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@@ -560,3 +560,4 @@ Ziegler v Commissioner of Taxation [2025] FCAFC 168,QUD 617 and 618 of 2024,Full
 Commissioner of Taxation v Bendel [2026] HCA 18,M47/2025,High Court,10 June 2026,26 June 2026,Decision Impact Statement,,"1. This Decision impact statement outlines the ATO's response to this case which concerns whether a private company's failure to call for payment of entitlements to income of an associated trust was the provision of 'financial accommodation' or a transaction 'which in substance effects a loan' and, therefore, a loan for the purposes of section 109D of the Income Tax Assessment Act 1936. | 2. All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1936 unless otherwise indicated.","3. This case was an appeal by the Commissioner from the Full Federal Court's decision of 19 February 2025 [1] , which held that a private company's unpaid present entitlements (UPEs) to trust income were not loans for the purpose of section 109D. | 4. The Steven Bendel 2005 Discretionary Trust (the Trust) was a discretionary trust. Its trustee was Gleewin Pty Ltd (the Trustee). | 5. The beneficiaries of the Trust included Mr Bendel and Gleewin Investments Pty Ltd (Gleewin) (together, the Respondents). | 6. Mr Bendel was the sole shareholder and director of the Trustee and Gleewin. | 7. Mr Bendel and Gleewin were made presently entitled to income of the Trust for each of the 2013 to 2016 income years by way of resolutions by the Trustee to 'set aside' identified amounts for them (the Resolutions). | 8. The Trust deed provided that any amount set aside ceased to form part of the Trust Fund, was instead held by the Trustee on separate trust for the beneficiary absolutely, and the Trustee was empowered to invest, apply or deal with the funds of that separate trust under other relevant provisions in the deed. | 9. However, the accounting records prepared by the Trustee did not separately record the amounts set aside for Gleewin. Those amounts were instead booked to a 'Beneficiaries Current Account' balance in the liabilities section of the Trust's balance sheet. | 10. In each of the 2013 to 2017 income years, the Trust made some payments for, or on behalf of, Gleewin that had the effect of reducing Gleewin's current account balance. However, that balance remained substantially unpaid by Gleewin's lodgment day [2] for each of its 2013 to 2016 income year income tax returns. | 11. The accounting records of the Trust also showed that in the 2014 to 2017 income years, it made significant payments to Mr Bendel, shown as owing to the Trust. | 12. Gleewin had never called for payment of any of the Trust income set aside for its benefit in any of the years in question. It remained relevantly passive. | 13. The Commissioner issued amended assessments to the Respondents for each of the 2014 to 2017 income years. Those assessments reflected additional amounts included in their assessable income under section 97, on the basis that: • the outstanding amounts represented loans from Gleewin to the Trust within the meaning of subsection 109D(3) that were taken to be dividends paid to the Trust under subsection 109D(1), and • the beneficiaries entitled to the Trust's income had a corresponding proportion of each deemed dividend included in their assessable income by section 97. | • the outstanding amounts represented loans from Gleewin to the Trust within the meaning of subsection 109D(3) that were taken to be dividends paid to the Trust under subsection 109D(1), and • the beneficiaries entitled to the Trust's income had a corresponding proportion of each deemed dividend included in their assessable income by section 97. | 14. The Commissioner made no argument that there had been a breach of trust or of the fiduciary duties of the Trustee.","Issue 1: What was the character of the amounts set aside for Gleewin by the Resolutions?: 15. It was not in dispute that the Resolutions made Gleewin and Mr Bendel presently entitled to a share of the income of the Trust for the relevant income years. 16. The majority (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ) considered that the exercise of the power in the Trust deed to 'set aside' (as distinct from the power to pay or apply) a share of income, in conjunction with the directions in the Trust deed about the Trustee was to deal with amounts so set aside, meant that each of those amounts were held by the Trustee on separate trusts. 17. In reaching that view, their Honours rejected the Commissioner's contentions that: • there was insufficient certainty as to the property which would be the subject of any separate trusts over the amounts set aside, and • the Trust's accounts expressed an admission by the Trustee that there existed an unconditional relationship of debtor and creditor between Gleewin and the Trustee. • there was insufficient certainty as to the property which would be the subject of any separate trusts over the amounts set aside, and • the Trust's accounts expressed an admission by the Trustee that there existed an unconditional relationship of debtor and creditor between Gleewin and the Trustee. 18. In her dissenting judgement, Jagot J found that: • the Resolutions did not give rise to separate trusts, and • a debtor–creditor relationship had arisen between the Trustee and Gleewin. • the Resolutions did not give rise to separate trusts, and • a debtor–creditor relationship had arisen between the Trustee and Gleewin. 19. Beech-Jones J considered that there was no basis for the High Court to depart from the position accepted in the Full Court of the Federal Court that there existed a debtor–creditor relationship between Gleewin and the Trustee, nor should it entertain revisiting the Full Court's concurrent findings that Gleewin's entitlements were not held on separate trust. | Issue 2: Did Gleewin make a loan within the meaning of subsection 109D(3) to the Trust during each of the 2014 to 2017 years in respect of the Trust income set aside for it?: 20. The majority decided that Gleewin did not make a loan to the Trustee within the meaning of subsection 109D(3). There was, therefore, no dividend deemed to have been paid by Gleewin to the Trust under subsection 109D(1). 21. In reaching its decision, the majority considered that, for the purposes of subsection 109D(3): • the 'provision of financial accommodation' requires the company to do something which transfers, supplies or grants value or pecuniary assistance, involving some bilateral activity • there is no 'provision of financial accommodation' when a private company does nothing • mere inactivity cannot satisfy the language of 'advance', 'provision', 'payment' or 'transaction', and • simply doing nothing, or acquiescing to the retention of funds, is not a transaction which in substance effects a loan. • the 'provision of financial accommodation' requires the company to do something which transfers, supplies or grants value or pecuniary assistance, involving some bilateral activity • there is no 'provision of financial accommodation' when a private company does nothing • mere inactivity cannot satisfy the language of 'advance', 'provision', 'payment' or 'transaction', and • simply doing nothing, or acquiescing to the retention of funds, is not a transaction which in substance effects a loan. 22. The majority also relied on the statutory context and legislative history of Division 7A in support of its conclusion. In particular: • the structure of Division 7A distinguishes between loans (and their forgiveness, including under section 109F) and UPEs addressed separately under Subdivision EA, and • the replacement of former section 109UB with Subdivision EA, indicated that Parliament considered it necessary to enact specific provisions dealing with UPEs, rather than relying on the definition of 'loan'. • the structure of Division 7A distinguishes between loans (and their forgiveness, including under section 109F) and UPEs addressed separately under Subdivision EA, and • the replacement of former section 109UB with Subdivision EA, indicated that Parliament considered it necessary to enact specific provisions dealing with UPEs, rather than relying on the definition of 'loan'. 23. Both Jagot and Beech-Jones JJ considered that Gleewin had provided financial accommodation within the meaning of paragraph 109D(3)(b) to the Trustee. | Issue 3: Did section 6-25 of the Income Tax Assessment Act 1997 prevent a deemed dividend from being included in the Trust's net income or, alternatively, the Applicant's assessable income?: 24. Consistent with its conclusion for Issue 2 (that is, section 109D was not engaged by the circumstances of Gleewin and the Trust), the majority found it unnecessary to decide this issue. 25. Jagot and Beech-Jones JJ considered that section 6-25 of the Income Tax Assessment Act 1997 did not apply.","26. The High Court's reasoning makes it clear that section 109D does not apply in relation to a private company's entitlement to a share of trust income that remains unpaid where the company does not take action in respect of that entitlement. | 27. However, a private company beneficiary's inaction in respect of an unpaid entitlement to trust income may be insufficient to spare potential implications under other taxation laws, including Subdivision EA and section 100A. | 28. Relevantly, the majority observed that 'the facts here broadly correspond with the circumstances to which Subdivision EA is addressed'. [3] That is consistent with their characterisation of the amounts set aside by the Trustee – albeit on separate trust for Gleewin – as an 'unpaid present entitlement'. While their Honours were not determining the issue, their language suggests that Subdivision EA may apply where the funds to which a private company has been made presently entitled have been set aside on a separate trust and other relevant requirements are met. | 29. These outcomes contradict the position the Commissioner has taken in Taxation Determination TD 2022/11 Income tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of 'financial accommodation'? (which we will withdraw) and other advice as detailed in paragraphs 44 to 46 of this Decision impact statement, which we will review and amend as appropriate. | 30. This decision also highlights the need to carefully examine the particular facts and circumstances in determining the character of an amount to which a beneficiary is presently entitled, including: • terms of the trust deed • terms of any resolutions by the trustee or trustees • accounting records of the parties, and • any other dealings in respect of that amount (for example, making it subject to a loan agreement). | • terms of the trust deed • terms of any resolutions by the trustee or trustees • accounting records of the parties, and • any other dealings in respect of that amount (for example, making it subject to a loan agreement). | 31. Depending on those matters, the beneficiary's entitlement and the trustee's subsequent dealings with that amount may support the conclusion that the parties have entered into a separate trust relationship or another form of financial arrangement. In some circumstances, a beneficiary's present entitlement to a share of trust income may be dealt with in a way which gives rise to a presently enforceable debt owed by the trustee to the beneficiary.","Application of section 109D | 32. The Commissioner will apply section 109D to arrangements involving UPEs on the basis of the ATO view of the decision described in paragraphs 27 to 32 of this Decision impact statement. | 33. Accordingly, where a private company beneficiary has not taken any relevant action in respect of its UPE, the Commissioner will not treat the UPE as a loan for the purposes of section 109D. This will be the case whether or not the amount in question is held on a separate trust. | 34. In contrast, where parties have taken steps that result in a UPE being satisfied, replaced or otherwise dealt with in a manner that gives rise to a loan within subsection 109D(3), the arrangement will be characterised accordingly. The entitlement will not be treated as remaining unpaid merely because those steps were taken based on a mistaken understanding of the law. Where the entitlement has already been satisfied or converted into a loan, it has ceased to be a UPE. This decision does not reinstate it as a mere UPE. The tax consequences of any additional dealings with funds associated with a former UPE will depend on the particular circumstances of those dealings. | Other provisions | 35. In situations where a private company beneficiary has a UPE and the trust (including any relevant separate trust) pays, makes a loan to, forgives a debt of a shareholder or associate of a shareholder of that company, we may have cause to consider the application of Subdivision EA. | 36. Further, in situations where the UPE arises out of, or in connection with, an arrangement intended to reduce someone's tax liability, where someone else benefits, and that is entered into outside the course of ordinary family or commercial dealing, section 100A may apply, making the trustee liable to tax at the top marginal rate. [4] | Implications for previous arrangements | 37. Where arrangements involving UPEs have been implemented in accordance with TD 2022/11 or prior ATO administrative guidance, including Law Administration Practice Statement PS LA 2010/4 Division 7A: trust entitlements (now withdrawn), those UPEs will not be treated as loans unless the parties have taken steps that result in an arrangement falling within subsection 109D(3). | 38. For example, for the purposes of Division 7A: • UPEs that have simply been left outstanding will not, without more, be loans • UPEs set aside and held on separate sub-trusts in accordance with PS LA 2010/4 will not be loans, but • UPEs that have been made subject to complying loan terms are, as a matter of fact, loans, and will continue to be treated consistently as loans. | • UPEs that have simply been left outstanding will not, without more, be loans • UPEs set aside and held on separate sub-trusts in accordance with PS LA 2010/4 will not be loans, but • UPEs that have been made subject to complying loan terms are, as a matter of fact, loans, and will continue to be treated consistently as loans. | 39. A variation to the terms of an investment agreement between a separate or sub-trust and the main trust (for example, changes to interest rate or term) will not, of itself, result in the arrangement constituting a loan or in the amount being treated as an UPE for the purposes of Subdivision EA. However, this will depend on the nature and effect of the variation having regard to all the circumstances. | Objections | 40. Taxpayers who have been assessed on the basis that UPEs without more were loans for the purposes of section 109D may seek an amendment (where they remain within amendment periods) or lodge an objection (where they are outside of amendment periods). | 41. Decisions in respect of amendment requests or objections will involve a consideration of relevant facts and circumstances, including the terms of the trust deed, resolutions of the trustee, accounting records, and any subsequent dealings with the entitlement, to confirm whether the circumstances are within the scope of the High Court's reasoning. | 42. For objections that are outside the standard time limits, requests for an extension of time will be considered having regard to the taxpayer's circumstances, including whether the objection arises as a result of this decision.",2026 ATC 21-021 | TR 2022/4 | TR 2015/4 | TD 2022/11 | TD 2015/20 | TD 2011/15 | ITAA 1936 Div 6 | ITAA 1936 97 | ITAA 1936 100A | ITAA 1936 Div 7A | ITAA 1936 Subdiv EA | ITAA 1936 109D | ITAA 1936 109D(1) | ITAA 1936 109D(3) | ITAA 1936 109D(6) | ITAA 1936 109F | ITAA 1997 6-25 | 2025 ATC 20-946 | PCG 2022/2 | PCG 2017/13 | PS LA 2010/4W,ITAA 1936 Div 6 ITAA 1936 97 ITAA 1936 100A ITAA 1936 Div 7A ITAA 1936 Subdiv EA ITAA 1936 109D ITAA 1936 109D(1) ITAA 1936 109D(3) ITAA 1936 109D(6) ITAA 1936 109F ITAA 1936 109UB ITAA 1997 6-25,Commissioner of Taxation v Bendel [2025] FCAFC 15 307 FCR 544 122 ATR 197 2025 ATC 20-946,,PCG 2022/2 PCG 2017/13 PS LA 2010/4W,False,https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M47/2025/00001,"Taxpayers can rely on this Decision impact statement to provide them with protection from interest and penalties in the following way. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty, nor will they have to pay interest on the underpayment provided they reasonably relied on this Decision impact statement in good faith. However, even if they do not have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it. | ATO view of this decision | Implications for affected advice or guidance | Implications for affected advice or guidance: 43. As a consequence of this decision, we will withdraw TD 2022/11. | • Taxation Ruling TR 2022/4 Income tax: section 100A reimbursement agreements • Taxation Ruling TR 2015/4 Income tax: CGT small business concessions: unpaid present entitlements and the maximum net asset value test • Taxation Determination TD 2015/20 Income tax: Division 7A: is a release by a private company of its unpaid present entitlement a 'payment' within the meaning of Division 7A of Part III of the Income Tax Assessment Act 1936? • Taxation Determination TD 2011/15 Income tax: Division 7A – unpaid present entitlements – factors the Commissioner will take into account in determining the amount of any deemed entitlement arising under section 109XI of the Income Tax Assessment Act 1936 • Practical Compliance Guideline PCG 2022/2 Section 100A reimbursement agreements – ATO compliance approach • Practical Compliance Guideline PCG 2017/13 Division 7A – PS LA 2010/4 sub-trust arrangements maturing in or after the 2016–17 income year. | 45. To the extent that we withdraw a public ruling, it will continue to apply to schemes that had begun to be carried out before the withdrawal, where favourable to the taxpayer. [5] | 46. We may also issue further guidance, as appropriate, to assist taxpayers and their advisers to understand the implications of the decision and to support the consistent administration of Division 6 and Division 7A. | Footnotes: [1] Commissioner of Taxation v Bendel [2025] FCAFC 15. | [2] As defined in subsection 109D(6), being the earlier of the due date for lodgment of the private company's income tax return or the date on which that return is lodged. | [3] Commissioner of Taxation v Bendel [2026] HCA 18 at [64]. | [4] See Taxation Ruling TR 2022/4 Income tax: section 100A reimbursement agreements | [5] Subsection 358-20(3) of Schedule 1 to the Taxation Administration Act 1953 ."
 SEPL Pty Ltd as trustee of the SFT Trust v Commissioner of Taxation [2026] FCAFC 36,SAD 127 of 2025,Full Federal Court,27 March 2026,1 July 2026,Decision Impact Statement,,"1. This Decision impact statement outlines the ATO's response to this case, which considered: • whether 3 brothers, who together comprised all of the directors of a corporate trustee of a discretionary trust, were each an 'employee' within the meaning of that term in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), and • if the brothers were each found to be an employee, whether car benefits provided to them by the corporate trustee of the discretionary trust were provided 'in respect of' their employment. | • whether 3 brothers, who together comprised all of the directors of a corporate trustee of a discretionary trust, were each an 'employee' within the meaning of that term in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), and • if the brothers were each found to be an employee, whether car benefits provided to them by the corporate trustee of the discretionary trust were provided 'in respect of' their employment. | 2. All legislative references in this Decision impact statement are to the FBTAA unless otherwise indicated. | 3. All judgment references in this Decision impact statement are to the judgment of SEPL Pty Ltd as trustee of the SFT Trust v Commissioner of Taxation [2026] FCAFC 36, unless otherwise indicated.","4. The taxpayer, SEPL Pty Ltd in its capacity as the corporate trustee of a discretionary trust (SFT Trust), was engaged in a business involving petrol stations, convenience stores, fast food and tobacco outlets, and gift shops that was initially established by the parents of the 3 brothers as a small operation. [1] The business grew over time. [2] | 5. Following the death of the father and the retirement of the mother as director, the 3 brothers became the only shareholders and directors of SEPL Pty Ltd. [3] They collectively comprised the Trustee Board. [4] The Trustee Board allocated responsibility to each of the brothers for particular aspects of the taxpayer's business, and the brothers described the allocated roles they performed as that of 'Chief Executive Officer', 'Managing Director' and 'Executive Director'. [5] | 6. The 3 brothers and the mother were also among a lengthy list of eligible beneficiaries of the SFT Trust, which included extended family members. [6] | 7. The 3 brothers did not receive salaries and there were no written contracts of employment for any of them. There was also no record of any board resolution to enter into such an employment agreement, and managers were employed to oversee all relevant business functions. [7] | 8. The 3 brothers 'worked in the business' and 'played an active ""hands on"" role in the management of the [taxpayer's] affairs'. [8] They were 'completely immersed' in the business, leaving 'little time for other pursuits'. [9] | 9. The 3 brothers benefited from the taxpayer's business in 2 ways. Firstly, sharing the taxpayer's business profits through an informal arrangement reached between the brothers, with the profits being distributed to each of the brother's family trusts (also eligible beneficiaries of the SFT Trust). [10] Secondly, each brother had the exclusive use of luxury and high-performance cars owned by the taxpayer in its capacity as trustee of the SFT Trust. [11] | 10. The 3 brothers genuinely believed they were entitled to benefits (specifically, the private use of cars) as beneficiaries of the SFT Trust, not because they saw it as a reward for their work as directors or as employees. [12] | 11. Each brother used the cars allocated to them for both business and private use over the 2016 to 2020 fringe benefits tax (FBT) years (the relevant FBT years). [13] The expenses associated with the private use of the cars were debited to the mother's beneficiary loan account with the SFT Trust, which was then cleared by trust distributions. [14] The taxpayer claimed tax deductions for the estimated business use of the cars by the 3 brothers. [15] | 12. The taxpayer did not pay any FBT during the relevant FBT years in respect of the private use of the cars by the 3 brothers. | History of the dispute | 13. At audit, the Commissioner was of the view that the taxpayer was liable to pay FBT on the value of the car benefits provided to the 3 brothers. As a result, the Commissioner included the taxable value of the private use of the cars in amended FBT assessments for the relevant FBT years. | 14. The taxpayer objected to the amended FBT assessments. The objection was disallowed. The taxpayer sought review of the objection decision by the Administrative Appeals Tribunal (Tribunal). | 15. The Tribunal set aside the Commissioner's objection decision and substituted it with a decision that the objection be allowed. [16] | 16. On appeal to the Federal Court, the Commissioner contended that the Tribunal had erred on both issues and the appeal was allowed. [17] The primary judge held that the 3 brothers were 'employees' within the meaning of the FBTAA and the car benefits were therefore provided 'in respect of' their employment. [18] | 17. The primary judge in the Federal Court set aside the Tribunal's decision, affirming the Commissioner's objection decision and dismissing the taxpayer's application for review. [19] | 18. The taxpayer then appealed this decision to the Full Federal Court. On 27 March 2026, the Full Federal Court (Perry, O'Callaghan and Thawley JJ) (Full Court) unanimously allowed the taxpayer's appeal on both issues. [20]","Meaning of 'employee' in subsection 136(1): Statutory scheme of the FBTAA 19. The Full Court explained that the question whether each of the 3 brothers were an employee of the taxpayer depended on the meaning of the term 'employee', as it appeared in the definition of 'fringe benefit' in subsection 136(1). [21] 20. 'Employee' is defined in subsection 136(1) as a 'current employee', which is further defined in subsection 136(1) as 'a person who receives, or is entitled to receive, salary or wages'. 21. The expression 'salary or wages' is defined in subsection 136(1) as a payment from which an amount must be withheld under a provision in Schedule 1 to the Taxation Administration Act 1953 (TAA). Table item 1 of subparagraph (b)(ii) of the definition of 'salary or wages' in subsection 136(1) refers to a 'payment to employee' in section 12-35 of Schedule 1 to the TAA, which in turn refers to withholding an amount from salary, wages, commission, bonuses or allowances paid to an individual 'as an employee'. 22. The Full Court held that it was also relevant to consider section 137. [22] Section 137 operates on the concept of 'salary or wages' and, only through that mechanism, affects whether a person is an employee. [23] 23. The Full Court observed that the term 'employment' appeared in paragraph 137(1)(b) and then only for the limited purpose of ascertaining whether the person is an 'employee' under the FBTAA. [24] Definition of 'employment' 24. The Full Court did not accept that the word 'employment' expanded the statutory meaning of employee and explained that the definition of employment depended upon a 'person being treated as an employee'. [25] 25. The Full Court held that the word 'employment' was descriptive of what a person has if they are an employee. [26] It did not lead the statutory inquiry into whether a person was an employee or whether they performed some kind of expanding function. [27] Operation and scope of section 137 26. The Full Court approached section 137 on the same basis as the Tribunal, holding that: • Section 137 did not itself supply the meaning of 'employee'. [28] • The answer to the hypothetical question posed by paragraph 137(1)(c) depended upon whether a cash payment would have been made to a person 'as an employee', and that this permitted consideration of the ordinary (common law) meaning of the word 'employee'. [29] • Any hypothetical cash payment would have been made to the relevant brother not 'as an employee' but in his capacity as a proprietor, controller, and discretionary beneficiary of the trust. [30] • This meant that the condition in subparagraph 137(1)(c)(i), that the hypothetical cash payment 'would constitute salary or wages' under section 12-35 of Schedule 1 to the TAA, was not satisfied. [31] • Section 137 did not itself supply the meaning of 'employee'. [28] • The answer to the hypothetical question posed by paragraph 137(1)(c) depended upon whether a cash payment would have been made to a person 'as an employee', and that this permitted consideration of the ordinary (common law) meaning of the word 'employee'. [29] • Any hypothetical cash payment would have been made to the relevant brother not 'as an employee' but in his capacity as a proprietor, controller, and discretionary beneficiary of the trust. [30] • This meant that the condition in subparagraph 137(1)(c)(i), that the hypothetical cash payment 'would constitute salary or wages' under section 12-35 of Schedule 1 to the TAA, was not satisfied. [31] Ordinary meaning of 'employee' 27. The word 'employee' in section 12-35 of Schedule 1 to the TAA bears its ordinary meaning, which is its common law meaning. [32] Reliance on section 12-40 of Schedule 1 to the TAA 28. Table item 2 of the definition of 'salary or wages' in subsection 136(1) concerns section 12-40 of Schedule 1 to the TAA, and addresses payments to company directors. The Full Court considered that the Commissioner's reliance on section 12-40 of Schedule 1 to the TAA did not assist their case and that the primary judge erred in relying on that provision. [33] | Whether benefits are provided 'in respect of' employment: 29. The Full Court considered the issue of whether, on the hypothetical basis that each of 3 brothers were an employee under subsection 136(1), the car benefits were provided to them 'in respect of' their employment. [34] 30. The definition of 'fringe benefit' in subsection 136(1) requires that the benefit be provided 'in respect of the employment of the employee'. [35] 31. While the definition of 'in respect of' in subsection 136(1) is broad, the Full Court held that the breadth of the definition did not displace the need for a meaningful connection between the benefit and the employment. [36] That is consistent with the reasoning of the Full Federal Court in J & G Knowles v Commissioner of Taxation [2000] FCA 196 (J & G Knowles), the existence of some causal relationship is not of itself determinative and the connection must be sufficient or material having regard to the object and structure of the FBT regime. [37] 32. J & G Knowles recognised that the capacity in which the benefit was received is relevant. [38] The Full Court held that the 'Tribunal did not err in considering the basis on which the benefits were received, including – in addition to the objective circumstances – how the brothers themselves understood the arrangements'. [39] 33. The Full Court considered that 'J & G Knowles makes clear that, even if employment is a cause, the benefit may still properly be characterised as arising from a different relationship, with the employment relationship not being sufficiently material to satisfy the statutory test'. [40] 34. The Full Court held that it was open for the Tribunal to conclude that the arrangement, taken as a whole, was one operating by reason of the brothers' relationship to the trust and family structure rather than by reason of any employment relationship. [41]","Meaning of the term 'employee' within the statutory scheme of the FBTAA | 35. We accept that whether an individual is an employee depends upon the relevant definitions in subsection 136(1), including the meaning of the terms: • 'employee' as it appears in the definition of 'fringe benefit' [42] • 'current employee' within the meaning of the definition of 'employee' [43] • 'salary or wages' [44] , and • the operation of section 12-35 of Schedule 1 to the TAA, through the definition of 'salary or wages'. [45] | • 'employee' as it appears in the definition of 'fringe benefit' [42] • 'current employee' within the meaning of the definition of 'employee' [43] • 'salary or wages' [44] , and • the operation of section 12-35 of Schedule 1 to the TAA, through the definition of 'salary or wages'. [45] | 36. In noting that the meaning of employee in section 12-35 of Schedule 1 to the TAA is an undefined legislative term, the Full Court concluded that, in the absence of any countervailing indications in the context or purpose, the term bears it ordinary meaning. [46] | 37. The High Court in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting) held that the 'ordinary meaning' of 'employee' was its common law meaning. [47] Further, the High Court in Personnel Contracting and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 explained how to determine whether a person is an employee within the common law meaning of the term. [48] Subject to its modifications, the FBTAA used the word 'employee' in a similar way. [49] We accept the Full Court's adoption of the High Court's explanation of how to determine whether a person is an employee within the common law meaning of the term. [50] | 38. We acknowledge that the Full Court held that the FBTAA extends or varies who might be an employee, but in applying the relevant provisions in this case, which involved section 12-35 of Schedule 1 to the TAA, we are required to determine whether any benefits (if they had been paid in cash) would have been paid to an individual 'as an employee' within the common law meaning of the term. [51] | Definition of 'employment' and operation and scope of section 137 | 39. We accept that the word 'employment' is descriptive of what a person has if they are an employee and does not lead an inquiry into whether a person is an employee or whether they perform some kind of expanding function. [52] | 40. We also acknowledge that section 137 has a limited function and operates as a safeguarding measure to ensure that the FBT legislation could still operate where remuneration was provided only in non-cash form. [53] | Unique and unusual factual circumstances of this case | 41. The Full Court's understanding of the statutory scheme of the FBTAA reflects the importance of correctly identifying an employee, particularly in circumstances where an individual is: • a shareholder and a director of the corporate trustee (SEPL Pty Ltd), and • an appointor (with the power to appoint to remove the trustee and to appoint discretionary objects) and an eligible beneficiary of the discretionary trust (SFT Trust). | • a shareholder and a director of the corporate trustee (SEPL Pty Ltd), and • an appointor (with the power to appoint to remove the trustee and to appoint discretionary objects) and an eligible beneficiary of the discretionary trust (SFT Trust). | 42. We recognise that the finding that the 3 brothers were each not an employee was based on the unique and unusual factual circumstances in this case, including: • a closely held family arrangement involving a discretionary trust • no employment contracts and no payment of salary or wages to the 3 brothers who, as directors, played an active, hands on role in the management of the business, and • the debit to the mother's beneficiary account, reflecting the private use of the vehicles by the 3 brothers, which was then cleared by trust distributions. | • a closely held family arrangement involving a discretionary trust • no employment contracts and no payment of salary or wages to the 3 brothers who, as directors, played an active, hands on role in the management of the business, and • the debit to the mother's beneficiary account, reflecting the private use of the vehicles by the 3 brothers, which was then cleared by trust distributions. | 43. The particular facts and circumstances of a case will always need to be closely considered, and as a result, we consider: • Directors of a corporate trustee of a discretionary trust may still fall within the definition of 'employee' for FBT purposes, even if the common law meaning of the term is applied. • The capacity in which persons, including directors of a corporate trustee of a discretionary trust, receive benefits from the trust will need to be determined having regard to all of the facts and circumstances of a case. This includes, but is not limited to, the terms of the trust deed, the actions of the trustee in exercising their duties under the trust, as well as the nature of the benefit provided. | • Directors of a corporate trustee of a discretionary trust may still fall within the definition of 'employee' for FBT purposes, even if the common law meaning of the term is applied. • The capacity in which persons, including directors of a corporate trustee of a discretionary trust, receive benefits from the trust will need to be determined having regard to all of the facts and circumstances of a case. This includes, but is not limited to, the terms of the trust deed, the actions of the trustee in exercising their duties under the trust, as well as the nature of the benefit provided. | 44. Even though the provision of car benefits were not subject to FBT in this case, we note that different taxing provisions may apply to other arrangements involving the private use of car benefits and trusts (for example, Division 7A of the Income Tax Assessment Act 1936 (ITAA 1936) may be considered where there are loans from private companies or unpaid present entitlements to private companies, including provisions that treat the use of company assets by shareholders or their associates as a payment (such as section 109CA of the ITAA 1936)). | Meaning of 'in respect of' their employment | 45. We consider that the Full Court was correct in confirming that while the definition of 'in respect of' in subsection 136(1) is broad, the existence of some causal relationship is not, of itself, determinative. [54] The definition still requires a meaningful connection which is sufficient or material, having regard to the object and structure of the FBT regime. [55] | 46. We accept that it was open for the Tribunal to regard the arrangement which the 3 brothers were participating in, taken as a whole, to be operating by reason of the brothers' relationship to the trust and family structure rather than by reason of any employment relationship. [56] We accept that the absence of a direct distribution by the taxpayer of the cars, or of their value, to the brothers did not necessarily result in a conclusion that the benefit was provided 'in respect of' their employment. [57] | 47. In addition to the objective circumstances, we note that the subjective intention of the individual (that is, how they themselves understood the arrangement) may be a relevant factor in determining whether the benefits were provided 'in respect of' their employment. [58]","48. We are reviewing the impact of this decision on related advice, including: • Miscellaneous Taxation Ruling MT 2019 Fringe benefits tax: shareholder employees of family private companies and directors of corporate trustees • Miscellaneous Taxation Ruling MT 2016 Fringe benefits tax: benefits not taxable unless provided in respect of employment • Chapters 1, 7 and 22 of Fringe benefits tax – a guide for employers . | • Miscellaneous Taxation Ruling MT 2019 Fringe benefits tax: shareholder employees of family private companies and directors of corporate trustees • Miscellaneous Taxation Ruling MT 2016 Fringe benefits tax: benefits not taxable unless provided in respect of employment • Chapters 1, 7 and 22 of Fringe benefits tax – a guide for employers .",2026 ATC 21-008 | MT 2019 | MT 2016 | FBTAA 1986 136(1) | FBTAA 1986 137 | TAA 1953 Sch 1 12-35 | TAA 1953 Sch 1 12-40 | 2025 ATC 20-963 | [2022] HCA 1 | 2000 ATC 4151 | [2022] HCA 2 | 96 ALJR 144,FBTAA 1986 136(1) FBTAA 1986 137 TAA 1953 Sch 1 12-35 TAA 1953 Sch 1 12-40,"BQKD and Commissioner of Taxation [2024] AATA 1796 120 ATR 107 Commissioner of Taxation v SEPL Pty Ltd as trustee of the SFT Trust [2025] FCA 581 2025 ATC 20-963 123 ATR 179 Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 275 CLR 165 96 ALJR 89 398 ALR 404 J & G Knowles v Commissioner of Taxation [2000] FCA 196 96 FCR 402 2000 ATC 4151 44 ATR 22 SEPL Pty Ltd as trustee of the SFT Trust v Commissioner of Taxation [2026] FCAFC 36 315 FCR 1 2026 ATC 21-008 ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 275 CLR 254 96 ALJR 144 398 ALR 603",,,False,https://www.ato.gov.au/law/view/document?docid=LIT/ICD/SAD127of2025/00001,"ATO view of this decision | Implications for affected advice or guidance | Aruni.Abeysinghe@ato.gov.au | Commissioner of Taxation 1 July 2026 | Footnotes: [1] BQKD and Commissioner of Taxation [2024] AATA 1796 ( BQKD ) at [17–19]. | [5] BQKD at [41], [54] and [61]. | [8] BQKD at [3], [56] and [77]. | [10] Commissioner of Taxation v SEPL Pty Ltd as trustee of the SFT Trust [2025] FCA 581 ( SEPL FCA ) at [5]. | [13] At [4] and SEPL FCA at [5]. | [14] At [4] and SEPL FCA at [6] and [127]. | [18] SEPL FCA at [88–89], [96-97] and [151]. | [20] At [1], per Perry J, at [2], per O'Callaghan J and at [81], per Thawley J. | • first, that a benefit has been provided by one person to another (paragraph 137(1)(a)), • second, that 'but for' section 137 the benefit would not be regarded as having been provided 'in respect of the employment' of the recipient (paragraph 137(1)(b)), and • third, that if the benefit were instead provided by way of a cash payment, that cash payment would constitute 'salary or wages' under the definition in subsection 136(1) (subparagraph 137(1)(c)(i)). | If all 3 conditions are met, paragraph 137(1)(d) applies so that, for 'the purpose only of ascertaining whether a person is an employee or an employer', the benefit is treated 'as if' it were salary or wages paid to the second person when applying the definitions in subsection 136(1). | [25] At [33–34] and [38–40]. | [29] At [46] and BQKD at [14–15]. | [30] At [47] and BQKD at [21], [62–66], [90–92]. | [32] At [15]. The Full Court at [49-50] referred to the High Court decisions in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 to explain how to determine whether a person is an employee within the common law meaning of the term. | [37] At [68] and J & G Knowles at [26] and [29]. | [47] Personnel Contracting at [93], per Gageler and Gleeson JJ, and at [161], per Gordon J. | [55] At [68] and J & G Knowles at [26] and [29]."
 Department of Education v Commissioner of Taxation [2026] FCA 898,VID 204 of 2025,Federal Court of Australia,10 July 2026,5 August 2026,Interim Decision Impact Statement,,"1. This Interim decision impact statement outlines the ATO's response to this case, which considered whether the Victorian Department of Education (Department) was liable to superannuation guarantee charge (SGC) under the Superannuation Guarantee (Administration) Act 1992 (SGAA) because the Department did not pay superannuation contributions in relation to a 'salary loading allowance' paid annually to teachers. | 2. The Federal Court found that the Department was not liable to SGC for failing to pay superannuation contributions in relation to the salary loading allowance, as the allowance did not fall within the relevant notional earnings base or within the relevant employees' ordinary time earnings (OTE). | 3. This decision is currently subject to appeal to the Full Federal Court. | 4. All legislative references in this Interim decision impact statement are to the SGAA as in force prior to 1 July 2026 [1] , unless otherwise indicated. | 5. All judgment references in this Interim decision impact statement are to the judgment of the Federal Court in Department of Education v Commissioner of Taxation [2026] FCA 898 unless otherwise indicated. | Overview of the facts | 6. The Department pays a salary loading allowance to eligible teachers employed by the Department. The allowance is paid annually on a specific date. The teachers are entitled to the allowance if they complete the year of service doing their ordinary hours of work and remain employed by the Department on the specific date. [2] The allowance is calculated as 17.5% of the total of 4 weeks of the teacher's normal salary. [3] | 7. During the periods in dispute, the Department did not pay superannuation contributions for its employee teachers in relation to the salary loading allowance paid to them. | 8. For the relevant quarters prior to 1 July 2008, it was accepted by the parties that former section 13 applied [4] , and that the Department would be liable for SGC if the salary loading allowance fell within the applicable notional earnings base. | 9. The relevant notional earnings base in this case was that provided for under the State Employees Retirement Benefits Act 1979 (Vic) and the State Superannuation Act 1988 (Vic). [5] These Acts required superannuation to be paid on 'salary' as defined in the Acts. Relevantly, the definition of 'salary' excluded 'recreation leave allowance' and 'payments of a temporary character'. | 10. For the relevant quarters from 1 July 2008, it was accepted by the parties that the Department would be liable for SGC if the salary loading allowance fell within the definition of OTE in section 6. [6] | 11. In 2024, the Commissioner issued amended notices of assessment of SGC to the Department for the relevant quarters in the period 2004 to 2022, to include SGC related to the failure to make superannuation contributions in relation to the salary loading allowance for a total of 18 teachers that had made enquiries at that time. [7] The amended assessments were issued on the basis that the Department had not successfully reduced their charge percentage for the relevant employees to nil for the periods in dispute because, in the Commissioner's view, the salary loading allowance fell within the relevant notional earnings base and was OTE, respectively. [8] | 12. Objections against the amended assessments were disallowed in full. | 13. The Department appealed the objection decision to the Federal Court. The Department argued that the salary loading allowance: • did not form part of the notional earnings base for periods prior to 1 July 2008, because [9] – it was effectively an annual leave loading and therefore excluded from 'salary' as a 'recreation leave allowance', or – it was a payment of a temporary character, and therefore was excluded from 'salary' • did not form part of OTE because it – was effectively an annual leave loading and was paid to compensate for the lost opportunity to work overtime [10] and to cushion employees against additional expenses incurred while on leave [11] – was paid at a higher rate because it was 17.5% of the base salary. [12] | • did not form part of the notional earnings base for periods prior to 1 July 2008, because [9] – it was effectively an annual leave loading and therefore excluded from 'salary' as a 'recreation leave allowance', or – it was a payment of a temporary character, and therefore was excluded from 'salary' • did not form part of OTE because it – was effectively an annual leave loading and was paid to compensate for the lost opportunity to work overtime [10] and to cushion employees against additional expenses incurred while on leave [11] – was paid at a higher rate because it was 17.5% of the base salary. [12] | – it was effectively an annual leave loading and therefore excluded from 'salary' as a 'recreation leave allowance', or – it was a payment of a temporary character, and therefore was excluded from 'salary' | – was effectively an annual leave loading and was paid to compensate for the lost opportunity to work overtime [10] and to cushion employees against additional expenses incurred while on leave [11] – was paid at a higher rate because it was 17.5% of the base salary. [12] | Issues decided by the Court | Issue 1 – for periods prior to 1 July 2008, whether the salary loading allowance formed part of the notional earnings base | 14. The Court held that the salary loading allowance did not form part of the relevant notional earnings base for periods prior to 1 July 2008. | 15. The Court considered evidence regarding the purpose of the allowance when it was first introduced in the 1970s, and accepted that the salary loading allowance was introduced to give teachers an equivalent loading to the recreation leave loading enjoyed by their public service counterparts. [13] The Court further accepted that the salary loading allowance was named as it was, and structured as it was, due to the particular arrangements of teachers which resulted in the formal entitlement to 4 weeks' annual leave not being taken over an identified period within the school holidays. [14] | 16. The Court held that that the expression 'recreation leave allowance' in the relevant Acts is properly to be construed as capturing allowances that were, in substance, recreation leave allowances even if they were not paid when an employee literally took annual (recreation) leave. [15] The Court found that the salary loading allowance was therefore a recreation leave allowance, albeit one paid in a bespoke manner due to the peculiarities of the teaching profession, and that it had not lost that character since it was first introduced in the 1970s. [16] Accordingly, the salary loading allowance was not 'salary' as defined under the relevant Acts and therefore did not form part of the notional earnings base. | 17. The Court rejected the arguments from the Department that the allowance was paid to compensate for the lost opportunity to work overtime during holiday periods [17] , or to cushion the employee against additional expenses incurred during leave. [18] The Court also rejected the argument that the salary loading allowance was of a temporary character, on the basis that although it was only paid once a year it was paid on an ongoing, recurring basis. [19] | Issue 2 – for periods from 1 July 2008, whether the salary loading allowance is OTE | 18. The Court held that the salary loading allowance was not OTE for periods from 1 July 2008. | 19. The Court held that, where an industrial award or agreement nominates a salary for an employee's ordinary hours, that is the payment they receive at ordinary rates of pay for their ordinary hours. [20] Amounts that are paid in addition to these amounts will not be OTE. [21] | 20. The Court found that the salary loading allowance was an amount additional to the base salary in the relevant industrial agreements and therefore was not OTE, even though teachers did not need to perform any work beyond their ordinary hours to receive the payment and it was not compensation for a lost opportunity to work overtime. [22] | 21. The Court considered that it was not relevant to the analysis that: • it was not established by the Department that the allowance was compensation for a lost opportunity to work overtime [23] • the allowance was introduced to give teachers the equivalent of annual leave loading [24] , or • the allowance was, or paid at, a different rate. [25] | • it was not established by the Department that the allowance was compensation for a lost opportunity to work overtime [23] • the allowance was introduced to give teachers the equivalent of annual leave loading [24] , or • the allowance was, or paid at, a different rate. [25]",,"Issue 1 – for periods prior to 1 July 2008, whether the salary loading allowance formed part of the notional earnings base: 14. The Court held that the salary loading allowance did not form part of the relevant notional earnings base for periods prior to 1 July 2008. 15. The Court considered evidence regarding the purpose of the allowance when it was first introduced in the 1970s, and accepted that the salary loading allowance was introduced to give teachers an equivalent loading to the recreation leave loading enjoyed by their public service counterparts. [13] The Court further accepted that the salary loading allowance was named as it was, and structured as it was, due to the particular arrangements of teachers which resulted in the formal entitlement to 4 weeks' annual leave not being taken over an identified period within the school holidays. [14] 16. The Court held that that the expression 'recreation leave allowance' in the relevant Acts is properly to be construed as capturing allowances that were, in substance, recreation leave allowances even if they were not paid when an employee literally took annual (recreation) leave. [15] The Court found that the salary loading allowance was therefore a recreation leave allowance, albeit one paid in a bespoke manner due to the peculiarities of the teaching profession, and that it had not lost that character since it was first introduced in the 1970s. [16] Accordingly, the salary loading allowance was not 'salary' as defined under the relevant Acts and therefore did not form part of the notional earnings base. 17. The Court rejected the arguments from the Department that the allowance was paid to compensate for the lost opportunity to work overtime during holiday periods [17] , or to cushion the employee against additional expenses incurred during leave. [18] The Court also rejected the argument that the salary loading allowance was of a temporary character, on the basis that although it was only paid once a year it was paid on an ongoing, recurring basis. [19] | Issue 2 – for periods from 1 July 2008, whether the salary loading allowance is OTE: 18. The Court held that the salary loading allowance was not OTE for periods from 1 July 2008. 19. The Court held that, where an industrial award or agreement nominates a salary for an employee's ordinary hours, that is the payment they receive at ordinary rates of pay for their ordinary hours. [20] Amounts that are paid in addition to these amounts will not be OTE. [21] 20. The Court found that the salary loading allowance was an amount additional to the base salary in the relevant industrial agreements and therefore was not OTE, even though teachers did not need to perform any work beyond their ordinary hours to receive the payment and it was not compensation for a lost opportunity to work overtime. [22] 21. The Court considered that it was not relevant to the analysis that: • it was not established by the Department that the allowance was compensation for a lost opportunity to work overtime [23] • the allowance was introduced to give teachers the equivalent of annual leave loading [24] , or • the allowance was, or paid at, a different rate. [25] • it was not established by the Department that the allowance was compensation for a lost opportunity to work overtime [23] • the allowance was introduced to give teachers the equivalent of annual leave loading [24] , or • the allowance was, or paid at, a different rate. [25]","22. The Commissioner has appealed the Federal Court's decision in respect of both issues. | 23. Draft Law Companion Ruling LCR 2026/D1 Payday Super: qualifying earnings continues to reflect the Commissioner's views on the interpretation of OTE, which is included within the term 'qualifying earnings' in section 10A of the SGAA from 1 July 2026. However, the Commissioner will not seek to finalise that Ruling until the appeal process has concluded.","24. Pending the outcome of the appeal process, where a decision turns on whether a particular amount is OTE, we do not propose to finalise: • requests for advice concerning whether particular amounts fall within the meaning of OTE • decisions in compliance activity, including issuing SGC assessments or amended SGC assessments • objection decisions in relation to objections against SGC assessments or amended SGC assessments. | • requests for advice concerning whether particular amounts fall within the meaning of OTE • decisions in compliance activity, including issuing SGC assessments or amended SGC assessments • objection decisions in relation to objections against SGC assessments or amended SGC assessments. | 25. However, if a decision is required to be made (for example, because the employer's period of review will elapse or the employer gives notice requiring the Commissioner to make an objection decision), our decisions will be consistent with the existing ATO view of the law. In these circumstances, recovery of the liability will generally be deferred pending the outcome of the appeal and would only be pursued if the Commissioner is ultimately successful. | Commissioner of Taxation 5 August 2026 | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] The SGAA has recently been amended by the Treasury Laws Amendment (Payday Superannuation) Act 2025 , with effect from 1 July 2026. The legislative references in this Interim decision impact statement are to the SGAA as in force prior to 1 July 2026, unless otherwise indicated, as this case relates to periods prior to those amendments having effect. | [2] At [19]. Teachers not employed by the Department at that date can still receive salary loading allowance if they ceased employment due to old age or ill health. Part-time teachers and those who commenced employment part-way during the year receive a pro-rata entitlement to the salary loading allowance. | [3] Up to a specified cap that changes year to year. | [4] At [10]. | [5] At [10]. | [6] At [13–14]. | [7] At [4]. | [8] Section 23. | [9] At [11]. | [10] At [68]. | [11] At [32]. | [12] At [70]. | [13] At [38]. | [14] At [39]. | [15] At [56]. | [16] At [58]. | [17] At [41]. | [18] At [60]. | [19] At [60]. | [20] At [63]. | [21] At [66]. | [22] At [65]. | [23] At [69]. | [24] At [69]. | [25] At [71].",2026 ATC 21-028 | LCR 2026/D1 | SGAA 6(1) | SGAA 10A | SGAA former 13 | SGAA former 23 | State Employees Retirement Benefits Act 1979 (Vic) | State Superannuation Act 1988 (Vic) | Treasury Laws Amendment (Payday Superannuation) Act 2025,SGAA 6(1) SGAA 10A SGAA former 13 SGAA former 23 State Employees Retirement Benefits Act 1979 (Vic) State Superannuation Act 1988 (Vic) Treasury Laws Amendment (Payday Superannuation) Act 2025,Department of Education v Commissioner of Taxation [2026] FCA 898 2026 ATC 21-028,,,True,https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID204of2025/00001,
+Alcoa of Australia Ltd and Commissioner of Taxation [2025] ARTA 482,2022/3549 - 3564,Administrative Review Tribunal,30 April 2025,27 August 2026,Decision Impact Statement,,"1. This case concerned the transfer pricing consequences under former Division 13 of the Income Tax Assessment Act 1936 (ITAA 1936) of corrupt dealing that had infected a commercial transaction. The transaction involved sales of alumina made by Alcoa of Australia (AoA) through an intermediary during 1993 to 2009 (excluding 1996) (Relevant Years). The sales were delivered to a smelter in Bahrain owned by Aluminium Bahrain B.S.C. (Alba). | 2. The Administrative Review Tribunal (Tribunal) determined that the dealing was not at arm's length by reason of steps taken to facilitate bribery of foreign officials but found that the dealing had not resulted in AoA receiving consideration that was less than the consideration that would have been received in an arm's length dealing. This conclusion was one of fact. | 3. All legislative references in this Decision impact statement are to the ITAA 1936, unless otherwise indicated. All references to Division 13 are to former Division 13. | 4. All decision references in this Decision impact statement are to the decision of Alcoa of Australia Ltd and Commissioner of Taxation [2025] ARTA 482, unless otherwise indicated. | Overview of material facts | 5. The arrangement that is the subject of this case was the subject of criminal and civil investigations in the United States of America (US). | 6. As of 1990, AoA was supplying alumina directly to Alba under a 10-year agreement with Alba (1990 Supply Agreement). [1] Under this agreement, the first 600,000 metric tonne (m/t) of alumina was priced in accordance with a formula (Formula Tonnage). [2] For any alumina supplied over and above that volume, the price was negotiated annually (Market Tonnage). [3] Under that agreement, the Formula Tonnage was invoiced to, and paid for by, Alba. [4] | 7. 1993 was the first year the supply exceeded 600,000 m/t and in which Market Tonnage was supplied. In this year, AoA commenced to supply the Market Tonnage through an entity associated with Mr Dahdaleh (a VPD Entity). [5] While the 1990 Supply Agreement contemplated some of the supplies may be made through an agent or distributor at AoAs nomination, the VPD Entity was neither a party to the 1990 Supply Agreement nor had been nominated under it. [6] The VPD Entity was not associated with AoA through shareholding or common directorships. [7] | 8. In 1993, the invoices for the Market Tonnage were invoiced to the VPD Entity and the VPD Entity was liable to pay AoA. [8] Other than these invoices, the terms on which the Market Tonnage was supplied to the VPD Entity were not put in writing. [9] The VPD entity on-sold the alumina to Alba. This arrangement continued throughout 1994 and 1995. | 9. In 1996, AoA entered into another agreement with Alba to vary the terms of the 1990 Supply Agreement. [10] On the same day, AoA entered into a sales agreement with a VPD Entity for the supply of Market Tonnage from 1 January 1997 to 31 December 2000. [11] This agreement was superseded by another agreement entered into 3 months later (1996 Alumet Supply Agreement) pursuant to which AoA agreed to supply Market Tonnage to a VPD Entity from 1 January 1997 to 31 December 2001. [12] | 10. Under the 1996 Alumet Supply Agreement, there was no longer an annual negotiation of prices for the Market Tonnage. Instead [13] : • For 1997, the price was fixed at US$65 m/t. [14] • For 1998 to 2001, a formula applied to quantities up to and including 375,000 m/t. • For annual quantities over 375,000 m/t, Alcoa and the VPD Entity would agree on pricing based on global alumina market conditions. | • For 1997, the price was fixed at US$65 m/t. [14] • For 1998 to 2001, a formula applied to quantities up to and including 375,000 m/t. • For annual quantities over 375,000 m/t, Alcoa and the VPD Entity would agree on pricing based on global alumina market conditions. | 11. During the period 1997 to 2001 [15] , Formula Tonnage was invoiced to Alba pursuant to the 1990 Supply Agreement (as amended) and Market Tonnage was invoiced to the VPD Entity under the 1996 Alumet Supply Agreement. [16] The VPD Entity on-sold the alumina to Alba. | 12. During the period 1993 to 2001, both types of tonnages were commingled on the same ship and sent to Bahrain. | 13. In 2002, AoA and a VPD Entity entered into a 3-year Distribution Agreement for all alumina to be provided to Alba. [17] AoA no longer had a supply contract with Alba. [18] | 14. In 2005, AoA and a VPD Entity entered into a 10-year Distribution Agreement. This was terminated in 2009. [19] | 15. Throughout 1993 to 2009, the price at which the VPD Entities sold the alumina to Alba was not known to AoA. [20] Some of the invoices issued by the VPD Entities to Alba were set out by the Tribunal. They show that Alba was paying the VPD Entity for the Market Tonnage between 18.9% and 109.2% more than the price paid by the VPD Entities to AoA for the same alumina. [21] | 16. In the US the Department of Justice brought criminal proceedings against AoA's related company, Alcoa World Alumina LLC (AWA). [22] In 2014, AWA entered into a plea agreement whereby it pleaded guilty to one count of violating the Foreign Corrupt Practices Act 1977 (USA). [23] | 17. Administrative proceedings were also brought by the US Securities and Exchange Commission, Alcoa Inc, the US parent of AoA, submitted an offer of settlement and consented to findings of fact. Alcoa Inc's offer of settlement records that between 1989 and 2009 AoA and AWA 'retained a consultant to acts as their middleman in connection with sales of alumina to Alba and knew or consciously disregarded the fact that the relationship with the consultant was designed to generate funds that facilitate corrupt payments to Bahraini officials'. [24] Further, '[o]n sales where the consultant acted as purported distributor, no legitimate services were provided to justify the role of the consultant as distributor'. [25] | 18. After an audit, the Commissioner issued amended assessments for the Relevant Years. The amended assessments were issued on the basis of determinations under Division 13 for the 1993 to 1995 and 1997 to 2009 years. The Commissioner adjusted the consideration received for the Market Tonnage. The Commissioner did not adjust the prices of the sales to Alba of Formula Tonnage as there was no evidence that these sales produced a less than arm's length consideration as a result of non-arm's length dealings. | 19. AoA objected to the amended assessments. The Commissioner disallowed the objections and AoA sought review by the Tribunal. | 20. The Commissioner instructed its expert witnesses to prepare reports to opine on the arm's length consideration in respect only of the supplies between AoA and the VPD Entities. [26] AoA instructed its expert witnesses to prepare reports to opine on the arm's length consideration on the basis that where the alumina was supplied under 2 contracts, they should be construed as governing one overall commercial arrangement for the supply of alumina to Alba. [27] | 21. On 30 April 2025, the Tribunal handed down a decision finding that AoA had proved the assessments were not excessive. The Commissioner did not appeal this decision.",,"Burden of proof: 22. The Tribunal decided that, consistent with the reasoning in Binetter v Commissioner of Taxation [2016] FCAFC 163 and in accordance with section 14ZZK of the Taxation Administration Act 1953, it was for the taxpayer to prove that the parties were dealing at arm's length. [28] | Dealing at arm's length: 23. The Tribunal decided that subsection 136AD(1) did not require that the parties to the transaction must be group members or otherwise be commonly controlled. [29] 24. The Tribunal agreed with the Commissioner's contention that facilitating the payments of bribes is inconsistent with an arm's length dealing. [30] 25. The Tribunal further decided that AoA had not proved that it was dealing at arm's length with the VPD Entities. The Tribunal rejected the taxpayer's submission that little or no weight should be given to the Offer of Settlement, findings by the US Securities and Exchange Commission and agreed Statement of Facts in the criminal proceedings. [31] The Tribunal did not itself make a positive finding that AoA 'knew of or consciously disregarded' that the VPD entities were inserted to facilitate bribes. [32] | The relevant supply and the relevant international agreement: 26. This issue is relevant only to the 1993 to 2001 period during which AoA invoiced Alba and the VPD Entities separately and, in respect of the period 1997 to 2001, there existed separate written contracts. 27. The Commissioner's case was that under paragraph 136AD(1)(a), the relevant 'supply' was the supply of alumina to the VPD Entities and that this occurred under an 'international agreement' which did not incorporate the terms of any agreement by which AoA sold alumina to Alba. 28. The Tribunal agreed that the 'supply' for the purposes of paragraph 136AD(1)(a) was the supply to the VPD entities. [33] However, the Tribunal decided that the 'international agreement' was a tripartite agreement which included the terms of the 1990 Supply Agreement. [34] | Depersonalisation: 29. The Tribunal said that the depersonalisation required meant neither 'utter disembodiment' nor a party 'standing entirely in the shoes of the taxpayer'. [35] They found that what was appropriate in this transaction was to consider a transaction between AoA and the VPD Entities that involved no bribery or corruption but still retained the supply by AoA to Alba of Formula Tonnage at a price higher than the Market Tonnage as part of the 'commercial context'. [36] They considered that the appropriate degree of depersonalisation did not require that the dealings with Alba be removed as a characteristic. [37] 30. The Tribunal found that to ignore the Formula Tonnage was to 'change an integral aspect of the actual supply by Alcoa'. [38] They further found that there was substantial evidence that the prices had been negotiated in tandem. [39] | Arm's length consideration: 31. Having found that the relevant international agreement was a tripartite arrangement and that the supply of Formula Tonnage and Market Tonnage was inextricably linked, the Tribunal considered that the relevant hypothetical had to have the same characteristics. [40] The Tribunal went on to conclude that the Formula Tonnage could not be ignored for the purposes of determining whether AoA received less than arm's length consideration. [41] 41 They further concluded that irrespective of the view of what the relevant 'supply' and 'international agreement' was, the consideration for the Market Tonnage encompassed the promises made regarding both the Market Tonnage and Formula Tonnage. [42] 32. The Tribunal went on to find that the approach adopted by the expert witnesses for AoA was to be preferred for the period 1993 to 2001. [43] They concluded that the evidence of those experts established that the consideration received in respect of Market Tonnage, while low on its own, was not less than arm's length when considered in the context of the contemporaneous supply of Formula Tonnage. [44] The relevant comparator was therefore the 'average of the prices for Market Tonnage and Formula Tonnage'. [45] For this period, the Tribunal then appeared to rely on a combination of the arm's length prices opined by the industry expert for the Commissioner, applied to the combined actual consideration, and the arm's length prices opined by the industry expert for AoA. [46] 33. In respect of the period 2002 to 2009, the Tribunal also concluded that the consideration received was not less than arm's length consideration. [47]","Burden of proof | 34. We agree that it is for the taxpayer to prove that the parties were dealing at arm's length. | Dealing at arm's length | 35. We agree that the concept of 'dealing at arm's length' does not require there to be common control or other association. The transfer pricing laws are directed to where profits have been shifted overseas in circumstances where they ought to have been taxable in Australia. This is regardless of whether it can be identified that some other entity within a group of entities associated through shareholding or directorship received the 'shifted' profits. [48] | 36. We agree with the Tribunal's view that parties to an arrangement designed to facilitate bribery and corruption are not dealing at arm's length. The concept of an arm's length dealing does not encompass illegal bribes regardless of how commercially advantageous or otherwise they may be. | The relevant supply and the relevant international agreement | 37. The Commissioner took a different view to the one found by the Tribunal regarding the identification of the 'international agreement', and did not consider that the Market Tonnage supplies were made under a tripartite 'international agreement' which encompassed the terms and conditions upon which the supplies of Formula Tonnage were made. While the Tribunal noted that there was 'some force' [49] to the Commissioner's contentions in this regard, they ultimately identified the 'international agreement' differently. | 38. This aspect of the decision of the Tribunal is unlikely to impact future Division 13 cases. The arrangement that gave rise to dispute regarding the nature of the relevant international agreement was very unusual. | 39. If other arrangements did arise in which it is necessary to determine whether 2 separate contracts form the one 'international agreement' for the purposes of paragraph 136AD(1)(a), we will consider the terms, objects and circumstances of those agreements, and the agreement under which the obligation to supply the property arises, on a case-by-case basis. | Depersonalisation | 40. We will continue to apply the approach set out in Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCAFC 62, Commissioner of Taxation v Glencore Investment Pty Ltd [2020] FCAFC 187 and Singapore Telecom Australia Investments Pty Ltd v Commissioner of Taxation [2024] FCAFC 29 at [134]. In particular, we will be guided by the view that 'objective attributes or features ... should be included' and that the focus is not on the 'subjective or special factors of the parties involved'. [50] | Arm's length consideration | 41. The Tribunal's finding of the relevant 'consideration' flowed from its view of the international agreement and the relevant degree of depersonalisation to apply when considering the hypothetical agreement. This led to its acceptance that the right approach was to compare the arm's length consideration with the average of the consideration received for the Market Tonnage and Formula Tonnage. | 42. We will consider the totality of evidence to establish the arm's length conditions that might reasonably be expected to operate and the arm's length consideration. Noting the highly unusual facts attending these transactions, we do not consider that the Tribunal's findings and approach on these facts requires any alteration to our general approach in this regard.",43. This decision has no implications for our advice and guidance products.,TAA 1953 14ZZK | Foreign Corrupt Practices Act 1977 | (USA) | 2025 ATC 10-754 | 2016 ATC 20-593 | 2020 ATC 20-770 | 2017 ATC 20-615 | 99 ATC 5138 | 2024 ATC 20-897 | 2010 ATC 20-190,ITAA 1936 former Div 13 TAA 1953 14ZZK TAA 1953 136AD(1) TAA 1953 136AD(1)(a) Foreign Corrupt Practices Act 1977 (USA),Alcoa of Australia Ltd and Commissioner of Taxation [2025] ARTA 482 2025 ATC 10-754 Binetter v Commissioner of Taxation [2016] FCAFC 163 249 FCR 534 2016 ATC 20-593 104 ATR 145 (2016) 346 ALJR 357 Commissioner of Taxation v Glencore Investment Pty Ltd [2020] FCAFC 187 281 FCR 219 2020 ATC 20-770 Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCAFC 62 251 FCR 40 2017 ATC 20-615 105 ATR 599 (2017) 345 ALJR 570 San Remo Macaroni Co v Commissioner of Taxation [1999] FCA 1468 99 ATC 5138 43 ATR 53 Singapore Telecom Australia Investments Pty Ltd v Commissioner of Taxation [2024] FCAFC 29 302 FCR 192 2024 ATC 20-897 118 ATR 323 SNF (Australia) Pty Ltd v Commissioner of Taxation [2010] FCA 635 2010 ATC 20-190 79 ATR 193,,,False,https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2022/3549-3564/00001,"ATO view of this decision | Implications for affected advice or guidance | Danielle.Ellershaw@ato.gov.au | Commissioner of Taxation 27 August 2026 | [7] At [3]. None of the VPD Entities referenced in this Decision impact statement were associated with AoA through shareholding or common directorships. There were a number of VPD Entities involved throughout the Relevant Years. They are all referred to as a VPD Entity or, collectively, as VPD Entities. | [15] No Market Tonnage was supplied in 1996 as AoA and the VPD Entity did not reach agreement as to price: at [432]. | [17] At [472] and [484-485]. | [44] At [416] in respect of the period 1993 to 1995 and at [468] for the period 1997 to 2001. | [48] See further San Remo Macaroni Co v Commissioner of Taxation [1999] FCA 1468, at [65], per Hill J. | [50] Commissioner of Taxation v Glencore Investment Pty Ltd [2020] FCAFC 187 at [178], per Middleton and Steward JJ, endorsing Middleton J in SNF (Australia) Pty Ltd v Commissioner of Taxation [2010] FCA 635 at [44]."