Various other loans and payments to shareholders and associates can also be caught by these rules, including:

• Loans by trusts with unpaid distributions to corporate beneficiaries; and
• Loans or payments made by another entity, where a related payment, loan or guarantee, has been provided by a private company.

Where these rules apply, the payment or loan is deemed to be a dividend, taxable at marginal rates without the benefit of franking credits.

The taxpayer argued that the sale was subject to capital gains tax (CGT) provisions because the property was acquired for long-term investment, but was sold earlier than intended due to sustained losses.

This argument was rejected on the facts.

This case affirms the importance of establishing intention at the time of acquisition.

This is particularly relevant given the various CGT discounts and exemption available on sale of certain capital assets, and the potential to utilise capital losses.

The case considered the validity of loss transfer notice which purported to transfer such losses as were required to reduce the recipient company’s taxable income to nil.

The Federal Court took a strict approach and held that, as the notice did not specify the actual amount of the loss to be transferred, it was not valid. Accordingly, the losses were not available for deduction by the income company.

The case is being appealed in the High Court.

The new provisions under the Income Tax Assessment Act 1997 specifically require that an amount be specified.

We also note that where distributions flow through a chain of trusts, it will be necessary to look at the instalment income of each trust in the chain.

• A company ends up owning 60 per cent of shares under a takeover arrangement even where some of the shares were held before the arrangement; and
• A company owns 80 per cent of shares before a takeover arrangement, provided a greater percentage is owned thereafter.

Although not covered by the determination, presumably the same principles would apply to unit trusts.

The Tax Office has released a miscellaneous ruling stating that a person letting out a property on a regular and continuing basis in carrying on an enterprise and will be entitled to an Australian Business Number (ABN).

Lessors of predominantly residential accommodation will not require an ABN because the supply will be input taxed.

Lessors of commercial premises may need to quote their ABN to the tenant to avoid deduction of PAYG from lease payment.

The Treasurer has announced that Australia and New Zealand are to consider eliminating triangular taxation, by recognising imputation credits.

Triangular taxation can occur, for example, in relation to Australian shareholders in a New Zealand company which operates in Australia.

Profits from the Australian operations necessarily flow through New Zealand and back to Australia.

Consequently, the Australian shareholders are unable to access Australian sourced franking credits.

We will keep you informed of further developments.

A Parliamentary inquiry has proposed that a deferral of tax be allowed on employee share ownership plans until the shares are sold.

Under current rules, employees are either taxed in the year of acquisition or they may be entitled to defer tax depending on the terms of the relevant plan. Any deferral applies until, for instance, employment is terminated or share disposal restrictions cease to apply. It remains to be seen whether the proposed change would benefit employees.

For example, under current rules employees are often better off paying tax in the year of share acquisition. Gains in subsequent years may then be subject to 50% CGT discount when realised. Alternatively, where employees defer tax until, for example, sale, the entire gain may be subject to income tax.

Under rules concerning alienation of personal services income, amounts derived by interposed entities may be attributed to the individual performing the service unless certain tests are satisfied.

Rules have now been gazetted so that entities which have lodged a Prescribed Payment System (PPS) payee declaration with the Tax Office by 13 April 2000, will have a two-year exemption.

Such taxpayers will not be required to satisfy the relevant tests until 1 July 2002.