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Hall & Wilcox advises Sto Group on acquisition of Unitex

Leading Australian law firm Hall & Wilcox is pleased to have advised German company Sto Group on its acquisition of Unitex, an Australian manufacturer and distributor of building products for residential and commercial architectural products.
Sto Group is a major international manufacturer of products and systems for building coatings, including systems for external wall insulation and rainscreen cladding, render and paint for home and office interiors, decorative coatings and acoustic systems for regulating room noise. It has an annual turnover of €1.2 billion and a large international presence but, before this acquisition, had not entered the Australian market.
The Hall & Wilcox team, led by Head of International Oliver Jankowsky, advised Sto Group on all corporate aspects of the asset and share acquisition, including tax, property and employment advice. The team also comprised Partner Deborah Chew and Lawyers Alicia Haesslein, David Holland and James Fisher.
‘We are delighted to assist Sto Group with its acquisition of Unitex and ongoing international expansion,’ Oliver Jankowsky said.
‘Assisting a client such as Sto shows the strength of Hall & Wilcox’s international presence and our ability to work seamlessly with overseas clients and foreign counsel to achieve our client’s strategic goals.’
In thanking Hall & Wilcox, Dr König, of Schrade & Partner Rechtsanwälte PartmbB, the Sto Group’s German counsel, confirmed that ‘Mr Jankowsky and Hall & Wilcox provided excellent support.’
Hall & Wilcox’s international desks cover Europe, China, Korea and Malaysia. The team has extensive experience in cross-border transactions and disputes and works with clients and other firms from around the world.
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Financial Services in Focus – Issue 30

Funds and financial products
Treasury releases draft Design and Distribution Obligations Regulations
On 12 September, Treasury released for public consultation exposure draft regulations to support the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 (‘Act’) and an exposure draft explanatory statement.
The regulations support the Act by varying the range of products and entities that are subject to the design and distribution obligations.
Treasury states the exposure draft regulations take into consideration previous consultation on these regulations in October 2018 and also Parliamentary Amendments to the Act prior to its passage.
The Treasurer, Josh Frydenberg, stated that update to the regime is part of an additional suite of measures the Government committed to in its response to the Banking, Superannuation and Financial Services Royal Commission.
Consultation closes on 11 October.
ASIC makes product intervention order banning short term lending model
On 12 September, ASIC announced that it has used its product intervention power first time to ban a model of lending in the short term credit industry which has been found to cause significant consumer detriment.
For the background ASIC consultation on this matter, see Financial Services in Focus – Issue 27.
The relevant legislative instrument, ASIC Corporations (Product Intervention Order—Short Term Credit) Instrument 2019/917, commences on 14 September and remains in force for 18 months unless it is extended or made permanent.
ASIC update on Royal Commission implementation
On 11 September, ASIC released the ASIC Royal Commission implementation update (‘Update’), which is its second update on its actions in response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
ASIC states that the Update outlines a number of measures across ASIC by which ASIC is implementing the seven priorities highlighted in its Corporate Plan 2019-23, one of which is to prioritise the recommendations and referrals from the Royal Commission.
Among other things, in the Update ASIC states that the Royal Commission recommended that ASIC become the conduct regulator of superannuation, and that ASIC has started to take on this role where it can without needing the law to change.
ASIC extends relief for foreign financial services providers
On 10 September, ASIC announced it extended to 31 March 2020 licensing relief for foreign financial services providers (‘FFSPs’) to allow them to provide certain financial services to Australian wholesale clients without needing to hold an Australian financial services licence.  This extension was foreshadowed in Consultation Paper 315.
The licensing relief that has been extended by ASIC is:

ASIC Corporations (Repeal and Transitional) Instrument 2016/396 and ASIC Corporations (CSSF-Regulated Financial Services Providers) Instrument 2016/1109 – FFSPs relying on this relief can provide specified financial services to Australian wholesale clients if their home regulatory regime has been assessed by ASIC as sufficiently equivalent to the Australian financial services licensing regime; and
ASIC Corporations (Foreign Financial Services Providers—Limited Connection) Instrument 2017/182 – this instrument provides licensing relief for FFSPs that are only required to hold an AFSL because they have engaged in conduct that is intended to induce an Australian wholesale client to use the provider’s financial services.

These instruments had been due to expire on 30 September 2019.
The extension of the relief is contained in ASIC Corporations (Amendment) Instrument 2019/902.
ASIC remakes class order facilitating the offer of share and interest purchase plans
On 30, ASIC announced it remade the relief in Class Order [CO 09/425], which was due to sunset on 1 October 2019.
The new instrument, ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547, will continue the effect of the previous instrument while increasing the participation limit (for each registered holder in a 12-month period) from $15,000 to $30,000.
ASIC also released an updated Regulatory Guide 125 Share and interest purchase plans.
Financial markets
New ASIC Market Integrity Rules
On 6 September, ASIC Market Integrity Rules (Securities Markets) Determination 2019/896 was registered.
According to the Explanatory Statement, the purpose of the Determination is to determine, for the purposes of paragraph 6.2.1(1)(c) of the ASIC Market Integrity Rules (Securities Markets) 2017 and with effect from its commencement, the Tier 1 Equity Market Products and the Tier 2 Equity Market Products.
Consumer credit
ASIC releases a report on consumer experiences and expectations in getting a home loan
On 29 August, ASIC released Report 628 Looking for a mortgage: Consumer experiences and expectations in getting a home loan (‘REP 628’) and an accompanying infographic.
ASIC states the key findings from its research include the following:

consumers who visit a mortgage broker expect the broker to find them the ‘best’ home loan;
mortgage brokers were inconsistent in the ways they presented home loan options to consumers, sometimes offering little (if any) explanation of the options considered or reasons for their recommendation; and
first home buyers were more likely to take out their loan with a mortgage broker.

In releasing REP 628, ASIC states it strongly supports the recent Government announcement to enact a best interests duty for mortgage brokers.
Banking
APRA commences a second consultation on the framework for interest rate risk in the banking book
On 4 September, APRA announced it has commenced a second consultation on the requirements in Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (‘APS 117’) that aims to strengthen the prudential framework for interest rate risk in the banking book (IRRBB), as well as implement the Basel standard.
Copies of the response to submissions and the draft APS 117 can be found on the APRA website here.
Written submissions are requested by 6 December.
Other financial services regulation
Treasury releases draft legislation regarding aspects of the ASIC Enforcement Review Taskforce
On 11 September, Treasury released for public consultation draft legislation implementing a number of recommendations of the ASIC Enforcement Review Taskforce relating to search warrants, access to telecommunications intercept material, licensing and banning orders.
The draft legislation and explanatory materials can be found here.
Treasury states the draft legislation:

strengthens ASIC’s licensing powers by replacing the AFSL requirement that a person be of ‘good fame and character’ with an on-going requirement that they be a ‘fit and proper person’;
aligns the penalties for false and misleading statements in AFSL and Australian Credit Licence applications;
extends ASIC’s powers so that they may ban a person from performing functions in a financial services or credit business. The legislation also expands the grounds on which ASIC can issue banning orders;
harmonises ASIC’s search warrant powers across different Acts and brings them into line with the search warrant powers in the Crimes Act; and
allows interception agencies to provide lawfully intercepted information to ASIC for serious offences that ASIC can investigate or prosecute.

The Treasurer, Josh Frydenberg, stated that the measures demonstrate the Government’s plan to implement its commitments on implementing the recommendations of the Banking, Superannuation and Financial Services Industry Royal Commission.
Consultation closes on 9 October.
Treasury releases proposal paper on reforms to the sale of add-on insurance products
On 9 September, Treasury released Proposals Paper Reforms to the sale of add-on insurance products for consultation.
This paper outlines the Government’s proposed model in response to recommendation 4.3 of the final report of the Banking, Superannuation and Financial Services Industry Royal Commission
Responses to the paper are due on 30 September.
APRA updates Enforcement Approach to provide clarity around transparency and data reporting
On 3 September, APRA announced it updated its Enforcement Approach to outline how it will increase transparency around the use of its formal enforcement powers.
APRA states that the Enforcement Approach was updated to include principles that APRA will take into account when considering when and how to publicise its enforcement actions, and guidance on APRA’s approach to enforcement for data submissions.
Treasury releases its Corporate Plan
On 5 September, Treasury released the Treasury 2019-20 Corporate Plan, which sets out its purpose, operating context and priorities for the next four years (2019‑20 to 2022‑23).
APRA releases its Corporate Plan
On 29 August, APRA released its Corporate Plan for 2019 to 2023.
The Corporate Plan states that the 2019-2023 strategy identifies four strategic focus areas to strengthen outcomes for the Australian community that APRA is seeking to deliver.  They are:

maintaining financial system resilience;
improving outcomes for superannuation members;
improving cyber-resilience across the financial system; and
transforming governance, culture, remuneration and accountability across all regulated financial institutions.

ASIC releases its Corporate Plan
On 28 August, ASIC released its Corporate Plan for the financial years 2019-2020 to the years 2022-2023.
ASIC states that this year’s Corporate Plan outlines its efforts towards becoming a more strategic regulator, its renewed approach for supervision and enforcement, and its key regulatory activities over the next four years.
The Corporate Plan identifies seven ‘strategic priorities’ for ADIC, namely:

high-deterrence enforcement action;
prioritising the recommendations and referrals from the Financial Services Royal Commission;
delivering as a conduct regulator for superannuation;
addressing harms in insurance;
improving governance and accountability;
protecting vulnerable consumers; and
addressing poor financial advice outcomes.

APRA finalises revised measures to strengthen outcomes for superannuation members
On 28 August, APRA announced it substantially revised Prudential Practice Guide SPG 516 Business Performance Review (‘SPG 516’) to better support the final version of the Prudential Standard SPS 515 Strategic Planning and Member Outcomes (‘SPS 515’) which has also been released.  SPS 515 will come into force from 1 January next year.
In order to assist RSE licensees implement the new requirements, APRA released a finalised Prudential Practice Guide SPG 515 Strategic and Business Planning.
APRA states that draft guidance has also been included to assist RSE licensees comply with the legislated outcomes assessment introduced by the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.1) Act 2019.
Written submissions on draft SPG 516 will be received by APRA until 10 October.
The post Financial Services in Focus – Issue 30 appeared first on Hall & Wilcox.

Fair Work Commission finds dismissal following Facebook tirade to be harsh

The Fair Work Commission (FWC) has once again considered the persistent challenges raised by an employee’s use of social media outside work.
The recent decision of the FWC decided that it was harsh for alarm and surveillance monitoring provider Staysafe Security t/as Alarmnet Monitoring (Alarmnet) to terminate long-term employee Creina Murkitt after she was found to have breached the company’s social media policy.1
The decision is a contrast to the recent High Court ruling that anonymous tweets criticizing the government’s immigration policy contravened social media guidelines and public service codes of conduct. In that decision, the termination of the former Department of Immigration and Citizenship employee was justified as reasonable administrative action (our update on the High Court’s decision can be accessed here).2
In this case, Ms Murkitt posted a disparaging rant on Facebook venting her frustration at the new owners of Alarmnet, describing her job as ‘thankless’ and specifically naming her employer, lamenting that, ‘I use (sic) to love my job at Alarmnet Monitoring’. After the Facebook post was drawn to the attention of Alarmnet, it was determined that it breached Alarmnet’s social media policy and amounted to serious misconduct warranting dismissal. At the time Ms Murkitt made the post, she was off work receiving workers compensation payments for psychological injury which she attributed to the conduct of Alarmnet’s new management.
The FWC was asked to determine whether Ms Murkitt’s conduct constituted a valid reason for her dismissal, and if it did, whether the dismissal was harsh, unjust or unreasonable. It was not in dispute that Ms Murkitt created the Facebook post, that it was critical of her employer and had become the subject of talk amongst a number of employees and a client of the company. This resulted in establishing a connection between the creation of the post and Ms Murkitt’s employment.
Alarmnet’s social media policy required employees to refrain from posting material that could adversely affect the ‘image, reputation, viability or profitability of the Company’ and evidence was adduced by Alarmnet that Ms Murkitt had received a copy of the policy and was aware of its contents.
The FWC concluded that Ms Murkitt was validly dismissed and a proper process had been followed. However, the FWC considered that the following factors led to Ms Murkitt’s dismissal being harsh, unjust or unreasonable:3

she had been employed at Alarmnet for almost 15 years and had not previously been the subject of formal disciplinary action;
at the time she made the post, Ms Murkitt was suffering from a psychological condition that made her unfit for work and Alarmnet failed to sufficiently take this factor into account when deciding to dismiss her; and
the Facebook post was a single event that did not cause financial harm to Alarmnet.

Overall, the FWC found that the sanction of dismissal was a disproportionate outcome when taking into account Ms Murkitt’s medical condition, length of service and lack of previous performance issues.
Although finding in her favour, Ms Murkitt was ultimately not awarded any compensation because the FWC formed the view that she would not have continued to work for Alarmnet if she had not been dismissed, she was receiving workers compensation payments at the level of 100% of her average earnings, and in light of her misconduct. As such, reinstatement was not considered appropriate.
Implications for employers
Consistent with the principles concerning damaging off-duty conduct notably expressed in Rose v Telstra Corporation Limited4 and O’Keefe v The Good Guys,5 the decision endorses the view that it is acceptable for employers to manage an employee’s social media use beyond workplace walls.
However, the FWC will pay careful attention to the context and circumstances surrounding an employee’s conduct when deciding whether a dismissal for a breach of a social media policy is warranted. The employee’s personal circumstances including their psychological state at the time the conduct took place, the impact on the employer’s business and reputation, as well as the impact on other employees needs to be considered. In some cases, a reprimand may be an appropriate course of action for breach of a social media policy.
In this case, although a social media policy existed and was distributed to employees, Alarmnet did not take steps to roll out training or educate its employees about their obligations. To reduce the legal challenges presented by social media, employers not only need to have a clear social media policy in place, but it needs to be kept up to date and properly integrated through workplace training.
Our employment team would be pleased to assist you to navigate the practical workplace challenges arising from social media.
This article was written with the assistance of Alexandra Armstrong-Millar, Law Graduate.

1Ms Creina Murkitt v Staysafe Security T/A Alarmnet Monitoring [2019] FWC 5622.
2Comcare v Banerji [2019] HCA 23.
3Fair Work Act 2009 (Cth), s 387.
4[1998] AIRC 1592.
5Damian O’Keefe v Williams Muir’s Pty Ltd t/as Williams The Good Guys [2011] FWA 5311
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No negligence in tragic accident

The District Court has recently dismissed a claim arising from serious injuries sustained in a fall from a roof, finding that the occupier had no duty of care to warn of an obvious risk of harm.
Keven Gors attended at a house with his brother to remove a hot water system unit from the roof. The intention was to transfer the hot water system to a house in which he was living. Mr Gors and the defendants were neighbouring farmers.
The main roof of the house, on which the unit was attached, was tiled; however, the patio roof was constructed of laserlite panels. Mr Gors and his brother climbed onto the roof and Mr Gors detached the unit. Together they lifted and manoeuvred the unit, until it was approximately one metre from the gutter, where it met the patio roof. They both stood up and, without looking behind him, Mr Gors took one or two steps back, falling through the patio roof to the patio below.
Mr Gors alleged it was foreseeable that, in carrying out works on the roof, he may walk on or place his weight on the patio roof and the risk was not insignificant, such that a reasonable occupier would have warned him of the risk. Mr Gors also contended that the laserlite panels were a danger for the purposes of the Occupiers’ Liability Act 1985. Further, Mr Gors argued that, if the risk was obvious, the defendants needed to establish that he consented to that risk.
The occupiers’ case was essentially that Mr Gors’ fall was an unanticipated accident and a warning would not have altered the outcome. Mr Gors had visited the house on a number of prior occasions, the task did not require him to step on the patio roof, the system of work was outside the control of the occupiers and, as the occupiers were not present at the time of the accident, the conduct of Mr Gors and the fall was not foreseeable.
At trial, it was conceded that the scope of the duty of care to Mr Gors was limited to warning him of the risk and his case turned on that issue. Counsel for Mr Gors also conceded that his claim would fail, if it were found there was no duty to warn.
His Honour Judge Scott held that the translucent laserlite panel roof was an obvious risk and noted that, even if a reasonable person did not know the composition of the roof, that person would not conclude that it was safe to step or walk on.
As to the duty to warn, it was held that the risk of harm was not a foreseeable risk of which the defendants were required to warn Mr Gors. From the occupiers’ perspective, it was not reasonably foreseeable that Mr Gors would step onto the patio roof at any time during the removal of the unit.
As to causation, his Honour Judge Scott found that the incident was a tragic accident and he could not be satisfied that, on the balance of probabilities, a warning that the patio roof would not bear his weight would have prevented him from stepping back without looking and falling. Given the short proximity between moving the unit and Mr Gors falling, there was simply no evidence that a warning would have had an impact.
This judgment reiterates that an objective test applies in determining whether a risk is obvious – section 5F, Civil Liability Act 2002 (WA). That is, the plaintiff’s state of mind is not determinative, but rather, what a reasonable person in his position would regard as obvious. In this case, notwithstanding the severity of the claimant’s injuries, his Honour nonetheless adopted a clinical objective assessment of the risks involved.
This case is being appealed.
Keven Gors by his plenary administrator of Janet Christine Gors v Tomlinson [2019] WADC 88
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Regulations for WA Work Health and Safety

The public consultation phase for the Work Health and Safety Act for Western Australia (WHS Act (WA)) ended on 31 August 2018.
On Tuesday 27 August 2019, Western Australian Industrial Relations Minister Bill Johnston announced that they are now seeking submissions on the introduction of three sets of Work Health and Safety (WHS) regulations to support the WHS Act (WA). These regulations are:

WA WHS Regulations – this will be based on the National Model WHS regulations and will apply generally to workplaces (including the mining industry and petroleum and geothermal operations);
WHS (Mines) Regulations – this will apply to mines only; and
WHS (Petroleum and Geothermal Energy Operations) Regulations – this will apply to petroleum and geothermal energy operations only.

The public consultation period will end on 26 November 2019.
The proposed regulations will include unique provisions from the existing Occupational Safety and Health Regulations 1996 but will exclude union right of entry provisions which will be left in the Industrial Relations Act 1979 (WA).  Dangerous goods and major hazard facilities will also be excluded and instead will remain under the dangerous goods legislation. This approach will be reviewed within two years of the WHS Act (WA) being introduced to see whether dangerous goods, including major hazard facilities, should be brought under the WHS Act (WA).
Minister Johnston encourages ‘the community to have their say on the modernisation of WA’s work health and safety laws, which is long overdue’.
In addition, the Western Australian government proposes to invest $12.9 million to increase the amount of full time equivalent staff by 24, this will include an introduction of another 21 inspectors. Western Australia will match New South Wales and Queensland’s ratios with one full time equivalent inspector per 10,000 employees. Inspectors will also be able to carry out more workplace inspections with the government announcing it will fund 16 new vehicles.
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Talking Tax – Issue 170

Meeting the personal services business tests
The Administrative Appeals Tribunal (Tribunal) in the case of Ariss v Commissioner of Taxation [2019] AATA 2958 has held that money generated by the Taxpayer’s activities as an IT consultant, and split between the Taxpayer and his wife via a third-party trust arrangement, was in fact personal services income (PSI) and directly assessable to the Taxpayer.
The Taxpayer failed each of the personal services business (PSB) tests. Accordingly, the Tribunal concluded that the Taxpayer was not carrying on a PSB and the fees paid to the Trustee were assessable directly to the Taxpayer as PSI. The Tribunal considered that the taxpayer was carrying on a business as a ‘sole trader’, using his own intellect, skills and expert knowledge.
This case is a reminder of the importance of seeking appropriate advice when it comes to business structuring, and ensuring that the substance of your ongoing activities align with your tax planning.
See more

The Taxpayer was an IT consultant who operated out of a home office. The Taxpayer’s wife would help with research and administrative tasks but was never formally engaged as an employee.
The Taxpayer directed that fees charged for his services be paid to the professional third-party trustee (Trustee) of the ARMS Trust (Trust). The Trustee would then distribute the funds from the Trust to the Taxpayer and his wife as beneficiaries.
The Taxpayer was audited by the ATO and the Commissioner of Taxation (Commissioner) issued amended assessments for the 2010, 2012 and 2013 income years assessing the taxpayer for the full amount paid to the Trustee. The issue became whether the money paid to the Trustee was attributable to the Taxpayer as PSI.
The Taxpayer argued that the PSI rules did not apply to him because he was conducting a PSB. For an individual to be conducting a PSB, they must satisfy at least one of the four PSB tests provided by section 87-15(2) of the 1997 Act.
The ‘results test’: section 87-18
The Taxpayer failed to satisfy the results test because he could not show that he was being paid for producing a result. Indeed, the Taxpayer was paid a daily rate regardless of whether or not he actually finished the project he was working on. Accordingly, it could not be said that he was being paid to produce a result.
The ‘unrelated clients test’: section 87-20
The Taxpayer failed to satisfy the unrelated clients test as there was no evidence that he made direct offers or invitations to the public by way of advertising and instead obtained work through existing business relationships and contacts. The Taxpayer’s clients could therefore not be said to be unrelated.
The ‘employment test’: section 87-25
The Taxpayer did not have any employees and therefore could not satisfy the employment test. The Taxpayer’s wife was never engaged as an employee and could not be said to be a partner in the business or an independent contractor.
The ‘business premises test’: section 87-30
Finally, the Taxpayer did not satisfy the business premises test because he provided his services from a single room (a dedicated home office) in his private residence, which the Tribunal concluded was not sufficient to satisfy the test.
A final point from the case was that the Taxpayer was unable to claim a deduction for superannuation contributions, as there was no evidence he gave notice to the trustee of his superannuation fund of his intention to claim a tax deduction under section 290-60 of the 1997 Act, within the required timeframe.

Recently released draft ATO guidance
The Australian Taxation Office (ATO) has recently released the following draft administrative guidance:

Draft Taxation Determination (TD) 2019/D5: This TD provides guidance on the tax incentives available for investors in early stage innovation companies (ESIC) under Subdivision 360 of the Income Tax Assessment Act 1997 (Cth) (1997 Act).
Draft Taxation Determination (TD) 2019/D6: This TD confirms that Subdivision 855-A (or subsection 786-915(1)) of the 1997 Act will not disregard a capital gain that is made by a foreign resident (or temporary resident) beneficiary of a resident discretionary trust.
Draft Taxation Determination (TD) 2019/D7: This TD provides the Commissioner’s view that the ‘source’ concept in Division 6 of Part III of the Income Tax Assessment Act 1936 (Cth) (1936 Act) does not apply when determining whether a non-resident beneficiary of a resident trust (or trustee for them) is assessed on an amount of a trust capital gain arising under Subdivision 115-C of the 1997 Act.
Draft Practical Compliance Guideline (PCG) 2019/D3: This PCG provides guidance and a risk assessment framework on the application of the arm’s length debt test contained in section 820-105 and section 820-215 of the 1997 Act. Importantly, PCG 2019/D3 is to be read in conjunction with the previously released Taxation Ruling 2019/D2 – Income tax: thin capitalisation – the arm’s length debt test.

See more

TD 2019/D5
To be entitled to a tax offset under Subdivision 360 of the 1997 Act, an investor must be issued with shares in a company that satisfies the ‘early stage test’ and ‘innovation test’ provided by subsection 360-40(1) of the 1997 Act immediately after the shares are issued.
These tests rely on the terms ‘expenses’ and ‘incurred’. TD 2019/D5 provides guidance on the meaning of these terms in this context.
As the word ‘expenses’ is not defined in the relevant provisions, the ATO consider that it will adopt its ordinary meaning in the context in which it appears.  Having regard to the Explanatory Memorandum to the Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016 (Cth) which introduced these provisions, and the Australian Accounting Standards Board Framework for the Preparation and Presentation of Financial Statements, the ATO takes the view that an amount will be an ‘expense’ where it results in a decrease in the equity of the potential ESIC, otherwise than by distribution to its members.
The ATO has determined that ‘incurred’ in this context is to be given its general tax law meaning and will be treated with the same interpretation of the word ‘incurred’ under section 8-1 of the 1997 Act.
TD 2019/D6
As a general rule, where a trust’s net income includes a capital gain and a beneficiary is made presently entitled to all or part of that gain, the beneficiary is taken to have made a capital gain equal to their share of the gain.
Despite this, a foreign resident beneficiary of a resident fixed trust is entitled to disregard a capital gain made by that trust and to which they are made presently entitled where the asset is not Taxable Australian Property (TAP) of the trust.
The argument has been advanced by some taxpayers that a foreign resident beneficiary of a resident non-fixed (ie discretionary or hybrid) trust may similarly disregard all or part of a capital gain realised by that trust where the asset is not TAP, and to which they are made presently entitled.
In the ATO’s view, this is incorrect: Subdivision 855-A of the 1997 Act does not enable a foreign resident beneficiary (or temporary resident beneficiary) of a resident discretionary trust to disregard their share of a non-taxable Australian property capital gain.
TD 2019/D7
As noted above, as a general rule, where a trust’s net income includes a capital gain and a beneficiary (resident or non-resident) is made presently entitled to all or part of that gain, the beneficiary is taken to have made a capital gain equal to their share of the gain.
However, where a non-resident beneficiary is made presently entitled to all or part of the trust’s net capital gain, section 115-220 of the 1997 Act makes that part assessable and taxable to the trustee under section 98 of the 1936 Act.
In the Commissioner’s view, this section does not go any further. Specifically, it does not test whether the beneficiary’s attributable gain satisfies the conditions in section 98 of the 1936 Act.
Separately, Division 6 of the 1936 Act contains a ‘source concept’. This refers to the limitation on the assessment of non-residents (or trustees) to amounts ‘attributable to sources in Australia’. This TD confirms the Commissioner’s view that the source concept is irrelevant to the operation of section 115-220 of the 1997 Act.
Importantly, TD 2019/D7 does not consider the application of other provisions that allow for non-resident beneficiaries to disregard capital gains, such as those provided in Subdivision 855-A of the 1997 Act.
PCG 2019/D3
The arm’s length debt test is one test used to establish an entity’s maximum allowable debt under the thin capitalisation rules. The test focuses on identifying an amount of debt that a notional stand-alone Australian business would reasonably be expected to borrow, and what independent commercial lenders would reasonably be expected to lend on arm’s length terms and conditions.
This PCG provides guidance on how to apply this test, along with a risk assessment framework that outlines the ATO’s compliance approach to an application of the arm’s length debt test in certain circumstances that fit into a white, low or medium-high risk zone.
The Commissioner stresses throughout the PCG that the application of the arm’s length debt test is highly dependent on the facts of any given case. Accordingly, it is important that those seeking to apply the arm’s length debt test seek professional assistance, especially where the risk zone may be considered medium-high.

This article was written with the assistance of Charlie Renney, Law Graduate.

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The post Talking Tax – Issue 170 appeared first on Hall & Wilcox.

A timely reminder: extensions of time for registration under PPSA

The decisions of In the matter of Assta Labels Pty Ltd [2018] NSWSC 1094 (Assta), In the matter of Psyche Holdings Pty Limited [2018] NSWSC 1254 (Psyche and, In the matter of Highlake Resources Pty Ltd [2018] FCA 1292 (Highlake) have added clarity to the factors courts will consider in assessing whether to grant an extension of time for registration on the ‘Personal Property Securities Act 2009 (Cth) (PPSA).[1]
The authors have published an earlier article on this topic (https://hallandwilcox.com.au/extensions-of-time-for-registration-under-ppsa/).
Key takeaways

Where a security interest has been incorrectly recorded against an ACN or ABN of a company, courts are willing to extend the statutory time-frames for a curative registration.
In considering whether to grant an extension of time where an insolvency has occurred, the relevant prejudice to consider is that suffered by creditors who have competing security interests registered earlier in time and those creditors who have otherwise traded with the grantor on the faith its collateral was unencumbered.

Considering the distinction between ABN and ACN registrations
The PPSA and the Regulations prescribe rules which govern how a grantor is to be described in a PPSR registration.  These rules are strict and are critical to whether the registration is valid and effective.  If the wrong grantor identifier is used in the registration, this will constitute a statutory defect and render the registration ineffective.  Accordingly, the secured party may lose any assets or other rights claimed under that registration.
Relevantly, the question of whether a party is required to refer to the ABN or ACN of the grantor in the registration[2] turns on the capacity of the grantor in the underlying security agreement.  In summary:

If the grantor entered the agreement as a trustee of a trust which holds an ABN – the registration should be recorded over the ABN of the trust.
If the grantor entered the agreement in its corporate capacity (ie. not as a trustee) – the registration should be recorded over the ACN of the company.

Despite defects arising, recent decisions including in Assta and Psyche indicate that Courts will permit extensions of time to cure defective registrations on the PPSR to prevent the harsh consequences of these errors.
Assta
HP Financial Services (Australia) Pty Limited (HPFS) was granted a purchase money security interest (PMSI) by three separate grantors.  On registration, HPFS mistakenly registered its PMSI against the grantors’ respective ABNs rather than their ACNs.  The mistake occurred because of inadvertence and a lack of understanding by employees of HPFS of the difference between registering against the ABN or ACN of the various grantors.  Accordingly, the registrations were defective.  Upon realising the mistake, HPFS immediately attempted to correct the error by making fresh registrations against the ACNs of the grantors.
PMSIs are afforded ‘super-priority’ over earlier security interests in collateral. [3]  To obtain ‘super-priority’ the PMSI must be registered within strict time frames, namely:

prior to the grantor obtaining possession of the collateral (where the collateral is inventory);
15 days of the grantor obtaining possession of the collateral (where the collateral is not inventory); or
15 days of the time of attachment, or creation of the PMSI (where the collateral is intangible property).

As the subsequent registrations were made by HPSF outside of these statutory time periods, HPSF’s interest was not entitled to the benefit of ‘super priority’, resulting in HPSF’s interest being subject to the general priority rules[4].
In reliance on section 293(1)(a) of the PPSA, HPSF sought an extension of the timeframe in section 62(3)(b) of the PPSA to ensure it retained ‘super-priority’.
The Court granted the order extending the time for registrations under section 293(1)(a) of the PPSA.  In particular, the Court specified that the time for registration under section 62(3)(b) of the PPSA be extended by 389, 424 and 466 business days in accordance with the subsequent curative registrations made against each grantor.
In considering whether it was ‘just and equitable’ to grant the extension of time, the Court considered the mandatory factors prescribed in section 293(3) of the PPSA.  The Court concluded that:

the failure to properly register the interests arose because of a misunderstanding on behalf of HPSF, such that the staff members undertaking the registrations did not comprehend the importance of registering against the ACN of the grantors;
no other secured parties or creditors would be prejudiced by extending the time for registration; and
HPSF’s interests would have been apparent upon a third party conducting a search of the PPSR. Accordingly, it could not be said that a third party had acted in reliance on the time-period for registering a PMSI having passed.

Psyche
Similarly, Psyche Holdings Pty Limited (Psyche) granted a security interest to Ridgeway Finance Pty Limited (Ridgeway) over all of its present and after acquired personal property.  Ridgeway registered its interest on the PPSR in respect of the grantor’s ACN.  However, at the time of making the registration, Psyche was acting in its capacity as trustee of a trust (which had not yet been assigned an ABN).  At a later stage, the trust was granted an ABN.
Although Ridgeway’s registration was correct as at the time of registration, it subsequently became defective.  Section 166 of the PPSA states that in these circumstances, the registration becomes ineffective five business days after the secured party acquires knowledge of the defective registration.
Notwithstanding that a director of Ridgeway became aware that the trust had been issued with an ABN, Ridgeway failed to take any steps to amend the registration within the time-frame imposed by section 166 of the PPSA.  Ridgeway reasoned that it had not taken any steps within the requisite time-frame because it did not understand the significance the trust holding an ABN had on the validity of the security interest.  It was not until five years later that the director of Ridgeway understood its significance and at this point, took immediate steps to lodge a fresh registration which identified the ABN of the trust.
Section 588FL of the Corporations Act 2001 (Cth) (Act) provides that a security interest (which is perfected only by registration) must be registered on the PPSR either within 20 business days after the security agreement giving rise to the security interest comes into force, or otherwise earlier than 6 months of the grantor entering liquidation or administration.  Because of the mistake, Ridgeway fell afoul of this provision.
Accordingly, the security interest was ineffective and Ridgeway was at risk of its interest vesting and losing the benefit of its security upon Psyche being wound up.
Where an insolvency event has occurred, as long as the original registration was made on the PPSR prior to the insolvency event, an application for an extension of time is available.  Accordingly, Ridgeway applied to the Court under section 588FM  in order to prevent the security interest from vesting by extending the timeframe for registration.
The Court agreed to extend the time for registration and fixed the time for registration as at the date the director of Ridgeway understood that the registration was defective and the new financing statement was registered.
Section 588FM of the act affords the Court the power to grant an extension of time if the Court is satisfied that the failure to register the collateral earlier was:

was accidental or due to inadvertence;
is not of such a nature as to prejudice creditors; or
is otherwise just and equitable to do so.

The Court was satisfied that the failure to properly register was accidental and caused by inadvertence. The Court found it persuasive that on realising the mistake, the director acted immediately.
Turning to the question of the discretionary factors, the Court concluded that:

the delay of five years between the registrations whilst not insignificant, was not a bar to an extension of time, as no competing secured creditors had lodged financing statements in this period and were not prejudiced by the delay; and
although there was no evidence of the financial position of Pysche available, even if Psyche was insolvent (or insolvency was imminent), this would not be determinative of the Court exercising its discretion.

The application was brought ex parte.  However, Psyche had been joined to the originating process, had been notified of the proceedings and had confirmed that it did not oppose the orders sought by Ridgeway.
Highlake
An application was made by Squadron Resources Pty Ltd (Squadron) under section 588FM of the act to extend the registration time by which it could perfect its ALLPAAP security interests granted by Highlake and two other defendants on the PPSR.
The Court accepted that on all of the evidence presented, it appeared that the failure to register by Squadron was due to inadvertence and miscommunication between the employees of Squadron and its solicitors.  Through a series of communications, it was evident that although Squadron intended for registrations to be made, this did not occur.  Upon realising that the registrations had not been perfected, Squadron promptly registered its interests (this being outside of the statutory 20 day period after the security agreement came into force).
The Court held that by reason of this accidental or inadvertent failure to register, it was just and equitable to grant the order extending the period of time for registration. In doing so, the Court gave further considerations to the factors to be taken into account including that although there was a delay of two years, following the approach in Re Appleyard[5], this delay had not caused prejudice to secured creditors who had transacted with the company on the basis of a pre-existing priority security interest.  Further, each of the other secured parties would not be prejudiced by losing their priority, as they either held a PMSI or priority as a bank (by virtue of section 75 of the PPSA).[6]
Our thoughts
The Courts continue to take a sensible, practical approach to applications by secured parties to extend the time for registration when there has been an honest error in the original registration rendering it ineffective.
Relevantly, the Courts have regard to whether prejudice has been suffered by creditors who have traded with the grantor company on the faith its collateral was unencumbered, and whether any creditor with a registered interest would be prejudiced by the extension order.   Where there is no evidence of prejudice, Courts will tend to grant extensions of time.
Both Psyche and Hill involved insolvency events.  The insolvency of the grantor will be a factor for the Court to consider in an extension application.  But, in the authors’ view, if the threshold inadvertence or error has been established in failing to properly register, the Court should not prefer the interests of ordinary unsecured creditors who stand to gain a windfall advantage from a defective registration.
[1] See also FC Securities Pty Ltd v Menilden Creek Farming Pty Ltd [2018] NSWSC 1681, IBM Global Financing Australia v Applied Business Technology Pty Ltd [2018] NSWSC 1984 and Toll Energy and Marine Logistics Pty Ltd v Conlon Murphy Pty Ltd [2019] FCA 532.
[2] As required by section 153 of the PPSA and Schedule 1.3, 2 and 3 of the Regulations
[3] Section 62(3)(b) of the PPSA
[4] Section 55 of the PPSA
[5] Re Appleyard Capital Pty Ltd (2014) 101 ACSR 629
[6] The perfected interest held by an ADI (a bank) has priority over any other interest in an ADI account.
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Hire Car Damages

On 3 September 2019, the Supreme Court of NSW handed down judgment in three appeals which were heard concurrently. All three appeals dealt with a plaintiff’s entitlement to damages for a replacement vehicle hired following a motor vehicle collision.
The judgments are a classic example of the Court applying long-standing principles to modern circumstances. Judge Basten acknowledges the growth and prevalence of the ‘credit hire’ industry and considers how the relevant principles should be applied to the motor vehicle accident claims which now flood the Courts.
In each of the three appeals (citations below), Judge Basten found in favour of the liable driver and commented on the limitations on the plaintiffs’ entitlement to hire car damages.
Nguyen v Cassim [2019] NSWSC 1130 – plaintiff’s hire car damages were reduced from $17,158.02 to $7,476. 
Souaid v Nahas [2019] NSWSC 1132 – the Magistrate’s decision to award only $2,805.60 instead of the claimed $11,128.41 was upheld.
Rixon v Arsalan [2019] NSWSC 1136 – the Magistrate’s decision to award only $4,226.25 instead of the claimed $12,829.91 was upheld.
The main analysis is contained in the first case, Nguyen v Cassim. The Magistrate in that case had rejected the alternative rates proposed for a Toyota Corolla because it was not of equivalent value to the plaintiff’s vehicle. The Magistrate also did not adjust the rate charged by Right2Drive to reflect the cost of the credit hire contract, or incorporate a discount for a long-term hire period.
The Supreme Court found that the Magistrate’s approach was flawed, and that where the plaintiff’s vehicle was not an income producing vehicle, the loss of the use of that vehicle should be considered an inconvenience or loss of amenity. The appropriate measure of compensation for that inconvenience is the cost of hiring a vehicle which is adequate for the plaintiff’s particular needs (e.g. travel to and from work). Because a Toyota Corolla would have satisfied the plaintiff’s needs in this case, the cost of hiring a Toyota Corolla was the appropriate measure of damages, rather than a vehicle of equivalent value to the vehicle which was damaged in the collision.
While the Court’s decision was focused on credit hire contracts, those principles apply equally where the hire car is paid for upfront. To put it simply, a plaintiff is entitled to the cost of hiring a replacement vehicle which suits their needs (and therefore the extent of the inconvenience), not the cost of hiring a replacement vehicle of similar value to their damaged vehicle. The Court upheld the Magistrates’ decisions in the other two cases on the basis of similar reasoning.
It is important to note that there will be cases where a smaller or less prestigious replacement vehicle is not adequate for the plaintiff’s needs, for example if the plaintiff regularly transports large equipment. It is also important to note that these principles specifically apply to vehicles which are not income-producing. Finally, while the case was decided in NSW, there is no contrary decision in Victoria and so parties in the Magistrates’ Court of Victoria ought to be able to apply these cases to Victorian hire vehicle claims.
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Esports arrests demonstrates broad reach of sports integrity laws

In late August 2019 Victorian and Western Australian police executed search warrants and arrested six people in relation to suspicious betting activity relating to esports matches.1 It is alleged that those arrested had arranged to throw matches in the popular esport Counter-Strike: Global Offensive (CS:GO).
Esports involves playing video games, including video game versions of traditional sports such as FIFA or popular online games such as Fortnite, CS:GO, League of Legends and Dota 2. Esports has experienced significant growth in recent years, and also a large uplift in prize money.2 As a result, there has been an increased demand for betting on esports tournaments and matches.
While allegations of match-fixing in the esports industry are not new, with multiple lifetime bans having previously been given to some industry participants,3 the recent arrests in Australia is the first time that action for an alleged breach of section 195C of the Crimes Act 1958 (Vic) (Crimes Act) has been taken in relation to esports related activities.
Introduced in 2013, section 195C of the Crimes Act makes it an offence to engage in conduct that corrupts, or would corrupt a betting outcome of an event or event contingency:

knowing that, or being reckless as to whether, the conduct corrupts or would corrupt a betting outcome of the event or the event contingency; and
intending to obtain a financial advantage, or to cause a financial disadvantage, in connection with any betting on the event or the event contingency.

The offence attracts a maximum sentence of 10 years’ imprisonment. The Crimes Act also includes offences for facilitating the corrupt conduct, and entering into an agreement or arrangement in respect of corrupt conduct, encouraging another person to conceal from a relevant authority corrupt conduct and using corrupt conduct information for betting purposes.4
These provisions were introduced into the Crimes Act in response to the 2011 ‘National Policy on Match-Fixing in Sport’ and were intended to address a key objective of that policy, which was to pursue a nationally consistent approach to criminal offences in relation to match fixing and cheating at gambling.
The provisions were first used in September 2013 in relation to a soccer match-fixing syndicate and led to six arrests for allegedly fixing five Victorian Premier League matches. Additional arrests were made in 2019 in relation to the alleged fixing of a match played in August 2017 in the Soccer National Premier League’s second division.
A broad ranging review into Australia’s Sports Integrity Arrangements, led by James Wood AO QC (Wood Report), identified that the growth of betting markets in Asia has resulted in an increased risk of match fixing activity, including at the ‘sub-elite level’.5 The Wood Report recommended the creation of a national sports integrity commission – a recommendation that the Federal Government accepted in February 2019, with the unveiling of Sport Integrity Australia, intended to be a ‘one stop shop’ to manage the range of existing and emerging integrity-related issues.6
Although sections 195C – 195F of the Crimes Act were originally targeted at integrity of traditional sporting events, the recent use of those provisions in respect of esports demonstrates that the scope of the provisions is broader than just traditional sport. As the esports industry and betting markets continue to grow and mature, these provisions are likely to have further work to do.

1https://www.police.vic.gov.au/six-people-arrested-re-esports-investigation
2https://www.forbes.com/sites/mikestubbs/2019/07/27/the-international-9-dota-2-tournament-prize-pool-breaks-30-million/
3https://liquipedia.net/starcraft2/2015_Match-Fixing_Scandal, https://liquipedia.net/starcraft/Match_Fixing_Scandal
4Sections 195D, 195E and 195F of Crimes Act 2958 (Vic).
5Wood Report, page 7.
6https://www1.health.gov.au/internet/main/publishing.nsf/Content/the-government-response-to-the-wood-review
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Social media in the dock: High Court view on employee’s tweets

On 7 August 2019, the High Court handed down a decision finding that a commonwealth employee’s employment was lawfully terminated due to disciplinary action taken against her for broadcasting anonymously more than 9,000 tweets which were critical of her then-employer (the Department of Immigration), other employees and government and opposition immigration policies generally. While the case has been the subject of some media comment and scrutiny, it is nonetheless worthwhile looking at some of the more interesting issues arising from the case.
While Ms Banerji isn’t the first person to sue their former employer for having their employment terminated for posting material about their employer on social media, and nor will she be the last, it is not often that cases of this nature get to the High Court. In fact, the High Court only hears a minority of cases that go before it. Interestingly, they took an interest in this case for a number of reasons.
Ms Banerji was employed under the Public Service Act 1999 (Cth) and like all of her former colleagues, was also the subject of the Australian Public Service (APS) guidelines and code of conduct. Like many codes of conduct in public and private workplaces around Australia, it refers to adherence to the APS’ values, protecting the integrity and good reputation of the APS and outlines minimum standards of behaviour that are expected of an employee in this day and age, including appropriate use of social media.
Ms Banerji made a claim for compensation alleging that she had suffered from a psychological injury as a result of her termination.
However, in most states and territories across Australia, the employer has a defence where an employee suffers from a psychological injury as a result of reasonable action taken by the employer in relation to factors such as discipline, performance, dismissal, transfer, demotion and promotion. The test applied across the country is not uniform, however, the general principles are pretty much the same.
The defence was introduced to stop people claiming compensation for a psychological injury where their employment was terminated following disciplinary, performance or other reasonable action taken by the employer.
The seven judges of the High Court all agreed (although three of the judges wrote independent decisions) that Ms Banerji’s employment was rightly terminated because she had breached her obligations as an employee of the APS.
The High Court placed paramount importance on the need to preserve and protect the system of representative and responsible government mandated in the Australian Constitution, through an apolitical, impartial and professional public service.
The High Court viewed the 9,000‑odd tweets generated by Ms Banerji, despite using an anonymous Twitter handle, as calculated to damage the integrity and good reputation of the APS, her employer, fellow employees, Members of Parliament and Government and Opposition policy relating to immigration generally.
The High Court said it was irrelevant the fact that Ms Banerji issued the tweets by way of an anonymous Twitter handle, with all but one sent outside of work hours. It noted the APS Guidelines which stated that irrespective of the forum, anyone who posted material online should make the assumption that at some point their identity and the nature of their employment would be revealed.
In her defence, Ms Banerji contended that the termination of her employment was unlawful having regard to her implied freedom of political communication.
Ms Banerji, with support of submissions from the Australian Human Rights Commission, contended that her implied freedom of political communication was a personal right, not unlike freedom of expression guaranteed by the Canadian Charter of Rights and Freedoms or the freedom of speech guaranteed by the First Amendment to the Constitution of the United States.
Justice Gageler described the line of argument as having marginal and illogical assistance in light of the marked differences between the structure and history of executive government in Australia and the United States.
So, where does this leave us when it comes to the obligations of employees across Australia generally?
As well as those employed by the Commonwealth, the decision has direct implications for those employed by the States and Territories, many of whom, such as teachers and police, are employed in statutory positions.
There has already been criticism of the High Court’s decision from certain quarters who consider that the Court has gone too far, imposing restrictions on an employee’s ability to criticise or make political comments on social media about his or her employer. Some, for example, have cited employees being disciplined for commenting on potentially unsafe work practices etc. Obviously, each case has to be looked at on its own merits but the chances of the courts applying these principles without measured discretion are unlikely.
While the principles around an employee’s obligations have been well established for some time by the Fair Work Commission, it wasn’t until the Banerji decision where we’ve had the benefit of having the High Court of Australia provide their position on this issue.
Interestingly, the High Court was dismissive of what transpires in other countries and we anticipate that when considering issues such as freedom of speech and freedom of political expression, they will view these concepts through a strongly Australian prism.
There is no doubt that lawyers acting for private sector employees would have read the Banerji decision with a high degree of interest and will invariably attempt to differentiate this decision and contend that it relates to public sector employees only.
Given the current commentary around certain high profile cases at the moment, the decision provides scope for the argument that if an employer has rules in place for specific reasons – whether they be to maintain certain values or to protect brand value or profile – there is an intrinsic obligation on employees to ensure that they abide by this.
It is going to be interesting to see how future cases play out now that the High Court has thrown its two cents in.

ComCare v Ms Michaela Banerji
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Public Law – Issue Five

In this edition of our newsletter for the public sector, you’ll find updates on a NSW council corruption inquiry and a landmark High Court ruling on Twitter free speech case, an interview with Daniel Simms from the City of Wanneroo and meet Partner Alison Baker, among other interesting articles.
If you have any comments on what you would like to see in Public Law or any questions on what is featured, please let us know.
 
 

Getting into the flow Maximising human potential

At our recent annual partners’conference we had the privileged task of thinking about the bigger picture of how we can best perform individually and as a group.
I have been reflecting on that question a lot this winter, both professionally and personally. On a personal level, my young mare and I are learning to show jump. It is a thrill to be so present with her, to not be ahead or behind her movement, and to strive to be in perfect balance with each other. Recently, I saw a great line to a jump but, around the corner, she lost the rhythm of her canter and we didn’t get quite the right distance. She tried her heart out and jumped big – really big – to make up for it, but I wasn’t ready for it and I fell hard – really hard – over her neck. Nursing my sore but fortunately unbroken shoulder, I reflected that we were out of flow: she around the corner with me, and me over the jump with her.
It got me asking the question about how to achieve flow – the maximum state of harmonious performance. As a reader, I naturally turn to books and have read a great one called The Rise of Super Man: decoding the science of ultimate human performance by Steven Kotler. Kotler explores how extreme athletes do the impossible, at risk of death, and looks at the science behind their achievement.
Kotler relates the research of Keith Sawyer, a professor of psychology, education and business at the Washington University in St. Louis. I was struck by how relatable his research is to achieving flow in the professional, group environment – where the whole is greater than the sum of each of its parts.
Sawyer discovered that flow states have 10 social triggers, which we can each seek to emulate in our workplace: serious concentration; shared, clear goals; good communication (with lots of immediate feedback); equal participation; risk (mental, reputational, financial etc); familiarity (ie, we’re all on the same page); blending egos (ie, we’re all thoroughly involved and no one is hogging the limelight); a sense of control (ie, autonomy with competence); close listening (fully present); and say yes (positive not negative).
A light bulb went off for me hearing those factors, because that is precisely what we had experienced on a recent case.  Our client was sued for tens of millions of dollars, which we successfully defended. Our client didn’t pay a dollar. During the case, despite the pressure, I was struck by how harmoniously our legal and client teams worked together and how outstanding the defence was. I realise now that is because we were all in flow, just as the client team had been in flow during the project.
It inspired me to seek to capture that flow state on a daily basis. There’s plenty of science behind the happiness and satisfaction that follows. Here’s to capturing that flow state as we farewell the last days of Winter and herald the new life of Spring.
Kathryn Howard, Partner, Head of Hall & Wilcox Public Sector group and Editor of the Public Law newsletter.
Meet Alison Baker
This month, we introduce Alison Baker, employment partner in our Melbourne office.
What are you reading?
With two young children and very little ‘me’ time to read a book, most of my reading is about fairy tales, fairies and superheroes!
What’s your perfect Saturday morning?
Megabarre Pilates class followed by breakfast with my family at a local café on a warm sunny day.
Have you got any hidden talents?
I’m ok at tennis, having played a lot in my younger years.
Your all-time favourite movie?
Love Actually. The scene where Emma Thompson composes herself in the bedroom is superb acting.
What’s your sporting team of choice?
North Melbourne (Kangaroos) – I converted after marriage!
Holiday of choice
Island getaway – I love sun, warmth and relaxation when holidaying.
What is your career highlight?
Starting as an articled clerk at Hall & Wilcox in 2001 and then being appointed a partner at Hall & Wilcox in 2009.
What is the life lesson that has taken you the longest time to learn?
It’s ok to say ‘no’ (this is a work in progress for me as I am a ‘yes’ person!).
What is your best piece of advice?
Stand for something or you’ll fall for anything.
Stan Kondilios’ perfect barbecued fresh fish
Stan Kondilios, the head of our NSW Local Government, Environment and Planning practice, recently spent time with his family abroad. Here he has shared his perfect recipe for barbecued fresh fish!
Step 1
Having purchased fresh fish (the freshness indicated by the bright red colour of the gills and sharpness in eye dilation), gut and scale the fish and marinate the whole fish, inside and out, with virgin olive oil, pepper, salt and oregano. Cut two slits into the side of the fish with a sharp knife.
Step 2
Refrigerate the fish for 3-4 hours in a dish covered in plastic wrapping.
Step 3
Find a serene locale in the Mediterranean and never disclose the location.
Step 4
Light a flame to smoked wood fired coal until red hot. Burn until fire flames settle to an even warmth across the coals. See picture.

Step 5
Remove the fish from refrigeration for a half-hour before cooking.
Step 6
Place the fish in the sandwich grill and then onto the hot coals for no more than five minutes but always checking the flame does not flare up to burn the fish, owing to the oil. Turn the grill over once, only after gently checking that the underside is lightly cooked to the bone with the flesh closest to the bone still slightly undercooked. This is because once you turn the grill over the heat will cook the remainder to the bone.
Step 7
Once the fish has been turned over, then baste the upper side with a mixture of oil, salt, pepper and oregano until underside is cooked through and you can see that the whole fish is cooked through.
Step 8
Remove from grill and plate up with a cold salad of choice; preferably tomato and cucumber with some light feta cheese.
Step 9
Drink with an accompaniment of white wine or beer of choice.
Mentors can learn from mentees too

We have been involved with the Australian Business and Community Network (ABCN) for more than 10 years. ABCN is a not-for-profit organisation that connects business with disadvantaged education through mentoring and partnership programs. Our managing partner Tony Macvean is Chair of ABCN and he spoke at ABCN’s Annual Leadership Dinner last month about how privileged he feels to be part of an organisation that makes a real difference to the lives of both students and their professional mentors.
Partner and Chairman Mark Dunphy and his mentee, 2018 ABCN Scholar Yusus Arpaci, spoke to the guests about their experience and what they have learned from each other.
‘One of the main things I learned from Mark is that I often had an excuse for not attending something or procrastinating,’ Yusuf told the 120 guests at the dinner. ‘Mark told me not to dwell on what has happened but to focus on the future.’
‘One thing that surprised me about Yusuf is he’s challenged me from time to time,’ Mark said. ‘Once he asked me what I would change if I could. I told him I wondered if I should be spending more time with my family. He looked me in the eye and said: “We can’t make time but we can find time.” It was just like the advice I had given him: don’t make excuses, just do it.’
For information about how to get involved with the work ABCN do, please contact Carolyn Bruce – Head of Partnerships.
E: [email protected]
T: 0413 419 330

‘we can’t make time but we can find time.’

Mark Dunphy, Chairman and Partner, Employment, and his mentee, 2018 ABCN Scholar Yusus Arpaci
A client’s perspective
We work with many fascinating people within the public sector industry. This month, we chat with Daniel Simms, CEO of the City of Wanneroo in Perth, which is one of the largest growing local governments in Australia.
My career snapshot
I love working for and with communities and I have been fortunate to have worked in regional, rural and metropolitan local governments. Communities throughout Western Australia are very different and the variety and depth of experiences I’ve gained through these roles has provided a valuable foundation.
My current role
As CEO, I have two main roles. First, working in collaboration with the City’s Mayor and Councillors to support Council in setting the strategic vision, strategies and policies of Council. Second, I have the privilege of recruiting and leading an amazing team of talented people who deliver a wide range of services and products that either improve or maintain the quality of lifestyle enjoyed by over 200,000 residents in our City.
Being one of the largest growing local governments in Australia, growth management and operating in a high-growth environment requires the City’s leadership team to be agile and have an ability to balance operational and strategic pressures so that we can continue to add value to our community and, at the same time, plan new communities to be built within our natural environment.
My typical day
When you have a passion for what you do and have a great team to work with, every day offers new challenges and opportunities. My typical day is more about making sure I create an environment for my team that provides autonomy and positive direction to ensure we all work to the same goal and vision.
What I love most about working in the public sector
Being a leader is both a privilege and an honour, so being part of a Council that is committed to improving the quality of lifestyle of our residents, and being the CEO of a team of very skilled and knowledgeable professionals who are committed to making a positive impact for the community, is absolutely the best part of my role.
Leading one of the largest growing local governments in Australia also provides an opportunity to work with key industry leaders and state and federal government to plan for transformational projects that will unlock the enormous potential that the City of Wanneroo holds. For example, the City will soon have three new activity centres connected to a new rail system, including the future new Yanchep City.
Key trends for local government
Local government is the tier of government that is most connected to the community. In a world that is ever changing, and with an increase in global uncertainty, the importance of community has never been more vital.
It is so critical, in my view, that communities value the important role local governments play in creating communities, through infrastructure and services and also through creating a strong sense of belonging and ownership. The City of Wanneroo has recently, after extensive engagement with our local communities, adopted a new Place Framework that is starting to have some real success. As an example, in our suburbs of Girrawheen and Koondoola, we are celebrating the multi-cultural diversity of this area through the establishment
of the Girrawheen Community Hub.
Local governments are so much more than roads, rates and rubbish and are more about improving the quality of life for its residents. For the City of Wanneroo, this includes a commitment to economic development to grow the number of local jobs to support the rapidly growing population, to advocating on behalf of the community for key pieces of infrastructure and facilities, as well as providing a series of simple but important policies and legislation that will maintain or improve the lifestyle and amenities that our communities currently value.
The best advice given to me is…
You should never stop learning and be inquisitive in your decisions. As a relatively young leader, I’ve been fortunate to have developed a great group of colleagues who are committed to sharing ideas and are also comfortable providing advice and a different point of view that can be valuable in resolving complex problems.
Outside of work, you’ll find me…
I love spending time with my family, eating out with friends and travelling. I love bush walks and golf. Fortunately my golf skills mean that a round of golf is more of a bush walk than a sport.
Daniel Simms, CEO of the City of Wanneroo in Perth
Homelessness: duty to assist?

The theme of Homelessness Week in Victoria this year was ‘Housing Ends Homelessness’.
Hall & Wilcox attended a ‘Homelessness Preventation’ seminar by Professor Peter Mackie from Cardiff University, where he shared the experience in Wales. He highlighted the need to shift policy and procedure from crises response to homelessness prevention and talked about the ‘duty to assist’. This is a legislative provision requiring local authorities in Wales to take ‘reasonable steps’ to prevent and relieve homelessness. It makes access to prevention a universal right for all, enforceable through the courts. Interventions are tailored to individual needs and homelessness is classified as ‘prevented’ if accommodation is available for at least a six-month period.
He cited an example of a family in private rental accommodation with a broken heating system that the landlord was unable to repair. Faced with incurring significant resources re-housing the family and disruption to the children’s schooling, the local authority paid for repairs, taking the required ‘reasonable steps’.
Dr Mackie acknowledged there was room to further improve the scheme, to ensure more people are identified earlier and assisted earlier; however, the scheme has been so successful it is being adopted in England.
While Wales is pushing the boundaries in this space, could such a scheme ever be adopted in Australia? It would require access to suitable, social and affordable housing.
The Anglicare Australia Rental Affordability Snapshot 2019 surveyed over 69,000 rental listings across Australia and found a chronic shortage of affordable rentals across Australia. The Australian Housing Urban Research Institute recently released a report making the case for social housing as infrastructure, which will hopefully spur increased investment.
Hall & Wilcox is leading the way in supporting development of and investment in the social and affordable housing sector. We’ve been involved in a number of major social housing and National Disability Insurance Scheme projects across Australia. We act for public and private companies
and not-for-profit organisations nationally.
Social media minefield: public servants warned as high court rules on twitter free speech case
By Fay Calderone, Partner, Employment
 

‘…freedom of political communication is not a personal right of free speech, but rather, operates to protect political communication as a whole.’

The High Court has ruled that the constitutional freedom of political communication did not protect a public servant, Michaela Banerji, who had breached her contractual employment obligations, in a landmark judgment handed down this month. Ms Banerji had made anonymous tweets using the handle ‘LaLegale’ that criticised the Government’s immigration policy.
On 7 August 2019, the High Court unanimously overturned the Administrative Appeal Tribunal’s (AAT) decision in Comcare v Banerji [2019] HCA 23, ruling on issues surrounding free speech and the extent to which an employer can control what their employees say on social media in their own time.

Drawing parallels with the Israel Folau case involving tweets condemning homosexuals and transsexuals, the High Court confirmed that anonymous tweets by Ms Banerji had contravened the Australian Public Service Commission’s Code of Conduct (APS Code) in the Public Service Act 1999 (Cth) and social media guidelines, justifying the termination of her employment by the former Department of Immigration and Citizenship (Department) as a reasonable administrative action.
The High Court considered the constitutionality of limitations on the political expression of public servants and determined the Act did not impose an unjustified burden on political expression. This is because the High Court held that freedom of political communication is not a personal right of free speech, but rather, operates to protect political communication as a whole. Unlike the AAT, the High Court did not focus on Ms Banerji’s implied freedom of political communication. Rather, the Court held that restrictions placed on public servants are necessary to ensure an apolitical and professional public service consistent with the APS Code. Even comments made anonymously – due to the risk of such comments becoming identifiable – were held to jeopardise the integrity and reputation of public service.
This is a salutary warning for public servants to be aware of and act in accordance with their employment obligations.
What’s happening
NSW council corruption inquiry
Stan Kondilios, Partner, NSW Local Government, Environment and Planning represented a NSW Council in one of the longest-running Public Inquiries held by the Independent Commission Against Corruption, which is expected to deliver landmark findings and recommendations.
The inquiry investigated the actions of two former public officials/elected representatives and two former senior staff members at the Council, concerning allegations of dishonestly or partially exercising their official functions in respect of planning proposals/applications. The ICAC also examined whether there was dishonesty and/or partiality in relation to the recruitment of a senior staff member.
The public hearing ran for just over a year, and the findings are currently reserved while submissions are being drafted on behalf of both the ICAC and the relevant parties to the inquiry. We act for the Council as a new entity following its amalgamation with another council, representing Council’s Public Interests and 14 of Council’s staff who gave evidence to the inquiry. We worked with Council to attend and make submissions at the hearing, reviewed hundreds of volumes of evidence, and advised Council, including with producing relevant materials to the ICAC. We are currently preparing written submissions to the ICAC, including recommendations about the findings which may be made by the ICAC on the evidence presented.
We recognise that these issues, of public interest disclosures, conflicts of interest and governance matters generally involving the planning processes in NSW, are of broad concern and we have participated in submissions crafted for legislative reform to help clarify our clients’ obligations.
Who is portrayed better in film and television – lawyers or public servants?
In August, Melinda Bell, Special Counsel, Employment, had the pleasure of participating in ‘The Great Debate – ‘Who is Portrayed Better in Film and Television – (Government) Lawyers or Public Servants?’ as part of IPAA Victoria’s Public Sector Week 2019.
As part of ‘Team Lawyer’ and led by the Hon Justice Rita Zammit, Melinda joined colleagues from other firms and the Victorian Bar to argue that lawyers were in fact better portrayed in film and television than public servants.
With a wealth of material before them, ‘Team Lawyer’ advanced their case using examples from such classics as The Simpsons, Blackadder and The Castle. The Hon Justice Zammit advanced a compelling case for Justice Ruth Bader Ginsburg, while Melinda Bell portrayed Mel Horowitz (Cher’s Dad from Clueless) as a flexible working single dad ahead of his time.
Team Public Servant highlighted the many ways in which the public service was in fact better (and perhaps more accurately) portrayed in film and television than lawyers. Using characters such as ‘M’ from James Bond, Tony Woodford (Utopia) and the cast of Parks and Recreation, Team Public Servant highlighted the essential role of the public service while providing lots of laughs.
However, there could only be one winner. On the audience vote, Team Lawyer won the day and the very tasteful 3D printed trophy.
The evening was thoroughly entertaining, not least of all due to the comedic wit of facilitator Katie Miller (Deputy Commissioner, IBAC) and all the work put in by VGSO Chief Operating Officer, Nick Field.
Wildlife wonders
Wildlife Wonders is a unique ecotourism project being developed outside Apollo Bay on Victoria’s iconic Great Ocean Road. The project is being developed by our long-term pro bono client Conservation Ecology Centre (CEC). It will feature a guided nature walk led by qualified ecologists through a stunning hillside property showcasing the flora and fauna of the Otway region. The project designer is Brian Massey, the renowned art director of The Hobbit films and designer of the popular Hobbiton tourist attraction in New Zealand.
Wildlife Wonders will be operated as a social enterprise with all profits being returned to CEC to support its leading conservation and research work in the Otway region. The attraction is scheduled to be open to the public by mid-2020. The project is supported by the Commonwealth Department of Infrastructure Regional Development & Cities (through the Regional Jobs and Infrastructure Program). Other key stakeholders include Regional Development Victoria, Colac Otway Shire Council and Great Ocean Road Regional Tourism. In addition, the project has attracted strong interest and support from the philanthropic community, as well as significant pro bono support from leading firms such as Tanarra Philanthropic. Matthew Bridges, Special Counsel, Corporate and commercial, Frank Hinoporos, Partner, Tax, and our Corporate and Commercial team have provided substantial pro bono legal and in-kind support to the project in recent years.
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Talking Tax – Issue 169

Foreign income tax offsets on exempt income?
The Federal Court of Australia Full Court in the case of Burton v Commissioner of Taxation [2019] FCAFC 141 rejected the taxpayer’s appeal in relation to an earlier Federal Court decision to deny the taxpayer claiming the full foreign Income Tax Offset (FITO) available under section 770-10 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).
For our commentary on the first instance decision of the Federal Court see the following link.
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The taxpayer in this appeal was an Australian resident who sought to claim the FITO for all income tax paid in the United States on the disposal of certain capital assets held there. The taxpayer qualified for the 50% CGT discount and accordingly, only 50% of the net capital gain was included in their assessable income.
The Commissioner denied the taxpayer’s claim that it was entitled to the FITO for the tax paid in the United States. Instead, the Commissioner determined that the taxpayer was only entitled to the FITO on the 50% of the capital gain that was included in the taxpayer’s assessable income. The taxpayer disagreed and applied to the Federal Court to have the Commissioner’s determination overruled. The Federal Court found in favour of the Commissioner and the taxpayer subsequently appealed to the Full Court.
In dismissing the appeal, Justice  Stewart, with whom Justice Jackson agreed (Justice Logan dissenting), upheld the decision of the trial judge, having regard to the following factors:

The FITO is only available for foreign tax paid on an amount included in the taxpayer’s assessable income and not amounts that are excluded by operation of statute.
The FITO provisions operate to relieve double taxation where ‘you have paid foreign income tax on amounts included in your assessable income.’ It would therefore be inconsistent with the legislation to extend the FITO to the 50% of the capital gain that was not included in the taxpayer’s assessable income.
Note 2 to section 770-10 of the ITAA 1997 provides an example where foreign income tax has been paid on an amount that is partly non-assessable non-exempt income and partly assessable income; the FITO will only be available for the proportion of foreign income tax that was paid on the amount included in the taxpayer’s assessable income. While this example relates to non-assessable non-exempt income, Stewart J held that it was logical that this approach should also apply to exempt income which is excluded from the taxpayer’s assessable income by the 50% CGT discount.
The explanatory memorandum to the Tax Laws Amendment (2007 Measures No.4) Bill 2017 (Cth) to the FITO provisions, states that an entitlement to a tax offset will only arise when, and to the extent that, foreign income tax has been paid on an amount included in assessable income. This indicates that foreign tax paid on an amount excluded from the taxpayer’s assessable income will not contribute to the calculation of the available FITO.

Denying the taxpayer from claiming the FITO on foreign tax paid on the 50% of the capital gain excluded from the taxpayer’s assessable income was also consistent with the Double Taxation Agreement between Australia and the United States.

Confidential – keeping your tax information protected
The Federal Court in the recent case of Binqld Finances Pty Ltd (in Liq) v Israel Discount Bank Ltd [2019] FCA 1186 had to consider the application of the confidentiality provisions on ‘protected information’ in Division 355 of the Tax Administration Act 1953 (Cth) (TAA).
The taxpayers in this case included a range of companies connected to a particular family that were issued with amended assessment totalling (with penalties) approximately $74 million. The amended tax liabilities arose because the ATO disallowed deductions for interest payments made to foreign banks as part of what was considered a tax avoidance scheme.
These companies subsequently went into liquidation and proceedings were commenced against various individuals who had been directors of the companies.

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A settlement deed was entered into in for the proceedings. Annexed to the settlement deed was an ATO document which contained details of the income tax and related liabilities of the various taxpayers arising from the amended assessments.
A claimant from a related proceeding subsequently sought access to this settlement deed to investigate whether its rights to compensation had been prejudiced by the agreement. This gave rise to the issue whether the ATO document contained ‘protected information’ within the meaning of section 355-30 of the TAA which, if it was to be disclosed by the taxpayers, would constitute an offence under section 355-155 of the TAA.
Section 355-30 of the TAA defines ‘protected information’ as information that:

was disclosed or obtained for the purpose of a law that was a taxation law when the information was disclosed or obtained;
related to the affairs of an entity; and
identifies or is reasonably capable of being used to identify the entity.

The Court had little trouble concluding that the ATO document contained at least some ‘protected information’ within the meaning of section 355-30 of the TAA as it included details about the assets and liabilities of the various taxpayers that had been disclosed to the ATO for the sole purpose of settlement negotiations relating to the amended assessment and resolution of the dispute connected to the tax avoidance scheme.
Notably, under section 355-205 of the TAA, such ‘protected information’ may be disclosed to the court where it is necessary to do so for the purpose of carrying into effect the provisions of a taxation law. The Court held that, although production of the ‘protected information’ may have been necessary to deliver justice to the party seeking to ascertain whether its interests had been prejudiced, production of the ‘protected information’ was not necessary to give effect to the tax law as the relevant proceeding was one of insolvency and not tax related.
Accordingly, the exception permitting disclosure under section 355-205 of the TAA did not arise and to disclose the ‘protected information’ would constitute an offence under section 355-155 of the TAA. The Court therefore ordered that a redacted version of the ATO document, stripped of all ‘protected information,’ be produced to the Court for the benefit of the party seeking the information.

Luxury car tax: no free rides
On 19 August 2019, Justice Thawley in the case of Stallion (NSW) Pty Ltd v FCT [2019] FCA 1306 rejected the taxpayer’s application to the Federal Court contesting assessments made by the Commissioner which denied the taxpayer from claiming input tax credits (ITCs) and decreasing luxury car tax (LCT) adjustments on the purchase of luxury vehicles.
The company taxpayer claimed that it had purchased 9 luxury cars during the 2016-17 income year and then on-sold them to another entity known as CJS. CJS would then sell these cars to a retail consumer.
The taxpayer paid LCT and GST on the purchase of each car and argued that it was entitled to claim the related decreasing LCT adjustments and ITCs when they were on-sold to CJS.

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The Commissioner argued that, although the taxpayer was named as the purchaser in the purchase agreements, it was acting as an agent of CJS and therefore not entitled to the ITC or decreasing LCT adjustments.
Thawley J agreed with the Commissioner and held that the taxpayer was acting as the agent of CJS which was the purchaser of the luxury vehicles. This meant that the taxpayer was not entitled to ITCs or decreasing LCT adjustments.
The following key factors were relied on in reaching this conclusion:

the taxpayer did not take out insurance in relation to its activities;
the decision to negotiate or enter into a purchase agreement was always made by CJS;
there were no price negotiations between CJS and the taxpayer as CJS would simply set the price it was willing to pay and the taxpayer would oblige; and
the lack of evidence which supported the taxpayer’s argument that the funds provided by CJS were loans, lead to the conclusion that the purchase price paid by the taxpayer for the vehicles was ultimately funded by CJS.

This article was written with the assistance of Charlie Renney, Law Graduate.

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Financial Services in Focus – Issue 29

Funds and financial products
ASIC approves AFCA rule change enabling the naming of firms
On 26 August, ASIC stated it approved changes to the Australian Financial Complaints Authority (AFCA) Rules to allow the scheme to name financial firms in published determinations. The approval was given under section 1052D of the Corporations Act, which enables ASIC to approve a material change to the AFCA scheme on the request of AFCA.
Consumers who are party to a complaint will continue to be anonymised in all determinations.
In its media release, ASIC stated:

in its view, naming firms in determinations can help identify conduct or market problems within firms or affecting specific products or services, as well as highlighting where firms have done the right thing;
in its view, naming firms will also enhance transparency and accountability of firms’ performance in complaints handling and of AFCA’s own decision-making; and
to support the new Rules, AFCA will shortly be issuing updated operational guidelines which set out examples of the circumstances in which a determination naming a financial firm would not be published. This includes where naming may expose confidential information about a firm’s systems or policies.

ASIC proposes to use product intervention power to ban OTC binary options and restrict issue of OTC CFDs
On 22 August ASIC released Consultation Paper 322 Product intervention: OTC binary options and CFDs (‘CP 322’) and accompanying draft legislative instruments.
CP 322 sets out ASIC’s proposals to exercise its product intervention power to make certain market-wide product intervention orders relating to the issue and distribution of over-the-counter (‘OTC’) binary options and contracts for difference (CFDs) to retail clients. In CP 322, ASIC proposes to:

ban the issue and distribution of OTC binary options to retail clients, and
impose conditions on the issue and distribution of OTC CFDs to retail clients.

Accompanying CP 322 is Report 626 Consumer harm from OTC binary options and CFDs (‘REP 626’), which ASIC states provides a snapshot of the binary options and CFD market, describes the harm to consumers ASIC has observed and outlines ASIC’s proposed product intervention orders.
In releasing these documents, ASIC states it is concerned that retail investors have suffered, and are likely in future to suffer, significant detriment from binary options and CFDs.
ASIC seeks the feedback on its proposed product intervention orders by 1 October.
Government issues a Royal Commission Implementation Roadmap
On 19 August, Government released its Banking, Superannuation and Financial Services Royal Commission Implementation Roadmap setting out how the Government will deliver on its response to the Royal Commission. The Restoring Trust in Australia’s Financial System: Financial Services Royal Commission Implementation Roadmap (‘Roadmap’) can be found here.
Treasury states the Roadmap provides timelines for implementing the Government response, giving clarity and certainty to consumers, industry and regulators.
In releasing the Roadmap, the Treasurer, Josh Frydenberg, stated that the Government’s commitment to implementing the Royal Commission’s represents the largest and most comprehensive corporate and financial services law reform package in the three decades since the Corporate Law Economic Reform Program (CLERP) in the 1990s.
ASIC updates guidance on climate change related disclosure
On 12 August, ASIC stated it has updated its existing regulatory guidance to take into account the disclosure of climate change related risks and opportunities.
The updates are contained in Regulatory Guide 228 Prospectuses: Effective disclosure for retail investors and Regulatory Guide 247 Effective disclosure in an operating and financial review.  INFO 203 has also been updated.
In releasing this information, ASIC also stated that, in the coming year, ASIC will conduct surveillances of climate change related disclosure practices by select listed companies.
Financial product advice
ASIC releases report on research into consumer experiences of financial advice
On 26 August, ASIC released Report 627 Financial advice: What consumers really think (REP 627).
RP 627 summarises the results of some preliminary research ASIC commissioned into what consumers think about financial advice. The research explored overall use of financial advisers, motivators and barriers to seeking personal advice, and consumer attitudes towards the financial advice industry.
In releasing the report, ASIC states that the research shows that many consumer do not seek advice because they are put off by factors such as high costs, significant distrust of the industry and a perception that financial advice is only for the wealthy.
ASIC to review industry transition towards ending grandfathered remuneration for financial advice
On 21 August, ASIC stated that, at the direction of the Treasurer, it is investigating the progress of transition away from grandfathered conflicted remuneration arrangements for financial advisers.
The investigation follows the Government’s commitment to end the practice by 1 January 2021, and will review the steps taken by industry participants from 1 July 2019 until the 2021 deadline. ASIC states it will also investigate any impediments to this transition, and the extent to which benefits are being passed on to affected clients.
Financial markets
ASX updates Guidance Notes
In August, ASX published an updated version of ASX Listing Rules Guidance Note 9 Disclosure of Corporate Governance Practices, which is due to be released on 1 January 2020.
In August, ASX also released updated versions of Guidance Note 8 Continuous Disclosure – Listing Rules 3.1 – 3.1B and Guidance Note 27 Trading Policies to reflect the changes to the law in the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019.
Consumer credit
Treasury consults on draft legislation regarding mortgage broker best interests duty and remuneration reforms
On 26 August, the Treasury released draft legislation and accompanying explanatory materials that introduce a best interests duty for mortgage brokers and reform mortgage broker remuneration.
According to the Treasury, the draft bill requires mortgage brokers to act in the best interests of consumers when providing credit assistance. Further, the bill and regulations make changes to mortgage broker remuneration by:

requiring the value of upfront commissions to be linked to the amount drawn down by borrowers instead of the loan amount;
banning campaign and volume-based commissions and payments; and
capping soft dollar benefits.

Furthermore, the regulations limit the period over which commissions can be clawed back from aggregators and mortgage brokers to two years and prohibit the cost of clawbacks being passed on to consumers. Entry into force of the reforms is scheduled for 1 July 2020.
Consultation closes on 4 October.
Treasury consults on draft legislation regarding mandatory comprehensive credit reporting and hardship arrangements
On 15 August, the Treasury released revised draft legislation and accompanying explanatory materials that introduce a mandatory comprehensive credit reporting regime and which requires the big four banks to participate fully in the credit reporting system.
According to the Treasury, revised Bill introduces a new category of information within credit reporting, enabling hardship information to be reported alongside repayment history information.
Consultation closes on 5 September.
Banking
APRA issues updated prudential standard on associations with related entities
On 20 August, APRA issued updated Prudential Standard APS 222 Associations with Related Entities (APS 222), which APRA states will further reduce the risk of problems in one part of a corporate group having a detrimental impact on an authorised deposit-taking institution.
Copies of APRA’s response paper to submissions, the updated APS 222 and reporting standards are available here.
Other financial services regulation
APRA releases the Financial Sector (Shareholdings) Rules 2019
On 21 August, APRA released the Financial Sector (Shareholdings) Rules 2019 (FSSA Rules), which APRA states will provide clarity to owners of new entrant financial sector companies on whether they are likely to be approved under the Financial Sector (Shareholdings) Act 1998 (FSSA) ‘fit and proper’ test.
APRA published a response letter, the final version of the FSSA Rules and an following explanatory statement, which can be found here.
Treasury discussion paper on Financial Institutions Supervisory Levy Methodology
On 16 August, the Treasury released a Discussion Paper Financial Institutions Supervisory Levies methodology, which submissions on the design and operation of the Financial Institutions Supervisory Levies. The focus of the discussion paper is on the methodology used for the application of the levies.
The Treasury states that this discussion paper is separate to the annual ‘Proposed Financial Institutions Supervisory Levies’ paper released each year.
Responses are due by 13 September.
APRA consults on amendments to prudential standard on margin requirements
On 14 August, APRA released for consultation amendments to its margin requirements for non-centrally cleared derivatives.
APRA states that the proposed changes to Prudential Standard CPS 226 Margining and risk mitigation for non-centrally cleared derivatives will apply to all authorised deposit-taking institutions, general insurers, life insurers and registrable superannuation entity licensees. APRA’s letter is available here.
Submissions close on 28 August.
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Bridging Visa A – a brief overview

It is common to come across overseas nationals in Australia during the recruitment process. While most would hold a ‘substantive’ visa (such as work, family, student, and tourist visa), hiring managers may also come across candidates holding a strange creature known as the ‘bridging’ visa.
A bridging visa ‘bridges’ the lawful status of non-citizens in Australia when they do not hold a substantive visa. For example, a person may have applied for a new visa in Australia, and their existing visa may expire before the outcome on their visa is known. The bridging visa allows the person to lawfully remain in Australia after the visa expires, and before the new visa is granted.
Of the many types, the common one is Bridging Visa A (BVA).
When is a BVA granted?
Unlike most other visas, it is generally unnecessary to make a separate application for a BVA as it is deemed to be made at the time the person applies for a substantive visa in Australia.
There are several scenarios under which a BVA may be granted:

the person holds a substantive visa (visa 1) and applies for another visa (visa 2) in Australia. A BVA allows the person to lawfully remain in Australia if visa 1 expires before there is an outcome for their application for visa 2;
if the application for visa 2 is refused either by the Department of Home Affairs (Department) or the Administrative Appeals Tribunal, and the person applies to have the decision reviewed by the court. If the person held a BVA or Bridging Visa B (BVB) at the time of the review application, the person may be granted another BVA pending the outcome of the court proceeding;
the person holds a BVA or BVB with condition(s) limiting their work rights, and the person has not applied for a protection visa.  The person may be granted a new BVA with no work limitations, either:

if the person suffers from financial hardship; or
if the person held a working holding visa and has applied for a 457/482 worker visa where the Department has approved the relevant 457/482 nomination;

the person has applied for a certain type of partner or parent visa. A BVA may be granted to allow the person to remain lawfully in Australia pending the outcome of the relevant application or review application.

When does a BVA start and end?
A BVA comes into effect either on the date it is granted, or when any substantive visa held by the person expires.
A BVA ceases to exist in one of the following circumstances:

On the date the substantive visa to which the BVA relates is granted.
35 days after the substantive visa application to which the BVA relates, is refused, withdrawn or considered invalid.
If the person applies to have a refusal reviewed by the court, the BVA ceases to exist 28 days after the court proceeding is complete, or withdrawn.
If the BVA or any substantive visa held by the person is cancelled, the BVA ceases to exist on the date of the cancellation.
If a new bridging visa is granted, the BVA ceases to exist on the date the new bridging visa is granted. This may occur if, for example, the person who is not permitted to work on their first BVA is subsequently granted a new BVA without work limitations due to financial hardship.

Once the BVA ends, the person will be unlawfully in Australia if they do not hold another visa. They should depart prior to this to avoid potential travel bans to Australia.
Conditions on BVA
It is helpful for hiring managers to be aware of any work limitation conditions attached to a candidate’s BVA.
Condition(s) on a BVA generally follows condition(s) attached to the previous visa. For example, the person is required to hold adequate health insurance on the previous visa, the person may be required to continue doing so while on the BVA.
However, this does not apply in scenarios where the BVA relates to a permanent residence application. No conditions will attach to the BVA regardless of condition(s) attached with the previous visa.
There will also be no conditions attached to a BVA if the person applies to remove work limitations on their previous bridging visa under the grounds of financial hardship.
Overseas travel on a BVA
BVA does not come with travel facilities. This means that if a BVA holder travels out of Australia, they will not be able to return to Australia on that BVA. In this scenario, the person would usually apply for a Bridging Visa B (BVB) prior to departure.
More questions?
Situations involving one or more bridging visas can be complicated and may require action be taken in a timely manner. Please feel free to contact us should you require any assistance.
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Hall & Wilcox advises on Australia’s first digital currency exchange token offer

Leading Australian law firm Hall & Wilcox is delighted to have advised Lex Exchange on Australia’s first digital currency exchange token offer, which included a world-first detailed tax disclosure.
Lex Exchange is a company at the forefront of new technology and innovation in blockchain technology and provides cryptocurrency exchange services. Through the digital currency exchange token offer, Lex Exchange plans to raise between US$2 million and US$12 million.
The Hall & Wilcox team, led by Special Counsel John Bassilios, advised Lex Exchange on income tax, GST and regulatory advice to ensure the token was not a security (financial product), reviewed the whitepaper and drafted the terms and conditions. The team also comprised Lawyers Joni Pirovich and Will Francis, Partner Anthony Bradica and Special Counsel Jim Koutsokostas.
‘We are proud to have been involved in the first offer of a digital token by a digital currency exchange in Australia and the first whitepaper in the world (that we are aware of) to include detailed tax disclosure for acquirers of the token,’ said John Bassilios.
‘Our cross-section blockchain practice group has the skills to advise on all blockchain-related matters from regulatory (including AFSL and AML/CTF) to tax to IP/IT and general corporate commercial.’
Joni Pirovich said the Hall & Wilcox team and Lex Exchange engaged early with the Australian Taxation Office regarding the tax implications of the token sale so that any material tax risk could be managed proactively.
‘This is a world-first detailed tax disclosure, which will help those acquiring tokens to be informed upfront about the general tax consequences of acquiring and using the tokens,’ Joni said.
‘The detailed tax disclosure sets a best practice standard, which we hope will be replicated for other token offers in Australia and in the world.’
Hall & Wilcox is leading the way in providing specialised legal advice in all areas of blockchain and cryptocurrencies, including regulatory, tax, IP and privacy. The firm was involved in making submissions to Treasury on its ICO consultation paper and assisted Blockchain Australia, the Australian Digital Commerce Association and Fintech Australia with their submissions.
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Talking Tax – Issue 168

Legal professional privilege – a shield but not a sword
The High Court in the case of Glencore International AG & Ors v Federal Commissioner of Taxation [2019] HCA 26 has unanimously rejected an application for an injunction brought by the Glencore Group (Glencore) to restrain the Federal Commissioner of Taxation (Commissioner) from using documents that were released as a part of the ‘Paradise Papers.’
Following the Glencore decision, it is clear that once the Commissioner has a taxpayer’s confidential information in its possession, the Commissioner is entitled to use that information as it sees fit to fulfil its statutory duties unless the taxpayer can show there has been a breach of the equitable duty of confidence.
The facts in the Glencore decision relate to the theft of confidential documents from Glencore’s lawyers.
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In or about 2017, volumes of documents were allegedly stolen from the electronic file management system of Appleby, a Bermuda based law firm, and made public.  These documents became known as the ‘Paradise Papers’ and disclosed sensitive information about many of Appleby’s clients.
These papers included documents relating to Glencore (Glencore documents) which Glencore claimed had been created by Appleby for the sole or dominant purpose of providing legal advice to Glencore and were therefore protected by legal professional privilege.
Documents that are subject to legal professional privilege will be exempt from having to be produced to the court, by operation of the court process or where compelled by statute.
The Court in this case noted that there was no issue that the Glencore documents were subject to legal professional privilege. The issue was that Glencore claimed that the protection of legal professional privilege was, on its own, a sufficient cause of action to secure the injunction sought.
Glencore’s argument was unanimously rejected by the Court which concluded that legal professional privilege is not a legal right that is capable of being enforced and therefore cannot be relied on as a separate cause of action.
Instead, the Court confirmed that legal professional privilege may only be relied on to provide an immunity from the exercise of powers which would otherwise compel the disclosure of privileged communications. In other words, legal professional privilege can only act as a shield and cannot be used as a sword.
Accordingly, Glencore was unable to establish a cause of action sufficient to justify its application for an injunction and the Commissioner was free to use the Glencore documents in its possession in order to exercise its statutory powers.
Notably, the Court identified that Glencore would be unlikely to succeed if it brought an application for an injunction for breach of confidentiality. This was because the Glencore documents had been released as a part of the Paradise Papers and were already in the public domain.

Personal services income: the impact of customs and practices
On 12 August 2019, the Federal Court in the case of Douglass v Federal Commissioner of Taxation [2019] FCA 1246 upheld an earlier decision by the Administrative Appeals Tribunal and concluded that a personal services entity (PSE) did not satisfy the results test contained in section 87-18 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997). Consequently, the personal services income (PSI) received by the PSE was assessable as the income of the individual providing the services, and not the PSE.
This case focused on the operation of section 87-18(4) of the ITAA 1997 which deals with the consideration of customs and practices relating to the kind of work being tested under

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During the 2013 and 2014 income years, the taxpayer provided electrical engineering and management services through a partnership with his wife where the income was split equally between the two partners (the PSE). The ATO made a determination that the PSI rules contained in Div 86 of the ITAA 1997 applied so as to include all income received by the partnership in the individual taxpayer’s assessable income for the 2013 and 2014 income years.
The taxpayer objected to this determination, arguing that the results test in section 87-18 of the ITAA 1997 was satisfied meaning the income was generated by a personal services business and the PSI rules in Div 86 of the 1997 Act did not apply.
The taxpayer submitted that the engineering and managerial work done by him would ordinarily be done by an independent contractor and that it was the custom or practice that work of the relevant kind was not performed by an employee but by an independent contractor, which meant that the results test at section 87-18(4) of the ITAA 1997 was satisfied (as a result of the application of section 87-18(4) of the ITAA 1997).
Section 87-18(3) of the ITAA 1997 provides that a PSE will satisfy the results test in an income year (such that there is no PSI attributable to an individual) if, in relation to at least 75% of the individual’s PSI during the income year:

the income was for producing a result; and
the PSE was required to supply the plant and equipment, or tools of trade, needed to perform the work from which the PSE produced the result; and
the PSE is, or would be, liable for the cost of rectifying any defect in the work performed.

Section 87-18(1) of the ITAA 1997 sets out the same conditions that an individual will need to meet to satisfy the results test.
Under section 87-18(4) of the ITAA 1997, when considering the tests in section 87-18(1) and (3), regard is to be had to whether it is custom or practice, when the work is performed by an entity rather than an employee:

for the PSI from the work to be for producing a result; and
for the entity to be required to supply the plant and equipment, or tools of trade, needed to perform the work; and
for the entity to be liable for the cost of rectifying any defect in the work performed.

The taxpayer argued that where section 87-18(4) of the ITAA 1997 is satisfied, it operates to modify the requirements of sections 87-18(1) and (3) of the ITAA 1997. Specifically, the taxpayer submitted that where section 87-18(4) is satisfied, then the results test is passed without needing to have regard to conditions contained in sections 87-18(1) and (3) of the 1997 Act.
The taxpayer argued that sections 87-18(1) and (3) of the ITAA 1997 were satisfied and the taxpayer could validly be considered as performing a personal services business that was not subject to the PSI rules in Div 86 of the ITAA 1997.
The argument was rejected by the Court which held that the taxpayer’s interpretation of section 87-18 of the 1997 Act was unsupported by the text and context of the provision.
Ultimately, the Court concluded that where a custom or practice that satisfies section
87-18(4) is identified, that custom or practice is only to be regarded as a factor pointing towards a conclusion that the results test is satisfied in accordance with section 87-18(1) and (3). That is, a custom or practice is merely probative and does not modify the requirements of sections 87-18(1) and (3) of the ITAA 1997 which must still be satisfied in order to meet the results test.
The taxpayer was unable to meet the conditions of either section 87-18(1) or (3) of the ITAA 1997 and subsequently failed to satisfy the results test. Consequently, the PSI rules in Div 86 of the ITAA 1997 applied and the full income received by the partnership was held to be assessable to the individual taxpayer.

The long arm of the ATO: intercepting overseas tax debtors
The ATO has released an updated version of the Law Administration Practice Statement 2011/13 (PS LA 2011/13) which outlines the options available to the ATO in relation to recovering a tax debt where the debtor is located overseas. The statement also explains how the ATO will deal with a request that is received from another country for assistance in the recovery of a tax debt owing to that country.

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Specifically, the practice statement covers:

the ATO’s ability to require payment pursuant to domestic tax legislation, for instance by issuing a garnishee order;
the ability of trustees and liquidators to recover debts in a foreign jurisdiction and how the ATO may assist them;
the ATO’s ability to obtain judgment in a foreign jurisdiction to recover debts in that jurisdiction; and
the ATO’s ability to request assistance from foreign jurisdictions.

Importantly, the ATO has specified in this statement that it will only be appropriate to undertake these actions where the taxpayer:

has been notified of their tax liability;
has been given a clear opportunity to pay but has failed to do so by the due date; and
has not engaged with the Commissioner to manage the debt after being given a clear opportunity to do so.

This practice statement should also serve as a pertinent reminder for all taxpayers that just because they are overseas does not mean that the ATO will not attempt to pursue a tax debt that is outstanding.

This article was written with the assistance of Charlies Renney, Law Graduate.

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Talking Tax – Issue 167

Queensland: Payroll tax grouping win for the taxpayer
In Telgrove Pty Ltd t/as P & E Francis Plant Hire v Commissioner of State Revenue [2019] QCAT 199, Telgrove Pty Ltd (Telgrove), as the designated group employer, had made an ‘exclusion order’ to request that Telgrove and 3 other entities be excluded from a list of six entities that were determined to be a payroll tax group by the Queensland Commissioner of State Revenue (Commissioner). The Commissioner rejected this exclusion application and issued reassessment notices to Telgrove to tax the six entities (Group Members) as a group from the 2011/12 financial year and apply penalty tax and interest for the period.
Telgrove objected to the reassessment notices. The objection was disallowed by the Commissioner.
Telgrove referred the matter to the Queensland Civil and Administrative Tribunal (Tribunal), which found that Telgrove’s exclusion order should have been granted. Accordingly, the Commissioner was required to set aside the reassessment notices issued to Telgrove, remit the penalty tax and interest charged and pay interest to Telgrove on the ‘overpaid’ amounts of Payroll Tax, penalty tax and interest from the date the overpaid amount was paid to the Commissioner to the date the Commissioner makes the refund.
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Pursuant to section 74(2) of the Payroll Tax Act 1971 (Qld), the Commissioner may exclude a person from a group (make an Exclusion Order) if the Commissioner is satisfied that:
‘…a business carried on by the person is carried on independently of, and is not connected with the carrying on of, a business carried on by any other member of the group.’
Whether the test above is satisfied is a question of fact and degree that will depend on the circumstances of each individual case.
Broadly, the Tribunal acknowledged the following factors which supported the Commissioner’s decision against the Exclusion Order:

Telgrove’s purchase of goods from one Group Member when it ceased trading;
Telgrove’s hire and occasional purchase of goods from another Group Member (estimated at 10% of that Group Member’s sales and all at market rates);
The sole Director and 85% shareholder exerted some control over three of the other Group Members as a Director (though not as sole Director); and
A relatively large loan from one Group Member to Telgrove remained outstanding.

However, the Tribunal’s opinion was that these factors were ultimately outweighed by the following factors in favour of the Exclusion Order; broadly:

No shared resources or employees;
Telgrove’s premises were located at least 5km from the other businesses conducted by Group Members;
Separate day-to-day administration;
No collective purchases or sales made by Group Members with another party, despite the similar nature of the businesses.

In coming to this decision, the Tribunal placed the most weight on the nature and day-to-day operation of the businesses of the Group Members, and less weight on the formal control of the entities and irregular (albeit significant) transactions between them.
Whilst this decision provides some helpful guidance on the type and weighting of factors to be considered for an Exclusion Order (and equivalent exclusions from grouping in other jurisdictions), it remains a highly factual analysis and those seeking to dispute grouping from payroll tax should seek professional advice.

ATO warns about scammers at Tax Time
The Australian Taxation Office (ATO) has again raised a warning about scammers attempting to impersonate the ATO and its officers in order to trick people into paying money or giving out personal information.
Taxpayers who receive any form of communication claiming to be from the ATO which they believe to be suspicious or unusual should call the ATO directly on 1800 008 540.

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Investigations by the ATO have revealed that it is becoming increasingly difficult to distinguish between legitimate interactions with the ATO and interactions with increasingly sophisticated scammers. The ATO has published a list of scam alerts for taxpayers who believe they may have been a victim of scamming and provided a list of factors which suggest something might be a scam. These factors include:

The use of unsolicited pre-recorded messages (either when you answer the call or left as a voicemail message). The ATO will never send unsolicited pre-recorded messages.
Threats of immediate arrest. The ATO will never threaten to make an immediate arrest.
Refusing to allow you to speak to a trusted tax advisor or your regular tax agent.
Requesting payment by iTunes, Google Play, STEAM, Bitcoin or other unusual methods of payment.
Requesting that you pay a fee (usually by credit card) to receive a refund.

Charities risk losing charity status, warns ACNC
The Australian Charities and Not-for-profits Commission (ACNC) has issued a stark warning that charities that fail to submit their annual reports to the ACNC are at risk of losing their charitable status.
Charities that are registered with the ACNC must submit an Annual Information Statement to the ACNC about their operations. If a charity fails to submit two Annual Information Statements, that charity will have its charity status revoked along with its access to tax concessions that are available to charities.
The ACNC Commissioner, the Honourable Dr Gary Johns, has stated that whilst the vast majority of charities are doing the right thing, there is a small proportion of charities that have failed to meet their reporting requirements.
According to Dr Johns, those organisations that have not met their reporting obligations ‘will lose their registration as a charity if they do not submit their outstanding Annual Information Statements by 26 August 2019’.
Charities that are yet to lodge their Annual Information Statements can do so by logging into the ACNC Charity Portal.
Charities are also being urged to ensure their contact information is up to date following difficulties faced by the ACNC when attempting to contact charities in relation to their reporting obligations.
This article was written with the assistance of Charlie Renney, Law Graduate.

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Talking Tax – Issue 166

Distributions from foreign trusts assessable under section 99B
The Federal Commissioner of Taxation (Commissioner) has had a recent win in the case of Campbell v Commissioner of Taxation [2019] AATA 2043. In this case, Ms Catherine Campbell (Taxpayer) had received distributions from a New Zealand-based trust estate totalling $463,200 across the 2013 and 2014 income years.
The Taxpayer failed to return these amounts as income and the Administrative Appeals Tribunal (Tribunal) held that the Taxpayer was in receipt of distributions from a foreign trust that are assessable pursuant to section 99B(1) of the Income Tax Assessment Act 1936 (Cth) (1936 Act).
This case provides three important reminders:

Distributions of income received from foreign trusts are assessable pursuant to section 99B of the 1936 Act and should be disclosed. This includes amounts of capital referrable to accumulated prior year income.
Those seeking to claim that a distribution represents ‘corpus’ of the trust must ensure that these distributions are accurately recorded in the trustee minutes and trust accounts. Particular care needs to be taken when communicating with advisers for non-resident entities to ensure that accounts are prepared accurately and consistently.
AUSTRAC and the ATO (and other government authorities) will readily share information about international and domestic transactions. Taxpayers should expect that any income received from oversees will come to the attention of the ATO and may be queried.

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Receipt of the payments was brought to the ATO’s attention by AUSTRAC and despite repeated requests, the Taxpayer failed to provide tax returns for the relevant income years.
The Commissioner issued default assessments for the 2013 and 2014 income years, including the distributions as assessable income of the taxpayer pursuant to section 99B(1) of the 1936 Act. A 75% penalty (standard for default assessments) was also imposed on the Taxpayer for failing to provide the requested tax returns.
The Taxpayer objected to the assessments by claiming that the amounts received represented the corpus of the trust estate, which is exempt from being included in her assessable income under section 99B(2)(a) of the 1936 Act.
The Tribunal ultimately disagreed with the Taxpayer, upholding the Commissioner’s decision. Relevantly:

The Taxpayer provided two different sets of trust accounts for the relevant years. One set showed a negative capital balance, which would indicate there was no corpus to distribute, while the other showed a net positive capital balance and distributions of capital to the Taxpayer. The Taxpayer claimed that the differences were necessary in order to accommodate the Australian accounting standards but could provide no evidence to substantiate this claim.
There was no record of the trustee ever resolving to distribute any corpus of the trust in the relevant years. The trustee distribution minutes for the relevant years reflected a decision to accumulate all trust income and not make any distributions of income or capital.

Ultimately, the Tribunal concluded that the trust accounts and the trust minutes were unreliable as evidence due to their inconsistency, and the Taxpayer was unable to establish that the distributions received were in fact the corpus of the trust.
As the default assessments were held to be reasonable and enforceable against the Taxpayer, the 75% administrative penalty was also upheld.

Div 7A and failure to comply: What is an ‘inadvertent omission’?
In the case of Howard v Commissioner of Taxation [2019] AATA 1910, the Tribunal found in favour of the Commissioner, concluding that a loan made to a beneficiary (Taxpayer) of a trust constituted a deemed dividend provided by an interposed entity under Subdivision E of Division 7A of the Income Tax Assessment Act 1936 (Cth) (1936 Act).
Excluding penalties and interest, the primary issues considered by the Tribunal included whether the:

relevant loan was made in the 2009 or 2010 income year;
Commissioner should exercise his discretion under section 109RB of the 1936 Act to disregard any deemed dividends or, alternatively, to frank it to the maximum amount possible; and
discretion to make a determination under section 109W(1) of the 1936 Act should be exercised, and if so, how.

This case highlights the importance of contemporaneous and accurate documentation when dealing with transactions impacted by Division 7A of the 1936 Act. Specifically, the findings make it clear that while it is possible for a written loan agreement to document a loan that has already been made, the precise terms of that loan agreement and the surrounding circumstances (including when monies were advanced) are of vital importance.
Any interpretation that this case narrows the circumstances in which the Commissioner may exercise a discretion under section 109RB of the 1936 Act should be considered with caution.
In particular, any suggestion that the discretion in section 109RB of the 1936 Act may not be exercised:

where professional advice has been obtained by a taxpayer; or
there has been a failure to properly secure a Division 7A loan by registered mortgage,

are unsupported.
It is clear the findings in this case in relation to section 109RB of the 1936 Act were coloured by the Taxpayer’s lack of evidence, and the unavoidable inconsistencies in the evidence provided.

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The Taxpayer was a beneficiary of the BJ Howard Finance Trust (Finance Trust) and the owner and operator of a cargo handling business known as Bulk Cargo Services Pty Ltd (Services Company). BJ Howard Finance Pty Ltd was the trustee of the Finance Trust and also a shareholder in the Services Company.
A loan for $3.6 million was made to the Taxpayer from the Finance Trust and secured by a second ranking mortgage over a residential property  (Loan). The Commissioner made a determination that the Loan constituted a deemed dividend under Subdivision E on the basis that the Services Company was the relevant private company, the Finance Trust was an interposed entity and the Taxpayer was the ‘target’.
Timing of the loan
Before reaching a conclusion on the application of section 109RB, the Tribunal had to consider the evidentiary matter of whether the Loan arose in either 2009 or 2010. The Taxpayer claimed that the loan was granted on 30 June 2009 but was unable to provide any plausible explanation as to why there was an 11-month delay between granting the loan and signing the loan agreement.
A lack of contemporaneous evidence in support of the Taxpayer’s claim that the loan was made by way of set-off on 30 June 2009 caused the Tribunal to conclude that the Loan in fact arose in May 2010, and not in the 2009 income year as claimed by the taxpayer.
The section 109RB discretion
While the Taxpayer initially asserted that no deemed dividend had arisen, these arguments were not raised at hearing. Instead, the Taxpayer asserted that the Commissioner ought to have exercised his discretion under section 109RB to disregard the deemed dividend.
The Commissioner may exercise his discretion under section 109RB if the deemed dividend arose because of an honest mistake or inadvertent omission by the relevant taxpayer, private company, or interposed entity.
The Taxpayer asserted that the relevant ‘inadvertent omission was their failure to comply with the requirements of section 109N of the 1936 Act, which provides that loans will not be treated as dividends if certain requirements are met.
Claims by the taxpayer that this was due to an ‘inadvertent omission’ by the taxpayer’s accountant were flatly rejected. The Tribunal noted the Taxpayer’s lack of consistent evidence, and the fact that the taxpayer had been receiving professional advice.
Accordingly, the Tribunal was not satisfied that the failure to comply with section 109N was due to honest mistake or inadvertent omission.
Determination under section 109(1)
In the final submissions of the case, the taxpayer raised the argument that section 109W of the 1936 Act must be read in the context of section 109X.
Section 109W of the 1936 Act prescribes the method by which the Commissioner is able to determine the notional loan amount being provided by a private company through an interposed entity. Section 109X of the 1936 Act specifies that the relevant notional loan amount provided to a target entity via an interposed entity is to be included in the assessable income of the interposed entity.
The taxpayer asserted that because an amount was brought to tax in the hands of another entity, this was something the Commissioner should have taken into account when determining the notional loan amount under section 109W.
This argument was ultimately rejected by the Tribunal which concluded that, taking into account the factors the Commissioner must consider under section 109W(2), it was reasonably clear that the arguments raised by the taxpayer were not relevant considerations.

Much needed clarity on the meaning of ‘core R&D activities’
On 25 July 2019, Justices Davies, Moshinsky and Steward of the Federal Court of Australia Full Court (Court) delivered a joint judgment in favour of the Taxpayer in Moreton Resources Limited v Innovation and Science Australia [2019] FCAFC 120, overturning the trial decision and remitting the matter to the Tribunal for determination.
In its decision the Court clarified that activities involving the application of existing technology to previously untested sites may come within the meaning of the words ‘core R&D activities’ in the R&D tax concession provisions of Division 355 of the Income Tax Assessment Act 1997 (Cth) (1997 Act).
You can read more about the trial decision in Talking Tax Edition 134.
While there may be more to learn once the Tribunal has considered the matters returned to it for determination, it appears the judgment may be of benefit to taxpayers in a broad range of industries beyond that of the taxpayer’s.

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The Taxpayer in this case was an Australian resources company seeking to develop an underground coal gasification (UCG) facility in Queensland where cleaned and stabilised gas could be produced and used to generate electricity. Before establishing a commercial scale plant, the Taxpayer established a pilot project using existing UCG technology to see if it was suitable for use at the previously untested Queensland site.
The Taxpayer sought to demonstrate that some of its activities should be registered as R&D activities and consequently, that they should be able to access the R&D concessions.
Innovation and Science Australia initially determined that the Taxpayer’s activities were not sufficient to be deemed R&D activities, and therefore the Taxpayer was not entitled to the R&D tax concessions. This decision was upheld by the Tribunal, which concluded that none of the activities were core R&D activities within the meaning of that term.
The Tribunal took a narrow interpretation of ‘core R&D activities’, which the Court held was in error. In this regard the Court held:

the Tribunal misconstrued the words ‘experimental activities’ in the opening line of section 355-25(1) of the 1997 Act by treating these words as not covering activities having the purpose of generating new knowledge with respect to the application of an existing technology at a new site;
the words ‘experimental activities’ in the opening line of subsection 355-25(1) of the 1997 Act have very little, if any, work to do beyond reflecting the type of activities described in paragraphs (a) and (b) of the subsection; and
subject to the relevant circumstances, the R&D provisions are capable of applying to activities that are conducted for the purpose of generating new knowledge with respect to the application of an existing technology at a new site.

This article was written with the assistance of Charlie Renney, Law Graduate.

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Financial Services in Focus – Issue 28

Funds and financial products
APRA releases update to its responses to the Royal Commission recommendations
On 7 August, APRA released its updated plans in relation to specific recommendations in the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
A tabular summary of APRA’s responses updated in August compared with its February 2019 commitment can be found here.
Standing Economics Committee to expand inquiry into financial services sector and Royal Commission implementation
On 2 August, the Treasurer, Josh Frydenberg, stated that the Government asked the House of Representatives Standing Committee on Economics to inquire into progress made by relevant financial institutions in implementing the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The Treasurer that this inquiry will help provide further transparency to the public on the work financial institutions are undertaking to implement recommendations from the Royal Commission and in doing so will contribute to restoring the community’s trust in the sector, and that the Government has asked the inquiry to commence as soon as possible.
ASIC consults on sunsetting class order for changing scheme constitutions
On 2 August, ASIC released Consultation Paper 320 Remaking ASIC class order on changing scheme constitutions: [CO 09/552] (‘CP 320’), which sets out ASIC’s proposal to remake its class order which modifies the requirements under the Corporations Act regarding changing the constitutions of registered schemes.  A draft legislative instrument was also released for consultation.
ASIC states it proposes to remake [CO 09/552] because it is operating effectively and continues to form a necessary and useful part of the legislative framework, and that the fundamental policy principles underpinning the class order have not changed.
Comments close on 23 August.
Government intends to introduce legislation to ban grandfathering of conflicted remunderation
On 30 July, in a joint media release by the Treasurer, Josh Frydenberg, and Senator Jane Hume, Assistant Minister for Superannuation, Financial Services and Financial Technology, it was stated that the Government will introduce legislation to ban the grandfathering of conflicted remuneration paid to financial advisers.
The Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 was introduced into the House of Representatives on 1 August.
Consultation closes on 7 August.
Financial markets
ASIC updates guidance on the Markets Disciplinary Panel’s policies and procedures
On 7 August, ASIC updated Regulatory Guide 216 Markets Disciplinary Panel (‘RG 216’).
RG 216 is for those who are subject to the market integrity rules—principally, market participants, and explains the disciplinary framework for the market integrity rules, the function of the Markets Disciplinary Panel (‘MDP’), and the policies that the MDP will take into account when making decisions about alleged contraventions of the market integrity rules.
ASIC states it has updated RG 216 to simplify and streamline the MDP’s policies and procedures, with the benefit of over eight years’ experience of the MDP model.
ASX releases response to submissions on guidance notes on Business Continuity and Disaster Recovery Admission as a Participant to address cyber resilience
On 5 August, ASX released its response to submissions on ASX’s 8 March 2019 consultation paper proposing changes to Guidance Note 10 Business Continuity and Disaster Recovery and Guidance Note 1 Admission as a Participant to address cyber resilience.
ASX states:

it received two written submissions in response to the consultation paper, one of which was provided on a confidential basis;
for existing participants, the proposed reduction in the recovery time objective (‘RTO’) in Guidance Note 10 will be phased in over a 3 year period;
existing participants will have 6 months from the date of publication of the revised Guidance Note 10 to comply with all of the other changes in Guidance Note 10; and
all new applicants for admission as participants will be expected to comply fully with revised Guidance Notes 1 and 10, including the proposed reduction in RTO, as a condition of being admitted as a participant.

ASIC report on Australian equity market cleanliness
On 31 July, ASIC released Report 623 Review of Australian equity market cleanliness: 1 November 2015 to 31 October 2018 (‘Report 623’).
Report 623 sets out the findings of ASIC’s review of Australian equity market cleanliness for the period 1 November 2015 to 31 October 2018, and focuses on possible insider trading and information leaks ahead of material, price-sensitive announcements.
In its report, ASIC states that it found that Australian equity markets continued to operate with a high degree of integrity.
In releasing Report 623, ASIC states that, going forward, it will use historical trading behaviour before material announcements to enhance its market supervision work and inform its regulatory priorities.
ASIC requests exchange market operators to pause the admission of managed funds with internal market makers
On 30 July, ASIC stated it has requested that exchange market operators do not admit any managed funds that do not disclose their portfolio holdings daily and have internal market makers while ASIC undertakes a review during the remainder of this calendar year.
ASIC stated that it intends to review the regulatory settings for exchange traded managed funds that use internal market makers, and will consult with industry during the second half of this year.
ASIC also stated that existing actively-managed exchange traded managed funds are not impacted, and that there is also no impact on other investment products that do not use internal market makers or on warrant products.
ASIC consults on market on securities lending and ‘substantial holding’ disclosure
On 29 July, ASIC published Consultation Paper 319 Securities lending by agents and substantial holding disclosure (‘CP 319’), which deals with securities lending by agents, and subsequent disclosure of a substantial holding in a listed entity.
ASIC states that CP 319:

explains how the concept of relevant interest in sections 608 and 609 of the Corporations Act applies to agent lending and the substantial holding disclosure requirements in section 671B.
seeks feedback on whether ASIC should give relief to agent lenders that is consistent with ASIC’s policy in Regulatory Guide 222 Substantial holding disclosure: Securities lending and prime broking and the relief provided under Class Order [CO 11/272].

ASIC states that the proposed legislative relief that aims to improve substantial holding disclosure by these intermediaries, while also reducing red tape.
ASIC is seeking comments by seeking comments by 6 September.
New Zealand Financial Markets Authority announces completed preparations for Asia Region Funds Passport
On 26 July, the Financial Markets Authority of New Zealand announced that it that New Zealand has completed preparations for the implementation of the Asia Region Funds Passport.
The Financial Markets Authority states that it, the Ministry of Business, Innovation and Employment, and the Companies Office have introduced changes to the country’s Disclose register and developed new forms, systems, processes and guidance, and that new regulations have also been developed under the Financial Markets Conduct Act.
The Financial Markets Authority also states that fund managers wanting to offer passport funds in New Zealand – and New Zealand fund managers wanting to offer funds offshore – need to apply to the FMA for approval.
Anti-money laundering
Treasury consults on the introduction of a cash payment limit
On 30 July, the Government released for public consultation exposure draft legislation and accompanying explanatory material to implement the economy-wide cash payment limit from 1 January 2020 and for certain AUSTRAC reporting entities from 1 January 2021.
The draft legislation is available here on the Treasury website.  Treasury states that the draft legislation follows the Governments’ announcement in the 2018-19 Budget it would introduce an economy-wide cash payment limit of $10,000 for payments made or accepted by businesses for goods and services, and that transactions equal to, or in excess of this amount would need to be made using the electronic payment system or by cheque.
See our article on this development from the perspective of the use of cryptocurrencies.
Consultation closes on 12 August.
AUSTRAC releases independent report on the AUSTRAC industry contribution levy arrangements
On 22 July, AUSTRAC released the report on the independent review of the AUSTRAC industry contribution levy.  Here is a link to the report.
AUSTRAC states the AUSTRAC industry contribution levy is an annual payment that some reporting entities must pay to cover AUSTRAC’s operating costs, and that a 2014 amendment to the Australian Transaction Reports and Analysis Centre Industry Contribution (Collection) Act 2011 required that the levy be independently reviewed four years after the amendment.
Other financial services regulation
ASIC consults on guidance for companies on whistleblower policies
On 7 August, ASIC released Consultation Paper 321 Whistleblower policies (‘CP 321’), and an accompanying draft regulatory guide.
CP 321 seeks feedback on ASIC’s proposed guidance for entities that must have a whistleblower policy—public companies, large proprietary companies and proprietary companies that are trustees of registrable superannuation entities.  CP 321 also seeks feedback on whether ASIC should provide legislative relief to public companies that are small not-for-profits or charities.
In releasing CP 321, ASIC states that transparent whistleblower policies are essential to good risk management and corporate governance, and help uncover wrongdoing that may not otherwise be detected.
On 1 July, ASIC released two Information Sheets, namely Information Sheet 238 Whistleblower rights and protections and Information Sheet 239 How ASIC handles whistleblower reports.
Comments on CP 231 close on 18 September.
ASIC warns superannuation trustees about influencing employers through improper inducements
On 31 July, ASIC released Information Sheet 241 Prohibition on influencing employers’ superannuation fund choice: section 68A of the SIS Act (‘INFO 241’).
INFO 241 is for trustees of regulated superannuation funds and their associates, and in it ASIC seeks to explain:

the background to amendments to section 68A of the Superannuation Industry (Supervision) Act 1993;
the prohibition in section 68A against particular conduct by a trustee or its associates;
the exemptions from section 68A that are available in regulation 13.18A of the Superannuation Industry (Supervision) Regulations 1994; and
the penalties that apply for a breach of section 68A.

INFO 241 also provides examples that include common scenarios and issues, which ASIC considers will help trustees and their associates understand their obligations under section 68A.
In released INFO 241, ASIC states it has issued guidance to superannuation trustees to remind them that using improper inducements to influence employers in their choice of default fund is illegal.
Government releases draft legislation to extend unfair contract terms to insurance contracts
On 30 July, the Government released draft legislation to extend the unfair contracts terms laws to insurance contracts regulated under the Insurance Contracts Act 1984.
The exposure draft legislation is available here and the draft explanation memorandum is available here.
Treasury states the draft legislation follows the Government’s announcement on 4 February 2019 that it would extend the unfair contracts terms regime to insurance contracts in response to Recommendation 4.7 of the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The media release from the Treasurer, Josh Frydenberg, is available here.
Consultation closes on 28 August.
APRA proposes requirements on remuneration to enhance conduct, risk management and accountability
On 23 July, APRA released a draft prudential standard aimed at clarifying and strengthening remuneration requirements in APRA-regulated entities
On 23 July, APRA released a new draft Prudential Standard CPS 511 Remuneration (‘Draft CPS 511’) and Discussion Paper Strengthening prudential requirements for remuneration for consultation.
Draft CPS 511 proposes to increase board oversight and standardise remuneration frameworks for all APRA-regulated entities – ADIs, general insurers, life insurers, private health insurers and RSE licensees.  In summary, CPS 511 proposes to:

highlight the importance of managing non-financial risks by imposing minimum standards for remuneration design;
incentivise appropriate management of risks by imposing minimum deferral periods and clawback requirements on variable remuneration for certain employees in Significant Financial Institutions; and
strengthen governance and accountability within remuneration frameworks, by requiring boards to approve and actively oversee remuneration frameworks, and to regularly review the framework for compliance with Draft CPS 511.

In releasing Draft CPS 511 and the discussion paper, APRA states the new requirements will help regulated entities align remuneration practices with risk, performance and their long-term viability.
APRA requests written submissions by 23 October.
Senate Economics Legislation Committee tables report into the Treasury Laws Amendment (Putting Members Interests First) Bill
On 23 July, the Senate Economics Legislation Committee tabled its report into the Treasury Laws Amendment (Putting Members Interests First) Bill 2019.
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Homelessness Week: what can we do to help?

This week is Homelessness Week, which is an important opportunity to recognise the hardship faced by so many Australians who are currently experiencing homelessness across the nation. This annual event raises awareness for one of our country’s most pressing social issues, homelessness.
This year centres on the theme ‘Housing Ends Homelessness’. It seems painfully obvious, but the simple truth is that the issue of homelessness cannot be solved without the creation of safe, affordable housing for those who cannot currently afford or access it. In a country like Australia, which boasts considerable wealth and ample opportunities (for some of us) but where the percentage growth rate of those experiencing homelessness outstrips that of population growth, it is clear that something needs to be done to assist those falling through the cracks.
This year’s theme is particularly relevant for us. Commercially, we act for a number of social housing providers, who work with the government at the state and federal level to deliver crucial social housing infrastructure to house our booming population.
In our pro bono practice, homelessness is one of our core areas of focus. We support individuals who are at-risk of or who are currently experiencing homelessness to navigate challenging and stressful legal issues, and we also support organisations such as Launch Housing and Society Melbourne who are working at the coalface in assisting people in vulnerable positions to avoid or exit the homelessness cycle. Hall & Wilcox aspires to undertake an average of at least 35 hours per lawyer each year towards providing pro bono legal services to our clients in the homelessness sector, and to clients in other areas of community need.
And yet, homelessness is not just about housing. Homelessness is symptomatic of a wide range of other issues, such as domestic violence, elder abuse, discrimination (particularly of those from minority groups, such as LGBTIQ+ identifying people, Aboriginal or Torres Strait Islander peoples, and people living with a disability), exploitation of workers and more.
Perhaps one of the most important things for us all to reflect on this week is that there is not one ‘type’ of person who ends up falling into homelessness. It can happen to anyone, at almost any time: after losing your job, after a relationship breakdown or after a bout of mental illness, for instance. For this reason, it is important for all of us to acknowledge the stigma that continues to follow those experiencing homelessness and to think about what we can do better in our businesses and as a community to do our part in providing support to those who need it.

Our client, Society Melbourne, speaking about the work they do with their café at Melbourne University. 
Our firm is actively seeking to increase the number of organisations in the homelessness sector we act for. To discuss the possibility of obtaining pro bono legal services for your organisation, please contact us.

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