment is the corporate equivalent of death”: Trustee for B&J Chung Trust and FCT [2022] AAA 383

The director of a trust company attempted to appeal to the Administrative Appeal Tribunal (AAT) to seek reconsideration of the ATO’s decision to dismiss a complaint relating to the sanctions imposed on the company. However, the company was delisted by ASIC before the claim was heard. Therefore, the AAT could no longer review this opposition decision.

This case recalls that the AAT cannot revise a decision taken under article 14ZZ of the Tax Administration Act 1953 (Cth) if the taxpayer who filed the original objection does not exist.

ATO Oppressive Behavior: Hyder v Federal Commissioner of Taxation [2022] CIF 264

The Federal Court recently ruled that the ATO engaged in oppressive conduct by requiring a ratepayer to pay two alternative appraisals before it was determined which appraisal was correct.


In a complex arrangement, a trust distributed its net income to a partnership which was then an eligible beneficiary. The partnership consisted of an individual taxpayer and a corporation. The partnership distributed 1% of the partnership income to the taxpayer and 99% of the partnership income to the corporation. All income was accounted for in each entity’s tax return and both the company and the taxpayer paid their tax liability on the income from the partnership.

In 2020, the ATO issued amended assessments to the taxpayer as it believed the partnership was not a legitimate partnership for tax purposes. Two alternative assessments were provided. The ATO required the taxpayer to pay both assessments in full, or pay 50% of each assessment and provide security for the remaining 50%, before it was determined which assessment was correct.

The ATO also denied the taxpayer’s requests to defer payment of dues.


Judge Greenwood did not grant a writ of prohibition under section 39B of the Judiciary Act 1903 (Cth), as requested by the applicants. Instead, the court said the ATO acted oppressively by requiring the taxpayer to pay the full amount of the two alternative assessments. The court also ruled that the decision to reject the payment deferral date should be reconsidered.

Input tax credits claimed and denied: Kais Jewelery (Syd) Pty Ltd v Federal Commissioner of Taxes [2022] AAA 425

The AAT concluded that the taxpayer was not entitled to claim input tax credits for the scrap gold he purchased because there was insufficient evidence to prove that the suppliers had actually supplied the metal.


The taxpayer was a jewelry store. The taxpayer claimed to have acquired more than $2.34 million in scrap gold from two companies and claimed input tax credits for these acquisitions.

Neither company disclosed the scrap gold offering in the GST filings during the relevant periods.

The sole director of a company testified that it failed to supply scrap gold and the taxpayer ordered him to provide fabricated tax invoices for the false supply. The sole director of the other company gave a witness statement in support of the claim that scrap gold was supplied. However, the AAT noted the lack of detail in this statement and the witness died before the hearing.


After reviewing the evidence, the AAT was not convinced that the taxpayer made the acquisition because there was insufficient evidence. The taxpayer also failed to discharge its burden of proving that the penalties imposed were excessive.

The AAT reiterated that in these circumstances, the taxpayer’s tax invoices and accounting records do not constitute prima facie evidence that the transactions took place. In the end, there was no direct independent evidence to which the AAT could give substantial weight to support the taxpayer’s claims.

This article was written with the assistance of Olivia Gray, law graduate, and Gabrielle Terliatan, paralegal.


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