Through the tax looking glass

What’s in store for 2024?

Vanderstock, the Constitution and State ‘charges’

The Constitutional debate emerging from the Vanderstock High Court decision is intriguing (click here for the High Court summary on why Victoria’s Zero and Low Emission Electric Vehicle (‘ZLEV’) charge was ruled invalid under section 90 of the Constitution).

Does the decision seriously threaten existing or proposed State ‘charges’; or is the decision simply a restatement and application of what the interpretation of section 90 should have been, particularly around taxes on consumption, but for a few outlier cases over the years.

Time will tell. Nonetheless, we imagine there will be challenges a plenty in 2024 and beyond, evidenced by NSW Revenue needing to issue a Vanderstock related  ‘Promoter Penalty’ warning for reasons that are yet to be made public. A promoter penalty warning without any detail as to what is being ‘promoted’ is in itself a remarkable outcome.

To try and put Vanderstock into perspective, the focus turns to whether, and which other, State ‘charges’ may potentially be invalid due to section 90 of the Constitution. The joint judgment of Keifel CJ, Gaegler J and Gleeson J summarised the analysis they applied to the ZLEV in a way that produces a simple roadmap for assessing other charges:

183. There is, as was noted at the outset, no dispute that the ZLEV charge is a tax. Victoria has not argued that the ZLEV charge can be characterised as a fee for the provision of specified roads or that the rate of the ZLEV charge bears any discernible relationship to the cost of the construction or maintenance of specified roads.

184 Once it is accepted that a tax properly characterised as a tax on goods does not fall outside the constitutional conception of a duty of excise merely because it is imposed at the stage of consumption of those goods, the question whether the ZLEV charge is to be characterised as a duty of excise turns simply on whether the ZLEV charge bears the character of being on goods – the relevant goods being ZLEVs.

185 Informing the answer to that question are the answers to two subsidiary questions. Does the ZLEV charge bear a close relation to the use of ZLEVs? And does the ZLEV charge affect ZLEVs as articles of commerce? Neither subsidiary question is difficult. The answer to each is, yes.

Self-assessing income tax exempt status, not-for profits – welcome to our world

For taxable entities the annual tax return gives the ATO ample visibility on the activities of an entity.

For ACNC registered charities, the ‘Annual Information Statement’ provides high level visibility of the activities of the charity to the ACNC and public.

However, for some 157,000 entities entitled to self-assess income tax exemption and not needing to be an ACNC registered charity (for example not-for profit sports clubs and community service organisations), no such lodgement obligations exist. Instead, management committees are expected to monitor (‘self-assess’) entitlement to exemption, but are not required to confirm entitlement with the ATO or otherwise disclose any financial details.

FY2024 will see a fundamental change to this approach with impacted entities now required to complete and lodge an annual self-review by 31 October 2024.

The required lodgement will commit management of such entities to specifically address questions such as:

• What is the legislative basis on which exemption is claimed?;
• Do the stated purposes of the entity support exemption?;
• Are activities undertaken by the entity in alignment with both the legislative basis for exemption and the stated purposes?;
• Do other provisions of the entity’s constitution support exemption (for example, the not-for profit character of the entity, prohibition on payment to members, winding up provisions etc)?; and
• Are any special conditions attaching to legislative exemption satisfied (for example where activities are conducted)?.

For most entities, the annual self-review will pose no major issues, and just form part of year-end governance procedures.

For all impacted entities though, the first annual self-review provides a great opportunity to dust off the entity’s constitution and see whether all is in order.

Some useful ATO information can be viewed here.

Some reflections on 2023

Payroll tax, relevant contracts and medical centres

We have covered this topic extensively over many years. Most recently in our August 2023 article.

A favourite saying of mine comes to mind, “it’s a shambles”.

Things finally reached the pointy end in 2023 with Revenue Offices across Australia issuing long awaited public guidance that outlined their positions on service and facility type agreements widely used in medical and other allied health clinics across Australia. For example Queensland’s PTA 0006.2, NSW’s PTA 041 and Victoria’s PTA 041.

Unfortunately, politics has managed to get in the way and the final position appears far from final and far from fair.

Consider this, essentially the same payroll tax (“PRT”) law applies across Australia (except Western Australia) to service and facility type agreements (regardless of whether they relate to general practitioners (“GP”) or other allied health professions).

We close-out 2023 with the situation broadly as follows:

• In Queensland – a retrospective amnesty was announced for GP scenarios. The GP amnesty period ends 30 June 2025 with the announced rules then to be applied. No PRT will be collected relating to the pre-30 June 2025 period for taxpayers who applied for the amnesty. Other allied health industries using the same transaction are offered no relief. GP scenarios where the taxpayer did not apply for the amnesty are offered no relief.
• In NSW a 12 month ‘no audit’ window (until 4 September 2024) was announced for GP scenarios. Come 4 September 2024 it appears the gloves are off subject to concessional penalty and interest treatments depending on when the tax debt accrued. Again, other allied health industries are offered no relief; and
• In Victoria, no relief has been offered for anyone with the announced rules therefore applying retrospectively. Word on the street though is that there may be a softly-softly approach being taken with GP scenario audits.

And if you think that’s the end of it think again.

Great uncertainty remains as to veracity of parts of the Revenue office positions. For example, refer Example 15 in Queensland’s PTA 0006.2. Example 15 concludes where a 3^rd party collects patient fees (including Medicare rebates) and remits to a practitioner, 3^rd party payment rules in the relevant PRT law can still apply to deem amounts wages paid by a medical clinic. This may be the case where the relevant contract between a medical practitioner dictates use of a 3^rd party collection house but what about where the practitioner (or group of practitioners) determine how and by whom fees will be collected?

It’s been a long road to get this far, hopefully it ends somewhere and soon. Probably though more litigation may be required to sort out some of the finer points.

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