A Week in Review

Richard AshbyPartner, Gilligan Sheppard

Preserving your fair trial rights

Now one would hope, that not too many of us will ever be subject to criminal proceedings by IR, however just in case you are facing this, IR has recently issued Commissioner’s Statement CS 20/04, ‘The disputes resolution process and fair trial rights’.

CS 20/04 sets out how IR will approach a scenario where the taxpayer is subject to both potential prosecution as well as timing obligations to comply with the disputes resolution process. In this regard, IR has acknowledged the concerns, that a taxpayer may be compelled to disclose their defence to criminal proceedings in their disputes documents, which in turn could impact on their fair trial rights.

CS 20/04 now confirms that:

  • When criminal proceedings have commenced or are contemplated, the taxpayer will be advised of that position before they are required to issue a disputes document (such as a NOPA or NOR).
  • Taxpayers can already issue a response outside the response period in ‘exceptional circumstances’. IR will accept that preserving a taxpayer’s rights in current or potential criminal proceedings is an ‘exceptional circumstance’ which prevents a taxpayer from responding to the assessment or notice within the applicable response period.
  • Taxpayers can elect not to file an outstanding disputes document until the question of prosecution is resolved. This will delay the requirement to respond and therefore either delay the start or pause the disputes process.
  • Once the question of prosecution has been resolved, then the disputes process can resume (or in some cases commence) and IR will advise the taxpayer of this. The taxpayer will need to issue their outstanding disputes document by the later of two months from the date of this advice or the original due date for that outstanding disputes document.

CS 20/04 is effective from 22nd July 2020.

Covid-19 Response Bill introduced

The Covid-19 Response (Further Management Measures) Legislation Bill (No 2) (318-1) has been introduced into parliament, with a proposal to pass the Bill under urgency.

Broadly, the Bill amends:

  • expense deductibility and R&D tax credit rules to support the implementation of the recently introduced R&D loan scheme (so that it operates in similar fashion to the Small Business Cashflow Scheme). The amendments will ensure a deduction for expenditure or depreciation loss where the expenditure was funded by the R&D loan (usually denied under DF 1(2) & DF 1(4)), and that the same expenditure still qualifies for the R&D tax credit (usually denied via schedule 21B, part B, clause 21 of ITA07). The R&D loans will be administered by Callaghan Innovation and will only be available for the 2020−21 fiscal year;
  • qualification periods for the in-work tax credit, ensuring that a person’s entitlements to the credit is not impacted for a period of up to two weeks as they transition between jobs, are unpaid for a period or leave their employment. The amendment provides an exception to the “in employment” test for a person who previously met the test within the past fortnight, and provides that a person is deemed to meet the test if they do not derive income or otherwise do not meet the in employment test but have met the test within the last 14 days;
  • the existing increased flexibility muscle of IR (introduced as part of the initial Covid-19 response legislation in April 2020), to enable IR to vary a due date, deadline, time period or time frame to shorten or otherwise modify the time-related requirement. The amendments will provide IR with the ability to respond to some cases with appropriate flexibility by shortening timeframes, for example, by reducing the time before a taxpayer may choose a new approach, the time for an election to take effect, or before a taxpayer may benefit from a provision. For example, existing legislation may require the taxpayer to wait 12 months before they can amend a filing period again, whereas this amendment will allow IR to reduce the 12 month timeframe to say three months; and,
  • the potential remission of UOMI for provisional taxpayers, accrued on an amount of terminal tax payable for the 2020−21 tax year where the taxpayer failed to pay the relevant portions of the amount by the provisional tax dates because their ability to reasonably accurately forecast their residual income tax, has been significantly adversely affected by Covid-19. This amendment expands on the recent remission relief applying from 14th February 2020 to actual late payments caused by Covid-19, to also cover situations where UOMI is charged retrospectively, and the taxpayer satisfies the following criteria, they:
    • are a provisional taxpayer in the 2020−21 tax year;
    • estimate their provisional tax;
    • use the standard method and don’t pay the amount of the standard instalment on the final instalment;
    • would be a safe harbour taxpayer but they did not pay their instalments in full;
    • have residual income tax of $1 million or less; and,
    • the ability to make a reasonably accurate forecast of taxable income for the year has been significantly adversely affected by Covid-19 and that resulted in interest being charged.

IR must be satisfied that the taxpayer has asked for the relief as soon as practicable and made the payment of tax.