This article will discuss the fourth and last element that must be satisfied for a court to create an easement under s 88K of the Conveyancing Act 1919 (NSW). This element requires the court to be satisfied that the applicant has made all reasonable attempts to obtain an easement or one having a similar effect but has been unsuccessful.
This element was incorporated into s 88K to encourage applicants to initiate negotiations and treat s 88K as a last resort (New South Wales, Parliamentary Debates, Legislative Council, 4 December 1995, 4000 (Douglas Moppett).
In assessing reasonableness, the Court must consider the likelihood that a consensus would be reached if further steps had been taken. There is a suggestion that the requirement is for the applicant to have negotiated until it is extremely unlikely that consensus will be reached in the foreseeable future (Coles Myer New South Wales Ltd v Dymocks Book Arcade Ltd (1996) 7 BPR 14). In Bilton v Ligdas (2016) 18 BPR 36, this element was found to be satisfied when the servient tenement rejected an offer that was double the maximum market value as assessed by experts.
The Applicant does not have to show that they offered an amount that was later considered fair compensation by the Court, as long as they showed a willingness to negotiate and respond to the other party reasonably (Katakouzinos v Roufir Pty Ltd [1999] NSWSC 1045, [75]
In considering whether this requirement has been met, the Court may consider all conduct leading up to the making of the order (Studholme v Rawson [2020] NSWCA 76, [83]). As such, in Govindan-Lee v Sawkins (2016) 18 BPR 35,883, this was satisfied by the Applicant making an offer of $10,000 following the commencement of proceedings. This suggests that an applicant may satisfy this without negotiating outside of Court, even though this does not seem consistent with the Parliament’s intention for the element.
There are not many cases where the respondent uses this section to impede the imposition of an easement. One of the few examples is PD Consultants Pty Ltd v Childs [2004] NSWSC 1076, which ended with Brownie AJ adjourning the matter, suggesting that they try to reach some agreement and put the dispute behind them.
However, courts will generally not impose an easement where the respondent prefers a license to achieve the same thing (Vella v Nergl Developments Pty Ltd [2020] NSWSC 1405, [166] (Slattery J). This relates to their underlying discretion as to whether they grant an easement, even if all the requirements have been satisfied.
This article will discuss the third element that must be satisfied for a court to create an easement under s 88K of the Conveyancing Act 1919 (NSW). This element requires the court to be satisfied that the owner of servient land can be adequately compensated for any loss or other disadvantage that would arise from the imposition of the easement.
The compensation amount is determined by reference to the loss incurred by the servient tenement and not the benefit derived by the dominant tenement (Rainbowforce Pty Ltd v Skyton Holdings Pty Ltd (2010) 171 LEGRA 286). It has been noted that the Court should not err on the side of generosity and that although the applicant may generate profit from the development in connection with which the easement is sought, this does not justify any departure from the basic principles of compensation discussed below (Mitchell v Boutagy (2001) 118 LGERA 249, [31]).
There is a requirement for a causal relationship between the loss or disadvantage for which the claim is made and the imposition of the easement (Mitchell v Boutagy (2001) 118 LEGRA 249, [26]).
Compensation will cover the diminished market value of the affected land and associated costs, as well as any loss arising from insecurity or loss of amenities such as the loss of peace (Wengarin Pty Ltd v Byron Shire Council (1999) 9 BPR 16, 985; Acorp Developments Pty Ltd v HWR Pty Ltd [2018] NSWLEC 68, [153]). It will also cover compensation for loss of the proprietary rights taken by the easement and for the disturbance effected by carrying out the initial work and subsequent repair and maintenance (Tregoyd Gardens Pty Ltd v Jervis (1997) 8 BPR 15, 845). An offset for any compensating advantages is allowed, so that the final amount is a reflection of the real detriment suffered (Wengarin Pty Ltd v Byron Shire Council [1999] NSWSC 485, [26]).
The onus of proof in a case for compensation is borne by the applicant (Mitchell v Boutagy (2001) 118 LGERA 249, [34]). This is part of their duty to satisfy the Court that the person can be adequately compensated (117 York St Pty Ltd v Proprietors of Strata Plan No 16123 (1998) 43 NSWLR 504, 516).
Legal costs are usually payable by the applicant unless the servient tenement’s conduct warrants an adverse costs order. Behaviour that might warrant that includes presenting false evidence or manufacturing a case (Bilton v Ligdas (206) 18 CBPR 36, 379) but does not include refusing a reasonable offer (Owners Strata Plan No 13635 v Ryan [2006] NSWSC 342, [32]).
Generally, if the court cannot make a determination as to the compensation payable at the time the order is made, it has no power to grant the easement (Studholme v Rawson [2020] NSWCA 76, [46]). However, in some cases, the Court may determine that compensation is not payable because of special circumstances (Property Partnerships Pacific Pty Ltd v Owners of Strata Plan 58482 [2006] NSWLEC 709, [11]).
This article will discuss the second element that must be satisfied for a court to create an easement under s 88K of the Conveyancing Act 1919 (NSW), which is that the proposed use of the dominant land is not inconsistent with the public interest. This element represents a balancing of competing private interests as well as the promotion of the public interest (Rainbowforce Pty Ltd v Skyton Holdings Pty Ltd [2010] NSWLEC 2, [95]).
In Moorebank Recyclers Pty Ltd v Tanlane Pty Ltd [2012] NSWCA 445, the court took into account the fact that ranting the easement would frustrate the Development Control Plan and significantly diminish the prospect of the Tanlane land, as a point that it may be inconsistent with the public interest.
It has been noted that there are special public interest considerations in granting an easement over environmentally sensitive land (Moorebank Recyclers Pty Ltd v Tanlane Pty Ltd [2012] NSWCA 445, [202]). This is equally true of community land. Bryson J in Marshall v The Council of the City of Wollongong [2000] NSWSC 137, [26] remarked that it would be rare that community land used in any active way could be subjected to an easement without inconsistency with the public interest in achieving the purposes for which the community land was held.
This article will discuss the first element that must be satisfied for a court to create an easement under s 88K of the Conveyancing Act 1919 (NSW), which is that the easement is reasonably necessary for the effective use or development of the dominant land.
This element does not require that there be absolute necessity, with Barret J observing in Kent Street Pty Ltd v Sydney City Council [2001] NSWSC 268, [12] that this does not ‘direct attention to what is indispensable.’ It also does not require the applicant to show that the easement is necessary to achieve the highest and best use of the land (Moorebank Recyclers Pty Ltd v Tanlane Pty Ltd [2012] NSWCA 445, [154]-[155]). The element may be satisfied by showing that the proposed development is appropriate to the area and is an economically rational use of the land.
To meet the ‘reasonably necessary’ standard, a court needs to be satisfied that the proposed use is reasonable compared with other possible alternatives. The court must further be satisfied that use of the land with the easement is substantially preferable to use without it, as clearly outlined by Hodgson CJ in 117 York St Pty Ltd v Proprietors of Strata Plan No 16123 (1998) 43 NSWLR 504, 508-9. Therefore, the threshold is above something that is simply convenient but it is less than absolute necessity – (D & D Corak Investments Pty Ltd v Yiasemides [2006] NSWSC 1419, [13] (Young J)). As such, an easement can be granted even if the land could theoretically be effectively used and developed without it (117 York St Pty Ltd v Proprietors of Strata Plan No 16123 (1998) 43 NSWLR 504).
The applicant bears the onus of showing reasonable necessity and adducing evidence about alternatives. If they fail to do so, the Court may not be able to accept their primary submission that an easement is reasonably necessary (Govindan-Lee v Sawkins (206) 18 BPR 35, 3883, [48]-[50]).
Reasonable necessity must be measured having regard to the burden the easement would impose on the servient land. As Hodgson CJ found in Katakouzinos v Roufir Pty Ltd [1999] NSWSC 1045, [42], the greater the burden the stronger the case needed to justify a finding of reasonable necessity. The court must bear in mind the confiscatory nature of an easement and that property rights are valuable rights that the court should not lightly interfere with (Woodland v Manly Municipal Council [2003] NSWSC 392, [19]).
For example, the element was not made out in Aussie Skips Recycling Pty Ltd v Strathfield MC [2020] NSWCA 292, where the Court found that the proposed easement was incompatible with the continued beneficial ownership of the servient tenement as it would enclose the area constituting 68% of the Council’s land. It was therefore incapable of comprising an easement.
In assessing whether the easement is reasonably necessary, the court must make a value judgement with no exercise of discretion (Woodland v Manly Municipal Council [2003] NSWSC 392, [10]). However, once this element is satisfied, if the others are as well, then the Court will have the discretion on whether or not to grant the easement.
An easement is a legal right that allows one party to use or access another party’s land for a specific purpose. This can include rights such as the right to access a shared driveway or to use a shared water source.
In New South Wales, s 88K Conveyancing Act 1919 gives the court power to create easements under certain conditions. This provision was inserted in 1995 to enable applicants to obtain easements over neighbouring land in circumstances deemed ‘reasonably necessary’.
If all of the following elements are fulfilled, the court may make an order for an easement, specifying its nature and terms (Gordon v Lever (2018) 97 NSWLR 90, [97]:
The easement is reasonably necessary for the effective use or development of the other land that will have the benefit of the easement (‘dominant tenement’) (s 88K(1)).
The use of the land having the benefit of the easement will not be inconsistent with the public interest (s 88K(2)(a)).
The Court is satisfied that the owner of the land to be burdened by the easement (‘servient tenement’) can be adequately compensated for any loss or other disadvantage that will arise from the imposition of the easement (s 88K(2)(b)).
The Court is satisfied that all reasonable attempts have been made by the applicant to obtain the easement but have been unsuccessful (s 88K(2)(c)).
Reasonably necessary:
In determining whether the easement is reasonably necessary for the effective use or development of the land, the threshold is above something that is simply convenient but it is less than absolute necessity (D & D Corak Investments Pty Ltd v Yiasemides [2006] NSWSC 1419, [13] (Young J)). Therefore, an easement can be granted even if the land could theoretically be effectively used and developed without it (117 York St Pty Ltd v Proprietors of Strata Plan No 16123 (1998) 43 NSWLR 504).
However, the Court must be satisfied that the proposed use or development is reasonable in comparison with possible alternatives. In Moorebank Recyclers Pty Ltd v Tanlane Pty Ltd [2012] NSWCA 445, it was found that it is sufficient to show that the proposed development is economically rational and appropriate to the area. In Arcidiacono v Owners of Strata Plan No 17719 [2020] NSWCA 269, the Court found that reasonable necessity means that the use or development of the land with the easement must be at least substantially preferable to the use or development without it.
A salient consideration is the impact on the servient tenement (ING Bank (Australia) Ltd v O’Shea (2010) 14 BPR 27, 325 [48]-[49]). The greater burden on the servient tenement, the stronger the applicant’s case needs to be to justify a finding of reasonable necessity (Aussie Skips Recycling Pty Ltd v Strathfield Municipal Council [2020] NSWLEC 22). Accordingly, the applicant’s past use of the land and the servient tenement’s past consent are relevant to the possible impact on the servient tenement but it cannot be solely used to manufacture ‘reasonable necessity’ (Gordon v Lever (2018) 97 NSWLR 90).
This element was not made out in Aussie Skips Recycling Pty Ltd v Strathfield MC [2020] NSWCA 292, where the Court found that the proposed easement was incompatible with the continued beneficial ownership of the servient tenement as it would enclose the area constituting 68% of the Council’s land. It was therefore incapable of comprising an easement.
Use of land not inconsistent with the public interest
The easement will not be granted if the use of the dominant land would be illegal (Gordon v Lever (2018) 97 NSWLR 90, [97]). However, the necessity for the use of the land to not be inconsistent with public interest is a lower threshold than being in the public interest.
Adequate compensation
To grant an easement, the Court needs to be satisfied that the servient tenant can be adequately compensated for any loss or other disadvantage that will arise from the easement. If it cannot make a determination as to the compensation payable at the time the order is made, it has no power to grant the easement (Studholme v Rawson [2020] NSWCA 76, [46]).
The compensation amount is determined by reference to the loss incurred by the servient tenement and not the benefit derived by the dominant tenement (Rainbowforce Pty Ltd v Skyton Holdings Pty Ltd (2010) 171 LEGRA 286). Compensation will cover the diminished market value of the affected land and associated costs, as well as any loss arising from insecurity or loss of amenities such as the loss of peace (Wengarin Pty Ltd v Byron Shire Council (1999) 9 BPR 16, 985; Acorp Developments Pty Ltd v HWR Pty Ltd [2018] NSWLEC 68, [153]).
Legal costs are usually payable by the applicant unless the servient tenement’s conduct warrants an adverse costs order. Behaviour that might warrant that includes presenting false evidence or manufacturing a case (Bilton v Ligdas (206) 18 CBPR 36, 379) but does not include refusing a reasonable offer (Owners Strata Plan No 13635 v Ryan [2006] NSWSC 342, [32]).
All reasonable attempts have been made to obtain the easement
This element was incorporated into s 88K to encourage applicants to initiate negotiations and treat s 88K as a last resort (New South Wales, Parliamentary Debates, Legislative Council, 4 December 1995, 4000 (Douglas Moppett).
In assessing reasonableness, the court must consider the likelihood that consensus would be reached if further steps had been taken (Coles Myer New South Wales Ltd v Dymocks Book Arcade Ltd (1996) 7 BPR 14). The Applicant does not have to show that they offered an amount that was later considered fair compensation by the court, as long as they showed a willingness to negotiate and respond to the other party reasonably (Katakouzinos v Roufir Pty Ltd [1999] NSWSC 1045, [75]
In Bilton v Ligdas (2016) 18 BPR 36, this element was found to be satisfied when the servient tenement had rejected an offer that was double the maximum market value as assessed by experts.
The court retains discretion
The court retains the discretion to refuse an application for an easement even if the applicant has satisfied all the requirements (Khatter v Wiese (2005) 12 BPR 23, 235, [59]; Bloom v Lepre (2008) 13 BPR 24, 923[ 100]-[104]). In Bloom v Lepre, the applicant was refused an easement for a wider driveway because he purchased the property knowing of its existing narrow driveway. It was noted that the Court’s discretion is to be exercised having regard to the purpose of the second, which was to facilitate the reasonable development of land.
Another reason that an application may be denied despite meeting all of the requirements is that no payment will be able to compensate the burdened owner for the imposition of the easement. This is especially so if it interferes with the peace or privacy of the landowner or is ultimately detrimental to their lifestyle (Wengarin Pty Ltd v Byron Shire Council [1999] NSWSC 485, [26]).
Courts have also refused applications upon considerations of safety. In Sodhi v Stanes [2007] NSWSC 177, the court refused an applicant’s request for an access road to their banana plantation on the basis that expert evidence suggested that the road which would have a very steep gradient would be dangerous.
Further, the court will generally not impose an easement where the servient tenement prefers utilising a license to achieve the same result (Vella v Nergl Developments Pty Ltd [2020] NSWSC 1405, [166]]).
The court needs to specify terms
It has been consistently held that the Court approving a request for an easement needs to outline its terms (Studholme v Rawson [2020] NSWCA 76, [44] (Basten JA; Bell P and Gleeson JA agreeing); Moorebank Recyclers Pty Ltd v Tanlane Pty Ltd [2012] NSWCA 445; Gordon v Lever (2018) 97 NSWLR 90, [97] (Sackville AJA, McColl and White JJA agreeing)). The relevant terms include time limitation (under s 88K (3)) and compensation, unless the Court determines that compensation is not payable because of a special circumstance (under s 88K(4)).
Other ways the court may grant an easement
The Land and Environment court may also grant an easement as an ancillary order to the grant of development consent, under s 40 of the Land and Environment Court Act 1979 (NSW).
Technology has changed the way people communicate and distribute thoughts and ideas. It’s becoming increasingly easy to spread information, regardless of the accuracy.
Defamation laws therefore can extend to online publications, such as posts, comments and reviews on social media sites such as Facebook. If you have had offensive or vilifying statements made about you that have ruined your reputation or the reputation of your business, you may be able to take legal action to get them taken down and receive compensation.
You can do this by trying to hold either the person making the comment, or the company that has provided the forum (ie Facebook, Google reviews etc) liable. However, note that the High Court in the recent case of Google LLC v Defteros [2022] HCA 27 clarified that a search engine (ie Google) will not be liable for content simply for the fact that it offers a hyperlink to the content.
According to common law, there are three elements that must be established in a defamation action:
That the content has been published to an audience
That the matter carries a defamatory meaning – making statements that are untrue and that lower your standing in the estimation of ordinary reasonable people
It has caused you loss such as loss of reputation or business
The relevant legislation governing this area of law in NSW is the Defamation Act 2005 (NSW), which clarifies and provides further elements, including serious harm and the issuing of a concerns notice.
The serious harm element is defined under s 10A to be satisfied where the publication has caused or is likely to cause serious harm to the reputation of the person. Relevant considerations for whether harm is likely to be considered ‘serious’ includes:
Evidence of what actually happened after the publication of the material
How wide and interested the audience of the publication are
Who the audience are and whether they are those whose opinions matter to the plaintiff
Before defamation proceedings can be commenced, a concerns notice needs to be provided to the proposed defendant. According to S 12A, the concerns notice is required to:
Be in writing
Specify the location where the text can be accessed
Inform the publisher of the alleged defamatory imputations
Inform the publisher of harm that is considered serious harm to person’s reputation caused or likely to be caused by publication
The other preliminary requirement before a person can commence proceedings is that the applicable period for an offer to make amends has lapsed. The applicable period is usually 14 or 28 days depending on the situation, as set out in s 14.
It is also important to note that, while you can bring defamation actions on behalf of a company, it must either have less than 10 employees or be not-for-profit, as according to s 9(1)-(2). A further limitation is that the serious harm element is not satisfied unless the publication has caused or is likely to cause the company serious financial loss.
If the above requirements have been met, then a person may commence defamation proceedings. However, it is crucial to address any possible defences that would invalidate the defamation claims. Some of the most common defences are explained below:
Defence of justification which applies if the defendant can prove that the defamatory imputations are substantially true.
Defence of contextual truth which applies if the defendant can prove that the matter carried one or more imputations that are substantially true and any other imputations do not further harm the plaintiff’s reputation.
Defence of absolute privilege which applies to matters published in the course of court proceedings or the proceedings of a parliamentary body.
Also note that you have one year from the date of publication of the defamatory content to commence proceedings, as per s 14B of the Limitation Act 1969 (NSW).
We have template letters and guides which provide an example to follow and tips on forming defamatory imputations. They are specifically suited for defamation on social media.
If you have any questions or require any further assistance, please feel free to contact us.
Our general guide with concerns notice template letter and tips for filling it out.Our comprehensive guide with concerns notice letters for defamation content on Google reviews. Our comprehensive guide with concerns notice letters for defamation content on Facebook. Our comprehensive guide with concerns notice letters for defamation content on Twitter.
If you’ve made a gain on crypto, you might be wondering what your options and possibilities are. In this third part of our four-part series, our tax law specialist, Adam Ahmed, discusses the most frequently asked questions for crypto gains.
Question 1: Is inflation taken into account at all?
Inflation is characterised by a rise of the general level of prices, which then equates to a decline of the purchasing power of a currency. In 2021, inflation was sitting at about 3.5% for the year when calculated through the Consumer Price Index.
If your crypto assets had also risen 3.5% in value over the same period, you might then argue that you haven’t actually made a gain because its real value (compared to other goods and services in the economy) has stayed the same. If you were to cash out on the gain and spend it on goods such as groceries, the amount you would be able to buy with your crypto would not have changed.
However, the ATO expects you to pay tax on your nominal gains and it therefore does not take into account inflation. The tax laws are rigid and designed to tax you on any increase in the Australian dollar, nominally.
Question 2: If you’ve made a gain, how would the ATO find out?
The ATO may or may not find out that you’ve made a gain on crypto when you actually make it. However, when you actually come to spend the money, the ATO will find out. This is because it will need to somehow materialise in your account and they will question where it came from. This is especially true if the amount you’re going to spend is high compared to what your income or spending usually is.
It makes more sense to follow the rules and focus on what your rights and obligations are. It’s important to have the right framework in place. That way you will be prepared if the ATO questions you or wants to see relevant evidence.
Australia’s tax laws are based on a self assessment system where the taxpayer is expected to work out what their own tax should be and then notifies and pays the amount to the ATO.
However, the ATO auditing powers are extensive. If they provide you with a number, which may or may not be correct, it takes a lot of time, energy and evidence to try and prove them otherwise.
Question 3: Then what can you actually do if you’ve made a gain?
The possible approaches depend on whether the gain is realised or unrealised, and also on the unique facts of the situation.
In Australia, we have set options for things to be categorised in and then taxed accordingly. Things such as crypto, which don’t fit neatly in a box, have multiple possibilities and also risks.
Since the courts have said that it is not treated as a foreign currency, there are different possibilities for how it may be treated. It is most similar to shares, although there are some obvious differences between the two because shares are not being used to purchase other goods and services the same way crypto is.
From the ATO perspective, the default is to treat it as a capital gain, on which you may be able to claim a capital gains tax discount. Currently, when you sell or otherwise dispose of an asset, you can reduce your capital gains by 50% if you have owned the asset for at least 12 months and are an Australian resident for tax purposes.
However, the specific facts of a situation usually dictate what options will be available – it is dependent on things like who holds the asset and how they came to acquire it.
In the next part, we will go through different examples to demonstrate the wide range of options that might be available.
In the meantime, if you have any questions, feel free to contact us.
If you’ve made a loss on crypto, you might be wondering where that leaves you in regards to your tax position. Since Bitcoin was found by the AAT to not be a foreign currency, as we discussed in the first article of this series here, it is generally treated similarly to shares in this sense.
For active traders: non-commercial loss rules may apply
If you are an active trader, you may be able to offset this loss against your other income. You generally can’t claim a loss for a business that is a hobby and unlikely to ever make a profit. The non-commercial loss rules determine whether you can in this case or have to defer the loss until you make a profit.
To be able to offset this loss, you must satisfy two requirements. The first is the income requirement, which is met where the sum of the four elements for calculating your income is less than $250, 000. The elements are:
Taxable income, which is the assessable income minus your allowable deductions for a year.
Reportable fringe benefits, which is shown on a payment summary if it passes the threshold and takes part in this calculator.
Reportable super contributions which include your reportable employer super contributions and your personal deductive contributions.
Total net investment losses from
Rental property investments such as negatively geared rental properties
Financial investments such as negatively geared share portfolios
The second requirement is to pass at least one of the following four tests:
Your assessable income, made up from your ordinary income (such as gross earnings excluding GST) and statutory income (such as capital gains) from your business activities must be at least $20, 000 for the year.
Your business has made a tax profit in three out of the five past years, which excludes any loss from that business that you had earlier deferred
You are using real property, which includes land, structures and interest in both, of at least $500, 000 in your business activity on a continuing basis.
You use $100, 000 worth of ‘other assets’ in your business activity. This includes equipment, trading stock, items leased from another entity, and trademarks, patents and copyrights. This does not include real property or vehicles.
If these two requirements are satisfied, then you may be able to offset your crypto losses against your income from other work. Otherwise, the loss would get parked to the side and you would only be able to claim it against your taxes if you later make profit off crypto.
For passive investors: capital loss rules may apply
If you have made a loss as a passive investor, capital loss rules will probably apply. This would mean you could deduct the loss you’ve made on crypto from your capital gains to reduce your capital gains tax. These must be used at first opportunity which means that if you’ve made a loss in the current year, you must use the loss to reduce any capital gains in the current year.
If your capital loss is greater than your capital gain, you could carry it forward and deduct it from capital gains in later years. There is no time limit for this. It is also important to note that a trading loss can be applied against capital gains but a capital loss can’t be applied against trading gains.
Conclusion:
Depending on whether you satisfy the non-commercial loss rules, your main two options are either to use the loss to offset your income or to use it to decrease your capital gains tax, with the option to park it if outweighs your capital gains.
If you have any questions or would like further assistance, please contact us.
The Administrative Appeals Tribunal’s recent decision to a court case we ran against the ATO has significant consequences on the tax status of Bitcoin. In the first article of this four part series, we explain the crux of the case, summarise our submissions and lay out the judge’s conclusion.
The heart of the issue
Do you have to pay tax on bitcoin? The answer lies in whether Bitcoin is considered a foreign currency for the purposes of the Income Tax Assessment Act 1997. If it is a foreign currency, then tax requirements under div 775 are applicable.Section 995-1.1 defines a foreign currency as ‘a currency other than Australian currency.’ The interpretation of this section will solve the question.
Part 1 of Submissions: How Currency should be interpreted
We submitted that the word ‘currency’ should be interpreted widely, aligned with previous cases. For example, in Watson v Lee, the High Court noted that the word ‘currency’ in a constitutional context need not be confined to money of a particular nation. Further, things like rum and bank issued notes were considered currencies and within the Commonwealth’s regulating powers. The High Court of Australia again had a similar approach in the case of Goldsbrough Mort & Co Ltd v Hall, where it noted that currency need not be issued by governmental entities.
We also referred to the Explanatory Memorandum of the Bill to shed light on the purpose behind the foreign currency definition. In paragraph 2.7, it is clear that the intention was to create a framework where foreign currency gains and losses arising out of business transactions do not fall outside the income tax net. Reference was made to the ERA case, where a taxpayer did not have to pay tax on their foreign currency gains because they dealt only with US dollars and did not convert the proceeds into Australian dollars. The parliament, at paragraph 2.21, noted that the new law was intended to bring to account all foreign currency gains and losses for tax purposes, regardless of whether it has been converted into an equivalent amount of A$.
Part 2 of Submissions: Bitcoin fits the definition of foreign currency
Having regard to the purpose of bitcoin, we argued that it fit the definition of foreign currency. The Satoshi Paper, the blueprint used to code and develop bitcoin, written by its founder Satoshi Nakamoto, describes the purpose of bitcoin as to allow payments to be sent directly from one party to another without engaging a financial institution.
WE assessed that Bitcoin was programmed solely for this function, it has no other use. We gave mathematical support for this premise by reference to the developer guide, which explains how it uses cryptography to create security for transactions between two willing parties. ‘
We also supported our argument by pointing out its current usage, in both general transactions and complicated arrangements. It is possible to lend and earn interest on bitcoin, as well as invest in derivatives and securities using it. We gave examples of foreign governments such as Sweden and Switzerland which have accepted it as legal tender.
Therefore, within the legal definition of currency and with regard to the intention of Parliament in enacting the definition, we argued that Bitcoin fits the definition of currency. And if it is accepted to be currency, it would automatically qualify as ‘foreign currency’ as per the Income Tax Assessment Act 1997, since it is a currency ‘other than Australian currency’.
The Tribunal’s Decision:
Ultimately, the Tribunal held that the phrase ‘foreign currency’ should be read down to not include decentralised ‘unofficial’ currencies such as Bitcoin.
While admitting that the s 995-1 definition is awkward, the Tribunal noted that ‘an Australian currency’ should be interpreted as a reference to the unit of exchange established in the Currency Act, and therefore ‘another currency’ must be a similar office currency issued by a sovereign state.
Although Bitcoin may satisfy the usual definition of currency since it is a fungible, measurable and used as a medium of exchange for goods and services, it was held not to satisfy the narrow definition under the Income Tax Assessment Act.
The Tribunal made a final note that the question of whether cryptocurrencies should be dealt with as a foreign currency for the purposes of income tax is a question for the Parliament.
This finding would presumably extend to all other cryptocurrencies that are not issued by a government.
Conclusion
In conclusion, since Bitcoin currently does not fall within the definition of foreign currency for the purposes of the Income Tax Assessment Act, the tax requirements set under div 775 are not applicable.
In the following three articles and videos of this series, we explain the implications of this.
Setting up a payment plan with the ATO is one of your best options if you have been or are unable to meet your tax obligations on time. If you opt to ignore it instead, the ATO may enforce action against you which has a high chance of leaving you in a worse position.
A payment plan would allow you to pay your debt over instalments. It’s essential to be prepared and do it right the first time to avoid suffering the harsh consequences of defaulting on these payments.
Your preparation can be split into three main steps: understanding what the ATO expects; understanding how the ATO is likely to perceive you; and planning your proposal to the ATO.
1. Understanding what the ATO expects.
The ATO’s approach is to generally seek for you to pay as much as you possibly can as soon as you possibly can.
They will also expect you to pay all tax lodgements in full on time in the future. This is important to note because, in this case, you will be paying two sets of taxes at a time: the regular taxes you have to pay and the payment plan debt instalments.
If you don’t lodge either set of taxes on time, that will be considered a default of the plan, and the ATO may take action against you. This makes it hard to get a payment plan approved in the future.
2. Understanding how the ATO may perceive you
The ATO may presume that you have the money in an asset such as a house or a car. If this is the case and you want a payment plan of longer than 24 months, they might ask for security over your house.
The ATO would otherwise be looking for a exceptional circumstance that would compel them to give you a payment plan and allow you to pay your debts over a longer period.
3. Planning your proposal
To be successful in overcoming your debt, you first need to be honest with yourself about your situation. You need to do the math and see how much you can pay off in each instalment.
Then, you need to communicate this with the ATO in as much detail as possible. As mentioned earlier, the ATO will seek special circumstances that would explain the need for a payment plan, so it is essential to emphasise your unique situation. Provide them with substantive proof if possible. For example, if you have been unable to pay your tax obligations on time due to a reduced turnover as a result of COVID-19, provide bookkeeping evidence and applications for rent relief if applicable.
Although the ATO will generally not seek actions against you if you’ve had a good record with them, they may pressure you to adopt a tighter payment plan. It is essential to be upfront and realistic with what you can afford. If you take on a payment plan you cannot keep up with, the situation will worsen, and they may be able to seek action against your business with justification.
If at some point during your payment plan period, you find that you cannot pay an instalment, contact the ATO before the due date, and you may be able to modify your instalment amount or due date.
Following these steps will ensure that you have the greatest chance of setting up a successful payment plan and overcoming your debt.
If you require further assistance or have any questions, contact us now.
