This article provides an update on key developments in taxation law for accountants and participants in the tax advice industry up to mid-late April. This update in summary covers:
- Portion of Tax Debt and General Interest Charge cancelled on Serious Hardship Grounds
- Part IVA applied to Cancel Capital Loss on Sale of Shares
- Distinction between Capital vs Income in relation to Development Agreements;
- Changes to PCG 2023/1 - WFH Additional Running Expenses; and
- Payments received in respect of settling workplace dispute not compensation for personal injury, unfair dismissal, harassment or discrimination
1 - VBNX and FCT [2025] ARTA 374 - Portion of Tax Debt and General Interest Charge cancelled on Serious Hardship Grounds
This concerned a taxpayer's debt comprising of shortfalls in PAYG instalments and income tax over a period of 20 years in addition to the General Interest Charge (GIC) that accrued along with the principle debt. The interest that accrued amounted to $148k. The principle debt was $528k.
Initially, the ATO rejected the taxpayer's application to release him from the debt under section 340-5 Schedule 1 of the Taxation Administration Act 1953. On application to the Administrative Reviews Tribunal, the ART decided the following:
- To resolve to release the taxpayer from the debt to the extent that the principle debt be reduced to $250k; and
- The taxpayer should be released from their liability to pay the accrued GIC.
The above was based on the reasoning that:
- The taxpayer was unlikely to have their monthly income exceed their monthly outgoings;
- The taxpayer was unable to work for medical reasons;
- Their income would decrease and it was unlikely to increase in the future due to the cessation of their income protection insurance payments.
- Medical evidence indicated that the taxpayer was unlikely to increase their income;
- Paying their tax debts would place even greater financial strain;
- Unlikely for the taxpayer to meet the tax liability within a reasonable timeframe; and
- Taxpayer had few assets they could sell to meet their tax liabilities.
2 - Merchant v Commissioner of Taxation [2025] FCAFC 56 - Part IVA applied to Cancel Capital Loss on Sale of Shares
The Full Federal Court in this decision held that the general-anti avoidance provisions applied to a transaction where a unit trust made a significant capital loss on the sale of shares.
The Merchant Family Unit Trust (MFUT), which was owned by the taxpayer owned $10m shares in Billabong Group (BBG). It also owned 100% of the shares in a subsidiary called Plantic Technology Ltd (Plantic). Plantic relied on the Merchant group, comprising of companies wholly owned by the taxpayer (GSM, Tirouni and the Trustee of the Angourie Trust), for funding. This resulted in the Merchant Group lending approximately $55m to Plantic.
Dissatisfied with the way Plantic was operating, the taxpayer endeavoured to sell Plantic which his accountants warned would result in a significant capital gain for the taxpayer.
Hence, in September 2014, MFUT sold its shares in BBG to the Gordon Merchant Superannuation Fund (GMSF), which was also owned by the taxpayer, for $5.84m, resulting in a capital loss of $56.5m. MFUT then sold Plantic to a separate third party and as part of the deal, the loans from the Merchant Group were forgiven (for no consideration).
The ATO applied section 177D(1) ITAA36, noting that the transactions entered into by MFUT were entered into for the dominant purpose of allowing the Merchant Group, particularly GSM, to obtain a tax benefit rather than being for the benefit for the members of the Gordon Merchant Superannuation Fund. The result was that the ATO made a determination to apply section 177F to cancel the tax benefit.
The Full Federal Court rejected the taxpayer's appeal. The court restated that Part IVA and also the dividend stripping provisions found in section 177E ITAA36 applied to the scheme given that significant capital losses were created to offset the capital gain made through the transaction.
3 - Morton v Commissioner of Taxation [2025] FCA 336 - Distinction between Capital vs Income in Respect of Development Agreements
In this case, the Federal Court has provided guidance on the distinction between income vs capital in respect of proceeds from land development. The taxpayer was successful in their appeal.
This case concerned a retired farmer (the taxpayer) and a parcel of land he owned in Tarneit Victoria. The land had been held by the taxpayer's family for several years and was ordinarily used for agricultural purposes. The land was rezoned into residential land and the taxpayer entered into a development agreement with a third-party developer to facilitate the sale.
The developer had taken responsibility for much of the development which included obtaining planning approvals, constructing the infrastructure on the land, marketing and managing the sales process. The taxpayer had retained legal ownership of the land throughout this process. Following the sale, the taxpayer held onto the proceeds from the sale after the payment of the development fee and other associated expenses to the third-party developer. The Commissioner of Taxation amended the taxpayer's assessment for the 2019 and 2021 income years, noting that the proceeds from the sale were assessable income either as ordinary income or as income from a profit-making undertaking/scheme. The taxpayer appealed this and was successful.
The key issues here concerned whether the taxpayer was carrying on a business, whether the proceeds arose from a profit-making undertaking/scheme and whether the proceeds were on capital account.
In short, the Court first found that there was no business conducted by the taxpayer with their emphasis being on the fact that the taxpayer did not finance the development, did not engage in regular or frequent land developments and that there was no evidence of a business structure. There was also no profit making undertaking/scheme being that the land had originally been acquired by the taxpayer's family for agricultural purposes, the land development came decades after the initial purchase and the taxpayer's actions were merely a response to the rezoning.
4 - PCG 2023/1 - Changes to Working from Home Guidelines
As a reminder, PCG 2023/1 sets out the ATO's usual practice, which taxpayers can rely on, in relation to setting out the fixed-rate method for calculating the work-related additional running expenses. This is useful in calculating your expenses in respect of:
- Energy expenses
- Internet expenses
- Mobile and home phone usage expenses, and
- Stationery and computer consumables.
From 1 July 2024, the rate for the fixed-rate method is 70 cents per hour, previously this was 67 cents an hour.
The ATO in their PCG 2023/1 provides the following example on how this could apply.
5 - XRXR and FCT [2025] ARTA 357 - Payments received in respect of settling workplace dispute not compensation for personal injury, unfair dismissal, harassment or discrimination
The facts are as follows, the taxpayer had filed a General Protections Application Not Involving Dismissal under s340 of the Fair Work Act 2009. Following conciliation, there was a settlement whereby the taxpayer and their employer agreed to resign the taxpayer's employment and the employer was to provide $189,000 which was stated as representing 12 months' pay in lieu of notice and $70,000 which was stated as representing an ex-gratia payment in addition to the 12 months' pay in lieu of notice.
The ATO issued a private ruling stating that the payments were an employment termination payment and hence, no part of the payment above was an excluded payment. The taxpayer contended that the payments were principally compensation for personal injury, unfair dismissal, harassment, discrimination or a matter prescribed by the regulation.
The effect of the ATO's private ruling was that they applied the $180,000 whole-of-income cap whilst the taxpayer contended that the ETP cap of $235,000 ought to have applied as it was an excluded payment. The effect of this is that if the taxpayer was right in their reasoning, then they paid more tax than they should have. The key issue was whether the payments were compensation for personal injury, unfair dismissal, harassment, discrimination or a matter prescribed by the regulations.
Interestingly, the ART said that the "correctness of the conclusions in the private ruling must be assessed only in relation to the facts outlined in the private ruling scheme," citing that the case law is to broad effect that any additional information that is not outlined in the scheme of a private ruling cannot be taken into account by the Tribunal on review. The taxpayer had provided additional facts, which if considered, could have altered the ART's decision and the taxpayer's outcome.
Based on the facts in the private ruling alone, the tribunal found that the there was no evidence outlining that the payment was principally for harassment, the payments could have been principally for other matters, such as incentivising the taxpayer to resign, there was no evidence the Deed of Release was entered into under duress of law and further that the payment was made as a consequence of the termination of the taxpayer's employment.
The result was that the lower whole-of-income cap of $180,000 was applied to the payments made in relation to the Deed of Release resulting in a higher tax liability for the taxpayer.
Should you wish to discuss the above, please contact Tony Pointon and Andrew Pointon of our Taxation Team.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
