New Swiss agreement to tackle evasion

It was announced on the 3 March 2013 by the Treasures that Australia and Switzerland had decided to increase cooperation to tackle tax evasion.

The ATO will receive automatic details of financial accounts that Australians hold in Switzerland, and will be used to track the income declared in Australian Tax returns. Equally, the Swiss Federal Tax Administration will obtain details of residents that hold financial accounts in Australia. This is based on OECD’s common reporting standard (CRS).

The CRS will be implemented in Australian and Switzerland from 2017 and the first exchange of information will be commenced in 2018.

The Commissioner’s Perspective

Exempt entities: conditions to be met

A final ruling has been issued by the Commissioner that considers the governing rules and application of income and assets conditions that must be met by certain entities to obtain exempt status under Division 50 of the Income Tax Assessment Act 1997 (Cth).

An entity is required by the governing rules condition to “comply with all the substantive requirements in its governing rules”. This condition is applied on a continuous basis throughout the income year.

The governing rules are divided in two categories as follows:

• “substantive” requirements
• “procedural” requirements

The “substantive” requirements are the rules that define the rights and duties of the entity and include the following:

• Give effect to the object or purpose of the entity;
• Relate to the non-profit status of the entity;
• Set out the powers and duties of directors and officers of the entity;
• Require financial statements to be prepared and retained;
• Set out the criteria for admission as a member of an entity;
• Require an entity to maintain a register of members; and
• Relate to the winding-up of the entity.

An entity is required by the income and assets condition to “apply its income and assets solely for the purpose for which the entity is established”. The purpose of the entity is established is determined by consideration of all features of the entity. The factors of consideration are considered the objects in the entity’s constituent documents, and the activities the entity after the formation, up to the time the income and assets conditions is applied.

Small business participation percentage

An interpretative decision has been released that affects the trust in relation to which of the terms the trust deed gives the Trustee the power to accumulate income and capital of the trust estate for a year of income. Therefore it is capable of being a trust where entities have entitlements to all of the income and capital of the trust for the purpose of determining an entity’s small business participation percentage under the CGT small business relief provision.

Trustee assessments

A practice statement has been issued by the Commissioner that explains the ATO’s practice of limiting the time in which an original tax assessment will be raised against the Trustee.

A tax return that shows no Trustee tax liability it is essential the ATO’s practice not to issue any nil assessment to the Trustee to reflect the position as returned. This means that time does not begin to run for a period of review and the Commissioner has unlimited period to assess the Trustees tax position.

The practice statement outlines the practice of the ATO of limiting the period within which an original Trustee assessment will be raised. The general position is that an original assessment should not be issued:

• More than four years after the relevant trust tax return was lodged; or
• For the income year ended 30 June 2014 and later income years, more than two years after lodgement if the trust is a small business entity