On 15 December 2023, the ATO released the following two draft publications for public comment:

• Draft TR 2022/D3 – Income Tax – PAYG withholding – Who is an employee
• Draft PCG 2022/D5 – Classifying workers as employees or independent contractors – ATO compliance approach.

Draft TR 2022/D3 replaces TR 2005/16 from 15 December 2022 and has mainly been updated to reflect recent court cases.

Key features of ATO draft publications

A business’ employment tax obligations can vary based on how a worker is classified. Correct classification is important to ensure that both the business and the worker satisfy their tax and superannuation obligations correctly.

TR 2022/D3 – Who is an employee?

The draft TR 2022/D3 explains the meaning of “employee” for PAYG withholding purposes. In accordance with the earlier High Courts cases, the Commissioner states:

• the totality of the contractual arrangement between parties will determine the classification of the worker, and
• the substance of the contractual arrangement, rather than the labels used in it, will be of primary importance.

The Commissioner has emphasised that even if a worker is an independent contractor, Superannuation Guarantee (SG) may be payable if the worker satisfies the extended definition of an employee under SG rules.

PCG 2022/D5 – Classification of workers

The draft compliance guide PCG 2022/D3, provides the Commissioner’s approach to audit activity based on a business’s risk profile, where he believes that the classification of workers is not being applied correctly. The key components considered by the Commissioner when determining the risk profile are:

Very Low risk – arrangements that satisfy all the following criteria will be considered low risk and will not attract ATO compliance activity:

• the parties agree on and understand the intended classification
• the substance of the arrangement agrees to the contractual terms
• the classification has been supported by advice from a qualified professional.

It will also be considered very low risk when an employer decides to voluntarily treat all workers as employees.

Low risk – Arrangements that satisfy all the following criteria will be considered low risk and will not attract ATO compliance activity:

• The parties agree on the intended classification.
• The substance of the arrangement agrees to the contractual terms.
• The classification has been supported by advice from a qualified professional.

Medium risk – Arrangements that satisfy the following criteria will be considered medium risk

• The parties agree on the intended outcome.
• The classification has been supported by advice from a qualified professional.

High risk – All arrangements that do not satisfy very low, low or medium risk criteria will be considered high risk. They will also be considered high risk if one of the parties coerced the other to accept the arrangement or one of the parties made false or misleading representations to the other party.

Key takeaways to minimise risk of ATO review

1. It is important for businesses to discuss the tax implications of being an independent contractor with the worker.
2. Obtain professional advice to support the position adopted for the class of workers.
3. When an arrangement with a worker changes, businesses should re-assess their classification.
4. Where disgruntled worker lodge an unpaid superannuation query and the ATO determines that the arrangement is considered:
   • very low risk – they will advise the worker accordingly and not take any further action
   • low risk – the ATO will apply compliance resources to test if that worker satisfied the definition of an employee
   • medium risk – the ATO will apply compliance resources to an arrangement (e.g. for a group of workers)
   • high risk – Compliance resources will be given the highest priority to an arrangement (e.g. for a group of workers) and businesses may be subject to higher penalties.
5. This PCG does not provide employers protection from payroll tax and workcover classification of workers.

How SW can help

Reach out to your SW contact or our team to assist in ensuring your employees are classified correctly to minimise the risk of an ATO review.

Contributors

Rahul Sanghani

Sabrina Camilleri

The post Employees vs Contractor ATO risk ratings now out appeared first on SW Accountants & Advisors.

This much anticipated legislation is welcome news for Australian universities looking to establish a location for teaching, research and industry engagement in India.  This provides an opportunity to enter the Indian market in a more tax effective and less heavily regulated environment.

Register SW’s webinar to hear more about the opportunities for foreign universities in the IFSC.

About IFSC Regulations 2022

The regulations came into effect on 11th October 2022 and are applicable to an IBC or OEC operating in the IFSC zone.

Key objectives of the regulations:

• to enable Foreign Universities to establish an IBC either on standalone basis or any other form as may be permitted
• to enable Foreign educational institutions to establish OEC
• to put in place an objective and transparent process for registration of a Foreign University/ Foreign Educational Institution offering courses including research program.

Permissible activities in IFSC

• An IBC or OEC shall not act as representative office of the Foreign University or Foreign Educational Institution for the purposes of undertaking promotional activities for their program in their home jurisdiction or outside the IFSC
• The course or program conducted shall be identical in all respects with the course or program conducted by the Foreign University or Foreign Educational Institution in its home jurisdiction and identical degree, diploma or certificate shall be conferred upon the students of the IBC or OEC directly by the Foreign University or Foreign Educational Institution
• A degree, diploma or certificate issued shall enjoy the same recognition and status as if they were conducted by the Foreign University or Foreign Educational Institution in its home jurisdiction
• Modification in the course curriculum or content shall be carried out with prior approval of academic council, syndicate or any other competent body of the Foreign University or Foreign Educational Institution and the IBC or OEC shall undergo the necessitated changes after intimation to IFSC Authority and shall be effected only after such intimation.

Permissible subject areas are courses, including research programmes, in:

• Financial Management
• FinTech
• Science
• Technology
• Engineering
• Mathematics

Eligibility criteria

• Foreign University within Top 500 in global overall ranking and / or subject ranking in the latest QS World Universities ranking
• A reputed Foreign Educational Institution in its home jurisdiction
• Financial capability to establish and ensure continuity
• Suitable infrastructure and facilities.

Key features of IFSC

About IFSC

• Set up in 2014, the Gujarat International Finance Tec-City (GIFT) is India’s first operational Greenfield Smart City followed by an announcement in 2015, to set up a Financial center in Gift City
• IFSC has been designed to cater to outside the domestic economy and intended to deal with finance, financial products and services across borders
• IFSC Unit is treated as a ‘non-resident’ under Indian exchange control regulations, thus no exchange control regulations shall apply.

Tax incentives

• Tax exemption of 100% for 10 consecutive years out of 15 years with a flexibility to select any 10 years with no need to set up ‘Not for Profit entity’
• MAT rate of 9% for units/companies set up in IFSC (regular MAT is 18%), however MAT paid is available as a credit for carry forward & adjustment upto 15 years and can accordingly be adjusted against future year income tax liability, as will apply after 10 years of tax holiday
• No GST on services received by unit in IFSC or provided to unit in IFSC or Offshore clients
• State subsidies also available on lease rental, electricity charges etc.

Other incentives

• Profit/Surplus repatriation permissible with no restriction from exchange control perspective
• All transactions undertaken by the IBC or OEC shall be in freely convertible foreign currency

How we can help

SW India can help you every step of the way from strategy formulation through to implementation.

If you require further advice regarding the new IFSCA regulations, please reach out to our SW Team – Rahul Sanghani, Stephen O’Flynn, Steve Allan and Sabrina Camilleri.

Webinar │ Concessions provided to foreign universities to operate in India  

Join us to hear from Dipesh Shah –  Executive Director, IFSCA, Sandip Shah – Head- IFSC Dept and Saurrav Sood – SW India who will discuss the IFSC regulations and highlight the advantages of GIFT City and what it can offer in terms of its world class infrastructure to Australian universities.

Date: Thursday, 24 November 2022

Time: 3.30pm – 4.30pm AEDT (11am – 12pm IST)

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Introduction of Bill includes a further exemption

State Taxation and Treasury Legislation Amendment Bill 2022 (part 8) provides an exemption from the Windfall Gains Tax for land owned by a university in certain circumstances. 

Background

The windfall gains tax (WGT) was announced in the 2021-22 Victorian Budget and the legislation received royal assent on 30 November 2021.  See our article on the Windfall Gains Tax and subsequent article on the charity land tax exemption for further detail.

The WGT will apply from 1 July 2023 and imposes a tax on land that receives an uplift in value as a result of rezoning at the following rates:

The Government wrote to universities in October 2021 to advise that charities would be exempt from the WGT where they owned and used the land for 15 years after the rezoning.  This exemption was included in the legislation that was passed in November 2021. 

Proposed WGT exemption for universities

The current bill has now proposed to provide an even broader exemption for universities than the 15 year charity exemption.  This broadening of the exemption is positive news, but universities should still understand that the exemption remains subject to the Commissioner’s approval and conditions.

Conditions for exemption

The proposed WGT exemption for universities will apply where it meets all of the following:

• the land is owned by a university
• the university is a charity, and
• the Commissioner is satisfied that any land revenue from the land will be used to further the university’s charitable purpose.

To access the exemption the university must provide to the Commissioner with a declaration as to:

• the nature of any land revenue form the land
• the intended application of the land revenue, and
• how the application of the land revenue will further the university’s charitable purpose.

Land revenue means any revenue arising from the sale or use of the land, including any of the following:

• sale proceeds from the sale of the land
• rental income from leasing the land
• licence fees from licensing the land.

How SW can assist

The SW Education team works closely with a large number of Victoria’s universities and has extensive experience in advising and assisting them to navigate financial complexities. Should your university be in the process of rezoning Victorian land and require any further advice on this issue please contact either Stephen O’Flynn or Steve Allan.

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Education providers are adapting to digital delivery of courses, international student enrolment fluctuations and navigating funding – whether through fees, government grants or investments. At SW, we have a deep understanding of these challenges and potential opportunities.

Our education accountants & advisors have 50 years’ experience in providing advisory, audit and tax services to leading universities, TAFEs and private schools. We work with 35 of the 43 education institutions in Australia which has helped us to benchmark best practice in the sector, and the advice we offer goes beyond cost control and compliance.

Beyond our core services, we work with clients to identify genuine, value-driven efficiencies and process improvements as well as providing commercial and practical advice. We look to assist clients to develop strategies that drive organisational value and revenue growth.

Our Education services

Industry Events & Webinars

To keep our clients informed of the latest in the education sector, our education experts run annual University Tax and Accounting Updates as well as one-on-one GST and FBT trainings for university providers.

The post Education appeared first on SW Accountants & Advisors.

The recently released Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021 has introduced Victoria’s new Windfall Gains Tax and included changes to the charity exemption for land tax.

This should be considered closely by Universities that hold land in Victoria as it will impose:

• land tax on certain land owned by Universities that has not historically been subject to land tax; and
• a significant new value capture tax where University land is rezoned (particularly where it is rezoned from public land to residential land).

Land Tax

The land tax exemption for charities has been narrowed so that it is now only available where land is:

• used and occupied by a charity exclusively for charitable purposes; or
• is vacant and has been declared by the University to be held for future use and occupation by a charitable institution exclusively for charitable purposes.

It is believed that this change was introduced to reverse the decision in University of Melbourne v Commissioner of State Revenue (Vic) which allowed the charity land tax exemption to apply to student accommodation located on the University of Melbourne Campus that is operated by a third-party student accommodation provider.

However, the amendment is likely to have a broader impact.

Universities will need to determine if land and buildings that they own but rent to or is used by third parties is ‘occupied’ by the University.

This would include not just student accommodation facilities rented to students, but any other buildings or facilities that are leased to businesses to provide services to students on campus such as banks, travel agents, cafes, etc.

Windfall Gains Tax

For a summary of the new Victorian Windfall Gains Tax please refer to our Windfall gains tax alert.

Relevantly for universities where land is rezoned it will be subject to Windfall Gains Tax unless the 15-year charity waiver applies.

The waiver is available where the land is continued to be held for 15 years after rezoning by the charity.

This waiver can continue to be available where the rezoned land is transferred to another charity and the new charity elects to receive the land with the deferred windfall gains tax liability and any accrued interest and commits to the land being used by a charity exclusively for charitable purposes.

How can SW assist?

If you believe that you will be affected by the WGT or have any questions on how to navigate these changes, please contact us – either your usual SW contact or any of our key contacts.

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Further to the article below we have been advised that the latest interpretation by a number of local Chinese tax authorities is that:

“Chinese VAT will not apply to fees charged to Chinese students that are studying Australian university courses on-line in China as a result of not being able to travel to Australia as a result of COVID-19”.

We will continue to monitor the announcements and regulations put out by the Chinese Tax Authorities to see if they put out an official pronunciation on this particular topic.

Should you require any further details please reach out to one of our experts at the bottom of this article.

2021-03-30

VAT concessions to end 31 March 2021

This announcement will mean that from 1 April 2021, Chinese students studying Australian university courses remotely in China will be required to withhold a combined 6.72% of VAT and local charges on any payments to Australian universities.

International students have historically travelled to Australia to study. However, as a result of border closures due to COVID-19, many international students who have not been able to study in Australia have continued to undertake their study in their home country.

In response to the pandemic, China had provided a number of tax exemptions. One of these exemptions covered an exemption of VAT for students studying remotely until 31 December 2020. The Chinese Tax Authorities had verbally advised that this exemption would be extended. However, the Chinese Tax Authorities have now advised that this exemption will now cease from 31 March 2021. Therefore, from 1 April 2021, Chinese students studying Australian university courses remotely in China will be required to withhold 6.72% VAT and local charges on any payments to Australian universities.

Our initial understanding is that the rules should apply on a cash basis. Therefore, as most international students should have paid their annual course fees by the 31 March 2021 census date these fees should not be subject to the combined 6.72% VAT and local charges. However, any fees for courses undertaken after 31 March 2021 will be subject to the 6.72% VAT and local charges.

Actions for Australian universities

Should Australian universities be increasing fees to Chinese students to cover the 6.72% VAT and local charges?

To assist Chinese students to comply with these withholding obligations, Australian universities could appoint a withholding agent responsible for making payments. Any university that wishes to explore this should get in touch with us.

Get in touch

ShineWing Australia can assist with the compliance of withholding obligations and any advice regarding the ending of these VAT concessions.

Reach out to one of our experts below to find out more.

Contacts

The post China ceases VAT exemption for remote learning appeared first on SW Accountants & Advisors.

Background

The University of Melbourne (the University) entered into a number of agreements including the Project Deed, an agreement for lease, and an operator’s side deed between the University, CLV (Melbourne) Pty Ltd (CLVM) and Campus Living Villages Pty Ltd (Campus Living) for the purpose of providing student accommodation. The Project Deed included the University’s objectives which included:

• To obtain good quality, well located, secure and competitively priced facilities that meet students’ reasonable expectations
• To facilitate a good quality contemporary student residential living and learning community which contributes materially to a developing University community spirit, with an appropriate level of Residents’ support services and integrating with services to and opportunities for University students by and at the University
• For the continuing ability of the University to ensure appropriate standards and requirements are met, for example, with respect to amenities, Residents’ support services, security and renal levels but with no day-to-day management obligations.

There were requirements included in the Project Deed:

• Specific support services had to be provided to residents
• The accommodation was to be provided to students in preference to the general public
• The fees were inclusive of most of the costs of the ‘Residential Life Program’ provided by CLVM to encourage residents to participate in life at the Student Village
• There was an affordability criterion of 90% below market rental underpinning the rent charged by CVLM to residents of the Student Village
• The University was entitled to survey students regarding the accommodation.

The Law

Section 74 of the Land Tax Act 2005 provides a land tax exemption for land “if it is used by a charitable institution exclusively for charitable purposes”.

The applicability of this exemption turns on the proper interpretation of the words ‘used’ and ‘exclusively’. The Commissioner argued the land had to be used exclusively by the charitable institution. The taxpayer argued that the word exclusively was linked to the charitable purposes of the charitable institution. That is, it is the charitable purpose of the charitable entity that is relevant, not any business purpose of a third party leasing or occupying the land.

Key findings in judgement

The text of Section 74 alone points to a wider meaning of ‘use’ than the active physical use of the land by the lessee, as was held in Ryde Municipal Council v Macquarie University (the Ryde Case) and Chief Commissioner of State Revenue v Metricon (Qld) Pty Ltd.

The manner in which the provision is drafted points to an interpretation of ‘exclusively’ which is linked to the purposes of the charitable institution. The history of the provision and its predecessors indicated that the University used the land exclusively for its charitable purposes, even though it was leased to a commercial operator. The University furthered its objects through the arrangement as it actively promoted the provision of a quality contemporary student residential living and learning community. Whilst the University’s provision of student accommodation was indirect, it was held that the provision of the service in this way does not disentitle the University from relying upon the exemption.

This can be contrasted with an exemption where the land must be ‘used exclusively by a charitable institution for charitable purposes’ (such as an earlier exemption under the Land Tax Act 1958). This precluded any third party use.

It was held that university has ensured that in entering these agreements, it has been able to play an ongoing role in monitoring the provision by CLVM and Campus Living of the student accommodation and ancillary services. This was done to ensure that the University’s objectives with respect to the enhancement of the students’ overall educational objectives are maintained. This agreement is different to a situation where the land is leased to a lessee as office space who then uses the space for a business completely unrelated to the purposes of the charitable institution.

Therefore, the University is eligible to apply the land tax exemption.

In relation to a separate area sub-leased as a café, the Court concluded this was nevertheless exempt as the provision of the café and the attendant services provided by its operator were established in order to enhance the student living experience and to provide a further meeting place for residents to complement the other common areas in the Student Village. It was therefore ancillary to the charitable purposes of the University.

Importance of decision

This is an important decision for Universities that have leased land situated on campus to student accommodation providers. The findings in this case have hinged upon the particular facts of the arrangement and the University has been able to demonstrate that the land has continued to be used to achieve the universities charitable purposes not withstanding that it has been leased to a third party student accommodation provider that is endeavouring to derive a profit from the arrangement.

Get in touch

Please contact your ShineWing Australia advisor or one of our experts below should you have any questions.

Contacts

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