This submission was originally published on 1 December 2017.
BDO welcomes the opportunity to provide feedback in response to Draft Taxation Ruling TR 2017/D7 (‘Draft Ruling’), released by the Tax Office on 18 October 2017, which provides the Commissioner’s preliminary views on when a company carries on a business within the meaning of Section 23 of the Income Tax Rates Act 1986 and Section 328-110 of the Income Tax Assessment Act 1997 (originally published as within the meaning of Section 23AA of the Income Tax Rates Act 1986, but to issue in relation to the abovementioned sections as advised by the Commissioner in a release on 2 November 2017).
Overall, we acknowledge that the comments in the main body of the Draft Ruling are reasonable. The issues that we have with the draft ruling relate to the form and content of the examples contained in Appendix 1 to the Draft Ruling.
This BDO submission identifies the following issues as outlined in the Appendix:
- The application of the Draft Ruling should apply to all legislative provisions in the Income Tax Assessment Acts 1936 and 1997 where there is a reference to a company carrying on a business. The application of the Draft Ruling should not be limited to Section 23 of the Income Tax Rates Act 1986 and Section 328-110 of the Income Tax Assessment Act 1997
- Example 1 of Appendix 1 be amended to not describe the company as a dormant company, and the position be clarified for a company which no longer trades but derives income.
- The footnote (No 84) of Example 3 be incorporated into the Draft Ruling as its own separate example, being a property investment company that outsources the management of the property to third party professional managers.
- Example 4 of Appendix 1 be expanded to include the situation where a company that invests in shares has outsourced the management of its share portfolio to third party professional managers.
- Example 6 of Appendix 1 be expanded to include the situation where a company with significant capital assets (in this case, a company that owns charter boats) has outsourced the maintenance and management of its fleet to third party professional managers.
- Example 5 of Appendix 1 be amended to incorporate examples that better accord with general practice where a company receives a distribution from a discretionary trust, and the company deals with its unpaid present entitlement in various ways. We recommend the Commissioner incorporate an example where the company has converted the UPE to a complying Division 7A loan, or the company maintains the UPE in a sub-trust arrangement in accordance with the Commissioner’s sub-trust guidelines. In particular, include situations where the loans from the company are not secured.