Date posted: 22/01/2024

ATO Draft advice and guidance

List of draft rulings, determinations, legislative instruments, practical compliance guidelines and other items released by the Australian Taxation Office (ATO) since 1 January 2022.

Draft guidance released the week ended 19 January 2024

TR 2024/D1 - Income tax: royalties - character of payments in respect of software and intellectual property rights - Ruling provides guidance about when payments made in respect of software and intellectual property rights will be a royalty. It explains that payments for the use of, or the right to use, intellectual property rights are a royalty. If a payment made to an offshore recipient is a ‘royalty’ it will attract royalty withholding tax. The ATO view was previously expressed in draft in 2021 (TR 2021/D4 Income tax: royalties – character of receipts in respect of software) and in TR 93/12 Income tax: computer software (now withdrawn). The draft Ruling takes into account the feedback received on TR 2021/D4 and has been developed in consultation with the ATO’s Public Advice and Guidance Panel.

Draft: Taxation Rulings

TR 2023/D3 outlines how to determine whether a composite item is itself a depreciating asset or its components are separate depreciating assets.  It also considers whether an ‘interest in an underlying asset’ for the purposes of section 40-35 requires an entity to have an interest in all parts of a composite item that is itself a depreciating asset, or whether an interest in any part of the asset is enough.  TR 2017/D1 which dealt with some of these issues has now been withdrawn.  Comments are due 3 November 2023.   

TR 2023/D1 – considers deductibility of self-education expenses incurred by an individual. Comments are due 27 October 2023. 

GSTR 2014/2DC1 - This draft update provides proposed miscellaneous minor revisions to GSTR 2014/2. This includes updates to documents and rules referred to in the Ruling, to reflect changes to the industry self-regulatory documents containing the definition of ‘ATM’ or ‘ATM Terminal’ (the replacement of the Consumer Electronic Clearing System Regulations and Manual with the Issuers and Acquirers Community Regulations and Code Set), changes in Reserve Bank of Australia rules for merchant surcharging, and the Reserve Bank of Australia designation of prepaid cards. Comments are due to the ATO by 21 April 2023.

TR 2022/D3 - Income tax: pay as you go withholding - who is an employee? - explains the Commissioner’s approach in applying the High Court decisions in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 to the definition of ‘employee’ for the purposes of section 12-35 of Schedule 1 to the Taxation Administration Act 1953. It also aids in understanding the ordinary meaning of an ‘employee’ for the purposes of subsection 12(1) of the Superannuation Guarantee (Administration) Act 1992, but it is not legally binding on the Commissioner for this purpose. Replaces TR 2005/16 Income tax: Pay As You Go – withholding from payments to employees
The High Court cases state that whether a worker is an employee of a putative employer under the term’s ordinary meaning is a question of fact to be determined by reference to an objective assessment of the totality of the relationship between the parties, having regard only to the legal rights and obligations which constitute that relationship. In this context, the Ruling considers each of the common law indicia of employment which remain relevant but are not to be used in a checklist manner.

GSTR 2002/2DC1 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions - This draft update amends GSTR 2002/2 to reflect changes in the GST law (for instance, changes to the GST legislation applicable to cross-border supplies and in relation to digital currency), include new references to public guidance released relating to financial supplies, and contains some proposed changes to modernise parts of the Ruling. It also contains a new buy-now pay-later example that applies the ATO’s longstanding view on interest‑free loans and a number of updates to Schedule 2 of the Ruling to indicate when certain foreign currency-denominated products and overseas payment products are GST-free.

TR 2005/5DC2 - Income tax: ascertaining the right to tax United States (US) and United Kingdom (UK) resident financial institutions under the US and the UK Taxation Conventions in respect of interest income arising in Australia - This draft update amends this Ruling to clarify certain aspects of the second limb of the definition of ‘financial institution’ as used in Australia’s double-tax conventions with the United States and the United Kingdom. Key aspects covered by the draft update include:

  • when an enterprise is substantially deriving its profits from carrying on a business of spread activities
  • why some activities are not considered to be the provision of finance, and
  • changes to the use of the word ‘bank’ by financial institutions following changes to Australian banking law.

The draft update will also apply to residents of other countries with a double-tax agreement with Australia if they contain an article that is similarly worded and has the same effect as the United States or United Kingdom conventions.

TR 2005/5DCW - Withdrawal: Income tax: ascertaining the right to tax United States (US) and United Kingdom (UK) resident financial institutions under the US and the UK Taxation Conventions in respect of interest income arising in Australia - This draft update is being withdrawn and being replaced by a further draft update to TR 2005/5 to allow additional community consultation and comment. 

TR 2022/D1 Income tax: section 100A reimbursement agreements
Commissioner’s view on key elements of section 100A including what is: 
- a purpose of eliminating or reducing someone’s income tax
- an agreement, arrangement or understanding entered into in the course of ordinary family commercial dealing. 

TR 2022/D2 - Income tax: residency tests for individuals - This Ruling consolidates and replaces the material in Taxation Rulings IT 2650 Income tax: residency - permanent place of abode outside Australia and TR 98/17 Income tax: residency status of individuals entering Australia on residency for individuals. It also updates the views reflected in those Rulings to take into account developments in case law (including but not limited to Harding v Commissioner of Taxation [2019] FCAFC 29, Pike v Commissioner of Taxation [2019] FCA 2185 and Addy v Commissioner of Taxation [2019] FCA 1768. IT 2650 and TR 98/17 are withdrawn with effect from the date of issue of this Ruling.

TR 2021/2DC1 - Fringe benefits tax: car parking benefits – the draft update amends this Ruling to incorporate changes which address the concept of ‘primary place of employment’, in light of the decision in Commissioner of Taxation v Virgin Australia Regional Airlines Pty Ltd [2021] FCAFC 209.

Comments are due to the ATO on 2 December 2022.


Draft: Taxation Determinations

TD 2023/D4 - Income tax: deductions for financial advice fees paid by individuals who are not carrying on a business - This draft Tax Determination is being published to assist the community by confirming the requirements that need to be satisfied for an individual who is not carrying on a business to be eligible to claim a deduction for financial advice fees. It will replace TD 95/60 and does not change the view expressed in TD 95/60. However, it does include new content on the deductibility of financial advice fees as tax-related expenses under section 25-5 of the Income Tax Assessment Act 1997. Comments are due to the ATO by 2 February 2024.

TD 2023/D3 - Income tax: trustee risk reserves - deductibility of payments made by a superannuation fund to its trustee - outlines the Commissioner’s view on the deductibility, under section 8-1 of the Income Tax Assessment Act 1997 of payments made by a trustee of a superannuation fund (in its capacity as trustee) to the trustee in its own capacity to address the trustee’s risk of exposure arising from amendments to section 56 of the Superannuation Industry (Supervision) Act 1993. The amendments were effective from 1 January 2022 and expanded the range of penalties that a trustee cannot use trust assets to pay. Comments are due to the ATO by 19 January 2024.

TD 2022/D1Income tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of 'financial accommodation'? Describes when a private company provides financial accommodation within the meaning of section 109D of the Income Tax Assessment Act 1936 where that company is made presently entitled to income of a trust and either that entitlement remains unpaid (an unpaid present entitlement), or the trustee sets aside an amount from the main trust and holds it on a new separate trust (sub-trust) for the private company beneficiary. 

TD 2022/D2 Income tax: deductibility of expenses incurred in establishing and administering an 'employee share scheme'

TD 2022/D3 - Income tax: use of an individual's fame by related entities - This draft Determination covers arrangements where:
  • the individual with fame (for example, media personalities, professional sportspersons, entertainers, actors, artists and influencers) establishes and enters an agreement with a related entity (for example, a company or a family trust) to use their fame, and
  • the related entity then authorises other entities to use the individual’s fame for a fee.

It explains that income derived under the arrangement is the individual’s and not the related entity’s.

Comments are due to the ATO by 4 November 2022.

TD 2023/D1 - Income tax: how the non-arm's length income and capital gains tax provisions interact to determine the amount of statutory income that is non-arm's length income - outlines the ATO’s views as to how the non‑arm’s length income (NALI) provisions in Subdivision 295-H of the Income Tax Assessment Act 1997 and the capital gains tax (CGT) provisions in Part 3-1 (in particular, section 102-5) of that Act interact in determining the amount of statutory income that is NALI where a capital gain arises as a result of non-arm’s length dealings. In particular, the draft Determination provides guidance as to how to calculate the amount of statutory income that is NALI where a superannuation fund makes a capital gain as a result of non-arm’s length dealings. The draft Determination provides a number of practical examples to demonstrate these calculations. 

Comments are due to the ATO by 28 July 2023 

TD 2023/D2 - Income tax: aggregated turnover and connected entities - Commissioner's discretion that an entity does not 'control' another entity - provides guidance on the following specific issues that have emerged from the Commissioner’s administration of the discretion in subsection 328-125(6) of the Income Tax Assessment Act 1997 to determine that an entity does not ‘control’ the test entity: 

whether the discretion should be exercised where a third entity has sole or primary responsibility for day-to-day management of the affairs of the test entity, but holds relatively insignificant or no interests in the income or capital of the test entity, or in shares carrying voting rights 

whether control percentage interests of between 40% and 50% should be disregarded because the remaining holders of interests in the test entity will together necessarily control the entity, irrespective of their number or relationship to each other. 

Comments are due to the ATO by 28 July 2023 


Draft: Practical Compliance Guidelines

PCG 2018/4DC1 considers the legal liability of a legal personal representative of a deceased person.  It proposes changes to PCG 2018/4 to uplift the threshold for the market value of estate assets to $10 million and the inclusion of additional examples to provide greater certainty.  Comments are due 10 November 2023. 

PCG 2023/D1 - Electric vehicle home charging rate - calculating electricity costs when charging a vehicle at an employee's, or individual's home - sets out proposed methodology that has been developed to calculate the cost of electricity when an electric car is charged at an employee’s or an individual’s home. Taxpayers may choose to use the methodology outlined in this draft Guideline on a year-by-year basis. Comments are due to the ATO by 26 May 2023.

PCG 2023/D2 - Intangibles arrangements - This revised draft Guideline sets out the ATO’s compliance approach to intangibles arrangements involving international related parties. The new draft has been revised to reflect feedback received during consultation on the earlier draft PCG 2021/D4. The ATO is seeking submissions on the new draft which is focused on tax issues associated with restructure or change associated with intangible assets (migration) or mischaracterisation of Australian activities in connection with intangible assets, as well as including broader risk factors in the risk assessment framework to guide taxpayers in risk assessment. Comments are due to the ATO by 16 June 2023

PCG 2022/D5 - Classifying workers as employees or independent contractors - ATO compliance approach - outlines the Commissioner’s compliance approach for businesses that engage workers. It does not provide a definitive answer to the question ‘am I an employee or a contractor’ but sets out how the ATO allocate our compliance resources based on the risk associated with the classification. It also does not replace, alter or impact the ATO’s interpretation of the law or relieve any parties of their obligation to comply with relevant tax or superannuation laws.

PCG 2022/D4 - Update - Claiming a deduction for additional running expenses incurred while working from home - ATO compliance approach – the draft Guideline will allow taxpayers working from home to use a new method to claim the additional running expenses they incur as a result of working from home. When this Guideline is finalised, the new method (the revised fixed method) will be available for taxpayers to calculate their working from home expenses from 1 July 2022. 
From 1 July 2022, the shortcut method outlined in Practical Compliance Guideline PCG 2020/3 Claiming deductions for additional running expenses incurred whilst working from home due to COVID-19 and the fixed-rate method outlined under ‘Special rules for home office running expenses' in Law Administration Practice Statement PS LA 2001/6 Verification approaches for home office running expenses and electronic device expenses are no longer available for taxpayers to calculate their working from home expenses.

PCG 2022/D3 - Goods and services tax and residential colleges - sets out the Commissioner’s proposed compliance approach for universities and residential colleges supplying accommodation, meals, tertiary residential college courses and religious services to resident students and claiming input tax credits. The purpose of the Guideline is to assist residential colleges to determine if supplies of accommodation, meals, tertiary residential college courses and religious services satisfy section 38-250 of the A New Tax System (Goods and Services Tax) Act 1999 and can be treated as GST-free supplies. 

PCG 2022/D1 - Section 100A reimbursement agreements - ATO compliance approach Sets out how the ATO proposes to differentiate risk for a range of trust arrangements to which section 100A might apply. It is designed to provide greater certainty to taxpayers and their advisers to be able to assess the level of risk regarding trust distribution arrangements and determine the level of engagement that they can expect from the ATO.  

PCG 2022/D2 - Non-commercial business losses - Commissioner's discretion regarding flood, bushfire or COVID-19 - proposes a safe harbour for individuals that make a loss from non-commercial business activities due to the special circumstances of flood, bushfire or some COVID-19 impacts (a government-imposed lockdown, business closure and/or restriction) by allowing them to manage their tax affairs as if the Commissioner had exercised the discretion without the need to seek a private ruling. 

PCG 2018/9DC1 - Central management and control test of residency: identifying where a company's central management and control is located - provides proposed amendments to PCG 2018/9 to add the draft risk assessment framework to assist foreign-incorporated companies in managing their compliance risks for the central management and control test of residency and provide certainty regarding the ATO’s compliance approach. 

Comments are due to the ATO by 28 July 2023 


Draft: Legislative Instruments

LI 2023/D23 - Draft Taxation Administration (Additional Method for Working Out the Amount of Monthly Instalment Liabilities) Determination 2023. This instrument provides an additional method that monthly payers can use in certain circumstances when working out their monthly instalment. Subject to the conditions set out in the instrument, the additional method can be used instead of the method specified in subsection 45-114(1) in Schedule 1 to the Taxation Administration Act 1953. Comments are due to the ATO on 29 November 2023. 

LI 2023/D17 – discusses how to calculate PAYGW where there are irregular donations to a deductible gift recipient at the direction of a payee.  Comments are due 31 October 2023  

LI 2023/D15 - Draft Taxation Administration (Transitional Exemptions for Reporting by Electronic Distribution Platform Operators - Relevant Accommodation and Taxi Travel) Determination 2023. Comments are due to the ATO by 12 September 2023.

LI 2023/D16 - Draft Taxation Administration (Reporting Exemptions for Electronic Distribution Platform Operators - Relevant Accommodation and Taxi Travel) Determination 2023. Comments are due to the ATO by 12 September 2023.

LI 2023/D14 - Draft Fuel Tax (Correcting Fuel Tax Errors) Determination 2023 - This determination allows you to correct fuel tax errors, made in a tax period, in a later tax period in specified circumstances. Comments are due to the ATO by 4 August 2023.

LI 2023/D13 - A New Tax System (Goods and Services Tax) (Correcting GST Errors) Determination 2023 – This instrument is made under subsection 17-20(1) of the A New Tax System (Goods and Services) Act 1999 and allows you to correct GST errors that were made in working out your net amount for an earlier tax period in a later tax period in specified circumstances. Comments are due by 2 August 2023.

LI 2023/D12 - Draft Income Tax Assessment (Cents per Kilometre Deduction Rate for Car Expenses) Determination 2023 – Comments are due to the ATO by 22 May 2023

LI 2023/D11 - Draft Taxation Administration (Remedial Power - Work Test for Personal Superannuation Contributions) Determination 2023

LI 2023/D10 - Draft Taxation Administration (Remedial Power - Remission of Charges and Penalties) Determination 2023

LI 2023/D9 - Draft Taxation Administration (Single Touch Payroll Reporting Exemption for Withholding Payer Number Holders) Instrument 2023. Comments are due to the ATO by 14 April 2023.

LI 2023/D7 - Draft Notice of Requirement to Lodge a Return for the Income Year Ended 30 June 2023 – Comments are due to the ATO by 14 April 2023

LI 2023/D8 - Draft Notice of Requirement for Parents with a Child Support to Lodge a Return for the Income Year Ended 30 June 2023 - Comments are due to the ATO by 14 April 2023

LI 2023/D2 - Draft Foreign Acquisitions and Takeovers (Register Notices) Data Standard 2023 - Comments are due to the ATO by 24 March 2023

LI 2023/D3 - Draft Fringe Benefits Tax Assessment (Adequate Alternative Records - Overseas Employment Holiday Transport) Determination 2023

LI 2023/D4 - Draft Fringe Benefits Tax Assessment (Adequate Alternative Records - Car Travel to Employment Interview or Selection Test) Determination 2023

LI 2023/D5 - Draft Fringe Benefits Tax Assessment (Adequate Alternative Records - Remote Area Holiday Transport) Determination 2023

LI 2023/D6 - Draft Fringe Benefits Tax Assessment (Adequate Alternative Records - Car Travel to Certain Work-Related Activities) Determination 2023

LI 2023/D1 - Draft Taxation Administration (Withholding Variation for Personal Services Income) Legislative Instrument 2023 - This instrument varies to nil the amount a personal services entity (PSE) is required to pay to the Commissioner, when it receives alienated personal services payments, in certain circumstances. It continues the existing arrangements under the legislative instrument Variation of withholding for personal services income (15/03/2013), which is due to sunset (and will be repealed by the instrument).

GST: Waiver of tax invoice requirement draft instruments 

The ATO has issued the following draft GST Determinations that propose to replace the existing 2013 instruments that waive the requirement to hold a tax invoice under s 29-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 where specified criteria are satisfied: 

LI 2022/D6 - Taxation Administration - Payment Summary Deferral: Employment Termination and Departing Australia Superannuation Payments Deferral 2022.

LI 2022/D8 - Draft Income Tax Assessment - Cents per Kilometre Deduction Rate for Car Expenses Determination 2022.

LI 2022/D13 - Draft Taxation Administration: Classes of Electronic Payment System Transactions Exempt from Being Reported in Third Party Reports Determination 2022 – This instrument exempts administrators of a payment system (within the meaning of the Payment Systems (Regulation) Act 1998) from having to include specified classes of transactions in reports prepared and lodged in relation to table item 9 in section 396-55 of Schedule 1 to the Taxation Administration Act 1953.

LI 2022/D14 - Draft A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination 2022 - specifies requirements for making valuations for the purposes of the margin scheme under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999.

LI 2022/D27 - Draft Taxation Administration (Reporting by Electronic Distribution Platform Operators) Legislative Instrument 2022 - Under table item 15 in section 396-55 in Schedule 1 to the Taxation Administration Act 1953, operators of electronic distribution platforms (as defined by that table item) will be required to report information about certain transactions made through their platforms to the ATO. This instrument substitutes the default annual reporting period with an alternate six-monthly reporting period. The reporting periods will be from 1 January to 30 June, and 1 July to 31 December, in each calendar year.

 

Draft Law Companion Rulings

LCR 2023/D1 - The corporate collective investment vehicle regime - provides the Commissioner’s preliminary view on the operation of the Corporate Collective Investment Vehicle (CCIV) regime. The draft Ruling outlines the operation of the CCIV regime, explains the deeming principle that treats CCIV sub-funds to be trusts for tax purposes, and provides views on specific tax interpretative issues. The date of effect of the Ruling will reflect the date of effect of the CCIV regime itself, 1 July 2022. Comments are due to the ATO by 15 December 2023. 


Draft: Luxury Car Taxation Determinations

LCTD 2022/D1 - Luxury car tax: how to determine the principal purpose of a vehicle Provides the Commissioner’s proposed view on how to determine whether a car’s ‘principal purpose’ is to carry passengers or goods. 


Other draft items

ABRS 2022/D1 - Draft Corporations (Eligible Officer Exclusion - non-individuals and resigned directors) Determination 2022 l entities that hold a role as a director under the Corporations Act.

ABRS 2022/D2 - Draft Corporations (Aboriginal and Torres Strait Islander) (Eligible Officer Exclusion - resigned directors) Determination 2022

The above instruments will exclude the following classes of persons from being an eligible officer, relieving them of the obligation to apply for a director ID in certain circumstances:

  • Resigned directors - persons who have ceased to hold any role as a 'director or alternate director acting in that capacity' (directors) prior to 1 December 2022 (for directors under the Corporations Act 2001) or 1 December 2023 (for directors under the Corporations (Aboriginal and Torres Strait Islander) Act 2006), and
  • Corporate directors - non-individual entities that hold a role as a director under the Corporations Act.

Comments are due to the ATO by 9 December 2022.

ER 2022/D1 - Excise: the meaning of 'legally and economically independent' - explains the Commissioner's view on the meaning of 'legally and economically independent' for the purposes of the Excise remission scheme for manufacturers of alcoholic beverages and the former Excise refund scheme for alcohol manufacturers.

Comments are due to the ATO by 16 December 2022.

TPRE 2022/D1 - Draft Taxation Administration Deferral of Third Party Reports by Eligible Community Housing Providers for the 2020-21 Financial Year Determination 2022. 

TPRE 2022/D3 - Draft Taxation Administration Excluded Classes of Transactions and Entities for Third Party Reports on Shares and Units Determination 2022.

LODGE 2022/D1 - Draft Notice of Requirement to Lodge a Return for the Income Year Ended 30 June 2022.

LODGE 2022/D2 - Draft Notice of Requirement for Parents with a Child Support Assessment to Lodge a Return for the Income Year Ended 30 June 2022.
 

Late releases from 2021 and previous years

TR 93/25DC1 - Income tax: accessibility of proceeds from illegal activities, treatment of amounts recovered and deductibility of fines and penalties 

GSTR 2012/3DC2 - Goods and services tax: GST treatment of care services and accommodation in retirement villages and privately funded nursing homes and hostels.

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Tax Team AU